Canada: How And Where To Litigate With The CRA - Canadian Tax Lawyer Comment

Last Updated: January 11 2018
Article by David Rotfleisch

Introduction – When and Where can you Sue the CRA in Tort?

A taxpayer's interaction with the Canada Revenue Agency (the "CRA") can give rise to a variety of emotions and results: some good, some bad, and some very bad. While the Minister of National Revenue (the "Minister") is the CRA's representative, a taxpayer will always be dealing with one or more of the CRA's many tax personnel and not the Minister herself. The result of an interaction with CRA tax personnel is usually a tax bill or a tax payment problem.

The formal term for a tax bill is called a Notice of Assessment (a "Tax Assessment") and once a taxpayer has been assessed by the CRA they can put the amount of tax they have been assessed into dispute. A taxpayer must file a Notice of Objection within statutory timelines to dispute a Tax Assessment. Once the Notice of Objection is filed, the taxpayer can either proceed through the CRA's administrative process or appeal to the Tax Court of Canada (the "Tax Court") directly. A direct appeal to Tax Court can be made 90 days after a Tax Assessment is issued if the CRA has not vacated or confirmed the Tax Assessment or reassessed the taxpayer.

Being assessed by the CRA can be a long, unpleasant, and complicated process, especially if a tax audit is involved. Most taxpayers only want to dispute the amount of tax they've been assessed but, in extraordinary circumstances, the taxpayer may want to sue the CRA's personnel in tort for wrongful acts as well. A tort is a civil wrong (as opposed to a criminal one) therefore the taxpayer must bring the claim to a court with civil jurisdiction.

Tort actions against the CRA have been raised by taxpayers with varying levels of success. Often, once the respondent (the CRA) has brought a motion before the court, these tort claims will be struck from the taxpayer's pleadings. Tort claims that have been brought against the CRA include misfeasance in public office, malicious prosecution, negligence, failure to implement a judicial decree, and abuse of process. Please note that a discussion on the requisite elements for these torts is outside of the scope of this article.

Many taxpayer tort claims have failed at the pleadings stage; however, in several recent decisions, actions have proceeded to trial to benefit from a full factual record. For example, the Ontario Court of Appeal in McCreight v Canada (Attorney General) allowed the taxpayer's appeal and permitted the actions of negligence and abuse of process to proceed to trial after they had been struck from pleadings by the motion judge. There were no further decisions published, suggesting that an out of court settlement was reached by CRA and the taxpayer.

Similarly, in Leroux v Canada Revenue Agency ("Leroux"), the taxpayer's claims of negligence and misfeasance in public office were tried. At trial, the court determined that the CRA owed the taxpayer a private law duty of care and, with respect to the way in which penalties for income tax were considered and assessed, that the standard of care was breached. Unfortunately, the taxpayer did not receive a damage award as all elements of the tort of negligence were not made out.

Other lawsuits followed the Leroux decision. In 2015, a Calgary based construction company initiated a lawsuit against the CRA seeking $32,000,000 for alleged damages to its business as well as mental anguish caused by the CRA's actions. The concept of a private law duty of care being owed by the CRA to taxpayers is an interesting one and more commentary on the Leroux case can be found here. This article examines which courts have the ability, or jurisdiction, to hear a tort claim against the CRA.

The Tax Court of Canada – No Civil (Tort) Jurisdiction

The Tax Court is a statutory court and does not have inherent jurisdiction, which means it has specific limited cases that it can try. It is a "creature of statute" and its decision making powers are limited to those granted by its enabling statute The Tax Court of Canada Act (the "TCCA"). Subsection 12(1) of the TCCA grants the Tax Court exclusive original jurisdiction to hear appeals on matters arising under the following pieces of legislation when references or appeals to the Tax Court are provided for in those Acts:

  • Air Travellers Security Charge Act
  • Canada Pension Plan
  • Cultural Property Export and Import Act
  • Customs Act (Part V.1)
  • Employment Insurance Act
  • Excise Act, 2001
  • Excise Tax Act (Part IX)
  • Income Tax Act
  • Old Age Security Act
  • Petroleum and Gas Revenue Tax Act
  • Softwood Lumber Product Export Charge Act, 2006

Take for example an appeal under the Income Tax Act. Pursuant to s. 12(1), the TCCA grants the Tax Court exclusive original jurisdiction over the appeal because appeals to the Tax Court are provided for specifically in s.169 of Income Tax Act. Under s. 169 a taxpayer may appeal to the Tax Court to have a Tax Assessment "vacated or varied." The Tax Court's jurisdiction is limited to disputes over the amount of tax assessed by the CRA against a taxpayer. The conduct of CRA tax employees in the process of issuing a Tax Assessment or collecting on it cannot be heard in the Tax Court.

The Federal Court of Appeal in Ereiser v. Canada concluded that the Tax Court does not have civil jurisdiction. Mr. Ereiser's principal ground of appeal to the Tax Court was that his reassessments should be vacated because they were issued as the result of misfeasance in public office on the part of CRA investigators. The Tax Court will vacate an assessment if it is not valid or not correct. A valid tax assessment is compliant with the procedural provisions of the ITA. A correct tax assessment is where the amount of tax assessed is based on the applicable provisions of the ITA, correctly interpreted and applied to the facts. As a result, the Tax Court cannot vacate an assessment solely on the basis of wrongful conduct of a tax official authorizing it. Mr. Ereiser's principal ground of appeal was not a matter that could be decided in Tax Court and was properly struck from his pleadings; however, the court determined that Mr. Ereiser could "seek a remedy in the Federal Court or the superior court of a province... if he [had] a tort claim or an administrative law claim arising from the wrongful conduct of one or more tax officials."

Provincial Superior Courts – Civil (Tort) Jurisdiction

The jurisdiction of provincial superior courts does not flow from legislation – its jurisdiction is inherent. The provincial superior courts have "traditionally exercised general jurisdiction over all matters of a civil or criminal nature" and continue to do so today. The inherent substantial jurisdiction of the provincial superior courts arises from the presumption that "if there is a justiciable right, then there must be a court competent to vindicate that right."

The jurisdiction of the provincial superior courts can be denied via explicit legislative language. For example, s. 12(1) of the TCCA provides the Tax Court with exclusive original jurisdiction over particular appeals. The explicit language in the TCCA ousts the jurisdiction of the provincial superior courts.

The TCCA does not enable the Tax Court to decide tort actions against CRA employees. Since the jurisdiction of provincial superior court is not explicitly ousted by legislation, a taxpayer may bring a tort claim against the CRA in any provincial superior court.

The Federal Court – Civil (Tort) Jurisdiction for Cases Against the Crown Only

In addition to the superior provincial courts, the Federal Court has jurisdiction to hear tort cases against the CRA. The Federal Court does not have inherent jurisdiction and is a statutory court (like the Tax Court). The enabling statute of the Federal Court is the Federal Courts Act (the "FCA") and section 17(1) of the FCA provides the Federal Court with concurrent original jurisdiction in all cases in which relief is claimed against the crown.

The FCA does not grant the Federal Court with exclusive jurisdiction over all cases where relief is claimed against the crown therefore, the jurisdiction of the provincial superior courts is not ousted by statute. The Federal Court has concurrent jurisdiction with the provincial superior courts meaning that tort claims can be brought against the CRA in either forum. This leads to forum shopping and a Canadian tax lawyer will have their case heard in the court that they perceive is most favorable to their client.

Tax Tip – Claims Against CRA

Many taxpayers feel that they have been wronged by the CRA but the actions of the CRA employees do not constitute tortious conduct in the large majority of cases. In fact, there has yet to be a published decision wherein the CRA was found liable to a taxpayer in negligence. A taxpayer may be more successful in other tort claims such as misfeasance in public office.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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