This decision is most interesting to lawyers involved in tax litigation because it details:
- the proper practice for judicial review applications and
- when it’s proper to ask for judicial review in the Federal Court and when, instead, you must file an objection and appeal through the Tax Court of Canada.
CRA taxpayer relief discretion is one of the common areas for judicial review in tax law. This case, JP Morgan, was not about taxpayer relief though. Rather, JP Morgan felt that the Minister of National Revenue (CRA) had “departed from an administrative policy when she assessed it for tax under Part XIII of the Income Tax Act...” (Para. 2)
On that topic of CRA’s deviation from normal policy, the FCA made this helpful comment:
“Departures from policies. Changes in policies or departures from policies, by themselves, do not constitute an abuse of discretion or make a decision unreasonable … Administrative decision-makers are bound to apply the law of the land, not their administrative policies, to the facts before them. For example, in the tax context, information bulletins do not create estoppels…” (Para. 75)
Some taxpayers complain that CRA has abused its discretion in making an assessment against them. On this, the FCA said:
“parties have alleged that the Minister abused her discretion in making an assessment. To date, all such claims have been dismissed as not being cognizable because in assessing the tax liability of a taxpayer, the Minister generally has no discretion to exercise and, indeed, no discretion to abuse …
‘the Minister has a statutory duty to assess the amount of tax payable on the facts as he finds them in accordance with the law as he understands it’ …
“… This Court cannot stop the Minister from carrying out this duty …” (Paras. 77-78)
For general principles on when judicial review is proper, the FCA relied on the SCC decision Canada v. Addison & Leyen Ltd., 2007 SCC 33, in which the SCC said:
[8] “Judicial review is available, provided the matter is not otherwise appealable. It is also available to control abuses of power, including abusive delay.”
[11] “The integrity and efficacy of the system of tax assessments and appeals should be preserved. Parliament has set up a complex structure to deal with a multitude of tax-related claims and this structure relies on an independent and specialized court, the Tax Court of Canada. Judicial review should not be used to develop a new form of incidental litigation designed to circumvent the system of tax appeals established by Parliament and the jurisdiction of the Tax Court. Judicial review should remain a remedy of last resort in this context.”
Based on those SCC principles, the FCA said that judicial review is not proper where the taxpayer questions:
- The validity of the assessment (i.e., is the assessment right or wrong, on the facts and law)
- The admissibility of evidence: “For example, the Tax Court is an adequate alternative forum for a ruling on the admissibility of the evidence obtained by the Minister as a result of a violation of the Charter…” (This complaint comes up where CRA assesses a taxpayer as a result of a criminal investigation for tax evasion.)
- Tax Court procedure and whether it is being abused.
- Whether CRA acted improperly in making the assessment. (But, at the same time, the FCA said: “The Tax Court does not have jurisdiction on an appeal to set aside an assessment on the basis of reprehensible conduct by the Minister leading up to the assessment, such as abuse of power or unfairness…”) (Paras. 82-83)
If you feel that you were improperly treated, you have a remedy: You can sue CRA in a provincial court or the Federal Court. (This is a lawsuit, not a judicial review application.)
“For example, breaches of agreements, careless, malicious or fraudulent actions, inexcusable delay, and abuses of process may be redressed by way of actions [i.e., lawsuits] for breach of contract, regulatory negligence, negligent misrepresentation, fraud, abuse of process, or misfeasance in public office …” (Para. 89)
Finally, the FCA laid out the chief areas in tax where you might apply for judicial review:
“[96] There are areas, well-recognized in the case law, where judicial review may potentially be had in tax matters. Examples include discretionary decisions under the fairness provisions, assessments that are purely discretionary (such as the assessment under subsection 152(4.2) …), and conduct during collection matters that is not acceptable or defensible on the facts and the law …”
Though this is a short list, it is important that it includes collection action; as it leaves open a remedy for taxpayers who feel that a CRA Collections officer is abusing the collection powers.
JP Morgan’s complaint was that CRA abused its discretion by not following its own policies that would restrict an assessment to three years (the current year plus two prior). Instead, CRA assessed JP Morgan for seven years. The FCA said that there is no rule that a federal body abuses its discretion by not following its own policies. (Para. 107). In any case, the FCA said that the Tax Court of Canada is the only court which could grant a remedy. (Paras. 110-111.)
See Canada (National Revenue) v. JP Morgan Asset Management (Canada) Inc. (2013 FCA, Stratas)