CRA Collections officers have great powers and sometimes they use them harshly, where they feel a taxpayer has been dishonest and especially, as here, where the tax debtor had been involved in drug trafficking.
Faced with harsh CRA Collections practices, people have asked the Federal Court judges to intervene to stop or reverse CRA’s action. (The process is called “judicial review”.) But, as this case shows, the FC judges are reluctant to get involved with Collections issues because jurisdiction over federal tax assessments rests with the Tax Court of Canada:
“[J]udicial review of the conduct of tax officials should be sparingly authorized, and only when said conduct is clearly beyond the ordinary exercise of discretion granted to them by the statutory framework at issue. … in order to ensure that the Federal Court is not used as a means of collateral attack on issues that are properly before the Tax Court.” (Para. 28.)
In this case, the RCMP arrested Mr. Johnson and another person for cocaine and other drug trafficking. The RCMP contacted a CRA Collections officer, who treated the traffickers as a partnership and made a rushed GST assessment of the partnership and of Mr. Johnson. With that assessment made, CRA began to seize assets.
Mr. Johnson said that CRA hadn’t properly assessed him; it lacked facts to support the assessment, which was arbitrary, and, he said, not properly made under s. 300 of the ETA (the GST law). (Section 300 simply says that CRA must send a person a notice of the assessment, after making it.) Justice Manson refused to consider this objection: It was a “collateral attack” on the assessment; whereas the proper place to attack the assessment was the Tax Court of Canada. (Paras. 31-32.)
Mr. Johnson also complained that the CRA started its collection action before sending the Notice of Assessment. Although Manson J. thought this also was a TCC issue, he said that the ETA doesn’t require CRA to send a notice of assessment before collecting: ETA s. 315(1). (Para. 36)
Mr. Johnson’s counsel had a technical argument about the jeopardy collection order rule in ETA s. 322.1 but the argument misread the rule. (Para. 43.)
Also, he argued that CRA acted in bad faith when it issued follow-up reassessments. But, the allegations were “speculative and would require a good deal of conjecture in order to be accepted” and so the FC rejected them. (Para. 50.) For similar reasons, Manson J. rejected the argument that the Collections officer was improperly biased. (Paras. 56-57)
The lesson for us is that aggressive CRA action is not “bad faith” or “biased” application of the law. But more broadly, CRA has a great deal of power in collecting tax debts, especially those under the GST law or for employer payroll source deductions and contributions, where there is no statutory “stay” to prevent collection until the end of the objection and TCC appeal process. It will rarely be practical to try to deal with these powers by a judicial review application. (One might, in some cases, have a chance recovering damages in provincial court, and there are cases in process now where taxpayers are seeking that remedy.)