How To Sue The CRA

INTRODUCTION

A taxpayer's interaction with the Canada Revenue Agency (the "CRA") can give rise to two distinct legal proceedings. The first is a court proceeding to determine whether the amount of tax assessed is correct. The second is a court proceeding to challenge the behaviour of the CRA's personnel in carrying out their work.1

This article is concerned with the second type of court proceeding: instances where the actions of the CRA (or provincial revenue authorities) are called into question. Generally, the taxpayers lose these lawsuits. Many of these types of lawsuits are probably frivolous: CRA personnel are generally reasonable. There are, however, a number of suits in which CRA personnel have engaged in behaviours that are fundamentally incompatible with the rule of law and shock the conscience of the reader.

Only recently have taxpayers had some success against the revenue authorities in civil suits. In these cases, the taxpayer has typically been rendered impecunious. The result is an injustice – a pauper plaintiff fighting Leviathan. These cases are very much manifestations of Thomas Hobbes, Friedrich Hayek and John Rawl's reflections on the coercive power of the state. Only with Archambault and Leroux, each considered below, does it now appear that courts may be willing to take the CRA and provincial revenue authorities to task for instances of misconduct.

LAWSUIT SHOULD NOT COLLATERALLY ATTACK UNDERLYING ASSESSMENT

It is important to distinguish between taxes assessed and the conduct of the CRA. They are two very different things, although the facts are generally intertwined. While the CRA may act unfairly or even illegally in arriving at an assessment or reassessment of taxes, that conduct is generally not relevant to determining whether the underlying tax liability is valid. A survey of the case law reveals that taxpayers often conflate these issues.

Indeed, in Main Rehabilitation Co. v. Canada,2 the Federal Court of Appeal has explained that section 169 of the Income Tax Act (the "ITA"),3 which provides the statutory basis of appeals to the Tax Court of Canada (the "TCC"), is the vehicle by which the TCC establishes the validity or invalidity of an assessment. The issue on appeal is not the process by which the assessment is established.4 What is in issue at the TCC is whether amounts can be properly shown to be owing in accordance with the provisions of the ITA.5 This logic undoubtedly extends to Excise Tax Act assessments and reassessments.

STATUTORY SCHEME AND CONCURRENT JURISDICTION

The case law reviewed herein reveals that civil actions taken against the CRA are generally launched in provincial superior courts. However, there exists concurrent jurisdiction with the Federal Court of Canada. It is important that an aggrieved taxpayer not attempt to commence a civil suit (or attempt to graft the underpinnings of a civil suit) onto a proceeding at the TCC. This is because the TCC lacks the jurisdiction to grant any such relief.

It remains to be seen – although the author is very doubtful of the same – whether conduct so egregious by the CRA would ever come before the TCC that the TCC would vary or set aside an assessment on the basis of the impropriety or misconduct of the CRA. In any case, the jurisdiction of the TCC is specifically circumscribed by the Tax Court of Canada Act, which limits the court to the consideration of matters arising, generally speaking, from federal revenue statutes.6As such, a decision of the TCC rendered on the basis of CRA impropriety would be an error of law.7

Cases against the CRA typically allege negligence and misfeasance. These claims can be brought in either provincial superior court or the Federal Court of Canada. If the claim is brought in a provincial superior court, then the province of residence of the taxpayer would be the appropriate forum in which to launch the claim, unless circumstances would otherwise dictate.

The Supreme Court of Canada has explicitly endorsed concurrent jurisdiction.8The Crown Liability and Proceedings Act (the "CLPA") provides for concurrent jurisdiction.9 Under the...