Taxpayer Remedies: Canada v. United States

• Published date: 11 January 2022
• Law Firm: SpenceDrake Tax Law
• Author: Mr Cris Best

In Leroux v. Canada Revenue Agency 2012 BCCA 63 (CanLII), a British Columbia Supreme Court judge ruled that the Canada Revenue Agency ("CRA") owed a duty of care to the plaintiff taxpayer and that in some instances CRA acted negligently. This included the imposition of gross negligence penalties for alleged behaviour justifying CRA's reassessment of statute-barred years.

The Leroux decision was the first time a Canadian court found a duty of care to exist in a claim against CRA. However, the judge also ruled that the plaintiff did not establish causation and was not entitled to damages or costs. According to the BC court, it was not clear that the actions of CRA resulted in the plaintiff's massive damages. Most experienced tax practitioners would disagree. And since the Leroux decision, Canadian courts have varied on the duty of care question. It is still not firmly established in Canadian law; a Supreme Court of Canada decision is necessary.

Taking into consideration the differing political contexts of Canada and the United States, you might assume that the United States, because of its small government bent, provides greater recourse for the injured in the area of tax law and administration. If so, you are correct. Canadian taxpayers are relatively limited in their ability to obtain compensation for damages as a result of the actions of CRA. And in the few successful cases, CRA has fought the taxpayer every step of the way. In contrast, Americans can avail themselves of multiple, yet imperfect, options if damages are suffered due to actions of the Internal Revenue Service ("IRS").

Canada

A frustrating example, for a democracy, is taken from the Auditor General of Canada's review of CRA operations in the 2018 tax year. The data reviewed in that particular year demonstrated that CRA auditors ended the majority of their audits near CRA's tax revenue target deadlines. In other words, if a...