canadian tax journal, vol. 56, no. 3, 2008

canadian tax journal / revue fiscale canadienne (2008) vol. 56, no 3, 661 - 707

661

The Dividing Line Between the Jurisdictions of the Tax Court of Canada and Other Superior Courts

David Jacyk*

P r é c i s

Le droit fiscal est sans aucun doute l’une des branches du droit les plus exigeantes et les plus complexes au Canada. On pourrait penser qu’en matière de droit fiscal, la question de la juridiction des tribunaux se pose très simplement en ces termes : quel tribunal peut statuer sur les affaires qui concernent l’administration de la législation fiscale? Pourtant, cette question à elle seule a fait l’objet d’un grand nombre de litiges depuis des décennies, devant différents tribunaux de première instance et d’appel partout au Canada, ce qui montre bien la complexité de la question de la compétence des tribunaux dans un état fédéral, et ce, même dans un domaine de droit comme la fiscalité qui est pourtant bien circonscrit.

L’abondance de jurisprudence sur la question de la juridiction est particulièrement importante depuis quelques années, et elle comporte plusieurs décisions des cours d’appel qui ont contribué à éclaircir davantage cette question. Ce nouvel éclairage a donné lieu à des développements très appréciés. En reconstituant l’évolution du droit dans ce domaine, le présent article brosse un portrait détaillé et complet du droit et propose une analyse qui s’appuie sur les étapes suivantes :

n l’examen de la structure des tribunaux fédéraux et en fiscalité;n la reconstitution de l’évolution de la jurisprudence aussi bien avant qu’après la

réorganisation au fédéral du réseau des cours d’appel en fiscalité de 1991;n la prise en compte des décisions des tribunaux provinciaux qui se sont penchés sur

cette question de façon indépendante du réseau des tribunaux fédéraux;n la prise en compte de l’ensemble des décisions en matière de rectification, un

domaine qui a donné lieu à mon avis à des anomalies, mais des résultats tout de même gérables et prévisibles;

* OftheDepartmentofJustice,Ottawa.TheviewsexpressedinthisarticleareminealoneandarenottobeattributedinanywaytotheDepartmentofJustice,theCanadaRevenueAgency,orthegovernmentofCanadagenerally.Thearticleprovidesascholarlyoverviewofthelawandisnotintendedtobelegaladvice;readersshouldconsulttherelevantcaselawandlegislation,orobtainanindependentprofessionalopinion,inconsideringhowthelawmayapplyinaparticularcase.Ithankthemanyindividualswhorevieweddraftsofthearticle,andparticularlyLisaMacdonellforherinsightfulcommentsonthesubjectmatter.

662 n canadian tax journal / revue fiscale canadienne (2008) vol. 56, no 3

n la prise en compte des développements dans les décisions récentes en matière d’abus de procédure et de révision judiciaire, qui ont, il me semble, bel et bien apporté plus de précisions sur les paramètres détaillés des compétences de la Cour canadienne de l’impôt et des autres cours supérieures du Canada;

n la présentation d’un résumé des principes extraits de la jurisprudence concernant la démarcation des compétences entre la Cour canadienne de l’impôt et les autres cours supérieures au Canada.

A b s t r A c t

Tax law is arguably one of the most challenging and complicated areas of the law in Canada. One might expect that one of the simplest and most straightforward questions in the area of tax law would be that of jurisdiction: Which court can adjudicate issues relating to the administration of tax legislation? Surprisingly, this very question has been the subject matter of much litigation for decades, in trial and appellate courts across Canada, illustrating the complexity of the issue of court jurisdiction in the context of a federal state, even in a well-defined area of the law such as taxation.

The volume of jurisprudence on the issue of jurisdiction has been high in the last few years, and includes several decisions from appellate courts that have brought greater clarity to this issue. The clarity brought to bear is a welcome development. This article provides a comprehensive review and analysis of the law on jurisdiction by

n reviewing the structure of the Tax Court and the Federal Court;n tracing the development of the case law prior to and following the reorganization of

the federal tax appeal system in 1991;n considering the decisions of provincial courts that have tackled the issue

independently of the federal court system;n considering the body of rectification cases, an area that, I argue, has created

anomalous but nevertheless manageable and predictable results;n considering the developments in recent abuse-of-process and judicial review cases,

which, I suggest, have definitively and emphatically clarified the fine parameters of the jurisdictions of the Tax Court and of the other Canadian superior courts; and

n providing a summary of principles extracted from the jurisprudence regarding the demarcation of jurisdiction between the Tax Court and the other Canadian superior courts.

Keywords: Jurisdiction n court cases n tax court of canada n appeals n federal court n

courts n provincial n rectification

c o n t e n t s

Introduction 663Organization of the Tax Court and the Federal Court 665

Historical Organization 665Scope of a Tax Appeal 667

Federal Court Decisions Before the 1991 Reorganization 668The Federal Court Sets the Parameters 668Impact of Subsection 152(8) of the Income Tax Act 671Distinguishing the Merits of an Assessment from Post-Assessment Liability 673

the jurisdictions of the tax court of canada and other superior courts n 663

intro duc tio n

Whiletaxlawisarguablyoneofthemostchallengingandcomplicatedareasofthelaw in Canada, one might expect the question of the jurisdiction of the variouscourtsovertaxmatterstobequitestraightforward.Statedsimply,whichcourthastheauthoritytoadjudicatethevariousissuesrelatingtotheadministrationoftaxlegislation?Surprisingly,thisveryquestionhasbeenthesubjectmatteroflitigationfordecades,inbothtrialandappellatecourtsacrossCanada.Thevolumeandrangeofcasesinwhichithasarisenillustratesthecomplexityoftheissueofjurisdictioninafederalcontext,eveninsuchawell-definedareaofthelawastaxation.

Infact, it isnotaseasyasonemightthinktodeterminehowcloselyanissuemustrelatetotaxassessmentinordertofallwithinthejurisdictionoftheTaxCourtofCanada.Theimportantdeterminationofwhichcourttogoto,whichformofproceeding(ifany)toinitiate,andwhatkindofrelieftoseekmustbemadeincon-siderationofalltherelevantcaselawinitspropercontext,andinthecontextofthespecificsituation.Overthelastfewyears,therehasbeenaspateofdecisionsfromappellatecourts—includingjudicialreviewcasesintheFederalCourtandabuse-of-process cases—thathaveaddressed thequestionof jurisdiction,bringing furtherclaritytotheproperboundariesofeachcourt’sjurisdiction.

Thevarioustypesoftax-relatedmattersthatwillbediscussedinthisarticlecangenerallybeclassifiedunderthefollowingbroadcategories:

1. mattersthatinvolvetheapplicationofoneormorespecificchargingprovi-sionsthatdetermineataxliabilitywithinaparticulartaxyear,leadingtoafixingofliabilitybyanassessment;

2. mattersrelatingtothecalculationorrecoveryofataxliabilityforataxyearafteritisoriginallyfixedbyanassessment(“collection”matters);

3. proceduralmattersthatareusuallyaddressedbytheprovisionsofthetaxinglegislationandthatrelatetotheminister’sauthoritytoraisetheassessment,

Post-1991 Decisions—Defining the Scope of Tax Appeals 674Refining the Subject Matter of Tax Appeals 675Collection Cases—Revisiting Optical Recording? 677

Jurisdiction of the Tax Court Versus Provincial Superior Courts 680The Tax Court Affirms Its Jurisdiction over Certain Matters Involving Provincial Law 680The Provincial Superior Courts Weigh In 681Provincial Superior Courts Decline Jurisdiction 685Rectification Cases—Equity Finds a Backdoor in Tax Cases? 686

Abuse-of-Process Cases 691The Tax Court on Abuse of Process 692The Federal Court of Appeal Clarifies the Line 694Recent Judicial Review Decisions 697Recent Class Action Cases 700The Addison & Leyen Decision 702

Conclusion 704


suchasthelegaleffectofawaiverpermittingassessmentaftertheexpiryofalimitationperiod,orthevalidityofacertificationunderthetaxinglegislation;

4. mattersrelatingtotheprocessleadingtotheassessment,suchastheconductofanofficialwithintheassessmentprocessorcompliancewithatest-caseagreement;and

5. otherlegalorfactualdeterminationsnormallyresolvedbyprovinciallawthatdefineataxableeventortransactionandthatdictateataxoutcome.

Inordertoascertainthelinesdemarcatingjurisdictioninrelationtothesedif-ferenttypesoftax-relatedmatters,onemustfirstunderstandthehistoryoftheTaxCourtanditsrelationshiptotheFederalCourtandothersuperiorcourts.Accord-ingly,thisarticlebeginswithabriefreviewofthehistoricalstructureofthefederaltaxappeal systemand thecase lawprior to the reorganizationof that system in1991,whichledtothecreationofaTaxCourtwithexclusivejurisdictionovertaxappeals.Thecases fromthiseraare still touchstonedecisions incases involvingjurisdiction,butasIwillexplain,theycannotbereadinisolationfromtherefine-mentsanddevelopmentsinlatercases.Againstthisbackground,Iwillthenreview,inturn,

n thedevelopmentofcaselawinthefirstfewyearsfollowingthereorganizationin1991,whenthecourtsrefinedthesubjectmatterproperlywithinanappealtotheTaxCourt;

n decisionsinthemid-1990srelatingtocollectionmatters;n decisionsoftheprovincialcourtsthathaveconsideredtheissueofjurisdiction

independentlyofthefederalcourtsystem(usuallywithconsistentresults);n decisionsinrectificationcases,whichinmyviewhaveproducedanomalous,

butneverthelessmanageableandpredictable,results;and,finally,n decisions in the recent spateof abuse-of-process and judicial reviewcases,

which,Isuggest,havedefinitivelyandemphaticallyclarifiedthefineparam-etersofthejurisdictionoftheTaxCourtandoftheotherCanadiansuperiorcourts.

Thereviewofthejurisprudenceisorganizedbyamixtureoftopicsandgeneralchronology.Astheoutlineabovesuggests,thevariousissuesrelatingtojurisdictionhaveseemedtoariseindistinctclustersatcertainperiodsoftime,makingitthatmucheasiertotrackthedevelopmentofthelaw.Thereviewofthecaselawincludesaverydetailedanalysisoftherelevantcases,1forseveralreasons.First,acloseanaly-sisofthedecisionshelpstoinformtheprogressanddevelopmentofthelawinthisarea.Second,thebackgroundfactsofeachcaseshedlightonthesometimesfinebut,asIargue,cleardistinctionsdemarcatingjurisdiction.Last,athoroughreview

1 Inote,however,thatIhavealsotriedtolimitthedetailsofeachcasetothosethatareimportanttotheissueofjurisdiction;therefore,thereadershouldconsultthecasebeforedrawinganyconclusionsaboutthefactualcontext.


of the details of each case helps to explain what appear to be irregularities thatmightbesubjecttomisinterpretation.

o rg A niz Atio n o f the tA x co urt A nd the feder A l co urt

Historical Organization2

Priorto1946,theExchequerCourthadexclusiveoriginaljurisdictiontoheartaxappeals.Forashortperiodbetween1946and1950,originaljurisdictionwastrans-ferredtotheIncomeTaxAppealBoard,withappealstotheExchequerCourt.By1950,taxappealsproceededineithertheTaxAppealBoardorthemoreformalEx-chequerCourt.By1971,thejurisdictiontohearappealsunderthefederalIncomeTaxAct,3andothertaxmatters,wassharedbetweentheTaxReviewBoard(whichreplacedtheTaxAppealBoardin1971)4andtheTrialDivisionoftheFederalCourtofCanada(“theFederalCourt”).TheTaxReviewBoardbecametheTaxCourtofCanada(“theTaxCourt”)in1983.5WhereanappealwascommencedintheTaxCourt,thetaxpayerwasentitledtoatrialdenovointheFederalCourt.

Priorto1990,section29oftheFederalCourtAct6precludedarightofjudicialreviewbytheFederalCourtofadecisionofafederalboard,commission,ortribunalundersection18whereParliamenthadexpresslyprovidedforanappealto,amongotherbodies,theFederalCourt.Adecisionofafederalboard,commission,ortri-bunal,includingaminister,couldnotbereviewed,setaside,orotherwisedealtwithtotheextentthatitcouldbeappealedtotheFederalCourt,orunderanotherAct.SincetherewasprovisionforappealsoftaxassessmentstoeithertheFederalCourtortheTaxCourt,section29waseventuallyinterpretedasprecludingjudicialreviewoftheminister’sdecisiontoissueataxassessment.7Ataxpayer’schoiceoftaxappealavenueswasthuslimitedtoanappealtotheTaxCourtoranappealdirectlytotheFederalCourtTrialDivision,sincejudicialreviewundersection18oftheFederalCourtActwasnotavailable.

TheFederalCourtActwasamended in1990,adding (amongotherchanges)section18.1,pertainingtoapplicationstotheFederalCourt for judicialreview,

2 MuchoftheinformationinthissectionhasbeenextractedfromGordonBourgardandRobertMcMechan,Tax Court Practice(Toronto:ThomsonCarswell)(looseleaf )andtheWebsiteoftheTaxCourtofCanada:http://www.tcc-cci.gc.ca/history_e.htm.

3 SC1970-71-72,c.63.Unlessotherwisestated,referencestotheIncomeTaxActinthisarticlearetothecurrentversionofthestatute,RSC1985,c.1(5thSupp.),asamended.

4 TheTaxReviewBoardwasestablishedbyBillC-174,enactedbySC1970-71-72,c.11.

5 TaxCourtofCanadaAct,SC1980-81-82-83,c.158.

6 RSC1985,c.F-7,asamended;renamedtheFederalCourtsAct,SC2002,c.8,section14.

7 SeeBechthold Resources Ltd.,infranote26andtheaccompanyingtext.Thedecisiontoissueanassessmentis,ofcourse,distinctfromotheradministrativedecisionsoftheminister,suchasdecisionsunderthe“fairnesspackage,”forwhichjudicialreviewlieswiththeFederalCourt.See,forexample,Lanno v. CCRA,2005DTC5245(FCA).


andsection18.5,replacingsection29andincludinganexplicitreferencetoappealstotheTaxCourtofCanada.8ThejurisdictionaldividinglinewasreinforcedbythenewTaxCourtofCanadaAct,whichcamefullyintoeffectinJanuary1991.9Sec-tion12establishedtheexclusivejurisdictionoftheTaxCourttohearanddeterminemattersundertheIncomeTaxAct,amongotherstatutes.Taxappealscouldthere-forenolongerbetakentotheTrialDivisionoftheFederalCourt.10Theadditionofsection18.5oftheFederalCourtAct,withitsexplicitreferencetotheTaxCourtofCanada,maintainedthebaronanyjudicialreviewofanassessmentbasedonthetaxappealprovidedforundertheIncomeTaxAct.

TheTaxCourtofCanadawasoriginallyestablishedasastatutorycourt,andwasthereforewithoutanyjurisdictioninequity.11In2003,theCourtsAdministrationServiceActcameintoforce,12establishingtheTaxCourtofCanadaasasuperiorcourtofrecord.Despitethisdevelopmentinthecourt’sstatus,theTaxCourthasgivensomereassurancethatitsnewerroleasasuperiorcourtofrecorddoesnotsignificantlyaffectthenatureofitsjurisdictionovertaxmatters,or,apparently,thedivisionbetweenthejurisdictionsoftheFederalCourtandtheTaxCourt.13TheTaxCourt’sexclusivejurisdictionintaxappealsisthereforestillrestrictedtodetermin-ingthemeritsoftheassessment.

Thisexclusivejurisdictiontodeterminethecorrectnessoftaxassessmentsisnotsurprisinggiventheeffectofsubsection152(8)andsection169oftheIncomeTaxAct,whichtogetherdeemanassessmenttobevalidandbindingunlessvariedorvacatedinaccordancewiththeobjectionandappealprocessundertheAct.Theex-clusivejurisdictionoftheTaxCourtisthereforeestablishedbyacombinationofsubsection152(8)andsection169oftheIncomeTaxAct,section12oftheTaxCourtofCanadaAct,andsections18,18.1,and18.5oftheFederalCourtsAct.

8 8SC1990,c.8,section5.Section29didnotreferspecificallytotheTaxCourtofCanada.Inotherrespects,thewordingofsection18.5andsection29wasessentiallythesame.

9 TaxCourtofCanadaAct,SC1988,c.61.AlthoughgivenroyalassentonSeptember22,1988,onlythosepartsofthestatutethatrelatedtothebenchandtherulescommitteecameintoforceonthatdate.TheotherprovisionsofthenewActwereproclaimedinforceeffectiveJanuary1,1991.

10 Section18.24oftheTaxCourtofCanadaAct,applicabletoappealsinstitutedafterJanuary1,1991.

11 Hamilton v. The Queen,2007DTC121,atparagraph8(TCC);andSmith v. MNR,89DTC299;[1989]1CTC2413(TCC).

12 SC2002,c.8;inforceJuly2,2003.

13 SeePintendre Autos Inc.,infranote69.InGLP NT Corporation,infranote102,CummingJoftheOntarioCourtseemedtosuggestthattheTaxCourt’sabilitytodeterminethelegalstatusofcertainsharesinthecourseofdeterminingataxappealarosefromtheTaxCourt’snewstatusasasuperiorcourtofrecord.However,onthebasisoftheTaxCourtdecisioninRoper,infranote76, decidedbeforetheCourtsAdministrationServiceActcameintoforce,theTaxCourtalreadyhadtheabilitytomakefindingsrelatingtoprovinciallawthatwerenecessaryindeterminingwhethertheassessmentswerevalid.Thesethreedecisionsarediscussedinfurtherdetailbelow,inthetextaccompanyingtherespectivenotereferencescitedhere.


Scope of a Tax Appeal

BeforetryingtodemarcatethejurisdictionoftheTaxCourtagainstthatofothersuperiorcourts,itisimportanttounderstandthegeneralparametersofthetaxap-pealprocess.OneofthetouchstonecasesfromtheeraoftheExchequerCourtistheSupremeCourtofCanadadecisioninJohnston v. Minister of National Revenue.14Thatcaseisoftencitedfortheprinciplethatassumptionsoffactmadebythemin-isterinhispleadingaredeemedtobetrue.Itthusaffectswhathasbeentermeda“reverseonus,”15wherebythetaxpayerisobligedto“demolish”thoseassumptionsinordertoestablishthatthefactsonwhichtheassessmentisbasedwerewrong.16However,theJohnstoncasealsoclarifiedthefunctionoftheTaxCourtwithrespecttoataxassessment.Indiscussingtheissueofonus,RandJstatedthatthecourtcon-siderstheevidenceadducedbeforethecourtevenifthatevidencewasnotbeforetheministeratthetimeoftheassessment.17Ataxappealinthissenseisatrialdenovo,wherethetrieroffactdetermineswhetherornotthetaxpayeradducesenoughevi-dencetosupporthis interpretationoftherelevanttaxingprovision(s).This isofcoursedifferentfromcertainjudicialreviewproceedingswheretheFederalCourtreviewsthereasonablenessoftheminister’sdecision.SinceitisnottheTaxCourt’sfunctiontoreviewthereasonablenessoftheminister’sdecision,18thecourt’sfocusistoconsidertheevidencebeforeittodeterminewhetherornotthetaxpayer’ssitu-ationfellwithinthestatutoryprovisionthatwasappliedbytheministerinmakingtheassessment.19

Asecondcasethatprovidedearlyguidancetothetaxappealprocesswasthe1959TaxAppealBoarddecisioninGuay v. MNR.20Thedecisionconfirmedthattheboardcouldre-examinethefactsbuthadnojurisdictiontocancela legalact involvingrightsfallingwithinthejurisdictionofaprovince.Theboardfoundthatifacontracthadnotbeencancelledbyacourtoftheprovincewithjurisdiction,theministerwasboundbythecontract.Thedecisionthusconfirmedthattheboardcouldnotbe

14 [1948]SCR486.

15 See,forexample,Anchor Pointe Energy Ltd. v. The Queen,2006DTC3365,atparagraph21(TCC),andthedecisionoftheFederalCourtofAppealallowingtheappeal,2007DTC5379,atparagraph28,wherethecourtreferredtothe“initialonusofdisproving,onabalanceofprobabilities,thefactsthattheMinisterassumed.”(LeavetoappealtotheSupremeCourtofCanadawasrefused,SCCfileno.32157.)SeealsoThe Queen v. Anchor Pointe Energy Ltd.,2003DTC5512,atparagraphs2and23(FCA).

16 See,forexample,Hickman Motors Ltd. v. The Queen,[1997]2SCR336,atparagraph92,perL’Heureux-DubéJ;andPlacer Dome Canada Ltd. v. Ontario (Minister of Finance),2006SCC20,atparagraph25,perLeBelJ.

17 SeeAG of Canada v. Buchanan et al.,2002DTC7397,atparagraph18,where,inthesamecontext,theFederalCourtofAppealcitesthereasonsofRandJinJohnston.

18 Buchanan,supranote17,atparagraph18.

19 Ineffect,itisnotparticularlyrelevantwhetherornottheministerhadcommittedanyerrorsincomingtothedecisiontoassess,butonlywhethertheassessmentiscorrectinlaw.

20 59DTC12,at16and17(TAB).


usedasaforumforthepursuitoflawsuits.Thisisaprinciplethathasenduredtothepresentday,andisapplicabletotheTaxCourtofCanada.21

TheissueofexactlywheretheTaxCourt’sjurisdictionendsandthatoftheprov-incialsuperiorcourtsortheFederalCourtbeginsisonethathasevolvedslowly,andwithincreasingprecision.Ina1970decision,The Queen v. J.B. & Sons Co. Ltd.,22theSupremeCourtofCanadaconsideredthedividinglinebetweentheTaxCourtandprovincialsuperiorcourts.Inthatcase,theOntarioSupremeCourthadrenderedadecisioninterpretingthetermsofacontracttodeterminewhichoneofthecontract-ingpartieswasliableforthesalestaxundertheExciseTaxAct.TheCrownwasnotapartytothatproceeding.UponasubsequentpetitionfiledbyoneofthecontractingpartiesintheExchequerCourtofCanadacontestingitstaxliability,23CattanachJdeterminedthatwhilehewouldhavefounddifferentlythantheOntarioSupremeCourtifthematterhadbeenbroughtbeforetheExchequerCourtinitially,hewasneverthelessboundbytheOntariocourtdecisionbyvirtueoftheprincipleofjudi-cialcomitybetweencourtsofcoordinatejurisdiction.

InallowingtheappealandoverturningthedecisionofCattanachJ,theSupremeCourtofCanadaheldthattheExchequerCourtandtheOntarioSupremeCourtwerenotofcoordinatejurisdictionregardingtheliabilityfortax.Themajorityde-terminedthatalthoughtheprovincialcourthadthejurisdictiontodeterminetherightsoflitigantsinrelationtoamatterofprivatelaw,itcouldnotgosofarastodeterminetheclaimagainsttheCrownfortaxes.24Themajorityrejectedtheargu-mentthatthejudicialobligationofcomitybetweencourtsofcoordinatejurisdictionwouldapplyinthecircumstancesofthecase.TheSupremeCourtofCanadathere-forerecognizedarudimentarydividinglinebetweenprovincialsuperiorcourtsandthefederaltaxationcourt,butonethatneededtobedevelopedmorepreciselyinsubsequentyears.

feder A l co urt decisio ns befo re the 19 91 reo rg A niz Atio n

The Federal Court Sets the ParametersAswillbe seen, the leadingcasesestablishing theparametersof theTaxCourt’sjurisdictionwerecaseswherethenatureoftheassessmentswascloselytiedtocol-lectionproceedings.Thefirsttwotouchstonecasesontheissueofjurisdiction,MNR

21 See,forexample,Obonsawin v. The Queen,infranote123andtheaccompanyingtext. 22 [1970]SCR220. 23 Thegeneralscopeofjurisdictionatthetimewassimilartothatwhichexiststoday.Themethod

ofcontestingpaymentoftaxeswastofileapetitionintheExchequerCourt,whichhadexclusivejurisdiction(undersection18(1)(d)oftheExchequerCourtAct,RSC1952,c.98)todetermineclaimsagainsttheCrown.SeeJ.B. & Sons Co. Ltd.,supranote22,at226.

24 J.B. & Sons Co. Ltd.,supranote22,at226,majoritydecisiondeliveredbyJudsonJ,essentiallyadoptingthereasonsdeliveredbyPigeonJthatcametothesameconclusiononthisissue(ibid.,at232-33).AthirdjudgmentwasissuedbyCartwrightCJ,whichcametothesameresultonaslightlydifferentanalysis.


v. Parsons et al.25andBechthold Resources Limited v. MNR,26weredecidedin1984and1985respectively.InParsons,theministerassesseddirectorsofacorporationundersubsections159(2)and(3)oftheIncomeTaxActbecausetheyhadfailedtoobtainaclearancecertificateinrelationtothecorporation’staxbeforeissuingadividend.ThetaxpayerschosenottofilenoticesofobjectionfromtheassessmentsundertheschemeoftheAct,butratherappliedtotheFederalCourtTrialDivisionforanorderquashingtheassessmentsforlackoflegalauthority.ThetaxpayersweresuccessfulinobtainingreliefattheFederalCourtTrialDivision;27however,theFederalCourtofAppealallowedtheCrown’sappeal.

InoralreasonsdeliveredbyPratteJA,theCourtofAppealconfirmedthatsuchreliefcouldnotbegrantedbytheFederalCourtTrialDivisiononthebasisthattheassessmentscouldonlybechallengedthroughtheobjectionandappealprocesssetoutintheIncomeTaxAct.Thecourtspecificallyreferredtosection29oftheFed-eralCourtAct(thepredecessorofsection18.5ofthecurrentFederalCourtsAct).Inparticular,thecourtrejectedthetrialjudge’sfindingthatsection29didnotde-privetheFederalCourtofjurisdiction.Thetrialjudgehadacceptedthetaxpayer’sargumentthatsection29precludedreviewofquestionsof“quantumandliability”butnotthemorefundamentalquestionoftheminister’slegalauthority.However,theCourtofAppealfoundtothecontrary:

Thelearnedjudgeoffirstinstanceheldthat,inthiscase,section29didnotdeprivetheTrialDivisionofthejurisdictiontogranttheapplicationmadebytherespondentsundersection18oftheFederal Court Actbecause,inhisview,theappealprovidedforintheIncome Tax Actwasrestrictedtoquestionsof“quantumandliability”whiletherespondent’sapplicationraisedthemorefundamentalquestionoftheMinister’slegalauthoritytomaketheassessments.Wecannotagreewiththatdistinction.TherightofappealgivenbytheIncome Tax Actisnotsubjecttoanysuchlimitations.28

TheFederalCourtTrialDivisioncametoasimilarconclusioninitsdecisioninBechthold Resources.Theassessment inthatcase(andinseveralsubsequentcasesinvolvingquestionsofjurisdiction)relatedtothescientificresearchanddevelopmenttaxcreditschemeundertheIncomeTaxAct.Thisisaschemeinwhichassessmentiscloselyconnectedtothecollectionofamountspayablewhendue.InBechthold Resources,upontheissuanceofcertainqualifyingsecurities,thetaxpayerdesignatedanamountof$30millioninrelationtoscientificresearchtaxcredits,pursuanttosubsection 194(4) of the Act. The designation made by the taxpayer resulted in$15millionoftaxpayableunderpartvIIIoftheAct,equalling50percentofthetotalamountdesignated(whichwasrefundableifcertainconditionsweremet).Whenno

25 84DTC6345(FCA).

26 86DTC6065(FCTD).

27 83DTC5329(FCTD).

28 Supranote25,at6346.


paymentwasmadewithinthreemonthsofthedesignation,theCanadaRevenueAgency(CRA)29issuedanassessmentinthesametaxyear—thatis,priortothedatebywhichthetaxpayerwasordinarilyrequiredtofileareturn.After90dayshadpassedfromthedateoftheassessmentandstillnopaymenthadbeenmade,theCRAsoughttorecover$15million,andaccruedinterest,byissuingarequirementtopay(aformofstatutorygarnishment)toathirdparty.Twootherrequirementstopaywereis-suedpriortotheendofthefiscalyearofthecompanyinwhichthedesignationwasmade.Thetaxpayermadeanapplicationforcertiorariundersection18oftheFed-eralCourtActtoquashtheassessment,takingthepositionthattheassessmentwasanullityonthebasisthatithadbeenissuedpriortotheendofthetaxpayer’sfiscalyear.

TheBechthold ResourcescaseissomewhatdifferentfromParsonsinthatthetax-payerchallengednotonlytheassessment,butalsothesubsequentdecisiontoissuetherequirementstopayundersection224oftheIncomeTaxAct,acollectionpro-vision.ThetaxpayertriedtodistinguishtheParsonsdecision,arguingthatitsrequestforcertiorariwasbasedonachallengetotheminister’sjurisdictiontoissuetheas-sessmentandrequirementtopay,ratherthantheissueofwhethertheassessmentwasproperinlaw.AddyJrejectedthisdistinction,findingthatalackofauthoritytomakeanassessmentnecessarilyinvolvedalackofjurisdiction.30HeconcludedthatsuchaquestioncouldonlyberaisedinthecontextofaregulartaxappealtotheTaxCourt,ortotheFederalCourtTrialDivision.31Althoughthecourtwentontoreviewthevalidityoftheassessmentandthegarnishment,32itdidnotconsiderwhetherthegarnishmentundersubsection224(1)itselfcouldbeattackedbywayofjudicialre-viewforreasonsotherthanthemeritsoftheunderlyingassessment.Onceagain,thefactsofthecasehadlinkedtheseparateissuesofassessmentandcollection.

ParsonsandBechthold Resourcesweredecidedover20yearsagobuttheyremaintouchstonedecisionstothisday.Itisimportanttonoteafewaspectsofthesecases.First,inbothcases,thetaxpayersapparentlychosetoapplyfordeclaratoryreliefattheFederalCourtTrialDivision,ratherthaninitiateataxappeal.Therewasthere-forenodiscussionastowhethertheissuewasresjudicata.Thiswasaconceptthatwasalludedtoinlatercases,creatingthepotentialforsomeconfusionontheissueofjurisdiction(apointthatIaddresslater).Second,thesecasesweredecidedonthebasisofsection29oftheFederalCourtAct(beforetheTaxCourtwasgrantedex-clusivejurisdictionundersection12ofthecurrentTaxCourtofCanadaAct),and

29 Inthisarticle,predecessorsofthepresentCanadaRevenueAgencyarereferredtobythisname,orbytheabbreviation“theCRA.”


31 ThiscasepredatedthelegislationestablishingtheexclusivejurisdictionoftheTaxCourtinmattersarisingundertheIncomeTaxAct(section12ofthecurrentTaxCourtofCanadaAct).

32 Apparentlyitdidsoforpracticalpurposes:seeBechthold Resources Limited,supranote26,at6068.


neitherdecisionmentionstheimpactofsubsection152(8),33eventhoughthecourtinBechtholddiscussedthesignificanceofsection152forotherreasons.

Most importantly, theParsons decision inparticular is agoodexampleof theclarityofthoughtexercisedbythecourtonthisimportantissue.Becauseofinter-actions between tax matters and other areas of the law (including, for example,propertylaw,commerciallaw,andinsolvencylaw,tonameonlyafew),therearemanysituationsinwhichitmaybearguedthatalegalissuefallssomewhereoutsidetheTaxCourt’s jurisdiction,andthuswithinthe jurisdictionofanothersuperiorcourt.Thefundamentalquestionisalwayswhethertheclaimorapplicationinanywaychallengesorunderminesthequantumorvalidityofthetaxassessment.Thisisthenarrowquestiononwhichcourtsmustfocustodeterminewhethertheappli-cantisaskingacourttocrossthelineandintrudeupontheexclusivejurisdictionoftheTaxCourt.Neitherthespecificreliefsoughtbytheapplicantnorthefactthattheproceedingisalawsuitshouldevercloudthisfundamentalissue.Anyattempttodistinguishacaseonthesegroundsshouldthereforeberejected,asitwasintheParsonscase.

Impact of Subsection 152(8) of the Income Tax Act

Thesignificanceofsubsection152(8)oftheIncomeTaxActwasfinallyaddressedin1991,intheFederalCourtofAppealdecisioninOptical Recording Corp. v. Canada.34ThatcasedealtwiththerefundablepartvIIItaxundersubsection195(2),whichre-quiredpaymentof50percentoftheamountdesignatedpursuanttosubsection194(4)relatingtoscientificresearchanddevelopmentcredits.Atthetime,theCRAinitiatedcollectionactionshortlyafterthepaymentwasdue,butindicatedtothetaxpayerthatitwouldmodifythatpracticeifthecorporationcouldsatisfytheCRAthatitcouldeliminatethetaxliabilitybytheendoftheyearorprovidesecurityforpayment.35Neitherofthoseconditionswassatisfiedinthissituation.Subsequently,theministerissuedrequirementstopaytothirdpartiesandadditionallyregisteredthetaxdebtasacertificateintheFederalCourtpursuanttosection223oftheAct.Thetaxpayerbroughtanapplicationseekingawritofcertioraritoquashthenoticeofassessment,therequirementstopay,andthecertificate,andalsosoughtawritofprohibitionagainstthecontinuationofanycollectionproceedings“untilitislawfultodoso.”36

33 InParsons,supranote25,theFederalCourtofAppealdidnotrefertosubsection152(8)oritspredecessorsubsection46(7)ofthe1952Act(RSC1952,c.148),whichwaswordedidentically.However,thecourtclearlybaseditsdecisiononthepremisethatataxpayermustresorttotheobjectionandappealprocessdescribedinsection169,makingtheomissionofanyreferencetosubsection152(8)insignificant.(AlsoseethetrialdecisionofCattanachJ,supranote27.)

34 [1991]1FC309(CA).

35 Ibid.,at313-14.

36 [1987]1FC339,at343(TD).


TheFederalCourtTrialDivisiongrantedthereliefsought,findingthatithadjuris-diction todealwith issuesof “fundamental administrative illegality” and“unfairtreatment.”37

TheFederalCourtofAppealoverturnedthedecision,findingthattheFederalCourtTrialDivisiondidnothavejurisdictiontoentertaintheoriginatingmotionbroughtundersection18oftheFederalCourtAct.Initsdecision,theCourtofAppealreferredtosubsection152(8)insupportofthepropositionthattheassessmentwasdeemedtobevalidunlessitwassuccessfullychallengedundertheappropriateobjectionandappealprocess.Thisreferencetosubsection152(8)laterprovedtobe helpful, particularly in cases involving actions for damages in other superiorcourts where the underlying premise of the action was that the assessment waswrong.Thecourtalsofoundthatsection29oftheFederalCourtActprecludedsuchanapplication.38

Therearea fewother interestingaspectsof thedecision inOptical Recording,whichtookongreatersignificanceinlaterdecisions.

Thefirstrelatestocollectionproceedings.TheCourtofAppealwentsofarastosaythatsection29oftheFederalCourtActprecludednotonlyanapplicationchallenging theassessment itself,butalso“thecollectionproceedingsoractionstaken inrespectof thosedeemedvalidassessments.”39Thisperhapsgaverise tosomeconfusionastowhetherornotalegitimateissueregardingthevalidityofastatutorycollectioninstrument,suchasthecertificationofthedebtora“require-menttopay,”couldbeattackedbywayofjudicialreviewintheFederalCourt,sinceitcouldnotberaisedintheTaxCourt.Ifoneweretointerpretthisfindingbroadly,itcouldmeanthatforanyissuesotherthanthevalidityoftheoriginalassessments,therewouldbenoforuminwhichataxpayercouldchallengecollectionproceed-ings.However,whenthisfindingisconsideredinthecontextofthecase,theCourtofAppeallikelymeantthattherewasnochallengetocollectionproceedingsavail-ableundersection18iftheonlyissueraisedrelatedtothemeritsoftheunderlyingassessments.Itmustalsoberecalledthat,becauseofthenatureofthescientificde-velopmentresearchscheme,theassessmentswerecloselylinkedtocollection,sincecollectionstepswereinitiatedimmediatelyaftertheexpiryoftheperiodforpay-mentofthepartvIIItax.

ThesecondinterestingaspectoftheOptical Recordingdecisionrelatestochallengesbasedonabuse-of-processallegations.Thetrialjudgefoundthattheapplicationsraisedissuesof“fundamentaladministrativeillegality,unfairtreatmentandestop-pel.”40Thisseemedtohintatadistinctionbetweentheprocessoftheassessment

37 Ibid.,at351.

38 Insodoing,thecourtappearedtoputthefinalnailinthecoffinofthedecisioninWTC Western Technologies Corporation v. MNR,86DTC6027(FCTD).ThatdecisionhadbeenfoundbythemotionsjudgetoconflictwiththedecisioninBechthold Resources Limited.




andthesubstanceoftheassessment,apointthatwasbroughtintogreaterfocusinlatercases.Infact,thetrialjudgeultimatelyfoundthattheCRA’spolicyofnotin-sistingonpaymentundertheIncomeTaxActbutallowingvoluntaryarrangementswasillegal.41TheFederalCourtofAppealdidnotdealextensivelywiththelowercourt judge’s manner of distinguishing theParsons decision, but rather providedreasonswhythecollectionarrangementswerenotillegal.42

Therefore,althoughtheCourtofAppealfoundthatthetrialjudgehaderredinfailingtoconsiderthenatureoftheminister’spowertoacceptsecurityforpaymentundersubsection220(4)oftheIncomeTaxAct,thecourtdidnotaddressthepossibilitythattheremightbeanissueofprocessonly,whichdidnotchallengetheassessmentitself.Thecourtthusdidnotseemtodistinguishthisaspectoftheclaim,orperhapswasnotpreparedtoseverthecollectionissuefromtherestoftheclaim,whichiteventuallystruck.ThiswasperhapsduetothefactthatthetaxpayerhadaskedtheFederalCourttoquashthenoticeofassessmentitself,inadditiontotherequire-mentstopayandthecertificate.43Irrespective,clarificationastohowissuesrelatingtoabuse-of-processallegationsorcollectionproceedingsweretoberesolvedwaslefttolatercases.Asaresult,whiletheParsons,Bechthold Resources,andOptical Re-cordingcasesarestillthestartingpointforaddressinganyjurisdictionalissue,theycannotbereadinisolationfromtherefinementsanddevelopmentsinlatercases.

Distinguishing the Merits of an Assessment from Post-Assessment Liability

OnlyafewmonthsafteritsdecisioninOptical Recording,theFederalCourtofAp-pealhad anopportunity to clarify theFederalCourt’s ability tohear challengesarisingfromcollectionproceedingsasdistinctfromthoserelatingtothecorrect-ness of the assessment. In City Centre Properties Inc. v. The Queen,44 the FederalCourtofAppealconfirmedthattheFederalCourtTrialDivisiondidhavethejuris-dictiontoentertainapplicationsfordeclaratoryreliefwheretheissueastoliabilitydidnotdependontheallegedinvalidityoftheassessment.Inthatcase,theministerreassessedthetaxpayer’spredecessorcompanyfor$125,681.45Thetaxpayercom-mencedanactionagainstathird-partycompanythathadagreedtoindemnifythetaxpayerfortherecoveryoftheamountreassessed.Thethird-partycompanythenfiledanoticeofobjectiontothereassessmentandprovidedtheministerwithabankguaranteeforhalfoftheassessedamountassecurity.Afterthebankguaranteeexpired

41 Ibid.,at355.

42 Supranote34,at321-24.

43 Thecourtalsonotedthattheshareholderofthecompanyhadfailedtofileaproperobjectiontotheinitialassessment.Heapparentlybelievedthatthetaxliabilityofthecompanywouldeffectivelybeeliminatedbeforethetaxationyear-end,andthusbelievedthathewasnotrequiredtodoanythinginresponsetothenoticeofassessment.Ibid.,atparagraphs4,5,and19.

44 91DTC5083(FCA).

45 Seethereasonsinthetrialdecision,90DTC6080(FCTD),foradescriptionofthefacts.


withoutanydemandthereunder, theCRAmadeademandforpayment fromthetaxpayerof50percentofthetaxliability.ThetaxpayerdeniedliabilityandsoughtanorderfromtheFederalCourtTrialDivisionfordeclaratoryrelief,arguingthattheunderlyingtaxhadeffectivelybeenpaidbyvirtueofthebankguarantee.Thetrial judgedismissedtheactiononthebasisthattheFederalCourtdidnothavejurisdiction.

TheCourtofAppeal,however,distinguishedtheseproceedingsfromthoseinpreviouscasesonthebasisthatthetaxpayerdidnottakeissuewiththemeritsoftheassessment.Infact(thoughthispointwasnotspecificallynotedinthedecision),thetaxpayerhadclearlyacceptedtheamountasoriginallyassessed;hisargumentwasthathehadabindingagreementwiththeCRAthatreducedthedebttozeroupontheprovisionofthebankguarantee.Whetherornotthetaxpayer’spositionwascorrect,theissuethatheraisedwaswithintheFederalCourt’sjurisdictionforjudicialreview.46ThetaxpayeronlyquestionedwhetherornottheamountassessedwaseffectivelypaiddowninaccordancewiththerelevantprovisionsoftheIncomeTaxAct.Althoughquestionswerelaterraisedastowhetherthismarkedachangeinthelaw,47thedecisionsimplyconfirmedthedividinglinebetweencasesinvolvingcollectionissuesthatcouldbebroughtasapplicationsbeforetheFederalCourt,andcasesinvolvingachallengetothebasisfortheoriginalassessment,whichweretoproceedastaxappealstotheTaxCourtortheFederalCourt.

AfewmonthsaftertheCity Centre Propertiesdecision,therevisedTaxCourtofCanada Act came into effect, establishing the exclusive jurisdiction of the TaxCourt,andtheFederalCourtnolongerhadjurisdictiontohearnewtaxappeals.Theissueofjurisdictioncouldnowbeconsideredinmuchstarkerterms:whetherthespecificcasebelongedintheFederalCourtTrialDivisionatall,orwhetheritfellwithintheexclusivejurisdictionoftheTaxCourtofCanada.

P os t-19 91 decisio ns—defining the sco Pe o f tA x A PPe A l s

Thecasesdecidedpriortothe1991restructuringof thetaxappealsystemdealtprimarilywithsituationswherethenatureof theassessmentswas tiedclosely tocollectionactions,suchasthescientificresearchschemewherecollectionofthere-fundabletaxcouldbeinitiatedshortlyafterthedesignation,ortheassessmentofdirectorsundersubsection159(2)asameansofrecoveringcorporatetaxliability.Nevertheless,allofthosecasesinvolvedsituationswheretherewerefairlycleardis-tinctionsbetweenmattersthatcouldbechallengedwithinataxappeal(suchastheParsonsandBechthold Resourcescases),andissuesthatcouldnotbeaddressedwithinataxappeal(theCity Centre Propertiescase).Certaincasesdecidedwithinafewyears

46 Supranote44:seetheappendixtothereasons,wherethedeclaratoryreliefsoughtbythetaxpayerisreproduced.

47 SeeAlbion Transportation Research Corp. v. Canada,[1998]1FC78,atparagraphs37-38(TD),discussedbelow(infranote60andtheaccompanyingtext).


afterthe1991restructuringinvolvedabroaderrangeofsituations,includingappli-cationsforlosscarryforwards,formsofcertification,andthevalidityofwaiversundertheIncomeTaxAct.Thesecasesrequiredamorerefineddefinitionofthepropersubjectmatteroftaxappeals,andthusbegantotestmorerigorouslythescopeoftheTaxCourt’sexclusivejurisdiction.

Refining the Subject Matter of Tax Appeals

ItwasnotlongaftertheenactmentoftherevisedTaxCourtofCanadaActthatthecourtsreaffirmedtheapplicationoftheapproachtakenintheParsonsandOptical Recordingdecisions,inconsideringotherissuesthatcouldbeaddressedwithintaxappeals.InWater’s Edge Village Estates (Phase II) Ltd. v. The Queen,48DubéJoftheFederalCourtTrialDivisionfoundthatthetaxpayercouldnotproceedwithanap-plicationforjudicialreviewundersection18.1oftheFederalCourtActrelatingtothetaxpayer’srequesttocarryforwardcertainlosses.Thetaxpayerhadinfactfiledaproperobjectionundersubsection165(1)inrespectofits1988taxyear,butalsobroughtanapplicationforjudicialreviewoftheminister’srefusaltoissuearefundforthe1990taxyearthatwouldresultfromapplyinglossespurportedlyincurredin1988againstincomeearnedin1990.Thetaxpayer’smotivationforchoosingtoseekjudicialreviewwastoobtainadecisionmorequicklysoastoprotectotherpartnersinthebusinesswhohadnotyetbeenassessed.ThecourtfoundthattheIncomeTaxActprovidedacompletecodeprescribingtheproceduretobefollowedinsuchcases,and thus precluded a judicial review application. The decision clarified the TaxCourt’sjurisdictiontoheartaxappealswherethereliefrequestedbyataxpayerin-volvedcarryingforwardor,presumably,carryingback49certainlosses.Interestingly,nomentionwasmadeofsection12oftheTaxCourtofCanadaAct,thoughthatwaspossiblybecausethetaxyearsinquestionwerepriorto1991.

Theissueofthecourt’sjurisdictionaroseagainintheCourtofAppealattheendof1992inthecaseofBrydges et al. v. MNR.50TheFederalCourtofAppealconsid-eredwhetherataxappealcouldalsocoveramatterofcertificationundertheIncomeTaxRegulations.IntheBrydgescase,theCRAhadprovidedthetaxpayerswithan

48 94DTC6284(FCTD).

49 ThiswaslaterclarifiedinGreene v. MNR,95DTC5078(FCTD).Interestingly,inGreene,onthetaxpayer’soriginalapplicationformandamustotheFederalCourtTrialDivision,theministeragreedtoaconsentordertoreassesstheearlieryearstowhichthetaxpayersoughttocarrybacklosses,to“takeintoaccountthedeductionsclaimed”(ibid.,at5079).However,itshouldbenotedthattheministerhadinitiallytakennoactiontoconsidertheapplicationtocarrybacklosses.Theministeragreedtoconsidertherequesttocarrybacklossesandproceededtoreassessinamannerthatdidnotrecognizeallofthelossesclaimedbythetaxpayer.RothsteinJ(ashethenwas)foundthatthetaxpayercouldonlychallengethosereassessmentsintheTaxCourt,notwithstandingtheoriginalconsentorderissuedbytheFederalCourtTrialDivision.TheresultinWater’s EdgeandGreeneislogical,becauseinbothcasesthelossesarisingfromtherelevanttaxyearhadnotbeenacceptedbytheminister.

50 93DTC5007(FCA).


advancerulingthatcertainvideotapedprogramswouldqualifyas“certifiedshortproductions”underregulation1104(2)(thusqualifyingasclass12assetssubjecttocapitalcostallowance)andwouldfalloutsidethescopeoftheleasingpropertyrulesinregulation1100(15).Inordertosoqualify,theprogramshadtoremaincertifiedbytheministerofcommunicationsascertifiedshortproductions.Theministerofcommunicationsrevokedthecertificateaftertheproducerswereconvictedoffraud.ThetaxpayermadeanapplicationtotheFederalCourtTrialDivisionundersec-tion18oftheFederalCourtActtosetasidetherevocation.51

TheCourtofAppealagreedwiththetrialjudge’sviewthattheissueofthelegal-ityofthecertificationwaspartandparcelofthetaxassessments,andthuscouldbeaddressedonlywithinthecontextofataxappeal.ThecourtspecificallyreliedonthefactthatthecertificatehadnopurposeorlegaleffectoutsidetheschemeoftheIncomeTaxActitself.Thiswasaninterestingwayofapproachingtheissueofjuris-diction,forthreereasons.First,itinferredwhatIrefertoasaprincipleofsymmetry,infindingthatjurisdictioncouldnotexistundertheFederalCourtActifamatterfellwithinthejurisdictionoftheTaxCourt.52Second,itappliedthereasoninginParsonstoacasewheresomethingotherthantheactualtaxassessmentitselfwasthedirectfocusofthereliefsought.Third,itlinkedtheissueofjurisdictiontothepur-poseofthecertification.Becausethepurposeandeffectofthecertificationlaysolelywithin the schemeof the IncomeTaxAct, the appealnecessarily fellwithin thejurisdictionoftheTaxCourt.53

Withinafewmonths,theFederalCourtofAppealagainconsideredtheparam-etersofataxappealinMNR v. Devor.54Inthatcase,thetaxpayerhadexecutedwaiversrelinquishinghisrighttoappealtheassessmentsbytheminister.Hethenfiledastatementofclaimseekingadeclarationthatthewaiverswerevoid,butalsosoughtawritofcertiorariquashingthereassessments,onthebasisthattheyhadbeenissuedoutsidethestatutorylimitationperiod.Theminister’smotiontostrikethestate-mentofclaimwasdismissedbothbytheFederalCourtprothonotaryandbyajudgeoftheFederalCourtTrialDivision.55TheTrialDivisionjudgeconcludedthattheFederalCourthadaresidualjurisdictiontosuperviseadministrativeactsforwhichtherewasnospecificrightofappealundertheIncomeTaxAct.56Thisapproachseemedtoadoptaformofsymmetry:thatiftheTaxCourtofCanadahadnojuris-dictionoveraspecificmatter,thenitmustnecessarilyresidewiththeFederalCourt

51 Brydges et al. v. Kinsman et al.,90DTC6463(FCTD).

52 Thisisreallynothingmorethanareflectionoftheeffectofformersection29(nowsection18.5oftheFederalCourtsAct).SeealsoDevor,discussedbelow(infranote54andtheaccompanyingtext).

53 Thisprovidesaninterestingcomparisonwiththelineofcasesregardingrectificationproceedingsthatfollowedafewyearslater,andarediscussedbelow.

54 93DTC5098(FCA).

55 88DTC6370(FCTD).

56 Ibid.,at6374.


TrialDivision(orothersuperiorcourt).Thisisaconceptthatappearstohavebe-comemoresignificantinlaterdecisions.

TheFederalCourtofAppealwasnotpersuadedbythetaxpayer’sargumentandallowedtheappeal.Thecourtwasobviously influencedbythefactthatthetrialjudgehad reliedon the trial decision in Optical Recording,whichwas laterover-turned.57However,thecourtwentontodealwiththenatureofthewaiversprovidedforinsubsection152(4)oftheIncomeTaxAct.Inallowingtheappeal,MahoneyJAfoundthatthevalidityofthereassessmentsdependedonthevalidityofthewaivers.Therewasthereforenoreasonwhythegroundsforinvalidity(presumablyincludingtheinvalidityofthewaivers)couldnotbegiveneffectintheappealofthereassess-mentsthemselves.Thecourtthusseemedtoacceptthesymmetryapproach,butsimplyfoundthattheissueofthevalidityofthewaiversfellwithinthejurisdictionoftheTaxCourtratherthanthatoftheFederalCourtTrialDivision.Indismissingtheappeal,thecourtfoundthatthesituationwasnotdistinguishablefromtheissueofcertificationofshortproductionsintheBrydgescase.

Collection Cases—Revisiting Optical Recording?

AfterthedecisioninOptical Recording,theissueoftheabilityandrequirementtoraisecollectionissuesintheFederalCourtwasaddressedbytheTaxCourtin1995.InthedecisioninR.K. Liu v. The Queen,58BowmanJ(ashethenwas)addressedtheTaxCourt’sjurisdictioninasituationwhereataxpayerclaimedthatanamountim-properlywithheldbyanemployershouldreducethebalanceowingforhisincometax.Theissueaffectingtheliabilityofthetaxpayerwasthusanissueofcollectionratherthananissueofassessment.Whileaddressingthemeritsofthetaxpayer’sposition,theTaxCourtalsonotedthatithadnoabilitytograntreliefortodeterminethebalanceoftaxowingbythetaxpayer,sincethematterwaswithinthejurisdictionoftheFederalCourt.59

In1998,theFederalCourtTrialDivisionweighedinagainontheissueofitsjurisdictionovercollectionmattersinAlbion Transportation Research Corp. v. Canada.60Inthatcase,tworelatedcorporationsandtheirtwoshareholderssuedtheCRAforwrongfulseizureofmoniesfromtheirbankaccounts,whichwereseizedpursuantto a requirement to pay and writs of fieri facias. The primary taxpayer, AlbionTransportation Research Corp. (“Albion”), had been assessed for tax due undersubsection195(2)oftheIncomeTaxAct.Althoughtheassessmentwasissuedless

57 Devor,supranote54,at5099.

58 [1995]2CTC2971(TCC).

59 Ibid.,atparagraph14.ThisgeneralprinciplewasmorerecentlyreiteratedbytheTaxCourtinCurwen v. Canada,[2005]TCJno.176,wherethecourtfoundthatithadnojurisdictiontograntreliefwheretheonlyissuewastheamountwithheldbytheappellant’semployerandneverremitted.SeealsoWorkum v. Canada (Customs and Revenue Agency),2005FC991,wheretheFederalCourtconfirmeditsjurisdictiontodealwithanissueregardingtheaccountingoftheinitialtaxliability.

60 Supranote47.


thantwomonthsafter the taxpayermadeascientificresearchdesignationunderpartvIIIoftheIncomeTaxAct,noobjectionwaseverfiledbyAlbion.Thedebtof$15million(halfofthedesignatedamount)wascertifiedundersection223oftheAct,andwritsofseizurewereobtained.

TheFederalCourtTrialDivisiontookparticularnoteoftheFederalCourtofAppeal’s1990decisioninCity Centre Properties,referringtothefollowingcommentbyMahoneyJA:

ThiscaseistobedistinguishedfromthisCourt’sdecisioninMNR v. ParsonsandThe Queen v. Optical Recording Laboratories because the validityof the assessment isnotchallengedhere. In eachof those cases, the issue as to liability for income taxde-pendedontheallegedinvalidityoftheassessment.Insuchacase,wehavenodoubt,thedenialofliabilitycanonlybelitigatedbyanappealagainsttheassessmentaspro-videdbytheIncome Tax Act.61

ThereasonsofGibsonJinAlbion TransportationhintedthattheFederalCourtofAppeal’sdecisioninCity Centre Propertiesmayhavemarkedachangeinthelaw:

Basedontheabovepassage,itisarguablethattheCourtofAppealisrestrictingOptical Recordingtosituationswherethevalidityofthetaxassessmentisdirectlyunderattack.Thepassagemakesnomentionofcollectionproceedings.62

Asalreadymentioned, Idonotbelieve that theFederalCourtofAppealwasnecessarilysuggestinginOptical RecordingthatnoactionoftheministerwithrespecttocollectionactioncouldeverbeattackedintheFederalCourt,thoughonecanseehowitmayhavebeenmisinterpreted.ThecourtinAlbion TransportationultimatelyfoundthatthesituationoftheplaintifffellsquarelywithintheparametersofOptical Recording,sincetheclaimforwrongfulseizurewasbasedontheallegationthattheCRA’sactionswerewithoutlegal justification,andthusentailedanattackonthevalidityofthetaxassessmentitself.63ThecommentthattheFederalCourtofAp-pealmayhavetakena“stepback”fromitspositioninOptical Recording64wasthusobiter.Further,itisclearfromotherdecisionsthatissuesregardingthecollectionoftaxcannotberaisedintheTaxCourtofCanadaitself.Optical Recordingthereforeremainsgoodlaw,thoughitoughtnottobeinterpretedasprecludingchallengestoanyformofcollectionactionintheFederalCourt.

TheissueoftheabilitytoraisecollectionissuesintheFederalCourthasnowbeenclearlyresolved.65TheCourtofAppealhasrecentlynotedthelimitonany

61 City Centre Properties,supranote44,at5084.

62 Albion Transportation,supranote47,atparagraph37.

63 Ibid.,atparagraph31.


65 Thoughtheremaystillbedebateastowhichissuesarepurelycollectionmattersandwhichissuesaremoreintrinsictotheassessmentitself.


overlapintherespectivejurisdictionsoftheTaxCourtandtheFederalCourt.InWalker v. The Queen,66thetaxpayermadeanapplicationforjudicialreviewrelatingtocollectionactionbytheCRA.Theministerhadissuedanoticeofassessment,butthetaxpayerclaimedthatshehadneverreceivedit,thuschallengingwhetheritwaseversent.Indecidingthatthe“legalefficacy”ofanoticeofreassessmentcouldonlybechallengedintheTaxCourt,theCourtofAppealalludedtoanelementofsym-metryinthejurisdictionquestion:

Section18.5of[theFederalCourts]Actshouldbeinterpreted,asfaraspossible,toprecludeparallelproceedingsintheFederalCourtandtheTaxCourtofCanadainrespectofsubstantiallythesameunderlyingissue.67

Thecourtalsoclarifiedthatwhileanapplicationcouldbemadetochallengethelegalityofcollectionmeasures,theFederalCourt’sjurisdictiondidnotextendtoincludean“attackontheunderlyingreassessmentonwhichcollectionmeasuresarebased.”68Insodoing,iteffectivelyclarifiedwhatmayhavebeenleftunexpressedinitspreviousdecisioninOptical Recording.

TheTaxCourtofCanadahasconfirmedthatitsnewerroleasasuperiorcourtofrecordwillnotafforditjurisdictionovercollectionmatters.InPintendre Autos Inc. v. The Queen,69theministermadeanapplicationforapreliminarydeterminationoflawundersection58(1)(a)oftheTaxCourtofCanadaRules(GeneralProced-ure)70astowhetherthecourtcouldconsiderafin de non recevoirundertheCivilCodeofQuébecwithinthetaxappeal.Thetaxpayerpleadedthisdefence,effectivelyclaimingthattheCRAhadomittedtoalertthetaxpayerastoshortfallsinitssourcedeductionaccount,thusjustifyingareductionofthedebt.Inconcludingthatthecourtdidnothavejurisdictionovercollectionmatters,ParisJconsideredhowsec-tion3oftheTaxCourtofCanadaActhadchangedthecourt’sjurisdiction.71ThedecisionsuggestedthatthedesignationasasuperiorcourtprovidedtheTaxCourtofCanadawitha“supervisoryjurisdiction,”butdidnotbroadenitsjurisdictionbe-yondthatofitsenablingstatute.72Thecourtalsoconfirmedthattheprinciplethatmattersrelatingtocollectionoftaxwerebeyondthejurisdictionofthecourt73re-mainedunchanged,despitethisdesignation.

66 2005DTC5719(FCA).



69 2004DTC2596(TCC).

70 TaxCourtofCanadaRules(GeneralProcedure),SOR/90-688,asamended.

71 Supranote69,atparagraph32.

72 Ibid.,atparagraphs32-33.

73 Ibid.,atparagraph42,citingthedecisionofBowmanJinLiu,supranote58.SeealsoCurwen,supranote59.


Jurisdic tio n o f the tA x co urt V er sus ProV inci A l suPerio r co urt s

Asnotedearlier,therearemanyplaceswheretaxlawcanintersectwithotherareasofthelaw.Asaresult,thecourtshavehadtograpplewiththeparametersofthejurisdictionoftheTaxCourtagainstthatofprovincialsuperiorcourts.Mostofthekeycasesdecidedpriorto2000dealingwiththeissueofjurisdictionwerede-terminedwithinthefederalcourtsystem.Oneprominentexceptionwasthe1992decision in Longley v. Minister of National Revenue, where the British ColumbiaCourtofAppealfoundthatanapplicationforadeclarationthatsection245oftheIncomeTaxAct(thegeneralanti-avoidancerule,orGAAR)wasunconstitutionalcouldbeheardintheBritishColumbiaSupremeCourt.74ThatcasedidnotappeartocomewithintheTaxCourtatall,sincetheunderlyingactionrelatedtoanallega-tionofmisfeasanceofoffice,75amatterdealtwithlaterinthisarticle.However,byaround2000,theissueoftheTaxCourt’sjurisdictiontodeterminematterstrad-itionallydealtwithinprovincialsuperiorcourtscameintoclearerfocus.

The Tax Court Affirms Its Jurisdiction over Certain Matters Involving Provincial Law

The Tax Court addressed the dividing line between its jurisdiction and that ofprovincialcourtsinits2000decisioninRoper v. The Queen.76InRoper,thetaxpayerpurportedtoappealanassessmentforsourcedeductionsthatarosepriortohisfilingaproposalundertheBankruptcyandInsolvencyAct.Thetaxpayer’sappealraisedthreeissues.First,itchallengedtheCRA’sabilitytomaintainaclaimforsourcede-ductionarrearsthatarosepriortotheproposal(“pre-proposalarrears”).Second,itasserted the taxpayer’sclaimtoanentitlement for input taxcredits inrespectofgoodsandservicestax(GST),whichcouldbeappliedtosetoffthepre-proposal

74 (1992),66BCLR(2d)238(CA).ThemajorityfoundthattheBritishColumbiaCourtofAppealhadthejurisdictiontograntadeclarationsoughtinastatementofclaimfiledintheBritishColumbiaSupremeCourtthatsection245oftheIncomeTaxActwasofnoforceandeffectasallegedlybreachingtheCanadianCharterofRightsandFreedoms.Indissent,thoughagreeingthatthecourtcouldgrantsuchadeclaration,SouthinJAdecidedthatthecourtshouldrefusetodosobecausetheissuecouldbemoot,dependingontheoutcomeofthesubstantiveissuethathadtobedeterminedbytheFederalCourt.Insofinding,shedeterminedthattheBCcourtoughttodismissthecaseasanabuseofthecourt’sprocessinaccordancewiththeprincipleofjudicialcomity,giventheFederalCourt’sspecialexpertiseinmattersoffederaltaxation:ibid.,atparagraph26.TheLongleydecisionappearstohavebeentacitlyapprovedinobiterdictainAmerican Express Bank Ltd. v. Price, etc.(1995),1BCLR(3d)108,atparagraph31(CA).

75 Indeed,therewasnoassessment,andnopotentialforassessment.ItappearsthatthetaxpayerwasseekingawrittenconfirmationthathisproposedtaxplandidnotbreachtheIncomeTaxAct,andcomplained,amongotherthings,thattheministerhadnotformallyassessedcertainindividualstodisallowcertaindeductions,thusprecludinganyavenueofappeal.SeeLongley v. The Queen,99DTC5549(BCSC).

76 2000DTC2213(TCC).


arrears.Third,itchallengedtheminister’sabilitytoassesspenaltiesandinterestforthearrearsforsourcedeductions.77

TheministerappliedforanorderdismissingtheappealonthegroundsthatthenoticeofappealdealtwithmattersoutsidetheTaxCourt’s jurisdiction.MoganJdismissedtheCrown’sapplication,findingthatthecourthadjurisdictionover“atleastpartofthesubjectmatter”78—specifically,thetaxpayer’schallengetotheamountofpenaltiesandinterestassessedonthearrearsforsourcedeductionsinthenoticesofassessment.Insofinding,thecourtasked,“WhereelsecouldhechallengethoseamountsgiventheexclusivejurisdictionofthisCourtundersection12oftheTax Court of Canada Act?”79

Thecourtalsofoundthatithadjurisdictiontoconsiderissuesthatwerecol-lateraltotheappeal itself, includingwhetherthepre-proposalarrearsforsourcedeductionswereeffectivelyextinguishedbytheBankruptcyandInsolvencyAct.Ineffect,thecourtneededtodeterminethatissueinordertodecidethethirdissue—whethertheinterestandpenaltieshadbeencorrectlyassessed.Thecasethuscon-firmedthattheTaxCourtcoulddeterminemattersthat,thoughordinarilyfallingwithinaprovincialcourt’sjurisdiction,werenotyetdeterminedbutwerenecessarytodeterminealiabilitythatwasassessed.Therefore,itdoesnotseemthattheTaxCourtacceptedthat,irrespectiveofthecircumstances,ithadjurisdictiontodeter-minewhetherthebalanceowingfortheprincipalofthesourcedeductionsitselfhadbeenextinguished.SuchapropositionwouldbedifficulttoreconcilewiththeobiterdictumintheLiucase.However,itissignificantthatthecourtspecificallyfoundthattheissueoftheminister’sabilitytocollectpre-proposalarrearscouldbecon-sideredasamattercollateraltotheappeal,sinceitwasraisedinthecontextofanargumentthattheinterestandpenaltiescouldnotbeassessedonsourcedeductionarrearsthatarosepriortothebankruptcyproposal.

Inanobiterdictum,MoganJinferredthattheappellantcouldraisethesecondissueregardingtheentitlementtoasetoffofthetaxdebtagainstaGSTrefund.80Whilethismightappear,atleastonitsface,tobemoreamatterofcollectionthanamatterofassessment,theunderlyingrighttothesetoffwouldhavearisendirectlyfromthetaxpayer’sentitlementtocertaininputtaxcredits.81

The Provincial Superior Courts Weigh In

Mostof the significant case lawon this issueprior to2000 appears tohavede-velopedinthefederalcourtsystem.In2000,shortlyaftertheRoperdecision,the



79 Ibid.

80 Ibid.,atparagraph10.ThisinferenceappearstobeanobiterdictumbecausethecourtultimatelyfoundthatthetaxpayercouldnotraisetheGSTissuesincehehadnotfiledaseparateappealforGST.



OntarioSuperiorCourtconsideredthequestionofjurisdictioninanothercasein-volvinginterest—inthisinstance,unassessedinterest.InHo-A-Shoo v. AG of Canada et al.,82thetaxpayerhadfiledastatementofclaimasarepresentativeplaintiffinaclassproceedingclaimingdamages.Theplaintiffsoughttorecoveranamountpaidforunassessedinterestarisingfromanassessmentundersection160oftheIncomeTax Act, which was ultimately the subject of a consent judgment from the TaxCourt.OntheCrown’smotiontodismisstheaction,CummingJfoundthattheissueofunassessedinterestwasdistinctfromtheissueofassessedinterest,andwasnotonethatfellwithintheTaxCourt’sjurisdiction.83

TheOntario court characterized the causeof action as a separate cognizablecauseofactionbasedonunjustenrichmentandrestitution,whichwasnotwithintheFederalCourt’sexclusivejurisdiction.84Accordingly,thecourtfoundthat,onthebasisofconcurrentjurisdictionoftheFederalCourtandthesuperiorcourtsoftheprovincesforclaimsagainsttheCrownconferredbytheFederalCourtActandtheCrownLiabilityandProceedingsAct,ithadjurisdictionovertheclaim.85Whiletheresultinthiscaseseemsunusual,orevenanomalous,itdidrelatetounas-sessedinterestinverynarrowcircumstanceswheretherewasaperceivedlegislative“gap”inthespecificprovision.86Consequently,thisdecisionoughttohavelittle,ifany,applicationtoothersituationsorcases.

WithinafewyearsoftheRoperandHo-A-Shoodecisions,theissueofjurisdictionwasconsideredonceagainfromtheperspectiveoftheprovincialsuperiorcourts,thistimeattheappellatelevel.InCanada (Customs and Revenue) v. Aboriginal Feder-ated Alliance Inc.,87theAlbertaCourtofAppealclarifiedthetestfordrawingthelinebetweenthejurisdictionofasuperiorcourtandthatoftheTaxCourt.Inthatcase,theCRAhadassertedaclaimtomoniespaidintocourtunderaninterpleaderorder

82 2000DTC6293;[2000]2CTC155(Ont.SCJ).



85 Section17oftheFederalCourtAct,RSC1970,c.10(2dSupp.),asamended;andsection21oftheCrownLiabilityandProceedingsAct,RSC1985,c.C-50,asamended.

86 Thisatermusedbythecourtitself.Thecasewentnofurtherbecauseitwasresolvedbyasettlementapprovedbythecourt.SeeHo-A-Shoo v. AG of Canada et al.,2001DTC5589,atparagraphs11-12(Ont.SCJ),whereCummingJnoted:

Theplaintiffisabletoachievethesettlementbecauseofanapparentgapinstatutoryauthorityinrespectofunassessedinterestarisingfromanamountowedbyataxpayerunderas.160(1)assessment.

Underthetermsofthesettlement,CCRA[theCRA]hasretainedtherighttoseektorecoupfromthetransferorinrespectofeachoftheclassmembersanyamountsthathavebeenrepaidtotheclassmembersbythissettlementandtoinvestigatewhetherthereareanyothertransfersinrespectofwhichs.160assessmentscanbeissued.

Thejudgmentfurthermoredescribesalloftheextensiveeffortsmadetoidentifyanytaxpayerwhomighthavebeenaffectedbytheissue,andthoseidentifiedwereincludedinthesettlement.

87 2002ABCA104.


oftheAlbertaCourtofQueen’sBench.TheCRA’sclaimreflectedtheamountas-sessedforunpaidsourcedeductionsrequiredundertheIncomeTaxAct,theCanadaPensionPlan,andtheEmploymentInsuranceAct.Thepurposeoftheproceedingsfollowing the interpleader order was to resolve the competing demands for theamountspaid intocourt.Thecorporationchallengedtheassessments intheTaxCourt,butalsochallengedtheamountoftheCRA’sclaimwithintheinterpleaderproceedings.TheAlbertaQueen’sBenchfoundthatitcoulddeterminethequan-tumoftheCRA’sclaimaspartofitsjurisdictionintheinterpleaderproceedingsandundertherulesofthecourtgoverningpaymentout,anditreducedtheCRA’sclaimtoaportionoftheassessment.88

TheAlbertaCourtofAppealoverturnedthedecisionoftheQueen’sBench,inessencefindingthatthedecisiontovarythequantumoftheCRA’sclaimwasanin-trusionintotheTaxCourt’sexclusivejurisdictiontodeterminethevalidityoftheassessment.89Thecourtwentontofindthatprovincialsuperiorcourtscouldonlydetermine matters that are ancillary to an assessment.90 As examples, the courtsuggestedthatasuperiorcourtcoulddeterminewhetherathirdpartywasliabletopayataxpayer,orwhetheracompanyhadbeenrevivedandwasthussubjecttoanincometaxassessment.Bythisreasoning,amatterwouldbe“ancillarytoanassess-ment”ifacourtmadeafindingoffactforthepurposesofresolvinganon-taxissuethatwaswithinitsjurisdiction,butthatonlyincidentallyaffectedthenaturalincometaxoutcome.

TheAlbertaCourtofAppeal’sreferencetocompanyrevivalproceedingsfore-shadowedthepreciseissuebeforetheBritishColumbiaSupremeCourtin422252 Alberta Ltd. v. Canada (Attorney General).91TheCRAhadobtainedrestorationordersagainsttwonumberedBCcompaniesinordertoreinstitutecollectionproceedingswithrespecttoitstaxdebts.Theministerultimatelyraisedanassessmentagainstathirdcompany,theapplicant,whichhadpurportedlyreceivedatransferfromthetworelatednumberedBCcompaniesofcertainsharesforlessthanfairmarketvalue.Theapplicantwasthusassessedinrespectofthattransferundersection160oftheIncomeTaxAct.ThetaxpayerfiledanapplicationintheBritishColumbiaSupremeCourt for severaldeclarations, includingadeclaration that the restorationorderpreviouslyissuedbythatcourtdidnothavetheeffectofpermittingtheministertoassess the applicant. The applicant also had a concurrent appeal before the TaxCourtofCanada.

88 [2001]1CTC23(Alta.QB).

89 Thecourtconsidered,amongothercases,Re Norris,[1989]2CTC185(Ont.CA),wherethecourtfoundthatatrusteeinbankruptcycouldchallengeaCRAproofofclaimonlythroughtheappealsprocessintheIncomeTaxAct.ForasimilarconclusioninthecontextoftheCompanies’CreditorsArrangementAct(RSC1985,c.C-36),seeCCI Industries Ltd., Re,[2005]GSTC144(Alta.QB).

90 Aboriginal Federated Alliance Inc.,supranote87,atparagraph18.

91 [2004]1CTC73(BCSC).


The British Columbia Supreme Court adopted the approach of the AlbertaCourtofAppealregardingthetestof“ancillarytoanassessment,”distinguishinganothercasedecidedbytheAlbertaCourtofQueen’sBench.92Whilereferringtorectificationcasesasexamplesofmatters thatmightbe“ancillary”totheassess-ment,thecourtfound,withrespecttothetaxpayer’sapplication,“InherentinthedeclarationsoughtbythePetitionhereisadirectattackupontheMinister’sabilitytoreassessandnotmerelyamatterancillarytotheconsiderationoftherestorationorders.”93Althoughusingthephrase“directattack,”thecourtseemedtoconcludethatindirectattacksonanassessmentwereequallyoffsidebyfindingthattheattackwas“inherentinthedeclarationsought.”

Thedecisionalsoclarifiedthattheformofreliefsoughtwasnotitselfadeter-miningfactorforthejurisdictionofthecourt.Theapplicantin422252 Alberta Ltd.soughtadeclarationrelatingtothecourt’sownrestorationorder,reliefthatislikelyprimafaciewithinthatcourt’sjurisdiction.However,theBritishColumbiaSupremeCourtlookedbeyondtheformofreliefsoughtandconsideredtheunderlyingration-aleforthereliefclaim.Ultimately,thecourtfoundthatcharacterizingtheclaimasanattackontheminister’sabilitytoraisetheassessmentinthecontextoftherestor-ationorderdidnottakethesubjectmatteroutsidetheexclusivejurisdictionoftheTaxCourt.94AstheFederalCourtofAppealhaddeterminedinParsons,theminis-ter’slegalauthoritytomakeassessmentscouldnotbedistinguishedfromtheissueofquantumandliability.

Thesecasesdemonstratethatneitherthegeneralsubjectmatternorthespecificformofreliefsoughtissufficienttoestablishthecourt’sjurisdiction.Inboth422252 Alberta Ltd.andAboriginal Federated Alliance Inc.,thecourtsclearlyhadauthorityover thegeneral subjectmatter (restorationofcompaniesorprioritydisputes ininterpleaderproceedings)andthespecificprocedure,andcouldgenerallygranttheformofreliefsought.However,thecourtsneverthelessfoundthattheyhadnojuris-dictiontograntthereliefbecausethesubstanceofthereliefsoughtineachcasewasdependentonanunderlyingchallengetothevalidityoftheassessments.95Asimilar

92 TheapplicantreliedonPetromines Acquisitions Ltd. (Re),2001ABQB568,amongotherdecisions.Inthatcase,thetaxpayerappliedtosetasidethevalidityofarestorationorderobtainedbytheCRAforthepurposesofassessingthetaxpayer.Whiledismissingtheapplication,theAlbertaCourtofQueen’sBenchconfirmedthatitdidhavejurisdictiontodeterminewhetherthecompanywaseffectivelyrevived.However,inrecognizingthejurisprudenceregardingtheexclusivityoftheTaxCourtofCanadaoverthevalidityoftheassessment,thecourtinPetrominescarefullynoted,ibid.,atparagraph9,“ThisCourtisnotaddressingtheassessmentorreassessmentoftaxinthisapplication.ThosemattersarewithintheexclusivejurisdictionoftheTaxCourtofCanada.”

93 422252 Alberta Ltd.,supranote91,atparagraph38.

94 Ibid.,atparagraphs31and33.

95 TheTaxCourtultimatelydidconsidertheassessmentissuethataroseinAboriginal Federated Alliance Inc.,supranote87:seeAboriginal Federated Alliance Inc. v. The Queen,2004DTC2701,atparagraphs4-6(TCC).Inhisdecision,O’ConnorJoftheTaxCourtacknowledgedthejudgmentoftheAlbertaCourtofAppeal.


resultaroseinthecaseofanactionforunjustenrichmentwheretheOntarioCourtofAppealfoundthattheappealprovisionsrelatingtoanallegedoverpaymentofwithholdingtaxunderpartxIIIoftheIncomeTaxActconstituted“acompletepro-ceduralcodeforthereturnofnon-residentwithholdingtaxes.”96Anapproachsimilartothatin422252 Alberta Ltd.andAboriginal Federated Alliance Inc.hasalsobeenappliedinthecontextofproceedingsundertheCompanies’CreditorsArrangementAct.97Thatstatutegenerallyaffordsasuperiorcourtwithabroadandflexiblesuper-visoryjurisdiction.Therecognitionoftheprincipleinsuchproceedingsthereforeservestoreinforcetheideathattheconceptof“ancillarytotheassessment”istobenarrowlydefined.

Provincial Superior Courts Decline Jurisdiction

Provincialsuperiorcourtshaveoccasionallyaddressedajurisdictionalissuebyde-cidingtodeclinejurisdiction.98Thegeneralrationalefordecliningjurisdictionistodefertothecourtwithexpertiseinthespecializedfieldforwhichthecourtwasde-signed,99ortoacourtthatisamoreeffectiveandappropriateforum.100Inafewcases,provincialcourtshavereliedontheabilitytodeclinejurisdictionasanalter-nativebasis fordismissinganapplicationwhere thecourt’s jurisdictionhasbeenchallenged.101

ThedecisionoftheOntarioSuperiorCourtofJusticeinGLP NT Corporation v. AG of Canada102illustratestherationalefordecliningjurisdiction.Inthatcase,whilefilinganappealtotheTaxCourt,thetaxpayeralsofiledanapplicationtotheOntarioSuperiorCourtofJusticefordeclarationsthatthetaxpayerwasan“open-endmutualfund”asdefinedbysection24(11)oftheOntarioBusinessCorporationsAct,andwithrespecttothestatusofcertainshares.Ineffect,establishingitselfasa“mutualfundcorporation”undertheIncomeTaxActcouldexcludethetaxpayerfromtheapplicationofpartvI.1oftheAct,whichotherwiseimposedaspecialtaxoncertaindividendspaidbythecorporation.Thetaxpayeralsosoughtdeclarationsrelatingto

96 Sentinel Hill No. 29 Limited Partnership v. Canada (Attorney General),2008ONCA132,atparagraph14.

97 CCI Industries Ltd.,supranote89;andMine Jeffrey inc. (Arrangement relative à),2006QCCS5695.

98 SeeJabs Construction,infranote115;422252 Alberta Ltd.,supranote91;andalsoGLP NT Corporation,infranote102.InHo-A-Shoo,supranote82,atparagraph50,theOntariocourtrefusedtodeclinejurisdiction,althoughithadalreadydeterminedthattheTaxCourtdidnothavethejurisdictiontodeterminetheissueofunassessedinterestchargedtotherecipientofatransferinrespectofasection160assessment.

99 Cook v. Canada (Attorney General),1998CanLII13469,atparagraphs12-13(Sask.QB).

100 Ho-A-Shoo,supranote82,atparagraph49.Theattorneygeneralinthatcasearguedthatitwasappropriateto“facilitatethedevelopmentofaconsistent,comprehensive,nationalbodyoftaxlaw”:ibid.,atparagraph48.SeealsoLongley,supranote74,atparagraph26,thedissentingjudgmentofSouthinJA.

101 SeeJabs Construction,infranote115;and422252 Alberta Ltd.,supranote91.

102 2003DTC5654.


theeffectofcertainresolutions,andthestatusofcertainshares.Allofthereliefsoughtappearedtobedirectedatobtainingfindingsforthesolepurposeofaffect-ingthetaxoutcome.Indismissingthetaxpayer’sapplicationanddeferringtotheproceedingsalreadycommencedintheTaxCourt,theOntarioSuperiorCourtofJusticeacknowledgedthatitsjurisdictionwouldnotextendtoallofthemattersindispute, and that the tax appealwouldhave toproceed in theTaxCourt in anyevent.Thecourtidentifiedtwogeneralreasonsfordecliningjurisdiction:first,re-spectforthelawsofCanada;andsecond,recognitionoftheTaxCourt’sexpertiseintax-relatedmatters.Theformerrepresentedtheprinciplethat“acourtshouldnotissueadeclaratoryorderthatwouldinterferewiththejurisdictionassignedtoaspecializedtribunal,evenifithasthepowertodoso.”103

ThecourtacknowledgedthedecisioninRoper,104wheretheTaxCourtheldthatithasjurisdictiontomakedeterminationsonnon-taxissuesincidentaltotheappealthatariseinthecourseofconsiderationofthevalidityofthetaxreassessmentsonlyifthesuperiorcourtwithcompetentjurisdictionhasnotalreadydecidedtheissue.Whilethisaspectofthedecisionwasanobiterdictum,105situationssuchastheoneinGLP NT CorporationcanraisethequestionoftheextenttowhichasuperiorcourtcanbindtheTaxCourtonanissueaffectingataxassessment.Forthatreason,Idealnextwithjurisprudenceconcerningrectificationapplicationsandsuggestthatsuchdecisions,whileconceptuallycreatinganarrowexceptiontothedivisionallineofjurisdiction,applyonlyincaseswhereasuperiorcourtcananddoesgrantarectifi-cationorderasrelief.

Rectification Cases—Equity Finds a Backdoor in Tax Cases?

Assuggestedintheprecedingsectionofthisarticle,thedeterminationofwhatis,andwhatisnot,anissuethatisancillarytotheassessmentisnotalwayscrystalclear.However, the question of the dividing line between the jurisdiction of the TaxCourtandthatofothersuperiorcourtshasbeenmadeevenmorecomplicatedbythelineoftaxcasesinvolvingrectification,startingwiththedecisionoftheFederalCourtofAppealinDale et al. v. The Queen.106Ultimately,thislineofcaseshasledtowhatisarguablyanindirectexceptiontothejurisdictionaldividingline.

Whererectificationisavailable,aprovincialsuperiorcourtcanpermitataxpayerto“correct”amistakeinthewaythatatransactionwasreducedtowritinginadocu-ment,thusaffectingthetaximplicationsofatransaction.However,rectificationis,unlessotherwiseprovidedforinastatute,anequitableremedy.SincetheTaxCourtofCanadahasnojurisdictioninequityandcannotgrantaremedybasedonlyon


104 Supranote76.

105 Thematterwasnotputinissue,sincethepartiesappearedtoagreethattheeffectofthedeclarationinthecircumstanceswouldbindtheminister.SeeGLP NT Corporation,supranote102,atparagraphs13-14.

106 97DTC5252(FCA).


equitableprinciples,107itcannotgrantanorderofrectification.108Despitethiscon-straint,theabilityoftheprovincialsuperiorcourtstograntrectificationinordertoreversetaxconsequencesincertaincaseshasarguablygivenequitableprinciplesatheoreticalbackdoorintotheTaxCourt’sjurisdictionovertaxcases.Inconsideringthisissue,itisimportanttoseparaterectificationcasesfromcasesinvolvingotherjurisdictionalissues.WhilerectificationcasesmaycreateanindirectexceptiontotheTaxCourt’sexclusivejurisdiction,theydonotgiveprovincialcourtsanyinroadsintotheTaxCourt’sexclusivejurisdictioninanyothercircumstances.Abriefreviewoftherelevantcaselawwillservetoillustratethispoint.

InDale,thecourthadtodecidewhethertheminister,inassessingthetaxpayers,coulddisregardatransactionthatwasthesubjectofarectificationorderissuedbytheNovaScotiaSupremeCourt.109ThetaxpayerswereafatherandsonwhohaddecidedtoselltheirbuildinginNovaScotia.TheyownedamajorityoftheissuedsharesofaPrinceEdwardIslandcompany.Inordertopreventtherealizationofacapitalgainandrecaptureofcapitalcostallowanceonthesaleofthebuilding,theyattemptedtotransferthepropertytothePEIcompany(whichcouldoffsetthecap-italgainsandrecapture) inexchange forpreference shares, thusqualifying forarolloverundersection85oftheIncomeTaxAct.ThePEIcompanyomittedtofor-malizethestepsnecessarytoincreaseitsauthorizedcapitaltopermitissuanceofthepreferenceshares.Whentheomissionwasdiscoveredbythecompanythreeyearslater,itissuedseveralresolutionsratifyingtheearlieractions.Italsosoughtretro-activeordersundertheNovaScotiaCompaniesAct,includinganorderrectifyingtheshareregisterbydeclaringitsauthorizedsharecapitaltohavebeenamendedretroactivetothetimeofthetransfer.TheNovaScotiaSupremeCourtgrantedtheordersforrectification.Theministerassessedthetaxpayersonthebasisthatcertainpreferredshareshadneverbeenvalidlyissued,owingtothefailuretoformalizeanincreaseintheauthorizedcapital,andthusthesection85rolloverwasinvalid.

Inthesubsequenttaxappealproceedings,theCrownassertedthattheorderoftheNovaScotiacourtcouldnotbindtheminister.ThemajoritydecisionintheFederalCourtofAppeal,deliveredbyRobertsonJA,foundthattheorderoftheNovaScotiaSupremeCourtwasimmunefromjurisdictionalcollateralattackandthusboundtheministerwithrespecttothetaximplications.Indissent,PratteJA(whohadcon-curredwiththereasonsintheBrydgesdecision)110foundthatthejudgmentoftheNovaScotiaSupremeCourtwasmadeonanexpartebasisonevidenceoffactsthathadoccurredlongaftertheendofthetaxationyear.Heconsequentlyfoundthatthe

107 Chaya v. The Queen,2004DTC6676(FCA);andHamilton,supranote11.

108 SeealsoGLP NT Corporation,supranote102,atparagraph16;andStern v. The Queen,2004DTC3260,atparagraph30(TCC)(thoughneitherdecisionspecificallyreferencesalackofjurisdictioninequity).

109 Theorderswerebasedonaprovisionintheprovinciallegislationandnotageneralequitableremedy.

110 Supranote50(FCA,perHugessenJA)andnote51(FCTD,reasonsdeliveredbyMcNairJ).


orderscouldnotaffectthevalidityoftheassessmentmadebytheminister.Itap-pearsthatperhapsPratteJAwouldalsonotacceptthattheNovaScotiaSupremeCourtcouldretroactivelyalterthetaxoutcometothecompany.

ThemajorityoftheFederalCourtofAppealdidnotagree,findingthattheordersissuedbytheNovaScotiaSupremeCourtcouldinfactbindtheministerwithre-specttothetaxoutcome.Themajorityviewseemedtobeinfluencedbythefactthattheorderrectifyingtheshareregisterwasspecificallyprovidedforinsection44oftheNovaScotiaCompaniesAct.Thus,whiletheDalecaseinvolvedastatutoryremedyasdistinct fromanequitable remedy, itmade some room forprovincialcourtstoexerciseinfluenceovertaxoutcomes.

RobertsonJAalsonotedthatgenerallyacourt“woulddeclinetheinvitationtograntaretroactiveorderwhichhastheclearlegaleffectofrewritingfiscalhistory.”111Hewentontosay:

AssumingthatsuchanorderweregrantedthenitwouldbepropertoaskwhethertheMinisterisentitledtoignoreitfortaxationpurposes.Onemightbetemptedtopermitanattackonthegroundoffiscalrevisionismwhereitcouldbeshownthattheorderwasobtainedbynon-disclosureormisrepresentation.Morelikelythannotrevisionistorderswillbeobtainedonconsent,orincircumstanceswhereitislikelythatthetaxramificationsof theorderwerenotplacedsquarelybefore the judge,orwhere thejudgewasobviouslysympathetictothetaxpayer’ssituation.112

ItwasnotlongbeforetheOntarioCourtofAppealhadoccasiontotestthelimitsof“rewritingfiscalhistory.”InAG of Canada v. Juliar et al.,113thecourtconsideredanapplicationforarectificationorderwhereonlythetaximplicationswereatissue,andwereplacedsquarelybeforethecourt.Ahusbandandwifewantedtoturntheirbusinessovertotheirtwodaughtersandtheirrespectivehusbands.Eventually,theydecidedtodividethebusiness,whichinvolvedseveralstores,inordertoalloweachcoupletooperate independentlyofoneanother.Throughtheiraccountants, thefamilyarrangedtheiraffairssoastofallwithintherolloverprovisionsofsection85oftheIncomeTaxAct,withtheintentionofdeferringanytaximplicationsfromthetransaction.However,theadvisersforoneofthecouplesweremisinformedthattaxhadalreadybeenpaidbythefatherandmother.Thiserroneousinformationcausedthemtoadvise thecouple tousepromissorynotes in their transactionswiththeholdingcompanysetupforthesale,ratherthanashare-for-shareexchange.Thisdecisionplacedthetransactionoutsidethescopeofsection85.Thecouplesoughtanordertopermitrectificationtoaffectthetransactionswherebytheyhadacquiredahalf-interestinthebusiness,byessentiallysubstitutingashare-for-shareexchangethatwouldnotattractimmediatetaxliability.

111 Dale,supranote106,at5256.SeealsoSussex Square Apartments Limited v. The Queen,99DTC443,atparagraphs40and42(TCC);aff ’d.2000DTC6548(FCA).

112 Dale,supranote106,at5256.

113 2000DTC6589(Ont.CA).


Inupholdingthedecisionofthetrialjudge,theOntarioCourtofAppealagreedthatrectificationwasappropriate,eventhoughtheonlypurposeoftherectificationorderwastoreversethestepthathadleddirectlytotheimpositionofincometax.TheJuliardecisionthusconstitutesaninterestingcomparisonwiththedecisionoftheFederalCourtofAppealinBrydges.InBrydges,theCourtofAppealhaddeter-minedthatthesubjectmatterfellwithinthejurisdictionoftheTaxCourtbecausethecertificationofshortproductionshadnootherpurposeoreffectoutsidetheschemeoftheIncomeTaxAct.OnecouldmakethesameargumentwithrespecttotheapplicationforrectificationintheJuliardecision.TheobviousdistinguishingaspectisthatintheBrydgesdecision,thecertificationbytheministerofcommuni-cationswasspecificallycontemplatedundertheIncomeTaxRegulations,andthusdistinctfromtheequitableremedyofrectification.114Nevertheless,itappearsthatintheJuliarcase,theOntarioCourtofAppealassertedjurisdictionoverthemattereventhoughtheapplicationhadnopurposeotherthantoaffectthetaxliabilityofthetaxpayers,thus(atleastarguably)“rewritingfiscalhistory.”

This“exception”createdbytherectificationjurisprudenceisitselfafineline.ThispointisillustratedbyacomparisonoftheJuliarcasewithcaseswheretaxpay-ershavesoughtadeclarationthatdoesnotinvolverectification.InFelsen Foundation v. Jabs Construction Ltd. et al.,115 whichwasnot a rectification case, the taxpayerseemedtopushthelimitsofjurisdictionwiththemomentumoftheDaledecision.InJabs Construction,acharitablefoundationmadeanapplicationtotheBritishCo-lumbiaSupremeCourtforadeclarationthatagiftfromabenefactorwaslegallyvalid.TheCRAhadassessedthe“donor”onthebasisthatthetransferofrevenuepropertieswasnotagiftpursuanttosubsection110.1(3)oftheIncomeTaxAct.Thecourtdismissedtheapplicationonthebasisthatitdidnothavejurisdiction,andalternatively,thatitshouldinanyeventdeclinejurisdiction.Insofinding,thejudgedeterminedthatthematterwasonetobeputbeforetheTaxCourtofCanada,andthatthepetitionerwasnotentitledtoanopinionofthecourtundertheguiseofadeclaratoryorder.Thecourtstatedthatitwasnotinthebusinessofdecidingissuessolelytoinstructothercourts.116

ThescenarioinJabs Constructionis,inaverybroadsense,similarineffecttothatinJuliar.However,theJuliarcaseinvolvedarequestforrectificationthataskedthecourttoapproveofcertainspecificstepsretroactively.InJabs Construction,rectifica-tionwasnotsought,andindeedcouldnotbe.Thepetitionerinthatcasedidnotaskthecourttoapprovethecorrectionofanydocumentsatissue,butrathersoughtanopinionastothecharacterizationofthetransaction.Thejurisprudencethussuggeststhatsuperiorcourtscanissuereliefthatisdirectedatchangingataxoutcomeonly

114 AnotherdistinctionisthatinJuliar,thetaxpayerbasedthedecisiontoexecuteadocumentonerroneousinformation.And,ofcourse,thecourtfoundthatalloftheelementsofrectificationhadbeenmet.

115 98DTC6454(BCSC).



inverynarrowcircumstances.Inotherwords,whererectificationisnotavailable,aswasthecaseinJabs Construction,thejurisprudenceinrectificationcasesdoesnotinanywaysubstantiateprovincialsuperiorcourtjurisdictiontoissueanyotherformofdeclarationorreliefforthepurposeofaffectingaparticulartaxoutcome.

Onecouldhaveatheoreticaldebateastowhetherornottheexamplesofrectifi-cationordersthataredirectedatundoingtaxconsequenceshavesteppedovertheboundariesofjurisdiction,particularlyifonecomparesthemwithresultsincasessuchasJabs ConstructionorGLP NT Corporation.ThereasoningofRobertsonJAintheDaledecision,thatcourts“woulddeclinetheinvitationtograntaretroactiveorderwhichhastheclearlegaleffectofrewritingfiscalhistory,”providesanotherinterestingcontrast.Ifthetaxoutcomeistheonlypurposeforarectificationorder,theSupremeCourtofCanada’sconclusioninits1970decisioninJ.B. & Sons Co. Ltd.,thattheprincipleofjudicialcomitytowardcourtsofcoordinatejurisdictiondidnotapply,mightsuggestthattheTaxCourtwouldnotbeboundbyarectificationorder.117Nevertheless,rectificationintaxcasesappearstobeapracticeacceptedbythecourtsinverynarrowcircumstances,andcouldbesaidtobeanexceptiontotherulerestrictingaprovincialcourt’sjurisdictionovermatters“ancillary”totheassess-ment.Itmightalsobearguedthatrectificationordersproperlyfallintothecategoryofmatters“ancillary”totheassessment,thoughthisissubjecttodebateiftheonlypurposeandeffectoftheproceedingsistoalterthetaximplications.

Giventherealityoftheavailabilityofrectificationordersintaxcases,thecom-mentsofthemajorityinDaleregarding“revisionistorders”providesomeguidanceinsituationswherearectificationorderissoughtwithoutnoticetotheministerofnationalrevenue.118InasmuchastheorderarguablyrepresentsanindirectintrusionintotheTaxCourt’sterritory,itwouldseemimprudentforthetaxpayertoseekarectificationorderwithoutservingtheminister,becausethepossibilitythattheordermaybefoundnottobindtheTaxCourtwouldthenbemuchgreater.Indeed,atleasttwoprovincialsuperiorcourtshavealreadyindicatedthattheministermustbeservedinthesecircumstances.119

117 Admittedlyakeydifferenceisthatarectificationorderismoreindirect,sinceitaddressesafactualoccurrenceratherthanthelegalconsequence,eventhoughthetaxconsequencemaylogicallyflowfromthatfactualoccurrence.InJ.B. & Sons Co. Ltd.,supranote22,theSupremeCourtwasaddressingafindingofthesuperiorcourtthatpurportedtodeterminethedirectlegalconsequence—thatis,whichpartyhadtheliabilityforthetax.

118 SeeColumbia North Realty Company, Re,2006DTC6124(NSSC).

119 Ibid.;andSnow White Productions Inc. v. PMP Entertainment,[2004]3CTC282(BCSC).ItwouldbedifficulttoreconcileataxpayerpositionthattheministerhasnointerestinahearingforarectificationorderwiththepropositionthatthesametaxpayerwouldundoubtedlyraiselaterintheTaxCourt—thattherectificationorderwouldbindtheministeraspertheDaledecision.Inthisregard,onemighttakenoteofthereasoningofPigeonJinJ.B. & Sons Co. Ltd.,supranote22,at234.Contra,seeCanada (Procureur Général) v. Gestion R.F. & Fils Inc.,2002CanLII14468(Que.CS).


Irrespectiveoftheissueofnoticetotheminister,thejurisprudenceinrectifica-tioncasesmustbeputinitspropercontext.Asstatedabove,rectificationcasesdonotinanywaysubstantiatesuperiorcourtjurisdictiontoissueanyotherformofdeclarationorreliefthatisspecificallydirectedataffectingataxoutcome.Jurispru-denceinrectificationcasesthereforeshouldapplyonlytootherrectificationcases.Itshouldnotbeinvokedincaseswheretherectificationremedyisnotavailable,andwherethepartymerelyseeksadeclarationthatpurportstoaffectthetaximplica-tionsofatransaction.

A buse- o f- Pro ce ss c A se s

ThejudicialdiscourseontheparametersoftheTaxCourt’sexclusivejurisdictionhasmostrecentlybeenfocusedontheissueofabuseofprocess—caseswherethetaxpayer seeksa remedy inrespectof theCRA’sactions inraisinganassessment.Thisissuehasariseninseveralcontexts:

1. AtaxpayerfilesanappealintheTaxCourt,claimingthattheCRAanditsofficersabusedtheirpowersintheprocessofraisinganassessment,orinre-viewingtheassessmentattheobjectionstage,andseekinganordersettingasidetheassessment.

2. AtaxpayerseeksjudicialreviewofthedecisiontoassessintheFederalCourtpursuanttosection18.1oftheFederalCourtsActonanissueofprocess.

3. AtaxpayerfilesastatementofclaimintheFederalCourtoraprovincialsu-periorcourtclaimingdamagesorinjunctivereliefagainsttheministeronthebasisofanabuseofpowerorprocess120duringtheauditorobjectionstage.

Inthelastfourorfiveyears,therehasbeenaspateofdecisionsinavarietyofcourts thataddressthe jurisdictionofeachcourttograntrelief inthesecircum-stances.Inaddressingthislineofcases,afewimportantpointsmustbemadeattheoutset.TheTaxCourtclearlyhasnoabilitytograntdamagesasaformofrelief.Ontheotherhand,nosuperiorcourtotherthantheTaxCourthastheabilitytoeffect-ivelysetasideataxassessment.121However,thecasestendtoaddresstheissueinmoresubtlecircumstances.Incertaincases,ataxpayermightlaunchastatementof

120 This,ofcourse,mightalsoincludealloftherelatedcausesofactionsuchasmisfeasanceofofficeornegligence.

121 InRedeemer Foundation v. MNR,2005DTC5617(FC),theFederalCourtgrantedanorderrequiringtheministertovacateassessmentsthatwerefoundedoncertaininformationthatthecourtfoundwasobtainedbyunlawfulmeans,afterdeterminingthatcertaininformationobtainedbyvirtueofstatutoryauthoritywasimproperlyused.ThedecisionwasoverturnedbytheFederalCourtofAppealonthemainissueofthelegalityoftheinformationrequest(2006DTC6712(FCA));leavetoappealwasgrantedbytheSupremeCourtofCanada.BoththemajorityandthedissentingreasonsconfirmedthattheFederalCourtdidnothavethejurisdictiontoordertheministerofnationalrevenuetovacatetheassessments:Redeemer Foundation v. Canada (National Revenue),2008SCC46,atparagraphs28and58.


claimfordamagesfor“abuseofpower”wherethebasisforthecauseofactionisan“unlawful”assessment.122Inothercases,ataxpayermightappealanassessmentandraiseallegationsregardingtheprocessinanoticeofappeal.SometimesataxpayerinitiatesproceedingsinboththeTaxCourtandthesuperiorcourt.

The Tax Court on Abuse of Process

TheTaxCourtofCanadawasconfrontedwithdualproceedingsrelatedtoabuseofpowerinObonsawin v. The Queen.123Thetaxpayerhadcommencedtwoproceedings:anappealfromtheGSTassessmentintheTaxCourtandatortactionfordamagesintheOntarioSuperiorCourtofJustice.124Thetaxpayerseemedtofocusonabuse-of-processissuesandalleged,amongotherthings,thattheGSTassessmentwasissuedinbreachofatest-caseagreementwiththeminister.Theremediessoughtintheactionbefore theOntariocourt includedan interimandpermanent injunctionenjoiningtheministerfrombreachingatest-caseagreement,andamandatoryin-junctionrequiringtheministertohonourorperformthetest-caseagreement.ThetaxpayerthenmadeanapplicationtotheTaxCourttostaythetaxappealproceed-ings,arguingthattheactionintheOntariocourtwouldbeprejudicediftheTaxCourtconfirmedtheassessment,thuspermittingcollectionaction.

Theapplicationtostay theTaxCourtproceedingswasdismissedbyMillerJ.ThecourtconfirmedthatitalonehadjurisdictiontovacateaGSTassessment,andtheOntariocourtalonehad jurisdictiontoawarddamages ina tortaction.ThecourtalsorecognizedthejurisprudencesupportingitsfindingthattheTaxCourthadnoauthoritytohearrepresentationswithrespecttoanabuse-of-processargumentortoprovideanyremedy.125Thecourtnoted,however,thattheFederalCourtofAppealhadappearedtoleavetheissuesomewhatopeninDwyer v. The Queen,126andexpressedthehopethattheFederalCourtofAppealmightinthefuturehearafulldebateonthecourt’sjurisdiction.127Thecourtfurthernotedthatanyissue

122 See,forexample,The Queen v. Roitman,2006DTC6514(FCA);leavetoappealrefused[2006]SCCAno.353.Thiscaseisdiscussedindetailbelowatnote174andtheaccompanyingtext.

123 2004GTC131(TCC).

124 SeeObonsawin v. Canada (Minister of National Revenue),2006CanLII32636(Ont.SCJ).ThecourtdismissedtheCrown’sapplicationtostrikethestatementofclaimonthebasisofjurisdiction.ThedecisionwasoverturnedbytheOntarioCourtofAppealinObonsawin (Native Leasing Services) v. Canada (National Revenue),2007ONCA701,inNovember2007,butonthenarrowerissueofthesufficiencyofthepleadings.

125 Forcasesinvolvingabuseofprocessorsimilar“process”issues,see,forexample,AG of Canada v. Webster,2003DTC5701(FCA);Milliron v. The Queen,2003DTC5490(FCA);andSinclair v. The Queen,2003DTC5624(FCA).FormorerecentcasesapplyingsimilarprinciplesaftertheObonsawindecision,seeLassonde v. The Queen,2006DTC6039(FCA);leavetoappealrefused(2007),354NR398(note);Hardtke v. The Queen,2005DTC676(TCC);andBurrows v. The Queen,2006DTC2172(TCC).

126 2003DTC5575(FCA).

127 Obonsawin,supranote123,atparagraph13.


arisingfromcollectionactionaftertheTaxCourtdecisionmightbeaddressedintheFederalCourt.128ThecourtconcludedthatbecausetheissuebeforetheTaxCourtwasconfinedtothequantumoftheassessment,therewasnoprejudicetothetaxpayerinallowingtheTaxCourtproceedingstocontinue.MillerJalsoconcludedthat in thecircumstances, therewas“nooverlapof jurisdictionbetweentheTaxCourtofCanadaandthe[OntarioSuperiorCourtofJustice]:theissuesareseparateanddistinctinthetwoCourts.”129

TheTaxCourt’sdecisioninObonsawindoesnotsuggestthatifastatementofclaimseeksdamagesasrelief,asuperiorcourtwouldautomaticallyhavejurisdictiontoawardthatrelief,simplybecausetheTaxCourtcouldnot.Clearly,theTaxCourthasnoabilitytoissuethatformofrelief.However,onecanenvisageasituationinwhichataxpayerlaunchesastatementofclaimfordamagesfor“abuseofpower”wherethecauseofactionrelatestoanallegationthatanassessmentclaimedisunlawful,andthetaxpayerseeksadamageawardthatincludestheamountoftheassessment.130Giventhosecircumstances,asuperiorcourtcouldnotawarddamagesontheprem-isethattheassessmentwasindeedwrongorthattheministerhadnoabilitytomakethatassessment.131InObonsawin,MillerJrefrainedfromcommentingonthejuris-dictionoftheOntariocourttoissueadeclarationrelatingtothevalidityoftheGSTassessment,butnotedthatsuchanorderwouldnotmeanthattheTaxCourtwouldautomaticallyimplementanysuchdecisionbyvacatingtheassessment.132

ThereferencetotheCourtofAppeal’sdecisioninDwyer,however,castsomedoubtonthelimitsoftheTaxCourt’sjurisdiction.InDwyer,theFederalCourtofAppealconsideredwhether theTaxCourt judgeerred in failing tofind that theconductofanauditorconstitutedanabuseofprocess.Notably,thecourtdidnotaddresstheissueoftheTaxCourt’slackofjurisdictiontoentertainthisargument,butsimplydisposedoftheissueonitsmerits.133ThereasonsofMillerJinObonsawinsuggestedaconcernthatthiscouldbeinterpretedasatacitacknowledgmentoftheTaxCourt’sjurisdiction.TheCourtofAppealmayhavemerelyfeltthatitwasmoreefficienttocommentonthelackofmeritoftheclaim;indeed,itlaternotedthattheallegationofabuseinDwyerwasoneofseveralissuesraisedinrelationtomultipleassessments.134However,thesituationdemonstratestheconfusionthatcanariseinrelationtotheissueofjurisdiction.


129 Ibid.,atparagraph17.ThetaxpayerappealedtheTaxCourt’sdecisionbuttheappealwasdiscontinued:Obonsawin v. Canada,2006FCA5.

130 See,forexample,Roitman,supranote122.

131 Thejurisprudencehassuggestedthatanargumentthattheministerhadnoabilitytomakeanassessmentisthesamethingaschallengingthecorrectnessoftheassessment.SeeParsons,supranote25,at6346;and422252 Alberta Ltd.,supranote91,atparagraphs27-28.

132 Obonsawin,supranote123,atparagraph15.

133 Seesupranote126.

134 SeeMain Rehabilitation Co. Ltd.,infranote135.


The Federal Court of Appeal Clarifies the Line

TheFederalCourtofAppealsoonhadachancetoclarifyitsdecisioninDwyerinMain Rehabilitation Co. Ltd. v. The Queen.135TheCrownappliedtostrikeportionsofthetaxappealthatallegedthattheaudititselfwasanabuseofprocess.Theclaimincludedanallegation that theauditor’s supervisorwasa friendof adisgruntledshareholderofthecompany,whohadallegedlytriggeredtheauditbyafalsetip.Inreviewingthetrialjudge’sdecisiontostrikethoseportionsdealingwiththeallegationsofabuseofprocess,theCourtofAppealconcludedthatitwasplainandobviousthattheTaxCourtdidnothavethejurisdictiontosetasideanassessmentonthebasisofanabuseofprocess.

Insofinding,thecourtoutlinedwherethejurisdictionaldividinglinelay.Thecourtclearlysetoutthatthevalidityoftheassessment,orwhethertheamountsassessedcanbeshowntobeproperlyowing,aremattersfortheTaxCourt.Conversely,thepro-cessbywhichtheassessmentisestablished,orwhetherornottheofficialsexercisedtheirpowersproperly,werematterslyingoutsidetheTaxCourt’sjurisdiction.136Insupportofthisproposition,theFederalCourtofAppealciteditsowndecisionsinThe Queen v. The Consumers’ Gas Company Ltd.,137 Ludco Enterprises Ltd. v. The Queen,138andSinclair v. The Queen.139Thecourtalsoconfirmedthatitspreviousde-cisioninDwyerdidnotconstituteadeparturefromtheexistingstateofthelaw.140

AlthoughMain Rehabilitation Co. Ltd.originatedintheTaxCourt,theFederalCourtofAppealhadclearlyidentifiedthedividinglineofjurisdictionbyreferencetothejurisdictionofothersuperiorcourtsinabuse-of-processcases.Nevertheless,thepotentialformisunderstandingarosefromasubsequentdecisionoftheFederalCourtofAppeal.InSwift v. The Queen,141thetaxpayerfiledastatementofclaimintheFederalCourtallegingabuseofprocess.Whilethedecisiondoesnotaddmuchtothedevelopmentofthelaw,itisarecentcasethatillustratesthepotentialformisinterpretationontheissueofjurisdiction.

InSwift,theFederalCourtstruckthestatementofclaimfiledbyataxpayerwhomadeallegationsoffraudbytherepresentativesoftheminister,includinganallega-tionoffraudulentassessment.Thefactsofthecasemay,ontheirface,haveappearedsympathetictothetaxpayer.Shortlyafterbeingassessed,thetaxpayermadeanas-signmentintobankruptcy.AlthoughhehadfiledanoticeofappealintheTaxCourt,

135 Main Rehabilitation Co. Ltd. v. The Queen,2004DTC6763,atparagraph14(FCA);leavetoappealdismissed[2005]SCCAno.37.

136 Ibid.,atparagraph8.FormorerecentcaseswheretheTaxCourtstruckportionsofanappealrelatingtoabuse-of-processissues,seeFaber v. The Queen,2007DTC640(TCC);andLuciano v. The Queen,2007DTC706(TCC).

137 87DTC5008(FCA).

138 [1996]3CTC74,at84(FCA).

139 Supranote125.TheSinclaircasedealtwithaCharterissue.

140 Main Rehabilitation Co. Ltd.,supranote135,atparagraph14.

141 2004DTC6651(FCA).


authorityoverthatlitigationofficiallydevolvedtothetrusteeinbankruptcy,whoshortlythereafterdiscontinuedtheappeal.ThetaxpayerthenfiledastatementofclaimintheFederalCourt.Instrikingtheclaim,thetrialjudgenotedthatthecourthadnojurisdictiontoentertainchallengestoanassessmentoftaxliability.142Thecourt alsonoted thatgiven thematters addressed in the statementof claim, theplaintiffwasattemptingtorelitigatemattersdecidedbytheTaxCourt,seeminglysuggestingtheapplicationofresjudicataorissueestoppel.Last,thecourtfoundthattheallegationslackedanyfactualbasisandthusstruckthestatementofclaimasfrivolousandvexatious.

TheCourtofAppealoverturnedthelowercourt’sdecisiontostrikeouttheclaim,allowingtheappeal.Thereasonsofthecourtincludedthefollowingfindings:

The claim being advanced by the Appellant, although it labels the assessments asfraudulent,doesnotseektosetasidetheassessments.Inessence,itisaclaimfordam-agesforfraudulentactionsonthepartofofficialsoftheCCRA[theCRA]duringtheassessmentprocess.ThisclaimfordamageshasnotbeenpreviouslydecidedbytheTaxCourtofCanadaandisnotwithinthejurisdictionoftheTaxCourtofCanada.AllthathappenedintheTaxCourtofCanadawasthattheAppellant’sappealofhistaxassess-mentswaswithdrawn.143

ThedecisionoftheCourtofAppealmightbemisinterpretedinafewrespects.Thefactthatthestatementofclaimsoughtdamagesanddidnotseektospecificallysetasidetheassessmentswouldnotitselfbedeterminativeofthematter.Ataxpayercannot, of course, obtain anorder to set aside assessmentsbecause, pursuant tosubsection152(8)oftheIncomeTaxAct,theyaredeemedtobevalidandbindinguntilvaried,andbecausetheTaxCourtofCanadahasexclusivejurisdictionoversuchmatters.However,itisequallyproblematicforthetaxpayertoseekdamagesbasedonan“unlawful”or“fraudulent”assessment.Suchaclaimnecessarilyasksthecourttoassumeorconcludethattheassessmentwaswronginlawandthusisnotvalidandbinding.Further,thefactthattheTaxCourtofCanadahadnotpreviouslydecidedthematterwouldnot,inandofitself,conferjurisdictionontheFederalCourt.144Ifthematterwastrulyoneofabuseofprocess,itwouldnotfallwithintheTaxCourt’sjurisdiction.AnyTaxCourtdecisioninataxappealnormallyoughtnottogiverisetotheprincipleofresjudicataorissueestoppelwithrespecttoatrulydistinctmatterofabuseofprocess.145

142 [2004]GSTC124(FC).


144 SeeRoitman,supranote122,atparagraph26.

145 See,forexample,DonaldJ.Lange,The Doctrine of Res Judicata in Canada,2ded.(Markham,ON:LexisNexisButterworths,2004),100-3. SeealsothecommentaryofDavidShermanfoundat[2004]GSTC125,at125-3,whichalsomentionsotherconsiderationsregardingthelowercourt’sdecision.Forexample,thetrialjudgefoundthattherewasnofactualbasisforanyoftheallegationsmadeintheclaim.However,itisnotfortheplaintifftobringanyevidenceonamotiontostrikeorpriortothetrialoftheaction.


Inthecircumstances,anarrowinterpretationofthedecisioninSwiftisthereforewarranted.Thecourtultimatelyfoundthatthestatementofclaimwasa“ramblingdiscourserelatedtotheactionstakenbyCCRA,andislackingindetailastotheal-legationsoffraud.”146Thecourtalsorecognizedthatthetaxpayer’sallegationsoffraudlackedsomedetail,possiblyasaresultofthefactthathewasunrepresented.Thecourtwaslikelyunabletodecipherwhethertheallegationsof“fraudulent”as-sessmentrelatedonlytothesubstanceasopposedtotheprocessoftheassessment.Inthatsense,itwasfairtoconcludethatonthebasisoftheallegationsinthe“ram-bling”statementofclaim,itwasnotplainandobviousthattheactioncouldnotsucceed(theproperthresholdforthisapplication).Bythisinterpretation,thecasehasverylimitedapplication,aswas laterconfirmedbytheFederalCourtofAp-peal.147Inmostcases,itwillbeplainandobviouswhetherthesubstanceoftheclaimfallswithinthejurisdictionoftheFederalCourtorwhetheritissimplyachallengetotheunderlyingassessmentindisguise.

ThisexplanationoftheCourtofAppeal’sdecisioninSwiftissupportedbyrefer-encetoitssubsequentdecisioninSokolowska v. The Queen.148Inthatcase,theappellantwasamotherwhoheldpowerofattorneyforherdaughterandwasalsotheadmin-istratorofherdeceasedhusband’sestate.Herhusbandhaddiedwithanincometaxdebt,mostofwhicharoseinorpriorto1992.InDecember1992,hehadtrans-ferred tohisdaughter realpropertyvaluedatover$100,000, for the sumof$1.Consequently,theCRAassessedthedaughterpursuanttosection160oftheIncomeTax Act. The daughter later successfully appealed a portion of the assessmentsagainsther,establishingherentitlementtocertainallowablebusinessinvestmentlosses.HerfurtherappealtotheCourtofAppealcontestingtheremainderoftheassessmentwasdismissed.

ThemotherlaterfiledanactionintheFederalCourt,allegingthatthedaughterhadbeenimproperlyassessedpursuanttosection160,whilealsochallengingre-quirementstopayissuedbytheCRAtothedaughter’sfinancialinstitutiontocollecttheresultingdebt.Inaddition, themothermadeallegationsof fraudagainst theCRA,claimingthatcertainbusinessinvestmentlosseshadbeenimproperlydenied.ThestatementofclaimwasdismissedprimarilyonthebasisthattheFederalCourtdidnothavejurisdiction.149ThecourtalsonotedthatmanyoftheissuesraisedinthestatementofclaimhadalreadybeenaddressedinthepreviousdecisionbytheTaxCourt.150

146 Swift,supranote141,atparagraph9.

147 Indeed,thisseemstobehowtheCourtofAppealexplainedtheoutcomeintheSwiftcaseinitssubsequentdecisioninRoitman,supranote122,atparagraph27.

148 2005DTC5089(FCA);leavetoappealrefused(2006),346NR195(note).

149 Sokolowska v. The Queen,2003CarswellNat.5158(FC).



TheFederalCourtofAppealdismissedtheappeal.Insodoing,thecourtfoundthat themotions judgehadcorrectlyapplied thedecision inOptical Recording,151findingthattheFederalCourthadnojurisdictionwithrespecttoproceedingsaris-ingoutoftheassessment.TheFederalCourtofAppealalsoreferredapprovinglytothelowercourt’sfindingthatthemattershadalreadybeenraisedintheTaxCourt.Whilethelowercourt’sreferencetothepreviousdecisionoftheTaxCourtisun-derstandable,onceagain,itoughtnottobemisconstrued.HadtheTaxCourtnotdeterminedmattersrelateddirectlytothetaxappeal,thatfactalonewouldcertainlynothaveprovidedtheFederalCourtwithanykindofresidualjurisdiction.152Thefactthatanothercourtdidordidnotpurporttoconsidertheissueisofnoconsequenceifitdidnothavejurisdictionoverthesubjectmatterinthefirstplace.Conversely,iftheTaxCourthadpurportedtodetermineanissuewithouthavingjurisdictiontodetermineit,theprincipleofresjudicatawouldnotapply.153Therefore,thelowercourt’sreferencetothepreviousdecisionoftheTaxCourtdoesnotprovideanyreasonfordistinguishingtheSokolowskadecisioninfuturecaseswherethesubstanceofthetaxpayer’sappealhasnotbeendeterminedbytheTaxCourt.Indeed,itisnota-blethattheFederalCourtofAppealdidnotemphasizetheissueofresjudicataindismissingtheappeal,andreferredprimarilytotheFederalCourt’sfindingthatithadnojurisdiction.154

Recent Judicial Review Decisions

Theissueofjurisdictionhasbeenfurtherclarifiedbyarecentseriesofjudicialre-viewcasesintheFederalCourt.BeforeIaddressthislineofcases,abriefreminderofthefederalcourtstructureisrequired.

Section18.1oftheFederalCourtsActprovidestheFederalCourtwithexclusivejurisdictionoverjudicialreviewofthedecisionsoffederaltribunals.Anoticeofre-assessmentisineffectanadministrativeactofagovernmentofficialthatfallswithintheparametersof section18.1,andwouldnormallybe subject to judicial reviewproceedingsbasedonsection18.1alone.However,bytheoperationofsection18.5,ataxpayercannotrelyonsection18.1tochallengeanassessmentbytheministerofnationalrevenue,becausetheonlyrecourseistoappealtheassessmentintheTaxCourtofCanada,whetherthetaxpayerseekstochallengetheassessmentasanendinitselforforsomeotherpurpose.155Ineffect,theappealtotheTaxCourtprecludes

151 Supranote34.

152 Forsimilarlogic,seeRoitman,supranote122,atparagraph26,wherethecourtdeterminedthatthefailureofthetaxpayertopursueanappealbeforetheTaxCourtcannotmeanthattheFederalCourtwouldinheritjurisdictionoverthematter.

153 See,forexample,Lange,supranote145,at100-3.


155 Webster,supranote125,atparagraphs20-21;Greene,supranote49,atparagraph9;andWalker,supranote66,atparagraph13.


judicialreviewofanassessmentundersection18.1.156Instead,itgivesthetaxpayerafulltrialdenovo,where,assuggestedintheJohnstoncase,157theTaxCourtconsiderstheevidencepresentedtoit.Consequently,non-taxcasesthatdefinetherelationshipbetweentherighttojudicialreviewandtherighttoinitiateanactioninrelationtogovernmentdecisionsare,byanalogy,instructivetotaxcases.

TheFederalCourtdoesnothavejurisdictiontoawarddamagesortograntanyotherreliefthatissoughtonthebasisofaninvalidreassessmentoftaxwherethereassessmenthasnotbeenoverturnedbytheTaxCourt.Todosowouldbetopermitacollateralattackonthecorrectnessofanassessment,whichisstrictlyprohibitedbythelegislativeschemeoftheIncomeTaxActandtheFederalCourtsAct.158

ThedecisionoftheFederalCourtofAppealinAG of Canada v. Webster159con-firmed this principle in rather interesting circumstances.During the courseofappealproceedingsintheTaxCourt,thetaxpayersoughtanunredactedversionofanauditreportthatincludedtheinformationfromathird-partyinformant.160TheapplicationtocompeldisclosurewasrejectedbytheTaxCourt.Inthecourseofdiscovery,thetaxpayerlaterlearnedthattheappealsofficerhearingtheobjectionhad purportedly been provided with an unredacted version of the audit report.Consequently,thetaxpayermadeanapplicationforjudicialreviewseekinganorderconfirmingabreachofhis rights andquashing the assessment.While the courtconfirmedthatthejurisdictionoftheTaxCourtwaslimitedtodeterminingwhethertheassessmentswerecorrectinlaw,italsodeterminedthattheFederalCourthadno jurisdiction to review the objection process, even if there were flaws in thatprocess.161

Forthereasonssuggestedabove,caselawregardingtheparametersofsection18.5oftheFederalCourtsActinnon-taxcasescanbejustasinformativeinassessingthe

156 Exceptforadministrativedecisionswhereanappealisnotavailable,withcertainexceptions.SeeAddison & Leyen Ltd., infranote180andtheaccompanyingtext.

157 Supranote14.

158 Parsons,supranote25,at6346;Khan v. MNR,85DTC5140(FCA);Optical Recording Corp.,supranote34,at320-21;andBechthold Resources Limited,supranote26,at6067.InAlbion Transportation Research Corp.,supranote47,thecourtappliedsection18.5oftheFederalCourtActtoanaction,asdistinctfromanapplicationforjudicialreview.Significantly,thecourtfoundthatthewords“otherwisedealtwith”insection18.5meantthatevenanactionfordamagesorforadeclarationwouldbeprecludedbysection18.5ifitentailedanattackonthevalidityofthetaxassessment.SeealsoObonsawin,supranote123.

159 Webster,supranote125.


161 Ibid.,atparagraphs20-21.ThecourtalsonotedthatthemandateoftheTaxCourtitselfwasonlytodeterminewhethertheassessmentwascorrectinlaw,irrespectiveofanyunfairnessorflawintheobjectionprocess.ForotherrecentjudicialreviewdecisionsaddressingthelimitationsofthejurisdictionoftheFederalCourt,seeWalsh et al. v. MNR et al.,2006DTC6066(FC);aff ’d.2007DTC5512(FCA);Heckendorn v. The Queen et al.,2005DTC5310(FC);andAngell et al. v. MNR et al.,2006DTC6525(FC).


abilitytobringanactionfordamagesintaxcases.InCanada v. Grenier,162aninmatebroughtanactionagainsttheCrownclaimingdamagesinrespectofadecisionbytheheadofacorrectionalinstitutiontoremovetheinmatetoadministrativesegre-gation.TheCourtofAppealfolloweditsearlierdecisioninTremblay v. The Queen163indetermining thatapersonseeking tochallengeadecisionofa federalagencycannotdecidetolaunchanactioninsteadofajudicialreviewofthedecision,butrather“mustproceedbyjudicialreviewinordertohavethedecisioninvalidated.”164As suggestedby theSupremeCourtofCanada inVaughan v. Canada, aplaintiffcannotframeanactioninnegligencetocircumventtheapplicationofastatute.165Inataxcase,thiswouldtranslatetofilinganappealintheTaxCourttofirstover-turntheassessment.

Therequirementtofirstoverturntheoriginaladministrativedecisionwasem-phasizedbytheCourtofAppealinGrenierwhenitnoted:

To accept that the lawfulness of the decisions of federal agencies can be reviewedthroughanactionindamagesistoallowaremedyundersection17.Allowing,forthatpurpose,aremedyundersection17would...disregardordenytheintentionclearlyexpressedbyParliamentinsubsection18(3)[oftheFederalCourtsAct]thattherem-edymustbeexercisedonlybywayofanapplicationforjudicialreview.166

Thecourtfurthernoted:

Theprincipleofthefinalityofdecisionslikewiserequiresthatinthepublicinterest,thepossibilitiesfor indirectchallengesofanadministrativedecisionbelimitedandcircumscribed,especiallywhenParliamenthasoptedforaprocedurefordirectchal-lengeofthedecisionwithindefinedparameters.167

Itisespeciallyimportantnottoallowasection17proceedingasamechanismforre-viewingthelawfulnessofafederalagency’sdecisionwhenthisindirectchallengeto

162 2005FCA348.SeealsoMichaelF.Donovan,“WhenPublicandPrivateLawCollide:TheRelationshipBetweenJudicialReviewandTortRemediesinClaimsAgainsttheFederalGovernment”(2007)vol.33,no.3The Advocates’ Quarterly355-74,at356-59,whichprovidesanexcellentanalysisoftheGrenierdecision.

163 (2004),244DLR(4th)422(FCA);leavetoappealtoSCCrefused(2004),246DLR(4th)viii.

164 Grenier,supranote162,atparagraph20;appliedinCanada v. Prentice,2005FCA395,atparagraphs31-33;leavetoappealdismissed[2006]SCCAno.26.Atparagraph23ofGrenier,thecourtalsofavourablycitedThe Queen v. Capobianco,2005QCCA209,inwhichtheQuebecCourtofAppealheldthatanactionfordamagesbroughtintheSuperiorCourtofQuebecwasprematurebecausetheplaintiff ’sclaimwasbasedonthepremisethatthedecisionsmadeinrelationtohimbythefederaltribunalsthatallegedlycausedthedamageswereillegal.

165 [2005]1SCR146,atparagraphs11and42(inthecontextofstatutoryreviewunderthePublicServiceStaffRelationsAct).SeealsoRoitman,supranote122,atparagraph16.

166 Grenier,supranote162,atparagraph25.



thedecision isusedtoobviate themandatoryprovisionsofsubsection18(3)of theFederal Courts Act.168

Giventhestructureofsections18.1and18.5,thesecasesareinformativeinde-finingthelinebetweentaxappealproceduresandactionsfordamagesinsuperiorcourts.Forcaseswheretheimpugneddecisionisanassessmentoftax,Parliamenthas created a specialized court with a comprehensive statutory appeals process.Challengestothe lawfulnessoftaxassessmentscanonlybereviewedbytheTaxCourtofCanadaundertheappealprovisionsoftheIncomeTaxAct.Whilethetax-payermightbeabletolaunchanactionintheFederalCourtbasedonallegationsofimproprietyrelatingtotheadministrationoftaxlaw,heorshewould,attheveryleast,berequiredtofirstsuccessfullychallengetheassessmentintheTaxCourt.169TopermitataxpayertobringanactionfordamagesbasedonanallegationofanunlawfulassessmentoftaxwithoutadecisionoftheTaxCourtwoulddisregardtheclearlegislativeobjectiveexpressedthroughtheoperationofsections18,18.1,and18.5oftheFederalCourtsAct,subsection152(8)oftheIncomeTaxAct,andsec-tion12oftheTaxCourtofCanadaAct,andwouldunderminetheeffectivenessofthetaxappealmechanism.

Recent Class Action Cases

Taxpractitionersgenerallydonotbecomeinvolvedinlitigatingclassactionsuits;suchactionsarecommonlyreservedforpractitionersinotherareasofthelaw,suchastort.Itisthereforealittlesurprisingthatthejurisdictionaldividinglinehasbeenreinforcedbytwocourtofappealdecisionsrelatingtoproposedclassactions.InSmith et al. v. Canada (Attorney General)170 andThe Queen v. Roitman,171 bothofwhichweredecidedaftertheHo-A-Shoocase,172thecourtsconcludedthatthepro-posedclassactionsshouldbestruckonthebasisofthejurisdictionallimitationsofsuperiorcourtsintaxassessmentmatters.

InSmith,thetaxpayersbroughtaproposedclassactionintheBritishColumbiaSupremeCourt,namingseveralbodiesandrepresentativesofthefederalgovern-mentasdefendants.Thetaxpayersweretruckdriverswhoclaimedthattheyshouldbealloweddeductionsformealsatthesamerateusedbythefederalgovernmenttoreimbursefederalemployees.Whilethestatementofclaimwasbasedoncausesof


169 Idonotsuggestthatsuchaclaimcouldbesuccessfulinanyevent,sinceataxpayerlikelycouldnotestablishtheelementsofatortclaimifheorshesuccessfullyappealedtheassessment.SeeCanus v. Canada Customs,2005NSSC283,atparagraph104,where,indismissingalawsuitagainsttheCRAfornegligenceinraisinganassessment,HoodJsuggestedinobiterdictathattheobjectionandappealprocesstotheTaxCourtprovidesa“completeremedy”insuchcircumstances.

170 2006BCCA237;leavetoappealrefused(2006),362NR400(note).

171 Supranote122.

172 Supranotes82and86.


actionincludingnegligence,breachoffiduciaryduty,andallegedbreachesofsec-tions8and15oftheCharter,theBritishColumbiaCourtofAppealupheldthedecisionofthetrialjudgetostriketheclaim.Insodoing,itfoundthattheallega-tionsrelatingtothecommon-lawcausesofactionsetoutinthestatementofclaimwereinrealityachallengetotheassessment.173

ThefactsinRoitmanpresentedamoresubtlesituation.Thetaxpayerfiledastate-mentofclaimintheFederalCourtasaproposedclassaction.ThestatementofclaimallegedthattheCRAhadengagedinmisfeasanceofoffice,negligence,andabuseofprocessbydevelopingandfollowingapolicythatallegedlyignoredadecisionoftheFederalCourtofAppealrelatingtoadjustmentstoshareholderloanaccounts.174Thestatementofclaimallegedthatthispolicywasthenappliedinassessingtheplaintiff,who,amongotherthings,soughtexemplaryandpunitivedamages.Thestatementofclaimwasthusframedintermsofanabuseofprocessbasedonthecreationandapplicationofthe“illegal”policy,andnotasachallengetotheassessment.175

The Federal Court dismissed the Crown’s application to strike the plaintiff ’sstatementofclaim.ThedecisionseemedtohingeonthefindingthattheCourtofAppeal’sdecisioninSwift176wasdeterminativeoftheissue.Thiswasevidentinthefollowingpassage:

InSwift v. Her Majesty the Queen,JusticeSextonwrotefortheFederalCourtofAppeal:

TheclaimbeingadvancedbytheAppellant,althoughitlabelstheassessmentsasfraudulent,doesnotseektosetasidetheassessments.Inessence,itisaclaimfordamagesforfraudulentactionsonthepartofofficialsoftheCCRAduringtheassessmentprocess.Thisclaim fordamageshasnotbeenpreviouslyde-cidedbytheTaxCourtofCanadaandisnotwithinthejurisdictionoftheTaxCourtofCanada....

Iamsatisfiedthatthesamecouldbesaidhere.177

173 Supranote170,atparagraphs11,14,and15.ThecourtdealtseparatelywiththeallegationsofCharterbreaches.ForasimilaroutcomeinanactionlaunchedagainsttheCRAfor“negligence”inassessingathirdparty,see7837783 Alberta Ltd. v. Canada (Attorney General),2007ABQB348.

174 Roitman,supranote122.Thecourtnoted,ibid.,atparagraphs17and18,thatthestatementofclaimallegedthattheministerdeliberatelymisappliedthelawexpressedinthedecisionofThe Queen v. Franklin,2002DTC6803(FCA).InFranklin,atparagraph6,theFederalCourtofAppealdismissedtheCrown’sappealfromthedecisionoftheTaxCourtofCanada,finding,“Normally,itisforthetrieroffacttodeterminewhetherabenefitisconferredforpurposesofsubsection15(1)....Beaubier,J.T.C.C.concludedthatwhatoccurredherewasaseriesofbookkeepingerrorsbutthattherespondentreceivednobenefit.IamunabletofindanypalpableoroverridingerrorsinhisassessmentofthefactsthatwouldjustifythisCourtinterferingwithhisdecision.”

175 SeeRoitman,supranote122,atparagraph17(wherethereasonsreproduceportionsofthestatementofclaim)andparagraph25.

176 Seesupranote141andtheaccompanyingtext.177 Roitman v. Canada,2005FC1385,atparagraph19.Seealsoparagraph13oftheFCAdecision,

supranote122.


However,theFederalCourtofAppealreversedthelowercourt’sdecision,grantingtheCrown’smotion to strike theplaintiff ’s statementof claim. In sodoing, theCourtofAppealwascarefultoreducetheimpactofitspreviousdecisioninSwift.First,itnotedthepeculiarfactsinSwift,confirmingthatthecourthadgiventhetaxpayer“thebenefitofthedoubtinexercisingitsdiscretionatthestageofamotiontostrike.”178Inparticular,thecourtnotedthatoneofthetaxpayer’sallegationswasthattheCRAhadarrangedwiththetrusteeinbankruptcytodiscontinuehisappealsintheTaxCourt.Indeed,itisnotclearexactlywhatwasbeingallegedbythetax-payer,andwhilethenotionofaconspiracybetweentheCRAandthetrusteemayhavebeenunsubstantiated,thecourt’sroleonamotiontostrikeaclaimisnottotesttheevidentiarybasisoftheallegations.Anysuchallegationcouldbeaddressedonlyinanaction,andnotinthecontextofanappealbeforetheTaxCourt.179

Thesetwoclassactioncasesseemtohavereinforcedthelawontheissueofjuris-dictionintax-relatedmatters,whilereducingtheimpactofdecisionssuchasSwifttotheirproperfactualcontext.Thecourtssoonconsideredyetanothertwistinacaseinvolvingjudicialreview,Addison & Leyen,discussedbelow.However,areviewofthecontextofthecasedemonstratesthatthegeneralprinciplesestablishedinpreviousjurisprudenceinthisareahavenotchanged.

The Addison & Leyen Decision

GiventherecentdecisionoftheSupremeCourtofCanadainCanada v. Addison & Leyen Ltd.,180itwouldbenaturaltoconsiderhowthatdecisionfitsinwithpriorjuris-prudencerelatingtotheprinciplesfordeterminingtherespectivejurisdictionsoftheTaxCourtandtheFederalCourt.Whilerequiringsomeexplanation,theissueinAddison & Leyenwasconsiderablynarrowerthan,anddoesnotaffect,thebroadissuesaddressedinthisarticle.ThecasedealswiththeFederalCourt’sabilitytoconsider,bywayofjudicialreview,theminister’sdecisiontomakeanassessmentundersection160oftheIncomeTaxAct.Thetaxpayerfiledapplicationsforjudicialreviewofitsincometaxassessments.Whileitisclearinmostcasesthattaxpayerscannotseekjudicialreviewfortaxassessmentsbyvirtueofsection18.5oftheFed-eralCourtsAct,thetaxpayerarguedthatitscasewasdistinguishable.Section160oftheIncomeTaxAct,aformofsecondaryassessment,permitstheministertoas-sessathirdparty,whoisnotatarm’slengthfromthetaxpayerandwhoreceivesatransferofassetsfromthetaxpayerwithoutprovidingadequateconsideration,atatimewhenthetransferor is liable for taxes.Asacollectiontooldirectedatanti-avoidance,section160expresslypermitstheministertoraiseanassessment“atany

178 Roitman,supranote122,atparagraph27.

179 TheOntarioSuperiorCourtofJusticecametothisconclusioninObonsawin,supranote124.Atparagraphs6-7,ibid.,BelobabaJcharacterizedthe“heartoftheaction”asabuseofpower,andnotthecorrectnessoftheGSTassessment.ThedecisionofBelobabaJwasoverturnedforotherreasons:seesupranote124.

180 2007SCC33.


time.”TheactofraisinganassessmentunderthisprovisionisthusnotsubjecttotheordinarytimeperiodsforassessmentsetoutintheIncomeTaxAct.181Itthuspurportstoallowtheministertoassesswithoutbeingsubjecttoanystatutorytimeconstraint.182

Thetaxpayer’sapplicationfocusedonlyonthedelayinraisingtheassessment.Whileataxpayercanappealasection160assessmentbyreferencetotheelementsofthatsection(forexample,byprovingthatadequateconsiderationwasprovided,orthattheassetwasnottransferredtothepartyassessed),theTaxCourtwouldhavenobasistovacateorsetasideanassessmentasaresultofany“delay”bytheministerinassessing,thatbeinganissueofprocess.TheFederalCourtthereforeconsideredwhethertherewasanywayforataxpayertochallengeanassessmentonthenarrowissueoftheminister’spurporteddelayinassessing.

Themotionsjudgestruckthejudicialreviewapplicationatfirstinstance.How-ever,theFederalCourtofAppealoverturnedthedecisionofthelowercourt,andfoundthattheapplicationforjudicialreviewofthesection160assessmentoughtnottobestruck.Insofinding,themajorityappearedtofocusonthefactthatabsentajudicialreview,nocourtcouldreviewtheminister’sexerciseofhisdiscretionarypowertoraiseanassessment,whichwouldthusbeunlimitedbyanystatutorytimeconstraint.183

ThemajorityoftheFederalCourtofAppealfoundthattherighttoappealasection160assessmentwasnotanadequateremedytoaddressanyimproprietiesintheexerciseoftheminister’sdiscretionthatrelatedtothetimeframeoftheassess-ment.Themajorityalsoconfirmedthat,whileataxpayercanpursuedamagesintheFederalCourtonthebasisofallegationsofimproprietyarisingfromtheadminis-trationoftaxprovisions,heorsheisrequiredtofirstchallengeanadministrativedecisionbywayofjudicialreviewratherthanbywayofanactionfordamages.Themajorityconfirmedthatanactionfordamagesisnotanappropriateavenuetoad-dressanydelaybytheministerbyconcluding,

[g]iventhestateofthejurisprudence,itisnotpossibletoconcludethatiftheappel-lantsarebarredfromseekingjudicialreviewinthiscase,anactionfordamageswouldbeanadequatealternativeremedy(assumingtheyareabletoprovetheirallegations).184

Themajoritydecisiondidnotappeartoacceptthatthewords“atanytime”insection160wouldprecludethepossibilityofanyrecourseonthenarrowissueofadelayinassessing.ThedissentingreasonsofRothsteinJA(ashethenwas)expressed

181 Markevich v. Canada,[2003]1SCR94,atparagraph16.

182 Suchabroaddiscretionisnotwithoutreason.Whileitmaybe(andoftenis)difficulttoascertainataxpayer’sincomeinaself-reportingsystem,itisarguablyevenmoredifficultfortheministertodetectnon-arm’s-lengthtransfersinsituationsthatgiverisetoasection160assessment.

183 Addison & Leyen Ltd. et al. v. The Queen et al.,2006DTC6248(FCA),atparagraphs73-74.



theideathatthewords“atanytime”foundinsection160clarifiedParliament’sin-tentiontoleavethisdiscretiontotheminister,notwithstandinganyharshresultsthatmightfollow.185InJuly2007,theSupremeCourtofCanadaallowedthemin-ister’sappeal,essentiallyagreeingwiththedissentingreasonsintheFederalCourtofAppeal.186Inanyevent,thisdecisiondoesnotaddressthebroadoverridingissueofjurisdictionresolvedinthelonglineofcasesdelineatingthejurisdictionoftheTaxCourtandtheFederalCourt.187However,theSupremeCourtappearedtorein-forcetheimportanceoftheintegrityofthetaxappealprocessinstatingthattheprocedureofjudicialreviewintheFederalCourt“shouldnotbeusedtodevelopanewformofincidentallitigationdesignedtocircumventthesystemoftaxappealsestablishedbyParliamentandthejurisdictionoftheTaxCourt.”188

co nclusio n

ItisapparentfromareviewofthecaselawthatindefiningthelinebetweenthejurisdictionoftheTaxCourtandthatofsuperiorcourtsovertime,thecourtshavebeenrequiredtodrawsomefinedistinctions.Oneofthelimitationstothedevelop-mentofthelawisthatthereareseveralcourtsthathaveinterpretedtherelevantstatutes and jurisprudence in this area, each from its own perspective. The TaxCourtofCanadaexaminesitsownjurisdiction,asdoestheFederalCourtandeachsuperiorcourtoftheprovincialjurisdictions.Notwithstandinganyprincipleofju-dicialcomity,thedecisionsofthesedifferentcourtsarenotbindingontheothers.Evenwherethesecasesareappealedfromthelowercourts,onlyFederalCourtandTaxCourtcasesgototheFederalCourtofAppeal;appealsofdecisionsofprovin-cialsuperiorcourtsaredecidedbytheprovincialappellatecourts.

DespiteonlylimitedguidancefromtheSupremeCourtofCanada,thelinesde-marcatingthejurisdictionoftheTaxCourtasagainstthatoftheprovincialsuperiorcourtsoroftheFederalCourthavebecomeevenclearerinthecaselawsince1984,whentheFederalCourtofAppealissueditsdecisioninParsons.Whileminorcom-plicationshavearisen,therearecertainprinciplesthatmightbeextractedfromthejurisprudence:189

185 Ibid.,atparagraphs87-90,92,97,and101.


187 Ibid.,atparagraph8.Thecaseturnedonthespecificinterpretationofsection160.ItisworthnotingthattheSupremeCourtofCanadahadpreviouslydismissedleaveapplicationsincaseswhereabroaderissueofjurisdictionwasdetermined:seeRoitman,supranote122,andMain Rehabilitation Co. Ltd.,supranote135.Atparagraph8ofthedecisioninRoitman,theCourtofAppealitselfwascarefultorestricttheapplicationofthemajoritydecisionoftheCourtofAppealinAddison & Leyen Ltd.(whichwaslateroverturned)toitsnarrowcircumstances.


189 Insettingouttheseobservations,Iwouldliketoreiteratethatthisarticlehasonlyprovidedanoverviewofthesomeoftherelevantlaw;itisnotintendedtobecomprehensive.Further,itmerelysuggestscertaintrendsinthelaw.Therelevantlawshouldbeconsultedforanyparticularsituations.


1. Thereislittle,ifany,overlapbetweenthejurisdictionoftheTaxCourtandtheFederalCourtorothersuperiorcourts.IftheTaxCourtofCanadahasjurisdictiontodealwiththeissue,thenadifferentsuperiorcourtgenerallydoesnot,andviceversa.Thissymmetryariseslargelyfromthepresenceofsection12oftheTaxCourtofCanadaAct,andinthecaseoftheFederalCourt,fromsection18.5oftheFederalCourtsAct.Thissymmetry,however,isnotperfect.Itcanbelimited,forexample,bytheclearwordsoftheIncomeTaxAct.Thus,thelengthofdelayinassessingisnotagroundforjudicialre-viewwherethechargingsectionpermitsanassessmentatanytime.190

2. TheprincipleofresjudicataoughtnottoariseasbetweendecisionsoftheTaxCourtandothersuperiorcourts.IftheTaxCourtproperlyconsidersanassessment issuewithin thecontextof theappeal, that is clearlya subjectmatterthatisnotwithinanyothercourt’sjurisdiction.Ifthesubjectmatterisoneofprocess,resjudicatashouldnotarisesincetheTaxCourtdoesnothavejurisdictionoverissuesofprocess.Thecourtshavepossiblyreferredtotheprincipleofresjudicatatoclarifythetruesubjectmatteroftheproceed-ingatissue,andtoemphasizethatthespecificcaseisdoomedtofailinanycourtbecausetheissuehasnotbeenresolvedbythecourtwithjurisdiction.

3. Collectionmatters (where theamountassessed isnotat issue)donot fallwithintheTaxCourt’sjurisdiction.Theymustbeaddressedinothersuperiorcourts,andfrequently,intheFederalCourt.191Thisexclusiondoesnot,ofcourse,applytoassessments,eventhosereferredtoas“collectionassessments,”suchasatransferassessmentundersection160oftheIncomeTaxAct,oranassessmentofathirdpartywhohasfailedtopayastatutorygarnishmentforanamountowingtoanothertaxdebtorundersubsection224(4)oftheAct.Themeritsoftheassessmentinsuchcasesaretobedetermined,asinthecaseofanyotherassessment,bytheTaxCourt.

4. Othersuperiorcourtscanonlydealwithmattersthatareancillarytoanas-sessment.Indeterminingwhetheramatteristrulyancillary,thecourtistoapplyanarrowinterpretationofthelaw.Evenwherethesubjectmatterandtheprocedurewouldnormallyfallwithinthesuperiorcourt’sjurisdiction,thesuperiorcourtcannotpurporttodeterminetheissueifthedecisionorthere-liefsoughtwouldeffectivelyunderminethevalidityandquantumofthetaxassessment.Anysuchdecisionwouldnot,inanyevent,bindtheTaxCourt.

5. Provincialsuperiorcourtshaveusedtheabilitytodeclinejurisdictioninmat-terswherethecourtperceivessomeformofconcurrentjurisdictionoverthe

190 Addison & Leyen Ltd.,supranote180,atparagraph10.Thecourt,however,mentionsthepossibilityofobtainingtheremedyofmandamusto“prod”theministertoactwithduediligenceinresponsetoanobjection.

191 Forexample,ataxpayerwhoseekstochallengeacertificateorwritthathasissuedfromtheFederalCourtwillclearlyhavetolaunchproceedingsinthatcourt.


matteratissue.Therearesoundreasonsforsuperiorcourtstoexercisethisdiscretioninsuchcircumstances,andtheyaremostlikelytodefertotheTaxCourt’sexpertise.

6. Casesinvolvingrectificationproceedingsmightbeconsideredanexceptionto thegeneral ruleprecludingothersuperiorcourts fromrenderingdeci-sionsdirectedatdictatingataxoutcome.Whilerectificationordersaffectingtaxmatterswereinitiallybasedonthepremisethattheywerenotmerelytax-oriented,superiorcourtshave,rightlyorwrongly,consideredrectificationordersevenwheretheonlypurposeistoalterthetaxoutcome.SincetheTaxCourthasnojurisdictioninequityandcannotgrantaremedybasedonlyonequitableprinciples,192 itcannotgrantanorderofrectification.193Forthereasonsabove,becausesuchorderstendtotreadsocloselytotheexclusivejurisdictionoftheTaxCourt,applicationsforrectificationordersshouldbeservedontheministerofnationalrevenue.194Otherwise,theTaxCourtmaynotconsideritselfboundbyadecisionofanothersuperiorcourtinsuchasituation.

7. Totheextentthatrectificationmightbeconsideredameansbywhichprov-incialsuperiorcourtscanaffectthetaximplicationsofaparticulartransaction,itisnotapplicabletoothersituations.Rectificationcaselawonlyappliestorectificationcases.Ithasnoapplicationorimpactoncaseswheretherectifi-cationremedyisnotavailable,andwherethepartymerelyseeksadeclarationthatpurportstoaffectthetaximplicationsofatransaction.

8. Theformofreliefrequestedbythetaxpayerisnotdeterminativeofacourt’sjurisdiction.Evenwherethetaxpayerdoesnotseektospecificallysetasidetheassessment,hecannotinitiateanactionfordamagesordeclaratoryreliefinaprovincialsuperiorcourtortheFederalCourtiftheclaimforthatreliefisinanywaypremisedontheunlawfulnessorinvalidityofthetaxassessment.Similarly,thetaxpayercannotrelyonissuesofprocessintheTaxCourttoobtainthereliefofvacatingtheassessment.

9. Othersuperiorcourtscanonlydealwithissuesofabusethatpertaintomattersofprocess,andnotissuesrelatingtothesubstanceormeritsoftheassess-ment.InsuingtheCrowninsuchcircumstances,theplaintiffmustnecessarilyacceptthattheassessmentwaslawfulandcorrect,andestablishtheelementsoftortlaworcontractlawinrelationtosomematterofprocess(suchasa

192 SeeChaya,supranote107;andHamilton,supranote11.

193 SeealsoStern,supranote108,atparagraph30,thoughParisJdoesnotspecificallyreferencealackofjurisdictioninequity.

194 Thereare,however,otherrationalesforrequiringserviceofrectificationproceedingsontheminister.Forexample,atransactionthattechnicallytriggersaliabilitymakestheministeracreditor,irrespectiveofaformalassessment,byvirtueofsubsection152(3)oftheIncomeTaxAct.


breachofatest-caseagreementoralimitationissue).Alternatively,thetax-payermustfirstestablishtheinvalidityoftheassessmentitselfthroughthetaxappealsystembeforehecanattempttoclaimdamagesarisingfromtheas-sessmentitself.195

Giventheamountofactivityintheareainthelastfiveyears,mostnotablyattheFederalCourtofAppealandtheFederalCourt,butalsoinprovincialsuperiorcourtsandtheTaxCourt,theparametersofjurisdictionappeartohavebeenextensivelycanvassedandtested.Ifanything,thedecisionsinthelastfewyearshavebecomesomewhatredundant.

Asstatedatthebeginningofthisarticle,inordertodeterminejurisdiction,itisimportanttoconsideralloftherelevantcaselawinitspropercontextand,mostimportantly,inthecontextofthespecificfactualsituation.Acarefulanalysisofthespecificfactualsituationineachcasewouldlikelyservetobrightenwhatissome-timesafinebutdistinctdividinglinebetweenthejurisdictionoftheTaxCourtandthejurisdictionsoftheotherCanadiansuperiorcourts.

195 Idonotsuggestthatsuchaclaimcouldbesuccessful,sinceataxpayerlikelycouldnotestablishtheelementsofatortclaimifheorshesuccessfullyappealedtheassessment.SeeCanus,supranote169,notingHoodJ’sobiterdictaatparagraph104.

canadian tax journal, vol. 56, no. 3, 2008

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