Federal Court: Judicial Review of CRA Discretionary Decisions
In Canada, government decision-making bodies have decision-making powers that can significantly affect individuals’ and businesses’ rights and interests. As a result, there is a need to ensure that administrative bodies make their decisions fairly and according to the powers expressly given to them by statute. Judicial review is the process by which courts supervise the decision-making function of government decision-making bodies.
What is Judicial Review?
Through the process of judicial review, those affected by a decision of a government decision-making body can turn to the courts to ascertain whether their decision was made according to legal and constitutional standards. Judicial review is focused solely on scrutinizing the fairness and reasonableness of a decision and is not concerned with the correctness of the decision. As a result, on an application for judicial review, the court will not interfere with the administrative decision in cases where the decision falls within a range of possible acceptable outcomes.
Role of the Canada Revenue Agency
The Minister of National Revenue (“Minister“) is responsible for administering and enforcing the Income Tax Act (“ITA“). In practice, however, the Canada Revenue Agency (“CRA“) performs nearly all of the Minister’s functions in administering the collection of taxes and enforcement of the ITA.
The CRA is, therefore, a government decision-making body. As a government decision-making body, the CRA must exercise its powers given to it by statutes like the ITA, fairly and according to the express language of the statutes.
Applications for judicial review of the CRA’s decisions must be made within 30 days of the date that the decision was communicated to the taxpayer.
Mandatory vs. Discretionary Decision-Making Powers
There are many provisions of the ITA that expressly require the CRA to exercise its powers in clear and well-defined ways. For example, many sections of the ITA set out that the Minister “shall” do something. The word “shall” is mandatory legal language requiring the CRA to act in a specific way.
In contrast, there are also provisions in the ITA that give the CRA discretion in their decision-making. For instance, there are provisions in the ITA that set out that the Minister “may” do something in a particular situation. This is language indicating that the legislature intended to provide discretion to the CRA in making its decision under these provisions.
It is important to note that the Courts will only engage in a judicial review of discretionary decisions made by the CRA under tax statutes such as the ITA.
Judicial Review of Discretionary Decisions of the CRA
If a taxpayer believes that the CRA unreasonably exercised its discretion or made an incorrect judgment in exercising its discretion, the taxpayer can appeal to the Federal Court pursuant to section 18 and 18.1 of the Federal Courts Act.
The Federal Court can grant two types of relief under subsection 18.1(3) of the Federal Courts Act:
Powers of Federal Court
18.1(3) On an application for judicial review, the Federal Court may
(a) order a federal board, commission or other tribunal to do any act or thing it has unlawfully failed or refused to do or has unreasonably delayed in doing; or
(b) declare invalid or unlawful, or quash, set aside or set aside and refer back for determination in accordance with such directions as it considers to be appropriate, prohibit or restrain, a decision, order, act or proceeding of a federal board, commission or other tribunal.
Therefore, the Federal Court will review the exercise of discretion by the CRA to determine whether it was fair and reasonable. If the Federal Court determines that the CRA did not properly exercise its discretion, the Federal Court will refer the decision back to the CRA for reconsideration by another delegated official.
It is important to note that the Federal Court cannot overturn or modify the CRA’s decision. Rather, the Federal Court can only refer the matter back to the CRA for reconsideration of the taxpayer’s case to correct the errors set out by the Federal Court.
Standard of Review on Judicial Review
In reviewing a decision of the CRA on a standard of reasonableness, the Federal Court will look for the existence of justification by the CRA in making its decision. The Federal Court will also look for transparency and will assess whether the decision falls within a range of possible outcomes in the specific context of the taxpayer’s case. As long as the CRA’s decision falls within a range of possible outcomes, the Federal Court will not interfere with the CRA’s decision, even if it disagrees with the CRA’s conclusion.
Examples of CRA Discretionary Powers for Judicial Review
One situation where a taxpayer can have the Federal Court review the CRA’s exercise of its discretion is denying a request for taxpayer relief. The Canadian government has incorporated provisions in tax laws that give the CRA discretion to reduce or entirely remove interest and penalties in certain circumstances. The CRA’s Taxpayer Relief Program allows taxpayers to apply for relief from interest and penalties. Upon reviewing the taxpayer’s request for relief, the CRA will exercise its discretion to decide to waive interest and penalties or not. In situations where a taxpayer believes that the CRA unreasonably exercised its discretion in denying the taxpayer’s application for relief, the taxpayer can appeal to the Federal Court for judicial review. If you are interested in learning about the CRA’s Taxpayer Relief Program, check out our blog post on the program here.
Another situation where a taxpayer can appeal to the Federal Court for judicial review is denying a voluntary disclosure program application. The CRA’s Voluntary Disclosure Program allows taxpayers to voluntarily come forward and declare previously undeclared income to the CRA. In return, the CRA will not refer the taxpayer for criminal prosecution, and in some cases, the taxpayer will also receive relief from penalties and interest charges. If you are interested in learning about the CRA’s Voluntary Disclosure Program, check out our blog post on the program here.
Another situation where a taxpayer can appeal to the Federal Court for judicial review is in director’s liability assessments. In cases where the CRA is unable to collect the taxes owed by a corporation, it has the power to assess the directors of corporations personally for the corporate tax liabilities that the corporation accrued during the time they were the directors of the corporation. If you are interested in learning about the CRA’s assessment of corporate directors for the corporation’s tax liabilities, check out our blog post on the topic here.
Professional Legal Help Against the CRA
We can commence judicial review applications on your behalf of any discretionary decisions made by the Canada Revenue Agency that have impacted you. Contact our lawyers today if you believe that the CRA has made an unreasonable decision in your tax matter. Our lawyers have the skills and experience necessary to give you the best chance to succeed in your dispute with the CRA.
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By Kaveh Rezaei – Attorney at KR Law Firm
**Disclaimer
This article contains information of a general nature only and does not constitute legal advice. All legal matters have their own specific and unique facts and will differ from each other. If you have a specific legal question, it may be appropriate to seek the services of a lawyer.
