The HST Blog : Canada Harmonized Sales Tax Lawyer Cyndee Todgham Cherniak for Assessments, PST & RST Issues in Ontario, British Columbia & Quebec

A taxpayer who has filed an appeal with the Tax Court of Canada that is within the "general procedure " criteria, must seek leave of the court to be represented by a non-lawyer (e.g., an accountant, a book-keeper, an executive, a director, a consultant, etc.).  The recent case of 1069616 Alberta Ltd. v. The Queen addresses this issue.

The Tax Court allowed the company in this case to be represented by a non-lawyer.  However, it was clear that the Tax Court does not grant permission without considering the request.  Asking for leave does not guarantee the requested response. 

The appellant must seek leave of the Tax Court and cannot merely show up with their chosen non-lawyer representative.  The Tax Court of Canada Rules, General Procedure apply and must be followed.  Many small taxpayers are not aware of these rules, which are important procedural rules for general procedure appeals (which are the larger appeals and different than informal procedure appeals).

In 1069616 Alberta Ltd., the Tax Court of Canada carefully reviews the history of the applicable rule as to when a non-lawyer can represent a party in a general procedure appeal.  It is worth reading to ensure that the Tax Court will grant the request if and when asked.

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On March 8, 2011, the Federal Court of Appeal allowed an appeal by the Canada Revenue Agency (CRA) in Canada Revenue Agency v. Tele-mobile Company Partnership et al. and granted a motion by the Canada Revenue Agency (CRA) in a judicial review to strike the application on the the ground that it is plain and obvious that the application has no possibility of success.  The Federal Court had previously dismissed the CRA's motion to strike.

In short, a number of Telus entities (Telus) filed a judicial review to prohibit the CRA from issuing assessments against Telus for goods and services tax (“GST”) on the international roaming fees charged by Telus to its customers from October 2004. Telus asserts that if it is assessed for GST, unfair and onerous obligations and financial hardships would be visited upon it. 

Justice Stratus held:

" We note that if prohibition is granted because of these alleged consequences, the Minister cannot issue an assessment – in effect, as a matter of law, the Minister will be obligated to forgive a tax liability that he believes is present, solely because of alleged hardships that the taxpayer will suffer.

In our view, that cannot be. The Court cannot stop the Minister from carrying out his statutory duty under the Excise Tax Act, R.S.C. 1985, c. E-15, subsection 275(1) to assess GST payable by law merely because doing so will impose unfair and onerous obligations and financial hardships upon the taxpayer.

To the extent that CRA has exercised its discretion in a manner that has improperly caused TELUS damage, TELUS may have other recourses available to it. To the extent that the exercise of discretion affects the amount of tax owing, TELUS may challenge the assessment in accordance with Part IX of the Excise Tax Act, R.S.C. 1985, c. E-15. Alternatively, it may apply for a remission order under section 23 of the Financial Administration Act, R.S.C. 1985, c. F-11. Further, it may be able to bring an action in tort to obtain compensation for any damages that were caused by CRA."

On May 5, 2011, Telus filed a leave application with the Supreme Court of Canada (SCC File 34244).  Please stay tuned.

This is an important case for taxpayers and I hope the Supreme Court of Canada grants leave.  Under the Excise Tax Act, a debt due to Her Majesty as the result of a GST/HST assessment is immediately due and payable.  Large (and small) assessments must be paid and collections actions are not halted pending the outcome of an objection and appeal.  This means that companies can suffer financial hardship if the Canada Revenue Agency is incorrect in its interpretation of the law. While a taxpayer has other expensive legal options to pursue the CRA if they make a mistake, it the mistake causes financial hardship and the company disappears or an individual taxpayer loses everything important in life, the fact that the battle with the tax man is ultimately successful is of little consolation. 

What is important to remember is that suppliers engaged in commercial activities are not the party ultimately responsible for paying the GST/HST (consumers are).  The suppliers collect the GST/HST from recipients and remit the GST/HST to the Receiver General of Canada.  However, this group is the target of most audits. Telus fits within this group in the case at issue.  A supplier (such as Telus) may have tried to comply with the law and may or may not have made a mistake while acting as the government's collection agent.  There should be a mechanism to stop the CRA from potentially large incorrect assessments of suppliers engaged in commercial activities (including zero-rated activities).

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On August 30, 2010, the Ontario Court of Appeal denied a motion brought by the Minister of Revenue for an extension of time to file an appeal in respect of a judicial review of a retail sales tax writ that was quashed by the Ontario Divisional Court.  A copy of the decision in The Minister of Revenue v. Robert Carter is available in The HST Library.

This is an important case. Robert Carter brought a judicial review (in Robert Carter v. Minister of Revenue) of writ issued by the Minister pursuant to paragraph 37(1)(b) of the Retail Sales Tax Act (Ontario). The Ontario Divisional Court quashed the writ on the basis that the Minister did not follow the process set out in Rules 60.07(2) and 60.07.1(1) of the Rules of Civil Procedure, which required the Minister to seek leave of the Court to issue the writ (due to the fact the alleged assessments were issued thirteen years earlier).  This Minister did not file leave to appeal within the 30 day time limit.  The Minister brought a motion to the Ontario Court of Appeal seeking an extension of time to file leave to appeal.  Mr. Carter opposed the motion on two grounds:

(i) the Minister did not meet the test for an extension of time; and

(ii) the Minister had not paid Mr. Carter the cost previously awarded by the Divisional Court.

The Court of Appeal agreed with Mr. Carter.

The overarching principle that is applied by the Court in such cases is "whether the 'justice of the case' required that an extension be given".  The Court of Appeal has consistently applied four factors in exercising its discretion:

1)  Whether the Appellant formed an intention to appeal within the relevant period;

2) The length of the delay and the explanation for the delay;

3) Any prejudice to the respondent; and

4) The merits of the appeal.

The Court of Appeal ultimately decided these questions in favour of Robert Carter, the respondent.  The Court was satisfied that Mr. carter demonstrated prejudice and the Minister did not show that he has a meritorious appeal.

There are many quotable statements in the decision:

• The Ministry of Revenue wields considerable power and discretion that can affect the lives of residents in Ontario in profound ways. Insofar as the Ministry's bureaucracy is unable to comply with the Rules of Civil Procedure in doing so, it seems to me that the answer to this problem is for the Ministry to review its internal decision making processes, not for this Court to make accommodations for the Ministry that are not available to other litigants.
• Aside from indemnifying the winning party, costs are also used as a tool to encourage settlement, deter frivolous actions and defences, and discourage unnecessary steps in the litigation process. And, because they offset some of the outlays incurred by the winner, they make litigation more accessible to litigants who seek to vindicate a legally sound position.
• Certiori is a broad and flexible remedy. Generally speaking, it is available in most situations where a government decision has an effect on an individual's rights or legitimate expectations.  On its face, s. 37(1)(b) gives the Minister  degree of discretion in the choice of enforcement measures.  This choice will have a serious effect of the rights and obligations of individuals subject to an assessment.  I am not persuaded that this exercise of executive discretion is sheltered from judicial review simply because it can be described as routine.
• I believe the Minister overstates its case by arguing that the Divisional Court is placing a de facto limitation period on tax collection.  The court' decision simply holds that the Minister requires leave to use one of its remedies - the warrant - where it waits six years to do so.

I will comment further on some of these points in other postings on this blog.

I must admit that I am pleased with this result for my client. I will keep readers posted on whether the Minister files an appeal to the Supreme Court of Canada.

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