FIGHTING CANADA’S REVENUE AGENCY

No matter how many politicians in Ottawa may prefer to settle matters, the hired guns at the Department of Justice don't seem to have been serious   in settling the cases they deal with. Their mandate is to litigate, and their client, the Canada Revenue Agency ( CRA )  has infinitely deep pockets. So there is no reason to settle, and no reason to refrain from motions and appeals, regardless of how many lawyer-hours are spent.

In a recent interview with Legal Feeds, an online legal magazine, Justice Minister and Attorney General Peter MacKay said that he would like to "reduce the number of civil cases in which the government is in conflict with the people of Canada."

There's a lot of value added in trying to lessen that number and trying to settle some of these cases out of court through arbitration," MacKay told Legal Feeds.

Mr. MacKay, I hope you're reading this article because I've got a great suggestion for this caes I am writing on  case on which you could practice this new policy. It's the case of Leroux v. Canada Revenue Agency. In fact, it's a lawsuit that would probably never have been launched had the plaintiff Irvin Leroux not been led to believe years ago, by a different Conservative cabinet minister, that a policy of settlement would be pursued.

The case centered around the B.C. RV park owner Irvin Leroux, who was told in 1999 that he owed more than $600,000 in taxes, interest and penalties for three previous tax years.

Although some payments and a “fairness application” to the Minister of National Revenue ultimately resulted in the cancellation of all interest and penalties in the case, Leroux alleged that he lost his home and because of the actions of employees of the tax department.

In response, the CRA said it owes no private law duty of care to an individual taxpayer. The court disagreed, finding for the first time that the CRA auditors owed a taxpayer a duty of care and in this case, “they breached it in the manner in which they imposed penalties.”

However, the court also said it was “unable to find a causative link between that breach and Mr. Leroux’s losses” and dismissed the action. Leroux has since appealed the dismissal and the CRA is cross-appealing the costs ruling in the case The case a big win for Canadian taxpayers.

By establishing a duty of care for the CRA to taxpayers, the CRA will ultimately have to account to taxpayers and the courts for anything the CRA does that is considered unfair.

If the court decision is upheld, it means that taxpayers can sue the CRA, and potentially collect damages, if the CRA acts in an abusive manner towards taxpayers. This means that the CRA will have to establish new standards for its employees and monitor them to ensure that those standards are met.

The CRA is known to fight hard against any civil judgement, to appeal as far as they are able, to spare no resources in challenging the taxpayer, and to take a long time until there is a final settlement.

This was a case in tort and each province can set its own laws until the Supreme Court of Canada establishes a binding precedent for the whole country. Provincial courts often pay deference to each other’s decisions.

His Appeal was heard by the Court of Appeal   in British Columbia on July 2010.

His claims were for misfeasance and negligence and were founded on the misconduct of CRA employees, to which Mr. Leroux attributes the collapse of his business. This was alleged to have occurred during a 13-year-long sequence of audits, assessments, reassessments and collection procedures, relating to the liability of Mr. Leroux for both income tax and goods and services tax “GST”. At the root of the losses Mr. Leroux alleges, was a failed attempt at extortion (in December 1998) by an auditor employed by the CRA at its Prince George office.

 The CRA argued that  these causes of action as pleaded were not within the jurisdiction of the Supreme Court as they cannot be addressed without challenging the validity of the tax assessments and so should be struck, and in any event, his appeal disclosed no reasonable cause of action. This was the basis for their submission that the chambers judge erred in principle or was otherwise clearly wrong in his analysis of the pleadings and application of the relevant legal principles to the application to dismiss the tort claims.

Mr. Leroux made two basic points in response. His first point was that he was seeking damages for the deliberate and negligent misconduct of the respondent ( CRA )and its employees, a remedy not available in the Tax Court of Canada or by way of judicial review. He was not disputing the validity of the tax assessments, either directly or indirectly since  he accepted their validity.

 In any event, were he to dispute their validity at trial, the CRA is free to raise collateral attack as a defence. His second point was that this Court has a limited function on an appeal from an interlocutory order made in the exercise of statutory discretion and should be cautious about interfering with a trial judge’s decision on an application governed by this test set down in Hunt v. Carey.

  The CRA’s submission was that these claims constituted a collateral attack on the validity of orders of the Tax Court of Canada and the consequential tax assessments, he began with the applicable law.

There is no principled reason to prevent a claimant who is content to let an order of the Tax Court and the consequential tax assessment stand from being able to make his case in a provincial superior court for compensation for alleged losses, if he can establish a cause of action in tort, whether deliberate or negligent. Crown liability in tort and the validity of an underlying administrative decision may generate some overlapping considerations, but they present distinct and separate justiciable issues. They are conceptually distinct.

Tort actions for damages arising in negligence and breach of statutory duty are maintainable in any court of appeal. The facts pleaded in the amended statement of claim were sufficient to support those claims. The existence of a duty in tort on the part of CRA is an arguable issue. The pleading defects alleged by the defendant, particularly those relating to breach of privacy, may be cured by disclosing particulars. With the exception of the pleadings invoking the Charter and Bill of Rights, to which the Appeal Court   intended to turn to the re the CRA’s application to strike out Mr. Leroux’s amended statement of claim. The CRA’s application   failed.

To establish the intentional tort of misfeasance in a public office, Mr. Leroux had to prove: (i) deliberate unlawful conduct in the exercise of public functions; (ii) awareness that the conduct is unlawful and likely to injure the plaintiff; (iii) the tortious conduct was the legal cause of injury to him; and (iv) the injury is compensable in tort law. To disclose a reasonable cause of action, the statement of claim must disclose material facts supporting each of those constituent elements.

  

At paragraph. 31 of the statement of claim, Mr. Leroux alleged that Randy Hansen, an auditor in the Prince George office of the CRA, requested “$25,000 in cash to Hansen personally,” to resolve Mr. Leroux’s “tax problem.” At paragraph 33, Mr. Leroux alleged that, after his refusal to pay that demand, Mr. Hansen submitted the Original Audit Report which ultimately formed the basis of GST and income tax reassessments.

 In subsequent paragraphs that were of considerable length, and with redundancy, Mr. Leroux recited the events that followed which caused the cash flow problems that led to the collapse of his business. Included among those events are other actions by other identified employees of the CRA alleged to be in breach of statutory duties or without statutory authority. Those actions constitute the four other “core” allegations the CRA alleges are premised on a revision of Mr. Leroux’s tax liability. The recitation of events also includes the alleged breach of privacy. In a reformulated statement of claim, Mr. Leroux would be able to clarify whether the certification and registration of the tax debts owing was intended to constitute separate causes of action or simply a link in the chain of causation between the attempted extortion (including the creation of the Original Audit Report) and the loss he seeks to recover. He will be mindful of the need to assert a basis for the unlawfulness of the impugned conduct on which he founds the tort of misfeasance in public office.

The question on this appeal was whether negligent supervision or a negligent act in the course of the administration or enforcement of either of the taxing acts in issue, can give rise to a private law remedy. The answer to that question depends on whether a duty of care should be imposed on the CRA or any of its employees toward a taxpayer. Mr. Leroux had plead and ultimately proved that the CRA or one of its employees was in a close and direct relationship to him or her such that it is just to impose a duty of care in the circumstances.

The CRA asked this Court to undertake that analysis in this case, and determine it owes a or no duty to individual taxpayers to indemnify them for the negligent administration or enforcement of the taxing statutes by their employees. The CRA accepted the circumstances pleaded ande the reasonable foreseeability of harm. The question is whether there is proximity sufficient to establish a prima facie duty of care on its part. The chambers judge did not address this issue in his reasons. Nor did he proceed to the second stage of the analysis and question whether there might be residual policy considerations which justify denying liability, if proximity could be established. It seems he left those questions for decision following a trial when the full matrix of facts would be available. The answers to those questions are likely to be decisive of the liability for negligence, if any, of the CRA.

It  is plain and obvious that the Tax Court does not have the jurisdiction to set aside an assessment on the basis of an abuse of process at common law or in breach of section 7 of the Charter of Rights.    Section 7 of the Charter states that “Everyone has the right to life, liberty and security of the person and the right not to be deprived thereof except in accordance with the principles of fundamental justice.” 

The right to life, liberty and security of the person encompasses fundamental life choices, not pure economic interests.

The chambers judge found that “even if a stay of collection were a principle of fundamental justice” Mr. Leroux was not deprived of that right, as in an appropriate case, since the Federal Court has jurisdiction to grant a discretionary stay or injunction with respect to matters arising under the [Income Tax] Act. Bythe same reasoning, the Federal Court retains jurisdiction to grant a stay with respect to matters arising under the ETA  (Electronic Travel Authorization ).

The chambers judge dismissed Mr. Leroux’s claim of a breach of section  1(a) of the Bill of Rights at paras. 71 and 72 of his reasons:  The Bill of Rights is a federal statute that renders inoperative federal legislation inconsistent with its protections.  It protects rights that existed when the Bill of Rights was enacted, in 1960.  Section 1(a) contains the right not to be deprived of the enjoyment of property except by due process of law.

As noted above, the plaintiff could have sought a judicial stay of the collection activity but he did not do this..  His failure to avail himself of the procedures for due process under the law prevents a conclusion that he was deprived of property other than by due process of law.

On the appeal, the judge in the Court of appeal who wrote the court’s decision said   that the Court would affirm the order of the chambers judge, varying it to include a direction that Mr. Leroux further amend his statement of claim to formulate clearly his claim in misfeasance on te part of the CRA employee and to refine his pleading of the negligence claims. The court dismissed the CRA’s cross appeal.

This was an interesting case because it brought out the fact that a CRA employee committed a crime while dealing with a tax payer.

I don’t know if Hanson was charged with extortion but I am sure that he was fired.

Here is another case of bullies in the the CRA abusing their powers.

After years of hardships, a lengthy legal battle and having their names dragged through the mud, a Nanaimo family has triumphed in a legal battle against the Canada Revenue Agency.

In a B.C. Supreme Court decision published on March 2 by the Honourable Justice Robert Punnett, Tony and Helen Samaroo, who own the MGM restaurant, a night club and also a hotel, were awarded nearly $1.7 million.

It’s revealed in the 90-page ruling that the Samaroos were “wrongfully and maliciously persecuted” by the Canada Revenue Agency during a lengthy court case.

After years of hardships, a lengthy legal battle and having their names dragged through the mud, a Nanaimo family has triumphed in a legal battle against the Canada Revenue Agency.

In a B.C. Supreme Court decision published on March of this year,  by the Honourable Justice Robert Punnett, Tony and Helen Samaroo, who own the MGM restaurant, a night club and also a hotel, were awarded nearly $1.7 million.

It’s revealed in the 90-page ruling the Samaroo’s were “wrongfully and maliciously persecuted” by the Canada Revenue Agency during a lengthy court case.

Many years ago when I was practicing law, a lawyer asked me to represent him in the tax court. He was accused of cheating on his taxes. The CRA had issued a subpoena for all his files of his past clients so that they could ascertain how much money he earned. I argued in the court that it is against the rules of practice for a lawyer to discuss his client’s cases once their cases are completed. The trial judge agreed and the matter was closed.

There is a legal way to avoid paying your taxes.  I haven’t paid my taxes for the past 39 years. Further, the Canada Revenue Agency hasn’t disputed my tax returns and actually it sends me hundreds of dollars each year after they have received my tax information.

Ask your accountant and he or she will tell you how you can legally avoid paying your taxes.