The door has opened a bit more for taxpayers to hold Canada Revenue Agency (“CRA”) and its agents accountable for the mistreatment of taxpayers.
In Leroux v CRA, 2014 BCSC 720, a recent case of the British Columbia Supreme Court emerging from the Prince George registry, Mr. Irvin Leroux took on the CRA in an attempt, amongst other things, to establish that the CRA and its officials have a duty to treat taxpayers fairly and to administer Canada’s Income Tax Act responsibly.
The encounters of Mr. Leroux with the CRA were the stuff of nightmares. Mr. Leroux was incorrectly assessed over $600,000 in taxes, interest, and penalties, he claimed to have been threatened with high tax penalties unless he paid a certain CRA auditor a bribe of $25,000, and he alleged that the loss of his business (an RV park which was also his home), the loss of most of his property, and the deterioration of his health were all a result of the negligent, and potentially malicious, actions of employees of the CRA.
Neither Canada’s Income Tax Act nor its Excise Tax Act provide recourse for the negligent performance of duties by a CRA official where such negligence causes injury to an individual taxpayer.1 There is no independent body dedicated to holding CRA officials answerable for their actions exists, and even the Tax Court of Canada, which has exclusive jurisdiction under the Income Tax Act and the Excise Tax Act, is unable to provide a remedy to taxpayers. Seeking justice, Mr. Leroux brought his claim against the CRA to the Supreme Court of British Columbia and argued that his case, and the devastation wrought upon his life as a consequence of CRA actions, highlighted the need for accountability and the establishment of a forum in which CRA employees could be called upon to justify their behaviour.
Judge Humphries, presiding over Mr. Leroux’ case, emphasized two key factors in establishing whether a duty of care exists between parties: (1) whether the parties are in a relationship of sufficient proximity such that it is reasonable for one party to recognize that carelessness in their actions may be likely to cause damage to the other party, and (2) whether there are any considerations which should negative or reduce the scope of the duty, which should reduce the class of person to whom it is owed, or which should reduce the damages to which a breach of the duty may give rise.2
Although the CRA took the position that it owes a duty to the Minister of National Revenue and to the public at large, and that that duty consists of supervising Canada’s self-assessment taxation system, the CRA did admit that a lack of due care on the part of its employees has the possibility to cause harm to taxpayer.3 The CRA argued, however, that the possibility of causing harm does not mean that CRA has a legal duty to ensure a sufficient level of care is exercised when administering the Income Tax Act. A reasonable foreseeability of harm does not amount to a duty of care.4
Importantly for Canadian taxpayers, Judge Humphries disagreed and found that in the case of Mr. Leroux, a taxpayer who endured an intensive audit taking place over many years and covering three years of statute barred taxes, involving three auditors and many face to face meetings and phone calls, surviving significant changes in tax characterizations and culminating in huge penalties, a duty of care was indeed owed to him by the CRA and a breach of the standard of care expected had occurred. In the past, Canadian courts have been reluctant to impose legally binding duties of care upon government employees, making Judge Humphries’ finding in favour of the Canadian taxpayer a decisive step forward.5
Judge Humphries contemplated policy considerations and was unable to find any conflicts with a duty imposed upon the CRA to take reasonable care in assessing taxes, auditing taxpayers, and imposing penalties. With a duty established, Judge Humphries stated the standard of care expected of CRA officials to be simply that they are “to deal fairly and openly with all taxpayers and to administer the Act in accordance with the law.”6
The case of Mr. Leroux is an important one for Canadian taxpayers, plainly imposing a duty of care upon CRA officials and establishing a standard to which those officials are to be held to in circumstances similar to those of Mr. Leroux. Unfortunately for Mr. Leroux, he received no compensation for the mistreatment he received at the hands of the CRA. Legal challenges against the government are expensive and risky. You may win a moral victory but achieve little more. In this case, Judge Humphries was unable to find a link between the losses Mr. Leroux claimed he suffered and the misconduct he claimed CRA had committed. As a result, despite a finding against the CRA, Mr. Leroux remains uncompensated for the poor behaviour on the part of agents of the CRA.
Hopefully though, this decision opens the door for other taxpayers who have been blatantly mistreated by the CRA to seek justice and, when appropriate, obtain compensation for losses suffered.
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1 Paragraph 298.
2 Paragraph 272.
3 Paragraph 247.
4 Paragraph 277.
5 Paragraph 309. Also see paragraph 248 – CRA says the issue of whether a private law duty of care exists in this context has already been established. A series of cases have held that no such duty exists (Canus v. Canada Customs, 2005 NSSC 283; Alberta Ltd. v. Canada (Attorney General), 2010 ABCA 226; Leighton v. Canada (Attorney General), 2012 BCSC 961; Foote v. Canada (Attorney General), 2011 BCSC 1062).
6 Paragraph 308.
Tom Fellhauer heads up the Tax Group at Pushor Mitchell LLP. You can contact Tom at 250-869-1165, or at [email protected]
*Providing services through a law corporation
