Decision on ex parte applications ‘reassuring’ for taxpayers

Taxpayers should be “reassured” by a Federal Court of Appeal decision that prevented the Canada Revenue Agency from forcing insurance companies to turn over the names of customers who bought a product it wanted to crack down on, according to an Alberta tax lawyer.

A Federal Court judge initially granted the minister of national revenue authorization to get the details of people who bought controversial “10-8” plans. But the authorization was granted on an ex parte basis, and when the insurers later objected, another judge cancelled them, finding the minister failed to disclose a significant amount of information on the ex parte applications.

In a decision dated Feb. 21, Federal Court of Appeal Justice David Stratas, upheld the cancellation.

“Taxpayers should take comfort that the court won’t allow the CRA to get orders like this for undisclosed purposes,” says Carman McNary, a tax partner in the Edmonton office of Fraser Milner Casgrain LLP.

According to the decision, when it applied for its authorizations, the Ministry of National Revenue failed to let the judge know the CRA had decided to “send a message to the industry” and chill the 10-8 business by going on an “audit blitz” of policyholders. This was despite the fact a CRA internal review had found the 10-8 plans likely complied with the letter of the law, if not the spirit. It also neglected to disclose its failed attempts to get the Ministry of Finance to close the legislative loopholes that allowed the plans to lawfully exist.

The judge who cancelled the authorizations found the minister’s audit purpose was “extraneous to her primary goal, which was to chill” insurers’ 10-8 businesses.

“They went on kind of on a fishing expedition. They had an idea of what they were looking for, but not really exactly what, or who,” says McNary. “The key message out of this is if you’re going to go in front of a judge on an ex parte basis, you have the highest obligation to make sure you provide the judge with all the information they might need, even if it’s detrimental to your own case. . . . If they’d made those disclosures, I don’t think they would ever have got the authorizations in the first place.”

On appeal, the minister argued the cancelling judge overstepped his jurisdiction in reviewing the original decision to grant the authorizations. But writing for a unanimous three-judge panel, Stratas disagreed.

“The Federal Courts have a power, independent of statute, to redress abuses of process, such as the failure to make full and frank disclosure of relevant information on an ex parte application,” he wrote. “The Federal Courts’ power to control the integrity of its own processes is part of its core function, essential for the due administration of justice, the preservation of the rule of law and the maintenance of a proper balance of power among the legislative, executive and judicial branches of government. Without that power, any court – even a court under section 101 of the Constitution Act, 1867 – is emasculated, and is not really a court at all.”

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