SCC clarifies appropriate venues for tax disputes

The court rejected two appeals challenging the jurisdictional scopes of tax and federal court

SCC clarifies appropriate venues for tax disputes
Laurie Goldbach says the decisions clarify where parties should pursue tax disputes

The Supreme Court of Canada issued two decisions clarifying the circumstances in which tax disputes should be reviewed in tax or federal court.

In both cases, the SCC dismissed appeals by the taxpayers, Dow Chemical Canada and Iris Technologies Inc. Both decisions were split 4-3.

Taxpayers looking to appeal certain discretionary decisions by the Minister of National Revenue can only do so in federal court, the SCCs majority said in Dow Chemical Canada ULC v. Canada, 2024 SCC 23. According to Fridays decision, the ministers refusal to apply a so-called downward pricing adjustment” to Dows taxes — which would have reduced the amount the company owed after a reassessment — was a discretionary decision.

In contrast, the ministers assessment of a taxpayers net tax is a non-discretionary move, the SCC said in Fridays second ruling in Iris Technologies Inc. v. Attorney General of Canada, 2024 SCC 24. The ruling found Iris’ challenges to an assessment by the minister belong in tax court, not federal court.

Parliament intentionally divided jurisdiction over tax matters between the federal court and the tax court. The tax court has never been a single forum for all tax litigation,” Justice Nicholas Kasirer wrote for the majority in Dow.

Fridays decisions stemmed from tax disputes between the minister and the companies. In separate and unrelated complaints, Dow and Iris alleged the minister made choices that resulted in incorrect tax assessments. Both cases reached the high court to resolve questions about jurisdiction: Should these disputes be fought in tax court or federal court?

In Dow, Kasirer noted the tax courts jurisdiction is limited to reviewing the correctness of assessments.” The federal court, meanwhile, has the power to grant relief concerning federal ministerial decisions, except in scenarios where federal law has explicitly given parties the right to appeal to another body instead.

When taxpayers like Dow challenge the ministers discretionary decisions related to a tax assessment, that is not equivalent to challenging the assessment itself, the justice wrote. Unlike a federal court, which has the power to quash the ministers decisions, a tax court can moreover only vacate, vary, or send an assessment back to the minister for reconsideration, Kasirer added.

Kasirer said that a tax court “does not have the remedial tools necessary to address” Dow’s concerns over the minister’s downward adjustment decision.

Justices Suzanne Côté, Andromache Karakatsanis, and Malcolm Rowe dissented. Because the ministers decision to deny Dow a downward pricing adjustment goes directly to the correctness” of Dows tax assessment, that decision is within the scope of the tax courts appellate jurisdiction,” Côté wrote.

Parliament has ensured that the correctness or validity of a taxpayers assessment falls squarely within the jurisdiction of the Tax Court,” Côté said. She added, Judicial review should not be used to develop a new form of incidental litigation designed to circumvent the system of tax assessments and appeals established by Parliament.”

Meanwhile, in Iris, the SCC ruled Iris’ dispute with the minister belonged in tax court. Writing again for the majority, Kasirer said two of Irisclaims — alleging procedural unfairness and lack of evidence for the results of a tax assessment — are best characterized as attacks on the correctness of the assessment.”

The court said the companys third claim that the minister acted with an improper purpose” should be struck because it was not sufficiently supported.

Justices Côté, Karakatsanis, and Rowe concurred. Iris ought to have challenged the assessments by appealing to the tax court,” Côté wrote. In its essential nature, Irisapplication for judicial review is a collateral attack on the correctness of the assessments.”

Laurie Goldbach, a partner at Borden Ladner Gervais LLP specializing in tax litigation, said Fridays SCC decisions helped clarify when parties should pursue tax disputes in tax court versus federal court. However, the decisions did not ultimately alter the dispute process.

With tax disputes, taxpayers must sometimes pursue complaints simultaneously in tax and federal court to address issues appropriate to each forum. I think some taxpayers were hoping they wouldnt have to do that, because that can be time and cost prohibitive,” Goldbach said. These decisions wont change that.”

She pointed to Kasirers majority opinion in Dow, which noted that changing the existing system for tax appeals would contradict Parliaments intent. If we want a change in the appeal process, thats an issue for Parliament,” Goldbach said.

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