Lexpert Magazine

54 LEXPERT MAGAZINE | JUNE 2016 | TAX LITIGATION | As it stands, the tax dispute resolu- tion environment is a complicated one, featuring growing complexities and ris- ing costs in a system that is becoming ever more adversarial; challenges presented by the "group appeal" phenomenon; uncer- tainties introduced by Canada's commit- ment to the Organisation for Economic Co-operation and Development's (OECD) crusade against base erosion and profit shiing (BEPS); and substantive legal is- sues relating to rectification and the CRA's duty of care. Making the system more complicated is the fact that Canada does not have a uni- fied tax court. Rather, the jurisdiction is split between the Tax Court of Canada (TCC) and the Federal Court, with pro- vincial superior courts also figuring into the mix. Underlying it all is an undercur- rent of jurisdictional testiness between the Federal Court and the Tax Court of Cana- da, which carries most of the load. is has spawned important questions about access rently heads the TCC. "It's an access-to- justice issue and a process for which I have to apologize to taxpayers." As things stand, the apologies will prob- ably have to be issued more frequently. "e CRA is becoming increasingly aggressive in assessing penalties," says Robert Kepes of Morris Kepes Winters LLP in Toronto. Particularly popular with the CRA are penalties levied for gross negligence. "e CRA is putting these on the table far more frequently and putting them on the table far sooner for use as a bargaining tool," says Steve Suarez of Borden Ladner Gervais LLP in Toronto. Recently retired chief justice Gerald Rip, one of two judges first appointed when the Tax Court was established in 1983, and now counsel with Spiegel Sohmer in Mon- tréal, describes the taxpayer's dilemma this way to Lexpert: "When I was on the Bench, I could feel very sympathetic to taxpayers who had no case in terms of changing the assessment but had an arguable case with respect to how they were treated, how the process was administered and to the appli- cation of the relief provisions. I would have to tell these taxpayers that I couldn't do anything for them. But the taxpayer would say, 'is is a tax court and a tax issue. Why can't I deal with it now?' I would try to ex- plain, but in some cases even the time for applying to the Federal Court for relief had expired, and you ended up with the tax- payer just looking at you in disbelief. My view is that we should be able to hear cases where taxpayers claim the CRA has treated them like crap — because most of us on this Bench know how the CRA works." It's not just unrepresented taxpayers, however, who bear the frustration. "Most tax practitioners would prefer an expansion of the Tax Court of Canada's jurisdiction," says David Robertson of EY Law LLP in Calgary. "e split jurisdiction is incon- venient, makes things more expensive and has been a frustration going back as far as 20 years ago." Indeed, the Tax Court of Canada is an itinerant court – something of a people's court – sitting in 57 cities for some 44 weeks annually. In contrast, the Federal Court sits only in major centres. "In places where we don't have our own facilities, we sit in superior or provincial court premises and, where those aren't to justice and judicial efficacy. e TCC is a superior court of record that has exclusive original jurisdiction over matters arising under a number of federal statutes. e bulk of the appeals to the court from administrative decisions under these statutes relate to income tax, goods and services tax, and employment insur- ance. e court also hears references from the CRA to provide interpretations of the legislation within its areas of jurisdiction. But the Tax Court of Canada's jurisdic- tion comes with some important limita- tions. Most significantly, it does not extend to the "fairness" portions of the Income Tax Act and the Excise Tax Act, which grant dis- cretion to the Minister of Revenue to waive penalties and interest. Taxpayers who are seeking this type of relief must apply to the Federal Court. Put another way, the TCC cannot make deci- sions on the basis that they will yield a fair result. As a consequence, there are of- ten circumstances where the TCC must acknowl- edge that it is rendering an unfair result and that it has no choice but to do so. Self-represented tax- payers who resort to the TCC's Informal Procedure (IP) bear the brunt of this anomaly. e IP, which rep- resents upwards of 70 per cent of the court's caseload, is a streamlined, lower-cost process for disputes not ex- ceeding $25,000 for cases where interest only is in is- sue and where the taxpayer is claiming a business loss not exceeding $50,000. In the IP, taxpayers may represent themselves or be represented by an agent who is not a lawyer. Most procedural rules and rules of evidence are relaxed and most pre-trial procedural steps are eliminated. Generally speaking, the IP works effi- ciently and expeditiously — until taxpayers discover that their appeal, or part of their appeal, cannot be dealt with by the TCC. "is occurs regularly where taxpayers are self-represented, which is the case in many Informal Procedure matters," says Chief Justice Eugene Rossiter, who cur- [There are] good reasons [why] all tax-related functions [should be in one court]. To have the jurisdiction bifurcated isn't consistent with judicial economy and it creates temptations for forum-shopping. Despite the Federal Court of Appeal's best efforts, clarity is sometimes lacking in where relief should be sought, meaning prudent counsel may have to go to both courts, and that's not a good use of parties' resources either." ALEXANDRA BROWN > BLAKE, CASSELS & GRAYDON LLP

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