Docket: T-1400-16
Citation:
2016 FC 1292
Ottawa, Ontario, November 22, 2016
PRESENT: The
Honourable Madam Justice Gagné
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BETWEEN:
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JONATHAN N.
GARBUTT
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Applicant
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and
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HER MAJESTY THE
QUEEN
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Respondent
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JUDGMENT AND REASONS
I.
Nature of the Matter
[1]
These proceedings commenced with Mr. Jonathan N.
Garbutt filing a notice of application for judicial review, challenging the
Canada Revenue Agency’s [CRA] decision to issue two notices of assessment totalling
some $22,000.00 for his 2015 and 2016 fiscal years. The applicant then filed a notice
of motion asking this Court to confirm its jurisdiction over the matter. Finally,
the applicant requested that this Court compel the respondent to file the CRA’s
Certified Tribunal Record [CTR] and set an expeditious litigation schedule. The
respondent opposed this motion and filed a motion to strike the application for
judicial review on the ground that this Court lacks jurisdiction in the matter,
and that the issue falls under the exclusive jurisdiction of the Tax Court of
Canada.
[2]
For the reasons discussed below, the respondent’s
motion to strike will be granted. As a result, the applicant’s motion asking
this Court to confirm its jurisdiction in the matter is moot, and his
application for judicial review is struck.
II.
Facts
[3]
The applicant is a tax lawyer doing business in
the province of Alberta.
[4]
During the course of an audit of the applicant’s
affairs, composed of a sole proprietorship payroll account, the CRA was
interested in the applicant’s employee income tax withholdings, their Canada
Pension Plan (CPP) and Employment Insurance (EI) withholdings, and the employer
contributions in respect of the 2015 taxation year and four first months of the
2016 taxation year.
[5]
On May 12, 2016, a CRA trust accounts officer
sent a letter to the applicant, whereby he advised him that on May 25, 2016, he
would enter into his premises to conduct an examination of his payroll books
and records. The officer further requested that the applicant provide the
following books and records:
(i) General
ledger and subsidiary ledgers;
(ii) Payroll journals including
salaries, wages, and commissions for the period;
(iii) Cash receipts and disbursements
journal;
(iv) Bank statements and cancelled
cheques;
(v) Current list of accounts
receivable (including credit card merchant numbers) and accounts payable;
(vi) Year 2015 T4 slips and year 2015
T4 Summary;
[the “Required Documents”].
[6]
By letter to the officer dated July 11, 2016, the
applicant answered that he was out of town on May 25, 2016 and that the address
mentioned in the May 12 letter was his residential address, and not that of his
business.
[7]
He moreover invoked his clients’
solicitor-client privilege with regard to items (i), (iii), (iv), and (v) of
the Required Documents. He provided the year 2015 T4 slips and his year 2015 T4
summary and stated he was willing to provide additional relevant documents
regarding his sole employee.
[8]
On July 25, 2016, the officer decided to issue
the two notices of assessment in respect of the applicant’s withholdings and
employer contributions, in the amounts of $9,220.26 for 2015 and $12,790.94 for
2016.
[9]
The applicant filed an application for judicial
review in respect of the officer’s decision to issue the assessments. The applicant
asks this Court to quash that decision or, in the alternative, that the file be
sent back to the CRA for redetermination by a different officer.
[10]
The respondent first refused to file the CRA’s CTR,
on the basis that this Court lacks jurisdiction to hear the matter, as
jurisdiction over assessments is exclusive to the Tax Court of Canada under the
Tax Court of Canada Act, RSC 1985 c T-2 subsection 12(1).
[11]
The applicant then filed a motion for the
purpose of obtaining:
(i) An order from the Court compelling the respondent
to produce the CTR;
(ii) An order from the Court confirming its
jurisdiction in the matter; and
(iii) An order from the Court setting an
expeditious litigation schedule and expedited date for a hearing of this
matter.
[12]
The respondent then filed a motion for the
purpose of obtaining an order striking the applicant’s application for judicial
review on the ground that the Federal Court does not have jurisdiction over the
subject matter of the application.
[13]
Meanwhile, the applicant has challenged the assessments
pursuant to the procedure outlined in the Income Tax Act, RSC 1985, c 1
(5th Supp) [ITA]. He filed notices of objection under section 165 of the ITA
and is currently waiting to appeal to the Tax Court under section 169 of the
ITA.
III.
Issues
[14]
These motions raise the following issues:
A.
Should the notice of application for judicial
review be struck for lack of jurisdiction?
[15]
If the answer to this first question is no:
B.
Whether the Federal Court has jurisdiction to
review the reasonableness of an assessment issued by the CRA, on behalf of the
Minister of National Revenue?
C.
Whether the respondent should be ordered to
provide the CTR?
D.
Whether the matter should proceed in an
expeditious manner?
IV.
Analysis
A.
Should the notice of application for judicial
review be struck for lack of jurisdiction?
[16]
The test for striking an application for
judicial review is whether, assuming the facts pleaded to be true, it is plain
and obvious that it cannot succeed or that it has no reasonable prospect of
success (R v Imperial Tobacco Canada Ltd, 2011 SCC 42 at para 17). The respondent
argues that the application for judicial review cannot succeed because (i) the
Tax Court is the exclusive forum to grant the relief sought by the applicant,
as per section 18.5 of the Federal Courts Act, RSC, 1985, c F-7, and
(ii) the Federal Court cannot prevent the Minister from administering and
enforcing the ITA. As a result, the respondent submits that it is plain and
obvious that the application has no chance of success.
[17]
On the other side, the applicant submits that
his application for judicial review is not a collateral attack on the Tax
Court’s jurisdiction. The Tax Court does not have the statutory power to review
the reasonableness of an assessment, it only has jurisdiction to determine the
correctness of the quantum of an assessment.
[18]
He further argues that regarding the correctness
of the quantum of an assessment, the burden lies on the taxpayer. Since a
substantial portion of the Required Documents is privileged, the applicant
submits that he would be able to bring very limited evidence before the Tax
Court. Since, in appropriate circumstances, judicial review of the exercise of
ministerial discretion, in the context of taxation, is available (Canada v
Addison & Leyen Ltd, 2007 SCC 33 at paras 8, 11), the Federal Court of
Appeal in Canada (National Revenue) v JP Morgan Asset Management (Canada)
Inc, 2013 FCA 250 enumerated circumstances under which it is available and
warranted. The applicant states that two of these circumstances exist here: (i)
when the decision is ultra vires, and (ii) when it is substantively unacceptable.
[19]
Regarding vires, the court in JP
Morgan stated that administrative action cannot be authorized by
unconstitutional legislation (JP Morgan, above at para 70). The applicant
argues that by the respondent’s own admission, the officer, in issuing the assessments,
based her decision on the applicant’s refusal to provide all the Required
Documents. As those provisions of the ITA (Requirement to provide documents or
information) were recently found to be unconstitutional and of no effect when
they are used against notaries and legal advisors (Canada (National Revenue)
v Thompson, 2016 SCC 21 and Canada (Attorney General) v Chambre des
notaires du Québec, 2016 SCC 20), the decision by the officer to issue the assessments
was ultra vires the CRA. As such, there is an issue of vires that
only this Court can review.
[20]
The applicant also argues that the decision is
substantively unacceptable. In JP Morgan, the Federal Court of Appeal
held that administrative action must either be correct or fall within a range
of outcomes that are acceptable or defensible on the facts and the law (JP
Morgan, above at para 70). In Canada (Attorney General) v Abraham,
2012 FCA 266, it further held that “where the
decision-maker is considering a discretionary matter that has greater legal
content, the range of possible, acceptable outcomes open to the decision-maker
might be narrower. Legal matters, as opposed to factual or policy matters,
admit of fewer possible, acceptable outcomes” (Abraham, above at
para 44). Given the quasi-constitutional status of solicitor-client privilege,
says the applicant, the decision is not an acceptable outcome.
[21]
I agree with the respondent that whether the
Federal Court has jurisdiction to consider the issue and grant the relief
sought depends upon the characterization of the essential nature of the claim.
The nature of the claim then indicates whether the Federal Court or the Tax
Court of Canada has jurisdiction.
[22]
Having considered all of the applicant’s
argument, I am of the view that this application for judicial review should be
struck.
[23]
The applicant makes an artificial distinction
between the Minister’s decision to assess and the assessments themselves. The assessments
are the result of the assessment process (Bowater Mersey Paper Co v R,
[1987] FCJ No 427, 87 DTC 5382 at para 10) and there is no discrete decision
within the above process which can be the subject of judicial review.
[24]
The Court will strike a notice of application
for judicial review only where it is “so clearly
improper as to be bereft of any possibility of success” (David Bull
Laboratories (Canada) Inc v Pharmacia Inc, [1994] FCJ No 1629, [1995] 1 FC
588 at para 15; JP Morgan, above at para 47). It requires an obvious,
fatal flaw striking at the root of this Court’s power to entertain the
application (Rahman v Public Service Labour Relations Board, 2013 FCA
117 at para 7; JP Morgan, above at para 47).
[25]
The following were found in JP Morgan, to
be obvious, fatal flaws warranting the striking out of a notice of application:
(i) the notice of application fails
to state a cognizable administrative law claim which can be brought in the
Federal Court;
(ii) the Federal Court is not able to deal with the
administrative law claim by virtue of section 18.5 of the Federal Courts Act
or some other legal principle; or
(iii) the Federal Court cannot grant the relief sought.
(JP Morgan, above at para 66)
[26]
Any of these objections are in and of themselves
grounds to strike the application if they are made out. I am of the view that
all three objections are present in this case.
[27]
First, the notice of application fails to state
a cognizable administrative law claim which can be brought in the Federal
Court. In order to demonstrate a cognizable administrative law claim, the judicial
review must be available under the Federal Courts Act and it must state
a ground of review that is known to administrative law (JP Morgan, above
at paras 67, 68, and 70).
[28]
Contrary to the applicant’s view, the basis for
the assessments is subsection 152(7) of the ITA, the provision which empowers
the Minister to assess tax whether or not a taxpayer has supplied or returned
information. This provision is not unconstitutional and therefore the basis for
the decision is not ultra vires.
[29]
I also do not agree with the applicant’s view
that the assessments are substantively unacceptable. The statutory language allows
the Minister to issue an assessment whether or not a tax return or required
information or documents have been filed (ITA, above at ss 152(7)). Due to the
Minister’s duty to issue an assessment in the face of liability for tax (JP
Morgan, above at para 77), there was no discretion for the Minister to
abuse. Therefore, the applicant failed to state a cognizable administrative law
claim.
[30]
I find that what the applicant is actually
challenging is the legal validity of the assessments, which is not an
administrative ground which can be brought to this Court.
[31]
Second, the Federal Court is barred by section
18.5 of the Federal Courts Act from dealing with the applicant’s claim.
As outlined above, section 18.5 states that where an Act of Parliament
expressly provides for an appeal to the Tax Court of Canada, the decision is
not subject to review or to be restrained, prohibited, removed, set aside or
otherwise dealt with. Parliament has declared the Tax Court’s powers concerning
assessments to be exclusive in subsection 12(1) of the Tax Court of Canada
Act.
[32]
What the applicant is asking this Court to do is
to review a challenge to the assessments issued by the CRA under subsection
152(7) of the ITA, which gives the Minister the power to assess. However, in JP
Morgan, the Federal Court of Appeal stated that an appeal to the Tax Court
is available, adequate, and effective in giving the taxpayer the relief sought,
and so judicial review to the Federal Court is not available when what is requested
is a review of the validity of an assessment or the admissibility of evidence
supporting an assessment (JP Morgan, above at para 82).
[33]
This is precisely what the applicant is arguing
in his application for judicial review; he is arguing that by virtue of
disregarding his claim for solicitor-client privilege over a portion of the
Required Documents, and therefore disregarding the Supreme Court of Canada’s
ruling in Thompson and Chambre des notaires, and nevertheless going
forward with the assessments, the decision by the CRA is not valid. This
squarely falls within the Tax Court’s jurisdiction, as the Tax Court provides a
complete appeal procedure that allows taxpayers to raise in the Tax Court all
issues relating to the correctness of an assessment, i.e., whether the
assessment in question is supported by the facts of the case and the applicable
law (JP Morgan, above at para 82).
[34]
Furthermore, on an appeal, the Tax Court can consider
the admissibility of evidence before it (JP Morgan, above at para 82).
To the extent that the conduct of the Minister is alleged to affect the
admissibility of evidence, that must be litigated before the Tax Court (JP
Morgan, above). Specifically, where a taxpayer has concerns regarding
certain evidence being used against him or her for the purposes of
reassessment, the proper venue to challenge its admissibility is the Tax Court
of Canada (Redeemer Foundation v Canada (National Revenue), 2008 SCC 46
at para 28). Therefore, the applicant’s concern regarding his assertion of
privilege over the Required Documents, including the constitutional challenge,
is a matter that ought to be dealt with by the Tax Court. What’s more, the applicant’s
concern that he will not be able to discharge the burden imposed on the
taxpayer to make his case before the Tax Court, is also best dealt with by the
Tax Court itself, and not this Court on judicial review.
[35]
Accordingly, I agree with the respondent that
the Federal Court does not have jurisdiction to hear challenges to tax
assessments (Optical Recording Corp v Canada, [1991] 1 FC 309 at para
22).
[36]
Third, the Federal Court is precluded from
granting the relief sought by the applicant. This is the third basis for
striking out a notice of application for judicial review in the Federal Court,
outlined by the Federal Court of Appeal in JP Morgan. The Federal Court
is limited to the remedies in the Federal Courts Act, subsection 18.1(3)
and any remedies associated with its plenary power (JP Morgan, above at
para 92). Essentially, the remedy sought by an applicant must be one that is
not barred or inconsistent with statute. If a notice of application before this
Court seeks only remedies that cannot be granted, it must be struck (JP
Morgan, above at para 92).
[37]
The ITA clearly states, under subsection 152(8),
that an assessment is deemed to be valid, subject only to a reassessment or
variation by a successful objection or by a successful appeal of the assessment
brought to the Tax Court. Therefore, the assessments stand until varied or
vacated by the Tax Court (Optical Recording Corp, above at para 22; JP
Morgan, above at para 93). In light of this, the Federal Court of Appeal in
JP Morgan concluded that if the “essential
character” of the relief sought is the setting aside of an assessment,
it must be struck (JP Morgan, above at para 93).
[38]
By virtue of my conclusion that the application
for judicial review ought to be struck, it is unnecessary to address the
remaining issues brought forward by the applicant.
V.
Conclusion
[39]
The applicant’s notice of application for
judicial review is bereft of any chance of success as all three fatal flaws
outlined in JP Morgan are present. Accordingly, it must be struck out.
Costs shall be granted to the respondent.
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