Milgram – Federal Court finds that it has the jurisdiction to quash an abusive decision of CRA to assess, even though the resulting assessment was objected to

Milgram, a Liechtenstein-resident trust that had determined that it might be a deemed resident under s. 94, made a 2015 filing under the CRA voluntary disclosure program for its 2003 to 2014 taxation years (for which the financial information was still available), and in December 2015, the VDP officer accepted the disclosure. However, in a September 5, 2018 proposal letter, the Minister proposed to assess Milgram for its 1998 to 2002 taxation years (the “earlier years”) based on an estimate of Milgram’s investment income for those years, stating that this assessment came about due to “misrepresentation” attributable to “neglect, carelessness or wilful default.” After Milgram applied for judicial review of the proposal letter, the Minister in February 2021 assessed the earlier years, to which Milgram objected.

Go J declared that the Minister’s decision to assess Milgram for the earlier years after her acceptance of Milgram’s voluntary disclosure constituted an abuse of process, quashed that decision and directed the Minister “to consider the Court’s declaration and to take such actions as are necessary to give effect to the reconsidered decision.” In reaching this result, Go J:

• Found (citing Dow Chemical) that because Milgram was challenging the Minister’s conduct or process that led to the proposed assessment, and not the proposed assessment itself, it was raising a “matter” that fell within the Federal Court’s jurisdiction under s. 18.1(1) of the Federal Courts Act.
• Noted that, indeed, Dow Chemical had approved the statement in JP Morgan that the “‘[t]he Tax Court does not have jurisdiction on an appeal to set aside an assessment on the basis of reprehensible conduct by the Minister leading up to the assessment, such as abuse of power or unfairness’, therefore in such a circumstance, ‘the bar in section 18.5 of the Federal Courts Act against judicial review in the Federal Court does not apply’…”
• Found that the Minister had the discretion to waive tax, not just interest and penalties (and the Crown’s argument to the contrary did not comport with the Minister’s decision to assess back only to 1998 even though Milgard had disclosed at the outset that it had been formed in 1964);
• Stated, before noting that the voluntary disclosure by Milgard was complete and accurate rather than containing a misrepresentation, that “in reneging on her own prior decision by impugning, without any justifications, misrepresentation on the Applicant, the Minister’s conduct violates a sense of fair play and the Decision amounts to an abuse of process.”

In connection with her final declaration above, she noted that:

• Sifto (which had been cited with approval in Dow Chemical) had indicated that a remedy for unreasonable conduct of the Minister could include issuing an order precluding the Minister from enforcing a penalty assessment or collecting a resulting tax debt; and
• In light of the circumstances, including that Milgram’s 2021 notices of objection had not yet been adjudicated, “quashing the Minister’s decision to reassess may therefore have the practical effect of ordering the Minister to reconsider her decision.”

Neal Armstrong. Summary of Milgram Foundation v. Canada (Attorney General), 2024 FC 1405 under Federal Courts Act, s. 18.5.