Section 229

During an audit of the appellant (Iris), the Minister withheld GST/HST refunds for the reporting periods under examination and refused requests for release of such funds as Iris’ business operations suggested participation in a carousel scheme (i.e., under which GST/HST is never remitted at the other end of the chain). Iris appealed an order of the Federal Court dismissing its motion for an interim mandatory injunction to compel the payment of $62.3 million in GST/HST refunds. On April 9, 2020 (shortly prior to the hearing of the motion in the Federal Court, and before the completion of the audit, the Minister reassessed or assessed Iris’s January to November 2019 reporting periods, resulting in a large balance shown as owing in favour of the Minister.

Rennie JA agreed with the Federal Court below that Iris had not made out a strong prima facie case in its underlying application for mandamus to compel the Minister to pay the refund claims before the completion of the audit. He also endorsed the reasoning in Express Gold (which had been argued before the Court of Appeal) and, in particular, the findings that “the obligation to pay a refund with all due dispatch did not displace the Minister’s obligation to verify that the refund is in fact payable under the ETA” (para. 41) and that “’a reasonable interpretation of subsection 299(1) is that the Minister may choose to audit a claim for a net tax refund, in order to determine whether the amount is properly claimed’” (para. 42). Rennie JA also stated (at para. 44):

Only refunds that are "“payable”" under the ETA are required to be paid. This in turn means that the obligation to pay refunds is necessarily conditioned by the Minister’s obligation under section 275 of the ETA to confirm that they are in fact owing … .

Respecting the meaning of “with all due dispatch” he noted (at para. 46):

In what appears to be a relatively complex case, the CRA’s estimate that the audit would take ten months to complete is reasonable. Those ten months have not yet elapsed.

Rennie JA further stated (at paras 49 and 51):

… I do not wish to be taken as endorsing the Minister’s arguments that the issuing of the notices of assessment deprives the Federal Court of jurisdiction to consider the Minister’s exercise of discretion under the ETA.

…[T]he Federal Court retains jurisdiction to consider the application of administrative law principles and obligations to the exercise of discretion by the Minister in the application of the ETA. Examples of this include allegations of acting for an ulterior purpose or in bad faith, abuse of his or her powers or not proceeding in a reasonable time frame.

The applicant (“Express Gold”), which made substantial zero-rated sales of refined gold but claimed input tax credits on its purchases, claimed a net refund of $9.13 million for its August 2018 reporting period and was informed by CRA on October 4, 2018 that an audit of the August return had started and that the net tax refund for that month was being withheld. The scope of the audit was later expanded to cover the period from June 1, 2016, to October 31, 2018, and CRA advised Express Gold hat it would not be receiving its August net tax refund or any refunds for subsequent months while the audit was underway.

On November 7, 2018, Express Gold’s representative wrote to demand that the net tax refund for the August 2018 return be paid, and on December 6, 2018 Express Gold launched this proceeding in the Federal Court for an order of mandamus (based on the Minister’s obligation to pay the net tax refund “with all due dispatch” as required by ETA s. 229(1)),

In dismissing Express Gold’s application, Pentney J first summarized the general principles respecting “with all due dispatch” (at paras. 55, 76):

[T]he context for the provisions makes it clear that finding that the obligation to pay the refund with all due dispatch was not intended to displace the Minister’s obligation to verify the claim is not unreasonable.

The Minister is under a statutory duty to determine the tax that is owing or a refund is due in relation to the August 2018 return of the Applicant, pursuant to section 275 … . The Minister must do this without delay. The Minister is not obliged to pay the refund simply because it was claimed in the return, nor is the Minister forbidden from conducting an assessment or audit of the return, as long as this is done in good faith for the purpose of ascertaining the taxes due or refund owing (Ficek and McNally), and as long as it is done with all due dispatch.

He went on to find that here there had not been “sufficient time to complete the audit” (para. 82) before this application had been launched (two months after receiving notice of the commencement of the audit) given inter alia “that the Applicant’s business involves a high volume of transactions with multiple third parties, which in itself can be expected to add a degree of complexity to the undertaking” (para. 83).

In his conclusions, he stated (at para. 104):

I have concluded that the Applicant brought its application before a reasonable time for the performance of the duty had elapsed, and so I am dismissing the application. In doing so, it is worth underlining that if the Applicant has or obtains evidence that the CRA is acting for an ulterior purpose, or that the audit is being continuously expanded in bad faith, or otherwise not proceeding in a reasonable time-frame, it can bring another motion.