Print Page
News & Press: International News


Friday, 15 March 2013   (0 Comments)
Posted by: Author: Alastair Morphet
Share |

Judgment was handed down by Canada's Federal Court of Appeal on 21 February 2013 in the matter of The Minister of National Revenue v RBC Life Insurance Company and Others. The judgment was delivered by Stratas JA, and offers a fascinating insight into the relationship between the Constitution, the Rule of Law and the powers granted to the Revenue Authorities.

The Minister of National Revenue had obtained four authorisations to require taxpayers to produce information and documents relating to some of their customers, who had purchased an insurance product that was described as '10-8 Insurance Plans'. After the Federal Court (court) had cancelled these authorisations, the minister appealed to the Federal Court of Appeals. The insurance companies then cross appealed, asking for a declaration by the court that ss231.2(3) should be of no force or effect because it infringed on the Canadian Charter of Rights and Freedoms. The minister argued that the provisions of the Income Tax Act did not allow for judicial discretion. Once the statutory conditions were established she argued that the court judge must not cancel the authorisations no matter how badly the Crown had acted in the matter.

The relevant section provides that on Ex Parte application by the minister, a judge on such conditions that he thought appropriate authorised the Minister to impose on the third party a requirement that a party verify his compliance by the person or persons in the identified group of its obligations under the Income Tax Act. An issue between the parties was that when the minister had approached a judge for the order, there was a significant amount of relevant evidence that had not been disclosed to the court. In the court's judgment they identified four categories of material facts:

·The Department of Finance's refusal to amend the Income Tax Act to address the outdated provisions.

·Information that was contained in an advance income tax ruling request, which was relevant to determining whether there was compliance with the Act.

·The Canadian Revenue Agency's decision to send a message to the industry by refusing to answer the advance income tax ruling request and to take measures to chill the 10-8 business plans, in part by undertaking an 'audit blitz'.

·The Canadian Revenue Agency's Gaar committee had determined that the 10-8 plans likely complied with the letter of the Act if not the spirit.

Accordingly, the court had found that the minister failed to establish one of the two preconditions for such an order, namely that the authorisations were made to verify compliance with the Act. The court had accepted that the minister had a valid audit purpose, but this was extraneous to her primary goal which was to cool off the insurers 10-8 plan business, a business that the minister did not like on policy grounds.

The minister appealed to the Federal Court of Appeals. In Canada the standard of review is that the court's findings on question of law must be correct, and unless an extricable question of law is present, its findings on questions of mixed law and fact could only be set aside on the basis of 'palpable and overriding error'. This was described by the court as a 'highly deferential standard of review'. The judge said in considering the Minister's submission there were three questions the court needed to consider:

·What the jurisdiction of the court on an Ex Parte application under s231.2(3) and on a review under s231.2(6) was.

·Had the minister made full and frank disclosure of relevant information in the Ex Parte application in the case?

·Did the minister's valid audit purpose save the authorisations?

The minister had argued that if the unnamed taxpayers were ascertainable and the purpose of the authorisation was to verify the unnamed taxpayer's compliance with the Act, the authorisation had to be granted and the reviewing judge could do nothing more.

Stratas JA said that the plain wording of ss231.2(6) showed that the reviewing judge is free to go beyond the two statutory preconditions and exercise discretion whether the authorisation should be left in place. The judge said that judicial oversight pervaded the process, both at the initial Ex Parte stage and later if there was a review under sub s231.2(6). Judicial oversight was necessary because authorisations could intrude on third parties' privacy interests. When the minister was seeking an authorisation under ss231.2(3) the minister could not leave a judge in the dark on facts relevant to the exercise of his discretion, even if those facts were harmful to the minister's case (this is in paragraph 26 of the judgment). The judge said that the Minister had a high standard of good faith to make full disclosure so as to fully justify an Ex Parte order. He also pointed out that under this statutory scheme, the original judge must conduct the review, a judge who knows the original information submitted in support of the exercise of discretion in favour of granting the authorisation. For this reason he said that the review then must include a discretionary element and was not limited to only verifying that the two statutory preconditions had been met. He pointed out that based on the minister's interpretation, the authorising judge could be induced to grant an authorisation on the basis of bald lies but, on review, if the statutory conditions had been met, the same judge having discovered that she had been deceived, could do nothing about it (paragraph 29).

Stratas JA went on to say that a breach of the obligation to make full and frank disclosure of information relevant to the court's exercise of discretion on an Ex Parte application, could hinder the court's ability to act properly and judicially, and result in the making of orders that should not have been made, and that this was an abuse of process. He rejected the Minister's argument that the provisions constituted a complete code ousting the court's ability to redress such an abuse of process. There follows a discussion concerning the courts having an 'inherent' power independent of statute to redress abuse of process.

At one time it was thought that the courts, as courts created by statute did not have inherent powers. But the judge referred to the case of Canada (Human Rights Commission) v Canadian Liberty Net [1998] 1 SCR 626at paragraphs 35 – 38 as confirming the existence of 'plenary powers' in the Federal courts, which were analogous to the inherent powers of Provincial Superior Courts.

In conclusion, the judge said it had been incumbent on the minister to demonstrate palpable and overriding error in the court's finding of relevance in the case. The minister had failed to do so.

Source: Alastair Morphet



Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.

  • Tax Practitioner Registration Requirements & FAQ's
  • Rate Our Service

    Membership Management Software Powered by YourMembership  ::  Legal