One-stop shop

SCC puts tax fights in their place. Plus UofT's encampment injunction and other legal news.

Hearsay

Happy belated Canada Day! Hopefully you enjoyed the long weekend. And hopefully today’s newsletter is almost as pleasing as a summer day off. If so, consider sharing it with a colleague.

— Dylan Gibbs

with Alexandra Son

TODAY'S DOCKET

  • SCC clarifies the proper route for tax challenges

  • UofT triumphs over on-campus encampment

  • Plus, sentencing for Indigenous identity fraud, notarizing pseudolaw documents, intimate image sharing, and flight delays

SCC

Supreme Court puts tax fights in their place

Young woman with backpack stands at crossroads in front of neo gothic building. Sign pointing left says Tax Court. Sign pointing right says Federal Court. A Canadian flag flies beside the building.

Dow Chemical v. Canada, 2024 SCC 23

Iris Technologies v. Canada, 2024 SCC 24

The US Supreme Court released banger after banger the past week. SCOTUS smacked down the Sacklers with a major insolvency decision, overturned a 40-year admin law precedent, and granted presidents far-reaching immunity.

Not to be outdone, the SCC penned over 300 paragraphs focused on the jurisdictional divide between the Tax Court and the Federal Court.

It turns out, the Tax Court isn’t a “one-stop judicial shop” for tax disputes. So, if your beef is with a discretionary decision made by the Minister of National Revenue, you’ll need to apply for judicial review in the Federal Court.

  • How’s that for excitement?

What happened: The Minister made decisions that Dow Canada and Iris Technologies didn’t like. For Dow, the Minister refused an adjustment (a downward transfer pricing adjustment, as the international tax buffs call it).

The Income Tax Act says Dow can only get the adjustment it wants if, “in the opinion of the Minister”, it would be appropriate. Since the Minister’s opinion didn’t go Dow’s way, Dow tried to set the opinion aside at the Tax Court. But the Federal Court of Appeal said Dow should have gone to the Federal Court instead.

Scene from The Big Lebowski. Caption reads "yeah well, you know, that's just, like, your opinion, man"

For Iris, the Minister denied input tax credits. Unlike transfer pricing, the Minister doesn’t have discretion over input tax credits—taxpayers either qualify or they don’t. But dollars and cents aside, Iris says the Minister abused the audit process by refusing the credits without an evidentiary foundation, without giving Iris a chance to respond, and for an improper purpose.

Iris went straight to the Federal Court, asking for a declaration that the Minister acted improperly. This time, the Court of Appeal said the dispute belonged in the Tax Court.

At the SCC: The Court heard the two appeals on the same day but released separate reasons. Both cases dealt with the scope of tax assessment appeals. Here’s the relevant statutory language:

[A] taxpayer may appeal to the Tax Court of Canada to have [an] assessment vacated or varied.

Income Tax Act, s. 169(1). Similarly, Excise Tax Act, s. 306

For the majority, Justice Kasirer said tax assessment appeals sort out whether the Minister correctly applied mandatory taxation rules. Discretionary decisions are a different story—taxpayers need to judicially review those decisions in Federal Court unless a statute expressly says otherwise.

  • The Income Tax Act doesn’t offer an appeal for transfer pricing adjustments, so Dow should have applied for judicial review.

[Siding with Dow] would prompt new controversy over jurisdictional boundaries, all in service of supposed benefits for access to justice that strike me as largely illusory…

[Parliament gave the Minister] a policy-based discretionary decision-making power that is distinct from an assessment. [It doesn’t matter] that the Minister’s decision directly affects tax liability [or] that the Minister’s decision will sometimes be reflected in an assessment… [Dow has] reframed [an administrative law grievance] as an appeal to the Tax Court.

Dow at paras 4-7

Justice Côté and the dissenters saw it differently. They said taxpayers should be able to challenge discretionary decisions that are “inextricably linked to the correctness of [an] assessment”—like the Minister’s opinion about transfer pricing adjustments.

As for Iris? It should have appealed to the Tax Court, because it was essentially challenging the mandatory calculation of its taxes. Iris’s claims weren’t related to the Minister’s discretion—with one exception.

Iris’s claim that the Minister assessed for an improper purpose was a good fit for judicial review. Only in theory, though. The Court struck the claim for lack of merit, because Iris didn’t allege any supporting facts that would prove the Minister did something wrong.

[A]n allegation of improper purpose can, in some circumstances, sustain an application for judicial review in tax matters. [J]urisdiction to provide relief from reprehensible conduct of the Minister would fall to the Federal Court...

[But] this allegation of improper purpose should nevertheless be struck. Iris has failed to allege facts in its application that, if true, could support its allegation that the Minister acted here with an improper purpose.

Big picture: It sure would be simpler if the Tax Court dealt with everything a taxpayer might want to fight about. But that’s a job for Parliament. For now, at least the border between the Tax Court and the Federal Court is a bit more visible.

HEARSAY ROUNDUP

Canadiana

😠 A Toronto woman got a three-year sentence for Indigenous identity fraud. Justice Mia Manocchio jumped the Crown’s recommendation of 18 months to two years, calling the 3-year sentence a warning to anyone thinking about claiming government benefits through false claims of Indigeneity.

📝 Two Alberta lawyers will have a chance to argue that they shouldn’t be punished for notarizing pseudolaw documents. The Court of King’s Bench handed out penalties of $5,000 and $10,000, finding that the lawyers breached their ethical obligations. But the Court of Appeal set aside the sanctions because the lower court never gave the lawyers a chance to respond.

🤳 BC’s Civil Resolution Tribunal awarded $5,000 in damages against a man who secretly texted himself intimate images while he was borrowing a woman’s phone.

✈️ Sunwing is suing a Saskatchewan couple over $800. The issue is whether airlines need to pay flight delay compensation for preventable mechanical issues.

💔 Alberta cancelled its current agreement with Legal Aid Alberta.

🧐 BC launched an independent review of the justice system’s approach to sexual and intimate partner violence.

😔 Justice Minister Arif Virani set aside a murder conviction based on new evidence suggesting a miscarriage of justice.

CIVIL LIBERTIES

UofT property rights trump pro-Palestinian encampment

Numerous tents scattered across an open clearing resembling a university campus

Schools haven’t been very successful in court against the pro-Palestinian encampment protests. UQAM at least pushed its encampment a short distance away from school buildings. But McGill left empty-handed.

Yesterday, the University of Toronto bucked the trend. Justice Koehnen of the Ontario Superior Court of Justice granted an injunction that—as of 6 p.m. today—prohibits protesting between 11 p.m. and 7 a.m., camping, erecting structures, and blocking entrances.

How come? Justice Koehnen wasn’t satisfied that the protest was antisemitic or violent. But he was satisfied that the protest is irreparably harming UofT by stripping away the school’s property rights and hurting its reputation.

Justice Koehnen was especially concerned that the protestors had privatized their encampment—by setting up a checkpoint at the entrance and controlling who could enter, protestors had effectively appropriated UofT’s property for their own interests.

In our society we have decided that the owner of property generally gets to decide what happens on the property. If the protesters can take that power for themselves by seizing Font Campus, there is nothing to stop a stronger group from coming and taking the space over from the current protesters. That leads to chaos. Society needs an orderly way of addressing competing demands on space. The system we have agreed to is that the owner gets to decide how to use the space.

University of Toronto v. Doe, 2024 ONSC 3755 at para 15

Since the tailored injunction allows protesting during the day (minus the tents), Justice Koehnen’s balancing of interests favoured the school.

Kudos to Justice Koehnen for writing a clear and digestible decision about a touchy subject.

I appreciate these reasons are long. As noted, they are long because I wanted to ensure that parties felt they had been heard and understood, if not always agreed with. I have tried to explain in some detail why I have not accepted the submissions of certain parties. I appreciate that a long legal decision can be a daunting read. If the protesters, want to focus in on the most critical reasons for which I have found for the University, they are found in the discussion about the balance of convenience at pages 62 to 81.

Para 19
Dylan Gibbs

That’s all for today. Govern yourself accordingly.

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