MEGLobal Canada ULC v. The King: Jurisdiction for Tax Appeals
When a taxpayer disagrees with a decision made by the CRA and they have exhausted their right of appeal with the CRA Appeals Division (or has elected to bypass Appeals), they can have their case heard before either the Tax Court of Canada (the “TCC”) or the Federal Court of Canada (the “FCC”). However, these two courts have jurisdiction to hear appeals of different tax-related issues. If a taxpayer chooses the wrong venue for their appeal, they risk having their appeal “quashed,” as occurred in the case of MEGLobal Canada ULC v. The King.
The TCC’s decision in this case was defendant on the Supreme Court of Canada (the “SCC”)’s recent decisions in Dow Chemical and Iris Technologies. These cases held that the TCC does not have jurisdiction to interfere with the CRA’s discretionary decisions unless they relate to the correctness of an assessment. In contrast, discretionary decisions made by the CRA—such as granting Taxpayer Relief or accepting a Voluntary Disclosure—fall under the exclusive jurisdiction of the FCC, which reviews the Minister’s exercise of discretion through judicial review.
Therefore, if a taxpayer challenges a discretionary decision at the TCC, the court will lack jurisdiction, and the appeal may be quashed. Conversely, if a taxpayer disputes the correctness of an assessment at the FCC, the court will dismiss the appeal because only the TCC can decide on the statutory correctness of assessments. Understanding this jurisdictional divide is crucial to ensuring that tax appeals are brought before the appropriate court to avoid procedural dismissal.
In determining the correctness of an assessment, the TCC conducts de novo review, meaning it examines the case afresh without deferring to or relying on conclusions made at the CRA stage. Because a fresh review is being conducted to determine the appellant’s tax liability, the CRA’s conduct/procedure is not at issue at the TCC (Dow Chemical, paragraph 57). Importantly, the TCC’s focus is strictly on whether the assessment itself is correct; it does not generally review the CRA’s conduct or procedural fairness unless such issues affect the accuracy of the tax calculation. In Dow Chemical, the SCC confirmed that “if the final result of the assessment is correct, the assessment will be upheld even if the process that led to the assessment was flawed or abusive.”
If the TCC decides in favour of a taxpayer, its remedies are limited to vacating a reassessment, varying it, or referring it back to the Minister for reassessment. However, an order for reconsideration and reassessment does not obligate the Minister to reconsider a discretionary decision since it does not properly form part of an assessment.
The FCC is empowered to conduct judicial review of the Minister’s discretionary decisions, and procedural fairness is a key consideration. If it is determined that a decision was unfair, the FCC has the authority to quash the Minister’s decision and force reconsideration under the directions of the court. Judicial review generally focuses on the reasonableness and fairness of administrative decisions, as opposed to correctness.
It can be difficult to determine whether a CRA decision relates to the “correctness” of an assessment or whether it represents a “discretionary” decision since nearly all CRA decisions involve an element of human decision-making. However, correctness and discretion are legal terms of art in the context of tax appeals. Discretionary decisions generally involve policy considerations.
For this reason, all taxpayers are well advised to seek professional assistance tailored to their particular circumstances in determining whether their dispute is properly heard at the TCC or the FCC. MEGLobal Canada illustrates the high consequences of deciding incorrectly – a dispute filed in the wrong venue is extremely likely to be struck at the preliminary stage, which leads to unnecessary costs and potentially missed filing deadlines in the correct venue.
Disclaimer: This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions, you should consult a lawyer.
Jeffrey Liu
