Appeal court strikes Iristel application for judicial review on tax audit

The Federal Court of Appeal has sided with the attorney general of Canada by striking an application by Iristel Inc. to the federal court in which the company alleged that it was denied procedural fairness in an audit and assessment process. According to the June 2 decision, the attorney general submitted that a lower court judge erred by dismissing its move to strike out Iristel’s application for judicial review because “the judge failed to recognize that the true essence” of Iristel’s application “was an attack on the validity” of its tax assessments, a matter within the exclusive jurisdiction of the Tax Court of Canada. The court of appeal noted in its decision that Parliament established a specialized court and system for tax appeals which excludes the judicial review jurisdiction of the Federal Court when an assessment is being appealed. The tax dispute with Iristel began in 2018 when it was audited and assessed by the Minister of National Revenue under the Excise Tax Act (ETA). The Canadian Revenue Authority (CRA) audited Iristel’s tax returns, and after initially withholding the company’s tax returns during the audit, eventually released them after a request by Iristel. The CRA then initiated a second audit of the company covering the periods in 2019, and then expanded the audit to cover the first two months of 2020. Iristel again asked for the release of the tax returns while the audit was underway, but the minister refused. In March 2020 Iristel sought the refund of $62.3 million, being a portion of monies remitted to the Minister of National Revenue as GST/HST for the periods of Sept. 2019 to Feb. 2020. In July 2020 the Federal Court of Appeal sided with the company by ruling that the Federal Court had jurisdiction to review the conduct from the CRA. However, the court simultaneously dismissed the company’s claim for interim relief for the full $62.3 million. In Dec. 2020 the Federal Court dismissed Iristel’s motion for interim relief of approximately $21.85 million of GST/HST refunds for its Jan. and Feb. 2020 reporting periods– a decision which the court of appeal upheld this past March. Iristel then launched judicial review, claiming it was denied procedural fairness in the audit. There "was no evidentiary foundation upon which an assessment could be issued under the ETA; and the assessments were issued for the improper purpose of depriving the Federal Court of jurisdiction to hear administrative law grievances raised” by Iristel, the company argued, according to court documents. “We conclude that the notice of application is, in essence, a collateral challenge to the validity of the assessments issued under the ETA, a matter within the exclusive jurisdiction of the Tax Court of Canada. The application also seeks declarations that are of no practical effect. As such, the application is bereft of any possibility of success,” Justice Donald J. Rennie wrote in the decision on behalf of the court. The court cited jurisprudence establishing that procedural defects committed by the minister are not grounds for setting aside the assessment, and that an appeal can be made under the General Procedure in the Tax Court. “Whether the assessment made by the minister is sustained by the evidence is a question precisely within the legislative mandate of the Tax Court of Canada,” Rennie wrote. The court also noted that allegations that a minister acted improperly does not change the outcome of an assessment. “There is no utility in trying to parse or separate the motivation behind a decision to assess from the correctness of the assessment itself. It is a meaningless exercise, since the assessments themselves are not discretionary – the tax is either exigible as a matter of law or it is not. The minister is responsible for enforcing the provisions of the ETA, and the fulfillment of that statutory responsibility cannot be an improper motive for the minister to issue an assessment,” Rennie wrote. – Reporting by Jenna Cocullo at jcocullo@thewirereport.ca and editing by Michael Lee-Murphy at mleemurphy@thewirereport.ca

Appeal court strikes Iristel application for judicial review on tax audit

News | June 6, 2022

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Appeal court strikes Iristel application for judicial review on tax audit

News | June 6, 2022

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