Da Costa, 2026 FC 1290: the CRA cannot certify a dissolved company's tax debt against its shareholder under section 223

2026 FC 1290 · Federal Court

Author: Sas Tullo

This is a judicial review in the Federal Court of a collection step taken by the Canada Revenue Agency. A Quebec company that owed about $221,000 in income tax for 2003 and 2004 was dissolved in 2018. The CRA took the view that, under the Quebec Business Corporations Act, the company’s debts had passed to its sole shareholder, Mr. Da Costa, and it registered a certificate under section 223 of the Income Tax Act against him personally, followed by a legal hypothec on his property. The Court set the certificate aside. The decision matters because it draws a firm line around the CRA’s summary certification power: it can be used only against a person whose debt arises under the federal statutes listed in section 223, not against a third party whose alleged liability rests on provincial corporate law. The reasons are in French only; quotations below are my translation.

Facts

Mr. Da Costa has been the sole shareholder of 2961-2603 Québec Inc. since 1992, and he and his son were its only directors (para 3). The company ran a billiard hall in Montreal until 2004 (para 4). The CRA assessed it for 2003 and 2004 in 2009 and, after an objection, reassessed in 2015 with reduced tax, which the company did not contest (para 5). On August 28, 2018 Mr. Da Costa signed a document headed “Déclaration de dissolution” resolving to dissolve the company and authorizing his son to sign the dissolution documents; the filing with the Quebec enterprise registrar declared that the company had neither obligations nor property at the time the shareholders consented to the dissolution (paras 6, 36-37). In 2024 Mr. Da Costa applied to revive the company, citing among other reasons that it had been dissolved without the sole shareholder knowing all the consequences (para 7).

On January 15, 2025 the CRA wrote to Mr. Da Costa that, as sole shareholder, he had assumed all the rights and obligations of the dissolved company under section 313 of the Business Corporations Act, CQLR c S-31.1 (para 8). His lawyer contested the legality of the process (para 9). On March 5, 2025 the CRA certified in the Federal Court that Mr. Da Costa, as sole shareholder, owed $221,237.99 plus interest for the company’s unpaid income tax, relying on section 223 of the Income Tax Act and sections 312 and 313 of the provincial Act (paras 1, 10). He learned of the certificate on May 9, 2025 and applied for judicial review on June 3, 2025 (para 11).

Issues

The Court framed four questions: the standard of review applicable to the CRA’s decision to issue a certificate; whether the CRA erred in deciding that it had the power under section 223 to issue a certificate against Mr. Da Costa; whether it breached procedural fairness; and whether its claim was time-barred (para 12).

Holding

The application was allowed. The Minister’s certification against Mr. Da Costa and the certificate filed in the Court’s registry were declared null and invalid, and the Court ordered the cancellation of the legal hypothec registered in favour of the Crown against his Montreal property (judgment, paras 1-3). No costs were awarded because none were sought (para 43). The Court did not need to decide the procedural fairness or limitation questions (para 42).

The court’s reasoning

Gagné J. first rejected both parties’ submissions on the standard of review. The applicant argued for correctness because the Income Tax Act provides an appeal to the Tax Court, but the Vavilov exception for statutory appeals applies only where the proceeding before the Court is the exercise of that right of appeal, which a judicial review of a certification decision is not (paras 14-15). The respondent relied on Tremblay c Canada, 2000 CanLII 15519 (FCTD), but the Court distinguished it because there the applicant was himself the tax debtor, whereas Mr. Da Costa is not (paras 18-20). Reasonableness applied, but where the ordinary methods of interpretation yield only one reasonable reading, review on either standard leads to the same result, citing Première nation Peters c Engstrom, 2021 CAF 243, and Galderma Canada Inc v Canada (Attorney General), 2024 FCA 208 (paras 23-24).

On the central question, the Court parsed subsection 223(1). The CRA may certify an amount only if it is payable by the person under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan, or a provincial statute whose taxes the Minister collects under an agreement with the province (para 25). Here the amount was payable by the company under the Income Tax Act, and it was only by way of the Quebec Business Corporations Act, a provincial statute not covered by paragraph 223(1)(d), that the CRA sought to make Mr. Da Costa liable (paras 21, 26). In the Court’s words, “the Agency quite simply did not have the power to issue the certificate against Mr. Da Costa” (translation) (para 27). To pursue the company’s tax debt against him it had to apply to the Superior Court of Quebec for a judgment to that effect (para 27). Issuing the certificate under section 223 was therefore unreasonable, and the application succeeded on that ground alone (para 28).

The Court went on, in the alternative, to consider whether the CRA could reasonably conclude that the dissolution had taken place under sections 312 and 313 of the provincial Act, which apply where the sole shareholder dissolves the company by declaration and provide that the company’s rights and obligations become the shareholder’s (paras 29, 33). The other relevant mode of dissolution, by special resolution of the shareholders under sections 308 and 309, leaves the shareholders liable only to the extent of the remaining property they receive (paras 31-32). Although the declaration did not state which mode was used, the special resolution of August 2018 tracked the language of sections 308 and 309, authorizing a director or officer to sign the declaration and requiring the board to discharge the company’s obligations (paras 36, 40). The registrar’s filing that the company had no obligations or property was, the Court said, “obviously false”, but of little consequence since the company had no assets to liquidate and the shareholder could not be held personally liable under that mode (translation) (para 40). It was therefore unreasonable for the CRA to conclude that the dissolution had occurred under sections 312 and 313 (para 41).

Practical implications

The decision is, in my view, an important ruling on the limits of the section 223 certificate. The certificate is a powerful tool: once registered it has the effect of a judgment of the Federal Court and supports enforcement, including a legal hypothec on real property (subsection 223(3), checked on the Justice Laws website, where the section was last amended in 2024). Gagné J. confirms that the tool is available only against the person whose liability arises under one of the enumerated federal statutes. Where the CRA’s theory of liability depends on provincial law, such as the succession of a dissolved company’s obligations to its shareholder, it must sue in the provincial superior court like any other creditor.

The alternative holding is a reminder for Quebec practitioners that the mode of dissolution has fiscal consequences. A dissolution by declaration of the sole shareholder under section 312 of the Business Corporations Act transfers the company’s obligations to that shareholder, while a dissolution by special resolution under section 308 does not. Shareholders dissolving a company with known or potential tax exposure should document the mode chosen. Whether an appeal was taken is not verified here.

For taxpayers the message is that a section 223 certificate registered against someone who is not the assessed tax debtor can be attacked by judicial review in the Federal Court, and that the CRA’s collection powers against third parties are confined to those Parliament has conferred. Watch for whether the Attorney General appeals.

This comment is general information, not legal advice. The law may have changed since the decision; check the current text in the tax wiki.

Citation and links

Da Costa c Canada (Revenu national), 2026 CF 1290 (2026 FC 1290), reasons and judgment dated October 21, 2026, Gagné J. (heard September 28, 2026, Montreal; docket T-1851-25). Reasons on the Federal Court’s site (French only). Also on CanLII.