Fink, 2017 FCA 87: the CRA must answer questions about other taxpayers' remission orders when its own decision compared them

2017 FCA 87 · Federal Court of Appeal

Author: Sas Tullo

This is a procedural decision in a judicial review about a remission order, the rare discretionary relief by which the federal cabinet can forgive tax that the law otherwise requires. Mr. Fink had asked the CRA to recommend remission of tax on an employee stock option benefit, pointing to remission orders granted to other employees. When the CRA refused, he sought to cross-examine its witnesses about how those taxpayers had been treated. The Federal Court ordered the CRA to answer and produce the files, and the Federal Court of Appeal agreed. It matters to anyone who argues that the CRA has treated them inconsistently: it shows when the treatment of other taxpayers becomes discoverable, and it reads the confidentiality rule in section 241 of the Income Tax Act broadly enough to allow it.

Facts

The CRA assessed Mr. Fink for a taxable employee benefit under section 7 of the Income Tax Act in respect of a stock option plan, settled at $648,000 in April 2013 (para 3). On selling the shares he realized a capital loss of $419,250 that the Act did not allow him to apply against the benefit, so he asked for remission under subsection 23(2) of the Financial Administration Act of any tax and interest exceeding the after-tax amount he had received on the sale (para 3). He relied on remission orders granted to other taxpayers, the SDL employees, who had been unable to offset employee benefits with later capital losses on employee stock purchase shares, on statements by the Minister of National Revenue before the Standing Finance Committee, and on the CRA’s Remission Guide (para 4).

The Assistant Deputy Commissioner, Mr. Trueman, declined to recommend remission and Mr. Fink applied for judicial review (para 5). The CRA filed affidavits from Mr. Trueman and a policy analyst, Mrs. Laplante; the Attorney General objected to cross-examination questions about the SDL remission orders, five of which were in issue on appeal (para 5). Manson J. of the Federal Court compelled answers and production, finding the questions formally and legally relevant under Merck Frosst Canada Inc. v. Canada (Minister of Health) (1997), 146 F.T.R. 249 (F.C.), affirmed 169 F.T.R. 320 (note) (F.C.A.), and holding that the documents fell within the exception in paragraph 241(3)(b) for proceedings relating to the administration or enforcement of the Act, subject to redaction of the other taxpayers’ personal information (para 6).

Issues

Two questions arose: whether the motion judge made a reviewable error in finding the disputed questions formally and legally relevant to the judicial review, and whether paragraph 241(3)(b) permits disclosure of other taxpayers’ information in a proceeding about a remission request under the Financial Administration Act (paras 7 and 11).

Holding

The appeal was dismissed with costs (para 13). The motion judge applied the correct framework for relevance, and his finding that the questions went to the reasonableness of the CRA’s decision was open to him (paras 7, 8, and 10). Paragraph 241(3)(b) applies because the outcome of a remission request affects the taxpayer’s liability, so the proceeding relates to the administration or enforcement of the Act (para 11). Disclosed information remains subject to the implied undertaking rule (para 12).

The court’s reasoning

De Montigny J.A., for a panel that included Stratas and Near JJ.A., began with the standard of review: an order compelling answers or production is discretionary and is reviewed for palpable and overriding error unless an extricable error of law is identified (para 7, citing Hospira Healthcare, 2016 FCA 215 at para 79). The judge had identified the correct framework and authority; the Crown’s complaint that relevance had been applied too broadly was in substance a disagreement with how the criteria were applied to the facts (para 7).

On relevance, the court accepted the Crown’s general proposition but found it displaced by the record. The CRA “could have taken the position from the outset that the treatment of other taxpayers is never relevant to its discretionary remission determinations” (para 8). Instead, an exhibit to Mr. Trueman’s affidavit showed that the CRA had considered the SDL employees’ financial circumstances in deciding Mr. Fink’s request, and the judge could reasonably infer that the refusal rested at least in part on his not being in their circumstances, so that the questions went to the very reasonableness of the decision (para 8). The court rejected the Crown’s framing that the comparison “begins and ends in this case with whether the respondent participated in a stock purchase plan or not” (para 9, quoting the appellant’s memorandum): Mr. Trueman’s letter of October 28, 2015 showed that financial circumstances and overall participation in the plan were also considered (para 9). Whether the two kinds of plan are the same circumstances remained for the application judge, but Mrs. Laplante had sworn that she consulted other taxpayers’ files and sampled the SDL files, and the answers could assist Mr. Fink in arguing for the same treatment (para 10).

On section 241, the Crown argued that a remission order is discretion exercised under a separate statute and lacks the nexus to the Income Tax Act that paragraph 241(3)(b) requires (para 11). The court held that this restrictive approach was inconsistent with Slattery (Trustee of) v. Slattery, [1993] 3 S.C.R. 430, which “stands for the proposition that a broad view must be adopted in determining whether a proposed disclosure is in respect of proceedings relating to the administration or enforcement of the ITA” (para 11). Because the outcome of a remission request ultimately affects an individual’s tax liability, the proceeding relates to the administration or enforcement of the Act (para 11). Any information disclosed is held in confidence under the implied undertaking rule (para 12).

Practical implications

The decision does not hold that comparable taxpayers are generally relevant to a remission decision; its starting point is the opposite (para 8). What made the difference was the CRA’s own record: once it compared the applicant to the SDL employees, the comparison became reviewable and the evidence behind it producible. In my view a taxpayer seeking discretionary relief should, where the facts allow, frame the request around the CRA’s published criteria and prior relief it has granted, since a decision that engages with that comparison opens the door to discovery on it. Conversely, a CRA decision-maker who relies on how other files were handled must expect to be examined about them.

The section 241 holding has wider reach. Paragraph 241(3)(b) is read, consistently with Slattery, to cover any legal proceeding whose outcome bears on a taxpayer’s liability, including one about a remission under the Financial Administration Act. The current text of paragraph 241(3)(b) on the Justice Laws website still refers to legal proceedings relating to the administration or enforcement of the Act, so the reasoning continues to apply. It is interlocutory: the court did not decide whether the two kinds of plan are the same circumstances (para 10), and the reasons do not record the outcome of the underlying judicial review.

For readers who have asked the CRA for relief and been told their situation differs from someone else’s, the case shows that the comparison the CRA itself draws can be tested in court, with access to the records behind it. Whether an appeal was taken is not verified here.

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

Canada (Attorney General) v. Fink, 2017 FCA 87, decided April 27, 2017 (heard at Edmonton on April 25, 2017). Panel: Stratas, Near, and de Montigny JJ.A.; reasons by de Montigny J.A. Appeal from an order of Manson J. of the Federal Court dated July 21, 2016, Federal Court file T-2032-15. Reasons on the Federal Court of Appeal’s site. Also on CanLII.