Taxpayers who have been treated badly by the Canada Revenue Agency often wonder whether they can sue the Agency.
The answer is yes. However, it is important to realize two things.
First, suing the CRA does not necessarily have anything to do with contesting a tax assessment, and the Agency’s actions are almost always irrelevant when you are appealing your assessment. The fact that the auditor did things he or she should not have, or that Collections officials overstepped their authority, or that a supervisor did not return your calls before the assessment was issued, generally has no bearing on your appeal, and the judge will ignore these issues. The only thing that matters on an appeal to the Tax Court of Canada is whether the assessment is correct. (There are some situations where, if the CRA obtained information illegally, they cannot use that information in Court, but this is generally limited to criminal prosecutions where you are protected by the Charter of Rights.)
Second, if Agency officials were acting within the bounds of their authority and were not acting maliciously, you will not succeed in a lawsuit simply because they did something wrong. You will normally have to show negligence or malice.
A lawsuit against the CRA for negligent or malicious acts can be brought in either Federal Court or the province’s superior court. Note that there may be short time limits within which you must start your lawsuit, and that these can vary by province (based on the Crown Liability and Proceedings Act).
Examples of lawsuits that have succeeded include the following:
- Chhabra (1989 — Federal Court of Appeal). The Court awarded damages (including exemplary damages, which are similar to punitive damages) for malicious action on the part of Revenue Canada Collections officials in trying to collect taxes owing.
- Luo (1997 — Ontario Superior Court). An employee of the Unemployment Insurance Commission negligently provided an individual with wrong information about entitlement to benefits, and the individual relied on that information to his detriment. The government was foundliable.
- Groupe Enico and Archambault (2016 — Quebec Court of Appeal). This was a lawsuit against Revenu Québec (RQ), which administers the GST and Quebec Sales Tax in Quebec. RQ Collections officials proceeded with collection action to seize hundreds of thousands of dollars from a company, even though the Audit group which had issued the assessments had advised Collections that the assessments were wrong and were going to be substantially reduced. RQ was found to have been negligent and malicious in various ways. The total damage award to Archambault and his company was $3 million, including $1 million in punitive damages, plus legal fees. This case was decided under the Quebec Civil Code, unlike the common law which applies in all other provinces, so it is uncertain how applicable it is to other provinces.
Of course, there have been many other lawsuits where the taxpayer was not successful.