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'Duty of care' rulings may change CRA treatment of taxpayers

A pair of recent court decisions that confirm the Canada Revenue Agency (CRA) owes a legal duty of care to Canadians may change the way in which the agency handles taxpayers and their rights, Toronto tax litigation lawyer David J. Rotfleisch tells the Financial Post.

As the article notes, the Federal Court of Appeal and British Columbia Court of Appeal released separate decisions earlier this year that confirm the agency must take care in how it treats taxpayers.

“A few decisions have accepted this principle over time, but these are the most senior courts to affirm,” says Rotfleisch, founding tax lawyer at Rotfleisch & Samulovitch Professional Corporation

“This should, over time, result in a difference in the way the CRA treats taxpayers and their rights,” he adds.

The B.C. Court of Appeal case centred around a businessman’s nearly 20-year battle with the CRA. In 1999, RV park owner Irvin Leroux, was told that he owed more than $600,000 in taxes, interest and penalties for three previous tax years.

Although some payments and a “fairness application” to the Minister of National Revenue ultimately resulted in the cancellation of all interest and penalties in the case, Leroux alleged he lost his home and business “because of the actions of employees of the tax department.”

As the article reports, the court found that the CRA’s actions were not the cause of Leroux’s losses, and ordered him to pay the CRA’s legal fees. The case recently settled, with Leroux paying a nominal $10 in legal costs to the CRA.

In Canada v. Scheuer, although the Federal Court of Appeal acknowledged the CRA’s general duty of care to taxpayers, it refused to acknowledge that the agency had a specific duty to investors in terms of tax shelters. Imposing such a duty “would be to effectively create an insurance scheme for investors at great cost to the taxpaying public,” said the court.

The taxpayers in this case claimed the CRA had a duty not to issue tax shelter numbers if the agency had concerns about the applicants. Rotfleisch explains in the article that the agency didn’t have that choice.

“The Income Tax Act clearly requires the Agency to provide a tax shelter number to anyone who applies, and also requires the tax shelter promoter to indicate that CRA does not endorse the shelter,” Rotfleisch says in the article.

“Warning the investors about the shelter was also problematic because it put the CRA in the position of providing investment and tax advice that could make them liable to the promoter,” he adds.

Rotfleisch tells the Financial Post that both the Federal Court of Appeal and the B.C. Court of Appeal got it right.

“It’s a far cry from a general duty of care to a specific duty not to issue a tax shelter number or warn about a tax shelter,” he says.

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