1. Skip to navigation
  2. Skip to content
  3. Skip to sidebar

Federal Court Cancels its Earlier Orders Authorizing Issuance of “Unnamed Persons” Requirements as Canada Revenue Agency Failed to Disclose all Relevant Facts

Print Friendly, PDF & Email

The decision of the Federal Court in Minister of National Revenue v. RBC Life Insurance Company et al., 2011 FC 1249 may have opened the door to new opportunities for judicial review in the context of ex parte orders in federal tax matters only days after the decision of the Federal Court of Appeal in Stemijon Investments Ltd. v. Attorney General of Canada (see our earlier post) appeared to have narrowed those opportunities in the context of so-called “fairness applications” dealing with late-filed forms under federal tax statutes.

By way of background, the case concerned insurance products known in the industry as 10-8 plans. These essentially were a tax-effective insurance structure where, in very general terms, the taxpayer paid a high rate of deductible interest on loans in connection with insurance products where relatively high rates of interest accrued free of tax. The Canada Revenue Agency was aware of these structures at the highest levels and the record disclosed that they had considerable concern that the structures were abusive, violated GAAR, etc. As a result, CRA made ex parte applications under subsection 231.2(3) of the Income Tax Act against a number of the issuers of such 10-8 plans requiring the production of detailed information about these plans and their customers.

What CRA did not disclose to the Court on these ex parte applications was that one of the principal purposes of these applications was to take measures to “chill” 10-8 plan business. This offended the Court:

[58] At the hearing, the Insurers conceded that the Minister had a valid audit purpose in issuing the requirements, but argued that this valid purpose was extraneous to her primary goal, which was to chill their 10-8 plan business. I agree.

[59] I do not believe that the Minister’s central purpose in issuing the requirements is sufficiently tied to her valid audit purpose. Contrary to the Minister’s pretension, I did find evidence that the targeted audit of specific 10-8 plan holders was not only done to test the reasonableness of the 10% payable interest rate or the possible application of the GAAR but to send a message to the industry. I am not satisfied that the Minister’s attempt to “send a message” is a valid enforcement purpose such that subsection 231.2(3)(b) of the Act is satisfied or that this goal is sufficiently connected to the Minister’s valid audit purpose.

Accordingly, Justice Tremblay-Lamer cancelled the earlier ex parte orders with costs.

The Federal Court’s decision is a refreshing affirmation of the Crown’s duty of fairness and candour, particularly in ex parte proceedings. The decision should encourage those in receipt of “unnamed persons” requirements to challenge such requirements with a view to ascertaining whether the facts put forward by the CRA on the ex parte application to obtain the order constituted a “full and frank” disclosure of all the relevant facts.

, , , , , ,