From: AlanBaggett@volcanomail.com   
      
   Canada Revenue Agency - Oh! Taxman, What Big Teeth You Have!: CRA SOTW   
      
      
   Article by Michel Durand   
   Collins Barrow National Cooperative Inc.   
      
   Today, no one seems to doubt the existence of tax havens. But tax hell... does   
   it exist? Based on the testimony of taxpayers and tax practitioners, one might   
   wonder. Reports of abuse and misconduct by the tax authorities seem   
   increasingly common.   
      
   The fierce fight against tax evasion led by Canadian tax authorities in recent   
   years seems relevant to this issue. The pressure on tax officials to bring   
   money into state coffers is enormous. To achieve its tax recovery objectives,   
   is the taxman slowly    
   turning into a big bad wolf, taking a bite out of everything that happens to   
   fall under his teeth, indiscriminately and sometimes even without grounds?   
      
   It would probably be unwise to answer that question positively. Having said   
   that, in the presence of gross negligence or abusive behaviours by tax   
   officials, one should not refrain from denouncing the situation. Some   
   taxpayers go even further and claim    
   damages against the state. This is a treacherous path. Few have succeeded with   
   such claims. Tenacity and stamina are sometimes the only tools available to   
   taxpayers who engage the Canadian tax authorities in this way.   
      
   At the federal level, the state is treated as a person for any damage caused   
   by its servants. However, it is not liable for anything done or omitted in the   
   exercise of authority conferred by statute. The jurisprudence is uncertain   
   regarding acts or    
   omissions of officials of the Canada Revenue Agency (CRA). While many   
   taxpayers have been authorized by judgments on interim motions to maintain   
   their lawsuits against the state, judgments on the merits are rare. Damages   
   have been awarded in the cases of    
   Chhabra v. The Queen and Longley v. MNR.   
      
   In Chhabra, the state was ordered to pay the taxpayer $1,000 in general   
   damages and $10,000 in exemplary damages for abuse of power committed with   
   malice by CRA agents. The agents failed in their responsibility to uncover the   
   truth when they used tainted    
   documents against the taxpayer, after the taxpayer had voluntarily surrendered   
   the documents and advised that they may be suspect. Collection agents of the   
   CRA also abdicated their responsibility by taking recovery action against the   
   taxpayer on the    
   grounds that an assessment had been issued against him, while totally ignoring   
   the pleas and the particular circumstances of the taxpayer's situation, in   
   clear violation of the CRA's guidelines. In addition, the agents knew that the   
   assessment would be "   
   wiped out" and replaced by a new assessment for an unknown amount. Finally,   
   the agents were dishonest and took malicious action when they garnisheed 75   
   percent of the taxpayer's gross monthly professional income. Provincial   
   legislation, though not    
   applicable to the situation but mentioned by the court for guidance, permitted   
   a maximum garnishment of 30 percent.   
      
   In Longley, the state was ordered to pay the taxpayer $5,000 in general   
   damages and $50,000 in punitive damages. The taxpayer had put forward a plan   
   to benefit from the federal political contribution tax credit. The CRA refused   
   to acknowledge the    
   legitimacy of the plan, despite knowing the plan did not offend the Income Tax   
   Act. Consequently, the taxpayer not only lost an opportunity to enhance his   
   political reputation, but also suffered damage to his political reputation. In   
   addition, the CRA    
   was held to have "intentionally misled" the taxpayer when it falsely denied   
   that it had received legal advice that the taxpayer was on good ground. The   
   court held that the CRA's response to the taxpayer's requests amounted to   
   misfeasance in public office.   
      
   Claims for damages based on the negligence of CRA agents were rejected in the   
   cases of Canus Fisheries Ltd. v. Canada and Leighton v. Canada. In both cases,   
   the courts concluded that CRA officials do not owe any duty of care to   
   taxpayers. In Leighton,    
   the court stated: "There are residual policy considerations that would   
   militate against recognizing a duty of care...[as] the effect of recognizing a   
   duty of care would conflict with the CRA's broad duties under the Income Tax   
   Act to ensure that all    
   taxes lawfully owing are correctly assessed and collected."   
      
   In contrast, claims for damages based on the negligence of CRA agents were   
   recently allowed to continue in Leroux v. Canada Revenue Agency, Gordon v. The   
   Queen and McCreight v. Canada.   
      
   In Quebec, provincial liability for acts or omissions of Revenu Québec and its   
   agents is governed by the Civil Code of Québec. Damages have been awarded in   
   the cases of Construction M.D.G.G. Inc. v. SMRQ (M.D.G.G.), Joncas v. Agence   
   du Revenu du Québec    
   and Groupe Énico Inc. v. Agence du Revenu du Québec.   
      
   In M.D.G.G., Revenu Québec was ordered to pay the taxpayer $67,863 as general   
   damages, $10,000 as reimbursement of legal fees and $5,000 for trouble and   
   inconvenience after having recovered penalties that the court had ordered   
   cancelled. In its defense    
   against the claim for damages, Revenu Québec argued that it did not have to   
   comply with the terms of the judgment cancelling the penalties, as that   
   judgment contained an error. The court held that Revenu Québec's proper course   
   was to appeal the judgment,    
   rather than to disregard it. The judgment awarding the damages is currently   
   under appeal.   
      
   In Joncas, the court cancelled assessments issued against the taxpayer and   
   held unequivocally that Revenu Québec had committed a "flagrant foul." An   
   auditor had taken refuge behind premises that he knew were false and had   
   consistently refused to see what    
   he ought to have seen before issuing the assessments. Following this judgment,   
   the taxpayer sent a formal demand to Revenu Québec requesting the payment of   
   $38,664 as reimbursement of court fees and disbursements, and for damages.   
   When Revenu Québec    
   refused to comply with the demand, the taxpayer sued. The court concluded   
   there was an abuse of legal proceedings by Revenu Québec and ordered the   
   reimbursement to the taxpayer of legal fees and disbursements in the amount of   
   $28,634. It also awarded the    
   taxpayer the reimbursement of $995 in notary fees incurred in the preparation   
   of a mortgage that the taxpayer had to take out on his home to cover legal   
   fees, as well as $6,352 in interest fees paid on that mortgage. Amounts of   
   $3,000 for trouble and    
   inconvenience and $5,000 for punitive damages were also awarded.   
      
      
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