Attempt to unilaterally extinguish tax owing via bill of exchange mechanism found ineffectual
The Federal Court has struck a claim brought against the Canada Revenue Agency (CRA) on the basis that it lacked jurisdiction, that the claim lacked merit, and that the plaintiff’s acts bordered on vexatious conduct.
This was a dispute over the plaintiff’s tax obligations for the 2003–04 taxation years. The plaintiff alleged that he accepted presentments from the CRA in May and June 2023. He argued that he notified the CRA regarding the bills of exchange for these presentments and that the CRA lost its ability to seek recourse against him under s. 152(3) of the Bills of Exchange Act, 1985.
In October 2023, the plaintiff appealed with the Tax Court of Canada. He alleged that he had paid the balance that he owed to the CRA before July 24, 2023 and that the CRA failed to provide bills of exchange for the May and June presentments.
The plaintiff filed a statement of claim with the Federal Court and later wanted to amend this claim. On the other hand, the CRA sought to strike his claim without leave to amend under r. 221(1) of the Federal Courts Rules, SOR/98-106.
In Penner v. Canada, 2024 FC 1335, the Federal Court granted the motion to strike the plaintiff’s statement of claim without leave to amend. The court held that it lacked jurisdiction to hear the claim, which was intertwined with ongoing proceedings before the Tax Court.
The court noted that tax disputes arising under the Income Tax Act, 1985 fell under the Tax Court’s exclusive original jurisdiction. The court added that the Federal Courts Act, 1985 limited the Federal Court's ability to interfere with decisions within the scope of the Tax Court's jurisdiction.
The court dismissed the statement of claim under r. 221(1). The court found that the claim failed to disclose a reasonable cause of action and was bound to fail. The court expressed concerns that the plaintiff might be engaging in vexatious and abusive conduct.
The court also rejected the plaintiff’s argument that the CRA lost its recourse under s. 152(3) of the Bills of Exchange Act. The court stressed that the plaintiff’s attempt to unilaterally extinguish his tax liability through the bills of exchange mechanism had no legal effect on the CRA, which did not consent to the use of this mechanism for this purpose.
Lastly, the court refused to allow the plaintiff to amend his statement of claim to add particulars supporting his allegations. Amendments would be futile as the claim could not succeed even with further details, the court said.
