SCC clarifies appropriate venues for tax disputes

The Supreme Court of Canada issued two decisions clarifying the circumstances in which tax disputes should be reviewed in tax or federal court.

In both cases, the SCC dismissed appeals by the taxpayers, Dow Chemical Canada and Iris Technologies Inc. Both decisions were split 4-3.

Taxpayers looking to appeal certain discretionary decisions by the Minister of National Revenue can only do so in federal court, the SCC’s majority said in Dow Chemical Canada ULC v. Canada, 2024 SCC 23. According to Friday’s decision, the minister’s refusal to apply a so-called “downward pricing adjustment” to Dow’s taxes — which would have reduced the amount the company owed after a reassessment — was a discretionary decision.

In contrast, the minister’s assessment of a taxpayer’s net tax is a non-discretionary move, the SCC said in Friday’s second ruling in Iris Technologies Inc. v. Attorney General of Canada, 2024 SCC 24. The ruling found Iris’ challenges to an assessment by the minister belong in tax court, not federal court.

“Parliament intentionally divided jurisdiction over tax matters between the federal court and the tax court. The tax court has never been a single forum for all tax litigation,” Justice Nicholas Kasirer wrote for the majority in Dow.

Friday’s decisions stemmed from tax disputes between the minister and the companies. In separate and unrelated complaints, Dow and Iris alleged the minister made choices that resulted in incorrect tax assessments. Both cases reached the high court to resolve questions about jurisdiction: Should these disputes be fought in tax court or federal court?

In Dow, Kasirer noted the tax court’s jurisdiction is “limited to reviewing the correctness of assessments.” The federal court, meanwhile, has the power to grant relief concerning federal ministerial decisions, except in scenarios where federal law has explicitly given parties the right to appeal to another body instead.

When taxpayers like Dow challenge the minister’s discretionary decisions related to a tax assessment, that is not equivalent to challenging the assessment itself, the justice wrote. Unlike a federal court, which has the power to quash the minister’s decisions, a tax court can moreover only vacate, vary, or send an assessment back to the minister for reconsideration, Kasirer added.

Kasirer said that a tax court “does not have the remedial tools necessary to address” Dow’s concerns over the minister’s downward adjustment decision.

Justices Suzanne Côté, Andromache Karakatsanis, and Malcolm Rowe dissented. Because the minister’s decision to deny Dow a downward pricing adjustment “goes directly to the correctness” of Dow’s tax assessment, that decision is “within the scope of the tax court’s appellate jurisdiction,” Côté wrote.

“Parliament has ensured that the correctness or validity of a taxpayer’s assessment falls squarely within the jurisdiction of the Tax Court,” Côté said. She added, “Judicial review should not be used to develop a new form of incidental litigation designed to circumvent the system of tax assessments and appeals established by Parliament.”

Meanwhile, in Iris, the SCC ruled Iris’ dispute with the minister belonged in tax court. Writing again for the majority, Kasirer said two of Iris’ claims — alleging procedural unfairness and lack of evidence for the results of a tax assessment — are “best characterized as attacks on the correctness of the assessment.”

The court said the company’s third claim that the minister “acted with an improper purpose” should be struck because it was not sufficiently supported.

Justices Côté, Karakatsanis, and Rowe concurred. “Iris ought to have challenged the assessments by appealing to the tax court,” Côté wrote. “In its essential nature, Iris’ application for judicial review is a collateral attack on the correctness of the assessments.”

Laurie Goldbach, a partner at Borden Ladner Gervais LLP specializing in tax litigation, said Friday’s SCC decisions helped clarify when parties should pursue tax disputes in tax court versus federal court. However, the decisions did not ultimately alter the dispute process.

With tax disputes, taxpayers must sometimes pursue complaints simultaneously in tax and federal court to address issues appropriate to each forum. “I think some taxpayers were hoping they wouldn’t have to do that, because that can be time and cost prohibitive,” Goldbach said. “These decisions won’t change that.”

She pointed to Kasirer’s majority opinion in Dow, which noted that changing the existing system for tax appeals would contradict Parliament’s intent. “If we want a change in the appeal process, that’s an issue for Parliament,” Goldbach said.