Our tax system is complex, with many potential procedural pitfalls that taxpayers need to navigate.  One such issue is the jurisdictional boundaries between the Tax Court and the Federal Court for tax disputes.  Recent Supreme Court’s companion decisions in Dow Chemical Canada ULC v. Canada (“Dow Chemical”), and Iris Technologies Inc. v. Canada (“Iris”) provide clarifications on this issue.  However, these “clarifications” may result in a less streamlined and more costly process and thus may not be good news for taxpayers.

Judicial History

Dow Chemical was first argued before the Tax Court of Canada (the “Tax Court”).  The Tax Court concluded that an appeal of an assessment can be allowed on the basis that the Minister did not exercise her discretion under subsection 247(10) of the Income Tax Act (the “ITA”).  The Tax Court held, in paragraphs 29, that the discretion was “an essential component of the assessment” and therefore was within the exclusive jurisdiction of the Tax Court. 

The Federal Court of Appeal overturned this decision, holding that the Federal Court retains jurisdiction to review the Minister’s discretionary decisions (paragraph 34), which are separate from the assessments.

In the other direction, in Iris, the taxpayer first sought a judicial review of the Minister’s decision in the Federal Court.  The Crown moved to strike Iris’ application on the basis that the application attacked the validity of assessments by the Minister, and therefore should fall within the jurisdiction of the Tax Court.  The Federal Court dismissed the motion, holding that Iris’s application challenged the procedural fairness of the assessment, not the assessment itself (paragraph 32).

However, the Federal Court of Appeal overturned the decision, finding that the challenge was a collateral challenge to the validity of the assessment and therefore should be brought before the Tax Court (paragraph 6).

Supreme Court’s Decisions

The Supreme Court upheld the Federal Court of Appeal’s decision in Dow Chemical, concluding that the Minister’s decision under ITA 247(10) was discretionary and distinct from the assessment (paragraph 6), placing it outside the jurisdiction of the Tax Court.

This position is further elucidated in the companion case Iris, where the Supreme Court explained that the distinction between a ministerial discretionary decision and an assessment is key for determining jurisdiction (paragraph 8).  Additionally, the Supreme Court stated that it is Parliament’s intention that “the Tax Court is not a one-stop judicial shop for resolving tax disputes” (paragraph 9).  In the result, the Supreme Court upheld the Federal Court of Appeal’s decision, agreeing that the nature of Iris’ application was an attack on the assessment and should therefore be brought before the Tax Court (paragraph 28).

Commentary

The two Supreme Court’s decisions overturned the much more straightforward approach set out by the Tax Court in Dow Chemical.  Now, for tax disputes, there is a bifurcated appeal path which requires taxpayers to determine whether they are disputing an assessment or a discretionary decision from the Minister to identify the proper venue for appeals.

This bifurcation may lead to increased litigation costs and take away precious judicial resources as the courts and taxpayers may have to hear/argue the same case twice.  For example, a GST/HST assessment related to an export under Schedule VI Part V of the Excise Tax Act where the Minister decided that evidence of the exportation was not satisfactory, would require two separate but concurrent appeals: one with the Tax Court for the assessment, and one with the Federal Court for the discretionary decision. This bifurcation may warrant redress from the legislators and the Department of Finance.

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