Fighting Back


By: Adam Aptowitzer

One does not need to be a tax lawyer to be familiar with stories of CRA officials using their office and abusing their power to cause problems for their fellow citizens.  Obviously, the vast majority of CRA representatives act in a professional manner but a small number of miscreants can cause such dramatic and catastrophic consequences for otherwise law-abiding citizens that their tales of woe colour the reputation of the entire Agency. And indeed, the power the CRA has over everyday individuals is extraordinary. The Income Tax Act not only allows for the collection of tax in the ordinary manner but contains criminal provisions and provisions allowing the imposition of ruinous penalties. In some cases, the CRA may be able to take collection action concurrently with notification to the taxpayer that it believes taxes are owing.

The CRA’s ability to misuse the legal tools at their disposal is only part of the story though. The fact is that the implementation of the law is exceedingly complicated and there are many opportunities for officials to wreak havoc on a taxpayer’s financial affairs (this often becomes family and social havoc as well). This may involve the destruction of documents which the taxpayer needs to prove his / her / or its tax liability. In other cases, it means simply omitting some piece of information from the audit report and then allowing the process to take its course (as anyone who has had to fight a tax assessment can tell you the process is the punishment). And to make matters worse, because of the CRA collection tools, most banks will refuse to loan money to people with a CRA dispute.

Many who have suffered at the hand of incompetent or malicious have sought to sue the CRA (or the specific officials involved) for the harm done to them. For obvious reasons the CRA has fought these types of lawsuits ferociously, but the law is clearly evolving in the area and three different cases at three different courts have wedged the door slightly wider for Canadians seeking some accountability from the CRA.

All three cases made a series of allegations against the CRA.[1] The allegations are similar in the sense that the plaintiffs allege that their lives were ruined by the activities of CRA officials. (By way of illustration, one of the judges called the CRA’s actions ‘Kafkaesque’). Last year, all three of the cases had preliminary motions to dismiss negligence as a claim against the CRA and after all appeals of the preliminary motions were exhausted, CRA negligence remained as a ground by the taxpayer was entitled to proceed. The assertion of negligence as a basis of the claim is, if not novel, then revivified as a result of the 2001 Supreme Court of Canada case in Cooper. By refusing to strike the pleadings on the point the Courts all affirmed that it was at least theoretically possible that this could be the case.

Now the first of the three cases has been heard and judgment rendered. In Leroux[2], the Court held that not only did the CRA – on those specific facts – owe the taxpayer a duty of care but that there was no good policy reason to deny it. The Court’s actual writing is instructive:

[302]     In this case, the audit was a focused and intensive one taking place over many years, covering three years of statute-barred taxes, involving three auditors, many face-to-face meetings and phone calls, significant changes in tax characterization between the T-1s and the assessments as a result of discretionary decisions, and huge penalties.  The results were foreseeable and obviously devastating to Mr. Leroux.

[303]     The close causal connection between the alleged misconduct and the harm is another indicator of proximity, according to Odhavji.  The foreseeability of devastating consequences to Mr. Leroux in a general sense was evident to everyone involved at the time the assessment was levied, particularly in view of the extremely large penalties and the daily compounding of interest, even if the specifics of Mr. Leroux’s business difficulties were not known to them.  The fact that Mr. Leroux had reciprocal and perhaps even more important duties under the Income Tax Act, does not detract from the duty on the CRA employees to conduct themselves as reasonably careful professionals in these circumstances.  There is nothing in the statutory scheme of the Income Tax Act that would suggest otherwise.

[304]     Applying the test in Anns to this set of facts, it is difficult to see how the employees of CRA could escape an obligation to be mindful of the plaintiff’s legitimate interests in conducting his affairs and to take reasonable care to avoid doing him harm.  As well, the close and direct relationship necessary for proximity exists in this case.

[305]     Thus I conclude that a prima facie duty of care exists.


While the Court found that there was a duty of care, Mr. Leroux’s victory was a Pyrrhic one as damages could not be made out and he even had to bear his own costs. Nevertheless, this case and its sister cases make it clear that the CRA does owe a duty of care to taxpayers – at least sometimes. That does not mean that every taxpayer who feels abused should engage a lawyer to sue the CRA but it does mean that there may finally be an avenue for those occasional cases where it is clear that a fellow citizen has been ruined by the negligent activities of CRA officials.

[1] Leroux v. Canada Revenue Agency 2012 DTC 5050 (BCCA), Gordon v. R  2013 DTC 5112 (FC), and McCreight v. Canada (Attorney General) 2013 ONCA 483.

[2] 2014 BCSC 720

Originally Published in “The Canadian Taxpayer”, Volume XXXVI, June 27, 2014, p 102-103