Ficek v. R. – FCt: CRA Intentionally Delayed Processing Returns to Avoid Issuing Refunds to Tax Shelter Investors

Bill Innes on Current Tax Cases

In a highly unusual decision, the Federal Court of Canada was severely critical of the Winnipeg Tax Centre of CRA for developing a strategy to delay processing tax returns in order to avoid issuing refunds to tax shelter investors, all with an aim of putting that tax shelter out of business.  The taxpayer in question had originally sought a mandamus forcing CRA to process her 2010 income tax return.  CRA initially moved to strike the taxpayer’s application but was unsuccessful in a hearing in late 2012.  Within a few weeks of the judicial review hearing the audit was completed and the taxpayer’s 2010 return was assessed.

In light of the issuance of the 2010 assessment of the taxpayer, the taxpayer moved to amend the application to seek a declaration that the Minister had not acted “with all due dispatch” (as required by subsection 152(1) of the Income Tax Act[1]).  CRA in turn moved to strike the application for mootness.  At a hearing in early 2013 the Court permitted the taxpayer to amend the application to allow her to seek the declaration sought while the Minister was unsuccessful on the mootness point.  This decision, which was released on May 13, 2013, dealt solely with the taxpayer’s request for a declaration that the Minister had not acted with all due dispatch.


The taxpayer and her husband invested in the Global Learning Gift Initiative (GLGI) which had been registered as a tax shelter with CRA since 2004.  In a nutshell, GLGI was a very complex form of a leveraged donation arrangement.  The Minister had reassessed investors for the period 2004 to 2009 denying the charitable tax credits claimed on a number of bases including sham.

The Court found that there was no evidence that CRA’s perception of the GLGI tax shelter was any different in respect of the 2010 taxation year;  the court found as a matter of fact that CRA continued to regard GLGI as a “ ’sham’ or a fraud”.[2]  Thus the factual inquiry was set as to why CRA had sat on the taxpayer’s 2010 return until late in 2012 and then only assessed it after being somewhat bruised in the first hearing of this application in November of 2012.

CRA’s treatment of the taxpayer of the taxpayer was, on the other hand, intentionally obstructive.  Apparently the GLGI shelter was regarded as a major thorn in the side of the Winnipeg Tax Centre.  The evidence was that there were between 27,000 and 28,000 notices of objection pending for the 2004-2006 taxation years alone.[3]  The evidence was that CRA’s normal practice in dealing with tax shelters was to assess, provide a refund and, where necessary, reassess subsequently.

The Winnipeg Tax Centre decided to abandon CRA’s normal practice and delay reassessing GLGI investors, thus withholding the refunds claimed with the objective of putting GLGI out of business since the tax refunds were, in essence, the oxygen on which GLGI depended

The Court reviewed the jurisprudence under subsection 152(1) of the ITA to determine whether CRA’s treatment of the taxpayer amounted to acting with “all due diligence”.  The Court found CRA’s conduct fell well outside the ITA’s standard:

 [24]           It is essential, in determining whether the Minister has met this statutory obligation, to consider the real purpose and effect of the New Policy. The true purpose is found in the series of e‑mails and documents surrounding the creation of the memo incorporating the New Policy. While the Director of the Winnipeg Tax Centre tried to describe the purpose as simply verification of donations, I conclude that its real aim was to deter taxpayers from participating in the GLGI program.

In the result, the Court granted a declaration that the Minister failed to comply with the duty to assess with all due dispatch.

What is puzzling in this case is that Winnipeg Tax Centre seemed to think it was entitled to completely ignore Head Office, and that Head Office seemed to regard itself as powerless to correct Winnipeg Tax Centre’s conduct.  Most cases of judicial review in tax matters involve feckless or incompetent conduct on the part of the tax bureaucracy.  Such cases tend to be somewhat difficult to pursue since often they do not offend the moral compass of the courts.  Where, as in Ficek, the conduct amounts to a blatant and intentional disregard of the statute and the rights of taxpayers it is refreshing to see the courts take a strong stand chastising that conduct.

[1] R.S.C. 1985, c. 1 (5th Supp.), as amended (the “ITA”).

[2] Para. 8.

[3] Para. 10. New Window