Szymczyk at al. v. MNR – FCt: CRA Can Retroactively Annul a 30 Year Old Arrangement With General Motors

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Szymczyk et al. v. Canada (National Revenue)[1] (December 5, 2013) is the first Federal Court decision in the aftermath of the Federal Court of Appeal’s decision in Canada (National Revenue) v. JP Morgan Asset Management (Canada) Inc.[2] (October 24, 2013).  The case involved an application for judicial review by both Mr. Szymczyk and General Motors of Canada Limited (“GMCL”).  The case was in fact argued prior to the release of the JP Morgan decision but the court later provided the parties with the chance to make submissions based on that decision:

[37]           It should be noted that hearing of the motions to strike and the merits of these applications took place prior to the release of the Federal Court of Appeal’s decision in JP Morgan. As a consequence, the arguments advanced by the parties do not correspond precisely with the analytical framework articulated by the Federal Court of Appeal in that case.

[38]           The parties were, however, afforded an opportunity to make further submissions with respect to the significance of the JP Morgan decision for these cases, and those submissions have been taken into account in my analysis.

The gist of the decision deals with an agreement entered into by GMCL and the Department of National Revenue in 1982 dealing with the quantification of employee automobile benefits:

The 1982 Formula

[10]           In 1982, in anticipation of amendments to the Act governing the taxation of automobile benefits, GMCL sought direction from the Minister with respect to the computation of the taxable employee benefits flowing from the Program.

[11]           GMCL had encountered difficulties in determining the cost of vehicles used by its employees, given that the vehicles had not been purchased or leased from a third party. Problems were also encountered in keeping track of who was using which vehicle as a result of the frequent reassignment of vehicles and the pooling of vehicles during working hours for use by multiple employees. Finally, difficulties had arisen in attempting to quantify and distinguish between personal and business use of vehicles, given that GMCL employees enrolled in the Product Evaluation Program (“Program Employees”) were expected to promote GMCL products when they were outside of the workplace, and to assess and report on the performance of the vehicles during both business and personal use.

[12]           By letter dated September 7, 1982, the Minister set out a specific formula for GMCL to use in computing the value of the taxable benefits received by Program Employees. The letter included instructions as to how to calculate the cost of vehicles to GMCL and how to determine the extent of Program Employees’ personal use of the vehicles.

[17]           The September 7, 1982 letter concluded with the statement that “If our position is agreeable to GM, this letter will serve as your authority to proceed accordingly”.[3]

[18]           GMCL agreed with the Minister’s proposal. It asserts that it then relied upon the 1982 formula to compute employees’ taxable benefits, determine source deductions and prepare T4 slips for each taxation year from 1982 up to 2011.  GMCL and Mr. Szymczyk both state that they did not keep detailed records regarding individual vehicle use during this period because they understood that the Minister would rely upon the 1982 formula in valuing Program Employees’ taxable benefit

As a result of a compliance audit in 2010, CRA concluded in 2012 that the 1982 formula was no longer appropriate and it advised GMCL that it would commence reassessing its employees for the 2008 and subsequent taxation years:

[21]           After discussions with representatives of GMCL, on February 15, 2012, the Minister sent letters and a fact sheet to GMCL advising that GMCL had failed to properly calculate the taxable benefits for approximately 350 Program Employees for the 2008 taxation year. As a result, the Minister proposed to issue amended T4 slips to the affected employees reflecting a higher amount of taxable benefits than had been calculated by GMCL pursuant to the 1982 formula.

[22]           The Minister explained in the February 15, 2012 letter that the calculation method set out in the 1982 formula was no longer valid due to “changes to the facts provided in the original request”. For example, the Minister noted that computers would ease the administrative burden of recording vehicle use, since “employees are able to access information easily and readily”. The Minister also observed that Interpretation Bulletins had been issued since 1982 relating to the calculation of the taxable benefits. Finally, the Minister noted that because the cost of each vehicle assigned to employees was available, the automobile benefit could be calculated based upon actual vehicle cost.

[23]           Insofar as the ratio of business to personal vehicle use was concerned, the Minister noted that it was necessary for employers and employees to keep records regarding their vehicle use. Recognizing that neither GMCL nor Program Employees had kept such records, the Minister stated that “an approximation could have been considered using appointment calendars, expense reports or other sources”. The Minister noted that this had not been done, and that, moreover, the Minister’s requests that GMCL provide details as to how the Program vehicles were pooled had gone unanswered. As a result, the Minister indicated that personal vehicle use for each Program Employee would be estimated at 20,004 kilometres per employee.

[24]           Subsequent to the Minister’s February 15, 2012 letter, the CRA issued revised T4 slips recalculating the Program Employees’ taxable automobile benefits for the 2008 taxation year.

[25]           Mr. Szymczyk had declared a taxable benefit for 2008 in the amount of $7,988.81 in accordance with the T4 issued to him by GMCL. The Minister made no adjustment to this amount in Mr. Szymczyk’s 2008 notice of assessment. However, in 2012 the Minister issued a revised T4 for Mr. Szymczyk for the 2008 taxation year, increasing the value of his taxable benefit by $8,280.23. The Minister issued a reassessment on April 16, 2012, assessing a total of $4,456.41 in additional tax payable by Mr. Szymczyk.

[26]           Mr. Szymczyk states that the Minister never sought any information from him regarding his participation in the Program. He further says that he has no knowledge of the cost to GMCL of the Program vehicles that he drove in 2008, nor does he have access to this information.

[27]           Mr. Szymczyk is pursuing the appeals process contemplated by the Income Tax Act, having filed a Notice of Objection with the CRA with respect to his reassessment. In addition, he commenced his application for judicial review in this Court. GMCL has also commenced an application for judicial review with respect to the Minister’s actions.

In this application Mr. Szymczyk and GMCL sought the following relief:

2.         The Applications for Judicial Review

[28]           GMCL’s application for judicial review challenges “a decision of the Minister of National Revenue … that GMCL had failed to properly determine the ‘reasonable standby charge’ and the ‘automobile operating expense benefit’ under section 6 of the Income Tax Act … for approximately 350 employees in respect of their 2008 taxation year, with the result that GMCL had failed to properly meet certain obligations in respect of those employees…”.

[29]           Mr. Szymczyk’s application for judicial review challenges “a decision of the Minister of National Revenue … to issue a reassessment dated April 6, 2012 on the basis that [GMCL] had failed to properly determine the ‘reasonable standby charge’ and the ‘automobile operating expense benefit’ under section 6 of the Income Tax Act … for the applicant’s 2008 taxation year …”.

[30]           Both applications for judicial review state that the Minister “faults GMCL for having relied on specific directions received from the Minister, and consistently followed by the Minister for over 35 years, for the calculation of the ‘reasonable standby charge’ and the ‘automobile operating expense benefit’”.

[31]           GMCL’s Notice of Application states that it is seeking a writ of certiorari quashing the decision at issue by way of relief. GMCL also seeks a writ of prohibition to prevent the Minister from assessing Program Employees for tax, interest and/or penalties for the 2008 taxation year, and a declaration that any assessments issued by the Minister to Program Employees for the 2008 taxation year on the basis of the decision under review are invalid and unenforceable.

[32]           By his Notice of Application, Mr. Szymczyk seeks a declaration that the reassessment issued by the Minister to him on April 16, 2012 for the 2008 taxation year is invalid and unenforceable.

The court first rejected GMCL’s application on the basis of the JP Morgan decision:

[91]           As the Federal Court of Appeal observed in JP Morgan, “the Minister generally has no discretion to exercise and, indeed, no discretion to abuse”. That is, “[w]here the facts and the law demonstrate liability for tax, the Minister must issue an assessment: at para. 77, citing Galway v. Minister of National Revenue, [1974] 1 F.C. 600 at p. 602, 2 N.R. 324 (F.C.A.). Moreover, as was noted earlier, this Court cannot prevent the Minister from carrying out her duty: JP Morgan at para. 78.

[92]           Indeed, neither GMCL nor Mr. Szymczyk has suggested in their Notices of Application that the reassessments at issue were not reasonable, or that they had not been carried out in accordance with the law.

[93]           If the Minister has erred in her assessment of the Program Employees’ tax liability, it is open to those employees to challenge their assessments in the Tax Court. That does not, of course, address GMCL’s concerns.

[94]           Indeed, I have accepted that GMCL has been directly affected by the decision underlying this application in a manner that it is sufficient to give it standing to bring its application for judicial review. However, inasmuch as the increased administrative burden on GMCL results from the discharge of its statutory obligations under the Income Tax Act, it is an unfortunate cost of doing business.

[95]           To the extent that GMCL may be of the view that the Minister’s repudiation of the 1982 formula without advance notice constitutes wrongful or reprehensible conduct (allegations that have not been advanced in its Notice of Application), it is not necessarily without a remedy. The Federal Court of Appeal has made it clear that in such cases “adequate and effective recourses may be available by means other than an application for judicial review in the Federal Court”: JP Morgan, above at para. 89.


[96]           For these reasons, I am satisfied that the relief sought by GMCL is not available in this Court. I am further satisfied that GMCL’s Notice of Application fails to raise a “cognizable administrative law claim”, as that term was used by the Federal Court of Appeal in JP Morgan. As a consequence, GMCL’s application for judicial review will be dismissed.

Similarly, the court dismissed the application of Mr. Szymczyk:

[115]       Mr. Szymczyk contends that he cannot advance his estoppel argument in the Tax Court, as the argument is based upon an equitable principle, and the Tax Court is not a Court of equity. It has no inherent jurisdiction, and is limited to the jurisdiction conferred by its enabling statute, the Tax Court of Canada Act R.S.C., 1985, c. T-2: Chaya v. Canada, 2004 FCA 327, 2004 D.T.C. 6676, at para. 4, Darte v. Canada, [2008] T.C.J. No. 35.  Indeed, the Minister does not dispute that the Tax Court does not have equitable jurisdiction.

[116]       Be that as it may, Mr. Szymczyk is not left without a remedy.

[117]       Indeed, Mr. Szymczyk can pursue his appeal through to the Tax Court, if necessary. While he may not have detailed written records regarding his vehicle use in 2008, the Tax Court can receive oral testimony from Mr. Szymczyk regarding his reconstructed assessment of his vehicle use, based upon his personal recollection and documents such as his appointment calendar, expense reports and credit card receipts. It is, moreover, open to the Tax Court to decide how much weight should be ascribed to Mr. Szymczyk’s estimate of his personal vehicle use, in light of all of the surrounding circumstances, including his reliance upon the 1982 formula as an explanation for his failure to keep records.

[118]       If the Tax Court determines that the Minister has correctly calculated the value of the taxable benefits that Mr. Szymczyk had received in connection with his use of company cars, the Minister’s conduct cannot serve to relieve him of his statutory obligation to pay: Webster v. Canada, 2003 FCA 388, 312 N.R. 236, at para. 21; Addison & Leyen Ltd. v. Canada, 2006 FCA 107, [2006] 4 F.C.R. 532 (F.C.A.), at para. 68.

[119]       Although I understand that no penalties have been assessed in this case, the Minister’s conduct may also be taken into account in determining whether Mr. Szymczyk should be afforded relief against any assessment of interest under subsection 220(3.1) of the Income Tax Act: JP Morgan, above at para. 90.

Thus both applications were dismissed summarily without any inquiry into their merits.

Comments:  This decision evidences the fact that the JP Morgan decision has set up a difficult precedent giving CRA the right to essentially ignore assurances given to taxpayers.  A case such as this where CRA repudiates a 30 year old arrangement retroactively cries out for closer examination on the merits.  This is because the spectrum of possibly remedies afforded by the JP Morgan decision (e.g., forgiveness of interest, remission orders, tort claims, etc.) seem either remote or, possibly, illusory.[4]  One hopes that GMCL has the chance to pursue this claim to the Supreme Court of Canada in order to obtain some clarification on the issue.

[1] 2013 FC 1219.

[2] 2013 FCA 250.

[3] The Crown contested the admissibility of the 1982 letter even thought it made specific reference to it in 2012 communications to GMCL.  The court rejected the Crown’s objections to admissibility.

[4] For example, what is the judicial economy of a tort claim that is commensurate with a tax assessment?