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PHOTO: University of Ottawa
The best place to start is with a couple of clear-eyed views of the problem.
First, Lord Goff explained why a taxpayer is entitled to restitution of overpaid taxes:
[T]he retention by the state of taxes unlawfully exacted is particularly obnoxious, because it is one of the most fundamental principles of our law — enshrined in a famous constitutional document, the Bill of Rights 1688 — that taxes should not be levied without the authority of Parliament; and full effect can only be given to that principle if the return of taxes exacted under an unlawful demand can be enforced as a matter of right.
Second, Professor Rebecca Williams has responded to the potential difficulties of grafting restitution/unjust enrichment onto public law. She would take the unlawfulness of a decision as a matter of public law as the trigger for restitution. Once a plaintiff could establish “the existence of a public law ultra vires event” (i.e. the unlawfulness of the statute, regulation or administrative decision which caused the overpayment), the rest would be for the principles of private law, leaving “the definition of enrichment, the claimant’s expense and relevant defences to be worked out by the law of unjust enrichment in the usual manner” (Unjust Enrichment and Public Law (2010)).
On both of these views, grounded in constitutional principle, recovery of overpaid taxes (including where the overpayment is attributable to unlawfulness) is a matter of right.
Why are things more complicated in Canada? As Professor Chambers explains in “Restitution of Overpaid Tax in Canada” in Elliott et al, Restitution of Overpaid Tax (2013), the Supreme Court of Canada’s decision in Garland v. Consumers’ Gas Co., [2004] 1 S.C.R. 629 at paras. 56, 58 “produces a strange inversion of the English approach”, by making a public authority’s belief in the validity of a statute or regulation a defence to a claim of unjust enrichment. Accordingly, when the Supreme Court considered the right to restitution of taxes collected under an unconstitutional statute in Kingstreet Investments Ltd. v. New Brunswick (Finance), 2007 SCC 1, [2007] 1 SCR 3, it introduced a bespoke public law remedy rather than relying on private law principles. But this remedy is limited to situations where a taxing statute is found unlawful on constitutional grounds: Merchant Law Group v. Canada Revenue Agency, 2010 FCA 184, at paras. 19-22; Alberta v. Elder Advocates of Alberta Society, 2011 SCC 24, [2011] 2 SCR 261, at para. 91.
Of course, on the “English approach” set out clearly by Lord Goff and Professor Williams, there would have been no need for such constitutional gymnastics: unlawfulness would ground a claim of restitution as of right of taxes unlawfully collected. As Professor Chambers summarizes matters:
The recovery of an invalidly collected tax should not be classified as either public law or unjust enrichment. In reality it is both. The validity of the tax is purely a public law question, and the right to recover it is (or at least ought to be) a simple matter of restitution of unjust enrichment. The law of unjust enrichment has nothing whatsoever to say about the public law question, but is wholly dependent on the answer. If the tax is not due, then unjust enrichment can provide an effective solution to the problem in the absence of a statutory regime of recovery. The real problem in Canada is the current state of its law of unjust enrichment. The added elements of equity, fairness, reasonable expectations, and public policy have proved useful in a family law context, but have produced a complex mixture that is unfit for what should be its primary purpose. It now has difficulty coping with a simple matter of money paid without legal basis. The decision in Kingstreet to abandon unjust enrichment in favour of a new form of public law restitution was perhaps a sign of despair, but at least it provided under a different name the solution that should have been obtained easily through a proper law of unjust enrichment. The decision in Alberta Elders to confine that solution to ultra vires statutes has not helped matters.
All of this is useful background context to the recent decision of the Federal Court in Ontario Addiction Treatment Centres v. Canada (Attorney General), 2022 FC 393.
The Centres provide treatment for opioid and other addictions. In 2009, they requested a ruling from the Canada Revenue Agency (based on a 2007 decision of the Tax Court of Canada) that test kits used by the Centres were exempt from sales tax. In 2014 (!), after twenty follow-ups by the Centres and their legal representatives (!!!), the Agency confirmed that the test kits were exempt from sales tax and that the Centres could claim a rebate for the last two years. The Centres promptly requested remission of sales tax overpaid between 2007 and 2012. Another three years passed before Agency HQ recommended internally that the request be refused; this was finally memorialized in a decision in 2018. The Centres sought judicial review.
Now, you may be wondering at this point why judicial review was the chosen course of action. Under s. 23 the Financial Administration Act, RSC 1985, c F-11, the Governor in Council may, “on the recommendation of the appropriate Minister, remit any tax or penalty, including any interest paid or payable thereon, where the Governor in Council considers that the collection of the tax or the enforcement of the penalty is unreasonable or unjust or that it is otherwise in the public interest to remit the tax or penalty”. And s. 312 of the Excise Tax Act, RSC 1985, c E-15 erects a statutory bar to actions to recover taxes paid under that statute: ” Except as specifically provided in this Part, the Customs Act or the Financial Administration Act, no person has a right to recover any money paid to Her Majesty as or on account of, or that has been taken into account by Her Majesty as, tax, net tax, penalty, interest or any other amount under this Part”.
Accordingly, Canadian courts have held, where legislation provides for a “complete statutory scheme” to recover overpaid taxes, a plaintiff cannot bring a restitutionary claim to circumvent the scheme: Sorbara v. Canada (Attorney General), 2009 ONCA 506, at paras. 9-10; Merchant Law Group v. Canada Revenue Agency, 2010 FCA 184, at para. 17. Of course, as noted above, restitutionary claims against taxing authorities are already tightly circumscribed in Canada. It has also been held that remission orders are an “extraordinary remedy”, “highly discretionary” and “entitled to significant deference on judicial review”: Fink v. Canada (Attorney General), 2019 FCA 276, at para. 1. So much for constitutional fundamentals!
Unsurprisingly, given the high level of deference Go J was obliged to accord to the Agency, the Centres’ assault on the reasonableness of the refusal failed. First, the delay in responding to the Centres did not amount to an error within the meaning of the CRA’s guidance about the circumstances in which remission will be granted:
The Applicant further argues that while CRA records indicate that a rulings officer was already assigned in January 2010 and the case was already designated as complex, this was not communicated to the Applicant. The Applicant’s records indicate that the CRA advised KPMG in July 2010 that a response would likely take another two months, in October 2010 that an administrative policy might have to be developed, and again in December 2011 that a draft response was under review and would likely be issued in the next few months. On the other hand, the Applicant argues the CRA’s records indicate that the CRA was aware it was a routine, non-priority workload case and had little to do with being precedent-setting, but that delays were due to significant underfunding in the CRA’s Health Care Sectors Unit.
I find these submissions have no merit. The Applicant is asking the Court to re-interpret or reweigh the evidence in a way that suits its argument. That simply is not my role to play. In any event, the evidence, examined as a whole, reveals there were multiple factors at play that prolonged the time it took for the CRA to reach a policy position about in vitro diagnostic tests. The under-funding of the Health Care Sectors Unit would appear to be one of those factors, but it was by no means the only one. Further, it is not unreasonable for the Assistant Commissioner to refrain from revealing internal staffing and operational issues as reasons for the delay (at paras. 46-47).
Second, the Agency reasonably found that the Centres should have filed protective rebate claims whilst they were waiting for answers from the Agency (at paras. 50-56).
Third, and most remarkably, the fact that a remission had been granted to a similarly situated applicant did not undermine the reasonableness of the decision, because of the high degree of deference owed to the Agency:
Just because another entity receives a remission order for the GST/HST rebates does not mean remission is warranted in the Applicant’s case. Both the jurisprudence and the CRA policy confirm that remission orders are extraordinary and highly discretionary, and that each case must be assessed in light of the particular facts, taking into consideration the competing interests to determine whether the collection of the tax would be unreasonable, unjust or otherwise not in the public interest (at para. 62).
In addition, it was neither substantively unreasonable (at paras. 65-76) nor procedurally unfair (at paras. 78-88) for the Agency not to conduct a more thorough comparative analysis of the Centres and the similarly-situated applicant or to provide additional information to the Centres about the similarly-situated applicant.
Here, then, is where we are: the honest and diligent Canadian taxpayer who overpays on the basis of a mistake of law or a mistake of fact (perhaps because the taxing authority demanded a payment to which it was not entitled) must rely on the good nature of the taxing authorities, with highly deferential judicial review the only conceivable remedy, unless the taxpayer has the financial resources and gumption to successfully attack the constitutional validity of the relevant taxing provision.
None of this is intended as a criticism of Go J, who was faithfully following binding precedent. But this bill of fare is thin gruel, a long way from the rich constitutional principles stated in the Bill of Rights 1688.
