CRA ordered to pay nearly $10K in court costs after tax decision ruled 'unreasonable' by judge

A phone call proved costly for the CRA after a collections officer “provided minimal reasoning” to a Toronto financial firm for refusing to refund $879,092.36 collected for allegedly owed GST. As a result, the federal tax agency has been ordered by the Federal Court of Canada to pay $9,500 in legal costs.

The court-costs order was imposed by Justice Danielle Ferron in December last year, at the conclusion of a judicial review of the officer’s decision. Meanwhile, the file has been sent back to the CRA to reconsider issues surrounding the refund.

The back and forth between Hillcore Financial and CRA has been going on since August 2017, when the agency alleged the firm owed $1.7 million in unpaid GST. The agency proceeded to garnish funds from Hillcore to the tune of $879,093.36. (Garnishment is a legal tool available to the CRA to intercept monies from an employer or bank owed to a taxpayer, then use the funds for repayment of unpaid taxes.)

Then in mid-2020, the CRA cancelled its GST reassessment. But instead of returning the $879K to Hillcore the CRA kept the funds, with the intention of using them to pay down Hillcore’s allegedly unpaid income tax. (Between 2012 and 2017, Hillcore allegedly built up over $40 million in unpaid income tax.)

The firm found out about the CRA switch when it received new income tax reassessments. The company was simultaneously informed the balance remaining on its GST account was now $0.

Hillcore wasn’t happy about this CRA move and wrote a letter, registering its complaint, in 2023. It requested a refund of the $879K.

They received the officer’s phone call response to the letter in November 2023. The firm then brought the application for judicial review.

Ferron was faced with deciding if the collections officer even had proper authority to refuse the refund. She noted that the Collections Officer did not forward  Hillcore ’s request to anyone else. “This alone constitutes a breach of procedural fairness … because if he did not have the authority to deal with this matter, it prevented any genuine consideration of (Hillcore’s) request.”

During his testimony the officer seemed to be confused about this. Ferron found “the record … unclear. During his testimony the officer said “he didn’t ‘believe’ he could have authorized a refund without the approval of his management.”

Despite this, Ferron points out collections officer “never informed Hillcore” he lacked authority to grant the refund it sought. Furthermore, she wrote, “his actions … appear to suggest that he did in fact believe he had the authority to make this decision.”

And based on this, she ruled he made a reviewable decision.

Then she turned to the phone call.

“The record is … clear that (he) did not specifically identify which policies he consulted, nor did he provide a copy to (Hillcore). Furthermore, it is admitted that (he) did not refer to any legislative provision and that beyond reading the policies (provided by a CRA field officer), he did not conduct any research of his own, nor did he ask further questions to the field support officer or anyone else at the CRA. Lastly, it is also admitted that the Collections Officer refused to provide written reasons to  Hillcore .”

Ferron agreed with  Hillcore  that the decision “rendered verbally provided minimal reasoning and no supporting details. It was clearly not justified, transparent nor intelligible.” She therefore found it “unreasonable.”

Based on the trouble Hillcore faced with the officer and in bringing the judicial review, Ferron imposed court costs of $9,500 on the CRA.

However, that’s not the end of the dispute. Hillcore argued “there is only one possible outcome in this matter ” which would be to “issue the requested refund.”

Ferron was not convinced, even though she recognized that Hillcore had raised “a strong argument.” So, she returned Hillcore’s concern to the agency to “be adequately considered.”

National Post has reached out to Hillcore for comment.

The CRA responded to the Post by email late Tuesday: “The c onfidentiality provisions of the laws we administer prevent the Canada Revenue Agency from disclosing taxpayer information and as a result, we do not comment on the specific details of court cases.”

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