Several years ago then Finance Minister Jim Flaherty announced in Budget 2013 that the CRA would begin delaying the assessments of Income Tax returns submitted by Canadians who had participated in certain tax shelters. At the time it was understood that this time was needed to allow the CRA time to audit or finish auditing the tax shelters in question. The delay would allow the CRA to deny the associated credits rather than going through the hassle of reassessing shelter participants afterwards. Unfortunately, the law says the exact opposite. Section 152(1) of the Income Tax Act states that “the Minister shall with all due dispatch, examine a tax-payers return of Income for a Taxation Year, assess the Tax for the year, the interest and penalties, if any, payable and determine …[the amount of tax to be paid or refund to be issued]”.
When the announcement of the change was made, many commentators noted the apparent contradiction between the CRA’s stated policy and the law. It was only a matter of time before a case would be heard to settle the contradiction, so the June 18th, 2015 Federal Court of Canada decision in McNally v. MNR was not unexpected.
In that decision the Minister freely admitted that the main reason Mr. McNally’s 2012 return had not yet been assessed was to discourage participation in tax shelters. The Minister also held that the delay in Mr. McNally’s return until the audit of the Tax Shelter was completed was necessary in order to educate the public and, apparently with a straight face, she held that these two motives were perfectly valid and not in breach of Section 152(1).
For his part Mr. McNally accepted that the outcome of his assessment was a foregone conclusion and that his claim for the tax credits related to the donation would be denied. However, as he correctly pointed out, he would not be in a position to object to the Minister’s position until a Notice of Assessment was issued. Neither would the three year reassessment period begin running until the Minister met her statutory obligation to assess.
Mr. Justice Harrington cited a previous decision of the Federal Court in Ficek which dealt with a similar delay in the Minister’s decision to assess. In that case the Court held that while the CRA has some discretion on deciding when exactly to assess a taxpayer’s return the use of that discretion must be reasonable and for the proper purpose of ascertaining and fixing the liability of the taxpayer. Under those circumstances Harrington J. found that the Minister’s motives in educating the public and beating down the tax shelters were not sufficient reason to ignore its statutory obligation to assess with all due dispatch.
Perhaps the most damming statement in the entire judgment comes from Mr. Justice Harrington’s comparison of the CRA’s actions here with the famous Supreme Court case of Roncarelli v Duplessis. This is one of the first cases Canadian lawyers learn in law school and deals with an absolutely incredible misuse of power by then Quebec Premier Duplessis. While the Court here did try to ameliorate the comparison somewhat the fact that Harrington J. would even bring up, gratuitously, the Roncarelli case is indicative of the magnitude by which he felt the Minister’s discretion was being misused.
Like in most cases in which the Minister loses one can expect that there be an amendment to the Act proposed shortly. One would imagine this would remove the words “with all due dispatch” from the Act and replace it with words which would give the Minister unfettered discretion in which to issue assessments related to Income Tax Shelters. One can only wonder what such an amendment will do to those of us not involved in tax shelters.
 2015 FC 767
 2013 F C502
  NCR 121