Limitation Periods and Collections

In Markevich v. The Queen, 2003 SCC 9, the Supreme Court held that a limitation period applied to prevent the CRA from collecting an old tax debt. The CRA was no different from the rest of us, the Court said: limitation periods exist for good reasons, and the reasons apply to the government as well as those it governs.

Parliament quickly decided to overrule the Supreme Court, and the result was an amendment to section 222 of the Income Tax Act. As a result of the amendment, the CRA can collect a tax debt for 10 years after it is assessed. That 10-year period stops running in certain circumstances. For example, if an individual is assessed for tax and then leaves Canada while still owing the amount, the period while the individual is a non-resident does not count for the purposes of measuring the 10-year period.

In addition, the Act provides that the CRA can collect any debt that was owing on March 4, 2004, or that would have been owing but for a limitation period, for a period of 10 years from that date. That is, the CRA has until March 4, 2014, to collect any tax debts owing before March 4, 2004.

Can Parliament overrule the Supreme Court in this way and, in effect, change the law with retroactive (or retrospective) effect? You bet! In Collins v. C.C.R.A., 2005 FC 1431, the CRA began seizing Mr. Collins’ pension to pay a tax debt that he owed. Mr. Collins thought he was protected by Markevich. He was wrong. Mr. Justice Noel of the Federal Court wrote:

In the Applicant’s view, “the new legislation can in no way revive an alleged fiscal debt that was already extinguished one year earlier by the aforementioned ruling of the Supreme Court of Canada [Markevich v. Canada, supra], for if that were the case, it would have for effect the retroactive annulment of the actual ruling by the Supreme Court of Canada, which makes absolutely no sense”. With deference for the Applicant, the Parliament has discretion to overrule Supreme Court judgments. The principle of parliamentary supremacy is a foundation of Canadian constitutional law: the judiciary must abide by the statutes adopted by Parliament.

See also Rose v. The Queen, 2005 FC 1731.

At least Ottawa thought that some limitation period should apply to the CRA’s attempts to collect tax debts. It appears that Ontario provides no such protection to taxpayers. The Queen v. Gibson, 2005 FCA 180, addressed whether the new or old Ontario Limitations Act applied to the collection of Ontario tax debts. The Court held that neither statute imposed any kind of limitation period on the Ontario government. In particular, while section 3 of the Limitations Act, 2002 states that it binds the Crown, clause 16(1)(i) of the Act provides that there is no limitation period with respect to a proceeding to recover money owing to the Crown. As the Court in Gibson noted “If there was uncertainty before—and I have found none—with respect to the imprescriptibility of tax collection proceedings in Ontario, there can be none now.”