It’s hard educating clients about the tax system and what they’re up against when disputing assessments. Clients will often complain not just about the assessments they are fighting but the attitude of the auditor, the delays caused by the CRA and the unfairness inherent in a tax system that only a very few understand really well. The taxpayers in Lauger v. The Queen, 2007 TCC 650, brought these complaints to Tax Court with them and asked the Court to do the Right Thing. To which the Court, in dismissing the appeals, responded “I must decide whether the assessments are well-founded or not”.
The Tax Court is a place where highly technical rules are applied in a highly technical manner. This makes Tax Court judges sound cold, and from time to time, in their judgments, one gets the distinct impression that they see themselves this way, and they don’t always like it. But this aspect of the system is, in part, the creation of taxpayers collectively and their advisers. The CRA will rely on highly technical rules to impose tax; but taxpayers in turn rely on those same rules to avoid it. The government responds with more and more technical rules to combat avoidance, and a plethora of technical rules seems to entail a technical approach to the adjudication of tax disputes without much regard for the individual enmeshed in the gears of the machine.
I used “seems” in the previous sentence because, of course, the Tax Court’s approach is also dictated by its jurisdiction. The Court is a statutory creature, and its jurisdiction over income tax matters is spelled out clearly in the Income Tax Act and the Tax Court of Canada Act. The Court has no jurisdiction to consider anything other than the black letter of the law. Does it have to be that way, though? What if the Income Tax Act permitted judges some discretion to depart from the black letter, to take into account individual circumstances? A taxpayer might be liable for tax under the black letter, but perhaps bad advice or other difficult circumstances did more than anything else to create that liability. Do we trust Tax Court judges to do the Right Thing in those circumstances?
The current answer is no, we don’t, and so they can’t. Taxpayers need to understand this basic fact about the tax dispute resolution system when fighting an assessment.
