It’s not easy to recover damages from the CRA for an unfair audit

For a brief period of time, it looked like the courts were willing to award individuals and businesses damages for malicious prosecution by the CRA. In a 2018 BC case, the court found that a CRA investigator decided from the outset that the owners of a restaurant and nightclub in Nanaimo, B.C. were guilty of tax evasion, and set out to prove his case by suppressing evidence and filing misleading reports. After a 19-day trial led to their acquittal on all 21 counts of tax evasion, the owners successfully sued the CRA, and were awarded over $1 million in legal fees, aggravated damages, and punitive damages for the investigator’s malicious conduct. The CRA appealed, and the Court of Appeal determined there was reasonable and probable cause for the CRA investigator to bring the tax evasion charges in the first place, and therefore the claim for malicious prosecution was not available. The appeal court noted the trial judge had relied too much on hindsight and the findings of fact at the lower court, and the decision was overturned.

In a more recent decision, a lay litigant sued the CRA for misfeasance in public office, breach of fiduciary duty, and improper assessment and collection of taxes. The court noted that only the Tax Court of Canada has jurisdiction to challenge the validity of a tax assessment, and granted the CRA’s application to strike the pleadings, which were found to be inadequate.

Kenneth Kolarsky