Until recently, when a charity challenged its revocation at the FCA, the charity had to prove that the CRA's decision to revoke was unreasonable. It now appears that the charity must prove that the CRA committed a palpable and overriding error (Ark Angel Fund v. Canada (National Revenue), 2020 FCA 99). In other words, the threshold the charity had to meet was high before, and is now even higher. The more appropriate standard to apply for revocations is that used for decades in the TCC, described below. Both types of tax appeals should be subject to a common standard.

For TCC appeals, Johnston ([1948] SCR 486) and Hickman Motors ([1997] 2 SCR 336) conclude that an appellant must, using evidence, demolish the minister's assumptions using a balance-of-probabilities test. If the taxpayer succeeds, then the onus shifts to the minister to rebut the case so made, again on a balance of probabilities. This rule has been applied for decades.

In Vavilov (2019 SCC 65), the SCC held that for statutory appeals, the applicable standards of review are the appellate standards as set out in Housen v. Nikolaisen (2002 SCC 33); that is, the standard of correctness in considering questions of law (including questions of statutory interpretation and the scope of a decision maker's authority) and the standard of palpable and overriding error for questions of mixed fact and law and pure fact. Few appeals are pure questions of law, so palpable and overriding error is the key standard.

At one level, it is not surprising that Ark Angel held that a consequence of Vavilov is to change the standard of judicial review of charity revocations to palpable and overriding error. Actions before the FCA to review charitable revocations are statutory appeals, according to subsection 172(3), and the SCC held that the new standard applies to all statutory appeals. But any appeal to the TCC is also a statutory appeal, according to subsection 169(1). Should the standard that taxpayers must meet to overturn a CRA assessment before the TCC therefore also be palpable and overriding error? Surely that could not be what the SCC intended. No one, including the Crown, would likely argue that the TCC should be required to accept the Crown's version of the facts absent palpable and overriding error.

The Housen appellate standards were established in the civil litigation context, where an appellate judge is reviewing the decision of a trial judge. Both judges are impartial adjudicators, and there is a natural deference to finders of fact who heard and reviewed evidence first-hand. But in reviews of charitable revocations before the FCA-and in TCC litigation in general-the minister is both a litigant and the initial decision maker. The very decision that is under appeal is the decision of the respondent. Thus, no such deference is appropriate.

Admittedly, the FCA's statutory framework is different from the TCC's. The Tax Court of Canada Act has rules for leading evidence, while the Federal Courts Act does not seem to expect the FCA to hear live evidence; that evidence is presumed to have been given at the lower-court level. But since the FCA is a court of first instance for charitable revocations, it is reasonable to conclude that a subsection 172(3) charitable status appeal, like a subsection 169(1) tax assessment appeal, ought to be treated as a trial de novo and decided on the basis of a test that requires only demolishing the minister's assumptions on a balance of probabilities. An amendment to subsection 172(3) could accomplish this. Alternatively, the subsection could be amended to move charity revocation cases to the TCC, which would presumably cause the TCC standard to apply.

Co author - David M. Sherman, Toronto, ds@davidsherman.ca

Canadian Tax Focus Volume 10, Number 4, November 2020 ©2020, Canadian Tax Foundation

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