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
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.