By Ryan Prendergast

In the decision of Milgram Foundation v Canada (Attorney General), released on September 9, 2024, the Federal Court of Canada quashed a decision by the Minister of National Revenue (“Minister”) to reassess the tax liability of the Milgram Foundation (“Foundation”), highlighting the Federal Court’s jurisdiction to review the Minister’s conduct, especially when it involves procedural fairness and abuse of process, even though the Tax Court of Canada has exclusive jurisdiction over tax assessments.

The case involved the Foundation, a non-resident entity established in 1964 in Liechtenstein, which did not file tax returns in Canada until 2015. In that year, after considering that the Foundation might be deemed a Canadian resident for income tax purposes under the Income Tax Act (Canada), the Foundation disclosed its financial information for the tax years 2003 to 2014 under the Canada Revenue Agency’s (“CRA”) Voluntary Disclosure Program (“VDP”). The disclosure was accepted by the CRA, and taxes were assessed and paid. However, in 2018, the CRA alleged to have discovered undisclosed investment income from the years 1998 to 2002 and proposed to reassess the Foundation for those years, citing misrepresentation by the Foundation due to neglect, carelessness or wilful default. The Foundation sought judicial review of this decision, arguing that the CRA’s actions breached a previous agreement and amounted to an abuse of process.

First, in order to determine whether the court had jurisdiction over the issue, the court examined whether the Minister’s decision to reassess the Foundation for earlier tax years was reviewable and that the Foundation was not launching a collateral attack on the tax assessment itself. The court concluded that the reassessment involved the Minister’s discretionary powers, making it subject to review by the court under administrative law. In doing so, the court referenced the Supreme Court of Canada’s decision in Dow Chemical Canada ULC v Canada and stated that “[t]he appropriate forum for appealing the tax assessment itself, the amount of taxes owing or the product, is before the Tax Court. Whereas to challenge the Minister’s discretionary decision—her conduct, or process leading up to the tax assessment—the taxpayer should seek judicial review at the Federal Court.”

The court found that the Minister had accepted the Foundation’s voluntary disclosure in 2015, but three years later, attempted to reassess the earlier years without providing sufficient justification. This reversal, according to the court, “violated the community’s sense of fair play, as well as the principles of judicial economy, consistency, finality and the integrity of the administration of justice. It therefore amounts to an abuse of power.”

Ultimately, the court quashed the Minister’s decision to reassess the Foundation’s tax liability, ruling that the CRA’s reversal after accepting the voluntary disclosure filed by the Foundation was arbitrary and unjustified. The court granted the Foundation’s application for judicial review, stating that the Minister’s conduct failed to meet the standards of administration of justice and fairness expected in administrative processes. The court also directed the CRA to reconsider its decision and “take such actions as are necessary to give effect to the reconsidered decision”, and awarded costs to the Foundation.

This decision reflects ongoing tensions between taxpayer protections in the voluntary disclosure process and the CRA’s authority to reassess past tax liabilities. It is not known at this time if the CRA will appeal the decision to the Federal Court of Appeal.

​Read the September 2024 Charity & NFP Law Update