http://decisions.fct-cf.gc.ca/fc-cf/decisions/en/item/109977/index.do 
Rae v. Canada (June 3, 2015 – 2015 FC 707, St-Louis J.).
Précis: The applicant made a donation to a gifting tax shelter program in 2013 and claimed a charitable tax credit. Her 2013 taxation year was not assessed yet (hence, she had not received the refund she claimed) and she was advised by CRA that it was studying her gift and auditing the program and this could take up to two years to complete. She brought an application to certify a class action proceeding requiring the Minister to assess all taxpayers involved in the program who had not been assessed. The Federal Court dismissed the motion for certification on the basis that the proposed class was too narrow.
Decision: This case arose out of a somewhat unique fact pattern:
[1] This is a motion by the applicant, Ms. Rose Marie Joan Rae, against the Minister of National Revenue [the Minister] for certification of proceeding as a class proceeding pursuant to Rule 334.12(2) of the Federal Courts Rules, SOR/98-106 [the Rules].
[2] In 2013, Ms. Rae participated in what is known as a “widely-marketed gifting tax shelter.” In April 2014, her accountant delivered her 2013 income tax return to the Canada Revenue Agency [CRA], but Ms. Rae has yet to receive her Notice of Assessment for the 2013 taxation year from the Minister.
[3] Ms. Rae is seeking an Order certifying this application as a class proceeding and appointing her as the representative applicant of the class.
[4] The foundation for this motion is an application brought by Ms. Rae for a writ of mandamus requiring the Minister to comply with section 152 of the Income Tax Act, RSC 1985, c 1 (5th Supp.) [the ITA]. According to section 152 of the ITA, the Minister shall, with all due dispatch, examine a taxpayer’s return of income for a taxation year, assess the tax for the year, the interest and penalties, if any, payable and determine the amount of refund payable to the taxpayer or the amount of tax payable by said taxpayer. Ms. Rae is therefore asking the Minister to assess her and the other proposed members of the class’ 2013 tax returns forthwith, to issue a corresponding tax assessment and send the proper Notice of Assessment.
Ms. Rae detailed her interaction with CRA over her 2013 tax return:
[8] In 2013, she participated in a widely-marketed gifting tax shelter called the Pharma Gifts International Inc. [Pharma Gift 2013], which is registered with the Minister under the identification number TS075200. She made two donations, one in cash and one in kind, claimed a charitable donation tax credit in her 2013 income tax return, and asked for a tax refund.
[9] On or about April 28, 2014, Ms. Rae’s tax income return was hand-delivered to the Minister by her accountant, but she has not yet received a Notice of Assessment from the Minister.
[10] On July 24, 2014, Ms. F. Caligiuri, Manager at the Compliance Service Initiative Branch in the Winnipeg Tax Center of the CRA, wrote to Ms. Rae, advising her that her 2013 income tax and benefit return had not been assessed as the CRA was reviewing her donation claim related to a gifting tax shelter. The letter also indicated that the CRA was undertaking an audit of the associated tax shelter gifting arrangement, and that it could take up to two years to complete this audit.
[11] Ms. Caligiuri briefly outlined the history and general outcome of these audits and indicated the timeline of the interest that would be paid, or claimed, depending on the outcome. Alternatively, the CRA suggested that Ms. Rae could withdraw her donation claim and agree to a proposed waiver agreement which would allow for the assessment of her 2013 tax return prior to the completion of the audit. In substance, the proposed waiver agreement required that Ms. Rae withdraw her claim to the donation tax credit for the 2013 taxation year with respect to her contribution in the Pharma Gift 2013, and that she waived any right of objection or appeal related to the issue of her eligibility to said claim for taxation year 2013. Ms. Rae did not agree to this waiver.
[12] Along with her letter, Ms. Caligiuri enclosed a copy of a January 10, 2014 news release published by the CRA, warning that it would not “assess taxes owed or provide a refund to taxpayers who claim a tax credit under a gifting tax shelter scheme until the CRA has audited the tax shelter”, and providing a few statistics on the history of denials of the gifting tax shelter claims following the audits.
The Court proceeded to review the requirements of Rule 334.16(1). It first held that there was a reasonable cause of action (Rule 334.16(1)(a)); the respondent did not contest this point. It then turned to the issue of an identifiable class of persons (Rule 334.16(1)(b)). That proved to be Ms. Rae’s downfall:
[56] The definition of the class must be made objectively and allow the Court to assess if a particular person falls under the definition of the class. The class must not be unlimited (Hollick at para 17). Also, it “must not be unnecessarily broad – that is that the class could not be defined more narrowly without arbitrarily excluding some people who share the same interest in the resolution of the common issue” (Hollick at para 21). Over-inclusion and under-inclusion are not fatal to the certification as long as they are not illogical or arbitrary (Ward Branch, Class Actions in Canada (Toronto (ON): Canada Law Book, 2014) (looseleaf updated 2014, release 38) ch 4 at para 4.250 [Branch]; see also Hollick at para 21).
[57] In the present case, I find that the exclusion of taxpayers assessed before the hearing on the merits from the class is illogical or arbitrary. These taxpayers share the same interest in the resolution of the common issue, regardless of whether or not they have received their Notice of Assessment. Moreover, the class excludes the taxpayers who filed their tax return for the 2013 taxation year without making a claim for a charitable donation tax credit in respect of participation in a widely-marketed gifting tax shelter in 2013, but filed a T1 Adjustment Request Form after their assessment, requesting a charitable donation tax credit in respect of participation in a widely-marketed gifting tax shelter in 2013. Thus, I find the proposed class to be too narrow.
The Court did however find that the matter presented a common question of fact or law (Rule 334.16(1)(c)) and that a class action would be a fair and efficient means of proceeding (Rule 334.16(1)(d)).
The Court next turned to the factors enumerated in Rule 334.16(2) - proportionality, valid interest, other proceedings and practicality - and held that they were all met.
Where the Court had additional difficult however was on the suitability of Ms. Rae as a representative:
[75] During Ms. Rae’ cross-examination, her counsel objected to the questions related to third-party funding on the basis that such questions were not relevant. On this basis, the Minister submits that there are some concerns regarding Ms. Rae’s independence.
…
[77] In light of the above, I am of the view that Ms. Rae’s refusal to answer those questions raises some concerns.
Moreover, the Court found that the litigation plan and the fee information provided were not adequate:
[81] The litigation plan submitted by Ms. Rae proposes three methods for the notification of the proceeding to the class member and provides for delays in general procedural steps. I do not find that the litigation plan fulfills the requirement set out in the jurisprudence. I am also not convinced that Ms. Rae would fairly and adequately represent the interests of the class.
…
[83] In my view, the fee agreement submitted by Ms. Rae does not allow the fees’ reasonableness to be gauged. In fact, the letter specifies the hourly rate for the counsel of the record and the hourly rate for other personnel. However, this fee agreement is not sufficient for a class member to determine the amount that will be due monthly by the class members to the counsel of the record. Therefore, I am not satisfied that the fee agreement, as submitted by Ms. Rae meets the requirements of Rule 334.16(1)(e)(iv).
[84] In light of the above, I cannot find that Ms. Rae would fairly and adequately represent the interests of the class. Since this requirement is not met, it is not necessary to address the issue of the proper method to give notice of the proceeding to the class members.
As a result the application was dismissed, but without costs.
Comment: This case is interesting in that it holds that a class action format can be an appropriate setting for managing conflicts arising out of multiple assessments, as in the case of tax shelters. Ms. Rae failed because of the difficulty of defining the class and technical problems relating to the litigation plan and fee structure. If those issues can be resolved we may yet see such tax proceedings certified in the Federal Court.
TAGS: Income Tax Act, Judicial Review, Class Actions, Failure to Assess