Al Meghji, Monica Biringer, Pooja Mihailovich, Mary Paterson
May 19, 2020
For further information on this update or other tax matters, please contact the authors above or any member of our National Tax Group.
With the closure of the Tax Court due to the COVID-19 pandemic, the progress of most proceedings has slowed, while others have been brought to a halt. On May 15, 2020, the Chief Justice of the Tax Court announced the timelines and protocols that the Court expects to follow when it reopens. This Update describes those measures and considers the longer-term implications of the pandemic for litigation in the Tax Court.
Pandemic brings Tax Court proceedings to a halt
Like other courts across the country, the Tax Court of Canada took several steps in response to the pandemic. On March 16, 2020, the Court closed its doors to the public, cancelled approximately 1,000 hearings scheduled up to May 29, 2020, and announced that it would suspend deadlines up to and including 60 days after the Court reopens for business. Although other Canadian courts had similarly restricted operations, some resorted to the use of technology to address outstanding matters, including through video and teleconferencing. The Tax Court could not take such measures.
The Tax Court is not viewed as providing essential services and does not have the technological capability to operate remotely. As a result, it has been closed for business in all respects. The Court will resume operations once the business continuity plan developed by the federal government allows for that to occur.
Meanwhile, parties have been encouraged to proceed, to the extent possible, with litigation steps (such as discoveries, for example) that can be accomplished outside of the Court. In many cases, however, such steps have been put on pause as both the Canada Revenue Agency (CRA) and the Department of Justice (DOJ) have transitioned to working from home.
Expected timeline and protocol for reopening the Tax Court
On May 15, 2020, the Canadian Tax Foundation hosted a webinar with Chief Justice Rossiter of the Tax Court. During that webinar, the Chief Justice shared preliminary observations regarding the process that the Court intends to follow once it reopens.
As the Chief Justice cautioned, that process may have to be revisited as it becomes clear when: (1) Court staff are permitted to return to work; (2) the Court is in a position to open for business; and (3) the Court can hold hearings either virtually or in person.
Highlights of the reopening process include:
- appointing two duty judges at least until the New Year to address the backlog created by the cancellations
- increasing the number of judicial sittings and scheduling them back to back (including throughout the summer, if possible)
- scheduling hearings by region (Western, Central, Québec, Eastern) and only in select cities with the highest volumes (Vancouver, Calgary, Edmonton, Toronto, Hamilton, Ottawa, Montréal, Québec City, and Halifax)
- proceeding with hearings already scheduled for a date after the Court reopens
- giving priority to rescheduling trials that were in progress and other hearings that were adjourned as a result of the pandemic
- dealing with all motions in writing unless the parties request otherwise, in which case they will have to wait for a hearing date
- prioritizing the release of decisions that are currently under reserve (the Chief Justice anticipates a "waterfall" of decisions being released within a month or two of resuming operations)
- seeking statutory amendments extending deadlines by which appeals can be commenced
- reconfiguring all courtrooms to ensure the health and safety of attendees
- holding video conferences and virtual hearings in the future, where possible, for case management conferences, status hearings, applications and motions where there are no witnesses
- digitizing all of the Court's active files, potentially within six months
The Chief Justice advised that there will be no sittings or conference calls during the month of June 2020. The earliest possible date that the Court might be in a position to reopen, assuming all goes according to plan, is July 6, 2020. Even that date depends on a multitude of factors that the Court does not control. For example, all facilities must be assessed for safety and the provinces in which the Court operates must otherwise be open for business.
Litigants with appeals that are underway, and those on the verge of commencing litigation in the Tax Court, may fear that the bottleneck created by the pandemic will have a cascading effect on the system, causing further delay once the Court returns to full service. Although the current crisis has no doubt disrupted court proceedings, there may be a silver lining.
As the Chief Justice explained, the Court is conscious of the financial difficulties being experienced by individuals and businesses. It remains committed to resuming operations as quickly as circumstances will allow. Despite the Court’s best efforts, there will inevitably be delays in getting matters to trial. However, as the Court adapts to new realities, it will consider different methods of operating, potentially resulting in greater efficiencies for all involved.
In this regard, observations by Justice Hogan of the Tax Court at a webinar hosted by the Young IFA Network on May 14, 2020, would suggest that one way to mitigate the anticipated delays might be to more robustly engage the Tax Court’s settlement procedures. The Court has been very effective in facilitating settlements in complex cases and now may be the time for this process to become even more widely used. This would require the co-operation of the Crown, but the government is well aware of the liquidity issues and other constraints that have arisen from the pandemic. It is reasonable to expect, in these difficult times, that the CRA and the DOJ will not oppose such efforts.
For matters that are pre-litigation, there may be opportunities to mitigate against the delays in the court process by actively engaging with the Appeals and Collections Divisions of the CRA. The serious financial stresses caused by the pandemic would argue for Appeals to respond to objections more quickly and to focus on resolving them before litigation. Equally, Collections should be called upon to exercise its discretion to delay collection in the interest of fairness. Inflexibility in such matters at this time would be contrary to the government's overarching policy of supporting taxpayers, financially and otherwise, through this crisis.
Finally, in his presentation, the Chief Justice was optimistic that the Court will return to full functionality in due course. In fact, the Court is determined for that to happen as soon as possible. However, it is no secret that the tax dispute resolution system for complex cases can be slow and expensive, despite the best intentions of the various stakeholders. This crisis has shown the consequences of that system—valuable capital tied up in unresolved tax liabilities and unavailable when needed most. The time is opportune to fundamentally reexamine how the system can be improved to make it more expeditious and responsive to black swan events like this one.