A single phone call has proven to be a costly misstep for the Canada Revenue Agency, resulting in a Federal Court order to pay substantial legal fees. The dispute centres on the CRA's refusal to refund a Toronto investment firm hundreds of thousands of dollars, a decision a judge later deemed "unreasonable" due to a lack of proper reasoning and procedural fairness.
The Costly Collections Dispute
The legal battle between the CRA and Hillcore Financial dates back to August 2017. At that time, the tax agency alleged the firm owed $1.7 million in unpaid GST and proceeded to garnish $879,092.36 from its accounts. However, in a twist, the CRA cancelled its GST reassessment in mid-2020. Instead of returning the nearly $879,000 to Hillcore, the agency opted to apply those funds against the company's allegedly unpaid income tax, which it claimed had accrued to over $40 million between 2012 and 2017.
Hillcore discovered this shift when it received new income tax reassessments and noticed its GST account balance had been zeroed out. In 2023, the firm formally complained and requested a refund of the garnished amount. The CRA's response came not in writing, but via a phone call from a collections officer in November 2023. Dissatisfied with this response, Hillcore applied for a judicial review, leading to the recent Federal Court ruling.
A Judicial Rebuke and Procedural Failings
In her December ruling, Justice Danielle Ferron ordered the CRA to pay $9,500 in legal costs to Hillcore. The judge identified multiple critical failures in the CRA's handling of the case. Firstly, she questioned whether the collections officer even had the proper authority to refuse the refund request. Justice Ferron noted the officer did not forward Hillcore's request to anyone else with potential authority, stating, "This alone constitutes a breach of procedural fairness."
The judge found the record unclear on the officer's authority, noting his testimony revealed he didn't "believe" he could authorize a refund without management approval. Despite this apparent uncertainty, the officer never informed Hillcore he might lack the authority to make the decision, and his actions suggested he believed he did have that power. Consequently, Justice Ferron ruled he had made a reviewable decision.
The Problematic Phone Call
The crux of the court's criticism focused on the substance—or lack thereof—in the officer's phone call to Hillcore. Justice Ferron's ruling highlighted that the officer "provided minimal reasoning" for denying the refund. Specifically, the judge pointed out that the officer:
- Did not specifically identify which CRA policies he consulted.
- Failed to provide a copy of any policies to Hillcore.
- Did not refer to any legislative provisions.
- Conducted no independent research beyond reading policies provided by a field officer.
- Refused to provide written reasons for his decision.
This lack of transparency and substantive justification led Justice Ferron to rule the decision was unreasonable. As a result of the judicial review, the file has been sent back to the CRA for a fresh reconsideration of the refund issues. This case adds to a growing list of criticisms regarding CRA procedures and communication, following recent reports of high error rates in call centre information and concerns over service levels.
