Iristel battle over millions in denied tax credits best suited for Tax Court, Supreme Court rules

Iristel Inc.’s fight to get back millions of dollars in denied tax credits hit a roadblock at the Supreme Court of Canada, as the court ruled the company’s arguments are best suited for Canada’s Tax Court. Iristel has been trying to recoup the money for years. The matter became an issue of jurisdiction over whether or not its case should be heard in Tax Court, which typically deals with matters involving tax issues between companies or individuals and the Government of Canada. Last Friday, the Supreme Court ruled the matter would lay in the hands of the Tax Court and dismissed Iristel’s appeal, with costs. “An objection will not normally succeed in the Federal Court where an appeal to the Tax Court is available, adequate and effective in giving the taxpayer the relief sought,” the decision states. “This is a feature, not a bug, of the system of tax assessments and appeals established by Parliament,” it reads. Dispute began with 2018 audit The company’s longstanding tax dispute began six years ago, when the CRA audited its tax returns beginning in December 2018. That audit was completed the following October and no adjustments were made to Iristel’s GST/HST returns. The CRA initially withheld the company’s refunds, but later agreed to release them. That same October, the CRA began a second audit covering the period ended September 2019, and later expanded the audit to include all periods between Jan. 1, 2019 and Feb. 29, 2020. The CRA alleged Iristel may have been using a “carousel scheme” to claim refunds on tax that it did not pay in the first place. That spurred the company’s case against the Minister of National Revenue in March 2020, in which Iristel argued it faced financial hardships due to the COVID-19 pandemic and that it should be refunded $62.3 million in GST/HST while the investigation was ongoing. The federal court ruled against Iristel, finding that it owed more taxes than what was being withheld. Iristel appealed that decision to no avail in September 2020. It sought interim relief of approximately $21.85 million of GST/HST refunds in a motion that was dismissed by the federal court and later upheld by the court of appeal in March 2022. In June 2022, the Federal Court of Appeal sided with the Attorney General Canada by striking an application by Iristel in which the company alleged that it was denied procedural fairness in the audit and assessment process. According to that decision, the Attorney General submitted that a lower court judge erred by dismissing its move to strike out Iristel’s application for judicial review because “the judge failed to recognize that the true essence” of Iristel’s application “was an attack on the validity” of its tax assessments, a matter within the exclusive jurisdiction of the Tax Court of Canada. Supreme Court supports court of appeal ruling After granting Iristel leave to appeal at the Supreme Court of Canada in March 2023, the court found late last month that the Federal Court of Appeal was right to strike Iristel’s application. Iristel had been seeking declarations that the Minister of National Revenue failed to afford the company procedural fairness in its audit, and that it failed to provide Iristel with notice or any chance to respond. The company also wanted a declaration from the court that the minister’s assessments were made without evidence. Additionally, it sought a declaration that the assessments were done improperly for the purpose of stripping the federal court of jurisdiction in the company’s application for relief. In its June 28 decision, the court states that Iristel’s first two arguments are more of an attack on the accuracy of the tax assessments against the company, which would be the jurisdiction of an appeal to the Tax Court. As for its third allegation, that the Minister acted improperly, in some cases that could form the basis of an application for judicial review. However, in this case, the Supreme Court found that Iristel did not support its claim with facts. A judicial review is a “remedy of last resort” when an appeal on an assessment can be taken to the Tax Court, it found. The Tax Court would be “an adequate and effective remedy available to , and, accordingly, the application was doomed to fail in the Federal Court,” the decision reads. – Reporting by Hannah Daley at hdaley@thewirereport.ca with files from The Wire Report staff.

Iristel battle over millions in denied tax credits best suited for Tax Court, Supreme Court rules

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By Phalen Tynes-MacDonald
| | July 4, 2024

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Iristel battle over millions in denied tax credits best suited for Tax Court, Supreme Court rules

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