Interlocutory injunction not granted against the CRA

In a recent case,^[1] the Ontario Superior Court of Justice ("Court") dismissed a motion seeking an interlocutory injunction prohibiting the Canada Revenue Agency ("CRA") from rendering its final audit decision. The Court found that the applicant, the Muslim Association of Canada ("MAC"), failed to meet the burden of proof for the irreparable harm requirement and that it would have other recourses after a final audit decision, such that the balance of convenience did not favour MAC. The case demonstrates that a motion seeking an interlocutory injunction would likely not help a taxpayer stop the CRA from making a final decision. This article discusses the background facts, how the Court applied the tests for an interlocutory or quia timet injunction to render its decision and finally some conclusions.

Background facts

MAC was a non-profit organization for the Muslim community in Canada. The CRA audited its activities as a registered charity for approximately seven years, after which it issued an Administrative Fairness Letter ("Letter"). In the Letter, the CRA proposed to recommend the Minister of National Revenue ("Minister") revoke MAC's charitable status and impose a substantial financial penalty, subject to receiving MAC's responding submissions.

While the CRA was reviewing MAC's submissions, MAC commenced an application seeking relief under the Canadian Charter of Rights and Freedoms ("Charter") on the basis that the CRA's audit was tainted by systemic bias and Islamophobia. Meanwhile, MAC brought a motion seeking an interlocutory injunction, prohibiting the CRA from rendering its final audit decision pending the hearing of the Charter application.

Test for interlocutory injunction applied

In deciding whether to grant the interlocutory injunction, the Court applied the test for interlocutory relief set out in RJR-MACDonald Inc. v Canada (Attorney General), [1994] 1 SCR 824 ("RJR test"). The RJR test asks three questions:

1. Is there a serious issue to be tried?
2. Will the applicant suffer irreparable harm if the injunction is not granted?
3. Does the balance of convenience favour the applicant?

The Court found that the case met the low threshold for the first question, because the alleged Charter violations were neither vexatious nor frivolous. However, for the following reasons, it concluded that MAC failed on the second and third questions.

spect to the irreparable harm requirement, while the Court accepted that the nature of the alleged harm would be irreparable, it found that the applicant failed to prove, on a balance of probabilities, that the harm would occur if an injunction were not issued. Specifically, the alleged irreparable harm would be triggered by the Minister revoking MAC's charitable status and imposing a substantial penalty, which were the proposed recommendations in the Letter. MAC presumed that the CRA's position in the Letter would not change regardless of MAC's responding submissions and that the Minister would follow the CRA's recommendation, which the Minister was not obliged to do.

According to the Court, this presumption was fundamentally flawed because, after considering MAC's submissions, the CRA could reverse its position in the Letter. In that case, no irreparable harm would occur. Hence, the Court concluded that the alleged irreparable harm was premature and based on an uncertain event.

In answering the third question, the Court considered the public interest in permitting the CRA to regulate charities, noting that an injunction would prevent the CRA (and ultimately the Minister) from exercising its regulatory and statutory roles. However, if the injunction were not granted and the CRA ultimately recommended revoking MAC's charitable status, MAC would have administrative and other remedies, including an immediate stay of the CRA decision, a request for non-publication of the CRA decision pending a judicial review or appeal, an objection to the CRA, and an appeal to the Tax Court of Canada. Therefore, the Court found that, on balance, the CRA would suffer greater harm than MAC.

Test for quia timet injunction applied

In response to the finding that the alleged irreparable harm was premised on an uncertain event, MAC requested a quia timet injunction, which provides relief where the anticipated act has yet to be realized. On this point, the Court noted that the test for a quia timet injunction was the same as the RJR test, except that the irreparable harm element required a high degree of probability that the harm would in fact occur, which MAC did not establish in this case.

Conclusion

Given the above analysis, the Court found that injunctive relief was premature at this stage. However, it noted that if the CRA issued a final decision recommending sanctions against MAC, MAC could then bring a further motion for an interlocutory injunction on fresh evidence.

This case illustrates that it is difficult to obtain an interlocutory injunction to proactively prevent the CRA from making a final decision. First, the standard of proof for irreparable harm is likely challenging to satisfy, based on an interim CRA decision. Second, given the public interest in the CRA and the Minister performing their regulatory and statutory roles and that a taxpayer has other recourses from a final CRA decision, the balance of convenience would likely favour the CRA.

Xin Jiang co-authored this article during her time as an articling student in Gowling WLG's Toronto office.