FCA Confirms Broad-Based Audit Powers of the CRA

Canada (Attorney General) v. Valero Energy Inc. 2020 FCA 68

Decision Here


The Canada Revenue Agency issued requirements for information while auditing Valero Energy Inc (“Valero”).  Valero brought an application in Federal Court seeking an order to set aside the requirements.  The Federal Court granted relief.  On appeal by the Crown, the Federal Court of Appeal (“FCA”) found that the Federal Court erred and dismissed Valero’s application.


Valero is a manufacturer, distributor, and marketer of transportation fuels. It imports crude oil products from foreign jurisdictions to its Quebec refinery. Valero pays fees for international shipping services provided by carriers that are non-residents of Canada. During the 2011-2015 taxation years, Valero did not withhold 15% tax on its payments to the non-resident carriers, contrary to subsection 105(1) of the  Income Tax Regulations, C.R.C., c. 945 (the Regulations).

During a continuing audit of Valero, the CRA was reviewing those payments made relating to international shipping services provided by non-resident carriers.  Valero argued that it was not required to withhold and remit the 15% tax on the payments on various bases. Valero acknowledged that it did not withhold or deduct monies as required under section 105 of the Regulations and admitted it never applied for a waiver under section 105 of the Regulations.

In its application to the Federal Court, Valero challenged its obligation to provide certain documents and information pursuant to a requirement for information issued under subsection 231.2(1) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (the Act) in the context of an audit of its 2011 to 2015 taxation years. Valero made several alternative arguments, including:

  • the Minister of National Revenue (the Minister) cannot require it to answer questions or submit documents in the context of compliance with the Regulations
  • Valero sought a declaration that the CRA made representations to it or that it had legitimate expectations that no withholding or deduction was required under section 105 of the Regulations
  • Valero invoked the exercise of the Minister’s discretion under subsection 153(1.1) of the Act which allows her to determine a lesser amount of withholding tax under subsection 153(1) of the Act.

The Crown argued that the entire Application should have been struck. The Federal Court agreed in part with both Valero and the Crown[1].  The main relief that survived the motion to strike was an order setting aside the Minister’s requirement for information dated July 18, 2017, requesting certain documents and information related to international shipping services rendered in Canada.[2] The Crown appealed the Federal Court decision (and Valero cross-appealed).


The issues raised at the FCA and cross-appeal focussed on whether the Federal Court erred by striking out only a portion of Valero’s application for judicial review and allowing other portions to remain, on the basis that they were not bereft of any possibility of success.

Decision & Analysis

Crown’s Position

The Crown argued that the Federal Court erred when it found that the requirement for information was a “matter” within the meaning of subsection 18.1(1) of the Federal Courts Act, R.S.C. 1985, c. F-7 and not a “decision” as described in subsection 18.1(2). And because it was a decision, the 30-day time limit imposed by subsection 18.1(2) of the Federal Courts Act for filing the Application applied.[3] Third, and most importantly, the Crown argued that the application should have been struck because it was essentially a collateral attack on an assessment, or an attempt to prevent the Minister from assessing.

As for the first two issues raised by the Crown, the FCA found that the requirement was in fact a decision, and not a requirement, but did not dismiss the application on the basis that it was late, because it was not the main issue under appeal.  Turning to the third issue raised by the Crown, the FCA restated this as whether Valero’s Application had any possibility of success when reviewed in its entirety.

Court’s Take on the Matter

The FCA opined that despite the various issues raised on appeal, there was essentially only one issue, the resolution of which would be dispositive of the entire appeal. In the FCA’s view, the real question turned on whether the Minister could be blocked from exercising her statutory authority under subsection 231.2(1) of the Act.  The true issue was the Minister’s authority under subsection 231.2(1) of the Act to issue a requirement for information for use in an audit.

The text of subsection 231.2(1) was considered clear by the FCA. The provision allows the Minister, for any purpose related to the administration of the Act, including the collection of any amount payable under the Act, require a person to provide any information or additional information, or any document. In the context of Valero’s audit, the information sought by the CRA would allow the Minister to complete her review of Valero’s returns for its 2011 to 2015 taxation years and determine whether she should issue an assessment.

The Court opined that an order setting aside the requirement for information would prevent the Minister from properly exercising her powers under the Act. The Minister would be ‘impeded’ from completing a fulsome review of Valero’s 2011-2015 taxation years and would be unable to calculate accurately what amount of tax, if any, should have been withheld by Valero in regards to the international shipping services provided to it in Canada. Preventing the Minister from having the requested documentation in this context was totally inappropriate in the Court’s view.

Thus, the FCA concluded the Federal Court committed a reviewable error when it found that Valero’s Application was not an attempt to prevent the Minister from assessing Valero. This error was palpable and overriding and fatal to the entire Application.

 Taking a holistic approach with a view to understanding the real essence of the Application, I find that in the circumstances of this case, the doctrines of promissory estoppel and legitimate expectations cannot be utilized to prevent the Minister from obtaining the necessary documents she requires to properly administer the Act and fulfill her obligations. The Minister is required to administer and enforce the Act. This positive duty encompasses, at the very least, an obligation to assess taxpayers under the Act and to take appropriate steps to collect unpaid taxes (Vallelunga v. Canada, 2016 FC 1329, [2017] 2 C.T.C. 192, at paragraphs 12-13). To accede to Valero’s arguments would, effectively, override the power granted to the Minister under subsection 231.2(1) of the Act to obtain the proper documents to assess Valero during the 2011 to 2015 period. Again, this cannot be right (see also Prince v. Canada (National Revenue), 2020 FCA 32, 314 A.C.W.S. (3d) 658, at paragraph 17).[4]

The FCA struck the remaining requests for relief posited by Valero, allowed the Crown’s appeal, and dismissed the cross-appeal.  The FCA ultimately found that the Application had no chance of success, and that Valero was required to comply with the requirement for information.

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Legal Test to Strike Pleading

On a motion to strike a notice of application for judicial review, the FCA set out the relevant test to be followed in Canada (National Revenue) v. JP Morgan Asset Management (Canada) Inc., 2013 FCA 250, [2014] 2 F.C.R. 557, at paragraph 47 [JP Morgan]: the Court will strike an application only where it is bereft of the possibility of success because there is “an obvious, fatal flaw striking at the root of this Court’s power to entertain the application”.  This principle is germane to issues relating to jurisdiction of the Tax Court versus the Federal Court.

[1] The Federal Court agreed with the Crown on a narrow issue and struck from the Application Valero’s request for a declaration finding arbitrary and unreasonable, and therefore invalid, the refusal of the Minister to exercise her discretion under subsection 153(1.1) in its favour.

[2] Other bases for relief included a declaration that based on administrative law principles and the doctrines of promissory estoppel and legitimate expectations, the Minister cannot in the circumstances of this case require Valero to comply with the requirement for information and in the alternative, a declaration that the CRA made representations to Valero, or that Valero had legitimate expectations, that no withholding or deduction was required under section 105 of the Regulations for international shipping services.

[3] Valero filed outside of that time limit.

[4] Para. 36.