On December 5, 2011, the Federal Court of Appeal released its decision in John Fluevog v. The Queen (2011 FCA 338). In a unanimous judgment, Justices Nadon, Sharlow, and Mainville allowed the Crown’s appeal, reversing an interlocutory decision of Justice Margeson of the Tax Court of Canada (2010 TCC 617). In that decision, the Tax Court had permitted the taxpayer, Mr. Fluevog, to amend his Notice of Appeal to add a claim of discrimination under section 15 of the Canadian Charter of Rights and Freedoms.
Mr. Fluevog made payments to Swim Canada, an organization that is a “registered Canadian amateur athletic association”, as that term is defined in section 248(1) of the Income Tax Act (the “ITA”). He claimed a tax credit in respect of these payments under section 118.1 of the ITA as an eligible gift. The credit was denied by the Minister of National Revenue (the “Minister”), on the basis that Mr. Fluevog had received consideration in the form of swimming lessons for his children. As such, the payment was not a gift at law.
The proposed Charter claim arose from an administrative position of the Canada Revenue Agency (“CRA”) that permits a tax credit for payments to religious schools that solely provide religious instruction. This position is described in Information Circular IC 75-23, which states that “it has been the Agency’s practice not to view religious instruction provided at parochial schools as consideration”. Mr. Fluevog sought to argue that this administrative position was discriminatory on religious grounds and prohibited under section 15 of the Charter. He took the position that the administrative policy should therefore be extended to the receipt of non-religious consideration such as swimming lessons.
The arguments at the Tax Court of Canada on the motion to amend the pleadings focused primarily on the question of whether the policy discriminated against Mr. Fluevog, such that the proposed amendments may disclose a cause of action. As noted above, Justice Margeson ruled in favour of the taxpayer, holding that the amendment presented “at least an arguable case”.
Writing for the panel, Justice Nadon stated that the decision to grant or deny an amendment to pleadings is discretionary and is entitled to deference, barring an error in law or an improper use of discretion. In this case, however, the decision at the Tax Court of Canada was based on an error of law. In a brief paragraph, the Federal Court of Appeal concluded:
It is not open to the Minister to determine that a payment that is not a gift as a matter of law will nevertheless be treated as a gift for income tax purposes. If that is what the Minister has done by adopting the impugned assessing policy (and I express no opinion on that point), then the policy is wrong in law and cannot stand. But that is of no assistance to Mr. Fluevog. The remedy for adopting a policy that is wrong in law is to reject the policy, not extend it to everyone who pays for swimming lessons for their children.
As a result, Mr. Fluevog’s motion to amend his pleadings was dismissed. There has been no word on whether Mr. Fluevog will seek leave to appeal the decision to the Supreme Court of Canada.