The Federal Court of Appeal recently outlined the correct appeal routes for employers who are denied a Canada Emergency Wage Subsidy (the “CEWS”) claim by the Canada Revenue Agency.

In general terms, the CEWS functions by deeming a qualifying employer to have overpaid their annual tax liability based on a formula in section 125.7 of the federal Income Tax Act. The Minister of National Revenue (vicariously through the CRA) then has the discretion to refund all or part of the deemed overpayment to the employer.

In Canada (Attorney General) v. Iris Technologies Inc. (2021 FCA 223), the Federal Court of Appeal struck an application for judicial review of the Minister’s decision to refuse Iris Technologies Inc.’s applications for the CEWS. The Minister had refused the applications on the basis that Iris “ha[d] not experienced the reduction in revenue needed to be eligible for the CEWS.” Iris challenged those decisions through a judicial review application in Federal Court, alleging improper exercise of discretion and abuse of process. The Minister brought a motion to strike the application for judicial review arguing, among other things, that the Tax Court, not the Federal Court, has jurisdiction to review the determination that Iris did not qualify for the CEWS. That argument failed to persuade either the prothonotary or the judge of the Federal Court, each of whom sided with Iris Technologies.

The Federal Court of Appeal concluded that while the Minister has discretion to refuse a CEWS application, that discretion only arises where a deemed overpayment has already been determined under subsection 125.7(2) of the ITA; that is, where the Minister has first determined that the taxpayer meets the statutory conditions to qualify for the CEWS. Here, the Minister determined that Iris Technologies did not meet the legislative requirements to qualify for the CEWS. The Minister’s decision not to give a refund was therefore not discretionary and could not be the subject of judicial review. Instead, the Tax Court had exclusive jurisdiction over the challenge and the Minister’s motion to strike was granted.

In rendering its decision, the Court outlined the proper appeal routes for the following kinds of CEWS disputes:

  1. challenges to the Minister’s determination that an employer does not qualify for the CEWS;
  2. challenges to the Minister’s calculation of the CEWS amount an employer is eligible for if it qualifies for the CEWS; and
  3. challenges to the Minister’s decision not to grant a refund.

The first two kinds of disputes involve a determination under the ITA and not the reasonableness of the Minister’s exercise of a discretionary power. Thus, the proper appeal route is to the Tax Court of Canada. Alternatively, where the Minister or the Tax Court determines that an employer is eligible for the CEWS but the Minister decides not to grant a refund, the proper appeal route is to the Federal Court in the form of a judicial review application.

Ultimately, any delay in receiving CEWS funding can be highly detrimental, if not fatal, to an employer’s business. Knowing the proper route to contesting an adverse CEWS determination is thus critical to ensuring a timely and proper resolution.