In Scow v. The Attorney General of Canada, 2021 BCSC 1110, the Supreme Court of British Columbia held that it may have jurisdiction over a proposed class action seeking the repayment of income taxes. While Canada argued the claim fell within the exclusive jurisdiction of the Tax Court of Canada, the Supreme Court of British Columbia held it was not plain and obvious that it lacked jurisdiction.
The decision suggests that at least some proposed class actions dealing with income taxes may proceed in provincial courts. This is notable as the Tax Court of Canada Rules do not provide for class proceedings. The decision also emphasizes the importance to defendants of selecting the right kind of application when challenging jurisdiction, to allow the court to fully dispose of a jurisdictional challenge.
Scow is a constitutional challenge to the Income Tax Act. Between 2004 and 2012, the proposed representative plaintiff, Daniel Scow, paid tax on income from a small-scale fishing business he operated from Quinsam Reserve #12 in Campbell River. He did not file objections to those assessments within the time limits set out in the ITA.
Mr. Scow seeks an order striking down the ITA down to the extent that it allows the Crown to levy and retain taxes in contravention of s. 87 of the Indian Act, which exempts certain income earned on a reserve. The proposed class proceeding also seeks the repayment of taxes allegedly improperly assessed and collected from the proposed class.
Canada argued that the action is essentially a dispute over Mr. Scow’s individual tax assessments and it was plain and obvious that the Tax Court of Canada had exclusive jurisdiction.
The court found that while the Tax Court can consider constitutional issues, its jurisdiction under the ITA is time limited. The court referenced jurisprudence from the Tax Court concluding that, where its own jurisdiction is limited because a tax assessment falls outside the applicable limitation period, other courts may have jurisdiction to hear such challenges. Therefore, it was not plain and obvious that the Supreme Court of British Columbia could not hear Mr. Scow’s claim.
The court found that a key issue was whether the essential character of the action is an attack on the validity of Mr. Scow’s own tax assessments – which would fall under the Tax Court’s exclusive jurisdiction – or a broader attack, such that the Tax Court would not have jurisdiction to determine all aspects of the dispute. The court determined that it would be inappropriate to make such a determination on an application to strike under BC Supreme Court Rule 9-5, the form of application brought by the defendants here, and in which the court assumes the facts alleged in the claim are true and asks only whether the claim discloses a reasonable cause of action.
The court held that, had the defendants brought a jurisdictional challenge or an application for summary trial or summary judgement, it might have been able to make a final determination as to jurisdiction and the essential character of the plaintiff’s claim. However, as it was not plain and obvious that the plaintiff’s claims were bound to fail, the application to strike was dismissed.