Executive Summary: Key Legal and Evidentiary Issues

• Whether the November 20, 2023 phone call between Hillcore’s counsel and the CRA collections officer amounted to a new, reviewable decision concerning Hillcore’s request for a refund of $879,092.36 in Seized Funds.

• Interaction between the Excise Tax Act and the Income Tax Act regarding garnishment under the ETA for a GST debt of $1,730,643.39, later vacated, and the CRA’s July 15, 2020 set-off of approximately $1,730,750.40 (including the Seized Funds) against an income tax debt in excess of $40 million.

• The effect of subsection 18.1(2) of the Federal Courts Act on attempts to challenge the July 2020 set-off, and whether the October 16, 2023 letter could be treated instead as a timely request for a refund of the Seized Funds under the ETA.

• The legal significance of the collections officer’s reliance on internal CRA policies (the “Authorizing Refunds and Repayments Policy” and the “Refunding Garnishments Amounts Policy”) without independent statutory analysis or disclosure of those policies to Hillcore.

• Adequacy of the oral reasons given in the November 20, 2023 call, including the absence of written reasons, lack of reference to specific ETA or ITA provisions, and failure to substantively address Hillcore’s statutory arguments about section 296(6) of the ETA.

• The court’s conclusion that the November 20, 2023 refusal was an unreasonable decision, the decision to remit the matter to the Minister of National Revenue for redetermination rather than order a refund, and the award of $9,500 in lump sum costs in favour of Hillcore Financial Corporation.

Facts and outcome of the case
Hillcore Financial Corporation applied for judicial review in the Federal Court against what it characterized as a decision made on November 20, 2023 by a Canada Revenue Agency collections officer acting on behalf of the Minister of National Revenue. Hillcore claimed that, during a phone call on that date, the officer refused its request to return $879,092.36 in funds garnished under the Excise Tax Act in relation to a GST debt and referred to as the Seized Funds. The respondent was the Attorney General of Canada.

Background to the GST debt and garnishment
On August 25, 2017, the CRA issued GST reassessments to Hillcore, under which it allegedly owed $1,730,643.39 as a GST debt. In 2017 and 2018, the CRA garnished funds pursuant to its powers under the Excise Tax Act and applied these amounts to the GST debt. The Seized Funds of $879,092.36 formed part of the amounts garnished under this process.

Vacating of GST reassessments and set-off to income tax
On July 15, 2020, the CRA vacated the GST reassessments. Instead of returning to Hillcore the Seized Funds and other sums credited on the GST account (together totalling $1,730,750.40), the CRA set these amounts off against Hillcore’s outstanding income tax debt. Hillcore was informed of this through notices of reassessment, which stated that amounts credited pursuant to the GST reassessments had been transferred to Hillcore’s income tax account and that the balance on the GST account was now zero. The court noted that the AGC argued Hillcore’s income tax debt was in excess of $40 million for the 2012 to 2017 taxation years, based on income tax reassessments dated June 19, 2020.

Hillcore’s 2023 refund request and CRA’s internal process
On October 16, 2023, Hillcore sent a letter to the CRA collections officer requesting the return of the Seized Funds. In that letter, Hillcore described the July 15, 2020 set-off of the Seized Funds as “wrongful” and argued that neither the Excise Tax Act nor the Income Tax Act authorized the CRA to seize funds for a GST debt and then allocate them to an income tax debt. Hillcore asserted that, under subsection 296(6) of the Excise Tax Act, once the GST reassessments were vacated, the Minister was obliged to refund the Seized Funds and that the CRA “must refund forthwith all of the Seized Funds” with interest. The letter did not characterize the request as one seeking the exercise of a discretionary refund power; instead, it framed the refund as mandatory. The collections officer received the October 2023 letter on November 3, 2023 and opened a support ticket to seek guidance from a CRA field support officer. On November 6, 2023, the field support officer responded, referring to two internal CRA policies, the “Authorizing Refunds and Repayments Policy” and the “Refunding Garnishments Amounts Policy”, and indicated that the CRA did not have to return the Seized Funds. On November 20, 2023, the collections officer spoke with Hillcore’s counsel by phone. According to his preparatory notes and later cross-examination, he explained that once a payment or credit is received and applied to a taxpayer’s CRA account, it becomes part of the Consolidated Revenue Fund and is the property of His Majesty, and that all amounts in the taxpayer’s name must be paid before a refund will be issued, even for garnished amounts. He told counsel that no refund would be issued while there was an amount owing on Hillcore’s income tax account, and he refused to provide written reasons. The officer did not cite any specific legislative provisions and testified that, beyond reading the policies and consulting the field support officer, he did not conduct his own legal research.

Issues about the nature of the decision and timing
The Attorney General of Canada argued that no reviewable decision was made during the November 20, 2023 phone call and that the collections officer lacked discretion to issue a refund or reconsider the 2020 set-off. It submitted that the only real decision was the July 2020 set-off, communicated through reassessment notices, and that any challenge to that decision was time-barred under subsection 18.1(2) of the Federal Courts Act because Hillcore did not file for judicial review within 30 days. Hillcore argued that the set-off was an automatic administrative mechanism and, in any event, that its October 16, 2023 letter sought the return of the Seized Funds pursuant to subsection 296(6) of the Excise Tax Act and not a review of the 2020 set-off of the full $1,730,750.40. The court held that Hillcore could have challenged the July 2020 set-off decision at that time, either by judicial review or by a notice of objection and eventual appeal to the Tax Court of Canada, but that Hillcore’s present application related to a distinct alleged decision: the November 20, 2023 refusal to return the Seized Funds. The court found, based on the support ticket, the officer’s notes and his cross-examination, that the collections officer had treated the October 2023 letter as a request for a refund, had considered new submissions and facts, had consulted internal support and policies, and then decided not to issue a refund. The court concluded that this was not a mere courtesy response confirming the 2020 set-off but a fresh exercise of discretion, and therefore a reviewable decision. The court also noted uncertainty in the record about the extent of the officer’s formal authority to grant a refund, but observed that he did not tell Hillcore he lacked authority, did not forward the request to someone else despite the letter’s express expectation that he would do so if he could not reply, and handled the matter as if he were deciding the request.

Reasonableness analysis and remedy
Both parties agreed that, if the November 20, 2023 communication was a decision, the applicable standard of review was reasonableness. Hillcore argued that the decision was unreasonable because the officer failed to consider the statutory framework, including subsections 296(6)–(7) of the Excise Tax Act and section 224.1 of the Income Tax Act, fettered any discretion by treating internal policies as binding, and did not meaningfully address its arguments. It also raised issues of procedural fairness, including the absence of written reasons and non-disclosure of the policies. The Attorney General did not defend the substance of the decision if it was found to exist and accepted that, in that event, the matter should be remitted to the Minister for reconsideration. The court concluded that the November 20, 2023 decision was unreasonable. It found that the decision, given verbally, contained minimal reasoning, no supporting detail, and was not justified, transparent or intelligible. The court therefore set aside the decision. The court considered Hillcore’s request that it order the Seized Funds to be refunded without remitting the matter, but it was not persuaded that the circumstances were so exceptional, or that the outcome was so inevitable, that it should substitute its own decision for that of the Minister. The court held that Hillcore’s argument that the Minister could not use discretion under the Income Tax Act to set off the Seized Funds when the Excise Tax Act required their return must be considered by the Minister, who is responsible for such matters. As a result, the court granted the application for judicial review, returned the matter to the Minister of National Revenue for redetermination, and awarded Hillcore a lump sum of $9,500 in costs, inclusive of disbursements and tax.