In Defence of Taxpayers: The Equitable Doctrine of Estoppel

Let's pretend you are a prudent taxpayer, a paragon of fiscal responsibility. You follow every CRA bulletin and government statement in order to properly file your return accurately and timely every year. Last year however, you relied on advice that a CRA official gave to you over the phone regarding a special new tax credit you could be eligible for if you purchased qualifying ëgreen' home appliances. You sort of need a new refrigerator anyways and have been looking around, but you can only really afford the baseline model that does not qualify for this tax credit. As a result of relying on the CRA's advice though, you go and purchase a higher model, ëgreen' appliance which you have calculated will actually cost you slightly less after the tax credit; everyone wins! You are astonished to find that the Minister has disallowed your tax credit at the end of the year though- can he do that?

It depends. Estoppel is an equitable legal doctrine that holds as follows: if one party makes a statement or representation of fact to another who subsequently relies on this information to their detriment, the person making the representation can be ëestopped' from reneging on their prior representation and hiding behind their literal, black letter legal rights (such as a contract for example). As an equitable doctrine, it infuses the harsh reality that can result from following the law with moral and ethical considerations that the judiciary have a wide discretion over and an even wider proscription of remedies for.

Three factors give rise to an estoppel. First, there must be a representation, or conduct reasonably perceived as amounting to a representation, by somebody intending to induce a course of conduct from the person he is making the representation to. Secondly, the person to whom the representation is made must have relied on that representation, by act or omission, and thirdly, this must result in some form of detriment to that person.

For taxpayers though, there is an important and pertinent rule within this doctrine: misrepresentations of law by government officials cannot give rise to estoppel. Therefore, misrepresentations and/or advice from the CRA based on their misinterpretation of taxation legislation cannot give rise to an estoppel.

Now, this may seem truly unfair, and indeed it can have terrible results. However, the underlying theory is that, regardless of any egregious incompetent advice from government officials, estoppel cannot override the law of the land and the Minister is not bound to misapply the law.

As a result, it is often said, incorrectly, that estoppel cannot be brought against the Crown in any circumstances. Estoppel can be brought against the Crown for misrepresentations of fact, but not law.