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Kingstreet Remedy – A special relief for Taxpayers!

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Public law (or restitutionary) remedies are usually relied on as a last resort by taxpayers facing CRA assessments. They are last resorts because they are only available in exceptional circumstances, and the CRA almost never applies them, while the Courts rarely apply them.

One interesting historic restitutionary remedy, first established by the Supreme Court in Kingstreet Investments Ltd. v. New Brunswick (Finance)– and now called the “Kingstreet” remedy – allows a taxpayer the right to recover the taxes levied under unconstitutional legislation which before Kingstreet was doomed to fail under a claim for unjust enrichment against Crown.

The Federal Court in Canadian Pacific Railway Company v. Canada (“CPRC”) had the opportunity to consider this special remedy, and underlines its limited application: only being triggered when a tax charged by a government is constitutionally ultra vires (i.e., by virtue of unlawful legislation), and not triggered because of some unlawful government administrative actions!  

Constitutionality & Government Action

Government bodies are required to act within the parameters of the authority granted to them by the Constitution, and statutes or regulations validly enacted or promulgated by Parliament or the Legislature.

There are generally two ways in which governments typically exceed that authority: (1) when enacting unconstitutional legislation; or (2) when misapplying an otherwise a valid statute or regulation.

In the first instance – namely, enacting unconstitutional legislation – this is action that is unlawful in a constitutional sense. For example: in Kingstreet, the provincial authority levied “user charge” on purchase of liquor in new Brunswick through a regulation and not under the provincial legislation. This was unconstitutional because under section 92 of the Constitution Act, 1867, provincial authorities are only permitted to levy direct tax. The SCC found that the “user charge” was an indirect tax and unconstitutional, thus provided taxpayer the right to be refunded the amount paid in lieu of the unconstitutional tax (hence the “Kingstreet remedy”).

In the second instance – namely misapplying an otherwise valid statute or regulation – the government actions are viewed as unlawful in an administrative law sense. This was the situation in CPRC, where a procedural fairness issue arose in respect of an 1880 Contract that CPRC had with the Canadian government, and on which CPRC relied on to resist a Large Corporations Tax (“LCT”) levied under the Income Tax Act. The Kingstreet remedy was denied, and CPRC failed to recover the LCT paid over time, because the Kingstreet remedy was found not to apply in instances where the underlying laws and regulations were constitutionally valid.


While an incredibly fine point, the result in CPRC is unpalatable from a taxpayer’s perspective, and seems to offer the federal and provincial governments the abilities to go back on their words, ignore contractual or settlement obligations, with impunity. And that makes for bad tax policy.

The foundational principles underlying Kingstreet remedy (constitutional supremacy and the rule of law)hold that a taxpayer ought to be able to rely on the presumption of the statute’s validity, ensuring the same is taxation authority’s responsibility.

It seems unjust and against public policy to allow any level of government to collect any type of taxes contrary to prior agreements in respect of same.

Think, for example, about tax settlement agreements, where a taxpayer may agree to pay an amount on account of an assessed tax liability, in exchange for a resolution of the matter overall.   Can the government come back later and ask for more?  

For now, it appears that the answer is “maybe yes”, with the current public policy considerations appearing to bar taxpayers from claiming restitutionary equitable remedies against the Crown (e.g., like unjust enrichment) in all but the most exceptional cases.

While the Kingstreet Remedy is a bit of a ray of hope in this area, establishing that underlying taxing provision are unconstitutional generally an incredibly difficult and expense task.   Usually involving multiple levels of court hearings. The arduous task of establishing unconstitutionality of law requires careful analysis of the legislation and the Constitution, which is best performed by an experienced tax counsel, versed in the constitutionality of federal and provincial taxation.

Do you require assistance in this area?  If so, please click here.

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