Policy Preferences and Expertise in Canadian Tax Adjudication

Taxpayers and governments alike struggle to stay on top of the various complex sources of tax law and to apply them in a myriad of contexts. Given the potential for confusion and disagreement (not to mention the sometimes large financial stakes involved), it is appropriate to have a process for taxpayers to appeal government decisions to an expert body that can provide authoritative, reasoned, and rational solutions to tax disputes. For this reason Canada, like the United States, has a specialized tax court dedicated to hearing appeals from decisions of the tax administration. Yet there is some evidence in both countries that judges in tax cases may be influenced by their own personal policy preferences or other factors extraneous to the "true" legal merits in deciding appeals. This article examines appeals from tax assessments in Canada to understand the relative influence of judicial tax expertise and the policy preferences of judges on decisions at the Tax Court of Canada and the Federal Court of Appeal. The authors first describe the institutions and processes for tax appeals. They then analyze the impact of judicial expertise and policy preferences on outcomes of tax appeals, drawing on approximately 3,400 decisions of the Tax Court of Canada in the period 2000-2006 and including, where applicable, the related appeals to the Federal Court of Appeal and the Supreme Court of Canada. The authors arrive at and discuss three main results of the study: (1) policy preferences of judges matter, but not that much; (2) resources matter--a lot; and (3) there are dynamics relating to affirmation of appeals by the Federal Court of Appeal that are difficult to explain, although a desire to avoid the apprehension of bias is possible.