Sask. faces uphill battle in carbon tax lawsuit with CRA, legal experts say
While CRA asking for $28M, court documents indicate actual money owed to Ottawa is $56M
Saskatchewan's latest legal challenge of the carbon tax is "ambitious" but would require federal courts to "make new law" while attempting to revisit a case decided just three years ago at the Supreme Court of Canada, according to a trio of legal experts.
Last week, the government of Saskatchewan filed a lawsuit in federal court, attempting to stop the Canada Revenue Agency (CRA) from garnishing $28 million that the CRA says the province owes for failing to collect and remit part of the carbon tax.
The request for an injunction and judicial review was made in a federal court in Vancouver in an attempt to get a hearing as soon as possible, according to Saskatchewan Justice Minister Bronwyn Eyre.
A temporary injunction was granted Monday until a more fulsome hearing can be heard on the merits.
While the CRA is attempting to garnish $28 million, documents filed in court show the federal government believes that the province could owe as much as $56 million as of the end of April.
As more time passes, that figure will continue to grow. The provincial government says it is only remitting part of what is owed under the carbon tax, choosing to not send the portion that applies to natural gas for home heating.
The province has hired Osler, Hoskin & Harcourt LLP as its outside counsel to handle the litigation. The Canadian business law firm has former Premier Brad Wall as a special adviser.
Experts who have reviewed the court filings say the province faces an uphill battle in its lawsuit.
"If you're betting, you'd always bet on the status quo that Saskatchewan here is going to lose," said Rory Gillis, a law professor at Western University.
Other experts stressed that the lawsuit does have legal merit even if it is seemingly motivated by politics.
"I think it's a case that's being put forward with genuine constitutional arguments," said Eric Adams, a law professor with the University of Alberta.
"But having a genuine constitutional argument doesn't mean winning."
Moving to make the carbon tax unconstitutional
Court documents show the province is putting forward two separate arguments in court.
First is an argument that the Greenhouse Gas Pollution Pricing Act (GGPPA) is now unconstitutional.
Adams describes it as "a pretty big swing for the fences" that flies in the face of a 2021 Supreme Court of Canada decision that ruled the GGPPA was constitutional.
"[Saskatchewan] made that argument unsuccessfully at the Supreme Court of Canada. They lost. Now they're back," he said.
This time, the province is arguing that the federal government's decision to exempt home heating oils from the carbon tax for a three-year period renders it unfair.
The exemption is nationwide but affects varying numbers of residents in different areas of the country. According to the federal government, about one-quarter of homes in Atlantic Canada use home heating oils, compared to about six per cent in the rest of the country — and just 2.6 per cent in Saskatchewan.
According to SaskEnergy, approximately 370,000 residential customers use natural gas to heat their homes.
Gillis said that Saskatchewan is attempting to argue that the exemption is unfair as it treats some provinces more favourably than others.
It bolsters that argument by pointing to the Supreme Court of Canada decision that held the federal government had jurisdiction to set national minimum standards for greenhouse gas emissions.
"So the moment it starts exempting some provinces but not others, Saskatchewan argues it's no longer setting minimum standards," Gillis said.
If that argument is successful, it would mean the GGPPA is now unconstitutional and a tax can't be collected from an unconstitutional piece of legislation.
Adams believes that will be a hard case to make as there have always been exemptions in the act, such as for agricultural products.
"It might have been a bad idea to extend those exemptions … but it's not clear to me that makes the whole act now suddenly unconstitutional," he said.
Federalism tested
The other argument put forward by the province is that it "has a constitutional right to be free of charges and levies imposed by the federal government without the province's consent."
This goes to the heart of federalism, which creates two sovereign levels of government — federal and provincial — that are co-equals with their own responsibilities.
"Saskatchewan is making the argument that at the most basic level, it doesn't have to pay taxes that the federal government insists on because one level of government cannot tax another," said Adams.
While that logic is consistent with the Constitution it does raise problems of its own.
"If there's no federal law that can ever extract a tax or penalty from a provincial government, then it's really going to render ineffective a number of regulatory statutes from the federal Parliament," Adams said.
He said it's a tricky constitutional issue that the courts will have to wrestle with if they want to address the issue.
Gillis said there's another problem with Saskatchewan's argument.
He pointed to how the Supreme Court of Canada found that the GGPPA is a regulatory charge rather than a tax, which means lower courts are not likely to favour the province's interpretation of it being a tax.
Injunction a stiff test
Although a temporary injunction was granted Monday in federal court, a more permanent version must still be argued on its merits.
Gerard Kennedy, a law professor at the University of Alberta, said the province faces a challenge in showing it faces irreparable harm — a key test for an injunction — if the CRA seizes the $28 million.
"Saskatchewan appears to be arguing that insofar as the federal government is doing something unconstitutional, that is an inherently irreparable harm," Kennedy said.
"That argument has found some favour in courts in the past, but it hasn't always succeeded either."
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