All that glitters is not gold

  • June 03, 2022
  • Robert G. Kreklewetz and Shahrukh Khowaja

Most tax practitioners would generally agree that tax dispute resolution more often than not comprises of entering into contractual or settlement arrangements with the government. When the government disregards its obligations under such arrangements, taxpayers attempt to hang their hook onto public law (or restitutionary) remedies which are only available in exceptional circumstances. One interesting remedy, first established by the Supreme Court of Canada (“SCC”) in Kingstreet Investments Ltd. v. New Brunswick (Finance)1  – now called the “Kingstreet” remedy – provides a restitutionary cause of action to recover taxes levied under an unconstitutional legislation, which before Kingstreet was doomed to fail under a claim for unjust enrichment against the Crown.

Recently, the Federal Court in Canadian Pacific Railway Company v. Canada2 (“CPRC”) had the opportunity to weigh in the value of this “gold” by considering the scope of its application. Turns out that Kingstreet remedy is a restrictive recourse. The Court in CPRC affirmed that it is only triggered when a tax charged by a government is constitutionally ultra vires (i.e., by virtue of unlawful legislation), and not triggered as a result of other unlawful administrative actions.

Constitutional and government actions

The administrative arm of government must act within the parameters of the authority vested in Parliament and the legislatures by the Constitution, and exercise only such powers as essentially delegated by a statute. As a result, taxes levied in absence of a legislative authority to grant the powers exercised by the administrative actor (constitutionally ultra vires), or by the administrative body in absence of such powers granted by the legislature (administratively ultra vires), are considered unlawfully levied and should be returned to the taxpayer.

In the instance of constitutionally ultra vires taxes, the Kingstreet remedy could be available. For example, in Kingstreet, a “user charge” levied by the province of New Brunswick under provincial legislation was found to be an “indirect tax” on the purchase of liquor and was deemed unconstitutional because provincial authorities are only permitted to levy direct taxes (under section 92 of the Constitution Act, 1867).3 Thus, the taxpayer was entitled to recover the amounts paid (under protest) on account of an unconstitutional tax.

Conversely, the Kingstreet remedy may not be available where an administrative action is ultra vires of an otherwise valid statute or regulation. This situation arose in CPRC, where a procedural fairness issue emanated in respect of a contract between the Canada Pacific Railway Company (the “Company”) and the Canadian government (the ”1880 Contract”), which exempted the Company from paying certain taxes. The Company relied on this 1880 Contract to oppose the imposition of Large Corporations Tax (“LCT”) under the Income Tax Act.

The Company applied to the Federal Court to seek recovery of the LCT amount paid over the duration of the 1880 Contract based on the Kingstreet remedy but was denied this recourse. The Federal Court differentiated between the two types of unlawful taxes and emphasized the limited application of the Kingstreet remedy, that it only applies in instances where the underlying laws and/or regulations are unconstitutional and does not assist when tax authorities take administratively ultra vires actions.


The core constitutional principles underlying the Kingstreet remedy (constitutional supremacy and the rule of law) signify a taxpayer’s constitutional right of reliance on the presumption of a statute’s validity and ensuring legitimate enforcement is the taxation authority’s responsibility.

The CPRC outcome which hinged on an incredibly fine academic point, is practically repugnant from a taxpayer’s perspective. The restrictive applicability of the Kingstreet remedy takes away much of its usefulness to taxpayers who rely on the Crown’s undertakings and administrative authority. It seems to offer the federal and provincial governments the ability to go back on their words, allowing them to ignore contractual or settlement obligations with impunity while hiding behind the veil of a valid legislation.

To allow any government to collect taxes contrary to prior agreements in respect of same, is plainly against the very constitutional principles and presumptions of validity that Kingstreet was founded on.

In situations where the Kingstreet remedy might nonetheless apply, establishing unconstitutionality of a legislation (or parts thereof) is generally an incredibly challenging, laborious and expensive ordeal. Primarily, it requires the right set of facts for a court of competent jurisdiction to consider this constitutional question of law, and will likely involve multiple levels of court hearings given the need for careful analysis. The high threshold to establish a Kingstreet remedy and low chances of success, makes it uneconomical to pursue rendering the Kingstreet remedy (as it now stands) of limited utility to taxpayers.

Furthermore, even if the taxpayers eventually win the battle, the legislature always has the ability to go back and amend legislations or apply rules “retroactively.”

The SCC’s refusal to apply a private law claim of unjust enrichment against the Crown and reinventing the wheel through the Kingstreet remedy is seen as “troubling” by some authors,4 as it apparently implies that in such situations private law claims are unavailable. Although some later decisions suggest that the possibility for unjust enrichment claims remain open in other circumstances5 - those favorable fact patterns are rare.

On the face of it, Kingstreet appears to be the “golden ticket” for taxpayers seeking restitutionary remedies. In reality, it is the fool’s gold. Taxpayers are generally barred from public law remedies and the equitable restitutionary remedies against the Crown are available in only the most exceptional cases. On a positive side, alternatives may be available within the ambit of relevant fiscal legislation such as the Income Tax Act and the Excise Tax Act,6 or through the judicial review process. Aggrieved taxpayers should carefully consider all recourse options and their viability.

Robert G. Kreklewetz is a partner at Millar Kreklewetz LLP and past chair of the CBA Commodity Tax, Customs, and Trade Section. Shahrukh Khowaja is an associate at Millar Kreklewetz LLP.


1 Kingstreet Investments Ltd. v. New Brunswick (Finance) 2007 SCC 1, [2007] 1 SCR 3.

2 Canadian Pacific Railway Company v. Canada, 2021 FC 1014 [CPRC].

3 Constitution Act, 1867 (UK), 30 & 31 Vict, c 3, s 92, reprinted in RSC 1985, Appendix II, No. 5.

4 Mitchell McInnes, “Restitution for ultra vires taxes” (2007) 123 LQR 365 at 366.

5 Alberta v. Elder Advocates of Alberta Society, 2011 SCC 24 at para 91.

6 Merchant Law Group v. Canada Revenue Agency, 2010 FCA 184, at pp 23-28.