The Death of the Tariff: A Review of the Tax Court's Discretionary Approach to Costs Awards

The traditional objective of a costs award in general civil litigation was to indemnify the successful party for the legal and other costs incurred to defend an unproven claim or pursue a valid legal right. However, Canadian courts have recognized that the traditional view of costs is outdated and that an additional and more important use of costs awards is promotion of the efficient and orderly administration of justice.

Costs awards at the Tax Court of Canada have generally followed a similar path of development, but at a slower pace. Historically, costs were awarded only in accordance with the tariff annexed to the Tax Court of Canada Rules (General Procedure) unless "reprehensible, scandalous, or outrageous conduct" was present. More recently, however, Tax Court judges have expressed concerns about the inadequacy of the tariff. These concerns have led the court to adopt a "principled" approach to costs, similar to that used in modern general civil litigation, by applying specific factors set out in rule 147(3) ("the 147(3) factors") rather than relying solely on the tariff.

This article reviews the recent jurisprudence relating to costs awards at the Tax Court, with a particular focus on the manner in which the 147(3) factors have been interpreted and how the application of those factors could evolve to further promote the new objectives of costs awards recognized in general civil litigation. The authors argue that costs awards by the Tax Court could be used more effectively to promote the efficient and orderly administration of justice by:

(1) taking into consideration the unique features of a tax dispute, and

(2) placing additional emphasis on the purposes of costs awards adopted in general civil litigation.