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Citation: 2005TCC556
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Date: 20050902
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Docket: 2004-4449(IT)G
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BETWEEN:
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ROY GOULD,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR ORDER
Bowman,
C.J.
[1] This is a motion to strike out portions of
the Reply to the Notice of Appeal. The appeal is from assessments for the
appellant’s 2000, 2001 and 2002 taxation years.
[2] In assessing the
appellant’s tax for those years the Minister of National Revenue allowed the
appellant charitable tax credits based on only 20% of certain charitable
donations that the appellant claimed he had made. In the Reply filed
April 8, 2005, the respondent states that the Minister should have
disallowed the entire claim and not merely 80%.
[3] On June 18, 2005
the Minister, consistently with that position, issued reassessments for 2001
and 2002 disallowing the entire charitable tax claim. Evidently the year 2000
was statute-barred or it would have been reassessed in a similar way.
[4] The result is that
only the portions of the Reply that relate to 2000 are before me. The
reassessments for 2001 and 2002 have been superseded. If the appellant wishes
to contest the new assessments for 2001 and 2002 he may amend the existing
notices of appeal under subsection 165(3) of the Income Tax Act to refer to the new
assessments or file a new notice of appeal or a new objection.
[5] Counsel for the
Crown asked that I adjourn the appellant’s motion, quash the appeals for 2001
and 2002 and strike out the portion of the motion relating to 2001 and 2002.
The Reply for the year 2000 is still before me and if the appellant challenges
the new assessments for 2001 and 2002 and the respondent replies in a manner
similar to that in the existing replies, many of the appellant’s objections to
the Reply will apply and will have to be dealt with sooner or later.
[6] The notice of
appeal raises as an issue the treatment of donations made to a registered
charity IDEAS Canada Foundation (“IDEAS”) upon which the appellant based a
claim for tax credits.
[7] The Reply is 29
pages in length plus a schedule called “Ideas Leveraged Donation Scheme”.
[8] The first thing the
appellant objects to is a passage at the beginning of the Reply called
“Overview”. It reads as follows:
1. Ideas
Canada Foundation (“Ideas”) is one of the first leveraged charitable donation
schemes in Canada (the “Scheme”). For
every $100 allegedly donated, $20 is funded from the Scheme participant’s own
money and $80 is funded from a 25-year non-interest bearing loan provided by
the promoter of the scheme, with the loan funds returning to the promoter on
the same day the loan was originally made, all in a circular flow.
2. The
Scheme participant’s payment of $20 of his own money is made in consideration
for the Scheme participant’s receipt of a 25-year interest‑free loan and
a charitable tax receipt in the amount of 5 times the actual cash payment.
3. The
transactions undertaken by the Appellant (“Gould”) are typical and
representative of the transactions undertaken by all individuals involved in
the Scheme (the “Scheme Participants”).
4. Gould’s
cash payments of $100,000, $20,000 and $10,000 (i.e. 20% of his total alleged
donation) in his 2000, 2001 and 2002 taxation years, respectively were paid to
Ideas in consideration for his receiving charitable tax receipts in the amounts
of $500,000, $100,000 and $50,000, respectively.
5. As
a result of his reliance on the inflated tax receipts from Ideas, Gould
received inflated federal and provincial charitable tax credits of $216,750,
approximately $43,525 and $21,850, which credits exceeded his actual cash
outlay by $115,750, $23,525 and $11,850 in the 2000, 2001 and 2002 taxation
years, respectively.
[9] Counsel for the
appellant stated that the overview does not comply with Rule 49 of
the Tax Court of Canada Rules (General Procedure). Subsection 49(1)
of the Rules reads:
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49. (1) Subject to
subsection (1.1), every reply shall state
(a) the facts that are admitted,
(b) the facts that are denied,
(c) the facts of which the respondent has no knowledge
and puts in issue,
(d) the findings or assumptions of fact made by the Minister
when making the assessment,
(e) any other material fact,
(f) the issues to be decided,
(g) the statutory provisions relied on,
(h) the reasons the respondent intends to rely on, and
(i) the relief sought.
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49. (1)
Sous réserve du paragraphe (1.1), la réponse indique :
a) les faits admis;
b) les faits niés;
c) les faits que l'intimée ne connaît pas
et qu'elle n'admet pas;
d) les conclusions ou les hypothèses de
fait sur lesquelles le ministre s'est fondé en établissant sa cotisation;
e) tout autre fait pertinent;
f) les points en litige;
g) les dispositions législatives
invoquées;
h) les moyens sur lesquels l'intimée
entend se fonder;
i) les conclusions recherchées.
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[10] Counsel contends that the Overview does none of those
things. Moreover, he says that paragraphs 1-3 do not relate specifically
to Mr. Gould’s case and should be struck out.
[11] I can see nothing wrong with the Overview. It describes
generally the “scheme” in which the Minister alleges the appellant
participated. I think it is arguably relevant that the appellant’s charitable
donations are not an isolated phenomenon but form part of a larger pattern.
What weight if any should be given to this fact will be a matter for the judge
who hears the case. It would be premature and indeed inappropriate for me,
sitting as a motions judge, without the benefit of having heard any evidence to
decide whether so broad a description of an alleged “scheme” is relevant. To do so would
be to usurp the function of the trial judge.
[12] One must bear in
mind that in tax litigation pleadings serve several functions. For example, the
reply should set out fully the respondent’s position. It should plead honestly
and comprehensively the assumptions upon which the assessment is based. It
should be informative to the judge so that he or she will know the Crown’s
position and the issues that must be decided, matters that are being put in
issue and the facts the Crown assumes or intends to prove. It should also
inform the appellant of the case that is to be met. The essential and important
function that pleadings serve in litigation is a practical one of providing
information about the party’s case.
[13] The appellant
objects to the second sentence of paragraph 4 of the Reply on the basis
that it is contradictory to the first sentence. The first sentence admits that
IDEAS was a registered charity whereas the second sentence alleges that it was
not fulfilling a charitable purpose. Whatever contradiction may exist between
these two sentences should be resolved at trial, not by a motions judge before
trial on a parsing of the pleadings.
[14] I do not find that
the statements in paragraph 4 are scandalous or vexatious or that they
will prejudice or delay a fair hearing. The time devoted to this motion would
be better spent trying to make some mileage with the trial judge in an attempt
to show that the Crown’s pleadings are inconsistent or self‑contradictory
and that some conclusion favourable to the appellant’s case should be drawn
from that fact.
[15] Paragraph 21 of
the Reply alleges that Mr. Gould agreed to keep all information relating
to the gift to IDEAS confidential. Counsel for the appellant contends that this
assertion is irrelevant and should be struck. Perhaps it is. I daresay, if I
were the trial judge, I might well treat the statement as irrelevant and ignore
it. I assume that the judge who hears the case will be capable of deciding
whether to ignore the assertion or to treat the alleged secretiveness as
evidence of some nefarious fiscal purpose.
[16] The appellant
contends that paragraph 35 of the Reply cannot stand because the
respondent cannot put forward a new basis of assessment for 2000 that
disallowed 100% of the donation as opposed to 80%. As I understand the decision
of the Federal Court of Appeal in Her Majesty the Queen v.
Charles B. Loewen, 2004 DTC 6321, there is virtually no
restriction on what the Crown can plead in a reply and there is no distinction
between a new basis of assessment (Continental Bank Leasing Corporation v. The
Queen, 98 DTC 6505) and a new argument in support of the assessment
(ss. 152(9) of the Income Tax Act).
[17] The appellant
objects to paragraph 26 of the Reply on the basis that it alleges that
Mr. Gould’s charitable donations in other years were smaller than in 2000.
I agree that the point is of questionable relevance. It does not, however,
warrant a pre-trial motion. The trial judge is no doubt capable of ignoring it
if he or she considers it irrelevant. Trial judges are, after all, supposed to
be able to ignore irrelevancies.
[18] The appellant
objects to paragraph 27 of the Reply on the ground that the allegation
that Mr. Gould was an agent of an agent of the promoter of the scheme is
irrelevant. It is by no means clear to me that it is so irrelevant that an
appellant was somehow involved with the promotion of what the Crown alleges is
a scheme. In any event it is for the trial judge, in the context of all of the
evidence, to decide whether this evidence is relevant.
[19] I turn now to the
final and general objection to a number of other paragraphs. I shall set out in
full the appellant’s written argument on this point. The essential objection is
that these paragraphs refer to third party transactions without any allegation
that the appellant was a party to or knew of these transactions and that
therefore, on the basis of Status‑One Investments Inc. v. The Queen,
2004 DTC 3042 affd., 2005 DTC 5224, the paragraphs should be struck.
[20] The written argument
reads as follows:
The balance
of the impugned paragraphs in the Reply
10. The balance of
the impugned paragraphs of the Reply (including the Overview) deal with the
so-called “Scheme” as defined by the Reply. Essentially the Respondent
postulates that after Mr. Gould borrowed some money to make part of the
2000 Donation to IDEAS, IDEAS circulated the money back around to the lender in
a complex series of transactions. These transactions are alleged to involve
numerous third parties and hundreds of other taxpayers, none of whom are
parties to this Appeal
11. The critical
thing to note is that nowhere does the Reply specifically allege that
Mr. Gould was a party to these third party transactions. So far as one can
tell from reading the Reply, these are third party transactions which the Reply
does not tie directly to Mr. Gould as a party. Mr. Gould’s name is
mentioned exactly twice in paragraph 25 (the assumptions paragraph): 25(f)
and 25(pppp). Neither paragraph assumes that Mr. Gould was a party to the
so‑called Scheme.
12. Paragraph 30
of the Reply says that Mr. Gould “participated” in the Scheme, but this is
neither a factual assumption (paragraph 25) or a separate fact relied on
by the Minister (paragraphs 26 and 27). It is simply a ground relied on. And in
any case, from the balance of the Reply it appears that Mr. Gould’s
“participation” was limited to borrowing money and making the Donations. There
is no allegation that his “participation” extended to being a party or even
knowing about the third party transactions that make up the so-called Scheme.
13. It is important
to note that during the lead-up to this Appeal Mr. Gould expressly told
the CRA that he knew nothing about these transactions (Leong Affidavit,
Exhibits B and C (paragraph 6); and G and I). Because Mr. Gould knew
nothing about the transactions the CRA had to gather information from other
parties (Exhibit D). Despite Mr. Gould’s request in Exhibit I for the CRA
to tell him exactly what was the basis of the reassessment, Exhibit J simply
refers to the interest-free loan. It says nothing about Mr. Gould being a
party to the third party transactions.
14. It was,
therefore, perfectly clear to the Respondent when She filed her Reply that
Mr. Gould’s position was that these were third party transactions to which
he was not a party in any way and about which he knew nothing. If the
Respondent believed differently it was incumbent on Her to state so expressly
in the Reply and to state exactly what facts the Minister assumed or relied on
to show that Mr. Gould knew about or was a party to these third party
transactions. Not having done so, the impugned paragraphs of the Reply are
contrary to Rule 53.
Status-One Investments
Inc. v.
The Queen, 2004 DTC 3042 (TCC) with official
English translation,
Tab 8.
The Queen v. Status-One
Investments Inc., 2005 DTC 5224 (FCA) with unofficial English translation,
Tab 9.
[21] With respect, I am
unable to ascribe to either the Status-One decision or the case which it
followed, The Queen v. Global Communications Limited, 97 DTC 5194,
the effect contended for by counsel for the appellant. A central component in
the assessment which disallowed the charitable donations is the existence of a
“scheme” in which it is alleged that the appellant participated and which enabled
the participants to obtain what the Crown sees as artificial or inflated
charitable tax credits. It of necessity involved third parties and if the
existence of a scheme is essential to the Crown’s case it should be able to
plead and prove all of the components of the scheme. To say, as the appellant
does, that Global and Status-One preclude any reference to third
party transactions unless the appellant knows of or is privy to those
transactions goes too far. If the existence of a scheme is germane to the
disallowance it cannot be ignored whether or not the Minister assumed that the
appellant knew about or was a party to the third party transactions that,
according to the Reply, were an integral part of the scheme. If any of the
facts assumed are truly within only the Crown’s knowledge the Crown probably has
the onus of proving them although this is ultimately for the trial judge to
decide.
[22] I might observe that
the complaint that is usually made is that the Crown has not pleaded all of the
material assumptions or has not pleaded assumptions that assist the appellant.
Here the reverse is true. The appellant is complaining that too many
assumptions are pleaded. It would seem to me that if an assessment is based on
assumptions that are irrelevant, contradictory or illogical, as the appellant
alleges, this could arguably form a cogent basis for attacking the assessment.
If those assumptions are removed from the Reply the appellant has deprived
himself of one of the weapons in his arsenal. Why he would wish to do so
escapes me. There is a danger that one can, in getting too engrossed in
technical minutiae, lose sight of the substantial tactical advantage of forcing
the Crown to live with its own pleadings. There is much to be said for the
venerable rule about not educating your opponent.
[23] Generally speaking,
the striking out of portions of a pleading under section 53 of the Rules
should be reserved for only the most plain and obvious cases. Matters of
weight and relevancy are best determined by the trial judge who will have heard
all of the evidence. Frequently the significance of a piece of evidence will
not become clear until the end of a case. I repeat what was said in Niagara
Helicopters Limited v. The Queen, 2003 DTC 513 at 514-515:
[6] It
is in my view premature at this stage of the proceedings to determine that
facts which counsel for the appellant considers to be a relevant and necessary
part of the appellant's case are irrelevant. The authorities are undisputed
that it is only where it is clear and obvious that a pleading is scandalous,
frivolous or vexatious or an abuse of the process of the court that it may be
struck out. (Hunt v. Carey Canada Inc., [1990] 2 S.C.R. 959 at 980; Erasmus
et al. v. The Queen, 91 DTC 5415 at 5416).
[7] It
is by no means clear and obvious that the impugned paragraphs are scandalous,
vexatious or frivolous or an abuse of this court's process. The remedy of
striking out portions of pleadings on such grounds is reserved for the most
obvious of cases, such, for example, as Davitt v. The Queen, 2001 DTC 702.
[8] Whether
an allegation is irrelevant is something that the trial judge is in a position
to determine in the context of all of the evidence at trial. It is
inappropriate on a preliminary motion for a motions judge, who has heard no
evidence, to decide that an allegation is irrelevant thereby depriving a party
of the opportunity of putting the matter before the judge who presides the
trial and letting him or her put such weight on it as may be appropriate.
[9] I
see no merit in the argument that the impugned paragraphs may unduly lengthen
the trial. It has undoubtedly taken counsel for both parties many hours to
prepare this motion and to respond to it. Dealing with the motion is equally
time consuming for the court. The time spent already on this motion is
undoubtedly many multiples of the time that dealing with these paragraphs will
require if the matter proceeds to trial. It will take the appellant no more
than fifteen minutes to prove the facts alleged in the paragraphs in question
and less than that for counsel for the respondent to invite the judge to ignore
them if they are irrelevant. Trial judges are used to ignoring irrelevant
material that is put before them. It is part of their job. If the trial judge decides
that the appellant has unnecessarily cluttered up the record with irrelevant
material this may be taken into account in awarding costs.
[10] As
I have said on other occasions I do not wish to see this court become a forum
for procedural wrangling and useless motioning of parties. This sort of thing
is a waste of time and money (Satin Finish Hardwood Flooring (Ontario)
Limited v. The Queen, 96 DTC 1402 at 1404-5).
[24] There is one final point that deserves mention.
Section 8 of the Tax Court of Canada Rules (General Procedure) reads
as follows:
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Attacking Irregularity
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Irrégularité
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8. A motion to attack a
proceeding or a step, document or direction in a proceeding for irregularity
shall not be made,
(a) after the expiry of a reasonable time after the moving
party knows or ought reasonably to have known of the irregularity, or
(b) if the moving party has taken any further step in the
proceeding after obtaining knowledge of the irregularity,
except with leave of the
Court.
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8. La
requête qui vise à contester, pour cause d'irrégularité, une instance ou une
mesure prise, un document donné ou une directive rendue dans le cadre de
celle‑ci, ne peut être présentée, sauf avec l'autorisation de la
Cour :
a)
après l'expiration d'un délai raisonnable après que l'auteur de la requête a
pris ou aurait raisonnablement dû prendre connaissance de l'irrégularité, ou
b)
si l'auteur de la requête a pris une autre mesure dans le cadre de l'instance
après avoir pris connaissance de l'irrégularité.
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[25] Counsel for the appellant is put in a dilemma by the
rule. He quite properly moved against the Reply with the requisite despatch.
Had he delayed doing so he might have been met with the defence of the fresh
step rule in section 8. Yet I cannot escape the view that if there is
merit in the objections to this somewhat overwhelming reply the attack at this
stage is premature and could perhaps be made, if at all, more appropriately at
a later stage in the proceedings. It is for this reason that the rule gives the
Court a discretion to permit a party to move against a pleading at a later
stage in the proceedings.
[26] The motion is
dismissed. I think it is appropriate that I leave the disposition of costs to
the trial judge.
Signed at Ottawa, Canada, this 2nd
day of September, 2005.
Bowman,
C.J.
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