Citation: 2026 TCC 126
Date: 20260702
Docket: 2022-961(IT)G
BETWEEN:
AMY YING JUN LIU,
Appellant,
and
HIS MAJESTY THE KING,
Respondent;
Docket: 2022-963(IT)G
AND BETWEEN:
JIA BIN LIU,
Appellant,
and
HIS MAJESTY THE KING,
Respondent;
Docket: 2022-965(IT)G
AND BETWEEN:
LIAN DI LIU,
Appellant,
and
HIS MAJESTY THE KING,
Respondent.
REASONS FOR ORDER
Clark J.
[1] The Appellants brought a motion pursuant to paragraph 53(1)(a) and (b) of the Tax Court of Canada Rules (General Procedure) seeking Orders striking out certain paragraphs in the replies to the Notices of Appeal.
[2] Lian Di Liu asks that subparagraphs 36(a)‑(b), 37(e) and paragraphs 46‑49 be struck from the Amended Reply to the Notice of Appeal. Amy Yin Jun Liu asks that subparagraphs 35(e) to (i), 36(e) and paragraphs 43‑46 be struck from the Further Amended Reply to the Notice of Appeal. Jia Bin Liu asks that paragraphs 32 and 38‑41 and subparagraph 33(e) be struck from the Further Amended Reply to the Notice of Appeal.
[3] The impugned paragraphs are all in support of the Respondent’s alternative argument raised pursuant to subsection 152(9) of the Income Tax Act. The alternative argument raised in each appeal is that the Appellant was required by subsection 91(1) of the Act to include in their assessment of tax liability a share of foreign accrual property income (FAPI) for the taxation years under appeal.
[4] The Appellants argue that as the Minister of National Revenue did not assess the Appellants’ tax liability under subsection 91(1) of the Act and did not make assumptions of fact relevant to tax liability under the FAPI rules, the Respondent ought not be permitted to proceed with that position at the hearing of the appeals.
[5] The question before me is whether the scope of amended subsection 152(9) of the Act permits the Minister to rely on the FAPI rules in support of an assessment of an amount, when the Appellants were initially not assessed under those rules and in respect of those transactions.
[6] I conclude that subsection 152(9) does not permit the Minister to advance an alternative FAPI argument in these appeals. The transactions giving rise to the FAPI argument formed no part of the Minister’s initial assessment of tax liability. I find it plain and obvious that the argument cannot succeed at hearing.
A. BACKGROUND
[7] The Appellants are a family; Amy Ying Jun Liu is the daughter of Lian Di Liu and Jia Bin Liu.
[8] The Minister reassessed Amy Ying Jun Liu’s tax years for 2013 through to 2017, Jia Bin Liu’s 2014, 2016 and 2017 tax years, and Lian Di Liu’s 2014 through to 2017 tax years.
[9] The Minister’s reassessments involved identification of amounts in the Appellants’ bank accounts. The Minister made assumptions that the Appellants owned shares in offshore corporations and those corporations gave rise to unreported income in the form of employment income, business income and capital gains. The Minister made no assumptions concerning income earned by those corporations. No share of FAPI was included in the initial reassessments.
[10] The Minister determined that the Appellants also failed to file a Form T1135 (information returns concerning offshore assets) and were also subject to gross negligence penalties under subsection 163(2) of the Act.
[11] The reassessments of Lian’s 2014 and 2015 years, Jia’s 2014 year and Amy’s 2024, 2025 and 2026 years were issued after the expiration of the normal reassessment periods. Amy’s 2014, 2016 and 2016 years were further reassessed March 14, 2022.
[12] The Appellants objected to the reassessments. Final reassessments/ confirmations were issued January 6, 2022. The Minister did not reassess or confirm reassessments on the basis that FAPI applied, nor did the Minister make assumptions of fact to support an assessment pursuant to subsection 91(1) of the Act.
[13] Jia and Lian filed Notices of Appeal on April 6, 2022. Amy initially filed a Notice of Appeal that same date, then filed an Amended Notice of Appeal October 10, 2023.
[14] The Attorney General of Canada (AGC)
filed Replies to all three Notices of Appeal on July 4, 2022. The original Replies included submissions that certain foreign corporations were a each a “controlled foreign affiliate”
within the meaning of subsection 95(1) of the Act and plead application of subsection 152(9) of the Act. The original Replies also submitted that income earned by the foreign corporations in 2014, 2015, 2016 and 2017 constituted FAPI. The AGC also plead that it would rely on subsection 152(4)(b.2) of the Act in support of the new FAPI arguments.
[15] Amended Replies were filed in all three matters July 7, 2022. The AGC added to the recitation of issues the question as to whether the Appellants were taxable in respect of FAPI earned by the Foreign Corporations. The Amended Replies also added further facts pled in support of the FAPI issue.
[16] Examinations for discovery were held in April 2023 and were completed by May 1, 2023.
[17] A Further Amended Reply was filed for each of Amy and Jia October 17, 2023. The further amendments added identification of additional foreign companies that the Respondent alleged also fell within the Controlled Foreign Affiliates from whom the Appellants earned FAPI. The Appellants consented to those amendments.
[18] The Appellants filed a Notice of Motion seeking an Order concerning order of presentation at hearing, pursuant to subsection 135(2) of the Act. This Court dismissed that motion on November 28, 2024.
[19] The Appellants requested a hearing date for this motion on January 13, 2026, also filing a Joint Application of the Scheduling of this matter on January 16, 2026.
B. LAW
1. The Test for Striking Out Part of a Pleading
[20] The Appellants move under paragraphs 53(1)(a) or (b) of the Rules which states:
The Court may, on its own initiative or on application by a party, strike out or expunge all of part of a pleading or other document with or without leave to amend, on the ground that the pleadings or other document
(a) may prejudice or delay the fair hearing of the appeal;
(b) is scandalous, frivolous or vexatious.
[21] When deciding the requirements if this section of the Rules have been satisfied, I must consider the need to facilitate “the just, most expeditious and least expensive determination”
for the matters in dispute.
[22] The “plain and obvious”
test for striking all (or part of) a pleading was set out by the Supreme Court of Canada in Imperial Tobacco Canada Ltd as “a claim will only be struck if it is plain and obvious, assuming the facts pleaded to be true, that the pleading discloses no reasonable cause of action.”
The Court went on to state:
The power to strike out claims that have no reasonable prospect of success is a valuable housekeeping measure essential to effective and fair litigation. It unclutters the proceedings, weeding out the hopeless claims and ensuring that those that have some chance of success go on to trial.
[23] The Federal Court of Appeal stated in Canadian Imperial Bank of Commerce,
in the context of a motion to strike the Crown's reply in an…appeal, the motion will be granted only if it is plain and obvious, assuming the facts as pleaded in the reply are true, that the reply fails to state a reasonable basis for concluding that the reassessment under appeal is correct.
[24] The Federal Court of Appeal also made clear in Canadian Imperial Bank of Commerce that a motions judge should “avoid usurping the function of the trial judge in make determinations of fact or relevancy.”
[25] A motion to strike looks to the pleadings to determine if the claim has no reasonable chance of succeeding, and not to deciding the issue itself. I am to treat the facts pled as true, including the allegations advanced by the Respondent concerning FAPI. My role is therefore to determine whether it is plain and obvious that the Respondent cannot rely on subsection 152(9) of the Act to support the impugned paragraphs.
2. Statutory Interpretation of the Income Tax Act
[26] It is common ground that statutory interpretation is guided by the modern principle, and statutory provisions are to be interpretated based on the text, context and purpose, in order to find a meaning that is harmonious with the legislation as a whole.
[27] The Supreme Court of Canada recently considered statutory interpretation in R v Wilson the context of the Controlled Drugs and Substances Act. Justice Karakatsanis for the majority stated that a provision must be interpreted considering its entire purpose and context even in instances when the language does not give rise to ambiguity. This teaching must be understood in the context in which it was made, which was to give effect to legislation intended to protect public safety and public health.
[28] Justice Jamal in dissenting reasons emphasized that while the three elements of the statutory interpretation need not be addressed in a separate or formulaic manner, text must be given close attention. I note that much of the jurisprudence emphasizing the role of a textual analysis arises in interpretation of taxing statutes. Justice Jamal stated:
[133] Although each of the statutory text, context, and purpose must always be considered under the modern principle, this Court has recognized that “[w]hen the words of a provision are precise and unequivocal, the ordinary meaning of the words play a dominant role in the interpretive process” (Canada Trustco, at para. 10; see also Orphan Well Association v. Grant Thornton Ltd., 2019 SCC 5, [2019] 1 S.C.R. 150, at para. 88; 9354-9186 Québec inc. v. Callidus Capital Corp., 2020 SCC 10, [2020] 1 S.C.R. 521, at para. 60; Canada v. Loblaw Financial Holdings Inc., 2021 SCC 51, [2021] 3 S.C.R. 687, at para. 41; Dow Chemical Canada ULC v. Canada, 2024 SCC 23, at para. 101; R. v. Wolfe, 2024 SCC 34, at para. 61). As this Court has explained, “[t]he words, if clear, will dominate; if not, they yield to an interpretation that best meets the overriding purpose of the statute” (Celgene Corp. v. Canada (Attorney General), 2011 SCC 1, [2011] 1 S.C.R. 3, at para. 21).
[134] Many of the traditional “rules” of statutory interpretation are considered when applying the modern principle. Only if genuine ambiguity remains after considering a textual, contextual, and purposive analysis may a court have recourse to secondary principles of interpretation, such as the residual presumption against strict construction of penal statutes or the presumption of conformity with the Charter (Piekut, at paras. 47-48, citing Sullivan, at § 2.01[4]; Bell ExpressVu, at para. 29; La Presse inc. v. Quebec, 2023 SCC 22, at para. 24).
[135] At the end of the day, the prime directive in statutory interpretation is to adopt an appropriate interpretation that reflects legislative intent (British Columbia v. Philip Morris International, Inc., 2018 SCC 36, [2018] 2 S.C.R. 595, at para. 17; Rizzo, at para. 21; Telus Communications Inc. v. Federation of Canadian Municipalities, 2025 SCC 15, at para. 32). An appropriate interpretation is one that can be justified in terms of its plausibility, by complying with the legislative text; its efficacy, by promoting the legislative intent; and its acceptability, by complying with accepted legal norms and by being reasonable and just (Piekut, at para. 49, citing Sullivan, at § 2.01[4]; R. v. Alex, 2017 SCC 37, [2017] 1 S.C.R. 967, at para. 32).
[29] In Hunt, Justice Stratas of the Federal Court of Appeal considered the majority’s discussion of statutory interpretation in R v Wilson. Justice Stratas wrote that notwithstanding the Supreme Court did not refer to the principle that text is the anchor of the interpretive exercise, it nonetheless is when interpreting taxing statutes. The Supreme Court of Canada itself acknowledged the need for certainty when understanding the Act in Loblaw Financial Holdings Inc.
[30] As I discuss below, I conclude that there is no ambiguity that the amended provision does not permit the Respondent to advance alternative arguments or bases based on the FAPI regime. In this instance, the text, context and purpose are in harmony.
3. History of Subsection 152(9)
[31] Interpretation of an amended provision begins with an understanding of the construction of the prior law. The original version of subsection 152(9) was introduced following the Supreme Court of Canada’s decision in Continental Bank that the Minister could not advance a new basis for an assessment after the expiry of the statutory limitation period.
[32] The original text of subsection 152(9) of the Act stated,
(9) The Minister may advance an alternative argument in support of an assessment at any time after the normal reassessment period unless, on an appeal under this Act
(a) there is relevant evidence that the taxpayer is no longer able to adduce without leave of the court; and
(b) it is not appropriate in the circumstances for the court to consider that the evidence be adduced.
[33] A number of decisions considered the application of the subsection, including Anchor Pointe Energy Ltd and Loewen. Those decisions clarified that the Minister may rely on subsection 152(9) of the Act to advance an alternative argument after the normal reassessment period, provided that the tax payable could not be greater than what would have been the case prior to the expiry of the normal reassessment period. Those cases also stipulated that the factual transactions underpinning the alternative argument must be those that gave rise to the assessment.
[34] The Federal Court of Appeal decision in Last concluded that subsection 152(9) of the Act did not permit the Minister to raise an argument that would seek to uphold an assessment based on an amount arising from a different source. The Minister’s argument would have increased the taxpayer’s liability from a source different from the source considered in the initial assessment.
4. Amendment to subsection 152(9) following Last
[35] The amendment to subsection 152(9) came into force December 15, 2016 and the provision now states:
152(9) At any time after the normal reassessment period, the Minister may advance an alternative basis or argument – including that all or any portion of the income to which an amount relates was from a different source – in support of all or any portion of the total amount determined on assessment to be payable or remittable by a taxpayer under this Act unless, on an appeal under this Act
(a) there is relevant evidence that the taxpayer is no longer able to adduce without leave of the court; and
(b) it is not appropriate in the circumstances for the court to consider that the evidence be adduced.
[36] The French text of the amended provision provides,
152(9) Après l’expiration de la période normale de nouvelle cotisation, le ministre peut avancer un nouveau fondement ou un nouvel argument — y compris un fondement ou un argument selon lequel tout ou partie du revenu auquel une somme se rapporte provenait d’une autre source — à l’appui de tout ou partie de la somme totale qui est déterminée lors de l’établissement d’une cotisation comme étant à payer ou à verser par un contribuable en vertu de la présente loi, sauf si, sur appel interjeté en vertu de la présente loi :
a) d’une part, il existe des éléments de preuve que le contribuable n’est plus en mesure de produire sans l’autorisation du tribunal;
b) d’autre part, il ne convient pas que le tribunal ordonne la production des éléments de preuve dans les circonstances.
[37] The amendment expanded the subsection to apply not only to new arguments, but also to new bases (“fondement”
in the French text), including income from a source different from the source giving rise to the original argument or basis, in support of all or any portion of the total amount determined on assessment to be payable or remittable by the taxpayer, at any time after the normal reassessment period.
[38] The plain text of the amendment indicates that the argument, or basis, can include all or any portion of income to which an amount relates was from a different source. It does not reference new transactions.
[39] Section 152 as a whole addresses timing of assessments. The provision begins with a requirement that the Minister shall, with all due dispatch, examine a taxpayer’s return of income for a taxation year and assess tax, interest and penalties and determine the amount of a refund or the amount of tax to be paid on account of the taxpayer. Various subsections of section 152 address how and when assessments (and determinations) shall be made and include statutory time limits for the Minister to complete an assessment.
[40] Included in the provision are explicit exceptions to the time limits set out in subsection 152(4). Understood in the overall context of section 152, subsection 152(9) provides that the Minister may raise alternative arguments or basis impacting the amount assessed, even if the argument or basis invokes a new source of income. It does not circumvent subsection 152(4).
[41] Neither pre‑amendment subsection 152(9), nor post‑amendment subsection 152(9), create an explicit exception to the statutory time limits set out for an assessment. Jurisprudence has established that an alternative argument raised under subsection 152(9) is not a new assessment.
[42] The Explanatory Note that accompanied the amendment to subsection 152(9) states that the amendments enable the Minister to advance alternative arguments in support of any portion of the total amount determined on assessment to be payable or remittable by a taxpayer. The total amount determined on assessment to be payable or remittable cannot increase. The Explanatory Note referenced a “recent court decision”
that held that while the basis of the assessment could be changed after the expiration of the normal assessment period, each source of income was to be considered in isolation.
[43] The Technical Note that accompanied the amendment stated that the “recent court decision”
was that of the Federal Court of Appeal in Last, which held that while the basis of an assessment can be changed after the expiry of the statutory reassessment period, each source of income is to be considered in isolation and the amount of the assessment in respect of any particular source of income can not increase.
[44] The Notes and Legislative Summary clearly indicate that Parliament’s intention was to overturn the Federal Court of Appeal’s determination in Last that the Minister could not advance an alternative argument that increased tax liability from a different source. These instruments stated that the amendments clarified the existing provision. They do not support the Respondent’s position that Parliament intended to remove other existing limits to the provision.
[45] The Federal Budget Supplementary Information released on April 21, 2015 introduced the amended provision stated that the purpose of the provision is to allow the Minister to advance an alternative argument after the relevant reassessment period has expired. It noted that the process of raising arguments and counterarguments in the alternative is a conventional part of the litigation process. The proposal was meant to amend the Act to clarify that the CRA and courts may increase or adjust an amount included in an assessment that is under objection or appeal, provided the total amount of the assessment does not increase. It stated that the basis of an assessment could change to allow, for instance, a reduced liability in relation to one item included in the computation of an assessment to be offset by an increased liability in relation to another item.
[46] The purpose of the amended subsection was considered by this Court in Oldcastle Building Products Ltd. That decision discussed Parliament’s intention that the amendments permit the Minister to support an assessment of an amount using a broad range of alternative arguments or basis and subject to the limiting provisions in paragraphs 152(9)(a) and (b).
[47] I agree with the reasoning in Oldcastle that the 2016 amendments override any prior limitation of alternative arguments to the same transaction. Parliament has expressly stated that the Minister may rely on an alternative argument or basis to support an assessment based on an different source of income.
[48] As discussed below, I disagree that the amendments expand the Minister’s ability to raise new arguments and basis that encompass transactions other than those giving rise to the original assessment.
C. ANALYSIS
1. The new arguments and basis look to FAPI as the new source
[49] The Appellant challenges the Minister’s ability to advance an alternative argument or basis arising from transactions other than those forming the basis of the original assessment and resulting in an assessment of FAPI. It is therefore necessary for me to consider the nature of the FAPI rules.
[50] The FAPI regime taxes income earned by a “controlled foreign affiliate”
of a Canadian taxpayer in the hands of the Canadian resident. Section 91(1) of the Act does not tax income that has been directly earned by the taxpayer, rather it attributes a share of the foreign affiliate’s income to the Canadian taxpayer, even if the taxpayer has not received that amount. The regime is intended to prevent Canadians from avoiding or deferring tax on passive income earned by a foreign affiliate.
[51] Subsection 91(1) of the Act provides that a Canadian resident shareholder of a controlled foreign affiliate must include in income their share of the FAPI earned by that controlled foreign affiliate. The FAPI regime is an attribution mechanism distinct from the “source”
concept set out in section 3 of the Act.
[52] Section 3 of the Act sets out the charging provision for taxation from sources, inside and outside of Canada, including employment, office, business, property and capital gains:
The income of a taxpayer for a taxation year for the purposes of this Part is the taxpayer’s income for the year determined by the following rules:
(a) determine the total of all amounts each of which is the taxpayer’s income for the year (other than a taxable capital gain from the disposition of a property) from a source inside or outside Canada, including, without restricting the generality of the foregoing, the taxpayer’s income for the year from each office, employment, business and property,
(b) determine the amount, if any, by which
(i) the total of
(A) all of the taxpayer’s taxable capital gains for the year from dispositions of property other than listed personal property, and
(B) the taxpayer’s taxable net gain for the year from dispositions of listed personal property,
exceeds
(ii) the amount, if any, by which the taxpayer’s allowable capital losses for the year from dispositions of property other than listed personal property exceed the taxpayer’s allowable business investment losses for the year,
(c) determine the amount, if any, by which the total determined under paragraph (a) plus the amount determined under paragraph (b) exceeds the total of the deductions permitted by Subdivision E in computing the taxpayer’s income for the year (except to the extent that those deductions, if any, have been taken into account in determining the total referred to in paragraph (a), and
(d) determine the amount, if any, by which the amount determined under paragraph (c) exceeds the total of all amounts each of which is the taxpayer’s loss for the year from an office, employment, business or property or the taxpayer’s allowable business investment loss for the year,
and for the purposes of this Part,
(e) where an amount is determined under paragraph (d) for the year in respect of the taxpayer, the taxpayer’s income for the year is the amount so determined, and
(f) in any other case, the taxpayer shall be deemed to have income for the year in an amount equal to zero.
[53] Jurisprudence considering the definition of the term “source of income”
is of some assistance in understanding the use of the word “source”
in subsection 152(9). The jurisprudence is premised on an understanding of the term to describe commercial activity and contemplates a factual nexus between the income earner and the commercial activity and is best determined in the context of the activities in issue.
[54] Subsection 95(1) of the Act defines FAPI as a computational concept. Income is attributed to a taxpayer that was not earned by that taxpayer, but rather was earned by the foreign affiliate. Subsection 91(1) of the Act attributes a share of the FAPI earned by the foreign affiliate to the Canadian taxpayer in the year it is earned by the affiliate. While the FAPI itself arises from a source (the underlying activity or property that generates the income) the FAPI inclusion in the Appellants’ income is a statutory mechanism that attributes income to the taxpayer.
[55] If FAPI is understood as a statutory attribution of an amount into a taxpayer’s income rather than as a source, it is then necessary to consider if an alternative FAPI argument or basis can be supported by subsection 152(9) of the Act.
2. Affiliates’ Income Not Part of Assessment
[56] I find it plain and obvious that amended subsection 152(9) does not enable the Minister to raise new arguments and basis arising from an entirely new set of transactions. An assessment of tax liability under the FAPI rules requires a determination of the income of a Canadian taxpayer’s foreign affiliates. The Minister made no such consideration nor determination prior to reassessment.
[57] Subsection 152(9) is broad, essentially allowing the Minister to add, at any time, arguments and bases in support of an assessment of an amount, provided that paragraphs (a) and (b) are satisfied. However, the text, context and purpose do not support a conclusion that the provision applies to permit the Minister to consider transactions and parties not considered during the original assessment.
[58] As discussed above, jurisprudence interpreting the pre‑2016 amended legislation specifically concluded that subsection 152(9) did not apply to transactions that did not form part of the Minister’s original assessment.
[59] The Federal Court of Appeal in Walsh held that the pre‑2016 version of subsection 152(9) did not permit the Minister to include in its alternative argument transactions which did not form the basis of the taxpayer’s reassessment.
[60] The Federal Court of Appeal considered the amendments to subsection 152(9) in TPine Leasing Capital Corporation, concluding that it was not clear if they extended to a new transaction, but acknowledging such a determination would be made on a case-by-case basis,
To what extent the amendments to subsection 152(9) of the Act would allow the Minister to advance an alternative basis or argument will be decided on a case‑by‑case basis. The principles that the Minister cannot appeal an assessment and the Minister cannot reassess beyond the expiration of the normal reassessment period are still valid principles that would need to be taken into account in determining what alternative basis or argument the Minister may advance. In interpreting and applying the previous version of subsection 152(9) of the Act, this Court has also limited an alternative argument to the same transaction that is in dispute. It is not clear how the amendments would alter this principle.
[61] TPine Leasing made it clear that an alternative argument may be inconsistent with the Minister’s primary position, and that there is no bar to the Minister making an argument in support of an assessment contrary to that primary position. That analysis continues to apply in respect of the amended provision.
[62] In this case, inconsistency is not the defect in the Minister’s pleading. The defect is relying on subsection 152(9) to advance a position that depends on attribution of another person’s income and arises from transactions involving that other person and that were not part of the assessment.
[63] This court recently suggested in Oldcastle that the amendments to subsection 152(9) expanding the provision to include various sources of income must also mean that Parliament meant to override jurisprudence limiting the scope of new arguments to new transactions. This suggestion was made in the context of the court’s finding that the transactions giving rise to the new arguments was the same that was considered in the assessment.
[64] In my view, the amendments to subsection 152(9) do not necessarily mean that alternative arguments and basis can be advanced from transactions not previously considered. In this case, the FAPI alternative argument emerges from income earned by other persons and from entirely new transactions.
[65] The Supreme Court of Canada has stated that absent clear legislative intention to the contrary, a statute should not be interpreted as substantially changing the law, including the common law. Parliament is taken to have been aware of the jurisprudence limiting subsection 152(9) to the transactions that formed the basis of the taxpayer’s reassessment. The choice not to make any other changes to the provision that would show an intention to broaden 152(9) beyond the issue raised in Last, must be understood to be deliberate. This includes the decision not to include reference to new transactions.
[66] The Last decision, which prompted the amendments, involved one transaction (sale of shares) giving rise to competing sources of income. The amendments were intended to clarify that the Minister may consider the taxpayer’s tax liability from sources other than the one giving rise to the initial assessment. The alternative argument or basis may result in a recalculation of the taxpayer’s tax liability from another source, so long as the total tax liability does not increase the amount of the Minister’s original assessment.
[67] The Respondent submits that the introduction of the word “basis”
to the amended provision is a “signal”
that the Minister can advance new facts including new transactions in order to defend an assessment of tax liability. However, this argument is not supported by the text of the provision (nor by the explanatory materials).
[68] In support of this argument the Respondent pointed the Court to this Court’s decision in General Electric, which referred to the pre‑amended version permitting advancement of a different legal basis to support the assessment. That decision does not indicate that the Minister may rely on an entirely new set of facts to support assessment of an amount, including income earned by foreign affiliates.
[69] The amended phrase, approved by Parliament, is “
At any time after the normal reassessment period, the Minister may advance an alternative basis or argument…”
In the context of the entire amended provision, the word “basis”
is used to reference a legal basis. It does not signal an expansion of the provision to grant the Minister the ability to advance new arguments and bases flowing from entirely new transactions. This is consistent with the decision in General Electric.
[70] The Federal Budget Supplementary Information dated April 21, 2015 describing the (at that time) proposed amendment to subsection 152(9) used the word “basis”
in a manner consistent with legal basis rather than a factual basis,
The understanding in such an appeal was that, although the total amount from all sources that is assessed cannot increase after the expiration of the normal reassessment period, the basis of the assessment could change. This would allow, for instance, a reduced liability in relation to one item included in the computation of an assessment to be offset by an increased liability in relation to another item.
[71] Not only are the underlying transactions that give rise to the Minister’s alternative FAPI argument different from those that gave rise to the Minister’s original assessment, they also involve different (although affiliated) taxpayers, and transactions that took place outside of Canada. Nothing in the textual, contextual or purposive analysis of subsection 152(9) indicates that the scope of the amendments includes arguments that turn on an assessment of foreign income earned by a taxpayer affiliate.
[72] The Respondent points the Court to the Technical Note’s statement of purpose of the provision, which is to allow the Minister to defend the entire amount determined to be payable on assessment, regardless of which amounts and sources comprise it, as long as that total amount payable does not increase.
[73] That statement does indicate that the provision has broad application and grants the Minister latitude in advancing new arguments and legal basis in support the assessment of an amount. It does not address persons or transactions other than those forming the initial assessment. It is apparent that the type of situation addressed by the amendments and Technical Note is akin to that at issue in Last, where the Minister defended an assessment of an amount by reference to another of the taxpayer’s sources of income.
[74] The Appellants have asked that the impugned paragraphs be struck without leave to amend. I decline to preclude amendments. It is my role to determine if it is plain an obvious that the FAPI issue cannot succeed at hearing, framed as an alternative argument or basis pursuant to subsection 152(9) of the Act. It is not my role to determine if the Respondent can or may pursue the matter in any other manner.
3. Arguments Advanced Pursuant to subsection 152(9) are not new assessments
[75] The Amended Replies and Further Amended Replies were filed after the normal reassessment periods as defined by paragraph 152(2.1)(b) of the Act. The Appellants argue that as the Amended Replies and Further Amended Replies were not issued by the Minister, they are not “reassessments”
and therefore paragraph 152(4)(b.2) does not apply.
[76] The Minister initially relied on subparagraph 152(4)(a)(i) of the Act in support of reassessment beyond the statutory reassessment period. That provision enables the Minister to reassess when a taxpayer has made any misrepresentation that is attributable to neglect, carelessness or wilful default or has committed any fraud in filing the return or in supplying any information under the Act.
[77] When raising the FAPI issue, the Minister relied on paragraphs 152(4)(b.2) of the Act. That provision enables the Minister to reassess three years after the end of the normal reassessment period, if the taxpayer failed to file a prescribed form as required by subsection 233.3(3) of the Act or to report information in respect of a specified foreign property, and failed to report an amount in respect of a specified foreign property.
[78] The normal reassessment period as defined by paragraph 152(3.1)(b) of the Act expired for the latest year in issue on May 22, 2021. The replies were filed after this date.
[79] I have already concluded that subsection 152(9) does not enable the Minister to shoehorn the FAPI argument to the existing assessment of tax liability.
[80] The Federal Court of Appeal held in Loewen that an alternative argument advanced pursuant to subsection 152(9) after the expiration of the normal reassessment period does not amount to a new assessment. The Respondent correctly argued that an argument properly advanced pursuant to subsection 152(9) does not create a new assessment. Had I found that it was not plain and obvious that the FAPI issue must be struck, it would have been appropriate for the Minister to further defend that argument and basis by relying on paragraph 152(4)(b.2).
4. Fresh Step Rule Does Not Apply in this Case
[81] Section 8 of the Rules provides
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.
[82] The fresh step rule ensures the orderly progression of litigation and ensures that motions such as a motion to strike a portion of pleading are brought at an early stage. A party is said to plead over once they proceed to a fresh step in the proceeding, effectively ignoring irregularities.
[83] There is no question that this motion ought to have been brought at an earlier stage of the proceedings. The Appellants consented to amendments advancing the Respondent’s position that it could advance an argument that the FAPI rules applied. The parties proceeded to examinations for discovery. This motion was brought at essentially the same time that a joint requisition for hearing was filed.
[84] This Court has discretion to grant leave to allow a motion to strike after fresh steps have been taken, and section 8 of the Rules provides that this Court may grant leave for the motion to be brought.
[85] While the motion to strike ought to have been brought at an earlier stage of litigation, the Respondent has not established that it will suffer any prejudice as a result of the delay.
[86] The Respondent’s attempt to advance a FAPI argument, divorced from the facts, transactions and persons forming the Minsiter’s assessment, by relying on subsection 152(9) of the Act, is more than a mere irregularity of the sort contemplated by the fresh step rule. It is plain and obvious that the Respondent’s position cannot succeed at hearing and may delay or prejudice the fair hearing of the appeal. I conclude it is in the best interests of justice to permit the Appellant’s motion at this time.
D. COSTS
[87] In light of the delay in bringing the motion and the complicated procedural history of these appeals, it is most appropriate that the costs of this motion be in the cause.
Signed this 2nd day of July 2026.
“Jenna Clark”
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