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Citation: 2003 FCA 294
CORAM: LINDEN J.A.
HER MAJESTY THE QUEEN
ANCHOR POINTE ENERGY LTD.
Heard at Vancouver, British Columbia, on June 4, 2003
Judgment delivered at Ottawa, Ontario, on July 2, 2003.
REASONS FOR JUDGMENT BY: ROTHSTEIN J.A.
CONCURRED IN BY: LINDEN J.A.
Citation: 2003 FCA 294
CORAM: LINDEN J.A.
HER MAJESTY THE QUEEN
ANCHOR POINTE ENERGY LTD.
REASONS FOR JUDGMENT
 The issues in this appeal and cross-appeal, from an interlocutory decision of Rip J. of the Tax Court of Canada, 2002 D.T.C. 2071, are about two aspects of the Crown's pleadings in tax appeals.
 The issue in the Crown's appeal is whether the Crown's pleadings in the Tax Court may contain the Minister of National Revenue's assumptions made at the time of his confirmation of a reassessment under subsection 163(5) of the Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1. The facts in a tax appeal are peculiarly within the knowledge of the taxpayer. The practice is for the Crown to disclose in its pleadings, assumptions of fact made by the Minister upon which his determination of the tax owing is based. Where pleaded, the assumptions have the effect of reversing the burden of proof and casting on the taxpayer the onus of disproving that which the Minister has assumed. (See Pollock v. The Queen (1993), 94 D.T.C. 6050 at 6053 per Hugessen J.A. (as he then was).) Therefore, it is important to determine whether assumptions made at the time of the Minister's confirmation of a reassessment may be included in the Crown's pleadings.
 The issue in the cross-appeal of Anchor Pointe Energy Ltd. (Anchor Pointe) is whether the Crown's pleadings may contain a new basis or argument supporting confirmation of a reassessment that arose after the normal reassessment period. In this case, the Minister confirmed his original reassessment on the basis of a decision of this Court, issued some five years after expiry of the normal reassessment period. This was an additional basis or argument over and above the basis relied upon by the Minister when he originally reassessed the appellant. The question is whether, after the normal reassessment period, the Minister was able to rely on a new basis or argument for confirming the reassessment that he did not rely upon when he originally reassessed the taxpayer.
 On October 28, 1991, five predecessors of Anchor Pointe acquired seismic data and claimed Canadian Exploration Expense deductions (CEE) in their 1991 taxation years. On December 4, 1991, the five predecessors amalgamated to form Anchor Pointe. On February 17, 1994, with respect to one predecessor and on March 4, 1994, with respect to the other predecessors, and within the normal reassessment period in subsection 152(3.1) of the Act, the Minister reassessed the five predecessors by reducing their CEE deductions because the Minister's view was that the fair market value of the seismic data was less than the amounts upon which the deductions were claimed.
Notifications of Confirmation
 Anchor Pointe filed Notices of Objection on March 10 and 14, 1994, arising from its predecessors' reassessments. The Notices of Objection were held in abeyance pending a decision of this Court in Global Communications Limited v. The Queen, 99 D.T.C. 5377 (F.C.A.) (Global). That decision was rendered on June 18, 1999. It did not deal with the issue of fair market value which was the basis of the Minister's original reassessment. Rather, it held that seismic data purchased for the purpose of resale or licensing does not qualify as CEE within the meaning of paragraph 66.1(6)(a) of the Income Tax Act.
 By Notifications of Confirmation dated March 28, 2000, the Minister confirmed his prior reassessments. The reasons given were:
Seismic data purchased for the purpose of resale or licensing does not qualify as Canadian Exploration Expense (CEE) within the meaning of paragraph 66.1(6)(a) of the Act.
In addition, even if the activity satisfied the purpose test set out in paragraph 66.1(6)(a) of the Act, you have failed to establish that the seismic data in issue had a fair market value as claimed of [the amount claimed by each predecessor of Anchor Pointe].
 Anchor Pointe appealed to the Tax Court.
Reply to the Notice of Appeal
 In the Reply to the Notice of Appeal, the Minister's assumptions are set forth, including assumptions arising as a result of the Global decision. Specifically, the Reply states at paragraph 10:
In reassessing, the Minister assumed the following facts:
(q) API, APII, APIII, APIV and APV did not purchase the seismic data for the purpose of determining the existence, location, extent or quality of an accumulation of oil or gas;
(r) the seismic was not used for exploration purposes;
(z) the seismic data purchased by API, APII, APIII, APIV and APV does not qualify as a Canadian Exploration Expense ("CEE") within the meaning of s. 66.1(6)(a) of the Income Tax Act (the "Act").
 Paragraph 11 of the Reply specifically states that the Minister incorrectly reassessed the Anchor Pointe predecessors by allowing any deduction for CEE at all. Paragraph 11 of the Reply states:
11. In answer to the Notice of Appeal as a whole, [the Crown] says that the Minister incorrectly reassessed the 1991 taxation years of API, APII, APIII, APIV and APV by allowing any deduction for CEE. [The Crown] now says that:
(a) any amounts incurred in the purchase of the seismic data were not incurred by API, APII, APIII, APIV and APV for the purpose of determining the existence, location, extent or quality of oil or gas, but were incurred for the purpose of obtaining a tax deduction; and
(b) by permitting deduction of amounts equivalent to the fair market value of the seismic data purchased by API, APII, APIII, APIV and APV, the Minister has understated the income of API, APII, APIII, APIV and APV.
 Paragraph 12 lists the issues in the appeal. Paragraph 12(b) states:
12. The issues in this appeal are whether
(b) the Appellant's predecessors are entitled to CEE deductions, and if so, how much.
 Paragraph 15 states that the expenses incurred by the predecessors of Anchor Pointe were not CEE:
15. [The Crown] submits that the expenses to acquire the seismic data were not incurred by API, APII, APIII, APIV and APV for the purpose of determining the existence, location, extent or quality of an accumulation of petroleum or natural gas and that they were not CEE within the meaning of s. 66.1(6) of the Act.
 Paragraph 16 states that Anchor Pointe should not have been allowed any deduction for CEE at all:
16. Further, [the Crown] submits that the expenses to acquire the seismic data were incurred for the purpose of enabling API, APII, APIII, APIV and APV to obtain a tax deduction, and that the Minister erred in allowing any deduction for CEE as a result of the purchase of the seismic data.
 The Reply only asks that Anchor Pointe's appeal to the Tax Court be dismissed. In other words, if Anchor Pointe is unsuccessful in its appeal to the Tax Court, the result will be only to reduce the CEE deductions to take account of the Minister's reassessment based on fair market value. The Crown says this is because the Minister is of the view that a taxpayer cannot be reassessed to increase tax payable after the normal reassessment period expires.
Anchor Pointe's Motion before Rip J.
 Anchor Pointe moved before Rip J. to strike the assumptions and the facts set out in the Reply that arose for the first time when the reassessment was confirmed, that is, the assumptions and facts arising from application of the Global decision.
 Rip J. found that the Crown did not properly plead the assumptions that were first contained in the Minister's Notifications of Confirmation, and, therefore, could not include them in the Reply. However, provisions setting out the factual allegations arising from application of the Global decision were permitted to remain in the Reply.
The Appeal and Cross-Appeal to this Court
 The Crown appeals the striking of paragraphs 10(q), (r) and (z) - the assumptions arising from application of the Global decision.
 Anchor Pointe cross-appeals Rip J.'s refusal to strike the other provisions of the Reply which set out the factual allegations relevant to the Global test for CEE deductions.
 I am satisfied that the appeal and cross-appeal should both be dismissed.
 The opening words of paragraph 10 of the Reply, the assumptions paragraph, state: "In reassessing, the Minister assumed the following facts ...". Rip J. struck paragraphs 10(q), (r) and (z) because the assumptions did not arise out of the Minister's reassessments. Rather, they arose after Anchor Pointe had filed Notices of Objection and in the Minister's confirmation of the reassessments. Rip J. explains the distinction between an assessment (which includes a reassessment - see subsection 248(1)) and a confirmation, at paragraph 27 of his reasons:
Subparagraphs 10(q), (r) and (z) of the Reply, ought to be expunged. It is not true that "in assessing, the Minister assumed" the facts the Attorney General stated the Minister assumed in these provisions. This is, to my mind, an abuse of the process of the Court. The assessment process may include both the making of the assessment and the reconsideration of the assessment that may lead to a confirmation of the assessment but reference to an assessment itself is a reference to an administrative act distinct from the confirmation.
 The issue here is simply one of accuracy of pleadings. Rip J. said the pleadings were inaccurate in respect of paragraphs 10 (q), (r) and (z) when they stated "[I]n reassessing, the Minister assumed the following facts ...". Crown counsel acknowledges that the assumptions in paragraphs 10(q), (r) and (z) arose for the first time in the Minister's confirmation of the reassessments. She does not say that the assumptions arose at the reassessment stage. It, therefore, follows, as Rip J. found, that pleading "[I]n reassessing, the Minister assumed the following facts ..." is inaccurate with respect to paragraphs 10(q), (r) and (z).
 The Crown argues that what was meant by the words "[I]n reassessing" in paragraph 10 is "the process of assessing tax liability". The Minister may view the entire process from his first action after a return is filed, to his last - in this case, confirmation of a reassessment, as the process of assessing tax liability. However, the Income Tax Act stipulates specific actions that the Minister may take - assessing, reassessing, confirming. The Act does not use the term "process of assessing tax liability".
 Reassessment and confirmation are distinct actions engaged in by the Minister. Reassessment implies changing a previous assessment or reassessment. Confirmation implies that the previous assessment or reassessment stands unchanged. It is misleading for the Crown to say that the Minister made certain assumptions in reassessing, when those assumptions were made in confirming a reassessment.
 The pleading of assumptions gives the Crown the powerful tool of shifting the onus to the taxpayer to demolish the Minister's assumptions. The facts pleaded as assumptions must be precise and accurate so that the taxpayer knows exactly the case it has to meet. There is no reason why the requirement for precision and accuracy does not apply to the Crown accurately stating the circumstances in which the assumptions arose, that is, on an assessment, reassessment or confirmation. For these reasons, I think Rip J. was correct when he found paragraphs 10(q), (r) and (z) to be inaccurate and struck them from the Reply.
 Paragraph 10(z) was struck by Rip J. for an additional reason. He considered it to be a conclusion of law "that has no place among the Minister's assumed facts".
 I agree that legal statements or conclusions have no place in the recitation of the Minister's factual assumptions. The implication is that the taxpayer has the onus of demolishing the legal statement or conclusion and, of course, that is not correct. The legal test to be applied is not subject to proof by the parties as if it was a fact. The parties are to make their arguments as to the legal test, but it is the Court that has the ultimate obligation of ruling on questions of law.
 However, the assumption in paragraph 10(z) can be more correctly described as a conclusion of mixed fact and law. A conclusion that seismic data purchased does not qualify as CEE within the meaning of paragraph 66.1(6)(a) involves the application of the law to the facts. Paragraph 66.1(6)(a) sets out the test to be met for a CEE deduction. Whether the purchase of the seismic data in this case meets that test involves determining whether or not the facts meet the test. The Minister may assume the factual components of a conclusion of mixed fact and law. However, if he wishes to do so, he should extricate the factual components that are being assumed so that the taxpayer is told exactly what factual assumptions it must demolish in order to succeed. It is unsatisfactory that the assumed facts be buried in the conclusion of mixed fact and law.
 In the present case, it appears that the assumptions contained in paragraphs 10(q) and (r) are the factual components of the mixed conclusion of fact and law in paragraph 10(z). If there are other factual components assumed in the conclusion in paragraph 10(z), the Minister should have extricated them and set them out explicitly.
 If paragraphs 10(q) and (r) had been properly pleaded, they would be unobjectionable. However, paragraphs 10(q), (r) and (z) were not accurately pleaded. Rip J. was correct in striking them out. As I read his reasons, Rip J.'s sole reasons for striking paragraphs 10(q), (r) and (z) were inaccuracy and pleading conclusions of law. I do not understand him to say that assumptions of fact made on confirming a reassessment cannot be pleaded. The Minister, as a result of reading the Notice of Objection filed by a taxpayer or a subsequently decided case such as Global, may make assumptions of fact. I see no reason why such assumptions may not be included in the Crown's Reply. However, the assumptions must be pleaded accurately.
Striking of Pleadings
 In the cross-appeal, Anchor Pointe says that all references in the Reply to matters arising after its Notices of Objection, and first contained in the Minister's Notifications of Confirmation, should have been struck out by Rip J. The argument is that the requirement arising from the Global decision that seismic data be used for exploration and not for resale or licensing in order to qualify as CEE, is a new basis of assessing Anchor Pointe. The new basis cannot be relied upon by the Crown because the Notifications of Confirmation in this case were issued in 2000, well beyond the normal reassessment period provided in subsection 152(3.1).
 Subsection 152(9) provides:
(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 the leave of the court; and
(b) it is not appropriate in the circumstances for the court to order that the evidence be adduced. [Emphasis added]
(9) Le ministre peut avancer un nouvel argument à l'appui d'une cotisation après l'expiration de la période normale de nouvelle cotisation, 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. [Je souligne]
Anchor Pointe says subsection 152(9) does not apply because it refers to an alternative argument and not a new basis of assessing.
 Rip J. found that once a Notice of Objection is filed with the Minister, the normal reassessment period continues until the Minister takes one of the four actions described in subsection 165(3) - vacate, confirm or vary the assessment or reassess. As a result, he concluded that the Minister's new basis in support of his reassessment was determined and disclosed in the Notifications of Confirmation within the normal reassessment period.
 Subsection 165(3) provides:
(3) On receipt of a notice of objection under this section, the Minister shall, with all due dispatch, reconsider the assessment and vacate, confirm or vary the assessment or reassess, and shall thereupon notify the taxpayer in writing of the Minister's action.
(3) Sur réception de l'avis d'opposition, le ministre, avec diligence, examine de nouveau la cotisation et l'annule, la ratifie ou la modifie ou établit une nouvelle cotisation. Dès lors, il avise le contribuable de sa décision par écrit.
Section 165(5) provides:
(5) The limitations imposed under subsections 152(4) and 152(4.01) do not apply to a reassessment made under subsection 165(3).
(5) Les restrictions prévues aux paragraphes 152(4) et (4.01) ne s'appliquent pas aux nouvelles cotisations établies en vertu du paragraphe (3).
 I am unable to agree with Rip J. that the expiry of the normal reassessment period is stayed or is extended until the Minister takes action under subsection 165(5). The implication of such an interpretation is that because a taxpayer files a Notice of Objection, the Minister has an unlimited time to reassess the taxpayer to increase tax payable after the normal reassessment period.
 Crown counsel concedes that the Minister cannot increase tax payable after expiry of the normal reassessment period. I agree with Crown counsel. As she points out, subsection 152(5) provides:
(5) There shall not be included in computing the income of a taxpayer for a taxation year, for the purpose of an assessment, reassessment or additional assessment made under this Part after the taxpayer's normal reassessment period in respect of the year, any amount that was not included in computing the taxpayer's income for the purpose of an assessment, reassessment or additional assessment made under this Part before the end of the period.
5) N'est pas à inclure dans le calcul du revenu d'un contribuable pour une année d'imposition en vue de l'établissement, après la période normale de nouvelle cotisation qui lui est applicable pour l'année, d'une cotisation, d'une nouvelle cotisation ou d'une cotisation supplémentaire en vertu de la présente partie le montant qui n'a pas été inclus dans le calcul de son revenu en vue de l'établissement, avant la fin de cette période, d'une cotisation, d'une nouvelle cotisation ou d'une cotisation supplémentaire en vertu de cette partie.
 In my opinion, subsection 165(5) allows the Minister to reassess after expiry of the normal reassessment period where a Notice of Objection has been filed but not to include in the taxpayer's income amounts that were not included in an assessment or reassessment made within the normal reassessment period.
 In the present case, the Minister confirmed Anchor Pointe's reassessment after expiry of the normal reassessment period. The question then is whether he could rely upon the Global decision as a new basis or argument for reassessment.
 Subsection 152(9) permits the Minister to rely upon an alternative argument in support of an assessment after the normal reassessment period. There is no suggestion here that Anchor Pointe is no longer able to adduce relevant evidence with respect to the Minister's new basis or argument. Therefore, if the Global decision constitutes a new basis or argument in support of the reassessment, the Minister may rely upon it even though it was not relied upon prior to expiry of the normal reassessment period.
 Anchor Pointe tries to distinguish between a new basis of assessment and a new argument in support of an assessment. I do not find that semantical argument productive. The question is whether the Minister is purporting, through reliance on the Global decision, to increase the amount of Anchor Pointe's income that was not included in an assessment or reassessment made within the normal reassessment period.
 In my opinion, he was not. This case is unlike cases such as Pedwell v. The Queen, 2000 D.T.C. 6050 (F.C.A.), where the Minister sought to take into account different transactions than the ones that formed the basis of the reassessments that were made within the normal reassessment period. I do not say that taking into account other transactions is the only thing the Minister cannot do after expiry of the normal reassessment period. Anything that increases tax payable from what would have been the case prior to expiry of the normal reassessment period would be objectionable.
 Here, the Minister does not seek to rely on Global to increase Anchor Pointe's taxes payable over what was included in the Minister's reassessment prior to expiry of the normal reassessment period. The reassessment increased taxes payable by reducing CEE deductions by the difference between the amount claimed and the amount based on the Minister's estimation of the fair market value of the seismic data. On confirming the reassessment, the Minister does not seek to increase that amount. He is not introducing a new transaction. He is only relying on an additional argument, that there is no CEE deduction allowed where the acquisition of the seismic data is for resale or licensing.
 In these circumstances, I agree with Rip J.'s conclusion that there is nothing objectionable about the Crown's Reply containing an additional argument based on the Global decision.
Order for Directions
 Anchor Pointe asks for directions pursuant to rule 108 of the Tax Court Rules (General Procedure) SOR/90-688a with respect to examinations for discovery. It appears that numerous questions have been asked on discovery by the Crown, requiring undertakings to provide answers. Anchor Pointe says the Minister should have discovered the answers for himself by conducting an examination or audit of documents made available by Anchor Pointe.
 The question of whether the seismic data was acquired for use or for resale or licensing is an issue arising out of the Global decision. It is, therefore, relevant and facts and documents pertaining to the issue are subject to discovery. There is no basis for the Court interfering with the normal discovery process.
 For these reasons, the appeal and cross-appeal should both be dismissed.
 In view of divided success, there should be no costs on the appeal or cross-appeal.
A.M. Linden J.A."
J. Edgar Sexton J.A."
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND SOLICITORS OF RECORD
STYLE OF CAUSE: Her Majesty The Queen v. Anchor Pointe Energy Ltd.
PLACE OF HEARING: Vancouver, British Columbia
DATE OF HEARING: June 4, 2003
REASONS FOR JUDGMENT
BY: ROTHSTEIN J.A.
CONCURRED IN BY: LINDEN J.A.
DATED: July 2, 2003
Ms. Wendy Burnham
Ms. Deborah Horowitz FOR THE APPELLANT
Mr. Craig Sturrock FOR THE RESPONDENT
SOLICITORS OF RECORD:
Mr. Morris Rosenberg
Deputy Attorney General of Canada FOR THE APPELLANT
Vancouver, B.C. FOR THE RESPONDENT