Can-Am Realty v. The Queen, 94 DTC 6069, [1994] 1 CTC 1 (FCTD)

Rouleau, J.:—A preliminary matter was raised by counsel for the plaintiff, regarding burden of proof and the order in which evidence is to be adduced at trial. I ruled that the Minister of National Revenue’s (the Minister) burden of proof with respect to penalties outlined in subsection 163(3) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act"), did not alter the usual burden upon the taxpayer, in this case the plaintiff, to show that the Minister’s assessment was wrong and as such, the plaintiff is to present his evidence first. At the time I made my ruling, I indicated that I would provide more detailed reasons for my decision. The following are my comments related to the issue of onus and presentation of evidence in the case before me.

There is no dispute that subsection 163(3) of the Act provides that where a penalty is assessed by the Minister, the Crown will have to prove that the taxpayer was wilful or grossly negligent. However, in situations where the taxpayer disputes the assessment upon which the penalty was based, in my view, the onus remains on the taxpayer to prove that the assessment was wrong. Support for this conclusion can be found in the decisions of this Court in The Queen v. Taylor, [1984] C.T.C. 436, 84 D.T.C. 6459 (F.C.T.D.) and Levy v. M.N.R., [1989] 2 C.T.C. 151, 89 D.T.C. 5385 (F.C.T.D.).

In Taylor, supra, the Minister reassessed the defendant taxpayer alleging unreported income and imposed a penalty pursuant to subsection 163(2) of the Act. The taxpayer objected to both the reassessment of tax and the penalty and appealed to the Tax Review Board. On appeal to the Tax Review Board the Minister presented evidence first. The taxpayer called no evidence and the Board allowed the appeal in respect of the unreported income and the penalty on the basis that the Minister had failed to provide the amounts at issue. On appeal to the Federal Court-Trial Division, it was submitted by the Minister that subsection 163(3) of the Act is not of general application but applies only to the assessment of penalty and that it has no application with respect to the assessment of tax. In making my decision in Taylor, supra, I accepted that subsection 163(3) of the Act is not of general application and arises only in cases of the imposition of a penalty. As I indicated at page 440 (D.T.C. 6462):

Parliament, when it enacted this subsection, purposely excluded the phrase "assessment of tax" from the provision. It was not their intention to limit the deemed validity of the assessment of tax imposed under section 152 or they would have so stated. The jurisprudence and the Act are quite clear, the burden is on the taxpayer when there is an assessment with respect to the tax. . . .

In terms of order of presentation, after reviewing the jurisprudence and the argument I concluded that the obligation to first adduce evidence in a tax appeal rests with the taxpayer since he is the plaintiff and almost to exclusivity possessed the facts.

A very similar procedural point was raised in Levy, supra. In that case, Mr. Justice Teitelbaum ordered that the taxpayer present his case first, as the onus was on him to prove the invalidity of the reassessments, which the Court considered prima facie valid under subsection 152(8) of the Act. Levy also dealt with reassessments on unreported income in respect of 1976 through to 1979 taxation years and the imposition of penalties by the Minister.

In Levy, supra, counsel for the taxpayer argued that because of subsection 152(4) of the Act, the Crown was unable to assess income tax for the 1976 and 1977 taxation years as the Crown was beyond the then four-year delay to make such an assessment, unless the Crown could prove that the taxpayer had made misrepresentations attributable to neglect, carelessness or wilful default or committed a fraud. It was also argued at page 154 (D.T.C. 5387) that the onus "'to open up these years' (1976 and 1977), is on the Crown and thus it is the Crown who must proceed first to convince the Court that there was misrepresentation". After reviewing the jurisprudence, Teitelbaum, J. (correctly in my view) determined at page 156 (D.T.C. 5389): “that notwithstanding that the onus to prove misrepresentation is on the Crown for the 1976 and 1977 taxation years, the taxpayer who has the onus to prove an assessment for income tax invalid must proceed first. The issue of 'statute-barred' is a secondary issue.” Teitelbaum, J. then referred to subsection 152(8) of the Act and concluded at pages 156-57 (D.T.C. 5389):

. . .until a Court rules that the reassessment is invalid, it, the reassessment for income is valid until the taxpayer proves it is invalid by showing he does not owe the tax claimed. If the taxpayer is unable to prove this, that he owes no income tax, then there is an onus on the Crown to prove that, in statute-barred years, there was "misrepresentation" by the taxpayer. Failure to make such proof by the Crown would relieve the taxpayer from paying what he owes. If the taxpayer can prove to the satisfaction of the Court that he owes no tax, as is claimed by Levy, the issue of whether there was or was not misrepresentation is a non-issue.

Turning to the case before me, counsel for the plaintiff, in support of its position, referred to the Court of Appeal’s decision in Lornport Investments Ltd. v. The Queen, [1992] 1 C.T.C. 351, 92 D.T.C. 6231, specifically the Court of Appeal’s (Stone, J.A.’s) comments at page 353 (D.T.C. 6233) that subsection 152(8) “is not addressed to a situation where an assessment is issued out of time but rather to a situation where an assessment is issued in time but contains an 'error, defect or omission’ or that such is contained in any proceeding under the Act relating to it".

In Lornport, supra, the Minister issued notices of reassessment in 1987 in respect of the 1983 taxation year. The taxpayer objected within the proper time limits. The Minister then issued second notices, which included the tax levied by the previous notices. The taxpayer appealed the second notices to the associate senior prothonotary, who ordered the notices vacated. The question then arose as to whether the first notices were nullified by the second notices even though the latter were later vacated, or whether after the second notices were vacated the first notices subsisted. An application to determine this issue was made to the Trial Division and the trial judge determined that the first notices did subsist [[1991] 1 C.T.C. 57, 91 D.T.C. 5044].

On appeal, the Court of Appeal, concluded that in the particular circumstances of this case, the second reassessment, which was vacated by the court order of the prothonotary, did not supersede and nullify the first reassessment. Stone, J.A. was of the view that the first reassessment continued to subsist.

In terms of the comments relating to subsection 152(8) of the Act, these were made in response to counsel for the appellant’s secondary contention that despite the fact the second reassessment was issued out of time, its validity was preserved by subsection 152(8) of the Act. However, the Court clearly indicated that its decision was based on the statutory framework of the Act, which supported the appellants’ submission that the second assessment stood until it was set aside and not on an interpretation of subsection 152(8). Moreover, as I indicated earlier, the Court also indicated that it made its decision in respect of the particular circumstances of that case.

Therefore, in my view the Court of Appeal’s comments relating to subsection 152(8) of the Act were made in the context of determining the validity of an assessment made in time, where a subsequent assessment is vacated for being out of time. As such, the Court's comments cannot be seen as extending to issues relating to onus or presentation of evidence in the context of assessments and penalties, especially where the validity of the assessment (in terms of being timely) is not at issue.

Having said as much, I conclude that the taxpayer, being the plaintiff, is to proceed first and bears the onus of showing that the Minister’s assessment was wrong.

Accordingly, the application is denied.

Application denied.