Citation: 2013 FCA 20
HER MAJESTY THE QUEEN
REASONS FOR JUDGMENT
is an appeal and a cross-appeal from an unreported interlocutory judgment of
Justice Hershfield of the Tax Court of Canada in relation to the appeal of Ronald
Ereiser from reassessments under the Income Tax Act, R.S.C. 1985, c. 1
(5th Supp). The judgment allows in part the Crown’s motion to strike
numerous paragraphs of Mr. Ereiser’s amended notice of appeal filed October 29,
2010. For the reasons that follow, I would dismiss the appeal and the cross
Summary of factual
allegations in the notice of appeal
summarize as follows the factual allegations in the notice of appeal. For the
purpose of this appeal, these allegations must be assumed to be true even
though they have not been proven. The Crown has not yet filed a defence.
taxation years in issue are the years 1996 to 1998. Throughout that period, Mr.
Ereiser carried on a business called “Kerrobert Satellite and Cellular”. He
kept good business records and retained qualified accountants to prepare his
financial statements and tax returns. In those tax returns, Mr. Ereiser
reported gross and net business income in 1996 of approximately $878,000 and
$68,000, in 1997 of approximately $509,000 and $20,000, and in 1998 of
approximately $258,000 and $34,000. The net business income reported did not
reflect additional expenses he incurred in those years and could have claimed
as deductions. His returns for 1996 and 1997 were filed in 1998, and his return
for 1998 was filed in 1999.
October of 2003, an “investigator” (that is, an official with the criminal
investigations division of the Canada Revenue Agency) sent Mr. Ereiser a letter
proposing to reassess Mr. Ereiser for 1996, 1997 and 1998 to add income
totalling approximately $1.7 million, and to assess gross negligence penalties.
The proposal letter stated that Mr. Ereiser’s file would be forwarded to the
Department of Justice with a recommendation to pursue a prosecution.
criminal prosecution was ever commenced. Nevertheless, various investigators
used the threat of assessments in the amounts mentioned above to attempt to
coerce Mr. Ereiser to plead guilty to criminal charges. Specifically they
offered, if Mr. Ereiser would plead guilty to criminal charges, to reassess in
lesser amounts so that his total liability would be approximately $80,000. That
amount of tax liability over the three taxation years in issue represents
income of approximately $28,000 per year.
November of 2006, the investigator who wrote the proposal letter acknowledged
in writing that it contained errors, specifically that the amounts would have
to be adjusted to reflect “costs of sales of cards” and “incorrectly assessed
diary entries”. At that time, Mr. Ereiser was told to plead guilty and take the
deal or the proposed reassessments would be processed. Mr. Ereiser did not wish
to plead guilty and did not do so.
January 17, 2008, the Minister reassessed Mr. Ereiser for 1996, 1997 and 1998.
The reassessment was consistent with the proposal letter and did not correct
the errors noted in November of 2006. Mr. Ereiser denies that he had unreported
income in the amounts assessed.
officials responsible for the reassessment were the investigators. There was
never any separation between the investigative and audit functions of the
Canada Revenue Agency. The reassessments are based on evidence obtained by the
investigators in breach of Mr. Ereiser’s rights under the Canadian Charter
of Rights and Freedoms.
Ereiser filed notices of objection on April 14, 2008. While those objections
were before an appeals officer, investigators continued to assert, falsely,
that Mr. Ereiser was under criminal investigation for 1996, 1997 and 1998. They
so informed the appeals officer dealing with the objections, despite protests
made on behalf of Mr. Ereiser that this would impede the impartiality of the
appeals officer. Later the investigators acknowledged that there was no
criminal investigation, but the objections were not assigned to a different
the investigators would have agreed to reassess on the basis of lower income
amounts if Mr. Ereiser had agreed to plead guilty, and because an investigator
had agreed that the proposal letter had errors, the reassessments cannot have
been based on any factual assumption by the Minister that Mr. Ereiser had
unreported income in the amounts stated in the proposal letter.
36 and 37 of the notice of appeal state that Mr. Ereiser did not earn net
income as reassessed and did not make any misrepresentations in his income tax
returns for the years in issue. For the purposes of this appeal, I have treated
those statements as denials by Mr. Ereiser of the apparent factual basis of the
reassessments. In my view, that is appropriate although the denials appear
under the heading “Reasons Relied Upon”.
Issues stated in the notice of
26 to 30 of the notice of appeal set out the grounds upon which Mr. Ereiser
challenges the reassessments. I summarize those grounds of appeal as follows:
reassessments should be vacated because they were issued as the result of
misfeasance in public office on the part of the investigators. The misfeasance
in public office was the authorization of a grossly inflated reassessment to
coerce a guilty plea to a criminal charge.
the alternative, the reassessments should be vacated because each of them was
made outside the normal reassessment period for the relevant year, and the
Minister cannot prove by admissible evidence that the normal reassessment
period did not apply.
the further alternative, the reassessments should be vacated because Mr.
Ereiser did not have unreported income in 1996, 1997 or 1998.
The Crown’s motion to
Crown filed a notice of motion in the Tax Court of Canada seeking an order
striking numerous paragraphs from the notice of appeal. The Crown’s motion, if
granted, would have removed any challenge to the income inclusions for 1996,
1997 and 1998 as pleaded, leaving only a challenge to the assessed penalties.
Crown relied for its motion on Rule 53 and Rule 58(1)(b) of the Rules
of the Tax Court of Canada (General Procedure), SOR/90-688a. Those
provisions read in relevant part as follows:
Court may strike out or expunge all or part of a pleading or other document,
with or without leave to amend, on the ground that the pleading or other
(a) may prejudice or delay the fair hearing
of the action,
(b) is scandalous, frivolous or vexatious, or
(c) is an abuse of the process of the Court.
Cour peut radier un acte de procédure ou un autre document ou en supprimer
des passages, en tout ou en partie, avec ou sans autorisation de le modifier
parce que l’acte ou le document :
compromettre ou retarder l’instruction équitable de l’appel;
scandaleux, frivole ou vexatoire;
un recours abusif à la Cour.
58. (1) A
party may apply to the Court, …
(b) to strike out a
pleading because it discloses no reasonable grounds for appeal or for opposing
and the Court may grant
58. (1) Une
partie peut demander à la Cour, […]
de radier un acte de procédure au motif qu’il ne révèle aucun moyen
raisonnable d’appel ou de contestation de l’appel,
et la Cour peut rendre jugement
(2) No evidence is
admissible on an application, …
(b) under paragraph
(2) Aucune preuve n’est
admissible à l’égard d’une demande, […]
en vertu de l’alinéa (1)b).
Hershfield granted the Crown’s motion only in part. His order lists which
paragraphs of the notice of appeal are to be struck, not struck, or amended as
stated. The transcript of the hearing of the Crown’s motion discloses that both
parties made submissions on each paragraph of the notice of appeal that was the
subject of the Crown’s motion to strike. There are no separate written reasons.
Justice Hershfield gave oral reasons in the course of the hearing and included
the following recitals in the judgment:
having provided Oral Reasons during the hearing of the [Crown’s] motion for
striking, not striking or amending a particular part of the [notice of
appeal] as each such part was addressed by the parties which Reasons included
amongst other things:
rejection of [Mr. Ereiser]’s argument that this Court has jurisdiction,
inherent or otherwise, to deal with procedural matters leading up to an
assessment, namely misfeasance [in] public office, given that it is a
statutory Court charged by section 171 of the Income Tax Act (Canada)
(the “Act”) to determine the correctness of an assessment and given
that it is plain and obvious that, based on the authorities, this line of
argument cannot be successful in this Court;
rejection of [Mr. Ereiser]’s argument that any exceptions to such description
of this Court’s jurisdiction such as providing a remedy under the Charter
of Rights and Freedoms (Canada) or allowing evidence affecting which
party has an onus of proof, apply to assertions of malfeasance on the part of
officers of the Canada Revenue Agency (“CRA”); and
barring the raising of the issue at trial, a rejection of the [Crown]’s
argument that a plea bargain offered by the [Crown] on a criminal prosecution
was privileged as being a “without prejudice” settlement communication, based
on the criminal prosecution, as a distinct proceeding, not being a settlement
offer in respect of the present appeal and on the public policy
considerations that are the basis for extending privilege to settlement
discussions not extending to protecting plea bargain evidence where same, as
argued by [Mr. Ereiser], might reasonably be seen as reflecting a threat not
an offer and where such evidence may, as asserted by [Mr. Ereiser], be
relevant to an onus of proof issue….
Standard of review
The decision of
a judge to grant or refuse a motion to strike is discretionary. This Court will
defer to such a decision on appeal in the absence of an error of law, a
misapprehension of the facts, a failure to give appropriate weight to all
relevant factors, or an obvious injustice: see, for example, Collins v.
Canada, 2011 FCA 140 at paragraph 12, Domtar Inc. v. Canada, 2009
FCA 218 at paragraph 24, Apotex Inc. v. Canada (Governor in Council),
2007 FCA 374 at paragraph 15, Elders Grain Co. v. M.V. Ralph Misener (The),
2005 FCA 139,  3 F.C.R. 367 at paragraph 13, Mayne Pharma (Canada)
Inc. v. Aventis Pharma Inc., 2005 FCA 50 at paragraph 9.
(1) Test for striking pleadings
There is no
dispute as to the test for striking pleadings. It was recently restated by
Chief Justice McLachlin, writing for the Supreme Court of Canada in R. v.
Imperial Tobacco Canada Ltd., 2011 SCC 42,  3 S.C.R. 45 at paragraph
… 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: Odhavji Estate v. Woodhouse, 2003 SCC 69,  3 S.C.R. 263,
at para. 15; Hunt v. Carey Canada Inc.,  2 S.C.R. 959,
at p. 980. Another way of putting the test is that the claim has no
reasonable prospect of success. Where a reasonable prospect of success
exists, the matter should be allowed to proceed to trial: see, generally, Syl Apps Secure Treatment Centre v. B.D., 2007 SCC 38,  3 S.C.R. 83; Odhavji Estate; Hunt; Attorney General of Canada v. Inuit Tapirisat of Canada,
 2 S.C.R. 735.
also, for example, Main Rehabilitation Co. v. Canada, 2004 FCA 403 at
paragraph 3, Roitman v. Canada, 2006 FCA 266 at paragraph 15, Domtar (cited
above) at paragraph 21.
(2) Appeal by Mr. Ereiser
principal ground of appeal is that the reassessments should be vacated because they were
issued as the result of misfeasance in public office on the part of the
investigators. The specific misfeasance alleged by Mr. Ereiser is the
authorization of a grossly inflated reassessment to coerce a guilty plea to a
criminal charge. The Crown sought to strike the provisions of the notice of
appeal relating to this point. The Crown’s position, which Justice Hershfield
accepted, is that the authorization of a grossly inflated reassessment to
coerce a guilty plea to a criminal charge is not a basis upon which the Tax
Court of Canada can vacate an assessment. Mr.
Ereiser submits that the Crown’s argument should have been rejected.
As I understand
the position of Mr. Ereiser, it is based on three propositions. The first
proposition is that the Tax Court of Canada has the jurisdiction (that is, the
legal authority) to vacate an income tax assessment that is properly before it
on an appeal. It is undisputed that this proposition is correct. The second
proposition is that it is misfeasance in public office for a tax official to
authorize an income tax assessment in an inflated amount as a means of coercing
an admission of criminal liability. This proposition is unchallenged by the
Crown. For the purpose of this appeal I will assume without deciding that it is
controversy relates to the third proposition underlying the position of Mr.
Ereiser, which is that the Tax Court of Canada can and should vacate an
assessment if it was authorized by a tax official in circumstances amounting to
misfeasance in public office. Justice Hershfield found this proposition to be
incorrect. I agree with Justice Hershfield on this point. I also agree that it
necessarily follows that Mr. Ereiser’s principal ground of appeal cannot
possibly succeed. I conclude that Justice Hershfield made no error warranting
the intervention of this Court when he granted the Crown’s motion to strike the
provisions of the notice of appeal relating to that ground of appeal. My
reasons for that conclusion are set out below.
is seeking from the Tax Court of Canada an order vacating the reassessments
under appeal. That is the appropriate remedy in an income tax appeal for an
assessment (including a reassessment) that is found not to be valid, or that is
found not to be correct. I use the term valid to describe an assessment
made in compliance with the procedural provisions of the Income Tax Act,
and correct to describe an assessment in which the amount of tax
assessed is based on the applicable provisions of the Income Tax Act,
correctly interpreted and applied to the relevant facts.
procedural provisions of the Income Tax Act include those relating to
statutory limitation periods. Generally, those provisions deprive the Minister
of the legal authority to assess tax after the expiry of a certain period of
time – the period defined in the Income Tax Act as the “normal
reassessment period” – unless a statutory exception applies.
Ereiser, a taxpayer who is an individual, the normal reassessment period for a
particular taxation year is three years after the date of the initial
assessment for that year, or the initial notification that no tax is payable
for that year, whichever is earlier (paragraph 152(3.1)(b) of the Income
Tax Act). If the reassessments under appeal in this case were made after
that limitation period and no statutory exception applies, the reassessments
would not be valid, and for that reason they would be subject to being vacated
statutory exceptions to the three year limitation period is subparagraph
152(4)(a)(i) of the Income Tax Act. That provision would cause
the three year limitation period for a particular year to be inapplicable if
Mr. Ereiser made a misrepresentation “that is attributable to neglect,
carelessness or wilful default” in filing his income tax return for that year.
In that case, the reassessment for that year could not be vacated for
invalidity on the basis that the Minister reassessed outside the applicable
Ereiser made a misrepresentation that caused the time limitation for a
particular year to be inapplicable, the reassessment for that year may be
valid. However, it would be incorrect if Mr. Ereiser had no unreported income
for that year. In that case, the reassessment would be subject to being vacated
on the ground that it is incorrect.
background, I turn to the statutory provisions that define the jurisdiction and
role of the Tax Court of Canada with respect to appeals from income tax
assessments. Its jurisdiction is established by subsection 12(1) of the Tax
Court of Canada Act, R.S.C. 1985, c. T-2, which reads as follows:
12. (1) The
Court has exclusive original jurisdiction to hear and determine references
and appeals to the Court on matters arising under … the Income
Tax Act … when references or appeals to the Court are provided
for in those Acts.
12. (1) La Cour a
compétence exclusive pour entendre les renvois et les appels portés devant
elle sur les questions découlant de l’application de … la Loi
de l’impôt sur le revenu dans la mesure où ces lois prévoient
un droit de renvoi ou d’appel devant elle.
the role of the Tax Court of Canada in income tax appeals, it is useful to
begin with subsection 152(8) of the Income Tax Act, which sets out the
legal effect of an assessment. It reads as follows:
152. (8) An assessment
shall, subject to being varied or vacated on an objection or appeal under
this Part and subject to a reassessment, be deemed to be valid and binding
notwithstanding any error, defect or omission in the assessment or in any
proceeding under this Act relating thereto.
152. (8) Sous réserve
des modifications qui peuvent y être apportées ou de son annulation lors
d’une opposition ou d’un appel fait en vertu de la présente partie et sous
réserve d’une nouvelle cotisation, une cotisation est réputée être valide et
exécutoire malgré toute erreur, tout vice de forme ou toute omission dans
cette cotisation ou dans toute procédure s’y rattachant en vertu de la
165(1) and 169(1) of the Income Tax Act give a taxpayer the right to
object to an assessment (which essentially is an administrative review) and
then to appeal the assessment to the Tax Court of Canada. Those provisions read
165. (1) A taxpayer who
objects to an assessment under this Part may serve on the Minister a notice
of objection, in writing, setting out the reasons for the objection and all
relevant facts ….
165. (1) Le
contribuable qui s’oppose à une cotisation prévue par la présente partie peut
signifier au ministre, par écrit, un avis d’opposition exposant les motifs de
son opposition et tous les faits pertinents ….
169. (1) Where a
taxpayer has served notice of objection to an assessment under section 165,
the taxpayer may appeal to the Tax Court of Canada to have the assessment
vacated or varied …
169. (1) Lorsqu’un
contribuable a signifié un avis d’opposition à une cotisation, prévu à
l’article 165, il peut interjeter appel auprès de la Cour canadienne de
l’impôt pour faire annuler ou modifier la cotisation ….
171(1) sets out the ways in which the Tax Court of Canada may dispose of an
appeal. It reads as follows:
171. (1) The Tax Court of Canada may dispose of an appeal by
the assessment, or
the assessment back to the Minister for reconsideration and reassessment.
171. (1) La Cour
canadienne de l’impôt peut statuer sur un appel :
a) en le rejetant;
b) en l’admettant
et en :
(iii) déférant la
cotisation au ministre pour nouvel examen et nouvelle cotisation.
of the Income Tax Act limits the grounds upon which an assessment may be
vacated or varied on appeal. It reads as follows:
166. An assessment shall not
be vacated or varied on appeal by reason only of any irregularity,
informality, omission or error on the part of any person in the observation
of any directory provision of this Act.
166. Une cotisation ne peut
être annulée ni modifiée lors d’un appel uniquement par suite d’irrégularité,
de vice de forme, d’omission ou d’erreur de la part de qui que ce soit dans
l’observation d’une disposition simplement directrice de la présente loi.
these provisions, this Court has held that the role of the Tax Court of Canada
in an appeal of an income tax assessment is to determine the validity and
correctness of the assessment based on the relevant provisions of the Income
Tax Act and the facts giving rise to the taxpayer’s statutory liability.
Logically, the conduct of a tax official who authorizes an assessment is not
relevant to the determination of that statutory liability. It is axiomatic that
the wrongful conduct by an income tax official is not relevant to the
determination of the validity or correctness of an assessment. This is
explained in Roitman (cited above) at paragraph 21:
the same effect were made in Main Rehabilitation at paragraphs 6 to 8:
In any event, it is also plain and obvious that the Tax Court does not
have the jurisdiction to set aside an assessment on the basis of an abuse of
process at common law or in breach of section 7 of the Charter.
As the Tax Court Judge properly notes in her reasons, although the Tax
Court has authority to stay proceedings that are an abuse of its own process
(see for instance Yacyshyn v. Canada, 1999 D.T.C. 5133 (F.C.A.)),
Courts have consistently held that the actions of the CCRA cannot be taken
into account in an appeal against assessments.
This is because what is in issue in an appeal pursuant to section 169
is the validity of the assessment and not the process by which it is
established (see for instance the Queen v. the Consumers' Gas Company Ltd.
87 D.T.C. 5008
(F.C.A.) at p. 5012). Put another way, the question is not whether the CCRA
officials exercised their powers properly, but whether the amounts assessed
can be shown to be properly owing under the Act (Ludco Enterprises Ltd. v.
R.  3 C.T.C. 74 (F.C.A.) at p. 84).
In light of
this jurisprudence, it is plain and obvious that the Tax Court of Canada will
not vacate the reassessments under appeal in this case solely on the basis of
the wrongful conduct of a tax official in authorizing them. It follows that the
allegations and arguments in the pleadings relating to the misfeasance in
public office were properly struck.
argues that he must be permitted to seek a remedy from the Tax Court of Canada
for the wrongful conduct of the tax officials in this case because no remedy
for their wrongful conduct is available from any other court. I do not accept
many cases in which taxpayers have applied to the Federal Court or the superior
court of a province for an order quashing an income tax assessment (or the
decision to issue a notice of assessment, which generally amounts to the same
thing) because of the alleged unlawful, tortious or unreasonable conduct of tax
officials. Those courts may and often do decline to entertain the application
or action if they conclude that it represents a collateral attack on the
validity and correctness of the assessment because that is a matter within the
exclusive original jurisdiction of the Tax Court of Canada (see, for example, Roitman
at paragraph 20 and Smith v. Canada (Attorney General), 2006 BCCA 237).
is not necessarily true that a taxpayer has no remedy for the wrongful conduct
of an income tax official. For example, in Leroux v. Canada (Revenue Agency),
2012 BCCA 63, an action in tort for damages against tax officials was permitted
to proceed because the conduct complained of raised justiciable issues apart
from those going to the correctness of the assessment (which was not challenged).
There is also
some potential for an administrative law remedy where the conduct complained of
represents an abuse of discretionary authority on the part of a tax official,
particularly if recourse to the Tax Court of Canada is not possible or would not
afford an adequate remedy. That is explained in the following paragraphs from Canada v. Addison & Leyen Ltd., 2007 SCC 33,  2 S.C.R. 793 at paragraphs 8 to 10:
We need not engage in a lengthy theoretical discussion on whether
s. 18.5 [of the Federal Courts Act] can be used to review the
exercise of ministerial discretion. It is not disputed that the
Minister belongs to the class of persons and entities that fall within the
Federal Court’s jurisdiction under s. 18.5. Judicial review is available,
provided the matter is not otherwise appealable. It is also available
to control abuses of power, including abusive delay. Fact-specific
remedies may be crafted to address the wrongs or problems raised by a
Nevertheless, we find that judicial review was not available on the facts of
this case. As Rothstein J.A. pointed out, the interpretation of s. 160 ITA
by the majority of the Federal Court of Appeal amounted to reading into that
provision a limitation period that was simply not there. The Minister
can assess a taxpayer at any time. In the words of Rothstein J.A.:
in the sense identified by the majority, subsection 160(1) may be considered
a harsh collection remedy, it is also narrowly targeted. It only
affects transfers of property to persons in specified relationships or
capacities and only when the transfer is for less than fair market
value. Having regard to the application of subsection 160(1) in
specific and limited circumstances, Parliament’s intent is not obscure.
Parliament intended that the Minister be able to recover amounts transferred
in these limited circumstances for the purpose of satisfying the tax
liability of the primary taxpayer transferor. The circumstances of such
transactions mak[e] it clear that Parliament intended that there be no
applicable limitation period and no other condition on when the Minister
might assess. [para. 92]
 The Minister is granted the discretion to
assess a taxpayer at any time. This does not mean that the exercise of this
discretion is never reviewable. However, in light of the words “at any
time” used by Parliament in s. 160 ITA, the length of the delay before
a decision on assessing a taxpayer is made does not suffice as a ground for
judicial review, except, perhaps, inasmuch as it allows for a remedy like
mandamus to prod the Minister to act with due diligence once a notice of
objection has been filed. Moreover, in the case at bar, the allegations
of fact in the statement of claim do not disclose any reason why it would
have been impossible to deal with the tax liability issues relating to either
the underlying tax assessment against York or the assessments against the
respondents through the regular appeal process.
It may be
that in this case, the reassessments under appeal will be found to be valid and
correct. In that case, they will represent a correct statement of Mr. Ereiser’s
statutory obligations under the Income Tax Act, and they will not be
vacated as part of the statutory appeal process for income tax appeals.
However, they will be vacated if they are found to be invalid or entirely
incorrect. If they are found to be incorrect in part, they will be vacated and
referred back to the Minister for reassessment. But regardless of the outcome
of Mr. Ereiser’s income tax appeal, it will remain open to him to seek a remedy
in the Federal Court or the superior court of a province, depending upon the
circumstances, if he has a tort claim or an administrative law claim arising
from the wrongful conduct of one or more tax officials.
I have not
ignored the suggestion of Mr. Ereiser that the conduct of the tax officials is
relevant to questions of the admissibility of Crown evidence. This point is not
fully developed in the pleadings in relation to the allegations of misfeasance
in public office, but the reasoning appears to be that wrongful conduct on the
part of the tax officials who authorized the reassessments under appeal will
justify an argument that all Crown evidence is inadmissible. This is
potentially important because the reassessments in issue were made after the
expiry of the normal reassessment periods, and the Crown has the onus of
proving the facts required to justify a late reassessment.
Hershfield concluded that this argument is not sound. I agree. The fact that a
seizure of documents is unlawful may affect the admissibility of evidence
obtained as a result of the seizure, but wrongful conduct unrelated to an
evidentiary matter generally is not relevant to the admissibility of evidence.
I note that the following allegation of coercion by tax officials will remain
in the notice of appeal after giving effect to Justice Hershfield’s order:
Appellant was offered deals from the criminal enforcement branch of the CRA
all of which had the same basic terms: plead guilty and pay an amount of
$80,000 ‘all in’. The deals were offered with an intent to coerce a guilty
if this allegation is true, it cannot justify the rejection of Crown evidence
that is otherwise admissible.
I turn now to
the Crown’s cross appeal.
(3) Crown’s cross-appeal
ground of the Crown’s cross-appeal is that Justice Hershfield erred in failing
to give effect to the Crown’s claim of “settlement privilege” by striking all
factual allegations in the notice of appeal that disclose “confidential
communications” intended to resolve the dispute between the parties. The Crown
also argues that Justice Hershfield should have struck certain paragraphs on
the basis that they plead evidence rather than facts, and on the basis that
they allege facts that are irrelevant to any relief that can be sought in the
Tax Court of Canada (specifically, allegations involving the conduct of tax
officials, and allegations involving delay by tax officials in dealing with
(A) Settlement privilege
argues that the Crown’s offer to issue reassessments that would limit Mr.
Ereiser’s total liability to $80,000 (estimated to involve income inclusions of
approximately $28,000 for each of the three years in issue, rather than the
income inclusions totaling approximately $1.7 million as originally proposed)
if Mr. Ereiser would admit criminal liability is a “settlement offer” that was
or should be presumed to have been communicated in confidence.
Hershfield rejected the Crown’s argument because he interpreted the Crown’s
proposal as primarily an offer made to settle potential criminal proceedings,
not to settle a potential challenge to Mr. Ereiser’s civil liability. Whether
that interpretation is correct is a matter that likely will be explored in the
course of pre-trial discovery or at trial, and I will say no more about it at
this stage. More important, in my view, is Justice Hershfield’s determination,
as stated in the recitals to the judgment, that the Crown’s proposal could be
seen as a threat against Mr. Ereiser which “could be relevant to an onus of
understand Justice Hershfield’s reasons, he exercised his discretion as he did
with respect to these provisions so that it would be open to Mr. Ereiser to
argue that the reassessments are not based on a bona fide determination
by the Minister as to the amount of Mr. Ereiser’s unreported income. Justice
Hershfield undoubtedly had in mind that the Crown pleadings, when filed, will
state that the reassessments are based on a factual assumption by the Minister
that Mr. Ereiser had unreported income in the amounts set out in the proposal
letter totaling $1.7 million for the three years in issue. It is clear from the
notice of appeal that Mr. Ereiser intends to argue that the Minister made no
such factual assumption. If that argument is sound, it would place on the Crown
the burden of proving that Mr. Ereiser had unreported income in the amounts
assessed. In the unusual circumstances of this case, I conclude that Justice
Hershfield exercised his discretion appropriately when he refused to order the
allegations of the settlement proposal to be struck.
(B) Other alleged deficiencies in
argues that some of the provisions of the notice of appeal that Justice
Hershfield permitted to stand are objectionable because they plead evidence
rather than facts, or because they allege facts that are irrelevant to any
relief that can be sought in the Tax Court of Canada (specifically, allegations
involving the conduct of tax officials, and allegations involving delay by tax
officials in dealing with objections). In numerous instances, more than one
ground of appeal is raised with respect to a single provision.
motion sought an order striking all provisions relating to the conduct of tax
officials. Justice Hershfield dismissed the motion with respect to the conduct
provisions that are relevant to the alleged improper settlement proposal. For
those provisions, none of the alternative grounds of appeal are sufficiently
meritorious to overcome Justice Hershfield’s rejection of the Crown’s motion to
provisions that Justice Hershfield permitted to remain relate to Mr. Ereiser’s
allegation that some of his documents were seized and retained by the Minister
in breach of Mr. Ereiser’s Charter rights, and his related argument that the
Crown should not be permitted to adduce any of those documents as evidence. In
my view, Justice Hershfield exercised his discretion appropriately when he
dismissed the Crown’s motion to strike those provisions.
also objects to a number of provisions supporting Mr. Ereiser’s argument that
the reassessments were issued outside the normal reassessment period for the
years in issue and are therefore invalid. The problem for the Crown,
apparently, is that Mr. Ereiser has failed to plead the dates of the
reassessments or the dates of the original assessments for the years in issue.
This may well be an oversight on the part of Mr. Ereiser. Normally such dates
are specifically pleaded. However, the Crown cannot possibly be prejudiced by
the failure to plead those dates, since that information is or ought to be
known to the Minister. In my view, Justice Hershfield exercised his discretion appropriately
when he dismissed the Crown’s motion to strike the provisions of the notice of
appeal relating to the timing of the reassessments.
reasons I would dismiss the appeal and the cross-appeal. In light of the
divided success, I would award no costs.
J.D. Denis Pelletier J.A.”
Robert M. Mainville J.A.”