Citation: 2007 FCA 222
HER MAJESTY THE QUEEN
THE ESTATE OF DAVID G. WALSH
HER MAJESTY THE QUEEN
REASONS FOR JUDGMENT
appeals by Jeannette Walsh and The Estate of David G. Walsh from the March 14,
2006 Orders of Justice Paris, 2006 TCC 188, allowing the respondent’s motion to
amend the Reply to the Notice of Appeal in each of the proceedings before the
Tax Court of Canada under the Income Tax Act, R.S.C. 1985 (5th
Supp.), c. 1 (the “Act”).
appellants claim that Justice Paris erred in concluding that subsection 152(9) of
the Act allows the respondent to include the amendments it seeks in its
Walsh and Mrs. Jeannette Walsh were reassessed pursuant to subsection 2(1) and
sections 5 and 7 of the Act for unreported stock option benefits realized on
the exercise of employee stock options to acquire shares in the capital of two
Canadian public companies, namely Bre-X Minerals Ltd. and Bresea Resources Ltd.
(the “Stock Option Benefits”).
Walsh was reassessed for the 1996 taxation year and Mr. David Walsh was
reassessed for the 1995 and 1996 taxation years.
notices of appeal, Mrs. Walsh and the Estate of Mr. Walsh pleaded that the
reassessments should be vacated on the basis that they were non-residents of Canada during the years under appeal
and were therefore not liable for the tax assessed by the Minister.
replies to the notices of appeal, the respondent pleaded that in reassessing
and confirming, the Minister assumed that Mr. and Mrs. Walsh received certain
benefits qua employees from the acquisition of shares of Bre-X Minerals
Ltd. and Bresea Resources Ltd. through the exercise of employee stock options,
failed to report the Stock Option Benefits and that they were residents of
Canada. The respondent argued that these Stock Option Benefits were includible
in income pursuant to sections 5 and 7 and subsection 2(1) of the Act.
proposed amendments, the respondent sought to argue that the Stock Option
Benefits would be includible in the computation of income of Mr. and Mrs. Walsh
pursuant to paragraph 115(1)(a) of the Act, even if they were
considered to be non-residents.
14, 2006, Justice Paris allowed the respondent’s motions to amend the replies
1) that the basis of the
reassessments was not limited to the alleged residence of the appellants in Canada but included the stock option
transactions which gave rise to the income on which the Minister seeks to tax
2) that the sought amendments
were in accordance with subsection 152(9) of the Act, which allows the Minister
to advance an alternative argument in support of a reassessment; and
3) that the sought amendments
would not cause any irreparable prejudice.
152(4) of the Act was Parliament’s reaction to the Supreme Court of Canada’s
decision in Continental Bank of Canada v. Canada,  2 S.C.R. 358,
where it concluded that the Minister is not permitted to advance a new basis
for reassessment after the limitation period found in subsection 152(5) has
of the Crown to present an alternative argument in support of an assessment is
now governed by subsection 152(9) of the Act, which applies to appeals disposed
of after June 17, 1999. Subsection 152(9) of the Act states:
152(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
is relevant evidence that the taxpayer is no longer able to adduce without the
leave of the court; and
is not appropriate in the circumstances for the court to order that the
evidence be adduced.
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 :
part, il existe des éléments de preuve que le contribuable n’est plus en
mesure de produire sans l’autorisation du tribunal;
part, il ne convient pas que le tribunal ordonne la production des éléments
de preuve dans les circonstances.
argument, counsel for the appellants stated that there were no facts in dispute
and that the issue on appeal was whether, in the circumstances of this case,
the Minister had the right, in the absence of fraud, to amend the reply after
the limitation period for re-assessment had expired. In turn, this involved an
analysis of subsection 152(9) of the Act.
his interpretation of subsection 152(9) of the Act, counsel asserted that the
amended reply was a new basis for the assessments made by the Minister rather
than an alternative argument and accordingly it was not proper and could not be
the reliance on paragraph 115(1)(a) of the Act, which deal with taxable income
earned in Canada by non-residents, the Minister is not seeking to increase the
amount of the appellants’ income that was not included in an assessment or
reassessment made within the normal period. Rather, the Minister is seeking to
support exactly the same amount of tax liability flowing from the same Stock
Option Benefits as assessed to the appellants, with an additional argument.
by Justice Rothstein in Anchor Pointe Energy Ltd. v. R. (2003), 308 N.R.
125 (F.C.A.), 2003 FCA 294, at paragraph 40, the Minister is not
introducing a new transaction.
same decision, Justice Rothstein added at paragraph 38:
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.
for the respondent does not suggest that subsection 152(9) of the Act gives the
Minister an absolute right to plead an alternate ground.
position was taken by counsel for the Crown in Honeywell Ltd. v. R.,
2007 FCA 22, where Justice M. Noël noted at paragraph 31:
Despite the urging of
the parties, it is not necessary or opportune to attempt to settle the debate
surrounding the interpretation of subsection 152(9) or to determine whether as
Bowman C.J. puts it, the Minister can “do anything it wants in pleadings”
(counsel for the Crown readily conceded that this last statement was overly
following conditions apply when the Minister seeks to rely on subsection 152(9)
of the Act:
Minister cannot include transactions which did not form the basis of the
of the Minister to present an alternative argument in support of an assessment
is subject to paragraphs 152(9)(a) and (b), which speak to the prejudice to the
Minister cannot use subsection 152(9) to reassess outside the time limitations
in subsection 152(4) of the Act, or to collect tax exceeding the amount in
the assessment under appeal.
satisfied that the proposed amended Reply in each of the proceedings meets
I would dismiss these appeals with one set of costs for the hearing of these
M. Nadon J.A.”