Chad – Tax Court of Canada finds that the Crown could not resile from an oral representation that it would not argue “tax shelter” at trial

The taxpayer, which had appealed reasssessments of foreign-currency straddle trades (the “Chad I” appeal), had brought a motion in January 2021 to strike out various of the Crown pleadings, some of which were relevant to the CRA assumption in reassessing that the transactions constituted a tax shelter. Crown counsel at that hearing had indicated to Sommerfeldt J that at trial (then scheduled for about a month later) the Crown would not pursue tax shelter arguments. Sommerfeldt J stated that he considered that this statement had been made to him in order to persuade him at the time to not to strike out the other Crown pleadings at issue. In a subsequent motion brought by the Crown in June 2021 and heard in September 2021 (after the postponement of the trial for COVID reasons), the Crown now sought to amend its Reply to add allegations and related assertions that the deductions claimed should also be denied on the basis that they were part of a “tax shelter.”

In denying this amendment, Sommerfeldt J stated:

[W]here a party desires to resile from a previously stated position, the party should provide an explanation as to the intervening and previously unexpected circumstances that occurred after the representation had been made and that require the party to change its position. That was not done here. …

I view the statements made by counsel for the Respondent at the hearing on January 28, 2021, to the effect that the Respondent would not rely on the tax-shelter argument at trial, as being a representation or a commitment made to the Court. In the absence of a reasonable explanation as to why counsel for the Respondent now desires to resile from that representation or commitment, I am reluctant to grant leave … .

In the context of a somewhat similar procedural history, Sommerfeldt J also denied leave to the Crown to include, in its amended Reply, an argument of “window-dressing” (which he defined as “deceptively making facts appear better or more favourable than they actually are”.

Neal Armstrong. Summary of Chad v. The Queen, 2022 TCC 18 under Tax Court of Canada Rules (General Procedure), Rule 54 and General Concepts – Window Dressing.