Hong Kong Style – Tax Court of Canada indicates that a CRA program to detect “zapped” sales did not alter the taxpayers’ burden to displace the Minister’s assumptions

Two incorporated restaurants were alleged by the Minister to have used “zapping” software to delete a portion of their sales, with the proceeds for the deleted sales being appropriated by their individual shareholder. The taxpayers argued that the CRA program (the “Algorithm”) used to identify missing line items in the raw point-of-sale data was exclusively within the knowledge of the Minister, and argued that the difficulty they would face in “disproving” the Algorithm somehow meant that Bocock J should now grant their pre-trial motion to delete the Minister’s pleaded assumptions of fact that appeared to rely on the Algorithm.

Bocock J dismissed the motion essentially on the basis that it was within the trial judge’s bailiwick, not his, to deal with the evidence at trial and related questions of burden.

Before so concluding, he volunteered his views on the likely irrelevance of the Algorithm to the matter of the burden on the taxpayers to displace the Minister’s assumptions as to unreported income, stating:

The Appellants are under no obligation to prove that the … Algorithm is deficient or unreliable. Rather, their burden of proof will be discharged by disproving the Minister’s core assumed facts through the presentation of evidence at trial to substantiate, on balance, what were the correct sales, revenue and reportable income.

Neal Armstrong. Summary of Hong Kong Style Café Ltd. v. The Queen, 2022 TCC 9 under General Concepts – Onus.