Daville Transport – Tax Court of Canada finds that a settlement offer not made on a principled basis should be ignored for cost award purposes

The taxpayer submitted that it was entitled to “substantial indemnity costs” from the Crown per Rule 147(3.1) (i.e., perhaps 80% of its actual legal costs, as adjusted) on the basis that it had achieved greater success in its tax appeal than reflected in a settlement offer it had made. However, Russell J characterized that offer as an “arbitrary settlement offer,” i.e., as “a ‘let’s split it down the middle’ settlement offer” that thus violated the principle “that the Minister … can only assess tax consistent with his/her view of the underlying facts and law.” Accordingly, “this settlement offer was not within the scope of Rule 147(3.1).”

However, although the taxpayer thus was only entitled to party and party costs, Russell J increased the Tariff items by a factor of 1.6 to reflect that the Tariff had not been updated for some time.

Neal Armstrong. Summary of Daville Transport Inc. v. The Queen, 2022 TCC 5 under Rule 147(3.1).