Preston – Federal Court of Appeal finds that assumptions of mixed fact and law were not prejudicial to the taxpayer – and that an FMV assumption instead is factual

The Tax Court ordered that “assumptions of fact” pleaded by the Crown in its Reply should be struck out and moved to the reasons part of the Reply on the sole ground that they were in fact conclusions of mixed fact and law. Before finding that these Crown pleadings could stand as they were, Monaghan JA found that this “sole ground” approach was contrary to Rule 53(1)(a), which required a determination as to whether the pleaded assumptions were prejudicial or would delay the fair hearing of the appeal or whether leaving them as is would better serve the trial process.

In particular, there was “no principle of law that a statement of mixed fact and law cannot stand as an assumption” and, indeed, such an assumption created no additional onus on the taxpayer (and, thus, no inherent prejudice) since the legal component was a matter for the court to decide rather than creating any onus on the taxpayer. Conversely, there was no prejudice to the taxpayer if it could discern the factual case that it needed to make out.

One of the assumptions at issue was that the fair market value of the shares and partnership interest received by two beneficiaries of the appellant trust were specified dollar amounts. In this regard, Monaghan JA indicated:

A statement that an identified property has a particular fair market value at a particular point in time is an assumption (or finding) of fact, notwithstanding that fair market value has a legal definition.

Neal Armstrong. Summary of Canada v. Preston, 2023 FCA 178 under Rule 53(1)(a).