Citation: 2010TCC380
Date: 20100719
Dockets: 2008-3837(IT)G
2008-3838(GST)G
BETWEEN:
SYLVIA HANIFF,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDER
Webb, J.
[1]
The Respondent had
selected the appeals officer for the Canada Revenue Agency to be examined for
discovery on behalf of the Respondent. Counsel for the Appellant asked the
appeals officer various questions at the discovery examination and determined
that the appeals officer was not “knowledgeable” and then terminated the
discovery examination and brought this Motion. The Notice of Motion provides
that the Motion is for:
An Order directing that the Respondent presents an appropriate
person who has firsthand knowledge of the audit process which led to the
reassessment at issue;
[2]
Rule 93(3) of the Tax
Court of Canada Rules (General Procedure) (the “Rules”) provides
that:
(3) The Crown, when it is the
party to be examined, shall select a knowledgeable current or former officer,
servant or employee, nominated by the Deputy Attorney General of Canada, to be
examined on behalf of that party, but, if the examining party is not satisfied
with that person, the examining party may apply to the Court to name some other
person.
[3]
Counsel for the
Appellant questioned the appeals officer for approximately one hour. It appears
that the main concern of the Appellant is that it was the auditor for the
Canada Revenue Agency (and not the appeals officer) who prepared the
reassessment and who prepared the schedules that were used to reassess the
Appellant. During the discovery examination, counsel for the Appellant only
asked for two undertakings.
[4]
It seems to me that it
is important to understand clearly the role that a nominee for the Crown has at
a discovery examination and what knowledge is required of that person. Justice
Strayer stated in Champion Truck Bodies Ltd. v. The Queen, [1986]
3 F.C. 245, that:
... An examinee is not necessarily giving "evidence" of his
personal knowledge and observations as does a witness at trial, but rather is
there to state the position of the party he represents. In doing so he may be
giving purely hearsay evidence. The purpose of the examination is not to obtain
disclosure of the intended evidence of the particular examinee but rather of
facts relevant to the pleadings which are within the knowledge of the other
party. ...
[5]
The purpose of a
discovery examination is to examine the opposing party to determine the facts
that are within the knowledge of that party. The Crown’s representative would
not have direct knowledge of the Appellant’s revenue and expenses but should
have knowledge of the position of the Respondent and the assumed facts that
formed the basis for the reassessment of the Appellant. In reassessing the
Appellant the Respondent would have made certain assumptions of fact and it
seems to me that the relevant knowledge would be knowledge of the assumptions
of fact that were made in reassessing the Appellant.
[6]
The issue in an appeal
to this Court is whether the assessment (or reassessment) is correct. The issue
is not the process by which the assessment (or reassessment) is established. In the decision of the Federal
Court of Appeal in the case of Main Rehabilitation Co. v. R.,
(2004 FCA 403) (leave to appeal to the Supreme Court of Canada was dismissed
(343 N.R. 196 (note))), the Federal Court of Appeal made the following
comments:
6 In any
event, it is also plain and obvious that the Tax Court does not have the
jurisdiction to set aside an assessment on the basis of an abuse of process at
common law or in breach of section 7 of the Charter.
7 As the Tax
Court Judge properly notes in her reasons, although the Tax Court has authority
to stay proceedings that are an abuse of its own process (see for instance Yacyshyn
v. R. (1999), 99 D.T.C. 5133 (Fed. C.A.) ), Courts have consistently
held that the actions of the CCRA cannot be taken into account in an appeal
against assessments.
8 This
is because what is in issue in an appeal pursuant to section 169 is the
validity of the assessment and not the process by which it is established
(see for instance the Consumers' Gas Co. v. R. (1986), 87 D.T.C.
5008 (Fed. C.A.) at p. 5012). Put another way, the question is not whether the
CCRA officials exercised their powers properly, but whether the amounts
assessed can be shown to be properly owing under the Act (Ludco Enterprises
Ltd./Entreprises Ludco Ltée v. R. (1994), [1996] 3 C.T.C. 74 (Fed. C.A.)
at p. 84).
(emphasis
added)
[7]
Therefore the relevant
facts are the facts that establish whether the amount assessed is correct or is
not correct. The knowledge that will be required of the representative of the
Crown is the knowledge of the assumptions of fact that were made in reassessing
the Appellant. The Appellant may ask questions that will elicit information
that is of assistance in advancing her case or in defeating the case of the
Respondent. The Appellant would presumably also want to know what facts are
known to the Respondent that will assist the Respondent’s case so that the
Appellant can be prepared for the hearing or decide whether to pursue a
particular issue.
[8]
The train of inquiry
test of relevance for discovery examinations was discussed by the Federal Court
of Appeal in SmithKline Beecham Animal Health Inc. v. The Queen,
2002 FCA 229, [2002] 4 C.T.C. 93. Justice Sharlow, in this case, stated as
follows:
22 The Tax Court of Canada Rules (General Procedure) contain
extensive and detailed rules for pre-trial disclosure of documents and oral
examinations for discovery. The main provisions relating to the issues in this
appeal read as follows (emphasis added):
DISCOVERY OF DOCUMENTS
List of Documents (Full Disclosure)
82. (1) The parties may agree or, in the absence of agreement,
either party may apply to the Court for a judgment directing that each party
shall file and serve on each other party a list of all the documents
which are or have been in that party's possession, control or power relating to
any matter in question between or among them in the appeal.
EXAMINATION FOR DISCOVERY
…
Scope of Examination
95.(1) A person examined for discovery shall answer, to the best of
that person's knowledge, information and belief, any proper question relating
to any matter in issue in the proceeding ...
…
24 The scope and application of the rules quoted above depend upon
the meaning of the phrases “relating to any matter in question between ... them
in the appeal” and “relating to any matter in issue in the proceeding”. In
Cie Financière du Pacifique v. Peruvian Guano Co. (1882), 11 Q.B.D. 55
(Eng. Q.B.), Brett, L.J. said this about the meaning of the phrase “a document
relating to any matter in question in the action” (at page 63):
It seems to me that every document relates to the matters in
question in the action, which not only would be evidence upon any issue, but
also which, it is reasonable to suppose, contains information which may — not
which must — either directly or indirectly enable the party requiring the
affidavit either to advance his own case or to damage the case of his
adversary. I have put in the words “either directly or indirectly,” because, as
it seems to me, a document can properly be said to contain information which
may enable the party requiring the affidavit either to advance his own case or
to damage the case of his adversary, if it is a document which may fairly lead
him to a train of inquiry, which may have either of these two consequences.
25 The “train of inquiry” test for documentary discovery was
expressly approved by this Court in Everest & Jennings Canada Ltd. v.
Invacare Corp., [1984] 1 F.C. 856, 55 N.R. 73, 79 C.P.R. (2d) 138 (Fed. C.A.), adopting the test from Boxer v.
Reesor (1983), 43 B.C.L.R. 352, 35 C.P.C. 68 (B.C. S.C.). See also Ikea
Ltd./Ikea Ltée v. Idea Design Ltd., [1987] 3 F.C. 317, 13 F.T.R. 306, 16
C.P.R. (3d) 65 (Fed. T.D.) and Oro Del Norte S.A. v. R. (1990), 35
F.T.R. 107, [1990] 2 C.T.C. 67, 90 D.T.C. 6373 (Fed. T.D.).
26 The Tax Court has consistently applied the same test; see, for
example, Ouellet c. R. (1993), [1994] 1 C.T.C. 2645, 94 D.T.C. 1315 (Eng.). In Owen Holdings Ltd. v. R.
(1996), [1997] 3 C.T.C. 2286, 97 D.T.C. 380 (T.C.C.), the test was stated as
follows at paragraph 29:
The party demanding a document must demonstrate that the information
in the document may advance his own case or damage his or her adversary's case.
27 The judgment in Owen Holdings was varied on appeal to this Court,
but the statement of the test was approved: Owen Holdings Ltd. v. R.
(1997), 216 N.R. 381, [1997] 3 C.T.C. 351, 97 D.T.C. 5401 (Fed. C.A.). Marceau J.A., for the majority, said
this at paragraph 6:
... It is our opinion, therefore, that the learned Tax Court judge
adopted the proper approach and his findings with respect to the documents in
categories (i), (ii), (v) and (vi) should not be disturbed. His assessment that
those documents, which did not tend to establish “legislative facts” but rather
set forth the “opinions of writers,” were so remotely related to the issues in
controversy that they could not lead to a line of inquiry that could be of any
use to the appellant, appears to us to be perfectly sound.
28 Isaac C.J., as he then was, dissented in part in the result, but
he approved the “train of inquiry” test.
29 The cases cited above also establish that the question of whether
a document or question “relates to” an issue in the case depends upon a
reasonable interpretation of the pleadings, see particularly: Compagnie
Financiere, supra; Boxer v. Reesor, supra; and R. v. Special
Risks Holdings Inc. (1982), [1983] 2 F.C. 743, 46 N.R. 361, [1983] C.T.C.
36, 83 D.T.C. 5046 (Fed. C.A.).
30 In this case, the Tax Court Judge cited R. v. Stinchcombe,
[1991] 3 S.C.R. 326 (S.C.C.) as the basis of his understanding of the test of
relevance at the pre-trial discovery stage. This appears at paragraph 10 of his
reasons:
On discovery the examining party may seek information and admissions
which will assist it not only to defeat its opponent's case but also to advance
the case which it seeks to put forward.
31 In my view, this statement of the test is substantially the same
as the “train of inquiry” test and thus is correct….
(emphasis added by Justice Sharlow)
[9]
In this case the
Appellant was carrying on business as a sole proprietor and was reassessed
under the Income Tax Act for 2002, 2003 and 2004. The issues as gleaned
from the pleadings are:
(a)
whether the Appellant
had unreported business income for each of these years and if so, what was the
amount of such unreported income;
(b)
whether certain
expenses that had been claimed by the Appellant and denied by the Respondent
were deductible in determining the income of the Appellant;
(c)
whether the rental
losses as claimed by the Appellant and denied by the Respondent can be claimed
by the Appellant;
(d)
whether the penalties
imposed pursuant to subsection 163(2) of the Income Tax Act were
properly imposed; and
(e)
whether the
reassessment of the 2002 taxation year was issued after the normal reassessment
period (neither the Notice of Appeal nor the Reply provide the date that the
Appellant was assessed for 2002 and the date that she was reassessed) and if
the reassessment was issued after the normal reassessment period, whether the
requirements of paragraph 152(4)(a) of the Income Tax Act have been
satisfied to permit the Respondent to reassess the Appellant’s 2002 taxation
year.
[10]
The issues related to
the appeal filed under the Excise Tax Act are related to the additional
GST that was assessed in relation to the additional revenue that was assessed
under the Income Tax Act, the reduction in input tax credits in relation
to the expenses that the Appellant was not allowed to claim as a deduction in
computing her income for the purposes of the Income Tax Act, and the
assessment of the penalty pursuant to subsection 285(1) of the Excise Tax
Act.
[11]
The knowledge of the
representative of the Respondent would be the knowledge of the facts that were
assumed by the Respondent in reassessing the Appellant. The facts would be the
facts related to whether the reassessments are correct not the process by which
the reassessments were established. The facts would relate to the assumed (or
known) facts related to the additional revenue, the expenses that were not
allowed as a deduction in computing income, the rental losses that were denied,
the requirements of paragraph 152(4)(a) of the Income Tax Act in
relation to the reassessment of the 2002 taxation year (assuming that the
reassessment for this year was issued after the normal reassessment period) and
the imposition of the penalties under the Income Tax Act and the Excise
Tax Act.
[12]
The train of inquiry
test would limit questions to those that could elicit answers that would
advance the Appellant’s case or damage the Respondent’s case. Questions that
could elicit answers that would advance the Respondent’s case or damage the
Appellant’s case would also be permitted. However questions related to the
audit process would not be part of a proper train of inquiry as it is the
validity of the assessment that is in issue, not the process by which it is established.
[13]
Counsel for the
Appellant at the beginning of the discovery examination expressed his concerns
about the knowledge of the appeals officer. In part he stated as follows:
The concern that I have is that you wouldn’t have direct knowledge.
I’m just repeating myself, but I’m putting in more cogent form. The concern
that I have is that you wouldn’t have direct knowledge as to what precipitated
the audit or the initiate of the audit. A person who commenced the audit, that
person would be in a position to advise the court as to why the audit commenced
and why 2002, at the end of the day, fit 152(4) of the Income Tax Act. I’m just
putting it in summary form. Of course 152(4) talks about a whole lot of other
things.
[14]
The issue in relation
to a reassessment issued after the normal reassessment period is whether the
requirements of paragraph 152(4)(a) of the Income Tax Act have been met.
This paragraph provides that:
(4) The Minister may at any time make an assessment, reassessment or
additional assessment of tax for a taxation year, interest or penalties, if
any, payable under this Part by a taxpayer or notify in writing any person by
whom a return of income for a taxation year has been filed that no tax is
payable for the year, except that an assessment, reassessment or additional
assessment may be made after the taxpayer's normal reassessment period in
respect of the year only if
(a) the taxpayer or person filing the return
(i) has made any misrepresentation that is attributable to neglect,
carelessness or wilful default or has committed any fraud in filing the return
or in supplying any information under this Act, or
(ii) has filed with the Minister a waiver in prescribed form within
the normal reassessment period for the taxpayer in respect of the year;
[15]
The issues would
therefore be whether the Appellant “made any misrepresentation that is
attributable to neglect, carelessness or wilful default or … committed any
fraud in filing [her] return or in supplying any information under this Act” -
not why the audit was commenced. It is the validity of the reassessment that is
in issue (including whether the Appellant made a misrepresentation as described
in paragraph 152(4)(a) of the Income Tax Act) not the audit process or
why the Appellant was audited.
[16]
No questions were asked
about the misrepresentation that the Respondent believes the Appellant made. No
questions were asked about the expenses that the Respondent disallowed. The
questions (when there were questions addressed to the nominee for the Respondent)
were mainly related to the revenue issue. In my opinion the Appellant has not
established that the representative of the Respondent was not knowledgeable in
relation to the relevant facts. The relevant facts would be those related to
the validity of the reassessment that has been issued and not the process by
which it was established. It is also not necessary that the representative of
the Respondent have first-hand knowledge of the relevant facts. There is no representative of the
Respondent who would have first-hand knowledge of the income and expenses of
the Appellant. Any knowledge acquired by any representative of the Respondent
would only be acquired by reviewing books and records or obtained from other
people. No representative of the Respondent would have first-hand knowledge of
whether a particular deposit was made from revenue from the business or from
other sources or whether certain expenses had been incurred or for what purpose
such expenditures were incurred. The Appellant is the person who would have
first-hand knowledge of these matters.
[17]
As a result, the Appellant’s
motion is dismissed. Costs shall be in the cause.
Signed at Halifax, Nova Scotia, this 19th day of July, 2010.
“Wyman W. Webb”
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