Evidence

The appellant (the “LP”) was a wholly-owned limited partnership of a REIT. The REIT and the LP entered into two successive written forms of agency agreements pursuant to which, in order to raise money for the LP’s real estate business, the REIT was authorized to raise money through REIT unit or debenture offerings and to incur the related costs as agent for the LP. The LP had declined to authenticate the proper execution of the two agency agreements, and Sommerfeldt J did so himself for the 2012 agency agreement through the “comparison of hands” method (i.e., comparison to the signature on another agreement that was acknowledged to have been executed by the same officer) pursuant to s. 8 of the Canada Evidence Act, but was unable to do so for the 2013 agency agreement.

The ARQ denied the deduction of the full amount of the management fees paid by the taxpayer (AK) to its wholly-owning parent (GAK) on the basis inter alia that there was no contract for management services between AK and GAK and that GAK in fact did not render any management services to AK. In allowing the deductions in full, Richard JCQ stated (at para. 21, Tax Interpretations translation):

Despite the absence of a written contract, resolution or other documentation, [an AK/GAK director] convinced the Court that numerous acts of management were performed by GAK for the benefit of AK, notably in the negotiation of financing, acquisition opportunities, the determination of rents and the payment of life insurance policies for its directors, of which GAK is the beneficiary.

In connection with a CRA challenge to its SR&ED claims for various projects for the testing of airborne contaminants, the taxpayer called not only its founder (Mr. Fellin), who was described by Hogan J (at para. 22) as being “extremely knowledgeable” in the field, but also called a CRA research and technology advisor, who had carried out the technical audit of the six projects at issue (and who was not called on by the Crown), to testify. The Crown accepted that his “examination could be conducted as a cross-examination” (para. 25).

That cross-examination indicated that his sources “were not of particular relevance” (para. 29) and that “his knowledge of Airzone’s specialized field of activity [was] understandably quite limited compared with Mr. Fellin’s breadth of knowledge and experience” (para. 34).

The Appellants who were refugee claimants, sought a determination that the denial by Minister of child tax benefits, on the basis that refugee claimants are not temporary residents within the meaning of s. 122.6, violated their s. 7 and s. 15 Charter rights. At issue was the admissibility of three expert reports: the Goldring and Roos reports from a sociology and psychology professor; and the Sadoway report from an immigration lawyer.

Bocock J stated (at paras. 15, and 16):

The two-step test for determining expert evidence admissibility was … clarified in White Burgess [2015 SCC 23, at para. 23] and may be summarized below:

1. Threshold admissibility: This step consists of four questions: is the evidence logically relevant; is it necessary to assist the trier of fact; are there other exclusionary rules; and is the expert properly qualified.

2. Gatekeeper function / Residual discretion to exclude: This step is a cost-benefit analysis of the help and harm of the evidence. Does the probative value outweigh potential prejudice, confusion, and prolonged court time? …

In finding that the Golding and Roos reports satisfied these tests, Bocock J stated inter alia (at paras. 26, 34)

A preliminary decision as to whether different pathway groups and refugee claimants share commonalities as a disadvantaged group needs to be made [under the s. 15 analysis]. That decision comes first, and expert evidence is needed to make it. The Court will hear it.

Information about precarious legal status is certainly probative enough to be admissible. … [T]he reports, overall, provide helpful social science background; any further relevancy or applicability will wait until the assessment of the evidence as a whole.

However, in finding that the lawyer's report was not admissible, he stated (at paras. 35, 40 and 43):

Ms. Sadoway’s report … comprised a legislative history and context concerning various federal statutes; and … represented observation evidence on wait times, durations and pathways for refugee determination. …

… An expert opinion should be information that is outside the experience or knowledge of the judge. … [A]n expert witness’ legal opinion will not usually be necessary and should be excluded at the threshold step … .

… The overall necessity and probative value of the topic as evidence from a lawyer is low relative to the time and cost of having an additional expert testify on topics already covered in the context of social science [reports] … .

A report proffered as an expert’s report was not admitted because it offered conclusory opinions on the point to be decided by the court, namely, whether an activity was SR&ED. A mooted expert did not qualify as a participant expert due to his lck of concurrent participation in the alleged SR&ED.

A taxpayer’s SR&ED claims for work on solar shingles installations were denied by Monaghan J on various bases including that the taxpayer did not have enough knowledge of the field to identify whether its work was advancing the state of knowledge, its work addressed routine engineering challenges and its documentation of the supposed SR&ED work was paltry and not contemporaneous with the work.

Before finding that the taxpayer had failed to establish that it was a Treaty resident in the Netherlands (before considering the Treaty tie-breaker rules) in addition to being a Canadian Treaty resident, Smith J stated (at para. 93):

[T]he Appellant has failed to adduce expert evidence on applicable Dutch law such that the Court is unable to determine with any degree of certainty that it was indeed a resident and liable to tax in the Netherlands. …

A retirement-age geologist with decades of successful experience as a prospector, entrepreneur and inventor, and who worked on a number of unsuccessful projects in and around his 2011 taxation year, which did not generate any revenue in that year, nonetheless was found to carrying on business.

Although the taxpayer’s expenses were only documented in his spreadsheets (he did not provide any invoices, receipts etc.), Masse DJ allowed a significant portion of the claimed expenses – but disallowed others, for example, only allowing the expenses of the taxpayer’s cell phone but not his two land lines.

Hogan J (at para. 105) cited Hammill for the proposition “that the Tax Court is not bound by an admission which is shown to be contrary to the facts where the party benefiting from the admission has adduced evidence going beyond the admission.”

The appellant and his wife were hired by a busy professional couple (Dr. Gupta and Dr. Khanna) to construct a new home on a property they had acquired. Dr. Gupta found (perhaps on the internet) a template for a contract with the appellant that for the most part described the appellant as a general contractor. However, Hogan J accepted the parol evidence of Dr. Gupta and the appellant that the appellant and his wife had been hired to oversee the new home construction for a fee of $150,000 to be spread over three years, and that the costs of the trades, which were mostly paid by the appellant out of funds provided to him by Dr. Gupta, were paid by him on behalf of the couple rather than as principal. The appellant treated their $50,000 annual fee as being eligible for the small supplier exemption on the basis that the appellant’s wife was entitled to ½ in light of her responsibility for providing interior-decorating services.

Hogan J allowied the appellant’s appeal of CRA assessments made on the basis that he was the general contractor on the project and, therefore, should have charged and collected HST on the construction cost of over $1.5 million.

Respecting his acceptance of the parol evidence, Hogan J first noted (at para. 32):

Under the so-called “textualist” approach, parol evidence is admissible only in circumstances where the words or terms of the agreement are considered to be ambiguous (that is, when there is patent ambiguity). The “contextualist” approach, on the other hand, allows for the consideration of extrinsic evidence when there is latent ambiguity, thus making it possible for the factual matrix surrounding the contract at the time it was formed to be considered.

He then stated (at para. 53) that in light of various inconsistencies in the wording of the written contract that it was “ambiguous even under the more conservative textualist approach”, and that “Looking at the broader factual matrix of the agreement (as mandated by the contextualist approach) yields additional sources of ambiguity”. He then agreed with the appellant’s position that “parol evidence proffered by Dr. Gupta, his wife and himself is admissible because of the patent ambiguity in the contract” – and concluded (at para. 57) that “the Agreement does not accurately reflect their true intent.”

An order of the Australian family court required the transfer of shares by a named company in its capacity as trustee of a family trust. In fact, such trustee was another company. Jagot J found (at para. 168) that, given that the consent “orders are to be construed on their own terms without reference to extrinsic material” she had no equitable discretion to correct this, so that “on their own terns, the orders have no operation and cannot be enforced.” Thus, the order also did not effect any transfer of beneficial ownership of the shares to the separated spouse in question.

If a shareholder is the sole director of his company, does it follow that an advance made to him by his company was a loan if that was his intent? Rares J demurred (at paras. 53-54), quoting previous judicial statements that:

Corporate decisions and acts can only be achieved in explicit ways… . Coincidence of the identity of the sole director, the sole shareholder and the person by whom services are provided does not mean that the corporate decision to enter into a service contract and the actual formation of the contract can take place wholly within the individual’s head and be revealed, if at all, only when it suits him or her to reveal it.

and that:

The question … is whether the conduct of the parties viewed in the light of the surrounding circumstances shows a tacit understanding or agreement. The conduct of the parties, however, must be capable of proving all the essential elements of an express contract.

Testimony of experts on Barbados law indicated that an indirect Barbados subsidiary of the taxpayer was required to be licensed as a trust and finance company and was so licensed by the Central Bank of Barbados. Owen J stated (at paras. 72,74):

The content of the letters received by the experts from the Central Bank is hearsay. However, it is well established that an expert may rely on hearsay in formulating an expert opinion.

I see no reason to afford the opinions of Sir Trevor Carmichael and Ms. Mahabir less weight because the thorough due diligence performed by them necessarily includes reliance on statements by a senior official of the Central Bank that are hearsay.

Before noting (at para. 76) that "the Appellant did not bring expert witnesses to explain to the Court the operation of the law of agency (or of any law) in the United States or Mexico," D'Arcy J stated (at para. 75):

[T]he consequence of a party failing to bring expert evidence to explain the operation of foreign law is that the concept of lex fori will apply. The Canadian court will act as if the foreign law is the same as its own law, unless the law is of a local or regulatory nature.

The taxpayer was reassessed for his 2004 to 2008 tax years for undeclared income, shareholder benefit, and adjustment for rental expenses. The taxpayer argued that the amounts received were via loan or simply returned to customers and were not income to him. Due to a lack of documentation, the Minister used the net worth method to determine that the Appellant failed to declare taxable income.

Bédard DJ upheld the Minister's assessment. A net worth assessment was appropriate given the lack of documentation (based on Bastille v. The Queen, 96-4370(IT)G, December 9, 1998, 99 DTC 431, [1999] 4 C.T.C. 2155, Ramey v. The Queen, [1993] T.C.J. No. 142 (QL), [1993] 2 C.T.C. 2119, 93 DTC 791 (at p. 793 DTC), Zheng v. The Queen, 2012 DTC 1133), and the taxpayer's testimony generally lacked credibility.

Bédard DJ further stated (at p. 634):

[W]hen a business …relies on cash transactions, the onus to maintain adequate books and records which are fairly transparent and self-explanatory to a third party who is reviewing those records is that much greater.

Counsel for the taxpayer argued (at para. 18) “that the Rules of this Court which require the Appellant to provide information on discovery sanction coercion constituting torture given that this is causing Mr. McCarthy mental distress,” so that evidence thereby obtained would be inadmissible under s. 269.1(4) of the Criminal Code. Boyle J stated (at para. 21):

I am not at all persuaded…that this Court’s discovery processes mandated by the Rules, and which form a very integral part of due process and natural justice in this Court, and provide processes to be followed for the better administration of justice, constitute torture.

Boyle J. also rejected a submission that compelling a person to complete discovery constitutes coercion at common law, so that the answers would be inadmissible

The appellant argued that the Court had no evidence that the reassessment of the appellant had been made pursuant to valid legislation as the Minister had not produced a certified copy of the Income Tax Act nor had respondent’s counsel made a request of the Clerk of the Senate for a copy, as required by ss. 4 and 5 of Publication of Statutes Act. In rejecting this submission, Bocock J noted that “pursuant to Subsection 31(1) of the [Legislation Revision and Consolidation Act], either the print or the electronic consolidated statutes published by the Minister constitute evidence of that statute,” under s. 31(2) of the LRCA “in the case of inconsistency between consolidated statutes published by the Minister and the original statute or amendments retained by the Clerk of the Senate, the original statute or amendments shall prevail” (para. 18), and (at para. 19) that s. 18 of the Evidence Act “states that no proof before a Court of any Parliamentary Acts, public or private, is necessary in order to establish evidence of a Parliamentary Act.” He concluded (at paras. 20-21):

Copies of the Act printed from the Department of Justice’s website in electronic form and containing the imprimatur of Sections 31(1) and 31(2) of the LRCA are official copies of federal statutes and regulations…and [o]nce produced before the Court…judicial notice may be taken of it. …

Further, the appellant’s agent did not assert that two differing versions of the Act required reconciliation under subsection 31(2) of the LRCA.

Lord Drummond Young found that a scheme, which entailed employers paying employee bonus amounts to a master trust whose trustees in their discretion would use the amount to settle a sub-trust with the class of beneficiaries generally comprising the employee's family members, and with the trustee of the sub-trust lending such funds to the employee, resulted in taxable employment income to the employee when the amounts were first paid to the master trust. Before so finding, he first concluded that the Inner Court of the Court of Session had judicial knowledge of English law, noting (at para. 49) that The First-tier Tribunal and Upper Tribunal below had “United Kingdom-wide jurisdiction, and it is agreed between the parties that both of them have judicial knowledge of English law…[and i]n the event of an appeal from the Inner House to the United Kingdom Supreme Court, that court too has judicial knowledge of English law,” and stated (at para. 50):

The result otherwise would be highly artificial. The lower tribunals would have judicial knowledge of English law; the court to which a final appeal may be taken would have judicial knowledge of English law; but this court would be constrained by the findings on English law of the First-tier and Upper Tribunals.

…No doubt the theoretical nature of a trust is different, being based on the notion of legal estate and equitable interest in England, whereas in Scotland it is based on the notion of dual patrimonies of the trustee. Nevertheless the practical results are similar, and the institution of the trust fulfils similar functions in both jurisdictions. Consequently Scottish judges should not have any great difficulty in understanding English law, and are expected to do so in the Upper Tribunal and UK Supreme Court.

Before accepting largely uncorroborated evidence of the taxpayer respecting his reasons for acquiring a property, Owen J stated (at para. 76):

In Hickman Motors Ltd. v. Canada, [1997] 2 S.C.R. 336, Justice L'Heureux-Dubé made the following comments at paragraphs 87 and 88, which were adopted by the Federal Court of Appeal in House v. The Queen, 2011 FCA 234 at paragraph 56:

. . . Furthermore, where the ITA [Income Tax Act] does not require supporting documentation, credible oral evidence from a taxpayer is sufficient notwithstanding the absence of records: . . . .

In rejecting the Crown's submission that she should reject the evidence of the taxpayer's expert, on the use of derivatives to hedge risk, on the basis that the expert's "anecdotal" evidence was not relevant to the issue to be decided (whether a cross-currency swap was a hedge notwithstanding no intention of the taxpayer to sell the underlying indirect U.S. asset), Lamarre ACJ stated (at para. 63) that she would "rely on [the expert's] expertise only to better understand the hedge financing world, which in itself is not necessarily an area of common knowledge."

Before finding that the consideration for management services provided by a mutual fund trust manager to the trusts did not include special rebate distributions that the trusts were obligated to pay to large unitholders, and before finding (at paras. 72, 76) that the surrounding circumstances established that the parties intended to follow an ATR-65 structure, which required that the special distributions satisfy obligations of the trusts rather than the manager, Campbell J stated (at para. 45):

[E]vidence respecting surrounding circumstances… will be limited to the objective evidence of the background facts at the time of formation and execution of the contract. … As noted in Sattva [2014 SCC 53], considering surrounding circumstances, as an interpretative aid, does not offend the parol evidence rule, which excludes evidence of the parties' subjective intentions and precludes considering evidence outside the words of the contract that would result in varying the contract in some manner.

See detailed summary under ETA – s. 153(1).

Woods J excluded an expert's report on the effect on the taxpayer's stated capital account of a conversion of convertible debentures as this represented "an expert opinion on domestic law" (para. 33).

Revenu Québec assessed the taxpayer under a cash-flow analysis, as her lifestyle exceeded her income, and she was not forthcoming with Revenu - she maintained that her estranged ex-fiancé paid her living expenses in the relevant period, but would not provide supporting documentation or even, initially, the fiancé's name.

After noting (at para. 20) that a cash flow analysis is a "method of last resort," Masse DJ found that the taxpayer was able to refute the Minister's assumptions, between her oral testimony and that of her ex, who was generally aggressively uncooperative.

The taxpayer advanced evidence to demonstrate that the proper characterization of a payment received by it from the Ontario government was compensation for the destruction of its business – notwithstanding that the agreement with the government provided for a taxpayer sale of land (which the extrinsic evidence showed had become worthless). In finding that the parol evidence rule did not apply to exclude this evidence, C Miller J found that:

• such evidence pertained to the factual matrix surrounding the agreement - that is, objective evidence of the parties' intentions - while the parol evidence rule only blocks evidence of the parties' subjective intentions (para. 88); and
• even if the parol evidence rule were to come into play, the agreement had not explicitly indicated an allocation amongst the assets being sold - so that evidence of the parties' subjective intentions would have been necessary to resolve the ambiguity (para. 98).

C Miller J also expressed reservations about the universal application of the parol evidence rule in the Tax Court, where poor or even misleading drafting could, absent the ability to consider extrinsic evidence, frustrate the Court's goal of accurately characterizing transactions for tax purposes (para. 89).

Press releases released by the federal and provincial government were accepted as evidence of the information contained therein, whereas affidavits of senior government officials did not satisfy the public documents exception to the hearsay rule (paras. 102, 109).

In finding that a settlement agreement had been reached on terms as construed by the taxpayer rather than the Minister, Campbell J stated (at para. 47):

A contract will be found to validly exist where the party accepting the offer could reasonably be expected to know the other party's meaning even where it is not specifically communicated. ... [T]he extrinsic factual matrix supports the Appellant's interpretation of the settlement agreement while in no way supporting the Respondent's interpretation. Consequently, the Appellant's understanding and interpretation, which is reasonably supported by the factual matrix and law, ought to have been known to and considered by the Respondent when accepting the Appellant's settlement offer.

The fair market value of a Toronto apartment building was in issue because of its deemed disposition on the taxpayer's death. Before rejecting the valuation of the Minister's expert (Mr. Walsh), Campbell J stated (at para. 55):

Mr. Walsh's independence as an appraiser was compromised once he saw and read both of [the] other appraisals. ... Brunette ... 82 DTC 1308, at paragraph 39 ... concluded that a report prepared by a departmental employee who had reviewed prior reports, was seriously tainted. ... [Mr. Walsh's] choice, not to disclose this information in his Report or in his testimony without some prodding ... undermines his objectivity and impartiality as a witness and a qualified expert... .

The taxpayer made loans to a corporation that, it transpired, was engaged in a Ponzi scheme. C Miller J found that purported interest payments that the taxpayer received from the corporation were not income from a source (see summary under s. 3). In the course of his reasons, he relied on the Alberta Securities Commission's finding that the investment was fraudulent. The Minister argued that it was inappropriate to rely on facts raised in the Commission's decision, not proven in the present trial. C Miller J replied that the Commission's finding of fraud was a finding of law (para. 14).

In a transfer pricing dispute, the taxpayer's law firm (Osler) and a third party spent approximately 14,000 hours collecting, reviewing and producing documents. Osler had reviewed all material in its possession but had not required the taxpayer to make a further review of material in its possession. The Minister moved for expanded document production.

Rip CJ referred with approval (at para. 38) to the principle:

...that the concept of proportionality requires "dealing with a case in ways which are proportionate to the amount of money involved, the importance of the case and the complexity of the issues."

He also quoted the Principle 2 of the Sedona Conference. He then concluded (at para. 44) that:

...given the complexity of this case and the amount at stake, it is not unreasonable for the appellant to review and conduct additional searches and make further inquiries into certain documents.

Rip CJ also ordered the taxpayer to explain the basis for having made purported solicitor-client privilege-based redactions, but found that redactions on privacy grounds (e.g. salary deletions) were appropriate, provided such redactions did not render the relevant parts incomprehensible (para. 56).

FCA appeal settled.

The taxpayer filed experts' reports in addition to those for which the authors testified at trial. Boyle J stated (at para. 268) that "little weight can be given to the contents of expert reports written by person who did not testify in the proceedings."

Woods J found that the taxpayer's criminal conviction for tax evasion was not merely prima facie proof that the taxpayer under-reported his income, but dispositive proof (Toronto v. CUPE, 2003 SCC 63). If there were merely a rebuttable presumption, then the Tax Court would be in the awkward position of second-guessing a superior court (para. 39).

The taxpayer sought to establish through testimony of a Canadian tax accountant who had advised in connection with the transactions under review that an arm's length vendor (Ford U.S.) of debt and shares to the taxpayer had engaged in preliminary transactions for U.S. tax reasons rather than to accommodate a Canadian tax advantage to the taxpayer. Bédard J stated (at para. 43) that he could not accept the testimony of the accountant as to the American tax consequences to Ford U.S.

In addition, following Léveque v. Comeau, [1970] S.C.R. 1010, at 1013, and citing R. v. Joliver, 2000 SCC 29, a negative inference was drawn from the failure to have a witness from Ford U.S. testify as to its reasons for structuring the preliminary transactions.

Bédard J proceeded to find abuse (see summary under s. 245(4)).

Graham J found (citing Raposo) that the taxpayer's guilty plea under s. 239 for failing to report commission income from his real estate business was prima facie proof that he had also been grossly negligent for purposes of s. 163(2) (para. 25). It was not necessary to dispose of the taxpayer's argument that in the other action he had thought he was only pleading guilty to having been negligent, as in this action the Crown had established that the taxpayer had falsified statements of his commission income before providing them to his tax preparer. The taxpayer's appeal was denied in respect of the penalties.

Graham J proceeded to consider various disputed business expenses, and stated (at para. 47):

While it is not always necessary for a taxpayer to have receipts to support his or her expenses, a taxpayer like Mr Harvey who has otherwise been found to lack credibility and whose expenses involve things such as automobiles, cell phones, home offices and meal and entertainment that could also be personal in nature, is going to have difficulty overcoming the Minister's assumptions without such receipts.

The taxpayer disputed, inter alia, the amount of revenue from various business activities. In granting some but not all of the adjustments the taxpayer requested, Woods J. commented that, leaving aside the objective evidence such as business records, the taxpayer himself was not credible. His evidence was often insufficiently detailed, evasive, or implausible. He showed a "flagrant disregard" for the statutory obligation to file timely returns (para. 20), and he apparently did share-trading activities based on false statements in SEC filings.

The taxpayer had pleaded guilty to fraud in misappropriating funds from her former employer. She was sentenced to imprisonment of two years less a day to be served in the community, and to pay restitution of $40,000 to her employer. Paris J noted that, under s. 22.1 of the Ontario Evidence Act, a criminal conviction is prima facie proof of the underlying facts, although related jurisprudence states that the inference is even stronger where there was a full trial leading to a conviction (which was not the case here) (para. 14).

The taxpayer's conviction was therefore prima facie proof that she had misappropriated $40,000 (para. 37). Before upholding the penalty (based on underreported income of $37, 476 for the particular taxation year in question), Paris J stated (at para. 37):

I would adopt the position taken by Bowman C.J. in Biros v Canada, 2007 TCC 248, that where the respondent has proved that a taxpayer has received funds from a fraudulent scheme, the failure to report the income from the fraud is more likely part of the overall fraud than due to inadvertence by the taxpayer.

Payments received by the taxpayers for the termination of their supply contracts (and thus as compensation for the destruction of their related business operations) were capital receipts notwithstanding that the termination contracts labelled the receipts as "payments for feed and herd health expenses." Before so concluding, Hogan J noted (at para. 51) that "evidence pertaining to the parties' understanding as to the intended use of the [payments] is inadmissible," but found that the parol evidence rule did not prevent him from considering the surrounding facts in order to interpret the agreements. He cited (at para. 35) Ventas for the proposition that a commercial contract is to be interpreted, inter alia, "with regard to objective evidence of the factual matrix underlying the negotiation of the contract."

Woods J. disallowed the taxpayer's claim of various expenses connected with his cab-driving business, given that the taxpayer did not keep receipts, produce witnesses, or otherwise substantiate the expenses. The taxpayer's testimony was also questionable given that his reported income was only $10,000 for a full-time driving schedule, and that he had claimed all the repair expenses on a vehicle that he shared with other drivers and only used 1/3 of the time.

Sheridan J. permitted the taxpayer's rental losses from the studio apartment she had purchased in a condominium near a ski resort, as disallowing the losses would be to second-guess the taxpayer's business judgment. One of the Minister's contentions was that the taxpayer had obtained the apartment for personal use, but her testimony that she used it fewer than 10% of her available 120 days in any year was unshaken on cross-examination.

Sheridan J. noted some weaknesses in the taxpayer's evidence. For example, she had failed to produce her Lease Management Agreement to demonstrate the nature of her rental managers' activities (although it was clear from the record that there was such an agreement and that the Minister had seen it). She also produced a letter from condominium management to prove her costs, where banking records would have been more definitive. Ultimately, however, there was little cause not to take the taxpayer at her word.

Sheridan J. found that the taxpayers were unable to demolish the Minister's assumptions about their business revenue and expenses because their business records were inadequate and a substantial part of their business operated through cash transactions. She stated (at para 9) that "I would not go so far as to say that Mr. Hafizy and Ms. Honari were not credible but their testimony was not strong enough to make their case without supporting documentation." The Minister's assessment represented an attempt in good faith to determine the taxpayers' actual profit.

The CRA auditor who handled the taxpayer's reassessment was not available as a witness, so the auditor who had taken over the file testified instead. Hogan J. stated (at para. 23):

In this case, the [Minister] seeks to rely on [the new auditor's] testimony on the basis that he examined [the old auditor's] notes. Even assuming arguendo that Mr. Cudini's notes are indeed admissible under subsection 30(1) of the [Canada Evidence Act], the proper approach would have been to provide notice under subsection 30(7) and then use the notes themselves as evidence.

Moreover, s. 30(10) of the Canada Evidence Act ("CEA") precludes "a record made in the course of an investigation or inquiry" from being introduced as a business record under s. 30(1), so the old auditor's notes were inadmissible: paras. 25-32.

Because the case was heard under informal procedure, the above findings went to weight rather than admissibility (para. 33).

Campbell J. found that the parol evidence rule prevented the Minister from bringing extrinsic evidence that would have shown that the taxpayer was disingenuous in the way it characterized one of its business contracts for tax purposes. As per Shell Caada Ltd. v. The Queen, [1999] 3 S.C.R. 622, 99 DTC 5669, while "courts must be sensitive to the economic realities" of a transaction, these "realities" cannot trump a bona fide legal relationship created through an unambiguous contract.

Moreover, in the same case the taxpayer had previously been barred from bringing extrinsic evidence concerning the same agreement - to allow the Minister to bring extrinsic evidence would be unfair.

Paris J. at paras. 13-14:

While the task of proving expenses is made more difficult where a taxpayer has not kept any records or receipts, it is still open to him or her to provide oral evidence relating to those expenses. ...

In my view, some degree of precision regarding the type and amount of the expenditures claimed is required, along with the [taxpayer's] sales activities. The evidence provided by the [taxpayer] falls far short of this standard. In her testimony, she provided almost no information relating to the specific expenses that were claimed except for certain referral fees and gifts. For the most part, she simply asks the Court to accept her word that she made the expenditures and that she did so to earn income.

The Court refused to examine four boxes of documents that the self-represented taxpayers brought to the Court without sorting or examining them, as this would represent a waste of the Court's resources.

Before permitting parol evidence of the surrounding circumstances culminating in a letter of agreement, Rip, C.J. noted (at para. 38) that "an exception to the parol evidence rule permits the parties to lead evidence demonstrating that the written agreement is not the complete agreement; more precisely that it refers to any prior oral or written communication."

The subject matter of expert evidence was neither complex nor highly technical, so that such evidence was not necessary to enable the trier of fact to appreciate the matters in issue due to their technical nature. Accordingly, such evidence was inadmissible.

The applicant's request for an order for the respondent to produce all materials relating to the negotiation of the Canada-Barbados Income Tax Treaty was denied, but the respondent was ordered to produce documents that clearly pointed to the legislature's intent respecting Article 14 of the Treaty and that might be relevant to the matter in issue.

In a case where the issue was whether the taxpayer was controlled by the husband of the individual who was its sole director, officer and shareholder, adverse inferences were drawn from the failure to call her husband as a witness, particular given the generally vague, imprecise and ambiguous nature of the testimony of the individual.

Given that there was no ambiguity in an agency agreement between the taxpayer and its Puerto Rican subsidiary, it was not necessary to consider any extrinsic evidence of the parties' intention, and fact that the Puerto Rican subsidiary represented in its tax returns to the Puerto Rican authorities that it was carrying on the business itself (contrary to the terms of the agreement) did not alter this conclusion.

Before going on to find that the taxpayer was not entitled to an allowable business investment loss deduction on the basis that the taxpayer had not actually made an investment in a Canadian controlled private corporation, Bowman C.J. stated (at p. 2266):

"If a taxpayer in court can demonstrate through credible oral testimony that a payment was made or an expense incurred, the court must make a finding based on that evidence and give effect to it. The court cannot avoid its responsibility to base its conclusion on the evidence adduced by saying in effect 'It doesn't matter how credible your testimony is, if you don't have a piece of paper you must necessarily lose'."

Given that "residency is a fundamental concept in the area of taxation and determination of residency is a question of general law" (p. 1114) it was appropriate to apply the presumption that the foreign law (South Korean tax law) was the same as Canadian law for the purpose of determining whether the taxpayer was resident in South Korea.

An assignment was found to be a bona fide document validly transferring legal rights of the assignor to the assignees notwithstanding deficiencies in its drafting and the fact that only the individual taxpayer signed the document rather than the assignor and assignees.

The taxpayer, who was a senior partner of Pricewaterhouse, stated that he followed a practice of recording from invoices substantial expenses that he incurred in order to earn his professional income (amounting to approximately one-half thereof), and then threw away the invoices and detailed support when he received his initial assessment for the year in question. Mogan J. noted that the taxpayer should have retained relevant invoices and receipts for a reasonable time (perhaps the three-year normal reassessment period) and disallowed most of the expenses. Mogan J. also noted (at p. 3325) that "there has been a long-established practice of writing the name of the client or guest on the credit card receipt. a private club voucher or ticket (game or theatre) when a person is entertained".

Archambault J. inferred that the evidence of an individual who could have been called by the taxpayer and was not would have been adverse to the position of the taxpayer.

Woods J. indicated that the date an assessment was sent by courier could be established without someone at CCRA recalling the details of the courier delivery but, instead, could be established on the basis of evidence respecting the general mailing and courier procedures of CCRA and a waybill that, in accordance with those procedures, indicated the date of pick-up of the assessment.

In accepting evidence that the vendor and purchaser had intended property in automobiles to pass before the end of the taxpayer's year end notwithstanding that it was in the interest of both parties to so testify, Hershfield J. stated (at p. 1337):

"Still, an intention so manifestly clear (self-evident) supported by credible testimony cannot be cast aside by reason of being uncorroborated by disinterested evidence purely. Similarly, conduct and circumstances that might indicate a different apparent intention than that asserted will not prevail over the asserted intention where it is manifestly clear that the asserted intention is the real intention."

An expert appraiser provided an opinion that the report of another individual, who was not an expert, was appropriate and reasonable. Bowman A.C.J. found (at pp. 674) that:

"I do not think that his testimony concerning the methodology used by emc partners is sufficient to give the emc report the sort of evidentiary weight or value necessary to establish in this court the conclusions expressed in the report. One expert cannot put in another expert's report and make it evidence .... It may well be ... that the methodology used by emc conforms to traditionally accepted standards but if the underlying premises, assumptions and selection of facts cannot be tested the conclusions can be given no weight."

Before finding that there was insufficient evidence (other than heresay evidence) that the taxpayer had received commissions from a company through its participation in a scheme to defraud American investors, Bowman A.C.J. stated (at p. 538):

"Not only must the rules of evidence be followed, particularly in cases governed by the General Procedure - but also, where serious allegations of fraud are made the court must scrutinize such evidence very carefully."

Bowie T.C.J. rejected the evidence of a expert witness on the basis that the witness made frequent reference to both factual material that had been provided to him by consultants and also to matters of judgment as to which he had sought their opinions. Bowie T.C.J. noted that he knew nothing of the qualifications of the consultants, had not had an opportunity to assess their competence and they had not been subject to cross-examination.

The Tax Court Judge had confirmed a finding of the Canadian Cultural Property Export Review Board that a prototype heavy-lift aircraft donated by the taxpayer had a fair market value of U.S.$200,000 rather than the U.S.$3,075,000 estimated by the taxpayer. The Court of Appeal affirmed the Tax Court's rejection of the taxpayer's contention that the Tax Court Judge was bound to allow the appeal once flaws had been identified in the opinion expressed by the Crown's experts. The Tax Court Judge correctly stated that:

"Merely to show that there are flaws in the Board's determination neither shifts the evidential burden to the respondent nor justifies the acceptance of the appellants' position."

Respecting a question that was asked of an expert witness as to whether a loan would have been by the taxpayer if it were not for the tax benefits, Mogan T.C.J. stated (at p. 1966) that:

"I regard the question which Dr. Sick was asked as one which is better answered with market experience than with academic knowledge."

After noting that evidence had been adduced, over the objection of the Crown, that the former common-law spouse of the taxpayer had included support payments in her income, Bowman A.C.J. stated (at p. 908):

"I agree that this evidence is irrelevant but in the informal procedure it is inappropriate that technical evidentiary road blocks be put in front of litigants. The judges of this court are perfectly capable of ignoring irrelevant evidence."

A report of an accountant was inadmissible given that it was based on his own findings of fact rather than being based on stated facts or hypotheses to be proven by evidence. Furthermore, his conclusion that "a profit-oriented business person acting reasonably would not enter into the transactions, as described herein, in the absence of or excluding income tax considerations" violated the principle that "neither experts nor ordinary witnesses may give their opinions upon matters of legal or moral obligation, or general human nature, or the manner in which other persons would probably act or be influenced".

Bowie TCJ. refused to make a finding that witnesses had fabricated their evidence because counsel for the Crown, who proposed such a finding, had not raised this allegation with the witnesses when cross-examining them. (1946), 2 DTC 918 (Ex Ct)

Bowman TCJ. found that informant's privilege required Revenue Canada officials to white-out the names of informants who had sought to instigate an investigation of the taxpayer from copies of documents it was required to deliver to the taxpayer.

A transaction that was documented in a confusing fashion was characterized as representing a sale by the taxpayer of his 1/2 interest in a partnership to purchasing partners, rather than a dissolution of the partnership followed by an asset sale. Hamlyn TCJ. applied (at p. 1453) the principle that "when documents are ambiguous or do not explain the whole transaction, the Court may look to other evidence as to what the parties intended".

Dussault TCJ. found that it was not relevant to the status of the individual advanced as an expert by the Crown that he was licensed as a professional engineer in Ontario rather than Quebec (stating at p. 485 that "it is knowledge and expertise in a field that count, not the manner in which that knowledge and expertise have been acquired") but went on to find that because the individual had not followed high technology developments in telephony, which was the particular field under consideration, he could not be qualified as an expert.

Mogan TCJ. found on the authority of MNR v. Ouellette and Brett, 71 DTC 5094, that the parol evidence rule did not apply to prohibit the taxpayer from giving oral evidence to explain that, notwithstanding its apparent defects, a written separation agreement between him and his wife satisfied the various requirements of s. 60(b).

After stating that less formality is required where a loan is made to an individual by a corporation in which an arm's length individual is a shareholder, Mogan TCJ. (p. 1724) further stated:

"In those circumstances, if only one shareholder has received a loan from the corporation on terms which are not reduced to writing, and if all of the shareholders are in agreement with respect to the oral terms of the loan, the conflicting commercial interests of the arm's length non-borrowing shareholders will ordinarily cause them to ensure that the loan is repaid within a reasonable time."

After noting (at p. 254) that "the role of expert witnesses is to provide impartial assistance to a court, particularly when complex issues of a scientific or technical nature are involved", Sarchuk TCJ. indicated that he had reservations as to evidence of two experts that a hypothetical fact situation (approximating the facts being asserted by the taxpayer) described a direct financial leases. These responses amounted to opinions on a mixed question of fact and law.

After noting that there was no evidence that a journal entry that purported to eliminate a shareholder loan through a set-off arrangement had been made on a timely basis for purposes of what now is s. 15(2.6), Bowman J went on to state:

Accounting entries do not create reality. Their function is to reflect it. There seems to be an assumption that an accounting entry made after year end can retroactively determine the nature of events that purportedly occurred before the end of the year. …

I cannot find that the loan was repaid before the end of [the corporation’s] 1988 taxation year.

Kennedy J. applied the decision in IR Commissioners v. Church Commissioners for England, [1977] A.C. 329 (HL) where it was found that in revenue cases extrinsic evidence is admissible if it tends to show the true character of the transaction but not for the purpose of treating a transaction of one legal character as if it were a transaction of another legal character.

Before going on to find that kickback payments made by the taxpayer were deductible, Kempo J. stated (p. 1263):

"That the rebate arrangements were conducted secretly and carried an aura of impropriety are, apart from attracting a heavier burden of proof, not in themselves determinative."

At 1011:

"While I accept the no provision of the Income Tax Act requires that such expenditures be supported by documentation such as invoices, receipts or cancelled cheques (see Weinberger v. MNR, 64 DTC 5060), there must be at least some acceptable and admissible evidence before the Court that the presumption of correctness of the assessment is to be rebutted."

Before allowing a substantial portion of expenses of an investment consultant which Revenue Canada had disallowed, Couture J. stated (p. 1463):

"The Income Tax Act (the Act) does not require a taxpayer to submit receipts in support of expenses claimed as deductions in computing income. If Parliament had wanted that such a practice be followed by taxpayers, enactments to that effect would have been included in the Act in the same fashion as receipts must be provided to support a charitable donation."

In finding that the elimination of indebtedness of the taxpayer to his corporation by set-off was sufficiently evidenced by information contained in the working papers of the corporation's accountant, Brulé TCJ. stated (p. 540):

"There does not seem in law a requirement for a written contract in order to effect a set-off. The Court must determine the intention of the parties and the nature of the obligations imposed on them by reference to credible evidence of another kind ..."

In finding that it was not necessary for the agreement of a corporation to pay the food and accommodation expenses of its owner-operators to be evidenced by a written agreement, Beaubier J. stated:

"The cases where formality of records has been dealt with by the Court are, so far as can be determined, cases involving alleged leases or loans to others in which one would ordinarily expect documentation among people dealing in normal commercial transactions."

After discussing the judgment in Continental Insurance Co. v. Dalton Cartage Co. Ltd., [1982] 1 S.C.R. 164, Christie A.C.J. stated (p. 1107):

"It must be understood that if taxpayers create a documented record of things said and done by them, or by them in concert with others, to achieve a commercial purpose and then seek to repudiate those things with evidence of allegations of conduct that is morally blameworthy in order to avoid an anticipated assessment to tax, they face a formidable task. And that task will not be accomplished, in the absence of some special circumstance, an example of which does not occur to me, by their oral testimony alone."

The Court rejected a submission that since a deed of covenant was a deed, the question whether sums payable under the deed of covenant were "pure income" of a council had to be decided on the words of the deed of covenant alone without regard to any evidence of surrounding circumstances.

The taxpayer, which was a resident of the U.K. and carried on an international shipping business both directly and through subsidiaries, provided various services through its Canadian branch office in respect of both its own ships and those of subsidiaries, including the provision of stevedoring services, the finding and booking of cargo for the ships and attending and participating in rate setting and other activities of the Canada-U.K. Eastbound Freight Conference. In finding that the profits attributable to these services provided in relation to the taxpayer's own ships came within the exemption in s. 10(1)(c) of the pre-1972 Act for "income for the year of a non-resident person earned in Canada from the operation of a ship or aircraft owned or operated him", Thurlow J. stated (p. 5366):

"Both the 'agency' and stevedoring services in respect of which the entries arose were part of the process of operating the ships and the amounts entered in the books in respect of such services do not become any the less exempt by reason of the manner in which the appellant organized the activities of its branches or arranged their bookkeeping and accounting."

However, no similar exemption applied to such services provided to subsidiaries.

Mr. Fisher accepted the taxpayer's oral evidence that an agreement that was in the form of a sublease agreement in fact was intended to give effect to a sale agreement.

Mr. Fordham followed Salter v. MNR, 2 DTC 918 (Ex Ct) in finding that although an agreement between the taxpayer and an American company indicated that payments were made solely in consideration for the right to use a line of clothing and the associated name, the taxpayer's evidence that the terms of the agreement also required the provision to the taxpayer of services, was admissible.

On the formation of a partnership, the excess of the nominal value of the shares issued over the net book value of the assets transferred was assigned, in part, to goodwill, and the balance was applied to write-up the book value of the inventory. After finding that no profit had been realized on this transaction because it entailed the transfer of a business as a whole, Lord Phillimore went on to state (p. 336):

"The Crown is not entitled to take a mere bookkeeping entry as conclusive evidence of the existence of a profit. The two partners made no money by the mere process of having their stock in trade valued at a higher rate when they transferred to a company consisting of their two selves."