Evidence

Commentary

This commentary refers to a number of recurring questions in taxation practice respecting the admissibility or relevance of some types of evidence. This is not a discussion of the law of evidence. Such a discussion may be found in one of the general works on this subject.

Contradiction of written contracts or other documents (parol evidence rule)

A recurring question is the extent to which a taxpayer may contradict or supplement documentary evidence through oral testimony. When the question is as to the ability of a party to a contract (or, as discussed below, a third party such as the Minister) to seek to establish that the written terms of a contract do not reflect the actual agreement of the parties, it often is labeled as an issue as to any application of the "parol evidence rule." This rule was expressed in United Brotherhood (quoted in General Motors) as indicating that "It is generally presumed that when parties reduce an agreement to writing they will have included all the necessary terms and circumstances and that the intention of the parties is that the written contract is to be the embodiment of all the terms." Other cases have expressed the rule in more trenchant terms ("subject to certain exceptions, when the parties to an agreement have apparently set down all its terms in a document, extrinsic evidence is not admissible to add to, subtract from, vary or contradict those terms": Gallen v. Nunweiler (1984), 53 B.C.L.R. 38, para. 34.)

A question which still may be open is that of whether the parol evidence rule can or should be applied in litigation with a third party who was not a party to the contract, namely, the Minister. A number of cases suggest that a taxpayer (and a fortiori the Minister - see Urichuk) may introduce evidence in such a case that contradicts a written agreement to which the taxpayer was party (Salter, Gahrns, Dobell, Warsh, Lay). Such cases may not sit comfortably with the doctrine that a written contract or other transaction generally can be ignored only when it is a "sham," whose "elements require that the parties to a transaction together have deliberately set out to misrepresent the actual state of affairs to a third party": Nunn. The narrowness of the sham concept reflects deference to the taxpayer's documentation of its arrangements.

Other cases have rejected the proposition that the parol evidence rule does not apply to litigation with a "stranger to the contract," namely, the Minister (On-Line Finance - see also Meteor Homes: "it goes without saying that verbal evidence cannot be entertained to vary or contradict the terms of a valid written agreement") or ignored it (General Motors, River Hills - see also Lecours). In any event, in circumstances where it is implausible that a written agreement or other document does not accurately express the intentions of the taxpayers, it may be impracticable for them to contradict that document (MCA, Bowes), particularly where the alleged arrangement they wish to establish is morally blameworthy (Pallan).

Oral evidence of a taxpayer seeking to establish that a written agreement should be disregarded for tax purposes because it was "only" entered into for the purpose of deceiving another government, likely will not be accepted (1524994).

[A]n exception to the parol evidence rule permits the parties to lead evidence demonstrating that the written agreement is not the complete agreement" (Ollivierre).

Evidence of a taxpayer may also contradict a receipt signed by it (Pepsi-Cola).

Resolution of documentary ambiguity

Extrinsic evidence may also be utilized to resolve an ambiguity in a document (Mihelakos), or shed light on the circumstances surrounding a contract (General Motors, River Hills) or on the intentions of a party to a document, e.g., those of a settlor of a trust (Atinco). Similarly, in interpreting a deed, reference may be had to evidence of surrounding circumstances (Essex). A court may look to the subsequent conduct of the parties to an agreement or to the usual practice of participants in an industry to determine the true nature of an agreement or a contractual term (Phyllis Moore, Wil Mechanical).

Absence of documentary evidence

Agency auditors are accustomed to verifying items of income or expense through a review of documentary evidence. What if such evidence is exiguous, or even nonexistent? There is no requirement of the Act that expenditures be supported by documentation such as invoices, receipts or cancelled cheques (Benjamin), although there must be at least some acceptable and admissible evidence before a Court will find that a taxpayer has discharged the onus on it to establish that such expenditures have been made (Weinberger, Samra, Savoidakis, Sidhu, see also Cirone). For example, a sophisticated taxpayer who testifies that his normal practice was to throw away all his receipts upon receiving his initial assessment will receive short shrift (Redrupp). Even undocumented kickback payment may be deductible, although proof of such an expenditure may attract a heavier burden of proof (United Color). There is no requirement in law for set-off to be accomplished by a written contract (Docherty). The existence of a trust may be established by oral evidence (Bouchard).

Closely allied to the proposition that a court may review extrinsic evidence to determine the true nature of an agreement is the doctrine of substance over form. In particular, a court is not bound by the terms used by contractual parties to describe their relationship in determining the true nature of their agreement (Sandhu).

Board minutes

Because corporations formulate policies and take important decisions through their boards of directors, and there is a legal requirement to maintain board minutes, the absence of written minutes to support a transaction may shed doubt on a corporation's involvement in such a transaction (Border Chemical Cf. Barnabe). However, the minutes of a company are merely prima facie evidence of what occurred, not conclusive evidence (Rosenblat).

Deference to document dating

There is a presumption that an instrument is executed on the date that it bears (Darke) although evidence that an agreement was concluded on a different date than that which it bears is admissible and may be accepted (Dobell). (See also Effective Date.)

Subsequent conduct

In keeping with the principle that courts will "look for objective manifestations of purpose" (Symes), the subsequent conduct of a taxpayer may corroborate statements by it as to its intention in the taxation year in question (Gorjup, Don Fell, see also David), or provide evidence of the taxpayer's purpose for entering into a transaction (Canadian Helicopters)

Court visitation

In the discussion above, we have focused on the relative weight to be given to documentary and oral evidence. In one case, the court actually visited a taxpayer's manufacturing plant in order to better understand the nature of its operation (Stowe-Woodward).

Accounting evidence

The application of generally accepted accounting principles to a transaction does not establish how profit from that transaction should be computed in accordance with the Act. It follows that the existence of a "mere" bookkeeping entry is not conclusive evidence of the existence of a profit (Doughty) and that the method of bookkeeping adopted to record a transaction is not conclusive either for or against the taxpayer (Dominion Taxicab, Sinnott, Furness). Similarly, the absence of any accounting entry to record a liability does not establish the absence of the liability for purposes of the Act (Esskay Farms), of an accounting entry to record a reserve does not establish that the taxpayer did not take a reserve (Argus Holdings).

Statements in tax returns that "were not made inadvertently but only made following due consideration and professional advice ... constitute statements against interest" (Riviera Hotel). This proposition also likely applies to disclosures in a corporation's financial statements (which often are included in its tax return). Adverse inferences have been drawn from the treatment by the taxpayer in its financial statements of operating losses (Hummel) or its treatment in its financial statements of land as inventory (Rudolph Construction; see also Armstrong). An adverse inference might not be drawn from the failure to record an item in the financial statements in a manner consistent with the desired characterization under the Act where to do so would not have merited the bookkeeping effort (Hickman Motors).

Evidence on accounting principles is an appropriate subject for the adducing of expert evidence; and statements in the CICA Handbook or in accounting texts have been viewed as not being appropriate matters for judicial notice in the absence of such expert evidence (Moore, see also Timmins).

Expert evidence

In Kamsel, Sarchuk TCJ stated:

[T]he role of expert witnesses is to provide impartial assistance to a court, particularly when complex issues of a scientific or technical nature are involved ... . Dickson J. in R. v. Abbey described the role of the expert in the following way:

With respect to matters calling for special knowledge, an expert in the field may draw inferences and state his opinion. An expert's function is precisely this: to provide the judge and jury with a ready-made inference which the judge and jury, due to the technical nature of the facts, are unable to formulate.

A court will not accept as expert evidence statements that are assertions of the answer to a mixed question of fact and law (Kamsel), or that are based on the expert's own implicit findings of fact (Mathew), or that deal with questions of general human nature, e.g., whether a business person would make an investment (Mathew). In determining whether someone is an expert, the focus will be on whether he or she has the requisite knowledge and expertise in the field, rather than on a mechanical weighing of formal professional qualifications (Telecomsyst Services, see also Frankel).

Appellate review of the assessment of expert evidence by a trial judge is (based on Housen v. Nikolaisen, 2002 SCC 33), subject to the same standard of palpable and overriding error as for other factual findings by the judge (Brown).

Fraud

The courts will scrutinize the evidence very carefully before making a finding of fraud (Chomica).

Foreign law

Foreign law can be established as a matter of fact by the opinion of a qualified lawyer (Capitol Life, see also Old HW-GW). In the absence of convincing evidence of foreign law, the court will look to domestic law and assume it is the same as the foreign law (Backman, Bernick) including, it would appear, a presumption that the foreign tax law is the same as Canada's as it applies to a fundamentally factually-based inquiry such as residence (Yoon).

Conversely, "questions of domestic laws as opposed to foreign law are not matters on which a court will receive opinion evidence" (Syrek).

Cases

Deputy Commissioner of Taxation v Rennie Produce (Aust) Pty Ltd (in liq), [2018] FCAFC 38

Revenue free to use documents subject to mooted Harman obligation

The obligation in Harman v Secretary of State for Home Department [1983] 1 AC 280 was described as follows (quoting at para. 27):

Where one party to litigation is compelled, either by reason of a rule of court, or by reason of a specific order of the court, or otherwise, to disclose documents or information, the party obtaining the disclosure cannot, without the leave of the court, use it for any purpose other than that for which it was given unless it is received into evidence.

The Court held that the Harman obligation did not impede a taxpayer, who had documents in its possession which it had obtained from a third party pursuant to a summons, from providing those documents pursuant to a requirement for information issued to it by the Commissioner of Taxation, or the Commissioner from using such documents.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 231.2 - Subsection 231.2(1) third-party documents obtained in commercial judicial proceedings were producible under a requirement issued by the tax authority 356

Olympia Trust Company v. Canada, 2015 FCA 279

contract informed by surrounding circumstances

Before rejecting arguments that the purchaser of shares from non-resident vendors was the annuitants, rather than the trustee, of RRSPs given that inter alia the annuitants were named in the purchase agreements as the purchasers, Ryer JA stated (at para. 50) that “it was permissible for the Judge to consider the circumstances that surrounded those agreements.”

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 116 - Subsection 116(5) RRSP trustee, not annuitant, was the "purchaser" 188
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(2) fictitious s. 104(2) trust is not the purchaser 112

Samaroo v. CRA, 2014 DTC 5096 [at 7137], 2014 BCSC 1349

public interest immunity

In reviewing documents alleged to be relevant to a claim of malicious prosecution, Punnett J stated (at para. 54):

[54] The leading decision on public interest immunity is Carey v. Ontario, 1986 CanLII 7 (SCC), [1986] 2 S.C.R. 637, in which the Court indicated that it was necessary to strike a balance between the need to give litigants access to all the evidence that might assist in the fair disposition of the issues, and the fact that some information about government activities should be not be disclosed in order to protect the public interest. The immunity does not "belong" to any one party to the litigation or to the government, but rather arises because of the potential harm flowing to the state from the release of the information in the documents. Factors to consider in balancing the interests include: the contents of the documents; the level of the decision-making process; the time when a document/information is to be revealed; and the importance of producing the documents to the administration of justice (see Babcock et al v. The Attorney General of Canada, 2004 BCSC 1311 (CanLII) at para. 20).

R. v. Eddy, 2014 DTC 5050 [at 6780], 2014 ABQB 164

reasonable limits on Crown obligations to disclose evidence to accused

The accused brought an application to compel the crown to disclose an extensive list of documents, detailed in a 205-page brief. The documents sought included all investigation files related the the Porisky investigation (involving another taxpayer in allegedly similar circumstances), as well as "all file contents and other media formats, including ... documents, ... e-mails, memos, working papers, phone messages, minutes from conference calls, and post-it-notes" that may have been held by, among others, CRA, the Department of Justice, the RCMP commissioner, and the Minister of Public Safety.

The taxpayer's application was dismissed in the main. There were bases to deny all of the requested documents, including privilege or irrelevance. In many cases, there was no reason to believe that the requested documents even existed.

Some other documents were neither privileged, irrelevant, nor non-existent, but simply fell outside the Crown's obligations. Electronic metadata, e.g. creation and modification dates, did not speak to the elements of the offence and were not part of the case to meet (para. 127). The Crown was also under no duty to collect witness statements (i.e. what a witness intends to say at trial) that did not already exist from people it did not intend to call at trial - the accused was not entitled "to use the Crown as her agent and to conduct an investigation" (para. 137). However, the Crown was ordered to disclose any witness statements already collected, even for witnesses that the Crown did not intend to call - assuming that any such undisclosed statements existed (para. 135).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 239 - Subsection 239(1) reasonable limits on Crown obligations to disclose evidence to accused 253

Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633

contracts interpreted in light of factual matrix

In indicating that a contract should be read as a whole, giving the words it employs their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time the contract was formed (the “factual matrix”), Rothstein J stated (para. 47):

Regarding the first development, the interpretation of contracts has evolved towards a practical, common-sense approach not dominated by technical rules of construction. The overriding concern is to determine “the intent of the parties and the scope of their understanding” … To do so, a decision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract. Consideration of the surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning:

No contracts are made in a vacuum: there is always a setting in which they have to be placed. . . . In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.

R. v. McCartie, 2013 DTC 5136, 2013 BCPC 289

informer privilege

MacCarthy J applied (at para. 10) the principle that "the informer privilege rule confirmed by R. v. Leipert, [1997] 1 S.C.R. 281 is a total bar to the disclosure of any information which might tend to identify the informer's identity," subject to the "innocence at stake" exemption.

Madison v. Canada, 2012 DTC 5072 [at 6935], 2012 FCA 80

hearsay evidence in informal procedure case

In a director's liability case, the trial judge erred in excluding from evidence some notes that the taxpayer had taken from a phone conversation with a fellow director. The taxpayer's notes indicated that she had been informed that she had been voted off the board of directors, which would support her contention that she fell outside the two-year limitations period in s. 227.1(4).

The trial judge had dismissed the notes as hearsay, but the case was heard under the informal procedure, which only allows the dismissal of hearsay evidence after a consideration of whether it is sufficiently reliable and probative to justify its admission, taking into account the need for a fair and expeditious hearing (para. 14). The trial judge could not have made such a consideration as he had refused to even look at the evidence.

House v. Canada, 2011 DTC 5142 [at 6131], 2011 FCA 234

credible oral evidence can be uncorroborated by documents

In noting that a taxpayer's credible oral evidence does not necessarily need the support of source documents, Nadon JA stated (at para. 72):

The Associate Chief Justice appears to have elevated the judicial requirement that supporting documents may be required for a taxpayer to establish his or her claims and deductions to an authoritative principle that documents will always be required for a taxpayer to establish his or her case. There is, in my respectful view, no principle to the effect that oral evidence must necessarily be supported by source documents.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Onus 138

Syrek v. Canada, 2009 DTC 5767, 2009 FCA 53

opinion on domestic law

In finding that testimony of a lawyer as to the enforceability of an agreement was opinion evidence as to a matter of law which should not have been admitted, Nadon, J.A. quoted with approval a statement from Sopinka, The Law of Evidence in Canada, that "'questions of domestic laws as opposed to foreign law are not matters on which a court will receive opinion evidence'."

Canada v. General Motors of Canada Ltd., 2008 DTC 6381, 2008 FCA 142

parol evidence excluded

After referring to Eli Lilly and Co. v. Novopharm Ltd., [1998] 2 S.C.R. 129 ("The contractual intent of the parties is to be determined by reference to the words they used in drafting the document, possibly read in light of the surrounding circumstances which were prevalent at the time") and United Brotherhood of Carpenters and Joiners of America, Local 579, v. Bradco Construction Ltd., [1993] 2 S.C.R. 316 ("The general rule prohibiting the use of extrinsic evidence to interpret collective agreements originates from the parol evidence rule in contract law.....It is generally presumed that when parties reduce an agreement to writing they will have included all the necessary terms and circumstances and that the intention of the parties is that the written contract is to be the embodiment of all the terms.....One of the exceptions to the parol evidence rule has always been that where there is ambiguity in the written contract itself, extrinsic evidence may be admitted to clarify the meaning of the ambiguous term"), the Court found that the trial judge erred in admitting extrinsic evidence as to the meaning of a collective agreement that the taxpayer had entered into in the absence of an ambiguity in the words of the agreement. Furthermore, even if there had been an ambiguity, the trial judge erred in admitting evidence as to the subjective intention of the parties, whereas the extrinsic evidence that is admissible in the event of ambiguity is restricted to evidence of the surrounding circumstances prevalent at the time of entering into the agreement.

Canada v. 1524994 Ontario Limited, 2007 FCA 74

agreement intended to deceive government

In order to comply with a requirement of the Ontario Health Insurance Plan (OHIP) that it would only pay for audiology tests performed by (or under the supervision of) a physician, the respondent numbered company entered into an agreement with two physicians which stated that the physicians would pay the company for the use of its facilities and management services, and that they would employ the company owner (an audiologist but not a physician) to conduct hearing tests for them. The Minister assessed the company on the basis that it provided the two physicians with taxable supplies of building and equipment rentals together with management services, on which it had failed to charge and collect GST. The Tax Court found, on the basis of oral evidence that the agreement did not reflect the true legal relationship between the parties, that there was no taxable supply by the company.

In reversing this decision, Décary J.A. stated (paras. 13, 16):

Parties cannot elect to have an agreement valid for OHIP purposes and claim its invalidity for GST purposes. ... [T]he law will not permit a party to defend a tax claim by asserting that it made an intentional misrepresentation to another (OHIP) from which it derived a benefit (OHIP fees).

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply agreements respected for supply determination purposes 207
Tax Topics - General Concepts - Agency alleged principal lacked capacity to collect OHIP fees 252

Ventas Inc. v. Sunrise Senior Living Real Estate Investment Trust, 2007 ONCA 205

contract interpretation

Blair JA stated (at para. 24):

Broadly stated ... a commercial contract is to be interpreted,

(a) as a whole, in a manner that gives meaning to all of its terms and avoids an interpretation that would render one or more of its terms ineffective;

(b) by determining the intention of the parties in accordance with the language they have used in the written document and based upon the "cardinal presumption" that they have intended what they have said;

(c) with regard to objective evidence of the factual matrix underlying the negotiation of the contract, but without reference to the subjective intention of the parties; and (to the extent there is any ambiguity in the contract),

(d) in a fashion that accords with sound commercial principles and good business sense, and that avoid a commercial absurdity.

R. v. Larsen, 2006 DTC 6574, 2005 BCSC 1867 (BCSC)

The trial judge had incorrectly excluded from the evidence a conversation between the accused and a Canada Revenue Agent who came to the door of the taxpayer's townhouse unit, had a conversation with the accused and served him with a requirement to file income tax returns. The first part of the conversation (in which the accused identified himself) clearly was voluntary because at that time the accused had no knowledge that the person with whom he was speaking was a Revenue official. Statements made by the accused in the second part of the conversation, after the agent identified himself, also were voluntary (notwithstanding that the agent had not given the accused a warning) as there were no hallmarks (such as threats, promises, lack of an operating mind or trickery) that might give rise to a determination of involuntariness.

Furthermore, the Crown was not required to prove that the accused had a specific social insurance number in order to prove that he had not complied with the request to file a return.

Bernick v. Canada, 2004 DTC 6409, 2004 FCA 191

foreign law presumed the same

Before going on to indicate that nothing in the case (which concerned losses allegedly suffered by a Bahamian partnership) turned on Bahamian partnership law, Sharlow J.A. went on to state (at p. 6410) that "in any event it must be assumed that Bahamian partnership law is substantially the same as Canadian partnership law, there being no evidence to the contrary".

Brown v. Canada, 2003 DTC 5298, 2003 FCA 192 (FCA)

Before determining not to overturn the findings of the trial judge on a finding as to the fair market value of software acquired by a partnership of which the taxpayer was a member, Rothstein J.A. stated (at p. 5303):

"The appellant argues that a lower standard of deference is applicable to the assessment of expert evidence by a trial judge. However, since Housen v. Nikolaisen, 2002 SCC 33, that is no longer the case. Findings of fact and factual inferences drawn by a trial judge, whether from expert or other evidence, are to be reviewed on a palpable and overriding error standard."

Lecours v. The Queen, 2003 DTC 5009, 2002 FCA 5 (FCA)

In finding that the trial judge did not err in finding that shares received by the taxpayer pursuant to a corporate resolution that stated such shares were received in consideration for professional services rendered to the corporation, were income to the taxpayer, Noël J.A. stated (at p. 5009) that the taxpayer

"Could not repudiate the resolution he signed himself in the absence of clear and compelling evidence."

Selmeci v. The Queen, 2002 DTC 7186, 2002 FCA 293 (FCA)

Malone J.A. noted that under the informal Tax Court procedure, the Tax Court judge has a broader discretion than would otherwise obtain and (p. 7188) "may admit hearsay evidence even though it would not, for example, be sufficiently necessary to satisfy Kahn, supra, [[1990] 2 S.C.R. 531] but is nonetheless relevant and reliable."

Canada v. Canadian Helicopters Ltd., 2002 DTC 6805, 2002 FCA 30

After noting that, in exceptional circumstances, interest on borrowed money may be deductible even if the direct use of the borrowed funds is not an eligible use, Malone J.A. stated (at p. 6807):

"We are satisfied, as found by the Tax Court Judge, that events subsequent to the loan arrangement ... provide some evidence of Helicopters' purpose and intention in obtaining the loan. An analysis which excludes consideration of events and evidence arising after the funds had been put to their original use, would severely limit the exceptional circumstances inquiry. In our view, events arising after the fact can have probative value in an exceptional circumstances inquiry."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(c) indirect eligible use 133

Harris v. The Queen, 2002 DTC 149 (FCTD)

Notes taken by a Rulings Officer in connection with a ruling were found to be records made in the ordinary course of "business" (as defined in s. 30(12) of the Canada Evidence Act) and, accordingly, were admissible under s. 30(1) of the Act.

Representatives of the office of the Auditor General were permitted to testify as experts on the operation of government departments and, in particular, on the proper operation of the Advance Rulings Directorate of Revenue Canada.

Bell v. Canada, 2002 DTC 6780, 2002 FCA 7

Judicial findings of fact in Grant v. The Queen, 2000 DTC 1985 (TCC) that two individuals were the dominant persons with respect to real estate projects and therefore determined the character (as being on income account) of all the interests held by co-owners, were not admissible as evidence in this case.

Trzop v. Canada, 2002 DTC 6728, 2001 FCA 380

In a case respecting whether a reassessment of the Minister properly gave effect to a judgment of the Supreme Court of Canada, a transcript of comments made by the Supreme Court Justices in the course of argument before them was inadmissible as "nothing said by a judge of any court during the course of argument should be taken as an expression of that judge's opinion on the matter before the court" (p. 6734).

Vancouver Art Metal Works Ltd. v. The Queen, 2001 DTC 5337, 2001 FCT 265 (FCTD)

An admission by a Revenue Canada auditor during examination for discovery that gains realized by the taxpayer were from adventures in the nature of the trade represented informal rather than formal admissions and, therefore, could be contradicted by other evidence proferred on behalf of the Crown.

James v. Canada, 2001 DTC 5075 (FCA)

Bank documents that were admitted pursuant to s. 29 of the Canada Evidence Act were admissible notwithstanding that the affidavits were sworn 12 years before trial. The Court also found that such evidence would be admissible even if the originals of the documents no longer existed at the time of the trial.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Audit Procedure 99
Tax Topics - Income Tax Act - Section 165 - Subsection 165(3) vacating not a remedy for lack of due dispatch 84
Tax Topics - Income Tax Act - Section 56 - Subsection 56(2) no s. 56(2) inclusion to taxpayer if recipient of the transferred property had earned it rather than the taxpayer 314

Argus Holdings Ltd. v. The Queen, 2001 DTC 6681 (FCA)

treatment not governed by accounting description

Before finding that the taxpayer, in effect, had deducted reserves under s. 20(1)(m) with respect to initiation fees which, for accounting purposes, it had brought into income over the ten years following receipt on a straight-line basis, McDonald J.A. stated (at p. 6683):

"... It is not the accounting treatment of an amount which governs deductibility, but rather the true nature of the amount deducted. The fact that the Appellant's books of account do not describe the amounts in question as a reserve does not mean that the Appellant did not in fact take a reserve."

Backman v. The Queen, 99 DTC 5602 (FCA), aff'd 2001 DTC 5149 (SCC)

In the absence of convincing evidence on Texas law, the Court looked to the Alberta Partnership Act to determine whether the taxpayer, by virtue of being assigned a partnership interest, could be considered to have become a partner in a Texas partnership notwithstanding that he was not carrying on business in common with the other supposed partners.

Hickman Motors Ltd. v. Canada, 97 DTC 5363, [1997] 2 S.C.R. 336

The taxpayer was found to have acquired revenue-producing assets for a five-day period notwithstanding that the taxpayer had not included the revenue from the assets in its financial statements, because the revenue involved (approximately $20,000) did not merit the bookkeeping effort.

Timmins v. The Queen, 96 DTC 6378 (FCTD)

Wetson J., in accepting (at p. 6387) expert evidence of a chartered accountant as to whether there was a reasonable expectation of profit, stated that "a reasonable expectation of profit should be examined on the basis of sound accounting principles".

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 122.3 - Subsection 122.3(1) 169

Bertram v. The Queen, 96 DTC 6034 (FCA)

Before finding that an apparently doctored document that had been provided by one of the taxpayers to Revenue Canada in a meeting with them was not covered by the privilege attaching to settlement negotiations, Hugessen J.A. stated (at p. 6039):

"... What parties say against their interest during negotiation is without prejudice in the sense that it cannot subsequently be used against them. The purpose of the rule, however, is not to protect dishonest dealing and there is no policy reason for excluding what one party puts forward in its own interest and to the prejudice of the other."

Evidence of an offer of compromise made during the same meeting by another taxpayer was inadmissible.

MCA Television Ltd. v. The Queen, 94 DTC 6375 (FCTD)

In rejecting evidence that the description of the other party ("B.V.") to an agreement with the taxpayer as a collection agent for the taxpayer was "inadvertent", MacKay J. stated (p. 6381):

"While it is now clear to the plaintiff that the description of the relationship of B.V. to the plaintiff, as a collection agent, ought not to have included receipts from Canadian exhibitors under agreements with B.V., the words included in agreements made for sophisticated business operations by knowledgeable persons acting freely in their own interests must be deemed to express the intentions of the parties."

Symes v. Canada, 94 DTC 6001, [1993] 4 S.C.R. 695

Iacobucci J. noted (p. 6014) that in determining the purpose for which an expense was made it should not be supposed that:

"Courts will be guided only by a taxpayer's statement, ex post facto or otherwise, as to the subjective purpose of a particular expenditure. Courts will, instead, look for objective manifestations of purpose, and purpose is ultimately a question of fact to be decided with due regard for all of the circumstances."

Sidhu v. MNR, 93 DTC 5453 (FCA)

The trial judge had committed an error of law when he concluded that failure of the taxpayers to keep proper records of wages paid by them to employees was fatal to their claim for a corresponding deduction from income.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 230 - Subsection 230(1) 75

The Queen v. Old HW-GW Ltd., 93 DTC 5199 (FCA)

A certificate provided by the Secretary of State for External Affairs of Canada that Puerto Rico was a political subdivision of the United States of America was found to have application only to the question of state immunity in Canadian courts. MacGuigan J.A. stated (at p. 5204) that "it is doubtful that it could be taken as resolving matters such as that in the case at bar which are of a fiscal rather than of a political nature".

Locations of other summaries Wordcount
Tax Topics - Statutory Interpretation - Context 37

Urichuk v. The Queen, 93 DTC 5120 (FCA)

Minister not subject to parol evidence rule

At trial, Cullen J. had admitted extrinsic evidence as to whether payments made by the taxpayer under a separation agreement, which would have been deductible in computing his income if they were for maintenance as stated in the agreement, were in fact capital payments. Hugessen J.A. stated (p. 5121):

"We also reject the appellant's attempt to invoke the parol evidence rule to object to evidence of the circumstances leading up to the making of the agreement; the Minister, not being a party to that agreement, is entitled to rely on any available evidence to support his characterization of the payments in a manner different from that employed by the former spouses in the agreement itself."

R. v. Castelli, 92 DTC 6556 (Ont. Ct. GD)

The trial judge had improperly inferred that the evidence of the accused lacked credibility due to his failure to cooperate with the authorities and to give a sworn statement during the investigation setting forth the evidence which he later gave at trial.

Stowe-Woodward Inc. v. The Queen, 92 DTC 6149 (FCTD)

At the request of the parties, Dubé J. agreed to visit the taxpayer's rubber covering plant (which was alleged to be a manufacturing and processing operation) accompanied by the solicitors for both parties, the president and the court registrar.

Bowes v. The Queen, 91 D.T.C 5310 (FCTD)

"... Where a taxpayer's conduct is equally consistent with two different courses of action, only one of which produces favourable tax consequences, then a lack of documentary evidence to support his contention that he indeed took the most favourable course of action may prove fatal to his claim" (p. 5316).

The Queen v. Betterest Vinyl Manufacturing Ltd., [1990] 2 CTC 292 (BCCA)

Discussion of the best evidence rule in relation to photocopies of documents.

Wil Mechanical Ltd. v. The Queen, 90 DTC 6475 (FCTD)

McNair J. applied the following statement in Georgia Construction Co. v. Pacific Great Eastern Railway Co., [1929] S.C.R. 630 at 633, in finding that there was no practice in the Alberta construction industry that subcontractors withhold monies from progress payments to their sub-subcontractors:

"Usage, of course, where it is established, may annex an unexpressed incident to a written contract; but it must be reasonably certain and so notorious and so generally acquiesced in that it may be presumed to form an ingredient of the contract ..."

Border Chemical Co. Ltd. v. The Queen, 87 DTC 5391, [1987] 2 CTC 183 (FCTD)

"Since corporations act, formulate policies and take decisions through resolutions and decisions mainly of their boards of directors, which by law are to be recorded in the board's minutes, and since there are, and never were, any such minutes," the companies in question were found not to have been involved in certain transactions.

The Queen v. Gorjup, 87 DTC 5348, [1987] 2 CTC 129 (FCTD)

The taxpayer was held to be carrying on a farming business in 1979 and 1980, partly in light of the fact that his operation had become successful by 1986. "The defendant argues with some force that his actions now verify what was always his intention during the years in question: to overcome the difficulties caused by the events of 1976 and re-establish his cattle farm."

Phyllis Moore v. The Queen, 87 DTC 5217 (FCTD)

"Where the parties are agreed, in their conduct, on the meaning of contractual provisions, a court will usually adopt the interpretation accepted by the parties ... Where there is a third party, such as the Minister of National Revenue here, one or both parties to the actual contract, as is the situation here, may adduce evidence to show the meaning ascribed by the particular parties, even though it may appear to vary or modify some provisions."

Moore v. The Queen, 87 DTC 5215 (FCA)

The statements in the CICA Handbook and an accounting text on the capital leasing rules were not matters for judicial notice and, absent consent, the trial judge ought not to have considered such materials since they were not introduced at trial.

Magilb Development Corp. Ltd. v. The Queen, 87 DTC 5012, [1987] 1 CTC 66 (FCTD)

"Generally, a document which is inadmissible cannot be made admissible simply because it is put to a witness in cross-examination unless the witness accepts that what the document purports to say or record is true."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Real Estate tentative overtures for subdivision did not effect a change in use 103
Tax Topics - Income Tax Act - Section 9 - Computation of Profit preliminary overtures for approval of housing development of farm did not convert to inventory 204

The Queen v. Capitol Life Insurance Co., 86 DTC 6164, [1986] 1 CTC 388 (FCA)

Foreign law can be established as a matter of fact by the opinion of a qualified lawyer.

"A party examining a corporate officer on discovery is entitled, at least in the absence of objection taken at the time, to proceed to trial on the basis that relevant information obtained from an affiliated corporation is within the knowledge of the corporate party and will not be objected to or rejected as hearsay at trial."

R. v. Marcoux, 85 DTC 5453, [1985] 2 CTC 254 (Alta. Prov. Ct.)

Oral statements made by the accuseds to Special Investigations ("S.I.") were not freely and voluntarily given, and accordingly were inadmissible. The accuseds were given no warning of the visit by S.I. nor an opportunity to review their records before responding to the S.I. questions, they were shown a complex and inaccurate net worth statement which was deliberately used to make the accuseds believe that significantly more taxes were owing than there in fact were, and no caution was given to them until the last few minutes of the 3-1/2 hour interview.

Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Charter (Constitution Act, 1982) - Section 8 3rd party seizure invalid 45

Spencer v. R., 85 DTC 5446, [1985] 2 CTC 310 (SCC)

The fact that the giving of evidence by a bank manager concerning specific customers and transactions of the Royal Bank in the Bahamas might constitute a crime in the Bahamas cannot prevent the Canadian courts from compelling that witness to testify.

Armstrong v. The Queen, 85 DTC 5396 (FCTD)

A horse was found to be capital property, not-withstanding that it was described as "inventory" in the taxpayer's return. Rouleau J. stated: "It is well established that a taxpayer can neither increase nor decrease his tax liability by the intentional or erroneous use of magic words in his accounts."

Burri v. The Queen, 85 DTC 5287, [1985] 2 CTC 42 (FCTD)

Strayer, J. stated: "I am unable to understand why there should be a strong presumption at all that a corporation designed for profit is earning its income from business as opposed to earning it from the ownership of property, just because the operation of a business may be within its stated objects."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 129 - Subsection 129(4) - Canadian Investment Income apartment rentals were not from an active business 80

W. Rudolph Construction Ltd. v. The Queen, 84 DTC 6454, [1984] CTC 457 (FCTD)

The taxpayer's argument that land was held on capital account was marred by an admission of its auditor that "he continued to report the land as inventory available for sale, and regarded it as stock in trade."

Frankel v. The Queen, 84 DTC 6220, [1984] CTC 259 (FCTD)

Reed, J., held that a Departmental employee could express his personal opinion as to the proper interpretation to be placed on notations made on cheques remitted by the taxpayer to the Department, on the basis of that employee's experience of 6 or 7 years as a unit head in the Department's collection branch.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 222 66

Lipsey v. MNR, 84 DTC 6192, [1984] CTC 208 (FCTD)

There is no relief available to a taxpayer from giving self-incriminating answers to questions asked of him under s. 231 by investigating officers of the Department, because in the course of an investigation such officers are embarked on administrative acts as contrasted to judicial or quasi-judicial acts.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 231.1 - Subsection 231.1(1) 77

Stephens v. The Queen, 84 DTC 6169 (FCTD)

"'Evidence of general character cannot avail accused against direct evidence of the fact of guilt'".

Greiner v. The Queen, 84 DTC 6073, [1984] CTC 92 (FCA)

An assumption made by the Minister in his pleadings should not bind him as an admission when evidence entered by the taxpayer's counsel at trial was to the contrary.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Disposition "otherwise disposed of" includes extinguishment on surrender 79
Tax Topics - Income Tax Act - Section 7 - Subsection 7(1) - Paragraph 7(1)(b) 199

Bouchard v. The Queen, 83 DTC 5193, [1983] CTC 173 (FCTD)

Before going on to find that a parol real estate trust was valid for taxation purposes notwithstanding the Statute of Frauds, Cattanach J. stated (p. 5202):

"When a trust may be established by a parol despite the Statute of Frauds[,] as I accept as a premise in this appeal[,] sound policy demands that its existence must be brought within reasonable certainty and not left within the realm of conjecture."

Riviera Hotel Co. Ltd. v. The Queen, 82 DTC 6045, [1982] CTC 30 (FCTD)

Statements in tax returns that "were not made inadvertently but only made following due consideration and professional advice ... constitute statements against interest."

Carruthers v. The Queen, 82 DTC 6009, [1982] CTC 5 (FCTD)

A valuator, who had been retained by the regional appeals office, valued the taxpayer's shares as at valuation-day at an embarrassingly high level. The valuator was designated by Court order as a witness of the defendant to be examined for discovery by the plaintiff taxpayer, and by further order, he was ordered to answer questions on discovery concerning the details of his valuation. It was held, in light of the valuator's expertise, that this procedure was proper, and that his valuation report to the Minister was not privileged.

Don Fell Ltd. v. The Queen, 81 DTC 5282, [1981] CTC 363 (FCTD)

Evidence of transactions occurring subsequent to the taxation years in question was admissible because it showed that the management bonuses, whose deductibility was in issue, had been declared by the taxpayer companies without any intention of paying them.

Honeywood Ltd. v. The Queen, 81 DTC 5066, [1981] CTC 38 (FCTD)

"By reason of the wording of section 138(2)(b) [now, 247(2)(b)] of the Act, the plaintiff corporations are required to prove a negative ... . [H]owever, the plaintiffs do not have to overcome the rule of presumption viz., that in the estimation of the value of evidence of equal credibility, in ordinary cases, the testimony of a credible witness who swears positively to a fact should receive credit in preference to that of one who testifies to a negative, because in these appeals the defendant adduced no evidence."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 256 - Subsection 256(2.1) 51

Sandhu v. The Queen, 80 DTC 6097, [1980] CTC 158 (FCTD)

In finding that a resident of India was in partnership with two Canadians it was stated: "The terms used to describe a legal relationship, especially when those terms are used by lay persons, are never conclusive in establishing the legal nature of a relationship."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 2 - Subsection 2(3) - Paragraph 2(3)(b) partner carries on partnership business 15
Tax Topics - Income Tax Act - Section 96 60

Vanguard Trailers Ltd. v. The Queen, 80 DTC 6001, [1980] CTC 42 (FCTD)

It was found that a document which characterized a portion of a $250,000 payment, to be made by the plaintiff to an individual, as being in respect of past and future consulting services rendered or to be rendered by the individual, did "not reflect the real agreement between the parties". In reality, the sum was paid primarily to settle and head off a potential lawsuit by the individual.

The Queen, v. Leclerc, 79 DTC 5440, [1979] CTC 527 (FCTD)

Although the ordinary rules of evidence may prevent the contradiction by oral evidence of the terms of a written document, the Crown, as a third party, is in no way bound by the terms of a deed of sale between a vendor and purchaser of property, and may contradict by oral evidence the allocation of the purchase price between the building and bare land agreed to in the deed.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 68 69

Hummel Corp. of Quebec Ltd. v. The Queen, 79 DTC 5426, [1979] CTC 483 (FCTD)

Since the financial statements of the company were approved by its directors, the fact that they did not capitalize operating losses from the holding of properties indicated that the company considered the holding of the properties as part of its business operations and not merely as an investment.

Pepsi-Cola Canada Ltd. v. The Queen, 79 DTC 5387, [1979] CTC 454 (FCA)

The evidence of a witness was accepted that a $100,000 payment was received for the sale of goodwill, notwithstanding his signing of a receipt which stated that the sum was in "full payment" of "expenses and loss of income" of the taxpayer.

Gahrns v. The Queen, 78 DTC 6436, [1978] CTC 651 (FCTD)

taxpayer able to contradict his receipt

A sum paid to the plaintiff was found to be in respect of a compromise settlement of a threatened claim for damages by the plaintiff, notwithstanding that he signed a receipt describing portions of the sum as being in respect of an employment bonus and consulting services.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 5 - Subsection 5(1) 27

Atinco Paper Products Ltd. v. The Queen, 78 DTC 6387, [1978] CTC 566 (FCA)

Assistance in the interpretation of trust documents may be derived from the testimony of the settlor.

Wardean Drilling Co. Ltd. v. M.N.R., 78 DTC 6202, [1978] CTC 270 (FCTD)

"[W]here there is an admission that is contradicted by the evidence, the admission must be regarded as having been made in error."

Dobell v. The Queen, 77 DTC 5316, [1977] CTC 458 (FCTD)

Collier, J. accepted testimony that an agreement was concluded in December 1971, notwithstanding that it was dated February 3, 1972 effective February 9, 1972.

The Queen v. Esskay Farms Ltd., 76 DTC 6010, [1976] CTC 24 (FCTD)

After noting that a purchaser from the taxpayer did not record a liability in respect of the transaction until it, in turn, had received payment from a third party to whom it sold the property rather than at the earlier time contemplated in the agreement, Cattanach J. stated (at p. 6016):

"I do not think that bookkeeping entries or the lack of an entry can be accepted as contradicting the clear provisions of a written agreement."

Rosenblat v. The Queen, 75 DTC 5274, [1975] CTC 472 (FCTD)

"The minutes of the company are merely prima facie evidence of what occurrred, not conclusive evidence."

David v. The Queen, 75 DTC 5136, [1975] CTC 197 (FCTD)

Evidence of the subsequent conduct of the purchasers was admissible, in considering the possible application of s. 245(2) to the vendors, as part of the res gestae.

Grant v. The Queen, 74 DTC 6252, [1974] CTC 332 (FCTD)

"If the parties intend to enter into a binding agreement and arrive at a consensus ad idem, the Court will give effect to it. The whole transaction, both words and conduct of the parties, will be looked at and it is immaterial when the various steps leading to a consensus took place ..."

The Queen v. Kuhl, 74 DTC 6024, [1973] CTC 846 (FCTD)

Fees received by the taxpayers from a company controlled by them were business income rather than employment income notwithstanding that they were T4'd for the fees.

MNR v. Beaupré Estate, 73 DTC 5255, [1973] CTC 316 (FCTD)

"[W]hen a party dies before his appeal can be heard, and he has been examined and cross-examined on the same facts in an earlier proceeding involving the same parties, his testimony should be accepted for purposes of the appeal in this Court."

Weinberger v. MNR, 64 DTC 5060 (Ex Ct)

Before going on to accept oral evidence that the taxpayer had incurred significant costs in developing an invention, Thurlow J. stated (at p. 5062) that "it must not be forgotten that there is no rule of law requiring corroboration of the testimony of an appellant to support a finding ... ."

Sinnott News Company Ltd. v. The Minister of National Revenue, 56 DTC 1047, [1956] CTC 81, [1956] S.C.R. 433

It was found that the taxpayer made deliveries, pursuant to verbal agreements, on a sale or return basis notwithstanding that in its accounts the deliveries were treated as absolute sales.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 9 - Timing 183

Dominion Taxicab Association v. Minister of National Revenue, 54 DTC 1020, [1954] CTC 34, [1954] S.C.R. 82

"While the method of book-keeping adopted by the parties is not conclusive either for or against the party sought to be charged with tax, I am of opinion that in the case at bar the appellant rightly treated the $40,500 as a deferred liability to its members ..." [p. 1022]

R. v. Snider, 54 DTC 1129, [1954] CTC 255 (SCC)

The Minister of National Revenue was not entitled to object to the production before a court of the income tax returns of a person charged in criminal proceedings, unless special facts or circumstances appearing in the Minister's affidavit made it clear to the court that there might be prejudice to the public interest in the disclosure. "[A]ny secrecy which is in contemplation of the statute is for the benefit of the taxpayer only" (p. 1134).

Salter v. MNR, [1946] Ex CR 634, 2 DTC 918

O'Connor J found (at p. 920) that the taxpayer, who was seeking to establish that he received a capital receipt upon the termination of his employment, could introduce evidence to contradict the terms of the written settlement agreement with his employer, after quoting with approval a statement in Phipson on Evidence implying that the parol evidence rule did not apply in proceedings between a 3rd party (the Minister) and the taxpayer:

Where a transaction has been reduced into writing merely by agreement of the parties, intrinsic evidence to contradict or vary that writing is excluded only in proceedings between such parties or their privies, and not in those between strangers, or a party and a stranger, since strangers cannot be precluded from proving the truth by the ignorance, carelessness, of fraud of the parties….[emphasis added by O'Connor J]

See Also

Ellison v Sandini Pty Ltd, [2018] FCAFC 44

a court order could not be interpreted in light of extrinsic evidence

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.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Ownership family court order requiring the transfer of a portion of a larger bloc of shares likely did not result in a change in their beneficial ownership as the shares likely were not fungible 973
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Disposition family court order did not effect a change in beneficial ownership of a larger bloc of shares held by the original owner (and in any event, the order named the wrong person) 744
Tax Topics - Income Tax Act - Section 73 - Subsection 73(1) - Paragraph 73(1)(b) subjective belief of parties that family court orders were efficacious did establish that a share transfer to a spouse occurred “because of” them 407

Rowntree v Commissioner of Taxation, [2018] FCA 182

contract must be evinced by documents or conduct

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.

Other locations for this summary
Tax Topics - General Concepts - Evidence contract must be evinced by documents or conduct
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 15 - Subsection 15(1) loan or other contract can only be achieved explicitly or through being evinced by conduct 396

CIT Group Securities (Canada) Inc. v. The Queen, 2016 TCC 163, 2017 TCC 86

hearsay evidence could support expert opinion

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.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 95 - Subsection 95(2) - Paragraph 95(2)(l) - Subparagraph 95(2)(l)(iii) regulated Barbados subsidiary which invested in corporate debt qualified under the s. 95(2)(l) exclusion for foreign banks 698
Tax Topics - Income Tax Act - Section 95 - Subsection 95(1) - Foreign Bank no requirement to be regulated as a bank 239

Club Intrawest v. The Queen, 2016 TCC 149, varied 2017 FCA 151

foreign law assumed the same
varied on other grounds

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.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Agency annual fees charged by non-share corporation to its members were not reimbursements for expenses incurred by it as their agent 371
Tax Topics - Excise Tax Act - Section 142 - Subsection 142(1) - Paragraph 142(1)(d) s. 142(1)(d) only applies to a supply exclusively re real property 594
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Service payment of condo operating expenses was a service 201
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply single supply of covering all time share operating costs 164
Tax Topics - Excise Tax Act - Section 168 - Subsection 168(1) GST collectible based on invoicing times 77
Tax Topics - Excise Tax Act - Section 306.1 - Subsection 306.1(1) objecting to quantum was sufficient particularity 169
Tax Topics - General Concepts - Ownership beneficial owner did not transfer property risk 177

Okoroze v. The Queen, 2015 DTC 1107 [at 627], 2015 TCC 64

good bookkeeping especially important in cash-based busines

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.

McCarthy v. The Queen, 2016 TCC 45

examination by a Justice lawyer is not torture

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

Chaudhry v. The Queen, 2016 DTC 1030 [at 2721], 2016 TCC 28 (Informal Procedure)

Justice website version of the ITA essentially is its official version

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.

Advocate Gen. for Scotland v. Murray Group Holdings Ltd., [2015] CSIH 77, [2015] BTC 36 (Ct. of Ses. (Inner House, 2nd)), aff'd sub nomine RFC 2012 Plc (formerly The Rangers Football Club Plc) v Advocate General for Scotland (Scotland) [2017] UKSC 45

Scottish Court of Session entitled to deal with questions of English law

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.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) income derived from service is assessable even where agreed to be redirected to 3rd party 321
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(1) Scottish and English trust concepts had similar practical effect 84

Staltari v. The Queen, 2015 DTC 1130 [at 818], 2015 TCC 123

uncorroborated testimony

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: . . . .

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Business no business where no business organization 155
Tax Topics - Income Tax Act - Section 38 - Paragraph 38(a.2) land donated in order to achieve tax benefit was still a gift to a qualified donee 119
Tax Topics - Income Tax Act - Section 39 - Subsection 39(1) - Paragraph 39(1)(a) exclusion of gains that are ordinary income 139
Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Real Estate secondary intention to develop land irrelevant if land donated instead 484

George Weston Limited v. The Queen, 2015 TCC 42

hedge financing not an area of common knowledge

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."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Foreign Exchange cross-currency swap was a hedge notwithstanding no intention to sell underlying indirect U.S. asset 426

Invesco Canada Ltd. v. The Queen, 2014 TCC 375

evidence of surrounding circumstances including income tax objective relevant to contract interpretation

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).

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Consideration management fee distributions to large MFT unitholders 155
Tax Topics - Excise Tax Act - Section 153 - Subsection 153(1) discounted management fees charged by manager to MFTs not grossed up by MFT distributions of the discounts to large unitholders 308

Agnico-Eagle Mines Limited v. The Queen, 2015 DTC 1008 [at 43], 2014 TCC 324, aff'd 2016 FCA 130

expert opinion on domestic law excluded

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).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 39 - Subsection 39(2) U.S. dollar principal of a convertible debenture should be considered on conversion to have been settled at the historical exchange rate when the conversion price was set 508
Tax Topics - Income Tax Act - Section 261 - Subsection 261(2) U.S. dollar principal of a convertible debenture should be considered on conversion to have been settled at the historical exchange rate when the conversion price was set

Daimsis v. The Queen, 2014 DTC 1118 [at 3273], 2014 TCC 118 (Informal Procedure)

assumptions based on cash-flow analysis demolished by oral testimony

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.

Henco Industries Limited v. The Queen, 2014 DTC 1161 [at 3528], 2014 TCC 192

parol evidence rule not applying to surrounding evidence/press releases admitted

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).

Locations of other summaries Wordcount
Tax Topics - General Concepts - Fair Market Value - Land deference to taxpayer's figure within appraiser's range of values 105
Tax Topics - Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(x) compensation received in course of business but not in course of earning income 184
Tax Topics - Income Tax Act - Section 14 - Subsection 14(5) - Cumulative Eligible Capital payment to withdraw from business was not an eligible capital amount 138
Tax Topics - Income Tax Act - Section 23 - Subsection 23(1) land ceased to be inventory through sterilization rather than business cessation 176
Tax Topics - Income Tax Act - Section 3 compensation payment for destroyed business was non-taxable 163
Tax Topics - Income Tax Act - Section 9 - Compensation Payments compensation payment for destroyed business was non-taxable 163

Bolton Steel Tube Co. Ltd. v. The Queen, 2014 DTC 1102 [at 3202], 2014 TCC 94

terms of agreement established with regard to "factual matrix"

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.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(1) reassessment to add fictitious income was void 312
Tax Topics - Income Tax Act - Section 169 - Subsection 169(3) s. 169(3) reassessment cannot increase quantum of previous assessment 202

Vine Estate v. The Queen, 2014 DTC 1088 [at 3130], 2014 TCC 64

expert tainted by reading previous reports

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... .

Locations of other summaries Wordcount
Tax Topics - General Concepts - Fair Market Value - Land rent-controlled apartment 96

Roszko v. The Queen, 2014 DTC 1083 [at 3099], 2014 TCC 59

finding of fraud by securities commission is a legal conclusion, not a factual allegation

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).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 3 - Business Source/Reasonable Expectation of Profit contractual payments derived from fraud v. contract itself is a fraud 123

Cameco Corporation v. The Queen, 2014 TCC 45

proportionality principle

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).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 169 - Subsection 169(1) appeals from superceded reassessments were nullities 54
Tax Topics - Income Tax Act - Section 232 - Subsection 232(1) - Solicitor-Client Privilege basis for claim not disclosed 113

McKesson Canada Corporation v. The Queen, 2014 DTC 1040 [at 2723], 2013 TCC 404

expert reports without testimony

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."

Locations of other summaries Wordcount
Tax Topics - General Concepts - Purpose/Intention tax purpose v. commercial result 78
Tax Topics - Income Tax Act - Section 247 - New - Subsection 247(2) terms adjusted within framework of transaction chosen by taxpayer 894
Tax Topics - Income Tax Act - Section 247 - New - Subsection 247(4) advocacy 3rd-party report not read by taxpayer 149
Tax Topics - Treaties - Income Tax Conventions - Article 9 5-year limitation did not apply to secondary Part XIII assessment 190

Lee v. The Queen, 2013 DTC 1227 [at 1248], 2013 TCC 289

conviction is dispositive of tax appeal

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).

Pièces automobiles Lecavalier Inc. v. The Queen, 2014 DTC 1126 [at 3319], 2013 TCC 310

Canadian tax accountant's testimony on US tax consequences accorded little weight

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)).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 245 - Subsection 245(3) debt-paydown transactions were avoidance transactions 236
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) avoidance of debt forgiveness rules was abusive 247
Tax Topics - Income Tax Act - Section 248 - Subsection 248(10) debt-paydown transactions effected in contemplation of sale transaction were part of same series as the sales transactions 216

Harvey v. The Queen, 2013 TCC 298

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.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 163 - Subsection 163(2) guilty plea is prima facie proof of income from tax evasion 101
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Income-Producing Purpose deduction based on authorized use 107

Last v. The Queen, 2012 DTC 1290 [at 3895], 2012 TCC 352

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.

Raposo v. The Queen, 2013 DTC 1216 [at 1199], 2013 TCC 265

guilty plea is prima facie proof of income from fraud

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.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 163 - Subsection 163(2) guilty plea prima facie proof of income from fraud 177

River Hills Ranch Ltd. v. The Queen, 2013 DTC 1200 [at 1064], 2013 TCC 248

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."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 9 - Compensation Payments payments styled as herd expense reimbursements in substance were capital receipts for destruction of business and were proceeds of the related agreements 274

Rahman v. The Queen, 2012 DTC 1270 [at 3799], 2012 TCC 320 (Informal Procedure)

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.

Kelly v. The Queen, 2012 DTC 1109 [at 3055], 2012 TCC 66

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.

Hafizy v. The Queen, 2012 DTC 1093 [at 2943], 2012 TCC 56, aff'd 2014 FCA 109

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.

Zaki v. The Queen, 2011 DTC 1004 [at 18], 2010 TCC 606 (Informal Procedure)

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).

On-Line Finance & Leasing Corporation v. Canada, 2010 DTC 1325 [at 4243], 2010 TCC 475

parol evidence rule applied to Minister

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.

Cirone v. The Queen, 2010 DTC 1103 [at 3034], 2010 TCC 137

oral evidence of accountign transactions

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.

Suzanne Sterling-Ross v. The Queen, 2009 DTC 1892, 2009 TCC 525 (Informal Procedure)

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.

Ollivierre v. The Queen, 2009 DTC 1796, 2009 TCC 490 (Informal Procedure)

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."

Witt v. The Queen, 2008 DTC 4322, 2008 TCC 407

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.

Klaboe v. The Queen, 2007 TCC 239

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.

Corpor-Air Inc. v. The Queen, 2007 DTC 841, 2006 TCC 75

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.

Avotus Corporation v. The Queen, 2007 DTC 215, 2006 TCC 505

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.

Benjamin v. The Queen, 2006 DTC 2265, 2006 TCC 69 (Informal Procedure)

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'."

Yoon v. The Queen, 2005 DTC 1109, 2005 TCC 366

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.

Shahsavar v. The Queen, 2005 DTC 523, 2005 TCC 184

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.

Redrupp v. The Queen, 2004 DTC 3320, 2004 TCC 640

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".

Morley v. The Queen, 2004 DTC 2604, 2004 TCC 280, briefly aff'd 2006 DTC 6351, 2006 FCA 171

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.

VIH Logging Ltd v. The Queen, 2004 DTC 2090, 2003 TCC 732

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.

Hewlett Packard (Canada) Ltd. v. The Queen, 2003 DTC 1324 (TCC), rev'd 2004 DTC 6498, 2004 FCA 240

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."

McCoy v. The Queen, 2003 DTC 660, 2003 TCC 332

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."

Chomica v. The Queen, 2003 DTC 535 (TCC)

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."

Petro-Canada v. The Queen, 2003 DTC 94 (TCC), aff'd supra.

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.

Aikman v. The Queen, 2002 DTC 6874 (FCA)

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."

Imperial Oil Ltd. v. The Queen, 2002 DTC 1954 (TCC)

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."

Hunter v. The Queen, 2001 DTC 907 (TCC) (Informal Procedure)

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."

Mathew v. The Queen, 2001 DTC 742 (TCC)

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".

Davidson v. The Queen, 99 DTC 933 (TCC)

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)

Promex Group Inc. v. The Queen, 98 DTC 1588 (TCC)

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.

Mihelakos v. The Queen, 97 DTC 1450 (TCC)

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".

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 98 - Subsection 98(2) 71

Telecomsyst Services Inc. v. The Queen, 97 DTC 684 (TCC)

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.

Lay v. The Queen, 95 DTC 272 (TCC)

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).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 60 - Paragraph 60(b) 101

Kalousdian v. The Queen, 94 DTC 1722 (TCC)

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."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 15 - Subsection 15(2.4) 167

Kamsel Leasing Inc. v. MNR, 93 DTC 250 (TCC)

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.

C&E Commissioners v. Battersea Leisure Ltd., [1992] BTC 5011 (Q.B.)

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.

United Color and Chemicals Ltd. v. MNR, 92 DTC 1259 (TCC)

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."

Samra v. MNR, 92 DTC 1008 (TCC)

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."

Savoidakis v. MNR, 91 DTC 1463 (TCC)

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."

Docherty v. MNR, 91 DTC 537 (TCC)

set-off evidenced in working papers

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 ..."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 15 - Subsection 15(2.6) 77

Village Inn Hotel Ltd. v. MNR, 91 DTC 145 (TCC)

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."

Pallan v. MNR, 90 DTC 1102 (TCC)

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."

Essex County Council v. Ellam, [1989] BTC 133 (CA)

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.

Furness Withy & Co. Ltd. v. MNR, 66 DTC 5358 (Ex Ct), aff'd 68 DTC 5033, [1968] CTC 35, [1968] S.C.R. 221

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.

Schouten v. MNR, 63 DTC 397 (TAB)

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.

Warsh & Co. Ltd. v. MNR, 62 DTC 247 (TAB)

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.

Doughty v. Commissioner of Taxes, [1927] AC 327 (PC)

step up in recorded carrying value not profit

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."

Administrative Policy

IT-218R "Profit, Capital Gains and Losses from the Sale of Real Estate, including Farm Land and Inherited Land and Conversion from Real Estate from Capital Property to Inventory and Vice Versa"

The allocation of the cost of real estate to inventory in the taxpayer's accounting records will be considered to represent prima facie evidence that the real estate was initially acquired with the intention of reselling it at a profit at a propitious time.

Articles

Lucie Lamarre ACJ, Isida Ranxi, "Taxpayer Rights and Voluntary Compliance: The Example of the Canadian Judiciary", Tax Notes International, 3 October 2016, p. 61

Guidelines re assistance from the bench (p. 65)

Justice Strayer has provided the following guidance in relation to the potential of crossing the line in interventions:

[T]he test of impartiality should not be based on how the represented party or his counsel perceive the matter, but how an objective, disinterested knowledgeable person sitting in the courtroom would assess it. The judge is committed to fairness to all parties, and he must be alert to the potential unfairness of having one party represented by counsel and the other unrepresented, handicapped by lack of knowledge of rules of evidence, procedure, and substantive law. To my mind, the question is not whether the judge may and should assist the unrepresented party, but how this may be done in a way which is minimally intrusive on the case of the represented party and which does not involve, nor appear to involve, any prejudgment of the merits. …

[T]he appearance of fairness has another aspect — that is, how the proceedings appear to the unrepresented party. To be consistent one must say that here too the test of fairness should be how the proceedings would appear to an objective bystander. But this does not absolve the judge or court officer from the duty of explaining to an SRL [self-represented litigant] why a decision has been taken that might appear to the untutored lay party as being special treatment for lawyers and their clients….[fn 54: Address to the Tax Court of Canada Education Seminar held by the National Judicial Institute in Mont Tremblant, Quebec. May 22-24, 2003 (unpublished) as cited in André Gallant, "The Tax Court's Informal Procedure and Self-Represented Litigants: Problems and Solutions" (2005) 53:2 Can Tax J 333 at 359.]

Guidelines re questioning from the bench (p. 65)

Some Tax Court judges do intervene in the questioning of witnesses. For instance, when a taxpayer lacks credibility, the judge can ask him or her more questions. However, in such cases, the judge must be cautious to only intervene at the end of the witness's examination and cross-examination. The judge must then offer the parties the opportunity to ask any questions to the witness on the particular points raised by the judge. In specific cases where the taxpayer and his or her witness are credible but there is doubt as to why the minister assessed, more questions can be posed to counsel and witnesses for the Crown.

Special duty to unrepresented taxpayer (pp. 65-66)

A practice has developed in our Court in which it is accepted that both the judge and the Crown owe a special duty to taxpayers who are not represented by legal counsel. For instance, in Poulton v R, Justice Bowman, as he then was, stated, "I cannot emphasize too strongly that it is of consummate importance that the court in the informal procedure be vigilant to ensure that the unrepresented taxpayer not be deprived of procedural fairness." [fn 64: [2002] 2 CTC 2405, at para 17 (TCC), cited with approval by the Federal Court of Appeal in Burton v The Queen, 2006 DTC 6133, at paras 12-13.]

Amir Pichhadze, "Can, and Should, the Parol Evidence Rule Be Invoked by or against the Canadian Tax Authorities in Tax Litigation? Lessons from US Jurisprudence", Bulletin for International Taxation, September 2013, p. 474

Definition of parol evidence rule (p. 474)

In Canada, a widely cited description of the [parol evidence] rule is that by Lambert J.A. of the British Columbia Court of Appeal, According to Lambert J.A.: [fn 5:…Gallen v. Nunweiler (1984), 53 B.C.L.R. 38, para. 34…..]

[s]ubject to certain exceptions, when the parties to an agreement have apparently set down all its terms in a document, extrinsic evidence is not admissible to add to, subtract from, vary or contradict those terms.

Is there a stranger-to-the-contract rule? (p. 475)

…Does the parol evidence rule apply only to bar the admission of extrinsic evidence by or against the taxpayer and/or Y, i.e. the parties to the contract, or does it also bar the admission of extrinsic evidence by or against the tax authorities? In at least some jurisdictions, this question may be unsettled and/or underdeveloped, as exemplified by the law in Canada.

Is there a stranger-to-the-contract rule in Canada? (p. 476)

The leading authority in Canada's tax jurisprudence appears to be the decision of the Federal Court of Appeal (FCA) in Urichuk v. R. (1993), where…the FCA held that the parol evidence rule cannot be invoked by or against the Minister. The FCA's comments have been applied by the judges of the Tax Court of Canada (TCC) in Harris v. The Queen (1998) [fn 25:...[1998] 1 C.T.C. 2605, para. 17.] and Husky Oil Limited v. The Queen (2009). [fn 26: … 2009 TCC 118. para. 47.]

More recently, however, in On-Line Finance & Leasing Corp. v. R. (2011), Justice Diane Campbell…argued that the FCA was merely making an exception for "situations involving spousal support payments." [fn 28: 2010 TCC 475, at para. 23.]

Stranger-to-the-contract rule in the U.S. Tax Court (p. 477)

…the "stranger to the contract rule" is treated as an additional exception to the parol evidence rule, [fn 30: US: CA. 2002, Deckard v. General Motors Corp., 307 F.3d.556 (2002), p. 565] has been described by the US Tax Court as follows: [fn 31: US: TC, 1969, Brown v. Commissioner of Internal Revenue, 52 T.C. 50 (1969), p. 60.]

The rule in this Court is well settled that the parol evidence rule has no application in Federal tax cases where the Government is not a party or privy to a party to the instrument. What we said in Haverty Realty & Investment Co., 3 T.C. 161, 167 (1944), still pertains today:

The Supreme Court of the United States, almost all the Circuit Courts of Appeals, and this Court have held that the parol evidence rule cannot be invoked by a third party, not a party to the written instrument involved. (T)he United States is a stranger to the contract. It asserts a tax liability, not a claim derived from either party to the contract.

Academic criticism of U.S. Tax Court approach (pp. 478-479)

The traditional estoppel-based stranger to the contract justification, which focuses only on the rights and duties of the parties to the contract and ignores possible legal interests that strangers may have in a fully integrated contract, has attracted significant criticism from some of the most prominent legal scholars in the United States….

Professor Williston who cautioned as follows in Williston on Contracts (2012): [fn 42: Williston on Contracts. 4th ed., para. 33:10 (ThomsonReuters 2012), cited in US: SCH, 1968 Akamine and Sons, Ltd. v. American Sec. Bank, 50 Haw. 304, pp. 309-310: Martin v. Setter (1931), supra n. 40, at p. 463; and Habets v. Swanson (2000), 303 Mont. 410, p. 419.]

It must be remembered that the written contract represents the truth and the whole truth of the contractual obligations of A and B no matter what the nature of the inquiry or who the inquiring party may be. To admit parol evidence, otherwise inadmissible as between the parties themselves, is to permit facts to be shown which have no relevance to the issue of what the contract between A and B is. (Emphasis added)

...The critiques of Professors Corbin, Wigmore and Williston share common connecting threads that are critically important to emphasize.

First, they are reminders that once the rights or duties of the parties have been completely integrated in writing, the parol evidence rule should serve the function of protecting those rights and duties from being varied or contradicted by extrinsic evidence, irrespective of who is offering the extrinsic evidence. ...

Second, the parol evidence rule should protect all those whose legal rights and interests depend on the contract, even if they were not parties to the contract...

Danielson rule (p 480)

[T]he US Tax Court's view is that any extrinsic evidence could be admitted by either the taxpayer or the Commissioner to establish the true substance of a transaction. This view was based on the understanding that tax disputes are focused on the substance rather than form of transactions. This approach was changed, however, by the decision of the US Court of Appeals for the Third Circuit in C.I.R. v. Danielson (1967). [fn 56: ... 378 F.2d 771 (1967).] In this case, the Court established the Danielson rule, which was described as follows: [fn 57: ... C.I.R. v. Danielson, 378 F.2d 771 (1967), at p. 775]

a party can challenge the tax consequences of his agreement as construed by the Commissioner only by adducing proof which in an action between the parties to the agreement would be admissible to alter that construction or to show its unenforceability because of mistake, undue influence, fraud, duress, etc.

Canadian Tax Court should reject the stranger-to-the-contract rule (p. 484)

Are the TCC and FCA justified in granting the Minister an exception from the parol evidence rule? As can be seen from US jurisprudence…, this "stranger to the contract rule" has been subject to criticisms by the leading academics as well as by numerous courts at federal and state levels. In the author's view, the criticisms are compelling and they support the rejection of the "stranger to the contract rule" in the circumstances identified in the numerous cases cited in this article. That is, once the terms of a contract have been completely integrated, the parol evidence rule should serve the function of protecting the terms from being varied by parol evidence, irrespective of whether such evidence is presented by the parties or by a stranger to the contract. In addition, rather than confining the parol evidence rule to only protecting the rights and interests of the parties to the contract, the rule should also protect the legal interests that others, i.e. strangers, may have in the terms of the contract. ...

The Sedona Canada Principles Addressing Electronic Discovery, (January 2008) (thesedonaconference.org), Principle 2

In any proceeding, the parties should ensure that steps taken in the discovery process are proportionate, taking into account (i) the nature and scope of the litigation, including the importance and complexity of the issues, interest and amounts at stake; (ii) the relevance of the available electronically stored information; (iii) its importance to the court's adjudication in a given case; and (iv) the costs, burden and delay that may be imposed on the parties to deal with electronically stored information.

Michele Anderson, "The Heresay Exception for Business Records: Why Section 30 of the Canada Evidence Act matters", Tax Litigation, Vol. XI, No. 4, 2003, p. 714.

Quigley, "Dealing with Expert Evidence in Tax Cases", 1993 Canadian Tax Journal, No. 6, p. 1071.

Perell, "The Problems of Without Prejudice", 71 Canadian Bar Review, June 1992, p. 223.