Tax Court of Canada Rules (General Procedure)

Table of Contents

Section 6

Subsection 6(1)

Paragraph 6(1)(h)

Cases

Canada v. Ngai, 2019 FCA 181

cryptic Crown pleading cured by opportunity for additional written submissions

After noting a cryptic Crown pleading that essentially only referred to the provisions relied upon, Webb JA stated (at paras. 29-30):

Simply stating that Ms. Ngai is not entitled to the new housing rebate pursuant to certain provisions of the ETA is not a statement of the reasons that the respondent intends to rely on. In particular, it fails to identify the significant issue of whether Mr. Ng is a relation of Ms. Ngai. ...

Any procedural unfairness arising from this failure to identify the issue of whether Mr. Ng is a relation of Ms. Ngai, in this particular case, has been cured by the opportunity granted to the parties to make additional written submissions. It is a question of law whether Mr. Ng is a relation of Ms. Ngai. No additional evidence is required once it is established or admitted that he is her nephew.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 254 - Subsection 254(2) - Paragraph 254(2)(g) co-purchasing aunt of the nephew occupant could not claim the rebate 441
Tax Topics - General Concepts - Agency rebate could not be claimed by an agent 89

Section 8

Cases

Lark Investments Inc. v. The King, 2024 TCC 30

fresh start rule inapplicable where defects in Crown’s pleading did not become apparent until a subsequent procedural stage

The Crown took the position that the taxpayer was precluded by Rule 8 from moving to strike a portion of the Crown’s pleadings on the basis that after the Crown had filed its amended Reply following examinations for discovery, the taxpayer filed a motion for the Crown to produce further documents (led to the production of GAAR Committee documents) and conducted further examinations of the CRA auditor. In finding that the fresh start rule did not apply, St-Hilaire J stated (at para. 65):

It is true that almost the entirety of the impugned provisions were in the initial reply or at least in the first amended reply. However, I find that the grounds for the motion … came to the forefront after the GAAR Committee documents were disclosed such that it cannot be said that more than a reasonable amount of time has passed after the Appellant knew of the irregularities in the Further Amended Reply as provided by paragraph 8(a) of the Rules.

Similarly, Rule 8(b) did not apply.

Regarding the use of the term “irregularity” in the Rule, she noted:

A.C.J. Bowman … in Imperial Oil …at para 20 … stated that allegations that the appeals are frivolous, vexatious and an abuse of process is hardly an attack on an irregularity.

Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Federal - Tax Court of Canada Rules (General Procedure) - Section 63 Crown’s vague pleading that GAAR applied to convert a CCPC to non-CCPC was struck, but with leave to amend 251
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) Crown required to plead its particular GAAR position/ no requirement to go to GAAR Committee 314
Tax Topics - Income Tax Act - Section 169 - Subsection 169(1) process behind assessment not relevant to its validity 100

Dilalla v. Canada, 2020 FCA 39

purpose of the fresh start rule

The appellant brought a motion for leave to bring a motion for an order striking the respondent’s Reply pleading, more than two years after all pre-trial proceedings had been completed, and 10 months after the parties had filed a joint application representing that the appeal was ready to be set down for hearing. The Tax Court dismissed the motion on the grounds inter alia that the motion would be prejudicial to the respondent as the appeal was scheduled for hearing and the respondent had conducted the discovery process believing there was no irregularity in its Reply.

In dismissing the appellant’s appeal, Rennie JA stated (at para. 8):

The fresh step rule is designed to ensure the orderly movement of litigation through to trial. The rule is based on the view that if a party pleads over to a pleading, it implies a waiver of any irregularity that might have been attacked. Here, the judge’s discretion was exercised consistent with the objective of this rule … .

Section 12

Cases

The Queen v. Carew, 92 DTC 6608, [1993] 1 CTC 1 (FCA)

The Crown served its reply to the taxpayer's notice of appeal on the 60th day required by Rule 44(1) but, due to an unexplained failure of the subordinate employee, the reply was not presented for filing until the following day. In finding that the Crown should be granted an extension, Hugessen J.A. stated (p. 6610):

"In the context of this litigation the addition of one day to the time of filing (but not even of service) of the reply is of no consequence."

[C.R: Rule 63]

Section 16.1

Subsection 16.1(1)

See Also

Shell Canada Limited v. The Queen, 2022 TCC 39

confidentiality order granted respecting JV documents whose public disclosure would breach a confidentiality agreement

The taxpayer (Shell) realized a capital loss on its disposition of its interest in a partnership (“SCU”) to Canadian subsidiaries of PetroChina in connection with establishing a joint venture with the PetroChina group (the “Groundbirch Joint Venture”) for the development and production of natural gas. Such natural gas production was required in order to satisfy their obligations to provide their respective shares of natural gas to a joint venture (the “LNG Canada Project”) among them and three other parties who otherwise were competitors. Shell and PetroChina did not wish those other parties to know the details of the Groundbirch Joint Venture and, to that end, made various confidentiality agreements and covenants.

CRA denied the above capital loss pursuant to GAAR and, in order to satisfy the onus on it of establishing that the realization of that loss was not an avoidance transaction or did not result in an abuse, it needed to disclose various JV documents whose disclosure would be prohibited by the confidentiality covenants and whose disclosure would be commercially damaging to it and PetroChina. Shell brought a motion for a confidentiality order pursuant to s.16.1 of the Tax Court of Canada Rules (General Procedure), in respect of 58 documents (Subject Documents), so that they could be disclosed to the Crown on discovery, but shielded from public view.

After referring to the “open courts” principle set out inter alia in Sherman Estate, and before allowing the motion, Sommerfeldt J stated (at para. 32):

I am satisfied that Shell has established that, if a confidentiality order is not granted, there will be a serious risk to one or more of the following important public interests:

(a) the general commercial interest of preserving confidential information;

(b) the general public interest of protecting the right to a fair trial, also described as the public interest of enabling “commercial litigants to vindicate their legal rights without exposing themselves to the real risk of harm”;

(c) the public interest of enabling a litigant, when “compelled by the rules of discovery to divulge sensitive and confidential information, ... to maintain the confidentiality of that information”;

(d) the public interest of promoting commercial certainty and protecting proprietary information; and

(e) the public interest of protecting fair competition.

He also referred (at para. 46) sympathetically to the dilemma faced by Shell that “in order to put its best foot forward in this Appeal, Shell will need to breach the confidentiality agreements” absent the motion being granted.

Silver Wheaton Corp. v. The Queen, 2019 TCC 170

plaintiffs did not meet burden of showing that the implied undertaking of confidentiality re documents delivered on discovery should be lifted

In 2016, Silver Wheaton appealed reassessments for Cdn.$353M made pursuant to s. 247(2), and reached a settlement on Dec. 13, 2018. Almost all documents filed with the TCC in that appeal were subject to a sealing order. On December 18, 2015, seven individuals (the “Non-parties”) filed a U.S. federal securities class action referencing the drop in Silver Wheaton’s share price when the reassessments were announced. The Non-parties brought this motion requesting an order declaring that the implied undertaking of confidentiality did not apply, or alternatively, if it did apply, that it was waived with respect to Silver Wheaton’s discovery evidence.

Before dismissing the motion, D'Arcy J stated (at paras 90, 94, 95, 97, 98 and 99):

…[T]he Non-parties …bear the burden of demonstrating that the implied undertaking of confidentiality should be waived.

… [T]he parties are not the same in the Tax Court Appeal and the U.S. Class Action. The only common party is Silver Wheaton. Further, there are no similarities between the class of litigants in the U.S. Class Action, represented by the Non-parties, and the Crown, the other party in this appeal.

In addition, the issues are not the same or similar. The issue in the Tax Court Appeal is the amount of Silver Wheaton’s taxable income under the Canadian Income Tax Act for each year from 2005 to 2010. The issue in the U.S. Class Action concerns a breach of U.S. securities law that allegedly occurred beginning in February of 2011.

… [T]he Non-parties have not been able to refer to a specific document in this appeal whose disclosure would be in the public interest.

… [T]he Non-parties’ motion is a fishing expedition… .

The granting of the Non-parties’ motion would result in the very evil the Supreme Court cautions against: defeating the objective of the implied undertaking of confidentiality, which is to encourage open and generous discovery by assuring the parties being discovered of confidentiality.

Section 16.2

Subsection 16.2(2)

See Also

Stewart v. The Queen, 2018 TCC 75, rev'd on TCCA s. 16.2/no abuse of process grounds 2019 FCA 235

discontinuance has equivalent effect to dismissal by court itself

CRA issued Notices of Determination to deny losses of a limited partnership (TSI). Both TSI and its partners launched appeals to the Tax Court. However, TSI then filed a Notice of Discontinuance, which resulted in its appeal being deemed by s. 16.2(2) of the Tax Court of Canada Act to have been dismissed. The individual partners continued with their appeals, arguing that the Notices of Determination had been statute-barred.

D’Auray J first indicated that there was potential merit in the individuals’ argument that s. 152(1.7), which provides that a notice of determination is binding on the partners respecting their income, taxes and amounts refundable, did not preclude them from arguing that the Notices of Determination were invalid on procedural grounds. However, that success did not help the individuals, as she agreed with the Crown that their continuing with their appeals was an abuse of process. A previous case had found that generally “dismissal under section 16.2 of the TCC Act carries the same effect as a judgment of dismissal by the Court” – and the action which thus had constructively been decided against them was one in which they could have, but failed to, raised their statute-barring arguments.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(1.7) partners were not necessarily precluded under the s. 152(1.7) “binding” rule from arguing that a partnership determination of loss was statute-barred 207
Tax Topics - General Concepts - Abuse of Process abuse of process for partners to raise arguments that could have been raised by their partnership prior to its filing a discontinuance 325

Section 29

Cases

International Hi-Tech Industries Inc. v. The Queen, 2014 TCC 198

secured creditors able to bring claim for ITCs of bankrupt

Prior to its bankruptcy, the appellant granted a general security agreement ("GSA") to its holding body corporate and related companies as security of a $6 million advance. In the appellant's name, the receiver for the secured creditors appealed the Minister's denial of input tax credit claims of the appellant. The trustee in bankruptcy had already accepted the GSA as valid, waived redemption of the security and released the interests of the general creditors in the collateral (i.e., essentially all the appellant's assets, as the secured creditors' claim exceeded the value of the bankrupt estate), but had not specifically authorized the present proceedings.

The Minister applied to dismiss the claim on the basis of the lack of legal capacity of the receiver to bring the claim (i.e., that only the trustee could bring the claim).

Bocock J dismissed the Minister's application and found that the appeal could be brought by the appellant "by its Secured Creditors, Receivers in part and Lawful Attorneys [list secured creditors]." After finding that the deeming by ETA s. 266 of the receiver to be the appellant's agent meant that a receiver could object in respect of property seized by it, went on to indicate that the GSA, and the trustee's waiver, constituted an "assignment" of the appellant's interest in the ITCs, which empowered the Court under s. 29 of the Rules to make the creditors parties. He stated (at para. 22):

Legally, the secured creditors would be the parties exclusively entitled to the proceeds arising from any ITCs emanating from a successful appeal. ... Since entitlement to such proceeds subsists in the secured creditors through the GSA's valid assignment, section 29 [of the Rules] affords this Court the power to provide the procedural remedy to these validly, subsisting rights in the choses in action which comprise the alleged ITCs exclusively collectible from the Respondent through an appeal to this Court.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 266 - Subsection 266(2) secured creditors able to bring claim for ITCs of bankrupt 277
Tax Topics - Excise Tax Act - Section 301 - Subsection 301(1.1) secured creditors able to bring claim for ITCs of bankrupt 277

Section 30

Subsection 30(2)

Cases

Canada v. BCS Group Business Services Inc., 2020 FCA 205

Rule 30(2) accorded unauthorized discretion re corporate representation to Tax Court judges

In Masa Sushi, Graham J found that a corporation could not appear “in person” in a General Procedure matter and had to appear through counsel, so that a Rule purporting to permit a corporation to appear in person with the Court’s consent would be ultra vires. Gauthier JA essentially agreed, stating (at paras. 6, 33):

[T]he legislator did not intend to oust the common law and civil law principle that a corporation, because of its very nature, cannot appear “in person” before a court. It can only be represented by an agent who is a distinct person than the corporation. … By adopting detailed provisions dealing with representation in the Act, the legislator limited the TCC’s implied power to control who may represent the corporation in their courtroom, especially in proceedings subject to the General Procedure. …

[T]he common law/civil law concept that a corporation cannot appear in person because of its very nature strongly suggest[s] that under section 17.1 [of the TCCA], a party who is a corporation must be represented by counsel as defined by subsection 17.1(2).

Regarding the effect of the General Procedure Rules, she stated (at paras. 57-60):

None of the TCC judges that concluded that the words “in person” were meant to mean something more than their ordinary meaning came up with a definition or a different meaning of these words in section 17.1. Rather, in their view, how a corporation can appear in person was simply left to be defined in the GP Rules. I cannot accept this view.

First, … there is nothing in section 20 of the Act dealing with this… . It is not one of the matters expressly set out as being within the jurisdiction of the Rules Committee. Even if this were so, … the very first version of this Rule did not attempt to define “in person” vis-à-vis a corporation; rather, it completely rules out the notion of a corporation being able to appear in person

Furthermore, even if I assumed that the GP Rule 30(2) as amended in 1993 could be interpreted as meaning that only an officer of the corporation could personify a corporation within the meaning of section 17.1, the TCC Rules Committee could not then subdelegate its jurisdiction to each individual judge by making a right presumably granted unconditionally by the legislator subject to a leave to be granted only “in special circumstances”. …

The GP Rule 30(2) in its latest iteration, which appears to enable any individual (including one outside of the corporation, such as its regular accountant) to represent it on leave, could not by any stretch of the imagination be considered a definition of the words “in person” in section 17.1.

Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Federal - Tax Court of Canada Act - Section 17.1 - Subsection 17.1(1) a corporation must be represented by counsel in General Procedure appeals 281

See Also

Sutlej Foods Inc. v. The Queen, 2019 TCC 20

corporations but not individuals potentially can be represented in a general procedure case by their accountant

The corporate Appellant and three individual Appellants applied to be represented in their respective appeals by their accountant, rather than retaining counsel to represent them, on the grounds that they lacked financial resources to retain legal counsel. After referencing the finding in Masa Sushi that a corporate appellant in a general procedure appeal may not be represented by non-counsel and the opposite conclusion reached in BCS Group, Russell J indicated his preference for the latter approach, stating (at paras 9, 16):

… [A] corporation, being an inanimate person, cannot literally represent itself. Applying the presumption against tautology, Parliament thus intended a corporate party to be able to be represented by either counsel or some third party individual who was not a lawyer. …

… [M]eaning must be given to the clear subsection 17.1(1) Parliamentary language that a party, a term encompassing both corporate and non-corporate parties, may appear in person in a general procedure appeal.

However, Russell J dismissed the applications, stating (at paras 20, 22 and 23):

… [N]o evidentiary material was provided supporting that the corporation was financially unable to retain counsel for this general procedure appeal. Having a lawyer represent an appellant is important, for a lawyer would be expected to know applicable jurisprudence, courtroom procedure and pre-hearing procedures. General procedure is not informal procedure.

Additionally, …the “outside accountant” potentially … would be an important if not key witness at any hearing of this appeal. …

For these two reasons I will dismiss the corporate Appellant’s application per Rule 30(2)… .

The Rules do not seem to provide for an application for individuals who are appellants in general procedure appeals to be represented by anyone other than either counsel or themselves. …

BCS Group Business Services Inc. v. The Queen, 2018 TCC 120

corporation can appear “in person” without counsel

The appellant brought a motion pursuant to Rule 30(2) of the Tax Court of Canada (General Procedure) Rules (the “Rules”) to have its sole shareholder, director and principal officer act on its behalf in its tax appeal. Subsection 17.1(1) of the Tax Court of Canada Act read:

A party to a proceeding in respect of which this section applies may appear in person or be represented by counsel, but where the party wishes to be represented by counsel, only a person who is referred to in subsection (2) shall represent the party.

In disagreeing with the finding in Masa Sushi and subsequent cases that Rule 30(2) conflicted with section 17.1, and the latter section did not allow a corporation to be represented other than by counsel, Miller J stated (at paras 5, 8):

A corporate taxpayer, like an individual taxpayer, has the choice to appear in person or by counsel. If it chooses to appear “in person,” how does it do that? It turns to Rule 30(2), which provides how a corporation may appear in person in the Tax Court of Canada – by means of leave of a judge of the Court with possible conditions. … Yes, there is common law jurisprudence to the effect that “in person” can only mean by the presence of a visible person … but there has been no such jurisprudence, until Masa Sushi, from the Tax Court of Canada. The jurisprudence referenced by Justice Graham is not founded in legislation that explicitly allows a corporation to appear in person.

…Surely we can give the drafters of the legislation and the drafters of the Rules credit for recognizing the uniqueness of the Court, unencumbered by the traditional common law findings of other Courts.

He went on to allow the appellant to appear in person through the individual on stipulated conditions.

Words and Phrases
in person
Locations of other summaries Wordcount
Tax Topics - General Concepts - Stare Decisis prior decision not followed 54

Masa Sushi Japanese Restaurant Inc. v. The Queen, 2017 TCC 239

a corporation can only be represented by counsel (no CPAs or officers)

Two individuals and two corporations of which they were shareholders brought motions to be represented by a non-lawyer who was not an officer or employee of the corporations (the “CPA”). After finding that, as the CPA was an agent and not counsel, Rule 30(1) did not give the Court discretion to allow the CPA to represent the two individuals, Graham J went on to find that Rule 30(2) could not be used to authorize the CPA to represent the two corporations, stating (at paras 9, 11, 12):

…[T]he Rules may not override the Act. …

…[S]ubsection 17.1(1) gives parties two choices. Parties may appear in person or be represented by counsel. …

The words “in person” mean “physically present”. A human can be physically present in court. A corporation, being a creation of law with no physical substance, cannot.

Graham J further stated (at paras 18, 19, 23 - 25):

A historical contextual analysis of subsection 17.1(1) supports the traditional common law interpretation. There have been three versions of Rule 30(2). The original version was created at the same time as the Act and required corporations to be represented by counsel. It read:

Except as expressly provided by or under any enactment, a body corporate may not begin or carry on a proceeding otherwise than by counsel. [Emphasis added]

Rule 30(2) was amended in 1993 to allow corporations to be represented by an officer with leave of the Court in special circumstances. …

If I interpret subsection 17.1(1) as only allowing corporations to be represented by counsel, then the original version of Rule 30(2) exactly paralleled subsection 17.1(1) and was intra vires. However, both the 1993 and current versions of Rule 30(2) would be ultra vires… because… [b]oth of these provisions allow representation in a manner inconsistent with a requirement in subsection 17.1(1) that corporations be represented by counsel.

By contrast, if I interpret subsection 17.1(1) as allowing corporations to appear in person or be represented by counsel, all three versions of Rule 30(2) would be ultra vires as they would unduly restrict a corporation’s ability to appear in person. …

…[T]he Court was created at the same time that the Rules came into effect. … [I]it is far more likely that the original version of Rule 30(2) paralleled subsection 17.1(1) than that it violated it. It appears that, when the 1993 amendment was made, the fact that Rule 30(2) could not be changed without first amending subsection 17.1(1) was overlooked. A similar error appears to have occurred in 2007.

Graham J concluded (at paras 42, 48):

I conclude that subsection 17.1(1) does not allow a corporation to appear in person. In the general procedure, the only option available to a corporation is to be represented by counsel. Accordingly, until such time as subsection 17.1(1) is repealed or amended, Rule 30(2) should be read down to read:

Where a party to a proceeding is not an individual, that party shall be represented by counsel.

In the alternative, if I am wrong, and corporations are able to appear in person, I would still deny the Corporate Appellants’ motions. … . I am not aware of any interpretation of subsection 17.1(1) by which a corporation could be said to appear in person through its external accountant.

Words and Phrases
appear in person
Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Federal - Tax Court of Canada Act - Section 17.1 - Subsection 17.1(1) s. 17.1 does not contemplate representation of a corporation by other than counsel 122

Section 31

Subsection 31(2)

See Also

Woessner v. The Queen, 2017 TCC 124

counsel removed since likely that his partner would be called as a witness

The taxpayer invested in what CRA viewed as a software tax shelter scheme that was developed and promoted by, inter alia, a Calgary law firm, Shea Nerland and a Canadian corporation, Softech Asset Management Corp (“SAM”). The taxpayer appealed the disallowance by the Minister of various related losses claimed by him on the basis that the interest acquired by the taxpayer in the software was a tax shelter, as defined in s. 237.1(1). The Minister brought a motion to remove Shea Nerland as counsel of record on the basis that SAM was directed and managed by a partner at Shea Nerland, and a former associate of the firm.

In granting the motion, Campbell J stated (at paras 46, 52-3):

[T]here is a strong likelihood that Appellant counsel will be required to cross-examine his partner and a former associate on matters bearing directly on the quality of the legal services provided to the Appellant and the law firm’s participation in the alleged tax shelter scheme. …

Essentially, all of the factors outlined in Essa [[1993] OJ No 229]… favour the granting of this motion. The degree to which Shea Nerland appears to be immersed in the promotion and management of the alleged tax shelter scheme and the likely importance of the testimony of Mr. Nerland and Mr. Mamdani, necessitate an order for the removal of Appellant counsel and the law firm in order to maintain the reputation of the administration of the judicial system and to avoid the appearance of impropriety to the public.

…[I]t is unrealistic to conclude that Mr. Clark will be able to balance his obligations to his partners and colleagues with his professional obligations to his client, Mr. Woessner.

Section 49

Subsection 49(1)

See Also

Hillcore Financial Corporation v. The King, 2023 TCC 71

Reply struck for extensive deficiencies including admitting or denying facts that not been pleaded and stating assumptions of mixed fact and law (e.g., sham, or non-arm’s length)

Before striking the Reply of the Crown in its entirety (but with leave to the Crown to file a fresh Reply that complied with the Rules), Lafleur J referred (at para. 34) to the principle:

Where the deficiencies in a pleading are extensive, lack specificity or are vague, the proper remedy is to set the pleadings aside with leave to file a new pleading that meets the requirements set out in the Rules.

Examples of around six heads of deficiencies that she identified included:

  • admitting or denying facts that had not been pleaded;
  • referring to assumptions of fact made by CRA in assessing which instead were assumptions of mixed fact and law, e.g., that specified parties did not deal with each other at arm’s length and that contracts were shams; and
  • including Schedules that contained evidence, as well as materials from which it was difficult or impossible to extract clear factual allegations.

Goldman v. The Queen, 2021 TCC 13

“taking note” of a fact pleaded by the taxpayer is not a permitted Crown response

Graham J concluded his reasons by stating:

Paragraphs 49(1)(a) to (c) … require that a reply to a notice of appeal state the facts in the notice of appeal that are admitted, the facts that are denied and the facts of which the respondent has no knowledge and puts in issue.

The Respondent did not comply with that rule in this appeal. The Respondent admitted certain facts, denied certain facts and stated that she had no knowledge of certain facts. However, the Respondent also pleaded that she “took note of” certain facts and “ignored” other facts. Taking note of a fact and ignoring a fact are not options available to the Respondent under Rule 49(1).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 160 - Subsection 160(1) s. 160(1) did not apply to a transfer to an individual qua trustee of a valid oral trust 483
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(2) trustee had no liability for application of s. 160(1) to transfer to the trust, absent s. 159(3) 215
Tax Topics - Income Tax Act - Section 159 - Subsection 159(3) CRA could have assessed taxpayer qua trustee, for the s. 160(1) liability of her trust arising on its settlement, under s. 159(3) given the distribution of the corpus without a certificate 193
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(1) oral instructions, before her death, by mother to daughter re application of the proceeds of her RRSP gave rise to a trust 208

Section 53

Cases

AgraCity Ltd v. Canada, 2016 DTC 5006 [at 6525], 2015 FCA 288

inconsistent assessments of related taxpayers

The taxpayer (“AgraCity”) was wholly-owned by Jason Mann. A Barbados corporation ("NewAgco-Barbados") was wholly-owned by a second Canadian-resident corporation (“SaskCo”), which was indirectly owned by Jason and his brother. In its returns, NewAgco-Barbados reported substantial profits from the sale of a herbicide (ClearOut) to Canadian farmers, and deducted amounts paid to AgraCity as service fees. The Crown’s reply to an appeal by AgraCity pled that NewAgco-Barbados did not sell any ClearOut, and that the fair market value of the fees received by AgraCity should be increased by all of the profit reported by NewAgco-Barbados. In the reply filed by the Crown to a related appeal of SaskCo, it pled that NewAgco-Barbados bought ClearOut and sold it to AgraCity, thereby giving rise to FAPI under s. 95(2)(a.1) to SaskCo. After noting (at para. 8) that the two Crown pleadings were “irreconcilable,” Webb JA stated (at para. 19):

AgraCity and SaskCo, although they are related persons…, are two separate persons. … Because each taxpayer is assessed (or reassessed) separately, this can result in inconsistent assessments (Peterson v. The Queen, 2005 FCA 263…at paragraph 4). If the Minister has issued inconsistent assessments, this will lead to inconsistent pleadings, if the taxpayers appeal to the Tax Court of Canada. In this case the Crown acknowledges that the assessments and hence the pleadings are inconsistent and that the Crown does not seek to have both assessments upheld.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 247 - New - Subsection 247(2) boundary between ss. 247(2)(a) and (b) is unresolved/inconsistent assessments of related taxpayers 389
Tax Topics - Income Tax Act - Section 152 - Subsection 152(1) inconsistent assessments of related taxpayers 180
Tax Topics - Other Legislation/Constitution - Federal - Tax Court of Canada Rules (General Procedure) - Section 82 inconsistent assessments of related taxpayers 307

AgraCity Ltd. v. The Queen, docket 2014-1537

argument inconsistent with assumed facts struck from pleadings, but might be reintroduced at trial as an alternative argument

In her Reply, the Minister alleged that a Barbados corporation ("NewAgco") which did not deal at arm's length with the taxpayer, took over a business of selling a product ("ClearOut") to Canadian farmers, and that NewAgco agreed to pay services fees to the taxpayer amounting to approximately $1 million for its 2007 and 2008 fiscal periods as contrasted to net profits of Barbados from sales of ClearOut for those years of $2.4 million and $3.6 million. C. Miller J found (at para. 16) that if he took the Minister's pleadings "that NewAgco had no role in selling ClearOut as true," there was "no basis upon which the Minister can successfully apply section 247(2)(a)." Accordingly, he struck the Minister's pleading, that the terms of the agreement between the taxpayer and NewAgco differed from arm's length terms. However, he did not strike pleading directed at ss. 247(2)(b) and (d) as they were broader provisions.

He noted (at para. 17) that, if supporting evidence emerged at trial, the Minister could advance ss. 247(2)(a) and (c) as alternative arguments.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 163 - Subsection 163(2) Reply must explain specific bases on which a penalty was imposed 268
Tax Topics - Income Tax Act - Section 247 - New - Subsection 247(2) factual allegation that foreign affiliate did nothing was fatal to ss. 247(2)(a) and (c) pleadings but not ss. 247(2)(b) and (d) 230

Subsection 53(1)

See Also

Hillcore Financial Corporation v. The King, 2023 TCC 71

Reply of the Crown struck in its entirety

Before striking the Reply of the Crown in its entirety pursuant to Rule 53(1) (but with leave to the Crown to file a fresh Reply that complied with the Rules), Lafleur J stated (at para. 34):

Where the deficiencies in a pleading are extensive, lack specificity or are vague, the proper remedy is to set the pleadings aside with leave to file a new pleading that meets the requirements set out in the Rules.

She concluded (at para. 179):

I agree with the Appellant that given the extent of the deficiencies found in the Reply, the Reply cannot be cured by simple amendment. If the Reply were to stand, the scope of discoveries would be unmanageable … . The Reply has to be struck as, for the reasons detailed above, it will either prejudice or delay the fair hearing of the appeal, or is scandalous, frivolous and vexatious, or is an abuse of the process of this Court.

Examples of Crown pleadings which Lafleur J accepted as falling within the scope of deficiencies referred to in Rule 49(1) included:

  • Overreaching admissions (i.e., “admitting” facts that were not alleged by the taxpayer);
  • Overreaching denials (i.e., denying facts which were not pleaded);
  • Stating assumptions of fact made by the Minister in assessing which instead were assumptions of mixed fact and law (i.e., “’applying a legal standard to a set of facts’”, para. 70) such as pleading that specified parties did not deal with each other at arm’s length, that contracts were shams, that specified parties did not have a “valid creditor-debtor” relationship, and that loan agreements were not for “bona fide” loans.
  • Making repetitive pleadings (and also adding a Schedule that “did not contain any material facts as it [was] drafted with generic words – para. 108).
  • Providing a chart which disclosed confidential information about third parties and a diagram which the appellant could not properly answer (par. 139)_ - and also referring to a third-party partnership without explaining its relevance (para. 146).
  • The inclusion of evidence on which the Crown intended to rely (e.g., the inclusion of Schedules which had the look of working papers – para. 166).
Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Federal - Tax Court of Canada Rules (General Procedure) - Section 49 - Subsection 49(1) Reply struck for extensive deficiencies including admitting or denying facts that not been pleaded and stating assumptions of mixed fact and law (e.g., sham, or non-arm’s length) 175

Paragraph 53(1)(a)

Cases

Canada v. Preston, 2023 FCA 178

assumption of mixed fact and law should not be struck if there is no prejudice and this will not enhance the trial process

The Tax Court ordered that “assumptions of fact” pleaded by the Crown in its Reply should be struck out and moved to the reasons part of the Reply on the sole ground that they were in fact conclusions of mixed fact and law. The sole such assumptions that were at issue on this appeal were that the fair market value of the shares and partnership interest received by two beneficiaries of the appellant trust were specified dollar amounts, that the only beneficiaries of the trust were the two other appellants and their issue and that a ULC was not a beneficiary, and assumptions using the phrase “received…for the benefit of”

Monaghan JA stated (at paras. 18-20):

There is no principle of law that a statement of mixed fact and law cannot stand as an assumption. …

[T]he Tax Court concluded that leaving them as assumptions placed an onus on the respondents that they would not otherwise bear. But, that is not so.

An assumption that is a statement of mixed fact and law does not put any additional onus on the taxpayer … [since] “when the validity of the assessment is attacked in point of law…there is really no onus on either party … .”

After referring to the Anchor Pointe and CIBC (2013 FCA 122) decisions on which the respondents relied, Monaghan JA stated (at paras. 36, 40):

As expressly recognized in CIBC, a statement of mixed fact and law may stand as an assumption if there is no prejudice, no debate about the legal principles, or the facts are simple … .

[R]ather than ask itself whether the particular assumption as written was prejudicial or would delay the fair hearing of the appeal as required by Rule 53(1)(a), the Tax Court only explained why it was a statement of mixed fact and law. Further, the Tax Court did not consider whether leaving the assumptions as is would better serve the trial process. … [T]he Tax Court therefore erred in law … .

Regarding the particular assumptions at issue, Monaghan JA indicated that:

  • “A statement that an identified property has a particular fair market value at a particular point in time is an assumption (or finding) of fact, notwithstanding that fair market value has a legal definition.” (para. 47)
  • The respondents had not shown any prejudice or merit to their complaint about the assumptions as to the beneficiaries and amounts received for their benefit,

Thus, the appellant was allowed to retain the pleadings in issue as assumptions.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Onus assumptions of mixed fact and law were not prejudicial to the taxpayer – and an FMV assumption instead is factual 269

Paragraph 53(1)(c)

Cases

Canada v. Adboss, Ltd., 2023 FCA 201

the Minister’s assumption that a company’s “controlling mind and management” was in Canada was an abuse of process

The Minister’s reply, to the taxpayers’ appeals of assessments to deny zero-rating of taxable supplies made by them to a mooted non-resident (“Lowfroc”) on the basis that Lowfroc was a resident of Canada, pleaded “assumptions” including that Lowfroc was incorporated in Cyprus, that the taxpayers had no correspondence with any Lowfroc-connected persons in Cyprus and that “at all material times, the controlling mind and management of Lowfroc was in Canada.”

After confirming that the quoted assumption was one of mixed fact and law, and after referring to Preston, Goyette JA further confirmed the finding below that there had been prejudice to the taxpayers and an abuse of process (justifying the striking of this assumption pursuant to Rule 53(1)(c)) given inter alia that this pleading “went to the heart of the appeal” (para. 22) and that the Crown had refused the taxpayers’ request for particulars in this regard, so that the taxpayers accordingly “had few options if they wanted to know what factual assumptions they must demolish in order to succeed in their appeal” (para. 22).

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Schedules - Schedule VI - Part V - Section 7 Minister’s pleaded “assumption” that a recipient’s “controlling mind and management” was in Canada went to the heart of the availability of zero-rating 153

See Also

Adboss, Ltd. v. The King, 2022 TCC 125, aff'd 2023 FCA 201

assumption that a company’s “controlling mind and management” was in Canada struck as a mixed statement of fact and law

The Minister’s reply, to the taxpayer’s appeal of an assessment of it to deny zero-rating of taxable supplies made by it to Lowfroc Investments Limited (“Lowfroc”) on the basis that Lowfroc was a resident of Canada, pleaded assumptions including that Lowfroc was incorporated in Cyprus, that the taxpayer had no correspondence with any Lowfroc-connected persons in Cyprus and that “at all material times, the controlling mind and management of Lowfroc was in Canada.” Before allowing the taxpayer’s motion to strike the quoted statement from the Reply pursuant to Rules 53(1)(a) and (c), Lafleur J found that the quoted phrase referenced the jurisprudential test of “central management and control,” and further noted (at para. 18) that the “location of the ‘central management and control’ of a corporation … is actually the legal test that must be applied to determine the residency of a corporation.” In explaining the decision to strike under Rules 53(1)(a) (“delay … fair hearing”) and (c) (“abuse of … process”) she stated (at para. 37):

[B]ecause the Appellant will have to speculate as to the facts underlying the conclusion of mixed fact and law of the Minister that the “controlling mind and management” of Lowfroc was in Canada, and because the Appellant therefore cannot be properly prepared for and proceed with discoveries, this will prejudice or delay the fair prosecution of the appeal and constitutes an abuse of the Court’s process.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Schedules - Schedule VI - Part V - Section 7 residence of corporate recipient determined by location of its central management and control 219

Morissette v. The Queen, 2019 CCI 103

Rule 53 does not authorize the rendering of a summary judgment

In order to avoid having CRA assess his corporation for Part III tax on an allegedly excessive capital dividend paid to him, the taxpayer agreed to make an election under s. 184(3) so that he could be assessed for a taxable dividend. However, the taxpayer then appealed the assessment of the taxable dividend on the ground that the purported capital dividend paid to him by the corporation in fact was a valid capital dividend. The Crown moved to have the taxpayer’s appeal struck on the grounds that it disclosed no reasonable cause of action (he was bound by his election).

Smith J dismissed the Crown’s motion, stating (at para. 37, TaxInterpretations translation) that he “cannot gloss over a legislative provision which requires the Minister to make an assessment permitting the taxpayer to then make an election.” Before so finding, he stated (at para. 29):

… I am not convinced that section 53 of the Rules, respecting the striking of pleadings, is the equivalent of a rule permitting the Court to render a summary judgment.

Although this strongly suggests that the Minister’s assessment based on a void s. 184(3) election was also void, he noted that all that was necessary for him to determine was that the Crown had not established that the taxpayer’s appeal had no reasonable prospect of success.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 184 - Subsection 184(3) validity of taxable dividend arising from s. 184(3) election appears to depend on Part III assessment first having been made 442

Section 54

Cases

Canada v. Pomeroy Acquireco Ltd., 2021 FCA 187

amendments to pleadings need only assist (and not be prejudicial) to be allowed

The taxpayer opposed a proposed amendment by the Crown (after the close of discoveries and two months before trial) to its pleadings to raise an argument that the subject transaction was a sham and that shares acquired as part of the transaction should have their value discounted to reflect the corporations’ latent tax liabilities. In reversing the decision below and allowing the amendments, Rennie JA found that the trial judge had erred in applying a test that the amendments must be “vital” to the case in order to be allowed, stating (at para. 4):

An amendment need not be “vital” to a case to be allowed. The controlling principle is that an amendment should be allowed at any stage of an action if it assists in determining the real questions in controversy between the parties, provided it would not result in an injustice not compensable in costs and that it would serve the interests of justice. A court should give significant consideration to amendments which further the ability of the trial court to determine the questions in controversy … .

Burlington Resources Finance Company v. The Queen, 2020 TCC 32

amendment permitted in advance of trial to give effect to previously disclosed Crown position

Burlington, a Nova Scotia ULC, borrowed approximately U.S.$3 billion in 2001 and 2002 by issuing notes that were guaranteed by its non-resident parent (“BRI”). The Minister reassessed Burlington’s 2002 to 2005 taxation years to deny, under ss. 247(2)(a) and (c), deductions for the “guarantee fees” paid by Burlington to BRI. The October 2012 Reply to Burlington’s Notice of Appeal relied on s. 247, and also asserted that the fees were not incurred for the purpose of earning or producing income under s. 20(1)(e.1) (they were “redundant” due to Burlington’s status as a ULC).

D’Auray J has now granted a Crown motion to file an amended Reply in which it has abandoned its position that the transfer pricing rules in s. 247 applied to the quantum of the fees, and takes the position that the deductions instead should be denied on the grounds that they were not “guarantee fees” within the meaning of s. 20(1)(e.1) and, in the alternative, they were not incurred by Burlington for the purpose of borrowing money, within the meaning of s. 20(1)(e.1).

Burlington argued that the Court should not grant leave for the making of the amendments since they constituted purported withdrawals of admissions that the fees had been paid as guarantee fees. D’Auray J found that, in the broader context, such admissions had not been made, and that even if they had been, they could now be withdrawn given inter alia that “there is a triable issue which ought to be tried in the interests of justice” (para. 82).

The requested amendments were granted in light inter alia of the request having been made well in advance of the trial, and the position on s. 20(1)(e.1) having been made known on discoveries of the Crown in 2014.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 247 - New - Subsection 247(2) - Paragraph 247(2)(a) Crown abandons its position that s. 247(2)(c) applied to reduce guarantee fees paid by a ULC to its non-resident parent 180
Tax Topics - Other Legislation/Constitution - Federal - Tax Court of Canada Rules (General Procedure) - Section 132 in context, no formal admission made - and any admission could be withdrawn in the interests of justice 555

Pietrovito v. The Queen, 2017 TCC 119

failure to appeal 2nd taxation year not curable through amendment

Due to a clerical error by a liaison between the taxpayer and his counsel, counsel was only instructed to prepare a Notice of Appeal for Year 1 and not Year 2, notwithstanding that it was the obvious intention of the taxpayer to appeal both. Lafleur J declined to extend the Wells case to permit the taxpayer, following the discovery of this error, to amend his Notice of Appeal to extend the appeal to cover Year 2.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 169 - Subsection 169(1) taxpayer could not correct a clear error in appealing only one of the two taxation years in dispute 312
Tax Topics - Income Tax Act - Section 167 - Subsection 167(5) - Paragraph 167(5)(a) time period not suspended where taxpayer reasonably believed appeal had been filed 357

See Also

Windsor Clinical Research Inc. v. The King, 2023 TCC 179

the Crown or taxpayer can change the process or reasoning underlying their position

SR&ED claims of the taxpayer for various projects had been denied. The Crown now sought to amend its Reply to allege that the work conducted was in the field of psychology rather than dermatology and make related submissions. Jorré J. referred (at para. 10) to the statement in Pomeroy Acquireco that “[t]he controlling principle is that an amendment should be allowed at any stage of an action if it assists in determining the real questions in controversy between the parties, provided it would not result in an injustice not compensable in costs and that it would serve the interests of justice.”

In rejecting the submission of the taxpayer that these amendments “would deprive [it] of its right to rely on the specific approach taken by the auditors and appeal officers” (para. 15), Jorré J stated (at paras. 19, 20):

[T]he ultimate issue on an appeal is: whether the amount of tax is too high, not the process or reasoning by which it was reached? …

[N]either party is bound by their approach prior to the court appeal.

Regarding the statement in Continental Bank ([1998] 2 S.C.R. 298) that “[t]he Crown is not permitted to advance a new basis for reassessment after the limitation period has expired,” Jorré J found (without need to refer to s. 152(9)) that (para. 28):

In this case, based on the pleadings, the foundation or main constitution element of the assessment is that certain activities do not constitute scientific research or experimental development within the meaning of the Income Tax Act. The proposed amendments involve adding factual allegations in support of that. The proposed amendments do not constitute a new or additional basis of assessment.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(9) additional amendments to change factual basis did not change the basis of assessments denying SR&ED claims 172

Chad v. The Queen, 2022 TCC 18

the Crown could not resile from an oral representation that it would not argue “tax shelter” at trial

The taxpayer, which had appealed reasssessments of foreign-currency straddle trades (the “Chad I” appeal), had brought a motion in January 2021 to strike out various of the Crown pleadings, some of which were relevant to the CRA assumption in reassessing that the transactions constituted a tax shelter. Crown counsel at that hearing had indicated to Sommerfeldt J that at trial (then scheduled for about a month later) the Crown would not pursue tax shelter arguments. Sommerfeldt J stated (at para. 29) that he considered that this statement had been made to him in order to persuade him at the time to not to strike out the other Crown pleadings at issue. In a subsequent motion brought by the Crown in June 2021 and heard in September 2021 (after the postponement of the trial for COVID reasons), the Crown now sought to amend its Reply to add allegations and related assertions that the deductions claimed should also be denied on the basis that they were part of a “tax shelter.”

In denying this amendment, Sommerfeldt J stated (at paras. 34, 41):

[W]here a party desires to resile from a previously stated position, the party should provide an explanation as to the intervening and previously unexpected circumstances that occurred after the representation had been made and that require the party to change its position. That was not done here. …

I view the statements made by counsel for the Respondent at the hearing on January 28, 2021, to the effect that the Respondent would not rely on the tax-shelter argument at trial, as being a representation or a commitment made to the Court. In the absence of a reasonable explanation as to why counsel for the Respondent now desires to resile from that representation or commitment, I am reluctant to grant leave … .

Sommerfeldt J went on to note that, although in a quite similar appeal by the same taxpayer (the “Chad II” appeal) the Crown had pleaded the tax shelter argument in its Reply filed on May 27, 2019, the current Motion to amend “which was filed June 29, 2021, was anything but timely” (para. 46). He also noted that this argument had not been raised in the Crown’s previous motions to amend, and stated (at para. 50):

[I]t would not be in the interests of justice to allow the Respondent to amend the Second Amended Reply so as to advance the tax-shelter argument, as she declined on three previous occasions to include such a provision in her pleading, and she has twice previously stated expressly that she was not advancing the tax-shelter argument. Furthermore, the Respondent has failed to provide any explanation of the facts, evidence or circumstances that prompted her to change her position.

In the context of a somewhat similar procedural history, Sommerfeldt J also denied leave to the Crown to include, in its amended Reply, an argument of “window-dressing” (namely, “deceptively making facts appear better or more favourable than they actually are” (footnote 39).

Locations of other summaries Wordcount
Tax Topics - General Concepts - Window Dressing sham is deceitful misrepresentation of a transaction’s nature, whereas window dressing is deceptively making the facts look better 145

Section 58

Subsection 58(1)

See Also

Matthew Macisaac Consulting Inc. v. The Queen, 2020 TCC 44

refusal of request for Rule 58 determination that reporting gains as on capital rather than income account was not a “misrepresentation”

The Minister reassessed most of the taxation years for 2005 to 2014 taxation years, with only the 2012 to 2014 taxation years being within the normal reassessment period. The other issues were whether dispositions of shares in an offshore fund were on income or capital account, and whether dividends paid in various years exceeded the taxpayer’s capital dividend account.

The taxpayer applied under Rule 58 for the determination of three questions prior to the eventual hearing of this appeal: (a) Whether a misrepresentation (i.e. “présentation erronée des faits”) within the meaning of s. 152(4)(a)(i) meant a misrepresentation of fact, and not mixed law and fact; (b) Whether the characterization of gains as being on capital versus income account were a question of mixed law and fact and therefore outside the meaning of s. 152(4)(a)(i); and (c) Whether the statute-barred reassessments were invalid.

Wong J noted (at para. 15) the taxpayer’s submission that, in the context of “the distinction between the French version of subparagraph 152(4)(a)(i) which reads ‘une présentation erronée des faits’ while the English version reads ‘any misrepresentation’ … the income-versus-capital issue is one of mixed law and fact and as a result, cannot constitute a misrepresentation for the purposes of subparagraph 152(4)(a)(i).”

Wong J stated (at para. 23) that the “English and French versions are of equal force and effect, and there is no basis to prefer one version over the other without further context.” In dismissing the motion, she stated (at paras. 24-25, 28):

I cannot agree with the Appellant’s proposition … that a question of income versus capital necessarily amounts to a difference in opinion… [T]he factual circumstances of the appeal will determine whether the issue of income versus capital is purely a difference of opinion or not. …

The question of whether a misrepresentation under subparagraph 152(4)(a)(i) contemplates fact only or mixed-law-and-fact, should properly remain with the trier of fact to determine in conjunction with the related substantive issues.

… . In the present case, documents have not yet been exchanged nor have discoveries been conducted. … While the mechanics of the transactions may not be in dispute, the factual circumstances have yet to be determined for the purposes of confirming or rebutting the Minister’s assumptions.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) - Paragraph 152(4)(a) - Subparagraph 152(4)(a)(i) meaning of misrepresentation in French and English versions is prima facie different 375

Subsection 58(2)

See Also

632738 Alberta Ltd. v. Canada, 2021 FCA 43

the determination of the scope of an ambiguously-worded waiver should be made at trial, not under Rule 58

The taxpayer was a member of a limited partnership (Action LP) that held most of the interest in a subsidiary partnership (Thompson GP). Before signing and delivering a waiver that CRA proposed referring to “Partnership income of $99,991 reported on Schedule 1,” 632 added a reference to such amount being income of 632 from Thompson GP.

In affirming the finding of the Tax Court (in a “stage 1”preliminary hearing) that holding a “stage 2”hearing so as to make a Rule 58 determination as to whether a CRA reassessment of 632 to increase pursuant to s. 103 the income allocated to it by Action LP was outside the scope of the waiver, would be unfair to the Crown and was a question that “should not be determined in advance of the trial” (para. 15), Woods JA indicated:

  • It was “clearly arguable that the waiver itself [was] inherently ambiguous” (para. 29)
  • There was no reversible error in the Tax Court’s finding “that a stage 2 hearing would unfairly preclude the Crown from conducting examinations for discovery of the individual who signed the waiver” (para. 30)
  • Similarly, it was arguable that the Crown should not be precluded from introducing of the factual circumstances that led to the reassessment (paras. 32-33).

McCartie v. Canada, 2020 FCA 18

it was inappropriate to make a Rule 58 reference where the evidentiary record needed to be established by witnesses

The unrepresented appellant appealed the determination by the Tax Court that four questions that he had sought to have determined under Rule 58, including whether evidence relied on by CRA in assessing him had been obtained in violation of his Charter rights, were not appropriate for determination under that rule. In dismissing the appeal, Rivoalen J.A. stated (at paras. 21-22):

Rule 58(2) requires the Tax Court to examine the proposed questions and decide if by answering them before the hearing, those answers may dispose of all or part of the proceeding or result in a substantially shorter hearing or a substantial saving of costs. The Tax Court judge did exactly that, and committed no reviewable errors in his analysis. In these proceedings, the trial judge will be tasked with answering questions on the admissibility of evidence in light of alleged Charter breaches. The Crown intends on calling witnesses such as the auditor to testify and establish part of the evidentiary record. It was therefore open to the Tax Court judge to conclude that no time or costs would be saved by having any of the Questions dealt with by a motions judge.

Furthermore, as the Tax Court judge rightfully pointed out, given the circumstances of the present case, he declined to order under Rule 58 the determination of the Questions because “[t]he Rule 58 Questions 1, 2, and 3, however answered, would require testimony before the motion judge which would most likely need be repeated before a trial judge. The prospects of two judges, after considerable testimony, opining on the credibility and weight of the same witnesses in the same appeals is neither fair, nor consistent to the parties nor the interests of justice.” (reasons, para. 45).

Section 63

See Also

Lark Investments Inc. v. The King, 2024 TCC 30

Crown’s vague pleading that GAAR applied to convert a CCPC to non-CCPC was struck, but with leave to amend

A week before realizing a $119 million capital gain on the disposition of investment property, the taxpayer, which until then was wholly-owned by a Canadian-resident individual (“Ebrahim”), issued voting preference shares to his non-resident children (who thereby acquired de jure control), but not to a resident son. CRA had decided not to take the position that the taxpayer had remained a Canadian-controlled private corporation (CCPC) by virtue of continued de facto control by Ebrahim but that the general anti-avoidance rule (GAAR) should instead be applied. CRA assessed the taxable capital gain on sale, so as to deny the general rate reduction under s. 123.4 and impose refundable tax under s. 123.3, on this basis.

Based on the Crown’s submissions at the hearing of this motion, its position appeared to be that, although Lark was no longer a CCPC because of the de jure control of the non-resident children, there was a GAAR abuse because de facto control was maintained in Canada. However, this position was not reflected in the Reply (both initially and as amended), which instead contained vague references to the integration system and abuse of ss. 123.3 and 123.4, and contained no reference to de facto control.

St-Hilaire J found (at para. 60) that the relevant part of the Reply “may prejudice the fair hearing of the appeal and is an abuse of process” and should be struck – but with leave to the Crown to amend its pleadings.

Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Federal - Tax Court of Canada Rules (General Procedure) - Section 8 fresh start rule inapplicable where defects in Crown’s pleading did not become apparent until a subsequent procedural stage 230
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) Crown required to plead its particular GAAR position/ no requirement to go to GAAR Committee 314
Tax Topics - Income Tax Act - Section 169 - Subsection 169(1) process behind assessment not relevant to its validity 100

Section 82

Cases

AgraCity Ltd v. Canada, 2016 DTC 5006 [at 6525], 2015 FCA 288

inconsistent assessments of related taxpayers

A Barbados corporation reported substantial profits from the sale of a herbicide to Canadian farmers, and deducted amounts paid to a non-arm’s length Canadian corporation (AgraCity – which was the taxpayer in the case) as service fees. The Crown’s pleadings in support of its assessment of AgraCity stated that the Barbados corporation did not sell any herbicide, and that the fair market value of the fees received by AgraCity should be increased by all of the profit reported by the Barbados corporation. However, in pleadings in support of an assessment of the Canadian parent of the Barbados corporation, the Crown pled that the Barbados corporation sold the herbicides to AgraCity, thereby giving rise to FAPI under s. 95(2)(a.1) to the Canadian parent.

Webb JA dismissed AgraCity’s submission that the inconsistent pleadings should preclude the application of full disclosure Rule 82, stating (at para 25):

Since the Crown has inconsistent pleadings this would indicate that what actually transpired between or among the various companies is far from clear. Disclosing all relevant documents may well assist in clarifying what actually happened. Therefore, I do not accept AgraCity’s argument that inconsistent pleadings should be a basis for overturning the Tax Court Judge’s decision to grant the order for full disclosure under Rule 82.

As for AgraCity’s argument that full disclosure was premature, notwithstanding the decision in Long v. The Queen, 2010 TCC 197, 2010 D.T.C. 1146, Webb J.A. noted that it was also found in Long that there is no limitation on the timing of a Rule 82 application and (at para. 29):

[T]he Tax Court Judge did not commit any error in weighing the interests of justice against the timing of the application.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 247 - New - Subsection 247(2) boundary between ss. 247(2)(a) and (b) is unresolved/inconsistent assessments of related taxpayers 389
Tax Topics - Other Legislation/Constitution - Federal - Tax Court of Canada Rules (General Procedure) - Section 53 inconsistent assessments of related taxpayers 240
Tax Topics - Income Tax Act - Section 152 - Subsection 152(1) inconsistent assessments of related taxpayers 180

Subsection 82(1)

See Also

Gaudreau v. The King, 2023 CCI 115

tax-planning memo of purchaser’s accountant was relevant to the s. 84(2) assessment of the vendor

The taxpayer was assessed under s. 84(2) regarding his sale of his interest in an insurance company (RBP) that was structured as a hybrid sale transaction. The taxpayer took the position that he was not required to produce on discovery a six-page memo that had been prepared by the accounting firm for the purchaser and which had been shared with him (as vendor) and his advisors, on the grounds that it contained nothing but a description of transactions of which the Minister was already aware and matters of “subjective opinion” and that it contained no mention of or discussion of s. 84(2). In finding that the memo should be produced, St-Hillaire J noted the absence of accountant-client privilege, and stated (at paras. 61-62, TaxInterpretations translation):

[T[he Memorandum is relevant to the issues in this case. … [A] document is relevant to the issues in dispute when it contains information that may, directly or indirectly, enable the party requesting disclosure either to plead its own case or to prejudice that of its adversary, or to initiate an investigation. The … Memorandum, deals in large part with the transactions at issue; it followed the agreement concerning the sale of RBP, which contained a clause on [minimization of] taxation and … the parties followed what was provided for in the Memorandum. It is also worth recalling the jurisprudential principles according to which the preferred approach to the interpretation of subsection 84(2) involves an examination of the circumstances surrounding the transactions in question.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Solicitor-Client Privilege no accountant-client privilege 304

Subsection 82(2)

See Also

Canadian Imperial Bank of Commerce v. The Queen, 2015 DTC 1235 [at 1551], 2015 TCC 280

scope of discovery and of settlement privilege

Issues in the appeal of the taxpayer respecting whether it could deduct a payment of Cdn.$2.9 billion made to settle actions against it in connection with the Enron bankruptcy included whether the settlement amount should have been reimbursed to it by subsidiaries whose conduct may have been the primary basis for the actions. Before finding (at para. 22) that CIBC internal “investigations on various Enron-related actions by CIBC and related entities, including actions implicated in the litigation that led to CIBC deducting the Settlement Amounts, would be relevant to the Respondent’s arguments on which entity’s business incurred or should have incurred the Settlement Amounts,” so that the Minister was entitled to discovery, and after discussing authorities on the scope of discovery, Rossiter CJ stated (at para. 18):

The above principles governing discovery thus reveal the following salient points:

  • Relevancy is extremely broad and should be liberally construed. The threshold for relevancy on discovery is very low but does not allow for a fishing expedition, abusive questions, delaying tactics or completely irrelevant questions;
  • Everything is relevant that may directly or indirectly aid the party seeking the discovery to maintain its case or combat that of its adversary. If the questions are broadly related to the issues raised, they should be answered;
  • Discovery is limited by the pleadings to some extent; and
  • The examining party conducting the discovery is doing so for the purposes of: supporting his or her own case; obtaining admissions; attacking the opponent’s case; limiting the issues at trial; and revealing the case that he or she must meet at trial and the facts that the opponent relies upon.

Questions respecting the procedures and decision-making respecting booking the settlement amount (including choice of entity, but not peripheral bakground information) also were relevant (paras. 255-322).

In finding that the production of a mediation agreement with plaintiffs in a settled action, and other settlement-related documents such as those generatd in the mediation, was required, Rossiter CJ, after noting (at para. 132) that the Supreme Court had stated (2013 SCC 37, at para. 19) “that overruling settlement privilege requires a 'competing public interest' to outweigh the public interest in encouraging settlement,” he stated (at para. 158):

This case, however, involves two different subject matters. The Newby and MegaClaim Litigations were about CIBC’s liability relating to certain Enron transactions. The tax appeals, however, are about the deductibility of the Settlement Amounts that arose out of the litigation. There is no danger that disclosure from the first subject matter will prejudice CIBC in litigation surrounding that subject matter; that litigation is concluded. Many of the policy reasons for protecting settlement privilege thus fall away. …Communications and information from the first litigation are certainly relevant to resolving the tax litigation, since they will go to whether the Settlement Amounts are deductible… .

He stated (at para. 362):

This particular motion seems in large part to be the result of obstruction by CIBC...[which] I...do not believe...is the proper way to litigate, and there are certainly consequences to that strategy that the Court should and will consider.

See summary under s. 232 - solicitor-client privilege.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Solicitor-Client Privilege internal investigations severable and also not legally supervised/no implied waiver by stating that position informed by legal advice/no partial waiver where no prejudice/no litigation privilege re previously completed civil suit/no privilege for commissioned 3rd party report re damages/common interest privilege re other bank defendants 498
Tax Topics - Other Legislation/Constitution - Federal - Tax Court of Canada Rules (General Procedure) - Section 84 metadata insufficient description for non-email documents 190
Tax Topics - Other Legislation/Constitution - Federal - Tax Court of Canada Rules (General Procedure) - Section 95 - Subsection 95(1) other law suits not potentially relevant comparators 178
Tax Topics - Other Legislation/Constitution - Federal - Tax Court of Canada Rules (General Procedure) - Section 86 - Subsection 86(1) no extensive discovery of auditor without following Rule 86 164

Section 83

Subsection 83(1)

See Also

Coopers Park Real Estate Development Corporation v. The Queen, 2022 TCC 82

documents reviewed by the GAAR Committee, in a similar case that then was applied to the taxpayer, were discoverable

Regarding whether the taxpayer, who had been assessed under s. 245(2) to deny the carryforward of losses and credits, was entitled to discovery of proposals to two unrelated taxpayers that set out the CRA’s understanding of the facts and its legal analysis of those facts, in addition to a memorandum to the GAAR Committee regarding the transactions undertaken by a third unrelated taxpayer, Owen J stated (at paras. 39-40, 42):

[I]n GAAR cases, the legal analysis of the Minister in support of the policy relied upon is subject to discovery. …

[However] this right does not extend to legal argument in support of the existence of the policy and its application to the taxpayer’s transaction(s).

In addition, while the Appellant is entitled to disclosure of the policy relied upon by the Minister to apply the GAAR to know the case that the Appellant must meet, this disclosure is likely not admissible at trial because the existence or non‑existence of the policy is a question of law … .

After finding that the CRA auditor had considered such documents (which he had placed in the file) but had not relied on them in auditing the taxpayer, Owen J determined that they were discoverable, stating (at para. 60):

[R]eliance is not the test for relevance. … [C]onsideration of the documents in the context of the audit of the Appellant is sufficient to make them relevant for the purposes of discovery.

CRA had relied on the GAAR Committee’s analysis of a similar case in deciding to assess the taxpayer under GAAR, so that a GAAR Committee review of the taxpayer’s transactions was considered unnecessary.

After noting (at para. 85) that “[i]f the GAAR Committee had considered the Appellant’s case, there is no doubt that the Appellant would be entitled to discovery of all non‑privileged documents considered by the GAAR Committee in deciding to assess the Appellant under the GAAR,” Owen J stated (at para. 86):

[T]he Appellant is equally entitled to all non-privileged documents considered by the GAAR Committee in deciding to assess under the GAAR the unrelated taxpayer described in the Similar Case Excerpt because that decision directly resulted in the subsequent decision to assess the Appellant under the GAAR. Consequently, the documents considered by the GAAR Committee in making the first decision are in effect the basis for the CRA’s subsequent decision to assess the Appellant … .

Accordingly, such documents were discoverable, subject to redaction of all information identifying third parties, and subject to any claims of solicitor-client privilege.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) CRA legal analysis in support of the policy relied upon in GAAR assessment is discoverable 307

Section 84

Cases

Canadian Imperial Bank of Commerce v. The Queen, 2015 DTC 1235 [at 1551], 2015 TCC 280

metadata insufficient description for non-email documents

The taxpayer provided a list of 21,000 documents, prepared using metadata.

Some are only described as “Word document,” “Powerpoint presentation” and “electronic file”, with no indication of the author, recipient or date. There are also more than 5,422 documents in Schedule B that are described as attachments to emails but that lack any description of the subject matter or the date. (para. 226)

After adopting the statement in Canadian Natural Resources Ltd. v ShawCor Ltd., 2014 ABCA 289 that "'a party preparing an affidavit of records must, short of revealing information that is privileged, provide a sufficient description of each record for which privilege is claimed to assist other parties in assessing the validity of the claimed privilege,'" Rossiter CJ ordered (at para. 243):

that CIBC provide the author and/or sender, the recipient, the date of creation, subject line and describe the record in a way without revealing information that is privileged for all non-email documents listed in Schedule B.

See summaries under s. 232(1) – solicitor-client privilege and Tax Court Rule 82(2).

Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Federal - Tax Court of Canada Rules (General Procedure) - Section 82 - Subsection 82(2) scope of discovery and of settlement privilege 551
Tax Topics - General Concepts - Solicitor-Client Privilege internal investigations severable and also not legally supervised/no implied waiver by stating that position informed by legal advice/no partial waiver where no prejudice/no litigation privilege re previously completed civil suit/no privilege for commissioned 3rd party report re damages/common interest privilege re other bank defendants 498
Tax Topics - Other Legislation/Constitution - Federal - Tax Court of Canada Rules (General Procedure) - Section 95 - Subsection 95(1) other law suits not potentially relevant comparators 178
Tax Topics - Other Legislation/Constitution - Federal - Tax Court of Canada Rules (General Procedure) - Section 86 - Subsection 86(1) no extensive discovery of auditor without following Rule 86 164

Section 86

See Also

Pastuch v. The Queen, 2022 TCC 36

issue estoppel to precluded reviewing compellability of 3rd-party documents - and witness notes not established to be relevant

The taxpayer appealed reassessments of her 2007, 2008 and 2009 taxation years whereby the Minister had added approximately $2.8M in shareholder benefits to her income and imposed penalties for failing to file tax returns for those years. She brought this motion pursuant to s. 86 of the Tax Court of Canada Rules (General Procedure) to compel the Financial and Consumer Affairs Authority of Saskatchewan (“FCAA”) to turn over certain documents that she considered to be relevant to her appeal.

Graham J found that, with one exception, issue estoppel applied to preclude the taxpayer from again seeking to have such documents produced by the FCAA given that in a number of proceedings before a panel to consider allegations that she had breached a number of provisions of the Securities Act (Saskatchewan) the panel had concluded that the FCAA no longer had such documents in its possession.

The exception was for a summary of the statements that witnesses gave to the FCAA investigators (the “Witness Notes”), as to which Graham J stated (at para. 52) that the burden was on the taxpayer to show why the Witness Notes were relevant to her appeal, which she had not done. In this regard, Graham J indicated his surmise that the witnesses were investors, who would be unlikely to “have first-hand knowledge of what the Companies actually did with the money” received from the investors (para. 53). Accordingly, her motion was also dismissed in respect of the Witness Notes.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Estoppel issue estoppel precluded reviewing compellability of documents from a Saskatchewan regulatory authority 129

Subsection 86(1)

Cases

Canadian Imperial Bank of Commerce v. The Queen, 2015 DTC 1235 [at 1551], 2015 TCC 280

no extensive discovery of auditor without following Rule 86

On discovery of the taxpayer (“CIBC”) in its appeal respecting whether it could deduct a payment of Cdn.$2.9 billion made to settle actions against it in connection with the Enron bankruptcy, the Crown asked CIBC to approach its auditors (“EY”) to ask if they have any documents that matched defined search terms that CIBC used for documentary discovery, and to search for a multi-year period. Rossiter CJ stated (at para. 337):

I might have allowed these questions if they were narrower. But their broad terms lead me to conclude that CIBC is right in saying that a motion under s. 86 of the Rules should have been made, since that is the avenue for getting documents from a non-party, particularly on a request like this. Section 86 has its own test and rules that help limit over-discovery of non-parties... .

See summaries under s. 232(1) – solicitor-client privilege and Tax Court Rule 82(2).

Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Federal - Tax Court of Canada Rules (General Procedure) - Section 82 - Subsection 82(2) scope of discovery and of settlement privilege 551
Tax Topics - General Concepts - Solicitor-Client Privilege internal investigations severable and also not legally supervised/no implied waiver by stating that position informed by legal advice/no partial waiver where no prejudice/no litigation privilege re previously completed civil suit/no privilege for commissioned 3rd party report re damages/common interest privilege re other bank defendants 498
Tax Topics - Other Legislation/Constitution - Federal - Tax Court of Canada Rules (General Procedure) - Section 84 metadata insufficient description for non-email documents 190
Tax Topics - Other Legislation/Constitution - Federal - Tax Court of Canada Rules (General Procedure) - Section 95 - Subsection 95(1) other law suits not potentially relevant comparators 178

Section 89

Subsection 89(1)

Cases

Marine Atlantic Inc. v. The King, 2023 TCC 95

Crown's tendering of affidavit of documents at end of trial was contrary to Rule 89

After finding that a CRA affidavit to which were attached 90 pages of documents could not be admitted because (contrary to Rule 89) the affidavit was tabled only after the evidence had been put in at trial and without advance notice to the taxpayer, D’Arcy J went on to find that the documents could not be admitted under ETA s. 335(5) (similar to ITA s. 244(9)).

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 141.01 - Subsection 141.01(5) a registrant is not required to expand the information already in its possession in using an ITC allocation method 423
Tax Topics - Excise Tax Act - Section 141.01 - Subsection 141.01(2) Crown did not establish that an input tax credit methodology of a ferry company was unreasonable 296
Tax Topics - Excise Tax Act - Section 335 - Subsection 335(5) s. 335(5) does not establish that a CRA document is admissible in a hearing 325
Tax Topics - Income Tax Act - Section 244 - Subsection 244(9) s. 244(9) does not establish the admissibility of a CRA document 158

Paragraph 89(1)(a)

See Also

Scott v. The Queen, 2017 TCC 224

trust return not admitted at trial opening where no previous notice and not relied upon by CRA

At the commencement of the trial, the Respondent requested leave to file, as contemplated by s. 244(9), an affidavit (the “Affidavit”) sworn by a CRA auditor and containing, as exhibits, copies of the 2011 T3 Trust Income Tax and Information Return filed by the health and welfare trust (”HWT”) that had paid allegedly taxable distributions to the taxpayers in 2011. The List of Documents had referred to the returns of the taxpayers, but not that of HWT. In finding that the Affidavit was not admissible, Sommerfeldt J stated (at para 64):

Although the HWT’s 2011 tax return and notice of assessment are relevant to these Appeals and there is a presumption of admissibility, I have concluded that, in the circumstances of these Appeals, the Affidavit should not be admitted into evidence for the following reasons:

a) I have not been provided with adequate justification for departing from the general rule of exclusion set out in subsection 89(1) of the Rules;

b) there has been no indication that the CRA, in assessing the Appellants, used or considered any information in the HWT’s 2011 tax return or notice of assessment; and

c) notice has not been given to the HWT of the Respondent’s request to introduce the HWT’s confidential taxpayer information as evidence in these Appeals.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 107.1 - Paragraph 107.1(a) s. 107.1(a) in effect produced a rollover on cash distribution of mooted benefits 181
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) a distribution from a health and welfare trust to compensate for lost insurance coverage was not a taxable benefit as it did not come within s. 6(4) 316
Tax Topics - Income Tax Act - Section 56 - Subsection 56(1) - Paragraph 56(1)(a) - Subparagraph 56(1)(a)(iii) payment made as compensation for termination of monthly death benefits was paid, at the least, in lieu of a death benefit 249
Tax Topics - General Concepts - Stare Decisis Supreme Court obiter accorded deference 153
Tax Topics - Income Tax Act - Section 9 - Compensation Payments surrogatum principle references "why the compensatory amount was paid," and not confined to business receipts 207
Tax Topics - Statutory Interpretation - Specific v. General Provisions termination payment that did not come within s. 6(4) should be treated as excluded from s. 6(1)(a) 153
Tax Topics - Income Tax Act - Section 6 - Subsection 6(4) lump sum received as compensation for no longer benefiting from contributions to a group life insurance policy did not come within the terms of s. 6(4) 334

Paragraph 89(1)(b)

Cases

Tang v. The Queen, 2017 TCC 168

translated documents were admissible as they previously had been identified in the list of documents provided to the Crown

Before accepting translated documents that corroborated that much of the taxpayer’s alleged income under net worth assessments represented funds that had been lent to him, Lafleur J stated (at paras 19, 24, 27 and 29):

All of Mr. Tang’s foreign financial documents were translated by T‑United Translation Service, and were authenticated by Yuan-Sun Chao of the Notary Public Office of the Taiwan Taipei District Court. …

… [T]he translated documents provided by Mr. Tang do not require this Court to exercise any discretion since these documents already meet the requirements set out by Rule 89.

… The list of documents clearly indicated that some of Mr. Tang’s documents appeared in translated form. The Minister was made aware of the translation issue prior to the hearing.

… [A]n opportunity to examine Mr. Tang’s translator would, without expert evidence or an alternative translation, have had no impact on the admissibility of the translated documents. …

Section 95

See Also

Burlington Resources Finance Company v. The Queen, 2017 TCC 144

proportionality principle did not relieve of obligation to seach through scattered indexes for relevant documents

The Minister disallowed in full the deduction by the taxpayer (“Burlington”) of guarantee fees, paid to its U.S. parent (“BRI) (which, in turn, was held by ConocoPhillips) calculated as 0.5% per annum of third-party borrowings by it of approximately U.S.$3 billion, on the basis inter alia that the payment of any guarantee fee would not satisfy ss. 247(2)(a). The Minister brought a motion respecting 1200 of the questions posed in the examination for discovery, on the basis that Burlington had either improperly refused to answer, or not fully answered, the questions. An affidavit provided on behalf of Burlington stated (paras. 26, 34):

[T]hose documents that relate to the guarantees and the guarantee fees, would have been stored in three cities, across a number of separate corporate departments: … [E]ach of these departments maintains its own records and creates its own indexes as a means to locate files within its stored records.

…[M]any of the documents were likely destroyed according to their document retention policies.

Respecting the proportionality principle, D’Auray J stated (at para 16):

While I agree that that proportionality needs to be taken into account, I do not agree with Burlington that it now trumps relevancy in all situations and that the “broad and liberal approach” to determining relevancy must now be ignored. … In some situations, proportionality will trump relevancy and in others, relevancy will remain the key driver in determining whether a question needs to be answered.

Before reviewing the disputed questions on a category by category basis, she stated (at para 41, 42, 43, and 46):

[T]he Respondent cannot be denied access to information and documents that it is legally entitled to solely because Burlington failed to systematically or adequately maintain a system of records thus making the location of information potentially onerous. If I were to conclude that taxpayers need not produce documents because their records were disorganized and could not be systematically searched, this would create a perverse incentive for taxpayers not to keep organized records of their tax affairs.

The same logic applies to the Burlington’s retention policy. …

… [U]nless Burlington can positively affirm that a relevant document no longer exists, it will have to search for the document. ...

I am not persuaded that the costs, time, and effort involved for Burlington to respond to any relevant questions would be disproportionate, given the amount of money involved which according to the Respondent is close to $100 million, the importance of the case and the complexity of the issues. Proportionality must not defeat the purposes of discovery… .

However, D’Auray J stated (at para. 45):

Where Burlington is ordered to answer questions, it will not need to search beyond the indexes. In other words, a truly unguided rifling through 12,000 boxes would not be required.

Respecting documents requested from non-resident members of the corporate group, she stated (at para. 81):

I adopt the comments of Justice Campbell Miller in the HSBC Bank Canada’s decision where he ordered the Appellant to obtain the documents from its parent. …

… I have no hesitation in concluding that it is reasonable to expect the Parents to respond positively to relevant inquiries. …

Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Federal - Tax Court of Canada Rules (General Procedure) - Section 107 - Subsection 107(1) practice of taking discovery questions “under advisement” should stop 199

Subsection 95(1)

Cases

Canada (National Revenue) v. Cameco Corporation, 2017 FC 763, aff'd 2019 FCA 67

unfettered CRA interview right would undercut Rules and proportionality principle

Cameco appealed transfer-pricing assessments to the Tax Court. CRA then audited subsequent years, where essentially the same issues arose, and applied to the Federal Court for an order compelling Cameco to submit 25 listed employees of it and subsidiaries to CRA interviews.

McVeigh J rejected this application. First, the requirement in s. 231.1(1)(d) - that personnel at the audited premises “answer all proper questions relating to the administration…of this Act” –was subject to the requirement in the s. 231.1(1) mid-amble that it must relate to the matters respecting the audit of books and records) referenced in s. 231.1(1)(a) and (b).

Furthermore, the Tax Court rules contained various procedural safeguards respecting the examination of the taxpayer’s personnel. In the context of the earlier years being under appeal, CRA’s requested interviews would have represented an end run around the Tax Court rules. McVeigh J stated (at paras. 48, 50)

Some of the safeguards provided in the Rules include that the taxpayer may choose its representative to be examined (subsection 93(2)), there are rules to the scope of examination (section 95), there are consequences to refusing a question (section 96) and specific use can be made of the examination (section 100). …

The order the Minister seeks does not meet the principle of proportionality. … The time and cost involved in allowing the Minister to interview more than 25 Cameco personnel scattered across the world is not proportional to the information being sought since the Tax Court of Canada will determine the issues that are the focus of the requested interviews.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 231.1 - Subsection 231.1(1) - Paragraph 231.1(1)(d) s. 231.1(1)(d) does not accord CRA an unfettered right to interview taxpayer personnel 463
Tax Topics - Statutory Interpretation - Redundancy/reading in words presumption against tautology 71

See Also

Choptiany v. The King, 2022 TCC 112

taxpayers' appeals allowed because of Crown's repeated failure to comply with its obligations on discovery

The three taxpayers had appealed the imposition of gross negligence penalties based on what Boyle J characterized as “nonsensical misstatements” regarding them “claiming to be agent for themselves” (para. 98). It might be inferred from his reasons that CRA, with the assistance of Crown counsel, sought to hide from the taxpayers that they had been the subject of criminal investigation by CRA, then downplay that fact, in clear breach of the Rules regarding the requirement for the CRA representative on discovery to be knowledgeable and informed (Rules 93(3) and 95), and for incorrect answers given to be corrected (Rule 98(1) and relevant documents provided (e.g., Rules 81 and 87).

The taxpayers brought two motions before Boyle J, and he issued orders directing the Crown to comply with its discovery-disclosure obligations. This third motion was now brought based on the Crown’s essential non-compliance with the two previous orders. Boyle J noted (at para. 94) the position of Crown counsel during the hearing of this third motion that “that no remedy was warranted because all questions asked had been answered.”

In allowing the taxpayer’s appeals from their penalty assessments with costs on a solicitor-and-client scale, Boyle J stated (at paras. 92, 97):

The Respondent has adopted and demonstrated a consistent pattern of non-compliance with this Court’s Orders and Rules with respect to CRA’s audits and investigations involving the Appellants. I find this to have been intentional and deliberate, and that it was undertaken to frustrate these Appellants’ rights to pre-trial discovery on the subject of CRA’s investigation involving them relevant to their appeals. …

The Respondent’s egregious history of defaults and non-compliance in these appeals, that there is no alternative available that could reasonably be expected to cause the Respondent to now comply, and that this has caused prejudice to the Appellants, are reason enough to allow these appeals. This disposition is also necessary to protect the integrity of the judicial process and the rules of law that apply to all parties.

MP Western Properties Inc. v. The Queen, 2017 TCC 82, aff'd sub nomine Madison Pacific Properties Inc. v. Canada, 2019 FCA 19

Crown must produce all documents “considered by officials involved in or consulted during” a GAAR-related audit

Predecessors of the appellants had been acquired for their losses in transactions where less than 50% of their voting shares, but more than 90% of their non-voting participating shares, had been acquired. The Minister had reassessed to deny the acquired losses primarily on the basis that there had been an acquisition of control, but secondarily on the basis of an application of the general anti-avoidance rule.

Counsel filed an Access to Information request with Finance and CRA seeking all written communication for 2001 to 2012 between them relating to loss utilization transactions. Many of the documents received in response to the ATIP request were redacted. The taxpayers requested that the Respondent be compelled to give them the unredacted version of many of the documents provided in redacted form.

V.A. Miller J found (at para 32):

… It is my view that in a GAAR appeal, draft documents prepared in the context of a taxpayer’s audit or considered by officials involved in or consulted during the audit and assessment of the taxpayer should be disclosed. They inform the Minister’s mental process leading up to an assessment. They may also inform the Minister’s understanding of the policy at issue.

V.A. Miller J examined the documents under appeal individually, finding that most of the redacted portions did not have to be produced on the basis that there was no evidence that the particular document was considered by CRA during the audit, that the redacted portions contained taxpayer information which was protected by s.241, that the redacted portion was not relevant to the taxpayers or to the appeals, or that the document was subject to solicitor-client privilege. Some requested documents were refused on the basis of being part of a “fishing expedition of vague and far-reaching scope”.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) required production of all documents showing GAAR consultations 201

Canadian Imperial Bank of Commerce v. The Queen, 2015 DTC 1235 [at 1551], 2015 TCC 280

other law suits not potentially relevant comparators

Issues in the appeal of the taxpayer respecting whether it could deduct a payment of Cdn.$2.9 billion made to settle actions against it in connection with the Enron bankruptcy included whether the settlement amount should have been reimbursed to it by subsidiaries, whose conduct may have been the primary basis for the actions, in accordance with the transfer pricing rules. The Crown asked questions about non-Enron litigation and settlements where a CIBC entity was sued along with an arm’s-length co‑defendant, on the basis that these might represent potential “internal comparables” for transfer pricing purposes. In finding that these questions were not to be answered on the grounds of irrelevancy, Rossiter CJ stated (at para. 251):

Even where there was litigation with an arm’s-length co-defendant, and even if that litigation involved some CIBC group members, the litigation could still be completely different so as to be utterly useless as a comparator.

See summaries under s. 232(1) – solicitor-client privilege and Tax Court Rule 82(2).

Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Federal - Tax Court of Canada Rules (General Procedure) - Section 82 - Subsection 82(2) scope of discovery and of settlement privilege 551
Tax Topics - General Concepts - Solicitor-Client Privilege internal investigations severable and also not legally supervised/no implied waiver by stating that position informed by legal advice/no partial waiver where no prejudice/no litigation privilege re previously completed civil suit/no privilege for commissioned 3rd party report re damages/common interest privilege re other bank defendants 498
Tax Topics - Other Legislation/Constitution - Federal - Tax Court of Canada Rules (General Procedure) - Section 84 metadata insufficient description for non-email documents 190
Tax Topics - Other Legislation/Constitution - Federal - Tax Court of Canada Rules (General Procedure) - Section 86 - Subsection 86(1) no extensive discovery of auditor without following Rule 86 164

Section 96

Subsection 96(1)

See Also

632738 Alberta Ltd. v. The King, 2023 TCC 117

claim of privilege on discovery could have Rule 96(1) consequences

The taxpayer was assessed under s. 103(1). The individual wholly-owning it refused to answer questions posed on his examination for discovery, that were aimed at eliciting the reason for which various transactions were engaged in by the taxpayer and other group companies, on the grounds that he and the taxpayer did not have any information pertaining to those questions that could be provided without disclosing information that was protected by solicitor-client privilege.

Sommerfeldt J found, in the context of a Crown motion brought for an order for the individual to answer the questions, that the taxpayer had not impliedly waived solicitor-client privilege by disputing the s. 103(1) assessment (which put in issue its principal reason for the transactions) given that in its pleadings and on discovery it had not relied on legal advice as part of its position. He then stated (at paras. 79-80):

Although I will not issue an order that would require the Appellant, in response to any of the Disputed Questions, to disclose information that is subject to solicitor-client privilege, I will note that … unless the Appellant furnishes the information in writing to the Respondent no later than ten days after this Appeal is set down for trial, the Appellant will require leave of the trial judge [under Rule 96(1)], in order to introduce that information at trial.

I suspect that the Appellant is of the view that it can make its case without introducing the privileged information at trial.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Purpose/Intention the taxpayer’s sole shareholder could field the queries as to the purpose of the taxpayer, which might equate to the reason for the transaction 255
Tax Topics - General Concepts - Solicitor-Client Privilege company could refuse to not disclose its reasons for engaging in transactions on grounds of privilege 318

Section 99

Subsection 99(2)

See Also

Teranet Inc. v. The Queen, 2016 TCC 42

professed inability of taxpayer to answer important questions justified order for discovery of accounting advisors

As a result of a 2006 reorganization for the conversion of the Teranet group to an income fund structure, the taxpayer became liable to its immediate shareholder (an LP held by the new income fund through a two-tier trust structure) under two unsecured promissory notes totalling $1.225 billion and bearing interest at 9.75% p.a. CRA reassessed on the basis that a reasonable interest rate was not higher than 5.45% p.a. On discovery, the Crown asked various questions - respecting how the interest rate was determined, and the rationale behind the structuring of the particular reorganization steps - of the taxpayer’s representative, who was its CFO. He could not answer these questions because, according to him, no one remained at the taxpayer who had been involved in the reorganization.

V. Miller, J. found that in these circumstances, it was appropriate to grant the Crown leave to examine a knowledgeable representative of the accounting firm (E&Y) that had prepared a study before the reorganization in support of the reasonableness of the interest rate chosen (naming a Mr. Allard), and of a second accounting firm (Deloitte) which had been involved in structuring the transactions, stating (at para. 33):

When a party chooses not to respond to proper questions put to it or not to inform itself, section 99 of the Rules provides an extraordinary remedy so that the purpose of discoveries is not defeated.”

She also ordered (at para 54):

Both EY and Deloitte will produce documents in its control which are relevant to the issues in this appeal. These documents are to be given to the Respondent prior to the examination for discovery.

Section 107

Subsection 107(1)

See Also

Burlington Resources Finance Company v. The Queen, 2017 TCC 144

practice of taking discovery questions “under advisement” should stop

CRA disallowed, in full, under s. 247(2)(a), the deduction by the taxpayer (“Burlington”) of guarantee fees paid to its U.S. parent. Justice brought a motion respecting 1200 of their questions posed in the examination for discovery, on the basis that Burlington had either improperly refused to answer, or not fully answered, the questions. Approximately 1700 questions were taken “under advisement.” D’Auray J stated (at para. 80):

In my view, the practice of using the quasi-objection “under advisement” needs to stop. It is not a response contemplated by section 107 of the Rules. According to the Rules, a nominee either answer the question, refuses to answer and explains the basis for such refusal, or takes an undertaking if he or she does not know the answer. The “under advisement” quasi-objection is often a tactic used to gain time to reflect on which basis the question will be refused, without the party having to explain, at the time of discovery, why such question was refused. It deprives the party asking the question or the opportunity to rephrase the question. In my view, taking a question under advisement amounts to a “refusal”.

Words and Phrases
under advisement
Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Federal - Tax Court of Canada Rules (General Procedure) - Section 95 proportionality principle did not relieve of obligation to seach through scattered indexes for relevant documents 560

Section 116

Subsection 116(2)

Cases

CANADIAN WESTERN TRUST COMPANY AS TRUSTEE OF THE FAREED AHAMED TFSA v. HER MAJESTY THE QUEEN, 2020 FCA 213

Crown not required to answer questions about preliminary Finance analysis or provide other non-public documents

The taxpayer, the trustee of a tax-free savings account (TFSA) which had been assessed on the basis that its trading activities constituted carrying on a business, had obtained under the Access to Information Act a table prepared within the Department of Finance in January 2007 (i.e., before the tabling in 2008 of the Budget Bill that enacted the TFSA) that compared a preliminary version of the proposed TFSA (then referred to as an “LSP”) with RRSPs and RESPs including regarding any distinction between income from investing of funds, and income from an unrelated business. The taxpayer posed various written questions under Rule 113 regarding the table including whether it reflected an intent that related business income was to be exempted.

In confirming the Tax Court’s dismissal of the taxpayer’s motion to compel answers to these and other questions, Locke JA first indicated (at para. 22) that it was “tempting to … [consider] that documents must be publicly available in order to be relevant to statutory interpretation,” but then also noted (at para. 30) that Upper Churchill [1984] 1 S.C.R. 297) “leave[s] room for cases where extrinsic evidence will not be relevant, but it also limits the issues to which such evidence might be relevant.”

Locke JA then stated (at para. 31):

In the end, though there are good reasons to be reluctant to consider non-public documents in the exercise of statutory interpretation, it is difficult to state unequivocally that such documents could never be relevant. The better question is whether the documents in question in the present appeal have an institutional quality such that they could represent the government’s position concerning the legislation at issue. If not, such documents are not relevant.

Locke JA also found (at para. 36) that the Tax Court had not made reviewable errors in refusing to order production of unredacted copies of various requested internal documents. In this regard, he agreed (at para. 19) with the Tax Court’s view that “that earlier drafts of a final position paper do not have to be disclosed, and … that even where relevance is established, the Court has a residual discretion to refuse document production.” He also stated (at para. 33):

[Q]uestions 24-30 in this case concern a document that predates the legislative provision of interest. That document is hence similar to the “earlier drafts of a final position paper” which do not have to be disclosed … .

Locations of other summaries Wordcount
Tax Topics - Statutory Interpretation - Hansard, explanatory notes, etc. Crown could not be compelled to explain an early Finance analysis of the TFSA proposals 336

Section 126

Subsection 126(4)

Paragraph 126(4)(b)

See Also

Mandic Estate v. The King, 2024 TCC 91

discretion accorded by the Rules assisted in implementing an unsigned settlement agreement

Mandic reached a form of agreement with the Crown regarding a reassessment of his 2015 taxation year, and the parties signed a consent to judgment stating that the reassessment would be vacated. However, on review by a Tax Court judge, that judge directed that the agreement refer instead to referring the reassessment back to the Minister for reconsideration (not vacating it). Mandic died before the parties signed an amended consent to judgment with the corrected wording. With such death and the lack of an executor for Mandic’s estate, the Crown now refused to implement the settlement.

Before determining that, notwithstanding the deficiencies raised by the Crown, he would allow the appeal by referring the assessment back to the Minister for reconsideration and reassessment in accordance with the settlement agreement with the proposed amendment, MacPhee J referred to the degree of discretion accorded to him in this regard by the General Procedure rules, stating (at paras. 11-13):

Before determining that, notwithstanding the deficiencies raised by the Crown, he would allow the appeal by referring the assessment back to the Minister for reconsideration and reassessment in accordance with the settlement agreement as so amended, MacPhee J stated (at paras. 11-13):

Rule 4(1) states that the Rules shall be liberally construed to secure the just, most expeditious and least expensive determination of every proceeding on its merits.

Rule 9 allows the Court to dispense with compliance with the rules where it is in the interest of justice.

Finally, pursuant to subsection 126(4)(e), a case management judge may make any order that is considered just in the circumstances.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 171 - Subsection 171(1) - Paragraph 171(1)(b) - Subparagraph 171(1)(b)(iii) implementation of a settlement agreement ordered notwithstanding the taxpayer’s death before the final version could be signed 278

Section 132

See Also

Burlington Resources Finance Company v. The Queen, 2020 TCC 32

in context, no formal admission made - and any admission could be withdrawn in the interests of justice

Burlington, a Nova Scotia unlimited liability company, borrowed approximately U.S.$3 billion in 2001 and 2002 by issuing seven notes that were guaranteed by its non-resident parent (“BRI”). The Minister reassessed Burlington’s 2002 to 2005 taxation years to deny under ss. 247(2)(a) and (c) deductions for annual payments made by Burlington to BRI for its unconditional guarantee of the Notes under ss. 247(2)(a) and (c). The Reply dated October 9, 2012, to Burlington’s Notice of Appeal relied on s. 247, and also asserted that the annual amounts were not incurred for the purpose of earning or producing income under s. 20(1)(e.1) (they were “redundant” due to Burlington’s status as a ULC), which positions were maintained in an amended Reply.

Approximately eight months before the anticipated trial date, the Crown sought to file a further amended Reply in which it abandoned its position, taken in previous Replies, that the transfer pricing rules in s. 247 applied to the quantum of such annual payments, and took the position that no deduction should be allowed for the annual payments on the grounds that they were not “guarantee fees” within the meaning of s. 20(1)(e.1) and, in the alternative, they were not incurred by Burlington for the purpose of borrowing money, within the meaning of s. 20(1)(e.1).

Burlington argued that the Court should not grant leave for the making of the amendments since they constituted purported withdrawals of admissions that the annual amounts had been paid as guarantee fees.

Before granting the amendments, D’Auray J indicated that

  • Rule 132 applied only to “formal admissions” such as in pleadings
  • Andersen Consulting ([1998] 1 FC 605 (FCA)) had established “that an application for leave to withdraw admissions did not require a separate form” (para. 75), so that the requested amendment to the Reply could constitute application to withdraw an admission
  • In Burlington’s examination for discovery of the Crown’s nominee in 2014, “[n]umerous times the respondent’s counsel stated that it was the respondent’s position that no amounts were payable as guarantee fees” (para. 77)
  • Although in an Amended Reply, the Crown had admitted that guarantee fees had been paid in the amounts stated in the Notice of Appeal, “the respondent did not make a clear and deliberate concession that the amounts paid to BRI were guarantees fees” (para. 80) in light of the point immediately above and denials made by the Crown elsewhere in the Reply
  • Even if there had been such an admission, D’Auray J “would still have permitted the withdrawal of the admission since … there is a triable issue which ought to be tried in the interests of justice” (para. 82)
  • “In addition, the purported withdrawal does not amount to an injustice to Burlington since it has been aware of the respondent’s position at least since its discovery of the respondent’s nominee in 2014.” (para. 83)

The requested amendments were granted in light inter alia of the request having been made well in advance of the trial, and the position on s. 20(1)(e.1) having been made known on discoveries of the Crown in 2014.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 247 - New - Subsection 247(2) - Paragraph 247(2)(a) Crown abandons its position that s. 247(2)(c) applied to reduce guarantee fees paid by a ULC to its non-resident parent 180
Tax Topics - Other Legislation/Constitution - Federal - Tax Court of Canada Rules (General Procedure) - Section 54 amendment permitted in advance of trial to give effect to previously disclosed Crown position 307

Section 138

Subsection 138(1)

See Also

1378055 Ontario Limited v. The Queen, 2019 TCC 149

2-part test applied for admitting documents after trial

Sommerfeldt J found that counsel’s omission of invoices for one of the years in issue form the book of documents that he compiled was an innocent and inadvertent compilation error (at para. 55). Consistently with the two-part test referenced in Sagaz (would the evidence, if presented have changed the result; and could the evidence have been obtained before trial with the exercise of due diligence – in that regard, notign that counsel had shown due diligence) , and applying Rule 138(1) permitting a judge to reopen a hearing “for such purposes … as are just,” Sommerfeldt J allowed the invoices to be admitted after the hearing, after having given the Crown an opportunity to cross-examine the taxpayer on this evidence (which the Crown declined to do).

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 169 - Subsection 169(1) - Element B - Paragraph (b) services respecting proposed development of a property did not constitute a use of the property 191
Tax Topics - Excise Tax Act - Regulations - Input Tax Credit Information (GST/HST) Regulations - Section 3 - Paragraph 3(c) - Subparagraph 3(c)(iii) statement of terms of payment was implied 186
Tax Topics - Excise Tax Act - Regulations - Input Tax Credit Information (GST/HST) Regulations - Section 3 - Paragraph 3(b) - Subparagraph 3(b)(i) failure to quote registration number was fatal 106
Tax Topics - Excise Tax Act - Section 141.01 - Subsection 141.01(2) oral testimony sufficient to determine allocation of invoice between prospective commercial development activity and current exempt residential rental activity 189
Tax Topics - Excise Tax Act - Section 169 - Subsection 169(1) - Element B - Paragraph (c) invoices allocated between commercial and exempt activities based on general oral testimony 155

Subsection 138(2)

Cases

Kim v. Canada, 2019 FCA 210

effectively requiring the taxpayer to go first in a s. 163(2) hearing (where the Crown bore the onus) did not change the outcome

The taxpayer, who had claimed substantial fictitious business losses based on an unintelligible theory espoused by the “Fiscal Arbitrators” tax preparers, stated at the outset of the trial that the only issue being pursued by him was the gross negligence penalties. The Tax Court Judge then incorrectly told the taxpayer that he had the burden of convincing the Court that the facts underlying the penalty assessment were incorrect. After thus being misled by the Court, the taxpayer presented oral testimony of himself and the creator of Fiscal Arbitrators, before his appeal was dismissed.

Webb JA noted that if the taxpayer had remained seated rather than proffering this testimony, there would have been no evidence for the Crown to have satisfied its s. 163(3) onus.

He nonetheless did not direct a fresh trial, applying (at para. 20) the finding in Mercure, 2013 FCA 102, at para. 21 that :

The mere fact that a breach of procedural fairness occurred is enough to warrant a new trial. This general rule has only one exception, which is the case in which the question before the court has an inevitable answer.

Applying this test, Webb JA stated (at para. 24):

[B]ased on the testimony of Mr. Kim and Mr. Watts the outcome was inevitable. There was sufficient evidence introduced through the witnesses to justify the assessment of the penalties.

Webb JA noted that although the general rule in Rule 138(2) was for the taxpayer to proceed first, the Tax Court Judge should consider whether it is appropriate for the Crown to proceed first where, as here, the onus was on the Crown. However, he noted (at para. 29) that there was no reason given Rule 146(2) “why the Crown could not have called Mr. Kim to testify at the Tax Court hearing,” and then stated (at para. 30):

Whether Mr. Kim testified first because he was presenting his case first or because he was called by the Crown as a witness, his testimony would presumably have been the same. In this case, the order of presentation was not a material factor and the Tax Court judge did not commit any reviewable error in indicating that Mr. Kim would testify first.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 163 - Subsection 163(3) Crown satisfied (and could, in any event, have satisfied) the s. 163(3) onus through the taxpayer’s own testimony 414

Section 140

Subsection 140(2)

Cases

Akanda Innovation Inc. v. The Queen, 2018 FCA 200

extension granted to seek reversal of a default judgment notwithstanding the absence of a reasonable explanation for the delay

Akanda was reassessed to deny scientific research and experimental development expenditures in excess of $6 million and related investment tax credits in excess of $1.5 million collectively for its 2007, 2008, 2009 and 2010 taxation years. Akanda filed notices of objection to these reassessments and subsequently filed notices of appeal to the Tax Court. Akanda was granted two extensions of time to file and serve lists of documents and complete discovery examinations. On January 19, 2017 (shortly after the resignation of Akanda’s counsel), an Order was issued by the Tax Court granting a further extension of time, provided, inter alia, that Akanda inform the Court on or before February 10, 2017 whether it had retained new counsel (or sought leave to be represented). Upon failure to do so or appear at the show cause hearing on March 7, 2017, The Tax Court dismissed Akanda’s appeals. Akanda subsequently retained new legal counsel and on July 25, 2017, it filed a motion requesting an extension of time to bring an application to set aside the default Judgments and to also set aside the default Judgments that had been issued. The Tax Court dismissed the extension-of-time motion.

Webb JA stated (at para.29):

… [T]he four factors that are to be considered in an application for an extension of time are:

  1. whether Akanda had a continuing intention to pursue the application to set aside the default Judgments;
  2. whether the application to set aside the default Judgments has some merit;
  3. whether there is any prejudice to the Crown arising from the delay from April 9, 2017 to July 25, 2017; and
  4. whether there is a reasonable explanation for this delay.

In applying these four factors, Webb JA found the first factor to be present, noted that “the Chief Justice found that there was merit in Akanda’s underlying tax appeal and the Crown does not dispute this” (para. 34) and noted that the Crown had not established any prejudice from the three-month delay in question. Although Akanda did not provide a reasonable explanation for this delay, Webb JA noted (at para. 39):

It is not necessary that Akanda satisfy all four factors to be successful in its application for an extension of time. Since the findings with respect to three of the four factors favour Akanda and since the amounts involved are significant, the interests of justice support a finding that the application for an extension of time should be granted in this case.

Webb JA further concluded (at para 40):

… Since the Order only addressed the application for an extension of time, the second part of Akanda’s motion, in which it requested an order setting aside the default Judgments, remains outstanding and will need to be addressed by the Tax Court.

Section 145

See Also

Kaul v. The Queen, 2017 TCC 55

art appraiser could testify on her opinions formed in doing reports for the promoter

One of the original art appraisers (Ms. Yeomans) in an art donation program (the “Artistic Program”) produced a Court Report in 2016, which then was excluded, in a previously-heard motion, on the basis inter alia that she lacked the necessary impartiality and objectivity to testify to the content of the Court Report as an independent and impartial expert witness. Before proceeding further, counsel for the taxpayers brought this motion to determine whether she could testify as a “participant expert” to her original appraisals for the truth of their contents (the “Appraisal Reports”), on the basis that she was a “participant expert” based on Westerhof v Gee Estate, 2015 ONCA 206.

In concluding (at para. 117) that “Ms. Yeomans is allowed to testify to the contents of the Appraisal Reports, limited to the opinions that she had formed while participating as the appraisers for the Artistic Program,” Rossiter CJ stated (at paras 65, 73 and 97):

I find that Westerhof, with certain clarifications …, should apply with equal force to proceedings arising in the Tax Court. More specifically, the expert evidence rules in the Tax Court Rules, while broadly worded, only capture independent or litigation experts who are named or retained by a party to the litigation to provide independent and impartial expert opinions. Participant experts and other types of witnesses with expertise do not have to comply with these rules provided that they meet the test.

The real legal test, it seems to me, should be that a witness with expertise who has not been engaged by or on behalf of a party to the litigation to form the original opinion for the purpose of litigation may give the said opinion evidence without complying with the expert evidence rules – e.g. rule 53.03 in the Ontario Rules, rule 145 in the Tax Court Rules – provided that the “core” of the Westerhof test is met, that is, “the opinion to be given is based on the witness's observation of or participation in the events at issue; and the witness formed the opinion to be given as part of the ordinary exercise of his or her skill, knowledge, training and experience while observing or participating in such events”: Westerhof, at para. 60.

… Artistic, not the Appellants, was the entity that engaged Ms. Yeomans to provide the appraisal opinions. Artistic was in direct contact with Ms. Yeomans. She was retained by Artistic at an hourly rate. She inspected the art at the offices of Artistic. … Further, given my above interpretation of the phrase “engaged by or on behalf of a party”, even if Ms. Yeomans’ appraisals were procured by or on behalf of the Appellants, that would not necessarily disqualify her original appraisals, so long that they were not formed for the purpose of litigation. There was no evidence that was the case.

Words and Phrases
participant expert

Subsection 145(3)

See Also

Gerbro Holdings Company v. Canada, 2016 TCC 173, briefly aff'd 2018 FCA 197

expert's report did not include all the underlying data

The report of the taxpayer's expert, which compared returns on Canadian and non-Canadian hedge funds in support of the commerciality of the taxpayer's decision to invest in particular hedge funds operating in low-tax jurisdictions (the "Funds"), did not list the data used to calculate the returns on the Funds. Lamarre ACJ stated (at para. 148):

The concerns about the missing data relate to the question of whether there were any Canadian funds comparable to the Funds in the Relevant Period. I give no weight to Mr. Seco's conclusion on this point because of the missing data and some inconsistencies in the application of the criteria he used in his comparison.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 94.1 - Subsection 94.1(1) offshore hedge fund investments were chosen in the main for commercial reasons (e.g., manager reputation), so that s. 94.1 did not apply 361
Tax Topics - General Concepts - Onus no taxpayer burden to displace assumptions of mixed fact and law 71
Tax Topics - Statutory Interpretation - Hansard, explanatory notes, etc. Minister's statement was false 130

Section 146

Subsection 146(2)

Cases

Khanna v. Canada, 2022 FCA 84

taxpayer could have been called as witness by Crown because she was present in the courtroom

The taxpayer conceded that she had unreported income from rental properties owned equally by her and her husband, but appealed the imposition of a gross negligence penalty. In finding that no penalty could be imposed, Monaghan JA noted (at para. 16) that essentially the only testimony was of the taxpayer’s husband, which “was almost entirely about his actions and inactions,” so that essentially “nothing on the record address[ed] her involvement in or knowledge about the details of the rental business … and nothing on the record establish[ed] whether … the appellant knew she had unreported income prior to receipt of the reassessments” (para. 18).

Before so finding, Monaghan JA stated (at para. 14):

While the appellant did not testify before the Tax Court, the record establishes she was present at the Tax Court hearing. Thus, pursuant to section 146(2) of the Tax Court of Canada Rules (General Procedure) SOR/90-688a, the respondent could have called her as a witness without notice, but did not.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 163 - Subsection 163(2) a gross negligence penalty could not be sustained where the trial was all about the taxpayer’s husband and she was ignored 301

Section 147

Subsection 147(1)

Cases

Mariano v. The Queen, 2016 TCC 161

promoter of a leveraged donation scheme jointly and severally liable with the unsuccessful test-case taxpayers for the Crown’s costs

16,000 donors participated during the 2004 and 2005 taxation years (and 27,000 up until 2014) in a leveraged donation program. The Crown was completely successful at the trials (spanning 25 days) of the two “Lead Cases” out of the 25 appeals launched in the Tax Court respecting those years (Mariano). Five other appellants (the “Bound Appellants”) had agreed to be bound by the result in the Lead Cases. The Crown submitted a Bill of Costs respecting seeking Tariff B fees of $41,075 and disbursements in the total amount of $491,136.95 including expert witness fees, and sought for the Lead and Bound Appellants to be jointly and severally liable therefor or, in the alternative, the “Promoter” of the program.

Pizzitelli J rejected argument that the costs should be reduced based on the Lead Cases being test cases (and lead cases under Rule 146.1) stating (at paras. 42, 54):

…[The fact the Minister had thousands of cases at the objection stage that were not confirmed does not constitute special circumstances that justify departure from the usual costs rule.

… The taxpayers chosen as lead appellants can proceed to the determination of their appeals faster and without the complications and time requirements of being heard as part of a larger group.

Pizzitelli J dismissed the argument that costs be allocated amongst the thousands of taxpayers who were similarly assessed under this tax donation scheme, noting (at para. 94) “the principle that persons who have no ability to influence the conduct of an appeal cannot be liable for costs.”

He found that the promoter was liable to pay costs, stating (at para. 102):

The Promoter not only funded the action herein but conducted the action from the sidelines if not directly from on-field…[T]he Promoter created a defense fund [of $750,000] in anticipation of a challenge by the CRA… . The Promoter hired the expert witnesses… . The Promoter not only paid all the legal fees of the solicitors engaged to conduct the lead case but paid the costs assessed against the various Appellants… . [T]he promotional materials … talked of dealing with the matters by lead cases. … The Promoter clearly controlled all aspects of the Program… and it controlled the litigation that resulted therefrom.

Pizzitelli J concluded (at para 107):

I find that each of the Appellants, Bound Appellants and the Promoter shall be jointly and severally liable for costs as earlier determined but that the maximum amount of costs for which each of the Appellants and Bound Appellants are liable for shall be capped; such that each of their liability for costs shall be limited to the proportion that their total Charitable Tax Credits claimed in respect of the Program for all years under appeal herein is to total of all Charitable Tax Credits claimed by all of them combined with respect to the Program for such years under appeal. There shall be no limit to the Promoter’s liability for costs. This has the effect of treating the Appellants and Bound Appellants differently amongst themselves to avoid punishing any of them and permitting a fair contribution to costs but also treating them as a group who together with the Promoter will be responsible for the full amount of costs on a joint and several basis.

Subsection 147(3)

Cases

Canada v. Bowker, 2023 FCA 133

no support for establishing a 50% to 75% range of solicitor-client costs/ settlement offer contravened Galway principle and was to be ignored

The taxpayer had a s. 163(2) penalty vacated in the Tax Court on the basis that her involvement in the false amended return filed by her was completely passive. The Tax Court then awarded the taxpayer partial indemnity costs equal to 75% of her actual legal costs and 100% of disbursements.

Pelletier JA found that the Tax Court had erred in indicating that “for consistency purposes …the 50% to 75% range of solicitor-client costs should be used unless there are exceptional circumstances” when no Tax Court authorities were referred to in support of this range.

Regarding Rule 147(3)(d), the Tax Court noted that the taxpayer’s counsel had offered to settle on the basis that the s. 163(2) penalty would be vacated and replaced by a $2500 penalty under s. 162(7)(b). In reversing the Tax Court’s finding that this settlement offer was a factor tending to increase the costs award in the taxpayer’s favour, Pelletier JA found that s. 162(7)(b) should be narrowly construed in light of the noscitur a sociis principle and “would not apply to the case of returns that were filed when required but were negligently prepared” (para. 53). Accordingly, on the basis of the Galway principle, the “settlement proposal was not one which the Minister could have accepted as the lower penalty under paragraph 162(7)(b) was not available” (para. 53).

Regarding a proposal made in the alternative under the settlement offer that the Minister waive the penalty under s. 220(3.1), Pelletier JA stated (at para. 64) that the “principle in Galway rests on the Minister’s view of the facts and the law, not on what the Minister’s view might have been.” Since at the time of the offer, the Crown “remained convinced that she had acted in a grossly negligent way in relation to false statements in her income tax return” (para. 63), the taxpayer’s offer was not one that the Crown could accept. Instead, a waiver of the penalty under s. 220(3.1) “could only be based on the respondent’s personal circumstances” (para. 67).

Since the settlement offer could not have been accepted by the Minister in accordance with Galway, it was irrelevant to the quantum of the costs award.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 162 - Subsection 162(7) - Paragraph 162(7)(b) s. 162(7)(b) did not apply where return was timely filed but negligently completed 342
Tax Topics - Income Tax Act - Section 220 - Subsection 220(3.1) s. 220(3.1) must be applied based on the taxpayer’s personal circumstances rather than to settle a case on a basis fundamentally at odds with the Minister’s view of the facts and law 255
Tax Topics - Income Tax Act - Section 152 - Subsection 152(1) Galway principle required that a case not be settled on a basis fundamentally at odds with the Minister’s view of the facts and law 348
Tax Topics - Statutory Interpretation - Noscitur a Sociis noscitur a sociis principle applied to limit a provision to matters not addressed in a sister provision 107
Tax Topics - General Concepts - Judicial Comity judicial comity would require the Court to justify its departure from the finding of another judge of the same court on the same question 67

SCDA (2005) Inc. v. Canada, 2017 FCA 177

a settlement offer without an element of current monetary compromise can be reasonable

Webb JA dismissed the taxpayer’s appeal with respect to an enhanced costs award made by the Tax Court, stating (at paras 29 and 30):

One of the Rule 147(3) factors is “any offer of settlement made in writing” (Rule 147(3)(d)). Therefore, in awarding costs under Rule 147(1), any settlement offer is simply one of the factors to be considered. In Allen (Next Friend of) v. University Hospitals Board, 2006 ABCA 101, 384 A.R. 23, the majority of the Alberta Court of Appeal stated that:

… Where a settlement offer does not contain an element of compromise, the court may nevertheless consider it to have been reasonable in the circumstances and exercise its discretion to award enhanced costs.

(emphasis added)

…The Tax Court judge found that the offer was “as reasonable and principled as the Respondent could make in these circumstances” (para. 16(d)). In my view, the Tax Court judge did not commit any error in considering the Crown’s offer as one of the factors under Rule 147(3).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 138 - Subsection 138(11.3) no deemed disposition under s. 138(11.3) in the 1st year a Canadian insurer carries on business in another country, so that no basis bump of $1.2B occurred 389

See Also

Marine Atlantic Inc. v. The King, 2024 TCC 51

cost award to the taxpayer substantially increased to punish for “improper” and “offensive” conduct of Crown counsel

The Appellant had complete success in its appeal of a CRA challenge of its input tax credit methodology regarding its ferry operation. D’Arcy J made a costs award to the Appellant (of 60% of its counsel’s fees of $1.3 million, plus disbursements and a gross-up for unrecoverable HST) that reflected a substantial enhancement for the improper conduct of Crown counsel.

First, the Appellant and Crown agreed in July 2013 to be bound by two relevant findings in BC Ferries which, when decided in 2014, favoured the Appellant’s position. Nonetheless, the Crown did not agree to be bound by those findings until the eve of trial – and this delay in following BC Ferries caused the Appellant to incur substantial costs.

Second, the Crown had improperly sought to introduce evidence of a CRA auditor through an affidavit rather than through court testimony. Furthermore, the use of the affidavit in this instance had been found by D’Arcy J in his prior decision to be “trial by ambush” and resulted in “trial days being thrown away” (para. 99).

Third, the Crown submission on costs challenged D’Arcy J’s finding that use of the affidavit was “trial by ambush.” D’Arcy J stated (at paras. 55-56):

This is improper; a party should never use cost submissions to question a finding made by the Court in the related appeal.

Further, the Respondent’s submissions indicate that he is prepared to engage in similar offensive behaviour in the future.

Similarly, the Crown submissions improperly and falsely challenged D’Arcy J’s findings that CRA had inappropriately threatened to impose gross negligence penalties on the Appellant.

Madison Pacific Properties Inc. v. The King, 2024 TCC 47

taxpayer’s pursuing a no “avoidance transaction” should increase the Crown's costs award

Madison Pacific (2023 TCC 180) held that there was a GAAR abuse of s. 111(4) when two unrelated companies acted in concert to acquire 46.6% of the voting rights and 92.8% of the taxpayer’s equity (through being issued inter alia Class C non-voting shares) so as to access the taxpayer’s losses. Graham J granted the Crown’s request for costs of $408,834, being 35% of its actual legal costs, plus disbursements. Of the factors listed in Rule 147(3), those arguing for increased costs were:

  1. the costs at issue ($2.2 million for the taxation year at issue, similar amounts for two other taxation years, and $10 million in a number of related appeals);
  2. the complexity of the issue (including taking into account reported proceedings in Deans Knight, requiring the parties to “regularly … rework their arguments” (para. 14); and
  3. the taxpayer’s failure to concede until oral argument that there was an avoidance purpose for the creation of Class C non-voting shares.

Regarding the last factor, Graham J stated (at para. 22):

[W]here the weakness of the evidence in support of an argument are as apparent as they were in this case, it is appropriate to deal with the pursuit of that argument through costs. Significant trial time (in particular, significant time spent preparing for and conducting cross-examinations) could have been saved had the Appellant conceded this issue up front.

Although “this factor argue[d] for significantly higher costs” (para. 24) of approaching 40%, the Crown had only requested 35% of its legal costs (para. 32).

Paletta Estate v. The Queen, 2021 TCC 41

largely successful taxpayer allowed 45% of its legal costs (reduced from 55% by adjustments)

The taxpayer was substantially successful in its appeals for eight taxation years of denials of around $49 million in net losses from “straddle trading.”

Spiro J found the taxpayer’s total disbursements of $996,550 were reasonable given that the Crown’s disbursements were only somewhat lower ($710,000) notwithstanding “the significant burden that rested on the Appellant to demolish the Minister’s assumptions of fact in respect of sham, ineffective transactions, etc” (para. 13). However, the disbursements allowed were reduced by $270,000 to reflect that only 25% of an expert’s opinion evidence was useful. Regarding the experts being foreign experts, he noted (at para. 36):

[T]he global centres of forward foreign exchange trading are all located outside Canada. There is no "“buy Canadian”" requirement when it comes to expert witnesses.

Spiro J otherwise would have allowed 55% of the taxpayer’s legal fees of $3,365,500 in light inter alia of the amounts at stake, the taxpayer’s complete success for all but one year, challenges in displacing the Crown’s allegations of sham and legally ineffective transactions, the complexity of the straddle trading transactions, and the novelty and complexity of those issues. However, he reduced that percentage by 5% to reflect the waste of trial time resulting from the taxpayer’s failure to concede at trial that he had failed to report $8 million of income for one of the years, and spending the better part of a morning seeking to qualify an expert on English law even though English law was not at issue. The percentage was reduced by a further 5% to reflect the partial success of the Crown (regarding that same $8 million) for one of the taxation years.

Univar Holdco Canada ULC v. The Queen, 2020 TCC 15

Crown faulted for arguing for adherence to the Tariff

The taxpayer (“Univar”) was wholly successful in reversing, in the Federal Court of Appeal, a Tax Court decision that had confirmed the application of s. 245(2) to it on the basis that the transactions in question had abused the s. 212.1 rules. Univar brought a motion to have costs determined in accordance with Rule 147, requesting a lump sum award of costs for its appeal of approximately $450,000, being 75% of its counsel fees including GST and PST. The Crown maintained that the Tariff amount of $6,500 was appropriate.

After noting that a large amount had been at issue ($40 million) and rejecting the relevance of the Crown initially having been successful in the Tax Court and of there being a Budget amendment, after the appeal in the Tax Court had been argued, that dealt with transactions of the type engaged in by the taxpayer, Boyle J stated (at para. 33):

I am satisfied that both the volume and complexity of the work in this case need to be reflected in the amount of costs awarded and that both favour enhanced costs.

Boyle J concluded (at para 40):

… I am satisfied that the appropriate contribution from the Respondent to Univar’s legal fees in this appeal is $300,000. I have arrived at this by applying a factor of 50% to the fees (including GST and PST) recorded by the two partners who appeared in Court, the senior litigation counsel at the firm advising on the appeal, and the associate who recorded the vast majority of the remaining time. In recognition of some inherent duplication and inefficiencies … , I am not allowing anything for the other two associates who each had recorded less than 5% of the total time. …[or] for the two articling students.

He then added (at para. 51):

I believe that the Crown’s stubborn clinghold to the Tariff amount, and its incorrect view that this Court needs to identify a principled reason to depart from the Tariff, gives rise to Rule 147(3)(g), (h) and (i) considerations. These, in addition to (a), (b) and (e) considerations, all favour a higher award of costs on this costs motion. …

Cameco Corporation v. The Queen, 2019 TCC 92

legal costs were increased by allegation of sham; last minute offer not impacting tax irrelevant

Owen J made a lump sum award for legal fees of Osler borne by Cameco in its successful appeal of transfer-pricing adjustments for its 2003, 2005 and 2006 taxation years (being only three of the assessed years) of $10.25M, which represented about 35% of the legal fees charged for those years. Factors mentioned by Owen J included:

  • Settlement offers made by Cameco (one less than 30 days before trial, and one after trial) did not have any real bearing given their “de minimis nature” (i.e., although Cameo offered “$32 million of additional taxable earnings in 2006 … no additional tax in any of the three years under appeal” was offered (paras. 20-21).
  • The “volume of work was significantly increased by the Respondent’s reliance on sham” (para. 26), i.e., “the Appellant [Cameco had] to address minute administrative details of how it and its subsidiaries carried on business’.” (para. 24)
  • "[I]n circumstances involving significant stakes for the appellant, efficiency and frugality may take a back seat to thoroughness." (para. 47).
  • He did “not accept the Respondent’s submission that it could not have anticipated the costs incurred by the Appellant given the Respondent’s vigorous pursuit of the allegation of sham.”

Cameo also incurred disbursements in connection with its appeal of $17.9M. He ordered that these should be taxed largely in accordance with the Rules.

Loblaw Financial Holdings Inc. v. The Queen, 2018 TCC 263

Crown won, but was unsuccessful on most issues: no costs

The Minister prevailed in assessing the taxpayer for the realization of $473 million of foreign accrual property income (FAPI) between 2001 and 2010 through a wholly-owned Barbados subsidiary (GBL) that was licensed in Barbados as an international bank, but only on the basis that GBL’s business was not conducted principally with arm’s length persons. The taxpayer had made an offer to the Minister on what C Miller J had described as a principled basis, namely, that the Minister would apply GAAR to GBL’s 2006 to 2013 years – but not to the earlier years on the basis that they were not covered by waivers provided. The Crown rejected this offer and made its own offer (which was made too close to trial to qualify under Rule 147(3.2), and was also rejected) that provided a concession on the characterization of foreign exchange gains and losses realized by GBL

In finding that the Crown should not receive an award of costs notwithstanding its total success, C Miller J stated (at para. 11):

[T]he Respondent had success in the ultimate result, but it was due to the one issue – the conduct of business principally with persons with whom it did not deal at arm’s length. That is it. Given Loblaw’s success on virtually all other issues, I am not convinced that the result favours a cost award to the Respondent.

Respecting the Crown’s submission that it should receive an award of 30% of solicitor-client costs incurred after its counteroffer, he agreed (at para. 19) with the taxpayer that this offer “was neither a compromise nor a good faith attempt to settle, given the relative insignificance of the [FX] issue.”

Standard Life Assurance Company of Canada v. The Queen, 2015 TCC 138

Crown offer of better treatment for one of two years

The Crown had made a settlement offer to the taxpayer under which the taxpayer would conced that it was not carrying on an insurance business in Bermuda in 2006, but the Crow would concede that the taxpayer was carrying on business in Bermuda in 2007 – and each party would bear its own costs.

In finding that Rule 147(3) applied, and before finding that the taxpayer was liable for 80% of the Crown’s costs incurred after the settlement offer date (other than some fees of Crown junior counsel, which he pared back), Pizzitelli J noted that the Crown had achieved complete success at trial (so that the taxpayer was found by him not to be carrying on business in Bermuda in 2007 as well as 2006), and stated (at paras 11 &12):

Unlike in Mckenzie above [2012 TCC 329], the settlement offer in question does not just contemplate that only costs would be waived. The Respondent’s settlement offer contemplated allowing the Appellant to participate in the subsection 138(11.3) regime fully one taxation year earlier than my decision allows it to do at the earliest by agreeing the Appellant was carrying on business in 2007, the latter as argued by the Appellant. This alone takes the settlement offer beyond a cost waiver only type of offer.

…[H]aving regard to the substantially large tax savings it would have achieved over the next 5 years had it been successful in this appeal, somewhere between $200,000,000 to $250,000,000 by the admission of its own witness, accessing the regime as a multi-national one year earlier had the possibility of generating a clear benefit to the Appellant…

new item

Paragraph 147(3)(j)

Cases

Jayco, Inc. v. The Queen, 2018 TCC 239

taxpayer has no remedy in a costs award for LC fees paid to secure its GST/HST obligation until reversed

After substantial success in its appeal of a GST/HST assessment (in excess of its settlement offer), the appellant (“Jayco”), in its request for an award of costs made on a substantial indemnity basis, included a claim made under Rule 147(3)(j) for $1.4 million paid by it to JP Morgan Chase Bank in order to obtain a letter of credit to secure the GST/HST it owed. In rejecting this claim, and after noting that the Minister could have exercised her discretion under s. 315(3) not to require security or payment, D’Auray J stated (at paras 28, 39-41, and 44-45):

… The interest paid by Jayco on the letter of credit relates to the GST/HST it owed, and not to its appeal before this Court, which dealt solely with the correctness of the assessment.

… On an appeal from an assessment, it is not the role of this this Court to sit in review of the Minister’s decisions on how best to effect collection of, or obtain security for, unpaid GST/HST. This is what Jayco is asking the Court to do.

… In essence, Jayco is submitting that the Minister ought to have exercised her discretion differently and not taken any collection action on the GST/HST assessed. Had she done so, Jayco would not have had to obtain the letter of credit and pay interest on it.

… The Minister has the power to take collection actions against a person under the ETA once a person is assessed and unpaid amounts of tax remain. This Court does not have jurisdiction to review the Minister’s exercise of that power—that jurisdiction rests with the Federal Court. …

The Rules are clear that disbursements will only be awarded if they are essential to the conduct of the proceedings. … The interest was not paid by Jayco to establish that the Minister’s assessment was incorrect and therefore did not arise from the appeal filed before this Court.

In addition, the disbursements contemplated by the Rules are expenses that are directly connected with the litigation, for example, witness fees and expenses, expert witnesses fees, fees for copies of documents and authorities. Interest paid to secure the GST/HST owing upon assessment is not of this nature. …

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 315 - Subsection 315(3) only Federal Court has jurisdiction to review exercise of discretion under s. 315(3) 284

Subsection 147(3.1)

Cases

Bank of Montreal v. The Queen, 2021 TCC 3

pre-settlement offer legal costs awarded at more than the party and party rate in order to encourage timely settlement offers

A September 12, 2018 decision of the Tax Court (affirmed by the Court of Appeal) allowed the appeal of the taxpayer (“BMO”) from a GAAR assessment, thereby resulting in a judgment more favourable than a Settlement Offer made by BMO on January 30, 2018. The Crown agreed that BMO was entitled to substantial indemnity costs of $450,069 for the period after the Settlement offer was made, but submitted that BMO should only receive costs in accordance with the Tariff for the period before the Settlement Offer.

Before determining to award pre-offer costs of 35% of BMO’s actual costs of $684,471, Graham J stated (at paras 4, 6 and 7 and 8):

The general wording of subsection 147(3.1) … indicates that a party receiving substantial indemnity costs following a settlement offer is entitled to party and party costs to the date of service of the settlement offer. …

… Awarding substantial indemnity costs provides an incentive to settle early… . Subsection 147(3.3) ensures that offers are made early by requiring that … an offer must be made at least 90 days before the hearing and must not expire earlier than 30 days before the hearing.

[L]imiting a party to tariff costs for all costs incurred before a settlement offer was made could defeat the goals of the settlement rules. A party who made an offer within the time limits would be rewarded for making the offer but, at the same time, punished for not having made it sooner. Such a system could actually act as a disincentive for parties to make settlement offers more than 90 days before their hearing as the guaranteed high costs that they may receive after the offer may be outweighed by the lower tariff costs that they would be forced to accept for their work prior to the offer.

See Also

Daville Transport Inc. v. The Queen, 2022 TCC 5

a settlement offer not made on a principled basis should be ignored for cost award purposes

The appellant, DTI claimed entitlement to substantial indemnity costs per Rule 147(3.1) on the basis that in its appeal, it had achieved greater success than that reflected in an offer to settle made by it, which would have reduced the assessed HST for the reporting periods at issue to $15,000, which was explained to represent approximately 50% of the Canadian portion of the total amount of HST at issue of $118,300 (relating also to supplies considered by DTI to have been made in the US).

In rejecting this claim, Russel J stated (at paras. 12-14):

CIBC World Markets [2012 FCA 3] affirmed that the Minister of National Revenue can only assess tax consistent with his/her view of the underlying facts and law. …

Here, DTI’s settlement offer … was simply a “let’s split it down the middle” settlement offer.

As DTI’s arbitrary settlement offer was not based on facts in accordance with the law, consequently it could not be entertained by the respondent Crown. As such, this settlement offer was not within the scope of Rule 147(3.1).

However, although the $4,000 amount of costs initially awarded was based on the Court’s Tariff B for party and party costs, he considered this to be on the “lean side,” and increased the award to $8,110, not only to reflect some missing items, but also because (para. 18):

My judicial discretion as to costs does not require that I award costs on a tariff basis. Tariff B has not been updated in recent years. While DTI’s success was mixed in this appeal, it did succeed with respect to a substantial portion of the total amount at issue.

He indicated (at para. 19) that the bill of costs should be “increased by a factor of 1.6 as the tariff is not at all current.”

Hansen v. The Queen, 2021 TCC 39

enhanced substantial indemnity costs awarded against the Crown for its delay in making a concession

At 2020 TCC 102, the Court determined that reassessments of sales of homes by the taxpayer and his wife in 2007, 2008 and 2009, to treat the gains as on income account rather than eligible for the principal residence exemption, were statute-barred, but sustained similar assessments made of the taxpayer for his 2011 and 2012 taxation years. This judgment was numerically more favourable to the taxpayer than an offer dated January 10, 2018 that he had made.

D’Auray J. applied s. 147(3.1) of the Rules to award the taxpayer party and party costs to the date of service of the offer, but awarded him 85% rather than 80% of solicitor and client costs thereafter. She stated (at para. 32):

I agree that the Court may use its discretion to override the application of subsection 147(3.1) of the Rules. … However, taking into account the language of the rest of the subsection, I am of the view that exceptional or extraordinary circumstances must exist before the Court exercises its discretion. …

In explaining the increase to 85%, she noted that the Crown had not admitted that the homes were owned in equal co-ownership by the taxpayer and his wife, rather than by the taxpayer alone, until one week before trial, even though this fact had been admitted in the discoveries by a CRA representative more than a year earlier. Furthermore, the Crown had never responded to the taxpayer’s offer.

Subsection 147(7)

Cases

QUEEN V. JAMES S.A. MACDONALD, 2021 FCA 6

reversal of the related action rendered a Rule 147(7) costs award a nullity

After the taxpayer’s success in MacDonald in the Tax Court, he secured an enhanced costs award from the Tax Court based on a settlement offer he had made. After the reversal of MacDonald in the Federal Court of Appeal, as further confirmed by the Supreme Court, the Crown continued its appeal of the enhanced cost award (which had been stayed), seeking enhanced costs instead for itself based on a settlement offer it had made.

Stratas JA found that this appeal should be dismissed on two grounds:

  • When the FCA had allowed the Crown’s appeal, it awarded costs on the usual scale to the Crown. Since the entitlement for costs in the TCC proceedings had thus been decided, it could not now be relitigated in the current appeal by virtue of the res judicata doctrine.
  • Since the TCC’s enhanced cost order (under Rule 147(7)) was wholly contingent on the order it made in the underlying action, when that order was reversed, its Rule 147(7) order was rendered a nullity – there was nothing for the Crown to appeal.
Locations of other summaries Wordcount
Tax Topics - General Concepts - Res Judicata res judicata applied to Crown attempt to enhance costs award when its appeal was allowed 317

Section 168

See Also

Chao v. The Queen, 2018 TCC 202 (Informal Procedure)

judgment could not be amended to correct for a legal error

Jorré DJ had dismissed an appeal in respect of employment expenses for 2010 of $1,149 claimed by the taxpayer and, on the basis that the Respondent had conceded the issue, allowed the GST rebate of $277.46 claimed. The Respondent submitted that the rebate was never conceded, that there can be no rebate except to the extent that certain employee expenses may be deducted pursuant to the Act, and that given the finding that there were no deductible employment expenses, the judgment should be varied to dismiss the appeal in its entirety.

After noting (at paras. 14, 15) that there are “only very limited exceptions” to the rule that “once the judgment has been rendered, the judge becomes funtus officio” and that although this was an Informal Procedure case, “the provisions of the general procedure rules together with jurisprudence of this Court applying those rules as well as the jurisprudence of other courts applying similar rules serve as a useful guide” (para. 19), Jorré DJ, consistently with s. 168 and s. 172 of the Tax Court of Canada Rules (General Procedure), dismissed the appeal finding that this was not a situation falling within the recognized exceptions to the finality of judgments, stating (at paras 22, 24 and 25):

Clearly, the judgment accords with the reasons which state that the Respondent conceded the rebate and allowing the rebate in the judgment is not an accidental slip or omission.

… The reasons and the judgment both deal with the rebate issue. Clearly the rebate issue has not been overlooked and has been adjudicated.

… There is no question here of facts arising after the hearing.

Furthermore, Jorré DJ found that even if that were not the case, there were two additional reasons that would have led to the same conclusion, stating (at paras 29, 34, 36, 47):

What matters … is not what was intended but what was done. …

I … asked “So you’re conceding the 27746 GST rebate?” and receive the answer “Correct.”

Given that the rebate issue was conceded, we are clearly not in a situation where this Court should vary the outcome even if it could.

… [B]efore any variation could be considered and even it could otherwise be varied, fairness would require the matter be reopened to explore what the $1,866 [in employment expenses claimed on line 212 and allowed by the Minister] was and whether the Appellant paid any GST or HST on the amount.

Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Federal - Tax Court of Canada Rules (General Procedure) - Section 172 - Subsection 172(1) judgment issued based on a legally unsupportable concession of Crown counsel could not be varied 135

Section 172

Subsection 172(1)

See Also

Chao v. The Queen, 2018 TCC 202 (Informal Procedure)

judgment issued based on a legally unsupportable concession of Crown counsel could not be varied

The taxpayer appealed the denial of employment expenses and a GST rebate. Crown counsel, on the basis that the taxpayer had now provided a properly completed GST rebate form, indicated to the Court that the rebate issue was no longer in issue. In reliance on this concession, Jorré DJ dismissed the appeal respecting the employment expenses but allowed the GST rebate amount. However, if the employment expenses were nil, it was a legal impossibility for there to be a GST rebate, and the Crown applied for the judgment to be varied to dismiss the appeal in its entirety.

Jorré DJ refused, stating (at para. 24):

The reasons and the judgment both deal with the rebate issue. Clearly the rebate issue has not been overlooked and has been adjudicated.

Words and Phrases
adjudicate
Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Federal - Tax Court of Canada Rules (General Procedure) - Section 168 judgment could not be amended to correct for a legal error 414