Tax Court of Canada Rules (General Procedure)

Section 16.2

Subsection 16.2(2)

See Also

Stewart v. The Queen, 2018 TCC 75

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, raise 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 189
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 307

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 267
Tax Topics - Excise Tax Act - Section 301 - Subsection 301(1.1) secured creditors able to bring claim for ITCs of bankrupt 267

Section 30

Subsection 30(2)

See Also

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

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 110

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 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 347
Tax Topics - Income Tax Act - Section 152 - Subsection 152(1) inconsistent assessments of related taxpayers 172
Tax Topics - Other Legislation/Constitution - Federal - Tax Court of Canada Rules (General Procedure) - Section 82 inconsistent assessments of related taxpayers 281

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 240
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) 220

Section 54

Cases

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 294
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 331

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 347
Tax Topics - Other Legislation/Constitution - Federal - Tax Court of Canada Rules (General Procedure) - Section 53 inconsistent assessments of related taxpayers 228
Tax Topics - Income Tax Act - Section 152 - Subsection 152(1) inconsistent assessments of related taxpayers 172

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 - Income Tax Act - Section 232 - Subsection 232(1) - 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 466
Tax Topics - Other Legislation/Constitution - Federal - Tax Court of Canada Rules (General Procedure) - Section 84 metadata insufficient description for non-email documents 165
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 162
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 86 146

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 514
Tax Topics - Income Tax Act - Section 232 - Subsection 232(1) - 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 466
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 162
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 86 146

Section 86

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 514
Tax Topics - Income Tax Act - Section 232 - Subsection 232(1) - 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 466
Tax Topics - Other Legislation/Constitution - Federal - Tax Court of Canada Rules (General Procedure) - Section 84 metadata insufficient description for non-email documents 165
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 162

Section 89

Subsection 89(1)

Paragraph 89(1)(a)

See Also

Scott v. The Queen, 2017 TCC 224, 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 175
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) 304
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 221
Tax Topics - General Concepts - Stare Decisis Supreme Court obiter accorded deference 129
Tax Topics - Income Tax Act - Section 9 - Compensation Payments surrogatum principle references "why the compensatory amount was paid," and not confined to business receipts 191
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) 141

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 187

Subsection 95(1)

Cases

Canada (National Revenue) v. Cameco Corporation, 2017 FC 763

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 417
Tax Topics - Statutory Interpretation - Redundancy/reading in words presumption against tautology 44

See Also

MP Western Properties Inc. v. The Queen, 2017 TCC 82

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 191

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 514
Tax Topics - Income Tax Act - Section 232 - Subsection 232(1) - 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 466
Tax Topics - Other Legislation/Constitution - Federal - Tax Court of Canada Rules (General Procedure) - Section 84 metadata insufficient description for non-email documents 165
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 86 146

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 516

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

expert's report did not include all the underlying data

The report of the taxpayer's expert, which compared returns on Canadian and non-Caandian hedge funds in support of the commerciality of the taxpayer's decision to invest in particular hedge funds operating in low-tax jurisdicitions (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 inconsisencies 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 346
Tax Topics - General Concepts - Onus no taxpayer burden to displace assumptions of mixed fact and law 65
Tax Topics - Statutory Interpretation - Hansard, explanatory notes, etc. MInister's statement was false 120

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

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 379

See Also

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…