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Tax Court Continues “New Approach” to Cost Awards

The Tax Court’s approach to cost awards has evolved significantly in recent years. The Court’s interpretation and application of the factors under subsection 147(3) and the new settlement offer rules in subsections 147(3.1) to (3.8) of the Tax Court of Canada Rules (General Procedure) indicate that the Court continues to formulate a “new approach” to costs that is much closer to the manner in which other Canadian courts use cost awards to compensate successful parties and control the conduct of the parties during litigation.

The Tax Court’s new approach can be traced to the costs decision in Velcro Canada Inc. v. The Queen (2012 TCC 273) (see our previous blog post here), in which the Court articulated an approach to costs that provided for a reduced role for the “Tariff” amounts (see in Tariff B of Schedule II of the General Procedure Rules) and much greater emphasis on and consideration of the factors under subsection 147(3). Further, the new settlement offer rules in subsections 147(3.1) to (3.8) create a default entitlement to substantial indemnity costs (i.e., 80% of solicitor and client costs) after the date of a settlement offer for a successful party that achieved a result in the appeal that was as good or better than the settlement offer.

This new approach is a welcome development in that it creates a fair system in the Tax Court for compensating a winning party, and raises the stakes for both parties to an appeal.

Three recent costs decisions of the Tax Court provide good examples of the Court’s analysis and awards under this new approach.

Repsol Canada Ltd. 

In Repsol Canada Ltd. v. The Queen (2015 TCC 21) (under appeal), the Tax Court allowed the taxpayer’s appeal and held that certain of the taxpayer’s assets were Class 43 assets for the purposes of the capital cost allowance provisions in the Income Tax Act. The Court awarded costs to the taxpayer.

On its motion for increased costs, the taxpayer asked for substantial indemnity costs under new subsection 147(3.1) of the General Procedure Rules for legal fees incurred after the issuance of its settlement offer, an additional 10% of legal fees incurred after the issuance of its settlement offer, 75% of its legal fees incurred before the issuance of its settlement offer, and reasonable disbursements.

The Tax Court (2015 TCC 154) refused to reduce the taxpayer’s costs that would be subject to the substantial indemnity rule in subsection 147(3.1), held that the substantial indemnity rule applies to the legal fees for a costs motion, and refused to grant additional costs above the substantial indemnity amount for fees incurred after the issuance of its settlement offer.

The Court awarded post-settlement offer costs at 80% of solicitor-client costs ($264,334), pre-settlement offer costs at 50% of solicitor-client costs ($262,051), disbursements ($35,308), and 80% of solicitor-client costs plus reasonable disbursements for the costs motion.

The Crown has appealed the costs decision to the Federal Court of Appeal.

Standard Life Assurance Company of Canada

In Standard Life Assurance Company of Canada v. The Queen (2015 TCC 97) (under appeal), the Tax Court dismissed the taxpayer’s appeal and held that the taxpayer was not entitled to a bump in the cost base of certain insurance properties. The Court awarded costs to the Crown.

On its motion for increased costs, the Crown asked for substantial indemnity costs under new subsection 147(3.1) of the General Procedure Rules for legal fees incurred after the issuance of its settlement offer, 50% of legal fees incurred before the issuance of its settlement offer, and reasonable disbursements throughout.

The Tax Court (2015 TCC 138) held that the Crown’s settlement offer was a valid settlement offer that contained an element of compromise (see also the earlier case of Mckenzie v. The Queen (2012 TCC 329)). Accordingly, the taxpayer was entitled to substantial indemnity costs incurred after the issuance of the settlement offer.

The Tax Court made a minor adjustment for the hourly rate of junior counsel and awarded a lump sum amount of $474,663 (which included $37,818 in disbursements).

Sun Life Assurance Company of Canada

In Sun Life Assurance Company of Canada v. The Queen (2015 TCC 37), the Tax Court allowed the taxpayer’s appeal and held that the taxpayer was entitled to certain input tax credits. The Court awarded costs to the taxpayer.

On its motion for a enhanced costs, the taxpayer asked for a lump sum amount of $200,000, which approximated 80% of counsel fees of $157,430, plus taxes of $20,465 and disbursements of $21,365.

The Tax Court (2015 TCC 171) considered the taxpayer’s settlement offer, and concluded that it was a valid settlement offer that was capable of being accepted by the Crown (see also the earlier case of CIBC World Markets Inc. v. The Queen (2012 FCA 3)). Accordingly, the taxpayer was entitled to substantial indemnity costs incurred after the issuance of the settlement offer.

However, the Court reduced the amount of legal fees that would be subject to the 80% substantial indemnity rule because there was no evidence that the client had agreed to pay its counsel’s hourly fees (rather the fee charged to the client was a percentage of the amount recovered). Also, the taxpayer had not provided a detailed breakdown of the fees incurred before and after the issuance of the settlement offer.

Accordingly, the Court awarded substantial indemnity costs of $91,792, plus $1,050 for the Tariff amount for services rendered prior to examination for discovery, plus HST on these amounts (less any amount recoverable as an input tax credit), and disbursements of $21,356.


Tax Court Continues “New Approach” to Cost Awards

Ironside: TCC Orders Hearing of Question on Rule 58 Motion

In Ironside v. The Queen (2015 TCC 116), the Tax Court allowed the Crown’s Rule 58 motion for a determination of a question of law before the hearing, namely whether the taxpayer was estopped from litigating an issue that had been adjudicated in an earlier Tax Court decision.

In the prior case (Ironside v. The Queen (2013 TCC 339)), the taxpayer had incurred legal and professional fees to defend himself against allegations of committing improper disclosures after being charged in June 2001 by the Alberta Securities Commission. The taxpayer sought to deduct such fees in the 2003 and 2004 tax years.

The Tax Court concluded that the taxpayer’s legal and professional fees had not been incurred to gain or produce income from his chartered accounting business, rather such expenses were personal in nature and were incurred to protect his reputation in the oil and gas industry. The Tax Court dismissed the taxpayer’s appeal.

Subsequently, the taxpayer sought to make the same deductions in the 2007, 2008 and 2009 tax years. The CRA reassessed to deny the deductions, and the taxpayer again appealed to the Tax Court.

In its Reply, the Crown raised the issue of whether “the appeal or a portion of it is barred by application of the doctrine of issue estoppel or is otherwise an abuse of the process of the Court”. The Crown then brought a motion for an order pursuant to Rule 58 of the Tax Court of Canada Rules (General Procedure) for a determination of a question prior to the appeal:

Whether the Appellant is barred from litigating within proceeding 2014-1619(IT)G whether the legal and professional fees paid to defend himself in Alberta Securities Commission proceedings and the subsequent appeal are deductible as amounts incurred to gain or produce income from a business or property, on the basis that the characterization of such fees has been previously adjudicated upon and therefore the doctrines of issue estoppel and or abuse of process operate to bar re-litigation of the issue.

The Tax Court noted that Rule 58 contains a two-step process. At the first stage, the Tax Court must determine whether the question posed by the moving party is an appropriate one that should be heard in a subsequent hearing (the second stage).

At the first stage, three elements must exist:

  1. The question proposed must be a question of law, fact, or mixed fact and law;
  2. The question must be raised in the pleadings; and
  3. The determination of the question may dispose of all or part of the appeal, may substantially shorten the hearing, or may result in substantial cost saving.

If all of these elements are present, the Court may set a hearing of the proposed question before a motions judge prior to the hearing of the appeal.

In the present case, the Tax Court held that all three requirements were satisfied. The Court stated,

[12] Clearly, there is the potential that a determination of this question may, according to the materials I have before me and the submissions I heard, dispose of part of the appeal and I need only be satisfied that it “may” so dispose of some of the appeal. I do not have to be absolutely convinced that it will do so in order to refer the question to a Stage Two determination prior to the hearing. If part of the appeal is disposed of, it follows that the proceeding will be substantially shortened. This is precisely the type of question that Rule 58 is meant to target.

The Tax Court ordered that the Crown’s question be set down for a hearing for determination by a motions judge and that certain evidence be presented at the determination (i.e., the pleadings from both appeals, and the Tax Court’s decision in Ironside v. The Queen (2013 TCC 339)).

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Ironside: TCC Orders Hearing of Question on Rule 58 Motion

FCA: TCC Erred in Awarding Costs on Basis of Pre-Appeal Conduct

The Tax Court has in recent years demonstrated a willingness to use cost awards to control the parties’ conduct. This includes awarding lump-sum amounts, which may depart markedly from the “tariff” amounts described in Tariff B of Schedule II of the Tax Court’s General Procedure Rules. Further, the Court has wrestled with the weight – if any – that the parties’ conduct prior to an appeal should carry in respect of a cost award.

In Martin v. The Queen (2013 TCC 38), the taxpayer successfully challenged a section 160 assessment in respect of certain amounts paid to her by her spouse. There was evidence the auditor had deliberately misled the taxpayer during an audit, and the taxpayer had spent considerable time and money enduring the audit and objection process before her ultimate success in the Tax Court.

On the issue of costs, the taxpayer asked for (i) solicitor-client costs, or (ii) a fixed amount under Rule 147, or (iii) the tariff costs. The Crown argued that only tariff costs should be awarded. Describing the case as “very unusual, difficult, and hopefully exceptional, case”, the Tax Court considered the pre-appeal conduct of the CRA (among other factors) and awarded the taxpayer a lump sum amount of $10,635 (2014 TCC 50).

The Tax Court repeated its view that costs may be awarded against the Crown where it pursues a meritless case in the Tax Court:

[21] … There are perhaps some arguments and some cases that the Canada Revenue Agency just should not pursue. The Crown is not a private party. By reassessing a taxpayer and failing to resolve its objection, the Crown is forcing its citizen/taxpayers to take it to Court. If the Crown’s position does not have a reasonable degree of sustainability, and is in fact entirely rejected, it is entirely appropriate that the Crown should be aware it is proceeding subject to the risk of a possibly increased award of costs against it if it is unsuccessful.

The Crown appealed and the taxpayer cross-appealed.

The Federal Court of Appeal noted that a discretionary cost award should only be set aside if the judge made an error in principle or if the award is plainly wrong (see Hamilton v. Open Window Bakery (2004 SCC 9) and Sun Indalex Finance LLC v. United Steelworkers (2013 SCC 6)).

In the Court of Appeal, the Crown alleged that the Tax Court judge had made an error of fact  (i.e., the finding that the CRA auditor had been deceitful in providing incorrect information), and an error of law (i.e., relying on the auditor’s deceitful conduct as a basis for awarding increased costs).

On the first issue, the Court held there was no error of law because the Crown admitted the auditor had engaged in deceitful behavior. On the second issue, the Court noted that conduct that occurs prior to a proceeding may be taken into account if such conduct unduly and unnecessarily prolongs the proceeding (see Merchant v. Canada (2001 FCA 19) and Canada v. Landry (2010 FCA 135)). However, the Court stated that the audit and objection stages are not a “proceeding”, which is defined in section 2 of the Rules as an appeal or reference. Accordingly, the Court stated, “the Judge erred in principle in allowing an amount incurred in respect of costs unrelated to the appeal which were incurred at the objection stage. Those expenses, by definition, were not incurred as part of the appeal ‘proceeding'”.

In respect of the cross-appeal, the Court of Appeal considered whether the lower court had erred in declining to award solicitor-client costs. The Court held there was no error because such costs could not include pre-appeal costs, and even if such costs could be awarded, solicitor-client costs are awarded only where there has been reprehensible, scandalous or outrageous misconduct connected with the litigation (see also Scavuzzo v. The Queen (2006 TCC 90)).

The Court allowed the appeal, dismissed the cross-appeal, set aside the lower court’s cost award and substituted a cost award of $4,800 plus disbursements and taxes (2015 FCA 95).

The Court of Appeal decision in Martin may have failed to address all relevant provisions of Rule 147, which arguably provide for very broad discretion for awarding costs. For example, paragraph 147(3)(j) of the Tax Court Rules states the Court may consider “any other matter relevant to the question of costs”.

The Court of Appeal’s decision also raises an issue regarding the circumstances in which deceitful pre-appeal conduct may unduly or unnecessarily prolong a proceeding – wouldn’t such a hindrance follow in every case of deceitful conduct by a party?

Further, the Court of Appeal appeared particularly concerned that the taxpayer’s pre-appeal expenses could not be addressed in the cost award, but it seems clear that the Tax Court had exercised its discretion to award a lump sum based not only on the quantum of the pre-appeal costs but on the existence of the auditor’s deceitful behavior and the Crown’s obstinate approach and refusal to resolve – at any stage – an uncomplicated tax dispute.

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FCA: TCC Erred in Awarding Costs on Basis of Pre-Appeal Conduct

Westerhoff and McCallum: More from the OCA on Expert Evidence

The Ontario Court of Appeal released its decision last week in Westerhof v. Gee Estate and McCallum v. Baker (2015 ONCA 206), which are the companion cases to Moore v. Getahun.  All three appeals were heard together.

The legal issue before the Court in Westerhof  and McCallum was whether participant experts and non-party experts could give opinion evidence without having to comply with Rule 53.03, which describes the deadlines and content requirements for expert reports.

The Court of Appeal held that the Divisional Court erred in concluding that the type of evidence – whether fact or opinion – is the key factor in determining to whom Rule 53.03 applies.

Rather, the Court of Appeal was unanimous in that participant experts and non-party experts may give opinion evidence without complying with Rule 53.03.  As a result, Rule 53.03 does not apply to the opinion evidence of a non-party expert or participant expert where he or she has formed a relevant opinion based on personal observations or examinations relating to the subject matter of the litigation for a purpose other than the litigation.


At the trial of Mr. Westerhof, the plaintiff proposed to call evidence from nine medical witnesses.  From the outset, the trial judge ruled that the medical witnesses who treated or assessed the plaintiff but did not comply with Rule 53.03 would not be entitled to give opinion evidence concerning their diagnosis or prognosis, even though they had not been retained for the purpose of the litigation. Those witnesses were also prevented from giving evidence of the history they had taken from Westerhof. The Divisional Court upheld the trial judge’s conclusion.  The Court of Appeal did not agree and reversed the decision, ordering a new trial.

At the trial of Mr. McCallum, the defendant appealed that decision on the basis, inter alia, that the trial judge erred by allowing treating medical practitioners who had not complied with Rule 53.03 to give “an avalanche” of opinion evidence.  The Court of Appeal dismissed this appeal.

Principles set out by the Court of Appeal

Simmons J.A., writing on behalf of the Court of Appeal, concluded that a witness with special skill, knowledge, training or experience who has not been engaged by or on behalf of a party to the litigation may give opinion evidence for the truth of its contents without complying with Rule 53.03 where:

  • 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.

The Court also tried to clear the confusion that often arises from referring to these witnesses as “fact witnesses” because their evidence is derived from their observations of or involvement in the underlying facts.  Simmons J.A. preferred to refer to these witnesses as “participant experts,” which takes into account that in addition to providing evidence relating to their observations of the underlying facts, they may also give opinion evidence admissible for its truth.  As with all evidence, and especially opinion evidence, the Court reiterated that it retains its gatekeeper function in relation to opinion evidence from participant experts and non-party experts.

Six factors were cited by the Court as reasons why the Divisional Court erred:

  1. The Divisional Court failed to refer to a single case under the pre-2010 jurisprudence, which support the conclusion that Rule 53.03 does not apply to opinion evidence given by participant experts. The Court reiterated its view in Moore that “the 2010 amendments to rule 53.03 did not create new duties but rather codified and reinforced … basic common law principles.”  The Court found no basis for the Divisional Court to conclude that the pre-2010 jurisprudence did not continue to apply following the 2010 amendments to the Rules relating to expert witnesses.
  2. Apart from Westerhof, no cases were brought to the Court’s attention that support the view that participant experts are obliged to comply with Rule 53.03 when giving evidence concerning treatment opinions.
  3. There was nothing in Justice Osborne’s Report on the Civil Justice Reform Project that indicated an intention to address participant experts or non-party experts; rather, the focus was litigation experts – expert witnesses engaged by or on behalf of a party to provide opinion evidence in relation to a proceeding.
  4. The use of the words “expert engaged by or on behalf of a party to provide [opinion] evidence in relation to a proceeding” in Rule 4.1.01 and Form 53 makes it clear that an expert must be “engaged by or on behalf of a party to provide [opinion] evidence in relation to the proceeding before the rule applies.  The Court concluded that witnesses, albeit ones with expertise, testifying to opinions formed during their involved in a matter, do not come within this description.  They are not engaged by a party to form their opinions, and they do not form their opinions for the purpose of the litigation.
  5. The Court was not persuaded that disclosure problems exist in relation to the opinions of participant experts and non-party experts requiring that they comply with Rule 53.03.  Quite often, these experts will have prepared documents summarizing their opinions about the matter contemporaneously with their involved, which can be obtained as part of the discovery process.  In addition, it is open to a party to seek disclosure of any opinions, notes or records of participant experts and non-party experts the opposing party intends to rely on at trial.
  6. Requiring participant witnesses and non-party experts to comply with Rule 53.03 can only add to the cost of the litigation, create the possibility of delay because of potential difficulties in obtaining Rule 53.03 compliant reports, and add unnecessarily to the workload of persons not expected to have to write Rule 53.03 compliant reports.


Westerhoff and McCallum: More from the OCA on Expert Evidence

Legge: Improper Pleading Fatal to Crown’s Case

What must the Crown plead and how must she plead it?

This question became an issue in the Tax Court’s recent decision in Legge v. The Queen (2014 TCC 360), in which the Tax Court allowed a taxpayer’s appeal due to the Crown’s failure to properly plead its case in the Reply.

In Legge, the taxpayer received pension and business income in 2006 and 2007. On November 27, 2008, the taxpayer filed income tax returns for 2006 and 2007. In these returns, the taxpayer reported business losses from self-employment, and thus pensionable earnings was reported as nil.

Subsequently, on November 12, 2012, the taxpayer filed T1 adjustment requests for 2006 and 2007 and changed the business losses to business income. The taxpayer reported self-employed pensionable earnings of $5,524 and $5,116 in 2006 and 2007, respectively.

Under the Canada Pension Plan, a person must make CPP contributions on the amount of his/her self-employed earnings (which include income from a business and certain other amounts). Under section 30 of the Canada Pension Plan, a taxpayer who must make a contribution in respect of self-employed earnings must file a return with certain information. Importantly, subsection 30(5) states as follows:

(5) The amount of any contribution required by this Act to be made by a person for a year in respect of their self-employed earnings for the year is deemed to be zero where

(a) the return of those earnings required by this section to be filed with the Minister is not filed with the Minister before the day that is four years after the day on or before which the return is required by subsection (1) to be filed; and

(b) the Minister does not assess the contribution before the end of those four years.

 In Legge, the Crown argued that subsection 30(5) applied in this case because the taxpayer had failed to file a return of self-employed earnings within four years of the filing due date. Rather, the taxpayer reported losses rather than earnings.

The Tax Court rejected this argument on the basis that subsection 30(5) applies only if there is a failure to file and the CRA had not assessed contributions within the four-year period. The Tax Court noted that, in the present case, the assessment requirement was not mentioned in the Reply and was not mentioned by Crown counsel at the hearing. Since there was no assumption as to what assessments (if any) were made, the Crown had the burden to adduce evidence that the requirement in paragraph 30(5)(b) had been satisfied. The Crown had not adduced evidence on this point.

The Tax Court noted that this result was “in a sense a windfall” to the taxpayer, but “the Crown is well aware of the requirement to properly plead its case and to establish the facts supporting its position, either by evidence or by assumptions.”

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Legge: Improper Pleading Fatal to Crown’s Case

Bolton Steel Tube: TCC Orders Crown to Reassessment in Accordance with Settlement‏

In Bolton Steel Tube Co. Ltd. v. The Queen (2014 TCC 94), the Tax Court of Canada allowed the taxpayer’s motion requesting an Order that would require the CRA to reassess the taxpayer in accordance with the terms of a settlement agreement. In doing so, the Tax Court discussed certain principles regarding settlement agreements and the resulting reassessments.

In Bolton Steel Tube, the CRA reassessed the taxpayer for its 1994, 1995, 1996 and 1997 taxation years on the basis that the taxpayer failed to report income in each of those taxation years (the “2007 Reassessment”).

In 1996, the taxpayer reported $1.2 million of income. The CRA added approximately $600,000 of unreported income for total income of $1.8 million. During examinations for discovery, the CRA’s representative admitted that approximately $200,000 of the $600,000 increase should not have been made. Accordingly, for the 1996 taxation year, the maximum amount of income the CRA could have added as unreported income was $400,000. The CRA further confirmed this admission in its Reply.

On June 15, 2012, the taxpayer delivered to the Crown an offer to settle which proposed to settle the appeals on the basis that (i) the CRA would vacate the reassessments for 1994, 1995 and 1997, and (ii) the CRA would reassess the 1996 taxation year to add $403,219 to the taxpayer’s income and impose a penalty under subsection 163(2) of the Income Tax Act (the “Act”). The Crown accepted this offer without further negotiation, and the parties entered Minutes of Settlement on these terms.

Following the settlement, the CRA issued a reassessment that calculated the taxpayer’s income for its 1996 taxation year to be $2,266,291, essentially adding $403,219 to the $1.8 million that had been previously assessed (the “2012 Reassessment”). The result was illogical: The agreed amount of unreported income – $403,219 – was added twice, and the $200,000, which the CRA had admitted was not to be added to the taxpayer’s income, was included as well.

In requesting the Order, the taxpayer argued that:

The 2012 Reassessment was not supported on the facts and the law;

The 2012 Reassessment violated the principle that the CRA cannot appeal its own assessment; and

The 2012 Reassessment was made without the taxpayer’s consent, which would be required pursuant to subsection 169(3) of the Act.

The Crown argued that if the 2012 Reassessment was varied or vacated then there had been no meeting of the minds, the settlement was not valid, and the 2007 Reassessment should remain under appeal.

The Tax Court agreed with the taxpayer on all three arguments.

With respect to the first argument, the Tax Court found the CRA’s interpretation of the Minutes of Settlement to be “divorced from the facts and law”. The Crown’s position was unsupportable since settlements must conform with the long-standing principal from Galway v M.N.R. (74 DTC 6355 (Fed. C.A.)) that settlements must be justified under, and in conformity with, the Act. In Bolton Steel Tube, the Tax Court went as far to say “even if both parties consented to settling in this manner, it could not be permitted” and “there is nothing to support the [Crown’s] interpretation and nothing to support the [Crown’s] further contention that the [taxpayer] offered this amount in exchange for other years to be vacated”.

With respect to the arguments surrounding subsection 169(3) of the Act, the Tax Court found that the taxpayer had not consented to having its income increased by the amount in the 2012 Reassessment.

The Crown argued that subsection 169(3) of the Act, which allows the CRA to reassess an otherwise statute-barred year upon settlement of an appeal, also allows the CRA to increase the amount of tax which the CRA could reassess despite subsection 152(5) of the Act. Subsection 152(5) of the Act is the operative provision that prevents the CRA from increasing an assessment of tax. Here, the Tax Court maintained the longstanding principle that a reassessment cannot be issued that results in an increase of tax beyond the amount in the assessment at issue. This is tantamount to the CRA appealing its own reassessment, which is not permitted, and thus renders the 2012 Reassessment void. We note that the Tax Court also considered the 2012 Reassessment to be void on the basis that it was an arbitrary assessment.

The Tax Court rejected the Crown’s argument that the settlement was ambiguous and therefore there was no meeting of minds as would be required for a valid contract. The Crown argued that the settlement was not valid and therefore the years under appeal should remain in dispute. The Tax Court turned to fundamental principles of contractual interpretation and found that the contract validly existed since it could reasonably be expected that the Crown would have known that the addition of $403,219 was to be added to the appellant’s income as originally reported (i.e., $1.2 million) and not to the income amount in the 2007 Reassessment (i.e., $1.8 million).

Accordingly, the Tax Court rejected the Crown’s argument, found that the settlement was valid and that the Minister should reassess on the basis that $403,219 should be added to the taxpayer’s income as originally reported. Since the 2012 reassessment was not valid, and therefore did not nullify the 2007 reassessment, and a notice of discontinuance had not yet been filed, the Tax Court continued to have jurisdiction over the appeal.

The result of this motion was a clear victory for the taxpayer and for common sense. It serves as a reminder that precision is essential when entering into settlement agreements.

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Bolton Steel Tube: TCC Orders Crown to Reassessment in Accordance with Settlement‏

There’s A Litigation App For That?

We were intrigued to learn that KosInteractive LLC has created the U.S. “Fed Courts” app for Android and Apple devices which contains helpful information about U.S. federal courts rules of procedure and court information. The app provides access to the PACER (Public Access to Court Electronic Records) database, and the procedural rules for appellate, bankruptcy, civil, and criminal proceedings. The federal rules of evidence and the U.S. Supreme Court procedural rules are also available. One drawback – the information isn’t searchable or indexed with hyperlinks.

In any event, there seems to be no Canadian equivalent for litigation or procedural apps.

A quick search in the Apple iTunes stores for “Canada tax” returns 54 results, including an array of federal and provincial tax calculators. “Canada courts” returns five items, including apps related to the Controlled Drugs and Substances Act, mortgage foreclosures, U.S. Miranda warnings, and a car dealership. A search for “Ontario civil procedure” returns one item, and “Canada tax court” returns zero items.

We are reminded of the very helpful event app developed by the Canadian Tax Foundation that has become a regular feature of the Foundation’s national and regional conferences.

We are confident that Canadian tax professionals would welcome a broader array of court and litigation procedure apps that would provide mobile access to most or all of the court and procedural information we’re stuffing into our oversized litigation bags.

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There’s A Litigation App For That?

The Crown Succeeds on a Motion to Strike a Portion of the Taxpayer’s Pleading: Golini v. The Queen

In Paul C. Golini v. The Queen (2013 TCC 293) the Tax Court of Canada agreed to strike out portions of a taxpayer’s pleading suggesting that a protective reassessment issued by the Canada Revenue Agency (“CRA”) was invalid.

In June 2012, the CRA informed the taxpayer that his 2008 income tax return had been selected for an audit. In the following months, both parties continued to correspond and exchange information. In August 2012, the CRA asked the taxpayer to provide a waiver extending the limitation period to reassess the 2008 taxation year. The taxpayer declined to do so.

In September 2012, the Minister reassessed the taxpayer and informed him that the reassessment was a “protective reassessment;” supporting documentation would be provided upon completion of the audit.

The Crown brought a motion to strike out the allegation that the reassessment was invalid. The taxpayer contended that a “protective reassessment” was inconsistent with the assessing provisions of the Income Tax Act as it was issued solely to allow the Minister additional time to complete an audit.

The Tax Court judge looked to Karda v. HMQ (2006 FCA 238) for guidance on the issue. In that case, the Federal Court of Appeal held that the Minister may issue a protective reassessment where a taxpayer declines to provide a waiver so long as the CRA has completed “some review” and has requested further information. The Tax Court judge held that:

There is no law . . . to the effect that a protective assessment is invalid if issued for the sole purpose of leaving the door open to conduct or continue an audit.

He went on to note that:

. . . the law, I find, is clear that some review by the CRA followed by inquiries for more information and a request for a waiver, subsequently refused, is sufficient for a protective assessment to be a valid assessment. And that is exactly what we have here.

Whenever a taxpayer declines to grant the CRA a waiver, the CRA almost invariably reassesses before the “normal reassessment period” expires.  There is nothing surprising about that.  What is noteworthy here, though, is the willingness of the Tax Court to entertain the Crown’s request to strike out, before trial, an argument put forward by a taxpayer. As we noted in our blog post on the Federal Court of Appeal’s decision in Canadian Imperial Bank of Commerce v. The Queen:

Parties are generally given the opportunity to make whatever arguments they consider necessary to their case with the ultimate determination being made by the trial judge who is in the best position to decide questions of relevance and weight in light of all the evidence.  It is rather unusual for a legal theory, novel though it is, to be taken off the table at such an early stage.  At the same time, courts are increasingly concerned about “proportionality” and are reluctant to allow scarce judicial resources to be spent on matters that are unlikely to have any effect on the outcome of the hearing.

This decision is, therefore, consistent with recent jurisprudence from the Federal Court of Appeal and should reduce the number of issues to be decided at trial.

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The Crown Succeeds on a Motion to Strike a Portion of the Taxpayer’s Pleading: Golini v. The Queen

Will the Tax Court of Canada entertain a determination of a question of law where the focus is on future assessments?

In Sentinel Hill Productions IV Corporation v. The Queen (2013 TCC 267), Justice Judith Woods of the Tax Court of Canada said no. In so doing, she shed light on the requirements for making an application for a determination of a question of law under Rule 58 of the Tax Court of Canada Rules (General Procedure).

Rule 58(1) states:

58. (1) A party may apply to the Court,

(a) for the determination, before hearing, of a question of law, a question of fact or a question of mixed law and fact raised by a pleading in a proceeding where the determination of the question may dispose of all or part of the proceeding, substantially shorten the hearing or result in a substantial saving of costs, or

(b) to strike out a pleading because it discloses no reasonable grounds for appeal or for opposing the appeal,

 and the Court may grant judgment accordingly.

The question proposed by the appellants involved the issue of whether notices of determination under subsection 152(1.4) of the Income Tax Act issued in respect of certain partnerships for 2000 and 2001 should be vacated and the appeals allowed on the basis that the Minister subsequently concluded that the partnerships did not exist for these years. Importantly, the Court found that “the focus of the Proposed Question is on whether the Minister of National Revenue is now statute barred from issuing reassessments to partners by virtue of subsection 152(1.8) of the Income Tax Act.” (para. 7)

The Court decided not to allow the Rule 58 application to proceed as it did not meet the two conditions in Rule 58(1)(a). First, the statute-barred issue had not been raised as an issue “by a pleading”. Second, the proposed question would not have disposed of or shortened the proceeding or saved costs.  Although the validity and correctness of an assessment can be determined by the Tax Court of Canada, the proposed question would have challenged the validity of assessments not yet issued and, therefore, the determination of the question of law (whether the Minister is statute-barred from issuing future assessments) would not have disposed of or shortened the proceeding or saved costs.

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Will the Tax Court of Canada entertain a determination of a question of law where the focus is on future assessments?

Get it right the first time: Newfoundland Transshipment Ltd. v. The Queen

In Newfoundland Transshipment Ltd. v. Queen (2013 TCC 259), the Tax Court of Canada dismissed an application by Newfoundland Transshipment (“NTL”) for an order to extend time to serve notices of objection for its 2002 to 2005 taxation years. The application was filed in 2012, several years after the deadline for serving the objections had expired.

NTL had originally filed its returns for 2002 to 2005 on the basis that its pipeline was a Class 1 asset, with a depreciation rate of 4%.  By the time it filed its 2006 return, it came to the conclusion that the pipeline was a Class 6 asset, with a depreciation rate of 10%. Accordingly, in April 2007, NTL filed amended tax returns for its 2002 to 2005 taxation years reclassifying the pipeline from Class 1 to Class 6 and filed its 2006 to 2010 returns on the basis that the pipeline was a Class 6 asset. In February 2012, the CRA wrote to NTL, refusing to accept the amended filings for 2002 to 2005 and proposing to reassess 2006 to 2010.

In August 2012, NTL asked the Minister to issue notices of reassessment to enable it to serve notices of objection for 2002 to 2005. The Minister responded by saying that the time to serve notices of objection and applications for orders extending time had expired. Section 166.1 of the Income Tax Act allows the Minister to grant an extension of time to serve an objection only if an application is filed within one year after the expiration of the normal 90 day period.

In arguing that its application for an extension of time should be granted, NTL argued that a letter from the CRA in February 2012 rejecting the amended returns constituted a “reassessment”. In the alternative, NTL claimed that it had relied on CRA policy that an amended return was a de facto waiver.

The Tax Court disagreed. In Armstrong v. The Queen (2006 FCA 119), the Federal Court of Appeal held that a request by a taxpayer to amend its return is “merely a request” and need not result in an assessment. In addition, the Tax Court held that it was not bound by a CRA policy and had no jurisdiction to grant an extension of time as the relevant taxation years were statute-barred by the time the taxpayer attempted to serve the objections.

This decision is a useful reminder that, depending on when it is filed, there may be no recourse when an amended return is rejected by the Minister – all the more reason to get it right the first time!

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Get it right the first time: Newfoundland Transshipment Ltd. v. The Queen