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Federal Tax - Tax Court of Canada


Part 2

. Johnson v. Canada

In Johnson v. Canada (Fed CA, 2023) the Federal Court of Appeal considers the jurisdictional role of the Tax Court of Canada:
A. Tax Court of Canada Act

[29] The Tax Court is a statutory court created by the Tax Court of Canada Act, R.S.C. 1985, c. T-2. The jurisdiction of the Tax Court is derived from section 12 of this Act. In particular subsection 12(1) of this Act bestows jurisdiction on the Tax Court to hear appeals arising under a number of statutes:
12 (1) The Court has exclusive original jurisdiction to hear and determine references and appeals to the Court on matters arising under the Canada Pension Plan, the Cultural Property Export and Import Act, Part IX of the Excise Tax Act, the Old Age Security Act, the Petroleum and Gas Revenue Tax Act, Part V.1 of the Customs Act, the Income Tax Act, the Employment Insurance Act, the Air Travellers Security Charge Act, the Excise Act, 2001, the Softwood Lumber Products Export Charge Act, 2006, the Disability Tax Credit Promoters Restrictions Act, Part 1 of the Greenhouse Gas Pollution Pricing Act, the Underused Housing Tax Act and the Select Luxury Items Tax Act when references or appeals to the Court are provided for in those Acts.

12 (1) La Cour a compétence exclusive pour entendre les renvois et les appels portés devant elle sur les questions découlant de l’application du Régime de pensions du Canada, de la Loi sur l’exportation et l’importation de biens culturels, de la partie IX de la Loi sur la taxe d’accise, de la Loi sur la sécurité de la vieillesse, de la Loi de l’impôt sur les revenus pétroliers, de la partie V.1 de la Loi sur les douanes, de la Loi de l’impôt sur le revenu, de la Loi sur l’assurance-emploi, de la Loi sur le droit pour la sécurité des passagers du transport aérien, de la Loi de 2001 sur l’accise, de la Loi de 2006 sur les droits d’exportation de produits de bois d’oeuvre, de la Loi sur les restrictions applicables aux promoteurs du crédit d’impôt pour personnes handicapées, de la partie 1 de la Loi sur la tarification de la pollution causée par les gaz à effet de serre, de la Loi sur la taxe sur les logements sous-utilisés et de la Loi sur la taxe sur certains biens de luxe, dans la mesure où ces lois prévoient un droit de renvoi ou d’appel devant elle.
[30] While there are a number of statutes listed in subsection 12(1) of the Tax Court of Canada Act, an appeal to the Tax Court under these statutes can only be brought “when references or appeals to the Court are provided for in those Acts”. Therefore, the right to appeal to the Tax Court under any particular statute (including the ETA) that is listed in this subsection must be found within the provisions of that particular statute.
. Canada v. Adboss, Ltd.

In Canada v. Adboss, Ltd. (Fed CA, 2023) the Federal Court of Appeal considered a Crown appeal from three Tax Court decisions that struck aspects of 'assumptions of facts' in a Crown reply to a notice of appeal by the respondent taxpayer. The central issue was whether the 'impugned assumptions' where statements of facts or mixed fact and law. The Federal Court of Appeal, relying on the recent Preston case from the same court, declined to allow the appeal as they essentially endorsed the Tax Court's ruling [paras 7-9 below]:
[7] The Tax Court began its analysis by highlighting that the legal test for determining the residency of a corporation requires the determination of where the “controlling mind and management” (also called “central management and control”) of the corporation abides or is located. Various facts must be considered to make that determination: TCC Decisions at paras. 18 to 23.

[8] The Tax Court then referred to the jurisprudence of the Supreme Court of Canada, according to which a question of mixed fact and law is one that asks whether a given set of facts satisfy a legal test or one that requires applying a legal test to a set of facts: TCC Decisions at paras. 24-25 citing Canada (Director of Investigation and Research) v. Southam Inc., 1997 SCC 385 [Southam] at para. 35 and Housen v. Nikolaisen, 2002 SCC 33 [Housen] at para. 26. The Tax Court noted that in Housen, the Supreme Court indicated in obiter that the identification of the directing minds of a corporation is a question of mixed fact and law. On that basis, the Tax Court concluded that the Impugned Assumption is a statement of mixed fact and law; therefore, it could not be included in the assumptions of fact made by the Minister when making the assessments: TCC Decisions at paras. 18, 27-29.

[9] From there, the Tax Court turned to Rule 53 of the Tax Court of Canada Rules (General Procedure), S.O.R./90-688A (Rules). Rule 53 contains the test for striking out pleadings. It provides that a pleading may be struck if it “may prejudice or delay the fair hearing of the appeal” or “is an abuse of the process of the [Tax] Court”: Rules 53(1)(a) and (c). The Tax Court found that the Paragraph should be struck on the basis of both Rules 53(1)(a) and (c): TCC Decisions at paras. 33 to 38. In the words of the Tax Court:
Hence, because the Appellant will have to speculate as to the facts underlying the conclusion of mixed fact and law of the Minister that the “controlling mind and management” of Lowfroc was in Canada, and because the Appellant therefore cannot be properly prepared for and proceed with discoveries, this will prejudice or delay the fair prosecution of the appeal and constitutes an abuse of the Court’s process.

(TCC Decisions at para. 37)

[14] To support his assertion, the appellant quotes several appellate authorities, which say that the controlling mind and management must be determined “on the facts” or as “factual findings”, and that its location is “factual and concrete”, a “question of fact”, or “a matter of fact”: De Beers Consolidated Mines, Ltd. v. Howe, [1907] UKHL 626 (BAILII), [1906] A.C. 455 at p. 458; Fundy Settlement v. Canada, 2012 SCC 14 at paras. 6, 9, 15, 22; Landbouwbedrijf Backx B.V. v. Canada, 2019 FCA 310, at para. 8.

[15] However, read in context, these authorities say that determining the location of the controlling mind and management is a fact-driven analysis, in which courts must scrutinize the facts of the case. None of the authorities the appellant cites were analyzing whether controlling mind and management was a question of fact as opposed to a question of mixed fact and law. As mentioned, the Supreme Court did consider this issue, albeit in an obiter, and concluded that the controlling mind and management question is one of mixed fact and law: Housen at para. 34. This is not surprising: determining the location of the controlling mind and management requires applying a legal test to a set of facts: Southam at para. 35; Housen at para. 36. Therefore, I find that the Tax Court committed no error in concluding that the Impugned Assumption was one of mixed fact and law.


[17] Legal statements or conclusions of law have no place in the Minister’s factual assumptions: Canada v. Anchor Pointe Energy Ltd., 2003 FCA 294 at para. 25. Similarly, factual elements in a statement of mixed fact and law should be extricated, so that the taxpayer knows exactly what factual assumptions it must demolish in order to succeed: Preston at paras. 8, 25 and 31. That said, not every conclusion of mixed fact and law that appears as an assumption must necessarily be struck: Preston at para. 31.

[18] Indeed, deficient pleadings may be allowed to stand—for example, (1) when assumptions of mixed fact and law are tangential to the legal issues in dispute, (2) when assumptions will not cause prejudice to the taxpayer, (3) when the facts are simple, or (4) when letting the deficient pleadings stand better serves the trial process: Eisbrenner v. Canada, 2020 FCA 93 [Eisbrenner] at para. 42; Preston at paras. 32 and 36.

[19] To determine whether a pleading should be allowed to stand, the Tax Court must consider the factual circumstances, the jurisprudence, and Rule 53(1): Preston at para. 32. This is the methodology that the Tax Court followed in the case at bar (TCC Decisions at paras. 33–38). It led the Tax Court to conclude that the Impugned Assumption ought to be struck out because it will prejudice or delay the hearing within the meaning of Rule 53(1)(a), and constitute an abuse of the Tax Court’s process pursuant to Rule 53(1)(b).

[20] The Tax Court found that the respondents would suffer a prejudice because they would be “left to speculate as to the facts underlying the conclusion of mixed fact and law of the Minister that the ‘controlling mind and management’ of [the Recipients] was in Canada”: TCC Decisions at para. 37. However, the appellant acknowledged that he would not need leave to amend the replies if the Impugned Assumption was struck because all his assumptions of fact regarding the Recipients’ residency were already listed in the Paragraph. This acknowledgement entails that there were no facts left for speculation.

[21] Nevertheless, the Tax Court’s finding of prejudice becomes evident in light of the Tax Court’s conclusion that the Impugned Assumption was an abuse of process. The appellant refused to respond to the demands for particulars. He only informed the respondents that no additional facts underlined the Impugned Assumption at the hearing before the Tax Court. If the appellant had simply answered the demands for particulars, a motion to strike would have been unnecessary. In such a scenario, the deficient pleadings in the replies would have been fixed: Preston at para. 39.

[22] Not only did the appellant refuse to provide particulars, he refused to do so in respect of an element of his pleadings that went to the heart of the appeal—namely, whether the Recipients’ controlling mind and management is in Canada. The answer to that question will dictate whether GST/HST should have been collected. The respondents had few options if they wanted to know what factual assumptions they must demolish in order to succeed in their appeal. Bringing the motion to strike was one of those options. It entailed unwarranted costs and time, and delayed the hearing of the appeal.

[23] Consequently, on the facts of this case, I do not see any palpable and overriding error in the Tax Court’s conclusion that the Impugned Assumption caused prejudice to the respondents and constituted an abuse of process. Indeed, the Tax Court is entitled to great deference in the exercise of its discretion on motions to strike. In oral arguments, the appellant asked us to consider awarding costs against him and leave the Impugned Assumption standing. Our Court’s role is to look for a palpable and overriding error, not to reweigh the applicable factors and determine whether we would have come to a different conclusion if we had been in the motion judge’s position.
. Canada v. Preston

In Canada v. Preston (Fed CA, 2023) the Federal Court of Appeal focusses extensively on a narrow Tax Court Minister's pleading issue, that of the creation of 'assumptions' by the pleading of 'mixed fact and law', and it's potential to mislead lay tax applicants. The term 'mixed fact and law' has common usage in determining the appellate standards of review, but I am not sure how this is a related meaning.

. Canada v. Bowker

In Canada v. Bowker (Fed CA, 2023) the Federal Court of Appeal considered a Crown appeal from a Tax Court cost award. In this quote the court considers the applicable Tax Court Rules regarding costs [R147(1,3)]:
[5] In its decision, the Tax Court reviewed those factors identified in Rule 147 of the Tax Court of Canada Rules (General Procedure), SOR/90-688a (the Rules) which it considered relevant. In order to give an idea of the scope of Rule 147, I reproduce all of the factors it mentions below:
General Principles

147 (1) The Court may determine the amount of the costs of all parties involved in any proceeding, the allocation of those costs and the persons required to pay them.


(3) In exercising its discretionary power pursuant to subsection (1) the Court may consider,

(a) the result of the proceeding,

(b) the amounts in issue,

(c) the importance of the issues,

(d) any offer of settlement made in writing,

(e) the volume of work,

(f) the complexity of the issues,

(g) the conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding,

(h) the denial or the neglect or refusal of any party to admit anything that should have been admitted,

(i) whether any stage in the proceedings was,

(i) improper, vexatious, or unnecessary, or

(ii) taken through negligence, mistake or excessive caution,

(i.1) whether the expense required to have an expert witness give evidence was justified given

(i) the nature of the proceeding, its public significance and any need to clarify the law,

(ii) the number, complexity or technical nature of the issues in dispute, or

(iii) the amount in dispute; and

(j) any other matter relevant to the question of costs.

[9] The first error which the appellant raises is the Tax Court’s determination that partial indemnity costs in this case should fall in the range of 50% to 75% of the respondent’s actual legal expenses. The appellant argues that this amounts to a fettering of discretion.
. Canada v. Dow Chemical Canada ULC

In Canada v. Dow Chemical Canada ULC (Fed CA, 2022) the Federal Court of Appeal considered, at length, the jurisdiction of the Tax Court. Tax lawyers, go nuts - everyone else, run and hide.

. Canada (Attorney General) v. Iris Technologies Inc.

In Canada (Attorney General) v. Iris Technologies Inc. (Fed CA, 2021) the Federal Court of Appeal considered the jurisdictional dividing line between the Federal Court and the Tax Court:
[36] The demarcation between the jurisdiction of the Tax Court and a judicial review in the Federal Court is not always clear. At times there is no bright line. A court must always be cautious of artful pleading and attempts to cloak challenges to notices of assessments in administrative law language. In determining which court has the jurisdiction to entertain the application, the question of the essential nature of the dispute must be based on a realistic appreciation of the practical result sought (Windsor (City) v. Canadian Transit Co., 2016 SCC 54, [2016] 2 S.C.R. 617 at para. 26; Canada v. Domtar Inc., 2009 FCA 218, [2009] 6 C.T.C. 61 at para. 28; Canada v. Roitman, 2006 FCA 266, [2006] 5 C.T.C. 142 at para. 16).

[37] Two decisions of this Court – J.P. Morgan and Sifto – are instructive in characterizing the true nature of the application in this case.

[38] The application in J.P. Morgan was, ostensibly, a challenge to the conduct of the Minister in deciding to reassess the applicant, in circumstances alleged by the applicant to constitute an abuse of discretion. J.P. Morgan sought to vacate the assessments, a remedy the Federal Court cannot grant, and the application was struck. In contrast, in Sifto, the Minister sought to reassess Sifto following a comprehensive settlement of the issues between the Minister and Sifto. This Court held that the application was directed to the exercise of the Minister’s statutory power to waive or cancel a penalty under subsection 220(3.1) of the ITA, and not to the correctness of the assessment itself.

[39] In sum, each case will require a careful and realistic assessment of the true nature of the application. The Federal Court will have to determine whether the Minister’s conduct is in issue, or whether it is, in essence, an attack on the correctness of the assessment itself. As a starting point, in light of the clear language of section 18.5 of the Federal Courts Act, the Federal Court should be cautious in authorizing judicial review in the face of an outstanding notice of assessment (J.P. Morgan at paras. 30, 32; Canada v. Addison & Leyen Ltd., 2007 SCC 33, [2007] 2 S.C.R. 793 at paras. 10-11).
. Levy v. Canada

In Levy v. Canada (Fed CA, 2021) the Federal Court of Appeal held that the Tax Court of Canada has inherent powers to control it's own process:
[1] We are all of the view that the Tax Court judges, on the basis of the Tax Court’s inherent powers to control its process, clearly had jurisdiction to make the orders for costs which they made in order to sanction conduct on the part of Mr. Levy which, they found, in the circumstances of the cases, to be abusive (see Fournier v. Canada, 2005 FCA 131, [2005] FCJ No 606 (QL), at para. 11).
. European Staffing Inc. v. Canada (National Revenue)

In European Staffing Inc. v. Canada (National Revenue) (Fed CA, 2020) the Federal Court of Appeal set out the test to 'demolish' [the court's wording] the determinations by the Minister of National Revenue (which were under appeal from the Tax Court's earlier appeal dismissal):
[14] The appellant next contends that the judge erred in his understanding and application of the law with respect to the onus on a taxpayer to demolish the Minister’s assumptions. He points to the fact that there was some evidence before the Court that was not contradicted.

[15] In order to demolish the Minister’s assumptions, the taxpayer must "“ […] establish facts upon which it can be affirmatively asserted that the assessment was not authorized by the taxing statute, or which bring the matter into such a state of doubt that, on the principles alluded to, the liability of the appellant must be negatived”" (Hickman Motors Ltd. v. Canada, 1997 CanLII 357 (SCC), [1997] 2 S.C.R. 336). Thus, the onus is on the taxpayer to establish, on a balance of probabilities, the facts that demolish the Minister’s assumptions (Sarmadi v. Canada, 2017 FCA 131 at para. 46; Eisbrenner v. Canada, 2020 FCA 93 at paras. 24-52; Van Steenis v. Canada, 2019 FCA 107 at para. 13; see also F.H. v. McDougall, 2008 SCC 53, [2008] 3 S.C.R. 41).

[16] The appellant points to the fact that there was some evidence from the owner and one of the workers which supported the view that it was not a placement agency. The existence, however, of some evidence is insufficient; it must also be credible and sufficiently convincing on a balance of probabilities. The judge concluded that there was no such evidence before him. His observations that there was no corroborating evidence, was simply an observation of what would be required to confirm evidence that he considered unconvincing. The appellant bore the onus to demolish the Minister’s assumption with respect to all the workers subject to the determinations. This it did not do. An assumption cannot be demolished on "“some”" evidence, or evidence which is not credible.

[17] Nor was there any error by the judge in applying the results of his analysis to all of the workers subject to the determinations. The appellant chose to call only two workers, whose testimony the judge considered. If the appellant wished to displace the Minister’s assumption based on the circumstances of other workers, the burden to do so was on the appellant, not the Minister. In sum, no error of law has been identified in the judge’s approach to the onus of proof.
. Canada v. BCS Group Business Services Inc.

In Canada v. BCS Group Business Services Inc. (Fed CA, 2020) the Federal Court of Appeal sets out an interesting history and procedural commentary of the Tax Court of Canada:
C. Object and Purpose

[39] To ascertain the object and purpose of section 17.1, one should consider the legislative evolution and history of the Act and the GP Rules. The Tax Review Board was created in 1970, but in 1983, it was replaced by the TCC (S.C. 1980-81-82-83, ch.158, introduced as Bill C-167 the same year). The TCC, a superior court of record, was meant to enhance the status of the former Tax Review Board and more clearly establish its judicial independence. However, it still shared its jurisdiction on income tax matters (the majority of its work) with the Federal Court, which had concurrent original jurisdiction.

[40] Also, even when a taxpayer chose to go first before the TCC, the decisions of the TCC were subject to an appeal de novo to the Federal Court. Needless to say that, when matters were introduced at first instance by a taxpayer before the Federal Court or on an appeal de novo, the rules and procedure of the Federal Court applied.

[41] The 1983 Act appears to have been the subject of criticism, even if it maintained the practice of the Tax Review Board, at least insofar as there was no special form required to file an appeal, legal or evidentiary rules did not apply, and as mentioned, all parties could appear in person, or be represented by counsel or an agent (sections 14 and 15 of the 1983 Act).

[42] While in opposition, the Progressive Conservative Party even formed a task force on Revenue Canada and published a report on April 8, 1984 advising that a new tribunal, which might be known as the Small Claims Tax Tribunal, could be interposed between Revenue Canada and the TCC to hear small disputes on a strictly informal basis "“without the intervention of counsel”" (see Denis Lefebvre Q.C., Assistant Deputy Attorney General Tax Law, Department of Justice, "“A Government Perspective of the Amendments to the Tax Court of Canada Act” "(Report of Proceedings of the 40th Tax Conference, 1988 Conference Report (Toronto, Canada Tax Foundation 1989), 49:1-5)).

[43] Between 1984 and 1987, the Act was amended three times: i) in 1984 to provide for the award of costs to appellants, ii) in 1985 to require parties to apply for, rather than request, in camera hearings; and iii) in 1987 to modify the tenure of the TCC judges. However, the overall scheme of the Act did not change.

[44] But in 1988, Bill C-146 was introduced. Although the Bill received Royal Assent in 1988, only those parts dealing with the Rules Committee came into force on September 29, 1988. The rest of the amended Act was proclaimed in force as of January 1, 1991 (by an Order in Council dated September 28, 1990). It is worth mentioning that the first version of GP Rules 30(1) and (2) adopted by the new Rules Committee, was approved before the amended Act actually came into force (SOR/90-688, dated September 7, 1990). This first version of this rule clearly spelled out that corporations had to be represented by counsel. There was no exception. This indicates that at least those who were very close to the development of Bill C-146 and lived through this major change in the scheme of the Act understood that the right to appear in person did not apply to a corporation.

[45] The important changes that took place under the 1988 amendment should not be understated, for they shed much light on the purpose of section 17.1 and the new scheme of the Act. The TCC was given exclusive original jurisdiction for appeals under the Income Tax Act, R.S.C., 1985, c. 1 (5th Supp.), as well as jurisdiction under other legislation (section 12 of the Act). Appeals from its decisions would now be made directly to the Federal Court of Appeal and would no longer be on a de novo basis (sections 17.6 and 18.24 of the Act).

[46] Notably, the Act as amended created two types of procedures: the General Procedure and the Informal Procedure. I understand that the aim of the procedure under the title General Procedure was to subject those matters to the rules of evidence and procedure generally applicable before other superior courts of law, as this was formerly the case when such matters came before the Federal Court before 1988. One exception to this is very clearly spelled out in the General Procedure. At section 17.3, the extent of the right to examine for discovery is limited in certain cases. It is worth noting that in such cases, the Act expressly identifies when the TCC has discretion to grant leave otherwise, and when a more extensive examination is in fact mandatory. My view and understanding is confirmed by Lefebvre, at page 49:2, who appears to describe section 17.3 as the only exception to the general purpose of adopting a procedure not unlike that before most other courts of law at the time. I ought to mention that when Bill C-146 was reviewed by the Banking, Trade and Commerce Committee of the Senate, Mr. Lefebvre was the government representative and the only witness.

[47] As mentioned, section 17.1 was introduced under the General Procedure, replacing the statutory provision dealing with representation that had previously applied to all cases before the TCC and the Tax Review Board before it (see paragraph 36 above). Importantly, for the purpose of this analysis, the word "“agent”" was removed while it was retained in the Informal Procedure (section 18.14 of the Act).

[48] Although the legislator retained the right of taxpayers to be represented by counsel under the Informal Procedure, it is clear in my view that the prime aim of the Informal Procedure was to continue to provide easy and less costly access to justice to all taxpayers for the type of claims to which the procedure applied. As mentioned, it was expected at the time that this would apply to 70 percent of the matters brought before the TCC.

[49] I need not say much more in respect of the Informal Procedure as it is not the focus of the appeal. However, it is certainly important to consider that the scheme of the Act indicates that the two procedures have different purposes. Lefebvre, at page 49:2, confirms that with the introduction of the new chapter on Informal Procedure, the legislator upheld the concept of providing taxpayers with small claims with access to a kind of small claims court. The TCC adopted five sets of Informal Procedure rules to deal with various types of matters now within its jurisdiction. Finally, as explained by Lefebvre at pages 49:2 to 49:5, although not totally new, the Informal Procedure does differ from the one that was applicable before the TCC and the Tax Review Board prior to 1988.

[50] To my knowledge, there is nothing else in the legislative evolution and history of section 17.1 or of the Act as amended in 1988 that can shed light on the intention of the legislator.

[51] Thus, while access to justice was the prime objective of the Informal Procedure, it was not the prime objective of the provisions under the General Procedure. The TCC now had exclusive original jurisdiction to deal with more complex and legally significant cases. The purpose of the General Procedure was to ensure that these cases, which were not subject to the Informal Procedure (including those to which section 18.11 applies) would be dealt with respecting the parties’ right to evidentiary and procedural rules, as in any other court of law. Unlike the Informal Procedure, precedential value applied to the decisions under the General Procedure (section 18.28 of the Act).


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Last modified: 21-12-23
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