Tax dispute resolution practice in Canadian courts, including the Tax Court of Canada (Tax Court), is becoming more acrimonious. There are more motions to strike pleadings, more disputes about various types of information and, generally, more procedural wrangling. This article discusses some recent cases in which procedural issues have arisen and which are affecting tax practice in this area.


Tax practitioners must be careful to bring their complaints in the proper forum. The Tax Court has exclusive jurisdiction to hear and determine references and appeals to the Tax Court under the Income Tax Act (the Act). The Federal Court has exclusive original jurisdiction to hear all applications for judicial review of any federal board, commission or other tribunal, including the Canada Revenue Agency (CRA). However, the Federal Court cannot hear applications for judicial review where an act of Parliament expressly provides for an appeal to, among other decision makers, the Tax Court. The cases discussed below provide interesting examples of how these provisions apply.

The Ereiser case demonstrates that unscrupulous practice by the CRA does not entitle a taxpayer to relief in the Tax Court. In Ereiser, the CRA allegedly threatened the taxpayer with a criminal prosecution but offered, in return for a guilty plea, to reduce a grossly inflated assessment. The taxpayer refused to plead guilty, and the CRA issued the assessment. The CRA never brought criminal charges.

The taxpayer appealed the assessment to the Tax Court. In Tax Court, the Crown moved to strike the taxpayer’s Notice of Appeal. The Tax Court struck portions of the pleadings, and the taxpayer appealed that decision to the Federal Court of Appeal (FCA).

The FCA agreed that the Tax Court could not overturn a reassessment because the CRA had abused its power in issuing the reassessment. The Tax Court’s role was to determine the correctness of the assessment, based on the facts and the provisions of the Act. The alleged conduct of the tax official who authorized an assessment was not relevant to that determination. If the taxpayer had wished to complain about the conduct of the CRA officials, the taxpayer could have applied to Federal Court for judicial review, or brought an action in tort for damages. Accordingly, the Court of Appeal struck portions of the Notice of Appeal.

The FCA did allow the taxpayer to plead facts regarding circumstances in which the assessment was issued. Those facts were potentially relevant to whether the CRA had actually made certain assumptions in issuing the assessment. Assumptions made by the CRA during the assessment are assumed to be true in Tax Court and the taxpayer bears the onus of disproving the assumptions. However, the Crown bears the onus of proving any facts it wishes to rely on in the Tax Court that the CRA did not assume during the assessment.

JP Morgan are both ongoing cases in Federal Court in which the taxpayers are seeking judicial review of a decision by the CRA to issue an assessment. In both cases, the Crown sought to have the taxpayers’ pleadings struck.

In the JP Morgan case, the taxpayer is seeking to have an assessment set aside because the assessment is contrary to the CRA’s own internal policy. Rather than appealing the assessment to the Tax Court, the taxpayer applied for judicial review of the CRA’s decision to assess. The taxpayer is arguing that the operative provision (subsection 227(10)) provided that the CRA “may” assess, not that the CRA “shall” assess, and that the CRA therefore had discretion not to assess in the circumstances.

In the Sifto case, the taxpayer thought it had concluded a deal which resulted in the CRA waiving penalties regarding a failure to prepare and file contemporaneous documentation. The deal was made under the voluntary disclosure program and under an agreement between the competent authorities of Canada and the U.S. on a transfer price. After the competent authorities had concluded their agreement, the CRA allegedly assessed the penalties in violation of the agreement. The taxpayer is seeking judicial review of the decision to issue the assessments, arguing that while the CRA has discretion to issue an assessment, the exercise of its discretion contrary to an agreement not to do so was unreasonable. The Crown sought to strike the pleadings and, in Federal Court, the Crown argued that the applications represented attacks on the assessments which should only occur in the Tax Court because that court had exclusive jurisdiction to hear appeals of assessments under the Act.

The Prothonotary declined to strike the taxpayers’ pleadings in both Sifto and JP Morgan. The taxpayers’ applications were not “bereft of any chance of success.” The Prothonotary concluded that there may be situations where a decision to assess may be subject to review where the CRA acts contrary to its policy or an agreement it has made and that it would be premature to strike the applications before a full hearing.

The Crown is appealing the JP Morgan case to the FCA. The appeal will be heard on September 18, 2013.

The Abraham case is one of the most important cases of 2012 because it contains a lengthy discussion of standards of judicial review. Abraham may become one of the leading cases on the reasonableness standard, along with the Supreme Court of Canada decision in Dunsmuir. The taxpayers were members of the Sagkeeng Band. They asked the CRA to reassess their taxation years going back to 1985 to exempt their employment income from taxation based on section 87 of the Indian Act. The CRA has discretion under subsection 152(4.2) of the Act to reassess an individual or testamentary trust outside the normal reassessment period if the taxpayer requests the reassessment. At the time of the taxpayers’ application, the CRA could reassess back until 1985, although the provision has since been changed to only allow the CRA to reassess 10 years from the date of application.

The CRA allowed reassessments of 1999 and later years, but declined to reassess the earlier years. The taxpayers applied for judicial review of that decision. The FCA confirmed that the correct standard of review of the CRA’s discretion under subsection 152(4.2) is reasonableness, even when the exercise of discretion involves a significant legal component. Second, the FCA analyzed how to apply the “reasonableness” standard in such circumstances.

A “reasonable” decision is one that “falls within a range of possible, acceptable outcomes which are defensible in respect of the facts and law.” This “begs the question as to how narrow or broad the range should be in a particular case.” The FCA said that the context of a decision affects the breadth of range of a reasonable decision. Where a decision involves a significant legal component:

“[T]he legal aspects involved in the [CRA’s] decision tend to narrow the range of possible, acceptable outcomes. If, for example, the [CRA] were to take an unacceptable view of the legalities, that might take [its] discretion outside of the range of possible, acceptable outcomes and render it unreasonable.”

The FCA upheld the CRA’s decision. The Supreme Court of Canada denied the application for leave to appeal on March 28, 2013.

In Signalgene, each taxpayer wanted the CRA to issue a notice of determination of refundable investment tax credits (RITCs). Without the notice of determination, the taxpayers could not file notices of objection and dispute the denial of RITCs in the Tax Court. The CRA said the original notice of assessment issued to each taxpayer was a notice of determination and refused to issue notices of determination.

Each taxpayer was successful in its application to the Federal Court to compel the CRA to issue a notice of determination. The Federal Court said that the CRA was required to issue a formal notice of determination of RITCs. The CRA is now known to issue such determinations. Taxpayers should be aware that such a notice starts the limitation period for objecting to the determination.

In Anonby, the taxpayer appealed to the Tax Court for a higher assessment of his income. The taxpayer filed his return on the basis that he had earned employment income, that his employer had withheld tax on the employment income, and that he was entitled to a refund of such tax. He received the refund. The CRA reassessed the taxpayer to lower his income, but made no provision for any withholdings, and demanded that the taxpayer return the refund he had received.

The Tax Court dismissed the appeal. The Tax Court has jurisdiction to dismiss an appeal or allow it and vacate, vary, or refer an assessment back to the Minister. An assessment is a determination of the quantum of tax assessed and not how much remains to be collected. Source deductions in respect of CPP and EI premiums form part of the assessment because section 118.7 of the Act provides a tax credit for these amounts. However, the amount of tax withheld by an employer does not form part of the assessment. It is a collection matter. The Tax Court suggested that only the Federal Court has authority to deal with such collection matters.

In Ficek v. The Attorney General of Canada, the taxpayer sought an order compelling the CRA to issue an assessment. The CRA delayed assessing the taxpayer until an audit of her tax credit claim for a charitable donation was complete. The delay in assessment was part of a new policy in the Prairie Region to delay assessments to avoid issuing refunds and to discourage participation in certain charitable donation arrangements. The Federal Court reviewed the jurisprudence regarding the CRA’s obligation to assess “with all due dispatch”, stating that it provided the CRA “with reasonable discretion in the timing of assessment. However, the discretion is not unfettered, it must be reasonable and for a proper purpose of ascertaining and fixing the liability of the taxpayer.”

The Federal Court stated that “it is important to bear in mind the purposes of the provision, which is to bring some certainty to the taxpayers’ financial affairs at the earliest reasonably possible time” and that a prompt assessment has important consequences. Where an assessment is delayed, the limitation period for reassessment is postponed. The taxpayer cannot compel the refund of the overpayment of taxes and cannot make an objection and ultimately proceed to the Tax Court to contest any issue.

The Federal Court ruled that it was improper for the CRA to delay an initial assessment as a means of discouraging donors to participate in this arrangement. The Federal Court was also troubled by the inconsistency between the policy in the Prairie Region and the CRA’s national policy of assessing a taxpayer and issuing a refund prior to any reassessment of a donation.

The Crown did not appeal the decision.

Prior to the release of this decision, the CRA had announced, on October 30, 2012, a new national policy of not assessing taxpayers who donate to a charitable donation tax shelter until the CRA has completed an audit of the tax shelter.

In Teletech Canada, the taxpayer conducted a transfer pricing study that revealed underreporting of income in the U.S. and overreporting of income in Canada. The taxpayer’s U.S. parent filed an amended tax return in the U.S. declaring more income, and the taxpayer requested competent authority assistance from the CRA. The CRA denied the first request in 2006 because the Internal Revenue Service (the IRS) had not yet taken any action that resulted in double taxation. The taxpayer requested competent authority assistance from the CRA a second time in 2009, after the conclusion of an IRS audit of the taxpayer’s U.S. parent. The taxpayer then applied to Federal Court for an order of mandamus compelling the CRA to make a decision to grant competent authority assistance on its second request. The CRA had denied the taxpayer’s second request after the taxpayer filed its application, but before the application was heard.

The Federal Court rejected the taxpayer’s argument that the CRA was continuously refusing to grant competent authority assistance. Rather, the decisions in 2006 and 2009 were separate events and an application for judicial review of those decisions was subject to a 30-day limitation period. The limitation period for review of the first decision had passed. The Court decided it could not consider any arguments about errors in the denial of the second request because the taxpayer’s application was a request for mandamus and had not been amended to request a review of the second decision.

The Teletech case shows how critical it can be to bring a request for the proper relief in the proper forum within the applicable limitation period.


The CRA often uses its requirement powers under sections 231.2 and 231.6 of the Act. Three decisions in 2013 involving requirements show the breadth of such powers.

Soft-Moc is one of the few cases which discuss the scope of requirements for foreign-based information issued under section 231.6. The CRA has largely been successful whenever a taxpayer has challenged the propriety of a requirement for foreign-based information. The results in Soft-Moc did not favour the taxpayer.

Soft-Moc involved a transfer pricing audit. The taxpayer, a corporation resident in Canada, purchased management services from several Bahamian corporations which were owned by its majority shareholder. The CRA issued requirements for foreign-based information which included questions about the identity of these Bahamian corporations and their functions. The taxpayer responded to some parts of the requirements, but not to all, and applied to have portions of the requirements declared unreasonable. The taxpayer argued that the requirements were overly broad in scope; demanded the production of information not relevant to the administration or enforcement of the Act; and requested information that was confidential and proprietary.

The Federal Court determined that the documents requested by a requirement must be relevant and reasonable, but the threshold for these standards is low. The CRA needed access to the information to determine the appropriate transfer price, and the requirements were determined to have been validly issued.

RBC and Lordco both involved requirements that were successfully set aside. The requirements in these cases related to information about unnamed customers of RBC and Lordco.

At the time, the Crown had to first obtain authorization from a judge in an ex parte application to issue a requirement for information about unnamed persons. There is a high burden on any applicant in an ex parte application to make a frank disclosure of all the relevant facts.

In these cases, RBC and Lordco successfully argued that the Crown had not disclosed all the relevant information in its ex parte applications. The court revoked its authorization of the requirements in both cases, and the FCA upheld the decisions.

The Act now reverses the result in these cases because the process in section 231.2 of the Act was recently amended. Under the new process, the Crown must notify the party affected by the requirement prior to the application instead of applying ex parte. Under the new process, the result in RBC and Lordco may have been different.


Section 231.7 of the Act allows the CRA to apply for a court order compelling a person to provide access, assistance, information or documents that the person has failed to provide as required by sections 231.1 or 231.2 of the Act. Persons who fail to obey such an order may be found in contempt of court and imprisoned.

In Black Sun Rising Inc., the Federal Court was not convinced beyond a reasonable doubt that the taxpayer’s disobedience of the court order was deliberate and willful. The Crown’s application demonstrated that the taxpayer had not fully complied with the order, but that its disobedience was not deliberate and willful.

In Money Stop Ltd., the Federal Court ordered the individual respondent released from prison after the CRA informed the Court that all documents required to be provided had been provided. The individual respondent was initially imprisoned for contempt of court for failing to comply with an order to provide documents to the CRA.

In Thompson, the Crown sought to compel the release of information from the taxpayer regarding the accounts receivable of his law practice. The CRA was auditing the taxpayer to determine whether he had properly reported his income. The lawyer asserted that the names of his clients reflected in his accounts receivable were subject to solicitor-client privilege and that information about the receivables should not be disclosed. The FCA held that the names of clients were not always privileged, but returned the case to the Federal Court, before disclosure was ordered, to determine whether the name of a client might be privileged in each client’s specific circumstances. The FCA stated that each client should be given an opportunity to assert his or her privilege. The Court added that, while there was no specific obligation for a lawyer to advise a client when asserting a right on his or her behalf, provincial law society rules suggest that a lawyer should be asserting and pursuing claims of privilege after informing his clients and after obtaining instructions. The FCA said that the lawyer’s clients should produce their own affidavits, with their names redacted, explaining the history of their accounts.

In Jakabfy, the Federal Court held that certain records held by a lawyer were not protected by privilege and that the lawyer was required to comply with a requirement to produce the records.


Taxpayers have not been consistently successful in invoking various provisions of the Canadian Charter of Rights and Freedoms (the Charter) to prevent the infringement of certain fundamental rights and freedoms. In many cases, the courts have neither struck down tax legislation that offended the Charter nor adopted a more flexible and carefully tailored approach as they have done in other circumstances.

In the Quebec decision of Chambre des notaires, sections 231.2 and 231.7 of the Act were held unconstitutional insofar as they seek disclosure from lawyers and notaries of information subject to solicitor-client privilege because they violated sections 7 and 8 of the Charter. The decision is under appeal to the Québec Court of Appeal and a decision is pending. In both Thompson and Jakabfy, discussed above in section 3, the Federal Court did not follow the Chambre des notaires decision.

Romanuk held that information gathered by the CRA pursuant to section 231.1 could be used as part of an income tax assessment, even if the information had been gathered after a criminal investigation had begun. The Jarvis case prevents the CRA from using its powers under section 231.1 or 231.2 once the “predominant purpose” of an inquiry relates to the investigation and prosecution of an offence under the Act. However, the FCA noted that Jarvis said that the CRA could continue to use its audit powers under sections 231.1 and 231.2 of the Act once an investigation had begun, but that the results of the audit cannot be used in pursuance of the investigation or prosecution. The FCA distinguished the situation from one where information is seized pursuant to an invalidly issued search warrant because the information was either voluntarily submitted or obtained by the CRA using its audit powers. As a result, the use of the information in an income tax assessment did not violate the taxpayer’s rights under section 7 or 8 of the Charter.

In Canada Revenue Agency v. Canada Border Services Agency, the B.C. Supreme Court held that the CRA does not need to demonstrate separate reasonable and probable grounds before obtaining authorization under subsection 490(15) of the Criminal Code to examine material seized where another agency has executed a warrant obtained on reasonable and probable grounds, provided that the other agency did not use a less stringent regime to obtain the material than the CRA would need to use to obtain the material. There is a minimal privacy interest in material already lawfully seized by another agency of the government pursuant to “judicial determination there is a credible probability that its subject matter will yield evidence of criminal activity.” Therefore, the examination by CRA did not engage section 8 of the Charter.

In Guindon, the taxpayer argued that the “preparer penalty” in section 163.2 was a criminal provision because of the breadth of the section and the substantial size of the penalty. The Tax Court agreed and held that the taxpayer was entitled to the protection of section 11 of the Charter, including the right to be presumed innocent, which raises the burden of proof to proof beyond a reasonable doubt. The FCA, however, overturned the decision for two reasons. First, the Tax Court did not have jurisdiction to grant a constitutional remedy because the taxpayer had not provided Notice of a Constitutional Question. Second, in obiter, the FCA stated that the penalty was administrative and not criminal in nature because it was aimed “at maintaining discipline, compliance or order within a discrete regulatory and administrative field of endeavour” and was not aimed “at redressing a public wrong done to society at large.”

The FCA’s conclusion was supported by the fact that the penalty was fixed and not discretionary. The FCA reasoned that the penalty provisions of the Act provide a fixed amount or fixed formula for determining the amount of the penalty and do not require an evaluation of the moral blameworthiness of the taxpayer’s conduct. By contrast, the offence provisions of the Act are punishable by a range of sanctions and the judge has discretion in sentencing to account for the taxpayer’s moral blameworthiness or any mitigating circumstances.


Section 165 of the Act requires “large corporations” to set out specific information in a Notice of Objection. Subsection 169(2.1) of the Act also prevents a “large corporation” from appealing any issue that was not properly described in its Notice of Objection.

In Bakorp, the taxpayer argued, in its Notice of Objection, that a portion of a deemed dividend ought to be included in its income for a specific year. In its Notice of Appeal, the taxpayer argued that none of the deemed dividend should be included in its income for the specific year, and that the deemed dividend should all be included in an earlier year.

The Crown applied to have the Notice of Appeal struck, because it raised issues that had not been specified in the taxpayer’s Notice of Objection. The taxpayer argued that it was merely making a different argument about the same issue. The Tax Court struck the taxpayer’s Notice of Appeal. The Tax Court judge agreed with the Crown. The taxpayer could not turn “180 degrees” on an issue and argue that it was the same issue as described in the Notice of Objection.

The taxpayer has appealed the decision in Bakorp to the FCA and no date has yet been set for hearing.

In CIBC, the taxpayer was permitted to amend its pleadings despite an objection by the Crown that the amended pleading raised a “new issue” that was prohibited by the large corporation rules in subsections 301(1.2) and 306.1(1) of the Excise Tax Act. The case deals with the taxability of payments made by CIBC to Aeroplan.

In its pleadings, CIBC advanced an alternative argument that the payments were Aeroplan’s share of revenues from a joint venture, and therefore not consideration for a taxable supply. CIBC sought to remove the reference to “joint venture” in its pleadings and instead argued that the payments were Aeroplan’s share of the revenue earned by Aeroplan and CIBC.

The Tax Court considered the meaning of the word “issue” in the legislation. Issues are different from facts and reasons. New issues cannot be raised, but new facts and reasons regarding the same issue may be raised. The Tax Court also reasoned that when an allegedly different issue has the same quantitative impact, it may indicate that the issue is really the same issue. In this case, the same amounts of GST paid on the same payments remained in issue; what changed were the reasons, and the facts relied on, by the taxpayer. The taxpayer could, under the rules, provide additional reasons. The large corporation rules do not require the taxpayer to spell out in the objection every reason relied on in the appeal as long as the issue is the same.


The CRA may not issue a valid reassessment outside the “normal reassessment period” or the extended reassessment period except in certain circumstances. One exception occurs when a taxpayer files a waiver of the right to be reassessed within the “normal reassessment period” as defined in subsection 152(3.1) of the Act or the taxpayer files a waiver within the extended reassessment period pursuant to paragraph 152(4)(c) of the Act. Such waivers can specify the issues with respect to which the taxpayer is waiving its rights. The CRA commonly asks for waivers during audits when the taxpayer’s “normal reassessment period” is about to end. The CRA may threaten to simply issue a reassessment if the waiver is not given.

Judges are not always receptive to hearing arguments from taxpayers who attempt to disavow the effectiveness of a waiver that purportedly restricts their ability to object or which would otherwise extend the limitation periods set out in section 152 of the Act.

What happens when a taxpayer signs a blank waiver? Does that mean the taxpayer has waived every aspect of every taxation year? Does it mean the taxpayer has not waived anything?

In the Fietz case, the FCA applied a common-sense approach to this question. The Court confirmed that a court may examine the context within which the taxpayer signed the waiver to interpret what the waiver meant. In this case, the Tax Court had examined the proposal letter and other correspondence between the CRA and the taxpayer and had decided that the waiver applied to the issues and years set out in those letters.

In the Noran West Developments Ltd. case, the Tax Court applied the same principle when interpreting a waiver of a taxpayer’s rights to object and appeal. The Tax Court held, from the language used and the amounts in issue, that the waiver must refer to the taxpayer and not to anyone else, and that it was highly unlikely that the taxpayer’s representative intended the waiver to cover other taxpayers or to exclude other issues. The Tax Court held that the waiver was valid and that the taxpayer could not appeal the assessment.


The general rule, as expressed in the Hickman Motors case, is that the taxpayer has the onus to “demolish” assumptions made by the CRA during an assessment. However, in some instances, the Crown has the onus of proof.

For example, if the Crown fails to file a Reply within the time limits specified in the Tax Court of Canada Rules (General Procedure) (the Rules), the Crown may bear the onus of proof. Rule 44(2) states:

“If a reply is not filed within an applicable period specified under subsection (1), the allegations of fact contained in the notice of appeal are presumed to be true for the purposes of the appeal.”

Consequently, if the taxpayer has pleaded its case properly and has set out the necessary facts sustaining the position sought, the taxpayer may win provided that the court agrees with the interpretation of the law and statutory provisions relied on by the taxpayer.

Thus, in Priftis, the taxpayer won because the Tax Court presumed the facts in his pleadings were true because the Crown had failed to file a Reply on time. In many cases, the Crown calls no witnesses and, as such, there is no evidence to rebut the assertions postulated by the taxpayer in its Notice of Appeal. Where the onus is on the Crown, this practice can result in victory for the taxpayer.

In O’Dwyer, the taxpayer applied to strike the Crown’s pleadings for failing to plead all the necessary facts to support the assessment. The case involved a “tax shelter promoter” penalty. To apply the penalty, the Act requires that property be sold, statements be made in connection with the property, and that, with regard to the statements, it is reasonable to consider that the loss from the property will exceed the cost within four years. The penalty is imposed on a person who, as agent or principal, sells, issues or accepts consideration in respect of a tax shelter before the CRA issues an identification number for the tax shelter.

In its pleadings, the Crown repeatedly pleaded that the limited partnership was the tax shelter. A limited partnership is not property, although units of a limited partnership are property. The Tax Court agreed with the taxpayer that this pleading did not meet the judicial standard set out in Loewen that the assumptions of the Crown must be clear, accurate and consistent.

The Crown appealed the decision in O’Dwyer and the case was argued on June 5, 2013. The decision is under reserve.

Nacom demonstrates that it is good practice to keep a record of documents filed with the CRA. The taxpayer alleged that its officer and agent had hand-delivered its returns on a certain date. The Crown asserted that the CRA did not receive the returns until two years later. At stake was whether the taxpayer could claim a refund of refundable dividend tax on hand.

In the Tax Court hearing, the Crown called a witness from the Winnipeg Tax Centre who testified about the system of sorting and delivering mail at the Tax Centre. The witness testified that less than 1% of mail is “temporarily misplaced” and that it was very unlikely that any mail would have been permanently lost.

The taxpayer’s officer testified that he had dropped off the returns by hand and had obtained a stamped index card, but could not produce the stamped index card. Nevertheless, the Tax Court did not find in the taxpayer’s favour because of the absence of any evidence that the taxpayer’s officer was present in the CRA office, that he had reacted to the CRA’s failure to acknowledge receipt of the returns, or that he was in the habit of obtaining date stamps for other returns.


Rule 58 provides that a party may apply to the Tax Court for a determination, before a 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. The Tax Court must be satisfied that:

  • There is a question of law
  • The question is raised by the pleadingThe determination of the question may dispose of all or part of the appeal, may substantially shorten the hearing or may result in a substantial saving of costs.

If satisfied that the above conditions are met, the Tax Court may set down the question for determination by a motion judge.

The taxpayer in Devon Canada Corp. was successful in convincing a Tax Court Motion judge that Rule 58 should be used as a means of shortening the hearing.

The Tax Court allowed the first stage of the motion and set down the question for determination. The Tax Court was satisfied that there were no material facts in dispute that were germane to the proposed question. The Tax Court was satisfied that the trial would be considerably shortened by the determination of the question and that the remaining issue might lend itself to settlement following the determination of the question.

By contrast, the taxpayer in Sentinel Hill Productions IV Corporation was not successful in convincing a Tax Court Motion judge that Rule 58 should be used. The taxpayer applied for a determination of the question whether a notice of determination issued to a partnership under subsection 152(1.4) should be vacated. In its Reply to the taxpayer’s Notice of Appeal, the Crown alleged that the partnership did not exist. The taxpayer argued that the allegation had the effect of making any reassessment of the alleged partners of the partnership statute-barred.

The Tax Court was not satisfied that the question was raised by the pleadings. The Tax Court held that the question must be properly raised as an issue in the pleadings and that it was not sufficient that the question was referred to in the pleadings.

The Tax Court was also not satisfied that the question would dispose of the proceeding. The proper way to dispute hypothetical reassessments of the partners was to file objections and appeals assuming the reassessments were ever issued. Answering the question would not resolve whether the CRA’s determination of the partnership’s loss was correct or valid.


There continue to be interlocutory motions filed in the Tax Court to strike pleadings before the hearing of the appeal. For example, in CIBC (different than the CIBC case discussed in section 5 above), the taxpayer successfully applied to have certain of the Crown’s allegations struck. The litigation concerns the deductibility of payments made to settle litigation in the U.S. regarding the bankruptcy of Enron. In its pleadings, the Crown alleged that the deduction for such payments should be denied because the payments related to “egregious or repulsive” conduct of the taxpayer. The FCA determined that the alleged immorality of the taxpayer’s conduct was not relevant. The only question was whether the payments were made for the purpose of earning income. The Crown was free to argue that the conduct did not have an income-earning purpose, but allegations that the conduct was immoral were not relevant to upholding the assessment. Therefore, those allegations were struck.


In Surrey City Centre, the Tax Court discussed the apparent practice of delaying the bringing of a motion for increased costs until first knowing whether the Crown intended to appeal the decision. Rule 147(7) requires a party to apply for increased costs within 30 days after the party has knowledge of the judgment of the Tax Court. The taxpayer applied 27 days after the time limit, and filed a motion requesting an extension of time to bring the motion. The Crown stated it would not be prejudiced by the extension, but the Tax Court denied the extension. The Tax Court emphasized that the Rules do not provide for delaying a costs motion until after an appeal is heard and that any such practice followed by either counsel for the taxpayers or for the Crown is disrespectful of the Rules and should not be followed.