The Minister of National Revenue’s policy in litigating a case founded on the general anti-avoidance rule (GAAR) in s 245 of the Income Tax Act (ITA) has, up to now, been to allege that the taxpayer has abused or misused some provision of the ITA, but not to identify the tax policy that is being relied upon in reaching that conclusion. The minister merely identifies the individual provisions of the ITA at issue, without much more. In Birchcliff Energy Ltd v The Queen (TCC, 20 December 2012), the taxpayer took issue with that approach and received a sympathetic response from Justice Miller of the Tax Court.

The judge agreed that the taxpayer ought to know, as a material fact, which particular policy lay at the heart of the allegations against it, given the open-ended consequences of a GAAR ruling. He rejected the minister’s argument that this would permit the taxpayer to compel disclosure of the Crown’s conclusions on a question of law. The taxpayer has a right to know the case against it as early as possible. This includes knowing the object, spirit and purpose of the provisions which it has alleged to have abused, as informed by the relevant tax policy. The Crown may still change its mind during the course of litigation and allege the existence of a different underlying object, spirit or purpose – but this change in tack should be transparent and may go to the strength of the Crown’s case.

Pat Lindsay of the Calgary office of BLG acted for Birchcliff Energy.