Onus

The taxpayer's employer, General Motors, frequently assigned new vehicles to its executives and senior managers, the taxpayer included, in order to promote the vehicles and identify shortcomings in the models. The Minister authorized GM in 1982 to use a simplified method for calculating the value of employee benefits, which was meant to approximate the value of the personal use for the vehicles. Since then, s. 6(1)(k) was enacted, setting out the formula applicable to the taxpayer's situation.

In affirming that the Minister could assess the taxpayer for 2008-2009 for an imputed benefit under s. 6(1)(k) on a basis contrary to the authorization, Woods J dismissed the taxpayer's argument that, because the authorized method dispensed with detailed record keeping, the Minister should have the onus of proving the cost of the vehicles, and the kilometers driven for personal use. This argument relied on the authorization being valid for the relevant taxation years, and Woods J had already found it wasn't - see summary under General Concepts - Estoppel.

Regarding the taxpayer's further argument that the Minister's assumptions were "arbitrary, capricious, and not founded in any facts," Woods J stated (at para. 58):

I agree with Mr. Szymczyk that the assumed facts are partly arbitrary, but this is not a reason for the Crown to bear the burden of proof. The burden of proof with respect to pleaded assumptions is placed on taxpayers because the facts are usually within the taxpayers' knowledge or control.

However, the taxpayer's appeal with respect to the Minister's assessment of an imputed benefit under ss. 6(1)(e) and 6(2) was allowed as the taxpayer was delivered a new vehicle every three months, the Minister's assumption that the taxpayer had 20,004 kilometers per year of personal use did not recognize that "the legislation requires that personal use be calculated separately for the periods that each automobile was made available" (para. 70), and no evidence as to actual personal use was advanced.

Respecting an alleged faulty Reply of the Minister, C Miller J stated obiter (at para. 32):

If a reply is faulty by pleading law as an assumption, that does not somehow relieve me of my responsibility to consider evidence upon which I am to reach my own conclusion with respect to the law. It does, however, relieve the Appellant from having to demolish that assumption, but it does not allow the Appellant to simply step back and not enter a case. Perhaps this could be an approach where the only assumptions made by the Respondent are assumptions of law.

The appellant contended that he had resigned as director in 2006, so that an assessment under s. 227.1(1) in 2010 was out of time. The Minister alleged that the appellant's notice of resignation was backdated. In the course of her decision, Campbell J rejected the taxpayer's argument that, because fraudulent backdating is an "improbable" or "grave" allegation, the Minister faced a heightened onus. The allegation was not especially improbable but, even if it were, the only burden of proof in the civil context is the balance of probabilities. There are various comments in the caselaw about exercising "greater care" where there are serious or dubious allegations. These comments do not establish a heightened onus, but rather acknowledge that improbable allegations will, by their very nature, need clearer proof in order to meet the balance of probabilities (para. 24).

However, the Minister had not pleaded backdating - only that the appellant had continued as a director – nor did she plead lack of due diligence. Accordingly, explanations of the appellant which were plausible were sufficient to demolish the Minister's assumptions notwithstanding that "in all likelihood, the Appellant backdated the Resignation" (para. 45).

The appellant ("Health Quest") distributed footwear for the relief of various disabling conditions of the foot.. The Minister reassessed the taxpayer on the basis that many of the shoes sold were not zero-rated supplies under s. 24.1 of Part II of Schedule VI of the ETA. The Minister's pleadings stated that the appellant made zero-rated supplies of footwear "which were specially modified...or were specially designed...for persons with physical disabilities," and then stated:

the Appellant also supplied other products which were not zero-rated pursuant to Schedule VI of the Act; and

during the periods under appeal, the Appellant failed to collect tax of not less than $42,274.72 on its supply of products which were not zero-rated pursuant to Schedule VI of the Act.

Campbell J found that, as these were not assumptions of fact but rather of mixed fact and law, the Minister was not entitled to rely on them (as per Anchor Pointe). The Minister was not otherwise able to prove that s. 24.1 did not apply, so that Health Quest's appeal was allowed.

The taxpayer failed to report $683 of income for 2008 and $436,890 for 2009. The 2009 income was not subject to a s. 163(1) penalty if the taxpayer established a due diligence defence for 2008. (See summary under s. 163(1).)

Graham J found that the taxpayer prima facie established due diligence for 2008 in showing the steps he took to prepare his return and by demonstrating that the unreported amount was tiny. The taxpayer's 2007 return contained a similar omission to the 2008 return, which might have thrown the diligence for the 2008 return into question. However, although the taxpayer could not recall when he received the 2007 reassessment, his prima facie proof had shifted the onus to the Minister to show that the taxpayer had likely received his 2007 assessment early enough to put him on guard when preparing his 2008 return, which the Minister had not done. It was "not sufficient for the [Minister] to simply speculate what may have occurred and then sit back and wait for Mr. Galachiuk to prove otherwise" (para. 19).

In the course of successfully demonstrating that a franchise agreement and related arrangements with a Barbados corporation reflected a genuine business (see summary under s. 3), the taxpayer argued that the Minister's failure to disclose her assumptions in the notice of assessment meant that she should not be entitled to rely on them.

Bédard J disagreed. The assumptions were not disclosed until 21 months later, in the Minister's reply to the taxpayer's notice of appeal. However, Orly Automobiles establishes that a delay is not a basis in itself for shifting the burden away for the taxpayer.

Moreover, there had been no prejudice to the taxpayer, who had correctly guessed the basis for reassessment and had filed his appeal accordingly.

The taxpayer simultaneously sought to rebut the Minister's assumptions relating to its appeal and to claim privilege over documents closely related to those assumptions. Rip CJ stated (at para. 20):

Counsel is entitled to vigorously challenge the evidence of the taxpayer by cross-examination. A taxpayer claiming privilege in cross-examination on matters he or she leads in examination-in-chief, thus limiting the cross-examination, must consider possible consequences. A taxpayer claiming privilege who wishes to shift the onus must still make a case that will survive cross-examination.

Hershfield J found that the Minister's affidavit was inadequate to establish under s. 244(10) that the taxpayer's Notice of Objection had been filed after the applicable deadline, chiefly because the affidavit dealt with the wrong tax centre. The Minister's affidavit was based on the timestamp for the Notice's arrival at the Burnaby-Fraser Tax Services Office, rather than the tax centre in Surrey, BC where the taxpayer had sent the Notice. The taxpayer's own testimony as to the mailing date was credible. Hershfield J therefore granted the taxpayer's application to extend the time to file a Notice of Objection.

In reaching this conclusion, Hershfield J noted that the situation was analogous to Carcone, which dealt with a Notice of Assessment. Hershfield J stated (at para. 27):

The onus is not different in regard to the date of receipt of a notice of objection. Only the CRA would be possessed of such information.

The Minister assessed the appellant for director's liability in respect of a corporation that had not remitted net tax for reporting periods ending on and after July 1, 2000. The appellant had been excluded by the franchisor of the corporation's business from any input into the financial affairs of the corporation after October 2001, and from any involvement at all after July 2002. The applicant had no access to the corporation's records, and CRA would not provide any background as to how it had computed the corporation's liability. Paris J found that this was sufficient to shift onto the Minister the burden of proving the correctness of the corporation's assessment, and that this burden had not been discharged.

Webb J found that the obligation of the Minister to take unclaimed input tax credits into account in an HST audit under s. 296(2) of the Excise Tax Act extends to unclaimed ITCs that arose before the normal limitations period for claiming ITCs (see summary under s. 296(2)).

In the course of his reasons, Webb J noted that the Minister was not entitled to rely on gaps in the appellant's documentation, because the Minister had not made any assumptions regarding documentation, and the only evidence on that point indicated that there was documentation.

Webb J. found that the taxpayer was successful in demolishing the Minister's assumptions relating to the proceeds of disposition of two properties. The taxpayer's evidence that she received $320,000 for one property rather than $340,000 was corroborated by testimony from the purchaser, and from the lawyer who handled the transaction.

On the second property, the taxpayer contended that her alleged $650,000 of proceeds were actually $550,000, based on a $100,000 promissory note that was never paid. Webb J. accepted the taxpayer's testimony, also corroborated by the lawyer, that the $100,000 was linked to rezoning the property, that no rezoning was done, and consequently no payment on the note was received or pursued. Accordingly, the $100,000 note was not consideration for the property.

Webb J. found that it was improper for the Minister to assume that investments which the taxpayer acquired with RRSP funds were not qualified investments. Whether something is a qualified investment is a mixed question of fact and law, and the Minister should have assumed the facts necessary to support that conclusion. Moreover, the conclusions themselves were vague - it was unclear precisely which investments were thought not to be qualified investments. Given the finding that no assumptions had been made, there was no onus on the taxpayer to demolish any assumptions, and the Minister's reassessment was vacated.

The taxpayers' former counsel had reached a settlement agreement with the Minister, which the taxpayers argued had not been authorized by them. In the course of finding that the settlement agreement was in fact authorized and should be enforced, D'Auray J. stated (at para. 26):

Whether a mandate was given by the appellants to settle their appeals is a question of fact. The respondent has the burden of establishing the existence of the mandate.

The taxpayer was the sole shareholder and director of Internorth Limited ("IL") and a majority shareholder and director of Internorth Construction Company ("ICC"). ICC ran a construction business, and IL was incorporated to manage ICC. The minister assessed the taxpayer for unremitted source deductions, in his capacity only as director of IL, in respect of salaries and wages paid to ICC employees. After noting that IL had neither the financial resources nor backing to pay ICC's employees without reimbursement from ICC, Webb J. stated (at para. 51):

Since the Respondent made the assumption that ICC did not reimburse IL, the Appellant did not have to challenge this assumption but could rely on it to dispute the other assumption that IL paid the employees of ICC.

The taxpayer's reliance on this assumption, along with IL's and ICC's financial records which recorded all the salaries as being paid by ICC, led Webb J. to find that the taxpayer had made a prima facie case to demolish the Minister's key assumptions in the case, which the Minister did not subsequently meet the onus of proving.

Webb J. quashed the Minister's motion to dismiss the taxpayer's appeal from assessments under the Income Tax Act and Excise Tax Act, even though the taxpayer had failed to prosecute the appeals with due dispatch (he did not even appear at the hearing for this motion). Because the Minister was seeking to impose penalties under s. 163(2) of the ITA and s. 285 of the ETA, the burden remained with the Minister to prove that penalties were warranted. The taxpayer's inaction was not enough to support an inference that penalties were no longer in issue.

The Minister disallowed a number of the taxpayer's expenses allegedly connected to his dentistry practice so as to reduce the taxpayer's profit margin to the Canadian average. McArthur J. stated (at para. 35) that this was not acceptable because a reassessment cannot ignore the taxpayer's individual circumstances. He also stated (at para. 36):

The appellant clearly demolished [with documentary evidence] the Minister's assumptions , on which he had based himself in disallowing the expenses in issue. The appellant has prima facie shown that the majority of the expenses has been incurred for the purpose of earning an income and that they had not been claimed twice. The burden of proof has thus shifted to the respondent.

As the Minister had not introduced evidence to discharge that burden, the taxpayer's appeal was allowed.

The Minister disallowed the taxpayer's deduction of certain legal expenses. The only documentary evidence provided by the taxpayer as to the nature of the legal services were the accounts of the firm stating only "For Legal Services Rendered." In response to a Crown submission that, in order for the taxpayer to discharge the onus on it to establish deductibility of the fees, it was required to provide its complete legal file, Campbell J stated (at para. 21):

The Court will require descriptions of the tasks undertaken by the lawyers, and the amounts charged for those tasks. In most cases, the Court will not, and should not, require the Appellant to reveal items such as complete legal advice memoranda, unexecuted drafts of contracts, or details of its discussions with counsel... .

In response to a submission of the Crown in the alternative that some limited testimony of a lawyer from the firm on behalf of the taxpayer engaged the doctrine of implied waiver of privilege, Campbell J. found (at para. 24) that, in general, "the concerns of fairness and consistency operate to prevent litigants from relying on parts of privileged communication while using the privilege to shield others." However, in the case of an appeal from a reassessment, the taxpayer is effectively forced by the Minister to reveal privileged information. On that basis, Campbell J. stated (at para. 27):

I accept that, in general, it is problematic to allow a litigant to pick and choose the privileged information to be disclosed. However, in this context it is both fair and reasonable to expect a taxpayer to reveal enough information to satisfy the Court and CRA as to the nature of the legal expense, while keeping the specifics of the lawyer's advice confidential.

The taxpayers refused to produce their documents before the Minister filed its Notices of Assessment, but did produce them after filing their Notices of Appeal. The documents differed in some respects from the facts assumed in the assessment, and the Minister altered his assumed facts for the appeal accordingly.

Jorré J. found that the onus was still on the taxpayer to disprove the new assumptions even though they were made after the confirmation of assessment. At para. 29: "It would be illogical if the effect of these assumptions of fact, which were made after the Notices of Appeal were filed and which lessen the appellant's burden, actually shifted the burden of proving [the disputed expense] amount to the Minister."

Sharlow, J. A. noted (at para. 52) that as the Minister had assessed the taxpayer under s. 87(4) on the basis that shares received by it on an amalgamation had a nil fair market value, the onus would have shifted to the Minister to establish the fair market value of those shares if the taxpayer had argued that the judge should take judicial notice of the fact that, under the terms of the shares received, they presumably would have had a fair market value of greater than nil.

The Minister assessed the taxpayer under s. 153(1) of the Income Tax Act and the taxpayer filed a Notice of Objection under the Canada Pension Plan Act, believing the assessments relate to Canada Pension Plan matters. The Minister's motion to dismiss the appeal for being brought under the wrong Act was dismissed given that the Minister had put forward no assumptions of fact to support the reassessment either in the Minister's reply or at the hearing, and in light of the procedural delays and difficulties the taxpayer (who was self-represented) had encountered.

Given that the Crown had not made any assumptions of fact as to what portion of the reimbursement amounts made by the taxpayer were on account of capital, and had not lead any evidence on such allocation, the Crown had failed to satisfy the onus of proof on it and the deduction of the amounts under paragraph 8(1)(f) could not be denied on this basis.

In finding that all of the fee paid by the taxpayer should be treated as deductible under paragraph 20(1)(dd), Hershfield J. stated (at para. 23):

"Still, had the Respondent raised an allocation issue I would have been prepared to deal with it on the basis that some part of the amount paid was not for a site investigation. The burden of proof in respect of such issue would arguably fall on the Respondent since no specific assumptions were made as to what the services provided were. However, not only did Respondent's counsel not pursue the issue of allocation, she also made it clear at the hearing that there was no alternate position being taken by the Respondent as to that possibility. Further, there was no alternative argument made as to the reasonableness of the expenditure as a site investigation expenditure."

The wholly-owned U.S. subsidiary of the taxpayer accumulated a large balance owing to the taxpayer as a result of its purchase of paint inventory over the years. In the taxation year in question, the subsidiary was in financial difficulty. MacArthur J. found that the taxpayer had shown that the "liquidation" method (under which an allowance for doubtful accounts was deducted equal to the difference between the amount owing and the net realizable value of the subsidiary's assets) was a reasonable method for computing the allowance, and that the burden then shifted to the Crown, who failed to provide any evidence as to why the liquidation approach was not acceptable.

The Reply of the Crown to the taxpayer's Notice of Appeal with respect to an assessment that treated losses the taxpayer sustained in securities trading as being on capital account, referred only to the assumption of the Minister as to the amount of the non-capital losses sustained by the taxpayer. Bowman C.J. indicated (p. 29) that this was "a totally inadequate pleading" and that he "might have been prepared to entertain a motion to allow the appeal because the reply cast no onus on the appellant to rebut any assumptions and it asserts no new facts that would support the assessment".

The Minister originally had reassessed the taxpayer on the basis that it was entitled to claim a deduction in respect of the fair market value of seismic data equal to the data's fair market value, and then confirmed the notice of reassessment on the basis that the expenditures in question did not qualify as Canadian exploration expense. Bowman C.J. found that the taxpayer did not have the onus of disproving new "assumptions" made by the Minister at the time of issuing the notice of confirmation.

The evidence of the field auditor indicated that an assumption pleaded by the Minister had not in fact been in his mind at the time of assessing. Given that the Minister did not make this assumption, the taxpayer was relieved of the burden of "demolishing" this assumption.

After finding that the taxpayer was not subject to the self-supply rule in s. 191(1) of the Excise Tax Act (because the taxpayer was not a builder), Campbell J. went on to indicate that he would have rejected an argument of the Crown (respecting the application of s. 191(1) had it applied) that the Minister's determination of fair market value would be required to be accepted because the taxpayer had failed to adduce evidence to the contrary and therefore had not met the onus which was upon him (pp. 1708-1709):

"Although the onus is upon an Appellant to demolish assumptions, an Appellant cannot be expected to meet that onus where those assumptions are based on the incorrect interpretation of any relevant statutory provision."

Here, the Minister had based his determination of fair market value on the date of sale of the property, which occurred two and a half years after the time of supposed application of the self-supply rule.

In the course of an appeal regarding input tax credits, the taxpayer argued that, having failed to disclose assumptions at or prior to the time of the taxpayer's assessment, the Minister was not entitled to rely on those assumptions.

Létourneau JA found no statutory basis for shifting the burden of proof to the Minister in the circumstances. He stated (at para. 15):

It seems to us that, in the vast majority of cases, the appropriate remedy is the seeking and compelling of disclosure. We cannot imagine the taxpayer being refused an extension of the time ... to amend a pending appeal or to file an appeal or a notice of objection when disclosure of the assumptions of facts and law has been [meaningfully delayed].

After noting an ambiguous statement of assumptions in the Minister's pleadings, Bowman C.J. stated (at p. 1071):

"Where assumptions (or for that matter any other assertion in a pleading) are pleaded in an ambiguous way, I think the benefit of any doubt arising from the ambiguity should be resolved in favour of the other party."

After agreeing with counsel for the taxpayer that a taxpayer has met the onus to demolish the assumptions of fact made by the Minister if the taxpayer makes out a prima facie case, Archambault J. stated (at p. 2615) that the prima facie evidence adduced by the taxpayer must be credible and that it is for the judge to make an overall assessment of the weight of the evidence introduced by both sides and to come to a conclusion, on a balance of probabilities, as to whether a case has been made by the taxpayer.

Bowman A.C.J. stated (at p. 759):

"If the court sees many more instances of pleading incomplete, inaccurate or misleading assumptions we may have to reconsider the whole matter of pleading assumptions and the reverse onus and require the Crown at least to prove that the assumptions were made."

and then went on to indicate (at p. 760) that the assumptions in question were those that were made in connection with the assessment, not the confirmation.

The taxpayer carried on a brewery business as agent for its parent. Before going on to find that a transaction in which the taxpayer and another brewery company ("Carling O'Keefe") transferred the assets of their brewery businesses to a partnership should be characterized for federal sales tax purposes as a transaction in which each sold 50% of its respective assets to the other while retaining 50% of its respective assets itself, Pinaird J. stated (at para. 12) that:

"Partnerships cannot own property independently of their partner; instead, partnership property is owned by the partners in a form of co-ownership whereby each partner owns a share of the property which is proportionate to that partner's share of the partnership; and ... a partner cannot be a creditor or a debtor of the partnership."

After noting that the Minister had pleaded "boiler plate" assumptions, Bowman A.C.J. stated (at p. 1275):

"The entire system developed in our courts relating to assumptions and onus of proof is in jeopardy if the respondent does not set out the actual assumptions on which the assessment is based with complete candour, fairness and honesty."

Bowman T.C.J. indicated that the onus put on a taxpayer to challenge an assessment of the Crown did not apply where the Minister imposed a penalty:

"It is contrary to the most fundamental precepts of the law and of ordinary procedural fairness that a government should be entitled to impose a penalty and then sit back and say to its subject: 'Show why you should not be penalized'. It is particularly indefensible where the facts upon which the penalty is imposed - in this case the alleged late receipt of a remittance - are entirely within the Minister's possession."

After referring to Johnston v. MNR, [1948] S.C.R. 486, Bowman A.C.J. stated (at p. 133):

"Rand, J. spoke of 'demolishing' the basic fact upon which the taxation rested. The term 'demolish' is somewhat infelicitous in that in connotes a wholesale annihilation of the factual underpinning of the assessment and a concomitantly high standard of proof. The standard is a civil one and requires proof on a balance of probabilities. A prima facie case suffices if it is unrebutted."

Given that the matter in controversy (whether a program had been financed with a federal appropriation) was a matter that could be much more readily ascertained by the Crown than the taxpayer, very little affirmative evidence was required of the taxpayer to satisfy the standard of proof.

Revenue Canada originally assessed the taxpayer on the assumption that the taxpayer was not dealing at arm's length with another entity ("Trilogy") but later issued a notice a confirmation on the basis that s. 7(1)(b) applied to the taxpayer. That provision could apply only if the taxpayer was dealing at arm's length with Trilogy. The pleadings of the Minister did not deal with the arm's length question.

Bowman TCJ. found that the taxpayer could rely upon an unpleaded assumption in support of his case (the existence of a non-arm's length relationship) and that unless the Crown established that the assumption was wrong and that there were new facts that supported the assessment on a different basis, the taxpayer should succeed. In any event, the Crown had the onus of establishing any new ground advanced by it to support the assessment, and it had not met that onus.

Before going on to find that the Crown had failed to provide admissible evidence that the taxpayer's appeal to the Tax Court was out of time, Bowman J. stated (p. 1014):

"If the Attorney General seeks to strike out an appeal from an assessment on the ground that the taxpayer has failed to meet the required time limit, she must establish on the basis of clear and admissible evidence that, following a notice of objection, the Minister either confirmed the assessment or reassessed and that the notification of confirmation or notice of reassessment was sent to the taxpayer by registered mail on a particular date and that no appeal was filed within 90 days thereof. On such a motion the copy of the notification of confirmation or notice of reassessment and the proof of registration and date of mailing should be properly put in evidence."

The onus was on the Minister to adduce evidence of the proper apportionment to be made, respecting an "affiliation fee" paid by the taxpayer to a non-resident association, as to the part of the payment representing a royalty for purposes of s. 212(1)(d), and that part which was not subject to withholding tax. Because no separation had been made, the taxpayer succeeded in full.

In his Reply to the Appeal of the taxpayer from a reassessment which had disallowed a deduction of $70,000 for a donation which the taxpayer had made to a charitable foundation (the "Mocus Foundation") the Minister pleaded that the gift had not been made to a registered charity and, in the alternative, put the taxpayer "to the strict proof of the timing and value of the gift to Mocus Foundation." Taylor, J. was satisfied that the disputed assessment was struck and confirmed on the basis only of the Minister's understanding that the Mocus Foundation was not a registered charity. Since the valuation question was not considered or raised by the Minister until later, the onus respecting value was on the Minister. As the Crown had not adduced any valuation evidence, the taxpayer's appeal was allowed.

At 1211:

"... the appellant is in the same position as any other appellant. He must shew that the impeached assessment is an assessment which ought not to have been made; that is to say, he 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 state of doubt that on the principles alluded to, the liability of the appellant must be negatived."