Pleadings, Document Production, and Redactions

Pleadings, Document Production, and Redactions

Dominion Nickel Investments Ltd v The Queen, 2015 TCC 14

In the court of a tax appeal, the MNR produced documents that were either entirely or partially redacted.  The Appellant brought a motion asking for unredacted copies of the documents.

The Court agreed almost entirely with the Appellants position and ordered the production of unredacted copies.

ANALYSIS

The disclosure documents at issue were listed by the MNR in its list of documents pursuant to Rule 81 of the Tax Court of Canada Rules (General Procedure), which requires the production of documents that, to the party’s knowledge, might be used as evidence to establish a fact  or rebut an allegation of fact (or assist with the foregoing). This rule is meant to speed up appeals and reduce costs by requiring automatic production, leaving it to the party to apply for a full list of documented pursuant to Rule 82.

Relevant considerations when dealing with redacted documents may include (relevance of considerations will depend on the case):

  • the party’s discovery rights;
  • the scope of discovery;
  • privacy issues, in light of the policy behind ITA s 241;
  • the implied undertaking rule;
  • whether the documents sought are in the hands of third parties, and whether the parties are inside or outside of Canada;
  • proportionality; and
  • the position of the motions judge as compared to the trial judge, with the motions judge supporting the “need to get on with it” (para 18).

The court referred to the jurisprudence on the issue of discovery: Kossow v. The Queen, 2008 TCC 422HSBC Bank Canada v. The Queen, 2010 TCC 228John Fluevog Boots & Shoes Ltd. v. The Queen, 2009 TCC 345Sputek v. The Queen, 2010 TCC 540.

The scope of discovery is very wide, and some key points were set out in HSBC Bank Canada v. The Queen, 2010 TCC 228:

  • relevance is widely construed on discovery so as not to limit the trial judge’s view of relevance on the evidence as a whole;
  • the threshold for relevance is very low but does not allow for a fishing expedition: Lubrizol Corp v Imperial Oil Ltd, 1998 CanLII 8906 (FC)
  • full disclosure of the document required on by the MNR in making of an assessment must be made: Amp of Canada Ltd v R
  • the party is entitled to “any information, and production of any documents, that may fairly lead to a train of inquiry that may directly or indirectly advance his case, or damage that of the opposing party”: Teelucksingh v. The Queen, 2010 TCC 94;
  • the court should preclude only questions that are “(1) clearly abusive; (2) clearly a delaying tactic; or (3) clearly irrelevant”: John Fluevog Boots & Shoes Ltd. v. The Queen, 2009 TCC 345
  • Documents that lead to an assessment are relevant: 4145356 Canada Limited v. The Queen, 2009 TCC 480;
  • Documents in CRA files on a taxpayer are prima facie relevant, and a request for them is not in itself broad or vague: 4145356 Canada Limited v. The Queen, 2009 TCC 480;
  • the files reviewed by a person in preparing for an examination for discovery are prima facie relevant: 4145356 Canada Limited v. The Queen, 2009 TCC 480;
  • The fact that a party has not agreed to full disclosure under Rule 82 does not prevent a request for documents that may appear like a one-way full disclosure: 4145356 Canada Limited v. The Queen, 2009 TCC 480.

What is relevant is to be determined in light of the pleadings – the issues of the case.  So long as a document may lead to “a train of inquiry that may directly or indirectly advance his case” the document are prima facie relevant: 4145356 Canada Limited, 2009 TCC 480.  The question for the motions judge is not whether the documents seem useful, but only if they are “clearly irrelevant” (para 50).

Although ITA s 241 protects privacy in tax matters, paragraph 241(3)(b)  allows for production of evidence in “any legal proceedings related to the administration and enforcement of the Act”.

Next the court dealt with redactions of documents.  The starting point is that all relevant documents must be produced in full.  However, redactions may be made where the portion is “clearly irrelevant” (O.I. Group of Companies v. Canada (Minister of National Revenue), 2006 FCA 234) including irrelevant information raising privacy concerns (Cameco Corporation v The Queen, 2014 TCC 45; Heining v The Queen2009 TCC 47).

Privacy concerns must be considered in light of the strong implied undertaking rule – that discovery materials are only to be used for purposes of the action in the course in which they are obtained Goodman v. Rossi, [1994] O.J. No. 2778 (QL); Lac d’Amiante du Québec Ltée v. 2858-0702 Québec Inc. [2001] 2 S.C.R. 743.  Unless the information becomes public in the course of the trial, the implied undertaking rule survives the action.

Where the some of the information is in the hands of third parties that are outside of Canada, production favours the taxpayer so that s/he has access to all fo the MNR’s knowledge and documentation relevant to the case.

- Sas Ansari, JD LLM PhD (exp)

If you like this website, please share with others and consider supporting us with a donation.

Back To Top OR Home

Change in Residence – Effect on Loss Deductions

Change in Residence – Effect on Loss Deductions

Zhu v The Queen, 2015 TCC 16

At issue was the deductibility of losses incurred by an individual on the sale of property (shares) after he ceased being a Canadian resident.

FACTS

The Appellant was the CEO of a company and received stock options as part of his compensation package.  After he ceased being the CEO of the company he also left Canada and ceased to be a Canadian resident.

He then exercised his stock options, which resulted in an inclusion in income (half included by operation of ITA 110(1)(d)). However, the shares were sold at a loss, and the CRA denied the deduction of the loss arguing that either the loss was on capital account, and if on business account that at the time the loss occurred the taxpayer was a non-resident and could only deduct losses from income of a business carried on in Canada.

ANALYSIS

The court reviewed the law and stated that if the losses were on capital account, they are not deductible against income (ITA s 3).

If the losses were on business account, because the taxpayer was a nonresident for part of the year (a part-time resident), then the losses are only deducted in limited circumstances (ITA 114(a)(i).  ITA 115(1)(c) limits deduction of business losses only against income only if the losses are from a business carried out in Canada.

The Court also addressed the Appellants fairness argument and referred to the Federal Court of Appeal decision in Chaya v The Queen, 2004 FCA 327:

[4]        The applicant says that the law is unfair and he asks the Court to make an exception for him. However, the Court does not have that power. The Court must take the statute as it finds it. It is not open to the Court to make exceptions to statutory provisions on the grounds of fairness or equity. If the applicant considers the law unfair, his remedy is with Parliament, not with the Court.

- Sas Ansari, JD LLM PhD (exp)

If you like this website, please share with others and consider supporting us with a donation.

Back To Top OR Home

HST/GST New Housing Rebate – Statutory Conditions

HST/GST New Housing Rebate – Statutory Conditions

Ho v The Queen, 2015 TCC 10

This is a sad, common scenario.  An individual or family decides to purchase a new home but, after running into financial difficulty, ask for help from a friend or relatives to complete the purchase.  However, the help is implemented in a way that leaves the purchasers ineligible for the new housing rebate.

Advisors and realtors need to be aware of the conditions in the Excise Tax Act (“ETA”) that need to be satisfied so that a purchaser is eligible for the rebate.  Failure to be aware of these conditions, and failure to advise your client appropriately, is in my opinion negligent.

Although this case does not deal with novel facts of alter the law, it does provide a very good review of the relevant conditions. Briefly, the conditions are:

  1. The builder of the single-unit residential complex must make a taxable supply to one or more persons (ETA 254(1), 262(3));
  2. At the time the person or group became liable to purchase the unit, their intention must have been to use the complex as the primary place of residence of the person or each and every member of the group (ETA 254(b), 263; see Goyer v. The Queen, 2010 TCC 511);
  3. The total consideration paid by the person or group for the unit must be less than $450,000 (ETA 254(c))
  4. Where there is a group, the group must actually have paid the HST/GST on the purchase (ETA 245(d))
  5. Ownership of the unit must be transferred, after substantial completion, to the person or group (ETA 254(e);
  6. After substantial completion, but before the transfer to the person or group, the unit must be occupied by any individual as a place of residence or lodging (ETA 254(2)(f));
  7. The first individual to occupy the unit after substantial completion must be the person, all of the group of persons, or persons related to the person or to all persons in the group (ETA 254(2)(g)(i)(A), 263)- NOTE: in Hamel v. The Queen, 2004 TCC 315, all members of the group occupied or intended to occupy the unit at the time of the rebate application

COMMENT

The Court’s interpretation of the final condition, as it applies to a group of individuals, however, leads to what may be considered an absurd result.  If, for example, two persons purchased the unit with the initial intention to use it as their primary residence, but then only one of them after substantial completion actually does or continues to so occupy the unit, the group would be ineligible.  However, if neither of the persons occupy the unit or intend to occupy the unit after substantial completion, but a mutual relative of them both does occupy the unit, then the group would be eligible for the rebate.

- Sas Ansari, JD LLM PhD (exp)

If you like this website, please share with others and consider supporting us with a donation.

Back To Top OR Home

Effect of Provincial Legislation on ITA Liability

Effect of Provincial Legislation on Tax Liability under the ITA 

Murphy Estate v The Queen, 2015 TCC 8

The Appellant relied on a provision in the Nova Scotia Matrimonial Property Act, RSNS 1989, c 275, arguing that it had retrospective effect and affected the timing of the vesting of property. At issue was whether the concept order granted on the basis of provincial legislation had retrospective effect to change the timing of vesting of property for ITA purposes.

FACTS

Mr Murphy died unexpectedly and intestate.  The heirs, including his surviving spouse diapered on the division of his assets well past when the terminal return was filed.

The CRA, on the basis of the return filed, assesses significant amounts of tax.  After this assessment, the heirs obtained a consent order from the provincial court, and refiled the terminal return on the basis of that order having retrospective effect (replying on the refund of premiums provisions applicable to RRSPs).  The MNR did not agree to reduce the tax payable on the basis of the order.

ANALYSIS

Generally, where a taxpayer dies, s/he is deemed to have received the proceeds of any RRSP plan immediately before death and that this is included in income (ITA 146(8), *.), and 56(1)(h)).  But, where certain beneficiaries are paid those proceeds they qualify as a “refund of premiums” and not included in the deceased’s income (ITA 146(1)).

The taxpayer relied on  the decision in Hillis v R, [1983] CTC 348 (FCA) to argue that provincial legislation can be relied on to ascertain property rights and timing of vesting of those rights.   The TCC did not agree as, unlike in Hillis, the designated beneficiaries (the children) did not disclaim their rights. The express wording in the consent order suggested that the children had accepted their rights and were then transferring those interests (para 31).

The TCC referred to the decision in Re Metcalfe, [1972] 3 OR 598 (OHCJ) where it was said that a disclaimer operates from the time of the deceased’s death and makes gifts void for certain purposes ab initio. The TCC , at paragraph 33, stated:

[33]        A disclaimer is a refusal to accept an interest which has been bequeathed to a disclaiming party. The effect is to void the gift as if the disclaiming party never received it. The gift becomes part of the estate of the deceased and the disclaiming party has no right to direct who is to receive the gift. See Plaxton v Minister of National Revenue, 1959 CarswellNat 253 (TAB). In this respect, the Consent Order cannot be a disclaimer as the Murphy Children directed that the RRSP in question was to be transferred to Ms. DeMarsh.

The taxpayer also argued that this case was similar to rectification, referring to the FCA decision in Dale v Canada [1997] 3 FC 235, summarized in Bayliss v R, 2007 TCC 387 – an order of a superior court is not subject to collateral attack, and when operating retroactively that order changes history. The TCC did not directly address this argument.

The Court held that there was no disclaimer and that the proceeds of the RRSP vested in the designated beneficiaries, and the proceeds of the RRSP were properly included in the deceased’s income for the terminal year.

- Sas Ansari, JD LLM PhD (exp)

If you like this website, please share with others and consider supporting us with a donation.

Back To Top OR Home

UPDATED: Answering Canadian Tax Questions: An Introduction to Tax Law Research

UPDATED: Answering Canadian Tax Questions: An Introduction to Tax Law Research

The updated paper is available HERE.

The paper has been updated to include a much longer and more detailed discussion of: (1) the application of the modern rule of statutory interpretation; and (2) the precedential value of various courts’ decisions.

Income taxation is a complicated area of law that requires a researcher to master not only a large volume of complex legislation, but because of its ‘accessory-law’ nature also requires good knowledge of many other areas of law (both statutes and common law). This paper provides an introduction to tax law research in the Canadian context. It begins by introducing the tax research process in Part 1 before moving on to discuss how to find the law and material with legally enforceable consequences in Part 2. The paper, in Part 3, discusses primary sources of tax law, and explains how to read, understand, interpret, and use these sources. Part 4 discussed secondary sources of tax law, focousing on government produced materials, before bringing the entire tax law research process together in Part 5.

- Sas Ansari, JD LLM PhD (exp)

If you like this website, please share with others and consider supporting us with a donation.

Back To Top OR Home

Income Tax (Federal & Provincial) – HST/GST – International Tax