A recent decision of the Federal Court of Appeal has determined that when a matter of mixed fact and law is assumed by the Minister and the taxpayer requests the information the Minister based their assumption on, the Minister must provide the information or the assumption may be struck from their reply.
Assumptions of the Minister are important in an appeal to the Tax Court of Canada because they will be taken as fact, with the initial onus on the taxpayer to demolish the assumption. If the Minister’s assumptions do not contain sufficient information and detail, the taxpayer will not know the case to be met.
In Canada v. Adboss Ltd., the Minister of National Revenue (the “Minister”) appealed three decisions made by the Tax Court of Canada to the Federal Court of Appeal: Adboss Ltd. (“Adboss”), Liberty Street Management Ltd., and Bluecove Management Ltd (the “Respondents”).
Facts
The Minister reassessed the Respondents on the basis that they should have collected GST/HST for services provided to certain recipients the Minister considered to be resident in Canada (the “Recipients”). The Respondents filed notices of appeal in the Tax Court, to which the Minister replied. One of the assumptions in each reply (the “Impugned Assumption”) read:
[At] all material times, the controlling mind and management of [the Recipients] was
in Canada.
The Respondents requested particulars from the Minister on the Impugned Assumption twice, but were denied each time. The Respondents then filed a motion to strike the Impugned Assumption on the basis that it was a statement of mixed fact and law, and therefore it could not be included in assumptions of fact made by the Minister when making assessments.
Lower Court findings
The Tax Court found that the Impugned Assumption should be struck on the basis 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” under R. 53(1)(a) and R. 53(1)(c) of the Tax Court of Canada Rules (General Procedure).
The Minister appealed the decision to the Federal Court of Appeal.
Court of Appeal
The Federal Court of Appeal (“FCA”) upheld the decision of the Tax Court, finding in favour of Adboss.
The FCA agreed with the Tax Court that the question of where the “controlling mind and management” of a corporation is located is a question of mixed fact and law, because it requires applying a legal test to a set of facts.
The FCA further found that striking out the Impuged Assumption was not an overriding and palpable error. In making this conclusion, the FCA noted that R. 49(1)(d) requires the Minister’s reply to a notice of appeal to state “… the assumptions of fact made by the Minister when making the assessment”. The FCA found that the Impugned Assumption was not an assumption of fact, and in doing so noted the following:
“legal statements or conclusions of law have no place in the Minister’s factual assumptions… 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… That said, not every conclusion of mixed fact and law that appears as an assumption must necessarily be struck.”
The FCA cited Eisbrenner v Canada as the authority on when deficient pleadings may be allowed to stand:
- When assumptions of mixed fact and law are tangential to the legal issues in dispute;
- When assumptions will not cause prejudice to the taxpayer;
- When the facts are simple; or
- When letting the deficient pleadings stand better serves the trial process.
The Minister’s refusal to provide particulars in respect of an element of her pleadings that went to the heart of the appeal gave rise to unwarranted, costs and time, and delayed the hearing of the appeal. Adboss was “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”, which lead to the Tax Court’s conclusion of prejudice to the taxpayer.
The FCA also acknowledged the broader consequences of their decision, stating that the Court will not necessarily strike all assumptions of mixed fact and law. As stated in Eisbrenner, if the statements of mixed fact and law do not go to the heart of the matter, then they will not be struck. Additionally, statements of mixed fact and law may stand where the facts are simple and the taxpayer is not left to speculate as to the basis of the Minister’s assumption and the case to be met by the taxpayer. For example, stating a 5 year old child is a minor is an assumption of mixed fact and law, but the taxpayer is not left to speculate on the basis of that assumption.
Conclusion
Adboss reinforces that the Minister cannot simply assume complex matters of mixed fact and law, such as the residency of a corporation, without informing the taxpayer of the basis of their assumption.
Should you find yourself subject to a CRA assessment, we recommend contacting a member of Miller Thomson’s Tax Disputes Team.
