Date: 20021209
Dockets: 2002-575-IT-G, 2002-581-IT-G,
2002-585-IT-G, 2002-1123-IT-G
BETWEEN:
REV. RANDALL HOLM, REV. PAUL KOHLS,
REV. RONALD POWELL, REV. ROBERT D. JAMES,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Order
Bowman, A.C.J.
[1] These motions were brought by the appellants for an order allowing the appellants' appeals or, in the alternative, for an order striking out the replies to the notices of appeal in their entirety coupled with an order that the respondent not be permitted to file fresh or amended replies. In the further alternative they request an order that paragraph 5 of the replies (paragraph 7 in the appeal of Reverend Powell) be struck out. The basis of the motions is that the respondent pleaded as an "assumption" a fact that the appellants say was not assumed at the time the assessments were made.
[2] The appellants are all ordained ministers of the Pentecostal Assemblies of Canada. They were all employed in the relevant years by Eastern Pentecostal Bible College. They claimed the deduction in respect of their residences as clergymen under paragraph 8(1)(c) of the Income Tax Act. This was denied on assessing.
[3] The appellants' solicitors applied to the Access to Information and Privacy Division of the CCRA for "all records relating to the 1997 taxation year" in each of the four appellants (except for Rev. Powell, where they asked for the records relating to the 1995 taxation year as well and for Rev. James with respect only to 1995).
[4] They were provided with material from the CCRA among which was a copy of a letter from the CCRA to each appellant stating that the claim for the deduction for a clergyman's residence was deleted (i.e. reduced to $0).
[5] The reasons given in each case were substantially the same, although the wording differs slightly. The relevant portion of the letters reads:
Reverend Holm:
We have adjusted your claim from $13,208.00 to $0.00 for the following reason(s):
- To delete your deduction for a cleric's residence because the religious order does not qualify.
Reverend James:
We have deleted your claim for a clergymen's residence deduction because the religious order does not qualify.
Reverend Kohls:
We have adjusted your claim from $12,012.00 to $0 for the following reason(s):
- To delete your deduction for a cleric's residence because the religious order (Eastern Pentecostal Bible College) does not qualify.
Reverend Powell:
1995
We have adjusted your claim for the following reason(s):
- The religious order, for your deduction for a cleric's residence, does not qualify.
1997
We have adjusted your claim from $11,400.00 to $0.00 for the following reason(s):
- Although the documents you provided do state that you are an ordained minister with the Pentecostal Assemblies of Canada, your employer, the Eastern Pentecostal Bible College is not considered a religious order.
[6] The way in which the assessors' reasons are expressed is, to say the least, infelicitous. I think that what they are trying to say is that a Bible college is not a religious order and therefore one of the conditions in paragraph 8(1)(c) has not been met.
[7] For a person to be entitled to the clergyman's residence deduction he or she must meet two tests - the status test and the function test - contained in the opening words of paragraph 8(1)(c):
(c) where the taxpayer is a member of the clergy or of a religious order or a regular minister of a religious denomination, and is in charge of or ministering to a diocese, parish or congregation, or engaged exclusively in full-time administrative service by appointment of a religious order or religious denomination ...
[8] The status test asks what you are and the function test asks what you do. Clearly the appellants meet the status test - they are all ordained clergymen. Being a member of a religious order is part of the status test. Being engaged in full time administrative service by appointment of a religious order is part of the function test. If we are to look only at the letters to the appellants it is not clear whether the assessors were saying that the appellants failed the status test because they were not members of a religious order or the function test because they were not appointed to do administrative service by a religious order. The Processing Review Reports which preceded the assessments are even more cryptic. In Rev. Randall's it says only "disallowed claim per instructions Bible College"; in Rev. Powell's it says only "EP Bible College - 95 in appeals - disallow"; in Rev. Kohls' it says only "disallow claim - Eastern Pentecostal Bible College" and no Processing Review Report was put in evidence for Rev. James. I think that the brief comments made at the assessing level by the assessors, albeit ambiguous, are at least consistent with their thinking of either the function test or the status test. The letter to Reverend Powell with respect to his 1997 taxation year appears to be somewhat more focussed on the function test.
[9] This reasoning is admittedly a little unclear but it is not that that the appellants object to. In each reply to the notice of appeal there are pleaded what are called "assumptions". These are supposed to be a full and honest disclosure of the facts upon which the Minister of National Revenue relied in making the assessment. The practice is venerable and it is unique in tax appeals in this court and the Federal Court and is enshrined in both the Informal and General Procedure Rules of this court, which require that replies to notices of appeal contain
(d) the findings or assumptions of fact made by the Minister when making the assessment.
[10] I shall take the reply in Reverend Holm's appeal as typical. Paragraph 5 reads
5. In reassessing the Appellant to disallow the deduction claimed, the Minister made, inter alia, the following assumptions:
a) during 1997, the Appellant was employed as a member of the faculty of the Eastern Pentecostal Bible College (the "College");
b) at no time during 1997 was the College a religious order;
c) at no time during 1997 was the Appellant a member of a religious order;
d) at no time during 1997 was the Appellant ministering to or in charge of a diocese, parish or congregation or engaged exclusively in full time administrative service by appointment of a religious order or a religious denomination.
[11] Subparagraph d) in substantially the same form appears in the replies in the other cases.
[12] The appellants each submitted an affidavit by Mr. Ronald C. Knechtel, Senior Advisor to the Canadian Council of Christian Charities who testified that he had reviewed the material provided by the CCRA under the Privacy Act and did not find any documents that indicated that any assumption was made relating to function prior to assessing. As I observed above the ambiguously worded letters are equivocal.
[13] The appellants assert therefore that the assumption pleaded in subparagraph 5d) in the Holm reply or in its corresponding paragraph in the other appeals was not made at the time of assessing.
[14] It is admitted that when the appellants filed notices of objection and the matter was reviewed by the appeals assessor, Ms. Kimberly Ann Hynes, the function test with respect to the appellants was considered by her. Her affidavits confirm that she considered whether the appellants were in charge of or ministering to a diocese, parish or congregation or engaged in full time administrative service by appointment of a religious order or religious denomination.
[15] Her T401 report (report on objection or appeal) reads in part as follows (I am treating the report relating to Reverend Holm as typical).
4) Statement of Facts
The client's 1997 income tax return was reassessed on October 5, 1998, to disallow the cleric's residence deduction in the amount of $13,208.
The Appeals Division, with the assistance of Head Office Appeals, concluded that the client did meet the "status" test in accordance with IT141R as he was a member of the clergy. The client did not however meet the "function" test in accordance with IT141R as it could not be determined if the client met the criteria due to a lack of information.
5) Sections of the Act Applicable
Paragraph 8(1)(c) of the Income Tax Act.
6) History of Discussions
June 11, 1998 - Initial assessment of the 1997 income tax return.
September 24, 1998 - letter from T1 Processing Review advising client they are disallowing his claim for the cleric's residence deduction as the organization, Eastern Pentecostal Bible College, is not a religious order. (see exhibit A)
March 22, 1999 - Client/representative, William Griffin, Pentecostal Assemblies of Canada, filed notice of objection. (see exhibit B)
March 13, 2000 - fax sent to representative requesting he provide a copy of the Faculty Ministry Agreement. (see exhibit C)
May 9, 2000 - representative responded to request for information. He submitted a copy of the client's ministry agreement for June 1, 1996 to May 31, 1998. (Head Office Appeals may have this documentation)
June 9, 2000 - Representative was sent another fax requesting Position Descriptions as per the "Ministry Handbook" referred to in the previous submission of information from the representative. (see exhibit D)
June 15, 2000 - representative provided additional information (see exhibit E)(could not locale all 8 pages)
June 6, 2000 - file referred to Head Office Appeals for assistance.
January 2001 - Head Office Appeals requested additional information from the representative.
February 12, 2001 - representative faxed a reply to Head Office providing further details but not the Ministry Hand book as requested. (see exhibit F)
June 14, 2001 - letter to representative, cc to client, confirming unable to determine "function" due to lack of information. (see exhibit G)
July 24, 2001 - fax from representative, information does not change our position. (see exhibit H)
November 16, 2001 - letter to representative, cc to client, advising his fax dated July 24, 2001, has been taken into consideration however it does not alter our position. (see exhibit I)
[16] It is clear that a full review was performed by the appeals section before confirming the assessments.
[17] This court has on many occasions expressed its strong disapproval of the Crown's pleading as assumptions facts that were not assumed on assessing. Appellants' counsel's factum has conveniently collected many of the statements made by judges of this court and other courts and it is worthwhile to reproduce them in these reasons.
"It must, of course, be assumed that the Crown, as is its duty, has fully disclosed to the taxpayer the precise findings of facts and rulings of law which have given rise to the controversy."
Johnston v. M.N.R., 3 D.T.C. 1182 at 1183 (S.C.C.)
...
"Notwithstanding that it is spoken of in section 63(2) as an action ready for trial or hearing, the proceeding is an appeal from the taxation; and since the taxation is on the basis of certain facts and certain provisions of law either those facts or the application of the law is challenged. Every such fact found or assumed by the assessor or the Minister must then be accepted as it was dealt with by these persons unless questioned by the appellant."
Johnston v. M.N.R., 3 D.T.C. 1182 at 1183 (S.C.C.)
"The Minister, in making assessments, proceeds on assumptions (Bayridge Estates v. M.N.R., 59 DTC 1098 (Ex. Ct.), at p. 1101) and the initial onus is on the taxpayer to "demolish" the Minister's assumptions in the assessment (Johnston v. M.N.R., [1948] S.C.R. 486; Kennedy v. M.N.R., 73 DTC 5359 (F.C.A.), at p. 5361). The initial burden is only to "demolish" the exact assumptions made by the Minister but no more: First Fund Genesis v. The Queen, 90 DTC 6337 (F.C.T.D.), at p. 6340."
Hickman Motors Limited v. The Queen, 97 D.T.C. 5363 at 5376 (S.C.C.)
...
"This portion of the pleadings (the assumptions) is extremely important and must not mislead."
TSS - Technical Service Solutions Inc. v. Canada (M.N.R.), [2002] T.C.J. No. 101 at paragraph 92.
"Assumptions are not quite like pleadings in an ordinary lawsuit. They are more in the nature of particulars of the facts on which the Minister acted in assessing. It is essential that they be complete and truthful."
Mungovan v. The Queen, 2001 D.T.C. 691 at 692 (T.C.C.)
"The pleadings of assumptions involves a serious obligation on the part of the Crown to set out honestly and fully the actual assumptions upon which the Minister acted in making the assessment, whether they support the assessment or not. Pleading that the Minister assumed facts that he could not have assumed is not a fulfillment of that obligation. The court and the appellant should be entitled to rely on the accuracy and completeness of the assumptions pleaded."
Shaughnessy v. The Queen, 2002 D.T.C. 1272 at 1275 (T.C.C.)
"The jurisprudence has given a special status to assumptions made by the Minister in assessing: see Hickman Motors and the cases there cited. It is important, therefore that the pleading of assumptions said to have been made by the Minister in assessing is done with care, both to ensure that what is pleaded is confinedto facts, and to ensure that what is pleaded to have been assumed by the Minister really was assumed, and is not a creation of the drafter."
Cline-Schuit v. Canada, [2001] T.C.J. No 869.
"It cannot be emphasized too strongly that in pleading assumptions in a reply that have the effect of defining the burden that lies on the appellant the respondent has a serious responsibility to set out honestly the true basis of the assessment and not concoct fanciful boilerplate."
Stephen v. R. [2001] 2 C.T.C. 2621 at 2624 (T.C.C.)
...
"Thus, the Minister may learn of additional facts during the course of considering a notice of objection or on discovery of a taxpayer... The Minister or the Attorney General may realize during one of these stages that the Crown's assessment may be valid not only on the basis of the statutory provisions the Minister originally assessed on but on other provisions as well.
...
Thus, the taxpayer's onus of proof is with respect only to the findings or assumptions made by the Minister's officials at the time the assessment was made."
G.M.A.C. v. The Queen, 99 D.T.C. 975 at 982 (T.C.C.)
"The facts or assumptions underlying an assessment, at the time an assessment is made (emphasis in original), are those vital to the process before the Court."
Gross v. M.N.R., 89 D.T.C. 660 (T.C.C.)
"The assessment process may include both the making of the assessment and the reconsideration of the assessment that may lead to a confirmation of the assessment but reference to an assessment itself is a reference to an administrative act distinct from a confirmation."
Anchor Pointe Energy Ltd. v. The Queen, [2002] T.C.J. No. 502 at paragraph 27.
"If the Respondent makes... a pleading that is not based on the contents of the auditor's report, the pleading should be in a separate paragraph and proved by the Respondent."
Swicheniuk v. The Queen, 2000 D.T.C. 2775 at 2282 (T.C.C.)
...
"It is not true that "in assessing, the Minister assumed" the facts the Attorney General stated the Minister assumed in these provisions. This is, to my mind, an abuse of the process of the Court."
Anchor Pointe Energy Ltd. v. The Queen, [2002] T.C.J. No. 502 at paragraph 27.
"... it could well be an abuse of process for the Minister to withhold facts central to the making of the assessment, or to conjure up assumptions that were not in fact made."
The Promex Group v. The Queen, 98 D.T.C. 1588 at 1596 (T.C.C.)
...
"I conclude that the five assumed facts were the creation of the drafter's imagination.... The Attorney General of Canada is responsible for all litigation which involves the Government of Canada. It must fall on his plate to make sure that a system is in place so that this problem is corrected."
TSS - Technical Service Solutions Inc. v. Canada (M.N.R.), [2002] T.C.J. No. 101 at paragraphs 92 and 94.
"The court and the appellant should be entitled to rely on the accuracy and completeness of the assumptions pleaded. Sadly, this is becoming increasingly difficult. 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."
Shaughnessy v. The Queen, 2002 D.T.C. 1272 at 1275 (T.C.C.)
"I have in the past criticized this practice, to which the Deputy Attorney General so frequently resorts, of pleading conclusions of law as though they were facts that the Minister had assumed. Other judges of this Court have been critical of the practice as well... Pleadings such as the one before me tend to raise doubts as to the reliability of the Replies filed by the Deputy Attorney General."
Cline-Schuit v. Canada, [2001] T.C.J. No. 869 at paragraph 12.
"I find it wholly unacceptable that persons in the CCRA who draft the replies to notices of appeal in the informal procedure simply push a button in a computer and spew forth pre-programmed boilerplate of the sort... The "assumptions", so called, are supposed to be an accurate and honest disclosure of the particulars upon which the CCRA based its assessment. A blind and automatic recitation of this sort of stuff does not constitute a fulfillment of the respondent's obligation to this court or to an appellant.
Moreover, pleaded assumptions which demonstrate, as they often do, that the Minister has recklessly and mindlessly pleaded "assumptions" that bear no relation to the facts form no basis on which to defend an assessment."
Johnson v. R., [2001] 1 C.T.C. 2034 at 2038 (T.C.C.)
[18] It is undeniable that there is a strongly held view in this court that to plead as assumptions facts that were not assumed on assessing is improper and reprehensible. Also, it seems the practice is widespread. In an appropriate case I would have no hesitation in allowing an appeal, striking out a reply or awarding costs on a solicitor and client basis either against the respondent or, in a flagrant case, against a counsel who drafted a misleading reply. In some cases a less drastic remedy might be appropriate such as merely striking out the assumption with or without leave to amend to plead the facts wrongly alleged to have been assumed as a fact in respect of which the respondent has the onus of proof.
[19] The practice is reprehensible wherever it occurs but it is particularly pernicious in informal procedure cases where the taxpayer is often self-represented. Such persons do not have the benefit of counsel, have not held discoveries and probably know nothing of the substantial jurisprudential lore about assumptions that has been built up over the past half century. They are dependent upon the integrity of Crown counsel and the accuracy and completeness of the assumptions pleaded. 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. I know of no rule in any court that permits the mere pleading of a fact, without evidence, to have the fact taken as true. It is an advantage that the Crown has that it will lose if it abuses it.
[20] I mention in passing another practice that will require re-examination and that is the pleading as "assumptions" facts that are exclusively or peculiarly within the Minister's knowledge and then, at the same time as the Minister alleges that the taxpayer has the onus of disproving those facts, he (or she) also refuses to disclose the basis of the assumptions because it is said that the information is confidential, secret or privileged. The unfairness of this practice is patent.
[21] Nonetheless, I do not propose to apply any of the sanctions or remedies that might be available in other circumstances. Counsel allege that subparagraph 5d) is an abuse of the process of this court. In some circumstances I would agree that pleading as an assumption a fact that was not made (or could not possibly have been made as in Anchor Pointe Energy Limited v. The Queen, 2002 DTC 2071) calls for a severe sanction. However I am dismissing the motion for several reasons.
(a) To plead as an assumption a fact that was undoubtedly assumed when the assessment was confirmed but arguably not when the assessment was issued may reflect an erroneous interpretation of the words "the findings or assumptions of fact made by the Minister when making the assessment" as used in the rules of this court, but it is not an egregious or flagrant abuse of this court's process. To conjure up "assumptions" that were never made at any time until the reply was drafted is of course a much more serious breach of the Crown's responsibilities and calls for a more severe remedy. I agree with the observation of Rip J. in Anchor Pointe and General Motors Acceptance Corporation of Canada Limited v. The Queen, 99 DTC 975, that assessment means assessment, not confirmation. Nonetheless, there is some authority for the proposition that confirmation may be a part of the assessing process. For example, in Parsons et al. v. M.N.R., 83 DTC 5329 (reversed on a different point) at p. 5332 Cattanach J. said
Upon receipt of a notice of objection it is the duty of the Minister with all due despatch to reconsider the amount.
This has been referred to by counsel for the respondent as an "in-house" appeal.
In my opinion it is not an appeal. It continues to be part and parcel of the assessment process.
This is not consistent with what Rip J. said in Anchor Pointe or GMAC but it does indicate the view of a respected judge of the Federal Court. Although I agree with Rip J., I do not think that pleading as an assumption a fact that was assumed by the Minister at the objection stage is so outrageous, scandalous or egregious that it justifies the drastic remedy sought by the appellants. If additional facts are determined at the objection stage this should be separately pleaded and can be dealt with by the trial judge. If contradictory facts are found or assumed on assessing and on objection this should clearly be stated in the reply and not buried as was done in The Queen v. Bowens, 96 DTC 6128. This led to confusion as indicated in the following passage in the Federal Court of Appeal reasons for judgment where the court said at p. 6129:
On the taxpayer's appeal to the Tax Court the Crown, surprisingly, did not plead or invoke any assumption to the effect that the taxpayer and Trilogy were at arm's length. This was quite improper and the Crown was at risk of having its Reply struck out as not pleading a fact which was at the basis of the reassessment; however, no objection was taken prior to trial and the judge was obviously of the view, with which we agree, that it was then too late in the day to raise a purely technical point of pleading.
The judge also took the view that the Crown had the burden of showing that the taxpayer and Trilogy were at arm's length. If we understand him correctly, this was because of the mutually contradictory but unpleaded assumptions which had been made in the reassessment process and in particular the initial assumption that the relationship was non-arm's length. While we agree with the result, the reasoning is, with respect, wrong: as we made clear in Pollock vs. The Queen, 94 DTC 6050, unpleaded assumptions can have no effect on the burden of proof one way or the other. The reason the Crown bore the burden in this case of proving that Trilogy and the taxpayer were at arm's length is that that was a fact on which the validity of the reassessment depended, and since no assumption to that effect had been pleaded the Crown did not have the benefit of any reversal of onus.
Patently the Crown cannot rely upon an unpleaded assumption to cast a burden on the appellant. If the trial judge had said that it could the criticism would have been justified. What was said at trial was the following (94 DTC 1853 at p. 1856):
In no case of which I am aware, including the numerous cases to which the Federal Court of Appeal referred in a footnote to the passage which I have cited, has this specific issue arisen, which I shall endeavour to enunciate as follows:
Where the Minister bases an assessment on a particular assumption of fact (in this case, the non-arm's length relationship between the appellant and Trilogy as a necessary ingredient to the application of subsection 245(2)) and, in confirming the assessment and at trial abandons the original basis of assessment and advances a new reason for supporting the assessment (i.e. paragraphs 7(1)(b)) in which an essential fact (i.e. that the appellant and Trilogy were at arm's length) is contrary to the original assumption:
(a) may the appellant rely upon the unpleaded assumption in his defence against the new basis; and
(b) must the Crown plead the new fact and does it have the onus of establishing it?
The answer to these questions, based on the principles established in Johnston and Pillsbury, is that the appellant may rely upon an unpleaded assumption in support of his case and unless the respondent establishes that the assumption is wrong and that there are new facts that support the assessment on a different basis, the appellant must succeed. The non-arm's length relationship between the appellant and Trilogy,
found or assumed by the assessor or the Minister must then be accepted as it was dealt with by these persons unless questioned by the appellant.
(Johnston, supra)
Here the appellant, far from questioning the original unpleaded assumption, relies on it to destroy the very factual underpinning of the new basis advanced.
The only difference between assumptions that the Crown chooses to disclose in the reply and those that it does not is, as stated in Pollock, that unpleaded assumptions cast no onus on the appellant. The pleading of assumptions is no more than the fulfilment of the Crown's obligation to disclose fully the basis of the assessment. Since pleaded assumptions are in the nature of particulars it is incumbent upon the Crown to plead honestly and fully all of the assumptions relevant to the assessment. If a new basis of upholding the assessment is conceived after the assessment is made and is advanced at trial and the original assumptions are inconsistent with that new basis they must nonetheless be disclosed in the reply and the Crown must undertake the task of establishing that the original assumptions were wrong.
I continue to believe this is a correct statement of the law. However the practice of picking and choosing what assumptions to plead and what assumptions to withhold on the basis that they are contradictory to other assumptions or are embarrassing or that they support the appellant's case is deplorable. If assumptions have any role in income tax appeals it is essential that they be pleaded fully and honestly whether they support the Crown's case or the appellant's case.
It is not necessary for the purposes of these motions that I deal with Mr. Calabrese's argument on the statutory framework in which the Johnston v. M.N.R. case, [1948] C.T.C. 195, was decided but it has sufficient merit that it is worth summarizing in case it is raised on another occasion. Section 54 of the Income War Tax Act provided that the Minister send the taxpayer a notice of assessment verifying or altering the tax estimated by the taxpayer in the return. Section 58 of the Income War Tax Act in its original form permitted a person who objected to the amount at which he was assessed to serve on the Minister a notice of appeal which the Minister was obliged to consider. The Minister had to affirm or amend the assessment and notify the appellant of his decision. If the appellant was still not satisfied he could under section 60 of the Income War Tax Act send the Minister a notice of dissatisfaction. It will be noted that the wording differs substantially from that with which we are familiar today.
Sections 60-65 of the Income War Tax Act read
NOTICE OF DISSATISFACTION
60.(1) If the appellant, after receipt of the said decision, is dissatisfied therewith, the may, within one month from the date of the mailing of the said decision, mail to the Minister by registered post, a notice entitled
The Income War Tax Act
NOTICE OF DISSATISFACTION
In re the appeal of ................. of the .................. of .................., in the province of ....................., stating that he desires his appeal to be set down for trial.
(2) The appellant shall forward therewith a final statement of such further facts, statutory provisions and reasons which he intends to submit to the court in support of the appeal as were not included in the aforesaid notice of appeal, or in the alternative, a recapitulation of all facts, statutory provisions and reasons included in the aforesaid notice of appeal, together with such further facts, provisions and reasons as the appellant intends to submit to the court in support of the appeal.
SECURITY FOR COSTS
61.(1) The party appealing shall thereupon give security for the costs of the appeal to the satisfaction of the Minister in a sum not less than four hundred dollars.
(2) Unless such security is furnished by the party appealing within one month after the mailing of the notice of dissatisfaction the appeal and all proceedings thereunder shall become null and void.
REPLY OF THE MINISTER
62. Upon receipt of the said notice of dissatisfaction and statement of facts, the Minister shall reply thereto by registered post admitting or denying the facts alleged and confirming or amending the assessment or any amended, additional or subsequent assessment.
PROCEEDINGS IN EXCHEQUER COURT
63.(1) Within two months from the date of the mailing of the said reply, the Minister shall cause to be transmitted to the registrar of the Exchequer Court of Canada, to be filed in the said Court, typewritten copies of the following documents:-
(a) The Income Tax Return of the appellant, if any, for the period under review;
(b) The Notice of Assessment appealed;
(c) The Notice of Appeal;
(d) The decision of the Minister;
(e) The Notice of Dissatisfaction;
(f) The reply of the Minister; and
(g) All other documents and papers relative to the assessment under appeal.
(2) The matter shall thereupon be deemed to be an action in the said Court ready for trial or hearing: Provided, however that should it be deemed advisable by the Court or a judge thereof that pleadings be filed, an order may issue directing the parties to file pleadings.
64. All subsequent proceedings shall be entitled:
In re The Income War Tax Act, and the appeal of .............. of ................ in the Province of .................
and notice and copies of all further proceedings shall be served upon the Deputy Minister (Taxation) personally or other responsible officer of the Department of National Revenue at Ottawa.
65.(1) After an appeal has been set down for trial or hearing as above provided, any fact or statutory provision not set out in the said notice of appeal or notice of dissatisfaction may be pleaded or referred to in such manner and upon such terms as the Court or a judge thereof may direct.
(2) The court may refer the matter back to the Minister for further consideration.
Rand J.'s famous statement in Johnston is the following (p. 202):
Notwithstanding that it is spoken of in section 63(2) as an action ready for trial or hearing, the proceeding is an appeal from the taxation; and since the taxation is on the basis of certain facts and certain provisions of law either those facts or the application of the law is challenged. Every such fact found or assumed by the assessor or the Minister must then be accepted as it was dealt with by these persons unless questioned by the appellant. If the taxpayer here intended to contest the fact that he supported his wife within the meaning of the Rules mentioned he should have raised that issue in his pleading, and the burden would have rested on him as on any appellant to show that the conclusion below was not warranted. For that purpose he might bring evidence before the Court notwithstanding that it had not been placed before the assessor or the Minister, but the onus was his to demolish the basic fact on which the taxation rested.
Counsel's point - and it is by no means without merit - is that Rand J., in using the words "every such fact found or assumed by the assessor or the Minister ...", must have been referring to the facts found or assumed both at the stage of the initial assessment and at the notice of appeal stage (which would correspond to the notice of objection stage today). Otherwise why would Rand J. have spoken of both the assessor and the Minister?
The argument is interesting and ingenious. I am not aware that it has been made before. Perhaps for the past half century we have been misconstruing what Rand J. said but it is possible that the misinterpretation is so deeply ingrained in our procedure in income tax appeals that it has become unassailable: communis error facit jus. I need not decide the question in this case but some day it may have to be.
(b) The motions are brought at an early stage of the proceedings, before discoveries have been held or lists of documents exchanged. The effect to be given to the pleading to which the appellants take exception is something that the trial judge is in a better position to determine than a motions judge. As I noted above there are a large number of remedies that a court might consider but in determining what remedy is appropriate - and this is undoubtedly a matter of discretion - the discretion should be based on material that is more likely to be available to the trial judge than the motions judge. To strike out a pleading or a portion of a pleading at an early stage may be appropriate in some circumstances - where the pleading is demonstrably frivolous, vexatious, scandalous or an abuse of process (as, for example, in Davitt v. The Queen, 2001 DTC 702). In other cases, however, the striking out of a pleading or the making of a pretrial ruling on the admissibility of evidence should not in general be done by a motions judge where it is possible that it may affect or restrict the way in which the case is conducted before the trial judge.
- Mungovan v. The Queen, 2001 DTC 691
- Drewlo Holdings Inc. v. The Queen, 97 DTC 466
- GMAC v. The Queen, 99 DTC 975
- Morris v. The Queen, 93 DTC 316
In GMAC, Rip J. said at p. 978:
The question whether a particular assumption was made on assessment and the question whether the assumption is factually correct are generally heard before the trial judge since it is difficult to deal with these questions on an interlocutory motion. The motion was therefore heard by me at the commencement of the hearing on the merits of these appeals by GMAC.
I am in respectful agreement.
(c) As a corollary to the above I would again emphasize that the statements in the letters sent by the assessors to the appellants are ambiguous since "religious order" is an ingredient in both the status and the function test. If the appellants consider it worth their while to pursue what the assessors were thinking when they uttered those Delphian pronouncements they can do so on discovery. Alternatively they might consider just getting on with proving their cases in the ordinary way by showing that they meet both tests without the benefit of a full analysis of the assessors' thought processes or the language used to express them. This would be quicker and cheaper.
(d) One remedy, less drastic than that sought by the appellants, would be to strike out only subparagraph 5d). This might be considered by the trial judge but I should emphasize that in my view the onus on the appellants would not change. They have asserted that they are entitled to the paragraph 8(1)(c) deduction. They have made the following assertion in their notices of appeal:
As part of his employment at the College, the Appellant was assigned by the Denomination to service and pastoral duties at the College and at various local congregations of the Denomination.
This paragraph is denied in the replies. If the appellants expect to win their cases they should at least establish that they meet the function test, regardless of what thoughts may have been going through the assessors' minds when the assessments were made. I repeat what was said in The Cadillac Fairview Corporation Limited v. The Queen, 97 DTC 405 at p. 407:
The appellant pleaded that the payments were made pursuant to the guarantees and this allegation was denied. Counsel for the appellant argued that since the Minister had not pleaded that he "assumed" that the payments were not made pursuant to the guarantees the Minister had the onus of establishing that the payments were not made pursuant to the guarantees. The question is, if not a pure question of law, at least a mixed one of law and fact. In any event the basic assumption made on assessing was that the appellant was not entitled to the capital loss claimed and it was for the appellant to establish the several legal components entitling it to the deduction claimed. An inordinate amount of time is wasted in income tax appeals on questions of onus of proof and on chasing the will-o'-the-wisp of what the Minister may or may not have "assumed". I do not believe that M.N.R. v. Pillsbury Holdings Ltd. [1964] DTC 5184 has completely turned the ordinary rules of practice and pleading on their head. The usual rule - and I see no reason why it should not apply in income tax appeals - is set out in Odgers' Principles of Pleading and Practice, 22nd edition at p. 532:
The "burden of proof" is the duty which lies on a party to establish his case. It will lie on A, whenever A must either call some evidence or have judgment given against him. As a rule (but not invariably) it lies upon the party who has in his pleading maintained the affirmative of the issue; for a negative is in general incapable of proof. Ei incumbit probatio qui dicit, non qui negat. The affirmative is generally, but not necessarily, maintained by the party who first raises the issue. Thus, the onus lies, as a rule, on the plaintiff to establish every fact which he has asserted in the statement of claim, and on the defendant to prove all facts which he has pleaded by way of confession and avoidance, such as fraud, performance, release, rescission, etc.
[22] The motions are dismissed. Counsel for the respondent asked that I award costs to the Crown. I have given this request careful consideration and in all the circumstances I think costs should be in the cause unless the trial judge determines differently.
Signed at Ottawa, Canada, this 9th day of December 2002.
|
"D.G.H. Bowman" |
A.C.J.COURT FILE NOS.: 2002-575(IT)G, 2002-581(IT)G,
2002-585(IT)G, 2002-1123(IT)G
STYLE OF CAUSE: Between Rev. Randal Holm, Rev. Paul
Kohls, Rev. Ronald Powell,
Rev. Robert D. James and
Her Majesty The Queen
PLACE OF HEARING: Toronto, Ontario
DATE OF HEARING: November 21, 2002
REASONS FOR ORDER BY: The Honourable D.G.H. Bowman
Associate Chief Judge
DATE OF ORDER: December 9, 2002
APPEARANCES:
Counsel for the Appellants: Robert B. Hayhoe, Esq.
Patrick J. Boyle, Esq.
Counsel for the Respondent: Franco Calabrese, Esq.
Jenna Clark
COUNSEL OF RECORD:
For the Appellant:
Name: Robert B. Hayhoe, Esq.
Firm: Miller Thomson LLP
Toronto, Ontario
and
Name: Patrick J. Boyle, Esq.
Firm: Fraser Milner Casgrain LLP
Toronto, Ontario
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2002-575(IT)G
BETWEEN:
REV. RANDALL HOLM,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Motion heard with the motions in Rev. Paul Kohls (2002-581(IT)G),
Rev. Ronald Powell (2002-585(IT)G) and Rev. Robert D. James (2002-1123(IT)G)
on November 21, 2002 at Toronto, Ontario, by
The Honourable D.G.H. Bowman
Associate Chief Judge
Appearances
Counsel for the Appellant: Robert B. Hayhoe, Esq.
Patrick J. Boyle, Esq.
Counsel for the Respondent: Franco Calabrese, Esq.
Jenna Clark
ORDER
Upon motion by the appellant for an order allowing the appeal, or for striking the reply to the notice of appeal in its entirety, or denying leave to the respondent to file a fresh or amended reply to the notice of appeal, or striking out paragraph 5 of the reply to the notice of appeal, and for solicitor-client costs for this motion in any event of the cause
And upon hearing what was alleged by the parties
.../2
It is ordered that the motion be dismissed and that costs be costs in the cause unless the trial judge orders otherwise.
Signed at Ottawa, Canada, this 9th day of December 2002.
|
"D.G.H. Bowman" |
A.C.J.
2002-581(IT)G
BETWEEN:
REV. PAUL KOHLS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Motion heard with the motions in Rev. Randal Holm (2002-575(IT)G),
Rev. Ronald Powell (2002-585(IT)G) and Rev. Robert D. James (2002-1123(IT)G)
on November 21, 2002 at Toronto, Ontario, by
The Honourable D.G.H. Bowman
Associate Chief Judge
Appearances
Counsel for the Appellant: Robert B. Hayhoe, Esq.
Patrick J. Boyle, Esq.
Counsel for the Respondent: Franco Calabrese, Esq.
Jenna Clark
ORDER
Upon motion by the appellant for an order allowing the appeal, or for striking the reply to the notice of appeal in its entirety, or denying leave to the respondent to file a fresh or amended reply to the notice of appeal, or striking out paragraph 5 of the reply to the notice of appeal, and for solicitor-client costs for this motion in any event of the cause
And upon hearing what was alleged by the parties
.../2
It is ordered that the motion be dismissed and that costs be costs in the cause unless the trial judge orders otherwise.
Signed at Ottawa, Canada, this 9th day of December 2002.
|
"D.G.H. Bowman" |
A.C.J.
2002-585(IT)G
BETWEEN:
REV. RONALD POWELL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Motion heard with the motions in Rev. Randall Holm (2002-575(IT)G),
Rev. Paul Kohls (2002-581(IT)G) and Rev. Robert D. James (2002-1123(IT)G)
on November 21, 2002 at Toronto, Ontario, by
The Honourable D.G.H. Bowman
Associate Chief Judge
Appearances
Counsel for the Appellant: Robert B. Hayhoe, Esq.
Patrick J. Boyle, Esq.
Counsel for the Respondent: Franco Calabrese, Esq.
Jenna Clark
ORDER
Upon motion by the appellant for an order allowing the appeal, or for striking the reply to the notice of appeal in its entirety, or denying leave to the respondent to file a fresh or amended reply to the notice of appeal, or striking out paragraph 7 of the reply to the notice of appeal, and for solicitor-client costs for this motion in any event of the cause
And upon hearing what was alleged by the parties
.../2
It is ordered that the motion be dismissed and that costs be costs in the cause unless the trial judge orders otherwise.
Signed at Ottawa, Canada, this 9th day of December 2002.
|
"D.G.H. Bowman" |
A.C.J.
2002-1123(IT)G
BETWEEN:
REV. ROBERT D. JAMES,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Motion heard with the motions in Rev. Randall Holm (2002-575(IT)G),
Rev. Paul Kohls (2002-581(IT)G) and Rev. Ronald Powell (2002-585(IT)G)
on November 21, 2002 at Toronto, Ontario, by
The Honourable D.G.H. Bowman
Associate Chief Judge
Appearances
Counsel for the Appellant: Robert B. Hayhoe, Esq.
Patrick J. Boyle, Esq.
Counsel for the Respondent: Franco Calabrese, Esq.
Jenna Clark
ORDER
Upon motion by the appellant for an order allowing the appeal, or for striking the reply to the notice of appeal in its entirety, or denying leave to the respondent to file a fresh or amended reply to the notice of appeal, or striking out paragraph 5 of the reply to the notice of appeal, and for solicitor-client costs for this motion in any event of the cause
And upon hearing what was alleged by the parties
.../2
It is ordered that the motion be dismissed and that costs be costs in the cause unless the trial judge orders otherwise.
Signed at Ottawa, Canada, this 9th day of December 2002.
|
"D.G.H. Bowman" |
A.C.J.