Don’t assume …

In the Tax Court of Canada, the onus is on the taxpayer to prove the facts on which he or she relies in appealing from a reassessment. Usually, the taxpayer is the party who must “carry the ball”. That doesn’t mean, however, that the government can sit back and do nothing, at least according to Justice Webb in Brewster v R, 2012 TCC 187.

The CRA reassessed Mr Brewster for the 2009 taxation year on the basis that his RRSP acquired non-qualified investments. The Justice Reply, however, did not identify the securities that were non-qualified investments or provide other facts that would have explained why the securities had this status. Justice Webb was not impressed:

[10] It seems to me that whether the Appellant acquired “non-qualified investments” through his RRSP account is a conclusion of mixed fact and law that can only be determined based on the facts related to the investments and then applying the law to those facts. It is not proper for the Minister to assume the final conclusion that the investments were not qualified investments. The factual components should have been separated and clearly stated for the Appellant. Someone must have determined that the Appellant had acquired non-qualified investments but based on the Reply and also on the information provided during the hearing it is not even possible to ascertain if the shares in the companies identified by the Appellant are the investments that were determined to be non-qualified investments.

[11] Justice Rothstein (as he then was) writing on behalf of the Federal Court of Appeal in The Queen v. Anchor Pointe Energy Ltd., 2003 DTC 5512 stated that:

[23] The pleading of assumptions gives the Crown the powerful tool of shifting the onus to the taxpayer to demolish the Minister’s assumptions. The facts pleaded as assumptions must be precise and accurate so that the taxpayer knows exactly the case it has to meet.

[12] In this case the assumptions do not even identify which investments were non-qualified investments. The assumptions as set out in the Reply are not precise and do not assist the Appellant in determining what case he has to meet.

[13] Counsel for the Respondent submitted that the Appellant had to prove that the investments were qualified investments. In McMillan v. The Queen, 2012 FCA 126 (CanLII), 2012 FCA 126, the Federal Court of Appeal stated that:

7…In our respectful view, it is settled law that the initial onus on an appellant taxpayer is to “demolish” the Minister’s assumptions in the assessment. This initial onus of “demolishing” the Minister’s assumptions is met where the taxpayer makes out at least a prima facie case. Once the taxpayer shows a prima facie case, the burden is on the Minister to prove, on a balance of probabilities, that the assumptions were correct (Hickman Motors Ltd. v. Canada, 1997 CanLII 357 (SCC), [1997] 2 S.C.R. 336 at paragraphs 92 to 94; House v. Canada, 2011 FCA 234 (CanLII), 2011 FCA 234, 422 N.R. 144 at paragraph 30).

[14] It seems to me that the logical extension of this is that if the Minister has not made any valid assumptions that would support the reassessment, there are no assumptions for the Appellant to “demolish” and therefore the Appellant will be successful.

Appeal allowed.