The CRA’s Appeals branch, according to P148 (“Resolving Your Dispute: Objection and Appeal Rights Under the Income Tax Act”), exists “to resolve disputes arising from decisions made under legislation administered by the [CRA] by conducting fair and impartial reviews.” In fact, Appeals sometimes ends up acting as if the objection process were a second chance to audit the taxpayer: sometimes officers of the branch appear to spend more time trying to repair deficiencies in the CRA’s case against the taxpayer than they do considering the taxpayer’s submissions. When this happens, is relief available to the taxpayer?
Anchor Pointe Energy Ltd v. The Queen, 2006 TCC 424, indicates that there is relief, of a sort.
In general, in a tax case, the taxpayer has the onus of disproving the assumptions made by the Minister in assessing the taxpayer. In Anchor Pointe, however, the Court considered the following question: “Who bears the onus of proof with respect to assumptions of fact first relied on by the Minister of National Revenue in confirming a reassessment pursuant to subsection 165(3) of the Income Tax Act?” Chief Justice Bowman held that the onus in such a case lies on the Crown:
[27] I have concluded that the rules established by the Supreme Court of Canada for challenging an assessment followed for decades are so thoroughly entrenched that it would be inappropriate to impose an additional burden on a taxpayer of demolishing further “assumptions” or findings of fact made by the Minister in confirming the assessment at the objection level. The reverse onus of proof in tax litigation and the substantial body of jurisprudence that has been developed around it are unique. I am not prepared to drive a coach-and-four through those rules by adding a totally new dimension to the taxpayer’s burden. If the rules are to be changed it is either Parliament or the Supreme Court of Canada that must do so. There is no reason, as a matter of principle, of law, of fairness or of common sense that would justify my requiring a taxpayer to take on the added onus of demolishing new reasons that the Minister has come up with in the course of what is essentially an administrative review of an assessment. To plead that the Minister, in confirming the assessment acted upon certain “assumptions” may in some circumstances be a useful piece of information but it casts no additional burden on the taxpayer. It is merely an assertion of additional facts or reasons that the Minister has relied upon in his administrative review of the assessment. Despite the great respect that I have for Justice Cattanach, I do not accept the correctness of his obiter dictum in Parsons v. M.N.R., [1984] 1 F.C. 804 that the Minister’s reconsideration of the assessment on objection is “part and parcel of the assessment process”. It is inconsistent with what Justice Rip said in paragraph 27 of his reasons in this case quoted above. That portion of his reasons was implicitly confirmed by Rothstein, J.A. in the Federal Court of Appeal.
[28] Quite apart from the compelling precedential force of four Supreme Court of Canada judgments there are additional reasons for not saddling the taxpayer with the onus of disproving new “assumptions” that the Minister has come up with at the objection level. It is a simple matter of procedural fairness. The cards are already stacked in favour of the Crown, with the presumption of correctness of assessments, the Crown’s right to plead unproved assumptions and the reverse onus of proof. I see no reason for stacking the cards any further by extending that reverse onus to “assumptions” made at the confirmation stage. The point was put very well by William I. Innes in the article Will-o’-the wisps and Other Exotic Tax Species: Recent Developments in the Rules of Crown Pleading in Tax Litigation, Volume XI, No. 2 Tax Litigation at page 686:
…The underlying policy reason for the reverse onus rule is clear where facts are peculiarly within the knowledge of the taxpayer it is simply unfair to force the Minister to prove those facts. If the Minister makes assumptions which are incorrect, the taxpayer has the knowledge to demonstrate that error. The underlying premise of the rule, however, is that the Minister makes such factual assumptions in raising an assessment (which, in my view, can be done on an assessment, an initial reassessment or a reassessment arising out of a notice of objection). Where the assumptions arise in the course of confirming an original assessment or reassessment as part of the objection procedure, the fairness of the process is questionable at best. The objection process can take several years in more complex cases (slightly more than six years in the Anchor Pointe case). To allow the Minister to sit back and “cherry-pick” developments from recent cases and use them to bolster the rationale for the original assessment or reassessment under the guise of making assumptions which the taxpayer must then disprove seems an unduly nervous burden to place on the taxpayer. Clearly, the Crown should be able to plead such facts and arguments (subject to the issue of statute-barring which is discussed below) as long as the onus is on the Crown to adduce evidence to prove such assertions. Where, however, the Crown can cast such after-thoughts as assumptions this seems to go well beyond the “level playing field” rationale underlying the original rule and to skew the process clearly in favour of the Crown.
