Focus On

FEDERAL INCOME TAX - Tax avoidance - Misuse and abuse

Tuesday, June 01, 2021 @ 6:12 AM  


Lexis Advance® Quicklaw®
Appeal by the Crown from a Tax Court decision requiring the Crown to respond to undertakings made during the Crown’s discovery examination. CHR appealed reassessments denying certain carryover amounts for non-capital losses and scientific research and experimental development expenditures that had been incurred by another corporation. The Minister denied the amounts claimed based on the general anti-avoidance rule. The only issue in the appeal was whether the avoidance transaction was an abuse of the Income Tax Act. CHR sought production of correspondence between CRA officials and the Department of Finance to determine if such officials expressed an opinion on the rationale of the applicable provisions that was inconsistent with or conflicted with the current position of the Crown. The Crown indicated that none of the documents sought were considered in the reassessment at issue and thus determined that they were not relevant. The Tax Court judge determined that a permitted line of inquiry at the discovery stage included questions and requested documents to determine if the Minister’s pleaded policy for s. 245(4) purposes did not wholly conform with other administrative fiscal statements on the same subject. He thus allowed CHR’s motion and ordered the Crown to respond to the requested undertakings.

HELD: Appeal allowed. The Tax Court judge erred in applying the law to the facts of this case. Although he acknowledged that the case law permitted disclosure of documents on questions of law at the discovery stage when such documents were considered in relation to a taxpayer’s audit or were in the taxpayer’s file, the requested documentation in this case was not considered in the audit of CHR nor was it in CHR’s file. Simply because other cases allowed questions that would require the disclosure of documents in an anti-avoidance case, it did not automatically follow that the requested documents should be disclosed in this case. The documents at issue were not published documents released by either the Department of Finance or the CRA. The Tax Court judge erred by indicating that any deference could be accorded to any expressions of the rationale of the applicable provisions of the Act that might be disclosed in the letters sought by CHR in this matter. None of the requested documents were considered by the Minister in invoking the anti-avoidance rule. The relevance of these documents was not established or admitted by the Crown. The documents were not requested to clarify the legal position of the Crown but only to determine if someone with the CRA or the Department of Finance, in the requested correspondence, expressed an opinion concerning the rationale for the applicable provisions that contradicted or was inconsistent with the rationale as set out in the Crown’s reply. Even if such a contrary opinion existed, it would be an opinion on a question of domestic law and not admissible in the Tax Court appeal.

Canada v. CHR Investment Corp., [2021] F.C.J. No. 302, Federal Court of Appeal, W.W. Webb, D.G. Near and D.J. Rennie JJ.A., April 9, 2021. Digest No. TLD-May312021003