Assumptions of Fact by Crown – Proper Pleadings 

Health Quest Inc v The Queen, 2014 TCC 211

Justice Diane Campbell addressed the need for the Minister to properly plead the assumptions of fact in tax cases.  The assumptions must be stated clearly and precisely so that the taxpayer knows the case to meet and the facts that must be demolished.  She stated at para 33 that “[w]here the Minister has not set out any proper assumptions of fact in the pleadings, the onus then reverts to the Minister to establish the correctness of the assessment.” (see also Pollock v Minister of National Revenue, 94 DTC 6050 (FCA), at paragraph 2; and Brewster v The Queen, 2012 TCC 187).

She allowed the taxpayer’s appeal and stated:

[2]             I am allowing the appeal because the Respondent, in its Reply to the Notice of Appeal, did not comply with the basic principles, established in the jurisprudence, regarding the pleading of the assumptions of fact. Those assumptions contained mixed questions of law and fact, making it impossible for the Appellant to know the case it had to meet. Consequently, the burden of proof is with the Minister of National Revenue (the “Minister”) to lead evidence to support its position. Since such evidence was not adduced by the Respondent at the hearing, the Appellant must be the successful party in this appeal.

With regards to pleadings, the TCC offered the following guidance.  Campbell J recognized that the Minister is not required to use the typical wording used in pleadings (“the Minister made the following assumptions”) for alleged facts to constitute assumptions of fact (see also Voitures Orly Inc./Orly Automobiles Inc. v The Queen, 2005 FCA 425).  However, the Minister is prohibited from making assumptions of mixed fact and law, and must limit assumptions to factual assumptions (para 27).  The FCA in Anchor Pointe Energy Ltd. v The Queen, 2003 FCA 294, at paras 23 and 25, stated that the “powerful tool of shifting the onus to the taxpayer” using assumptions must be used properly:

[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. There is no reason why the requirement for precision and accuracy does not apply to the Crown accurately stating the circumstances in which the assumptions arose, that is, on an assessment, reassessment or confirmation. …

[…]

[25]   I agree that legal statements or conclusions have no place in the recitation of the Minister’s factual assumptions. The implication is that the taxpayer has the onus of demolishing the legal statement or conclusion and, of course, that is not correct. The legal test to be applied is not subject to proof by the parties as if it was a fact. The parties are to make their arguments as to the legal test, but it is the Court that has the ultimate obligation of ruling on questions of law.

See also Canadian Imperial Bank of Commerce v The Queen, 2013 FCA 122.

The court referred to the decision of the Supreme Court of Canada in Canada (Director of Investigation and Research) v Southam Inc., [1997] 1 SCR 748, where the SCC provided this guidance:

35.     Briefly stated, questions of law are questions about what the correct legal test is; questions of fact are questions about what actually took place between the parties; and questions of mixed law and fact are questions about whether the facts satisfy the legal tests. A simple example will illustrate these concepts. In the law of tort, the question of what “negligence” means is a question of law. The question whether the defendant did this or that is a question of fact. And, once it has been decided that the applicable standard is one of negligence, the question whether the defendant satisfied the appropriate standard of care is a question of mixed law and fact. I recognize, however, that the distinction between law on the one hand and mixed law and fact on the other is difficult. On occasion, what appears to be mixed law and fact turns out to be law or vice versa.

– Sas Ansari, JD LLM PhD (exp)

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