Brewster v MNR, 2012 TCC 187

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What the CRA can Assume and What it can’t Assume

Brewster v MNR, 2012 TCC 187

The CRA’s use of pleading assumptions give the MNR a powerful tool by shifting the onus onto the taxpayer.  The taxpayer must marshal evidence to demolish the assumptions of the Minister, if this is the chosen defence road.  All that is required of a taxpayer, in ‘demolishing’ the Minister’s assumptions, is the making of a prima facie case, whereupon the onus shifts onto the Minister to prove the correctness of the assumptions on a balance of probabilities.

 However, the ability of the Crown to plead assumptions is not absolute.  The are two general matters to be on the look-out for when reviewing assumptions: (1) the assumptions must be precise and accurate so as to allow the taxpayer to know the exact case it must meet, and (2) the pled assumptions must relate only to matters of fact.  Identifying assumptions that do not live up to what is required will make reduce or eliminate the work the taxpayer must do in meeting the CRA’s challenge.

Both of the above-mentioned matters were issues in Brewster v MNR, 2012 TCC 187.  In this case, the MNR had pled, inter alia, that the taxpayer had acquired non-qualified investments through his self-directed RRSP account.

Justice Webb identified two issues with this assumption.  One was that the assumption failed to identify which of the investments were non-qualified di investment, and as such did not meet the required threshold of precision allowing the taxpayer to know the case to meet.  The second issue was that the assumption had strayed beyond fact, and made what was a question of mixed fact and law (whether the investment was a non-qualifying investment).  The court stated that it was not proper for the minister to make this final conclusion, as the conclusion required the application of the law to facts.

The Court stated that “the logical extension […] is that if the minister has not made any valid assumptions that would support the reassessment, there are no assumptions for the [taxpayer] to demolish and therefore the [taxpayer] will be successful” (para 14). In this case, there were no valid assumptions of fact to support the reassessment, and there was no work for the taxpayer to do.

– Sas Ansari, BSc BEd PC JD LLM PhD (exp) CPA In-Depth Tax 1, 2 &3

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