Category Archives: Tax Court of Canada

Burden of Proof, Canada Evidence Act, Tax Litigation, Tax Practice

Notice Requirements for Hearsay Exceptions in Tax Trials

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Notice Requirements for Hearsay Exceptions in Tax Trials

Boroumand v Canada, 2016 FCA 313

At issue was the question of what constitutes notice under the Canada Evidence Act when seeking to rely on a statutory hearsay exception. This was an appeal from 2015 TCC 239.

This case shows the importance of trial counsel knowing the rules of procedure and following them. Absent this, appeal counsel are unlikely to succeed despite able argument or merits of the case.

See CanLII Comment HERE

FACTS

The Appellant taxpayer was assessed under the Income Tax Act and the Excise Tax Act for unreported income of over $3.5M. The Tax Court of Canada dismissed the appeal on the basis that the taxpayer had not demonstrated that the source of the unreported funds was not taxable (it was claimed that the funds were transfers of an inheritance from Iran).

The TCC judge refused to admit into evidence documents from money exchange enterprises that showed the funds came from Iran, significantly hindering the taxpayer’s ability to prove the source of the funds and meet his burden.

ANALYSIS

The Court referred to the Supreme Court of Canada decision in R v. Blackman, 2008 SCC 37 at para 36, where it was said that the trial judge is well placed to determine the extent to which the hearsay dangers of a particular case are of concern and whether they can be sufficiently alleviated (para 3).  The trial judge’s ruling on admissibility is entitled to deference as long as it is informed by the correct principles of law (para 3).

The Canada Evidence Act, section 30, provides a statutory hearsay exception for business records (records made in the usual and ordinary course of business). The court may examine the documents and hear evidence as to the circumstances of their creation and draw any reasonable inference (s 30(6) CEA).  Simple assertions that the documents are created in the usual and ordinary course of business are insufficient, there must be supporting evidence (para 6). Simple assertions that the documents are created in the usual and ordinary course of business are insufficient, there must be supporting evidence (para 6).  In this case, counsel at trial failed to call witnesses from the money exchange enterprises, there was no affidavit evidence, and there was no explanation offered as to the circumstances in which the records were made.  The failure of trial counsel bound the hands of the counsel on appeal.

Subsection 30(7) of the CEA also requires that seven days’ notice be given of the intention to introduce documents under the business records exception (para 7).  The taxpayer argued that the notice requirement was satisfied by producing the documents along with other documents as part of discovery.  There is no particular form of notice required, but the notice should “sufficiently describe which documents are to be introduced and indicate an intention to introduce them as business records” (para 7).  The Tax Court Judge had discretion to dispense with the notice requirement but did not do so.

The court also held that the documents could not be admitted under the common law business records exception to hearsay rule, as the conditions in Ares v. Venner, [1970] S.C.R. 608 were not met at trial, nor could they be admitted under the principled approach as the evidence in required for the trier of fact to adequately address its worth – R v. Khelawon, 2006 SCC 57 at paras. 2-3 (para 9).

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

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Tax Court of Canada Rules, Tax Litigation, Tax Practice

Findings of Fact in Criminal or Civil Trials in Tax Court

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Findings of Fact in Criminal or Civil Trials in Tax Court

Samaroo v The Queen, 2016 TCC 290

This was a preliminary motion in the nature of a voire dire.  The matter before the Court was in relation to findings of fact in a criminal proceeding, under issue estoppel or abuse of process in the context of an acquittal.

The Court held that the findings of fact in the criminal proceedings are not binding and no party was precluded from adducing further evidence before the Tax Court of Canada but admitted certain evidence as evidence of the Appellants.   The Court also ordered a variance in the order of presentation of evidence and argument pursuant to Tax Court of Canada Rules (General Procedure) Rule 135(2).

FACTS

The Appellants (individuals and a corporation) brought a preliminary motion concerning the admissibility of exclusion of evidence.  Evidence to be excluded is from factual findings in a previous criminal trial for income tax evasion involving SOME of the appellants resulting in an acquittal– R v. Samaroo, 2011 BCPC 503 – and subsequent orders for civil proceedings for malicious prosecution – Samaroo v. Canada Revenue Agency, 2016 BCSC 531.  The parties took different views as to the issues determined by these proceedings (para 4).

The parties took different views as to the issues determined by these proceedings (para 4).  The Minister took the position that the findings and issues cannot be divorced from the differing standard and burden of proof in Criminal proceedings (para 6).

The Appellant also sought an order excluding further evidence being introduced to challenge the findings of those proceedings on the basis of issue estoppel or abuse of process (para 2).

ANALYSIS

The legal basis for excluding evidence was proposed to be either issue estoppel or abuse of process.

Issue Estoppel

The elements of issue estoppel, which is a discretionary remedy, are:

  • Issue Symmetry – same questions of issues have been decided;
  • Finality – the judicial decision said to create the estoppel is final; and
  • Mutuality – the parties to the judicial decisions or their privies are the same parties to the proceedings in which estoppel is raised.

The Court held that finality and mutuality exist, leaving issue symmetry.  The first step in applying issue estoppel is for the court to determine whether the pre-conditions have been met and, if met, the court must determine whether the discretionary remedy out to be granted (para 12) – Danyluk v. Ainsworth Technologies Inc, [2001] SCJ No 46 at para 33.  The discretion NOT to grant the remedy looks at whether there is anything in the circumstances that would result in an injustice if issue estoppel were granted and must consider the realities of each case (para 13) – Schweneke (2000), 47 0R (3d) 97 (CA) at paras 38 and 43.  This requires the Court to consider the fairness of the prior proceeding AND the fairness of using the results of that proceedings to determine the issues in the subsequent proceeding (para 14).  The policy goal is to “balance the public interest in the finality of litigation with the public interest in ensuring that justice is done on the facts of a particular case” (para 34).

Abuse of Process

The Court should not allow a party to re-litigate the same question twice where doing so results in a misuse of the court’s procedures, thereby compromising the integrity of the justice system and bringing the administration of justice into disrepute (para 15).   The same criteria that apply to prevent issue estoppel from operating also apply to prevent abuse of process – Toronto (City) v. CUPE Local 79, 2003 SCC 63, para 53.  Both aim at ensuring the fairness of the judicial decision-making process.  For example, if the stakes in the original proceeding were too small to generate a robust response but the subsequent stakes are higher, the administration of justice is better served by allowing the second proceeding to move forward (para 17) – Toronto (City) v. CUPE Local 79, 2003 SCC 63 para 53.  This too is a discretionary remedy that considers fairness – Golden v. R., 2008 TCC 173 para 29 – but also balances finality, efficiency, and authority of the judicial decisions – Golden para 42.

Considerations

Issue Estoppel

  • Varying standards of proof, burdens of proof, and outcomes/verdits;
    • Where acquittal in the prior criminal proceeding was based on reasonable doubt, issue estoppel does not apply to subsequent civil proceedings due to differences in standards of proof (para 31);
  • The focus of the analysis is on the issues determined, not the outcome  as conviction or acquittal (paras 32 and 34);
  • Different doctrines of issue estoppel apply to criminal and civil proceedings (para 33);
    • The burden of proof shift when comparing civil and tax court proceedings is important – the taxpayer in tax appeals has the burden to demolish the Minister’s assumptions (para 36) – [16];
  • The extent of the deference under judicial comity is a matter to be determined case by case, but does not apply where the factual  matrix, issues, or evidentiary basis is different (paras 37-39);
    • The purposes of criminal trials and tax appeals are fundamentally different and not a re-litigation but a distinct mandated legal process evaluating and determining different legal rights and obligations (para 40);

Abuse of Process

  • the maintenance of the TCC’s exclusive statutory jurisdiction to determine the validity and correctness of the tax assessment is a primary concern with abuse of process (para 42);
    • The court should not give exclusionary effect to findings, rather the findings admitted to give them voice but permitting contrary or enhancing evidence to be called (para 48);
  • The interests of the parties are not determinative, rather the integrity of the justice system is (para 44);

Proof in Tax Appeals

  • The Appellant bears the initial onus to demolish the Minister’s assumptions by at least a prima facie case on a balance of probabilities, Hickman Motors Ltd v. R, [1997] 2 SCR 336, para 92-93;
  • If successful, the onus shifts to the Minister to rebut the prima facie case and to prove the assumptions on a balance of probabilities, Hickman Motors Ltd v. R, [1997] 2 SCR 336, para 94-95;
  • However, the court may shift the initial burden to the Minister where doing so would not compromise the integrity, enforceability, and credibility of the self-reporting taxation system and the following factors apply (para 58):
    • knowledge of the pertinent facts skew in favor of the Minister;
    • Imposition of the initial onus on the taxpayer would result in procedural unfairness; or
    • strictly putting the initial onus on the taxpayer does not give sufficient consideration to the need to put the onus on the person making an affirmative assertion;
Utilization of Findings of Past Proceedings in This case
  • The findings comprised admissible evidence, while the weight to be given to this evidence remained the TCC’s allowing a reconciling of the varying processes, standards of proofs, and purposes (para 61);
  • Where the findings do not address all assumptions of tax years, the Appellant bears the initial burden (para 62);
  • The final burden’s remain unchanged (paras 70-71);

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

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