A‑329‑06
2007 FCA 188
Her Majesty the Queen (Appellant)
v.
Anchor Pointe Energy Ltd. (Respondent)
Indexed as: Canada v. Anchor Pointe Energy Ltd. (F.C.A.)
Federal Court of Appeal, Létourneau, Evans and Sharlow JJ.A.—Vancouver, May 1 and 15, 2007.
Income Tax — Reassessment — Appeal from Tax Court of Canada decision onus on Crown to prove assumptions of fact relied upon by Minister of National Revenue at confirmation stage of reassessment pursuant to Income Tax Act, s. 165(3) — “Assessment” referring not only to specific action of Minister in tax liability determination process, but also to product of that process (i.e. amount of tax owing as initially assessed and subsequently confirmed) — Minister entitled to plead new facts as assumptions throughout this process, as long as pleaded accurately — Onus of proof with respect to assumptions of fact made by Minister in assessing tax liability usually resting with taxpayer — Nothing herein warranting exception to rule as evidence underlying assumptions within exclusive, peculiar knowledge of respondent — Appeal allowed.
This was an appeal from a decision of the Tax Court of Canada wherein it was held that the onus of proof with respect to assumptions of fact first made by the Minister of National Revenue at the confirmation stage of a reassessment pursuant to subsection 165(3) of the Income Tax Act was on the Crown.
The Minister confirmed the reassessment of the respondent’s predecessor companies on the basis of certain assumptions with respect to the purchase of seismic data by these companies. The respondent filed a notice of appeal with the Tax Court. In his reply to that notice of appeal, the Minister included assumptions that represented a radical change from those made at the initial stage of the assessment. The respondent moved to strike these assumptions on the basis that they could not have been assumed at the time of the assessment because the decision which was relied upon to make these assumptions had not been rendered at the time of the assessment. The Tax Court ordered these assumptions expunged from the reply. While it affirmed that decision, the Federal Court of Appeal noted that assumptions could be included in the Crown’s reply as long as they were pleaded accurately. The Crown thus filed an amended reply, stating that the relevant assumptions had been made in confirming the reassessments.
The Tax Court expressed the view that the confirmation of an assessment is not part of the assessment process, and held that it was inappropriate to saddle the taxpayer with the onus of disproving assumptions made at the confirmation stage.
Held, the appeal should be allowed.
While the words assessment, reassessment and confirmation refer to three specific actions by the Minister under the Act in the process of determining the tax liability of a taxpayer, the word “assessment” also refers to the product of that process. The assessment is not completed by the Minister until the amount of the tax owing is finally determined. The Minister is entitled throughout this period, until his final determination, to rely upon facts newly discovered or revealed by the taxpayer, and assume them, as long as they are pleaded accurately. The Tax Court wrongly ignored this second meaning of the word assessment, as the appeal was from the product of the assessment, not simply its confirmation. The Minister could make assumptions of fact at the confirmation stage of the assessment.
Barring exceptions, the initial onus of proof with respect to assumptions of fact made by the Minister in assessing a taxpayer’s tax liability and quantum rests with the taxpayer. While there may be instances where the pleaded assumptions of fact are exclusively within the Minister’s knowledge, such that the rule as to the onus of proof may work so unfairly as to require a corrective measure, this was not the case here. The purpose in buying the seismic data and the subsequent use made of that data were within the exclusive and peculiar knowledge of the respondent.
statutes and regulations judicially
considered
Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1, ss. 66.1(6)(a) “Canadian exploration expense”, 152(3.1) (as am. by S.C. 1999, c. 22, s. 63.1), 165(3) (as am. by S.C. 1997, c. 7, Sch. VIII, s. 98), 169(1) (mod. par S.C. 1994, c. 7, Sch. II, s. 140), 152‑177.
Tax Court of Canada Rules (General Procedure), SOR/90‑688, ss. 49(1)(d), 58(1)(a) (as am. by SOR/2004‑100, s. 9).
cases judicially considered
applied:
Anchor Pointe Energy Ltd. v. Canada, 2002 DTC 2071 (T.C.C.); affd Canada v. Anchor Pointe Energy Ltd., [2004] 5 C.T.C. 98; 2003 DTC 5512; (2003), 308 N.R. 125; 2003 FCA 294; Parsons v. Minister of National Revenue, [1984] 1 F.C. 804; (1983), 4 Admin. L.R. 64; [1983] CTC 321; 83 DTC 5328 (T.D.); Canada v. Loewen, [2004] 4 F.C.R. 3; (2004), 2004 DTC 6321; 319 N.R. 97; 2004 FCA 146; Orly Automobiles Inc. v. Canada, [2005] G.S.T.C. 200; (2005), 2006 G.T.C. 1115; 345 N.R. 284; 2005 FCA 425.
considered:
Global Communications Ltd. v. Canada, [1999] 3 C.T.C. 537; (1999), 99 DTC 5377; 243 N.R. 134 (F.C.A.); Johnston v. Minister of National Revenue, [1948] S.C.R. 486; [1948] 4 D.L.R. 321; [1948] CTC 195; (1948), 3 DTC 1182; Holm v. Canada, [2003] 2 C.T.C. 2041; (2002), 2003 DTC 755 (T.C.C.); Canada v. Consumers’ Gas Co., [1987] 2 F.C. 60; [1987] 1 C.T.C. 79; (1986), 87 DTC 5008; 8 F.T.R. 321; 72 N.R. 206 (C.A.).
referred to:
Hickman Motors Ltd. v. Canada, [1997] 2 S.C.R. 336; (1997), 148 D.L.R. (4th) 1; [1998] 1 C.T.C. 213; 97 DTC 5363; 213 N.R. 81; Bowens v. Canada, [1996] 2 C.T.C. 120; (1996), 96 DTC 6128 (F.C.A.); Pollock v. Canada (1993), 3 C.C.P.B. 307; [1994] 1C.T.C. 3; 94 DTC 6050; 161 N.R. 232 (F.C.A.); Grant v. Canada, [2003] 3 C.T.C. 34; (2003), 2003 DTC 5160; 300 N.R. 288; 2003 FCA 77; First Fund Genesis Corp. v. Canada, [1990] 2 C.T.C. 24; (1990), 34 F.T.R. 313; 90 DTC 6337 (F.C.T.D.); Shaughnessy v. Canada, [2002] 2 C.T.C. 2035; (2002), 2002 DTC 1272 (T.C.C.); Stephen v. Canada, [2001] 2 C.T.C. 2621 (T.C.C.).
APPEAL from a decision of the Tax Court of Canada ([2006] 4 C.T.C. 2353; 2006 DTC 3365; 2006 TCC 424) that the burden of proof with respect to assumptions of fact first made by the M.N.R. at the confirmation stage of a reassessment pursuant to subsection 165(3) of the Income Tax Act was on the Crown. Appeal allowed.
appearances:
Wendy E. Burnham and Deborah Horowitz for appellant.
Craig C. Sturrock, Q.C. and Terry S. Gill for respondent.
solicitors of record:
Deputy Attorney General of Canada for appellant.
Thorsteinssons LLP, Vancouver, for respondent.
The following are the reasons for judgment rendered in English by
Létourneau J.A.:
The issue on appeal
[1]Who bears the onus of proof with respect to assumptions of fact first relied on by the Minister of National Revenue (Minister) in confirming a reassessment pursuant to subsection 165(3) [as am. by S.C. 1997, c. 7, Sch. VIII, s. 98] of the Income Tax Act [R.S.C., 1985 (5th Supp.), c. 1] (Act)?
[2]This was the question put on consent, by way of motion, to the Tax Court of Canada (Tax Court) pursuant to paragraph 58(1)(a) [as am. by SOR/2004-100, s. 9] of the Tax Court of Canada General Rules (General Procedure), SOR/90‑688 (Rules). In a decision rendered on July 21, 2006, the motions Judge determined that the burden to prove such assumptions was on the Crown: see Anchor Pointe Energy Ltd. v. Canada, [2006] 4 C.T.C. 2353 (Anchor Pointe TCC). Hence the appeal seeking a reversal of that decision.
The facts
[3]In 1991, five predecessors of the respondent acquired seismic data and in their income tax returns filed for the 1991 taxation year, claimed the costs of the data as a “Canadian exploration expense” (CEE). Eventually the five predecessors amalgamated to form the respondent.
[4]In February and March 1994, the Minister reassessed the predecessor companies and reduced the deductions made by each company. The Minister based his reassessments on the assumption that the predecessor companies had deducted more than the fair market value of the seismic data. Later in March 1994, the respondent objected to these reassessments. By agreement between the respondent and the Minister, the notices of objection were held in abeyance pending a decision of this Court in Global Communications Ltd. v. Canada, [1999] 3 C.T.C. 537 (F.C.A.) which was rendered on June 18, 1999. In that case, our Court confirmed that seismic data purchased for the purpose of resale or licensing does not qualify as CEE within the meaning of paragraph 66.1(6)(a) of the Act.
[5]On March 28, 2000, some four years later and approximately nine months after this Court released its decision in Global Communications, the Minister confirmed the reassessments on the basis of the assumptions that the predecessor companies’ purchase of seismic data was for more than the fair market value and did not qualify for CEE because it was purchased for the purpose of resale or licensing, and not for exploration purposes.
[6]The respondent filed on June 26, 2000, a notice of appeal with the Tax Court.
[7]In his reply to the respondent’s notice of appeal, the Minister included the assumptions that the predecessor companies’ purchase of seismic data was not effected for the purpose of determining the existence, locations, extent, or quality of an accumulation of oil or gas, and that the seismic data was not used for exploration purposes. These assumptions represented a radical change from those made at the initial stage of the assessment. While initially the Minister admitted the deductibility of the CEE, but not for the amount claimed, he was now taking the position that they were not deductible at all. This, I should say, would not increase the amount of tax claimed by the appellant, since the normal period for reassessing had expired.
[8]The respondent moved to strike these assumptions on the basis that they were included in the Minister’s reply as a result of the decision in Global Communications, and could not have been assumed at the time of assessment because Global Communications had not yet been decided. The Tax Court ordered that these assumptions be expunged from the Minister’s reply because “[i]t [was] not true that ‘in assessing the Minister assumed’ [those] facts”: see Anchor Pointe Energy Ltd. v. Canada, 2002 DTC 2071 (T.C.C.), at paragraph 27. This Court [at paragraph 22] affirmed the Tax Court’s decision, on the basis that “It is misleading for the Crown to say that the Minister made certain assumptions in reassessing, when those assumptions were made in confirming a reassessment”: see Canada v. Anchor Pointe Energy Ltd., [2004] 5 C.T.C. 98 (F.C.A.), at paragraph 22. However, the Court noted, at paragraph 28:
I do not understand [the Tax Court] to say that assumptions of fact made on confirming a reassessment cannot be pleaded. The Minister, as a result of reading the Notice of Objection filed by a taxpayer or a subsequently decided case such as Global, may make assumptions of fact. I see no reason why such assumptions may not be included in the Crown’s Reply. However, the assumptions must be pleaded accurately.
[9]As a result of this decision, the Crown filed an amended reply, stating that the relevant assumptions had been made in confirming the reassessments. These assumptions were made after the expiration of the normal reassessment period as set out in subsection 152(3.1) [as am. by S.C. 1999, c. 22, s. 63.1] of the Act.
The decision of the Tax Court
[10]The motions Judge conducted an extended review of the jurisprudence as it relates to the onus of proof in taxation cases, ultimately concluding that the Minister should bear the burden of proving assumptions made in confirming an assessment. The central basis for his conclusion found at paragraphs 25 and 26 was:
It is clear that the focus is upon the assessment which the Minister may confirm or vary or he may reassess.
Whether the Minister has confirmed or not the appeal is from the assessment. Had Parliament intended that a taxpayer should have to appeal from a confirmation it is perfectly capable of saying so.
[11]In the motions Judge’s view, the taxpayer’s burden is to demolish assumptions made by the Minister in assessing and not in confirming the reassessment. He thought it inappropriate to saddle the taxpayer with the onus of disproving assumptions made at the objection stage. He disagreed with the statement of Cattanach J. in Parsons v. Minister of National Revenue, [1984] 1 F.C. 804 (T.D.) that the confirmation of an assessment is part of the assessment process, finding that this statement was inconsistent with a more recent pronouncement of Rip J. of the Tax Court which, he believed, was implicitly confirmed by this Court: Anchor Pointe TCC, at paragraph 27. Furthermore, the motions Judge took the position that placing the onus on the Minister was more procedurally fair, as “The cards are already stacked in favour of the Crown” and there was “no reason for stacking the cards any further”: (at paragraph 28).
[12]The issue raised in this appeal is a novel one. I believe that, in advancing their respective position, both parties have overstated the jurisprudence upon which they rely. For a better understanding of these reasons, it is useful to summarize the arguments submitted on appeal.
The appellant’s submissions
[13]First, the appellant argues that the motions Judge misdirected himself in law in concluding that the Crown bears the onus of proving assumptions made on confirmation and in stating that the jurisprudence supports that conclusion.
[14]She points out that, under the legislative scheme laid out in the Act, the Minister must reconsider a tax assessment when the taxpayer objects to the assessment. When the Minister does not change the amount of tax assessed upon reconsideration, the Minister must issue a notice of confirmation, whether the Minister’s decision was based on the same or different considerations that motivated the assessment. If the taxpayer is still dissatisfied, he or she may then appeal the assessment to the Tax Court. The issue in an appeal to the Tax Court is the “correctness of the Minister’s decision as to the quantum of tax liability”: see appellant’s memorandum of fact and law, at paragraphs 21-23. The jurisprudence is to the effect that the taxpayer’s appeal is from the Minister’s final decision regarding the taxpayer’s tax liability, and that the Minister’s assumptions in making that final decision must be accepted unless demolished by the taxpayer.
[15]In other words, contrary to what the motions Judge stated, at paragraph 27 of his reasons, there is no principled reason why the Crown should be required to prove facts that the Minister relied on to justify the assessment, simply because those facts were not assumed prior to the Minister’s final confirmation.
[16]Second, the appellant submits that the case of Johnston v. Minister of National Revenue, [1948] S.C.R. 486 runs directly contrary to the motions Judge’s holding and, indeed, treats facts assumed by the Minister at the objection and initial assessment stage in the same manner. These assumptions must be demolished by the taxpayer: see appellant’s memorandum of fact and law, at paragraph 32. While the motions Judge purported to rely on decisions of the Supreme Court, he, the appellant claims, provided little insight as to how they support his conclusion: appellant’s memorandum of fact and law, at paragraph 36.
[17]Third, the appellant argues that, as a matter of principle, there is no onus upon the Minister to prove that his assessment of tax is correct. Rather, the assessment is deemed to be valid and it is the taxpayer’s burden to show that it is not: appellant’s memorandum of fact and law, at paragraph 38.
[18]Fourth, counsel for the appellant maintains that this Court has repeatedly stated that the Crown has an obligation to plead the assumptions made in confirming an assessment: appellant’s memorandum of fact and law, at paragraphs 40-42. The Attorney General in this case was simply doing what the Court previously stated it had an obligation to do. The motions Judge, she says, has effectively created two categories of assumptions: those made in assessing or reassessing on the one hand, which the taxpayer has the onus to disprove, and those made in confirming an assessment or reassessment, which the Crown has the onus to prove. The appellant submits that this distinction is not supported by jurisprudence which points instead towards treating all assumptions made up to the final decision of the Minister in the same manner. Though the act of reassessment is a distinct adminis-trative act from the act of confirmation, this Court’s comments differentiating the two acts in Canada v. Anchor Pointe Energy Ltd., were made in reference to the necessity for accuracy in pleading. Crown pleadings must be accurate precisely because the taxpayer bears the burden of disproving the Minister’s assumptions. Any additional facts assumed by the Attorney General in defending the Minister’s final decision on taxation must indeed be proven by the Minister, but the assumptions made on the confirmation of an assessment remain the Minister’s assumptions and must be disproved by the taxpayer: appellant’s memorandum of fact and law, at paragraphs 43-53.
[19]Fifth, the appellant submits that the motions Judge’s holding is unfair to the Minister. The taxation system is based on self‑reporting and self‑assessment. The pertinent facts are therefore generally within the peculiar knowledge of the taxpayer. In the instant case, the respondent’s purposes in purchasing the seismic data are within its control. If the burden of proof is laid on the Crown, it will have to prove a negative: that the respondent did not acquire the seismic data for the purpose of exploration and did not use it for exploration. This would be a difficult and potentially impossible task: appellant’s memorandum of fact and law, at paragraphs 54-56.
[20]Finally, the appellant argues that the making of an assessment refers to the determination of a taxpayer’s liability. It is therefore irrelevant whether that liability was finally determined after an assessment, a reassess-ment or a confirmation of an assessment or reassess-ment. Consequently, it would be an absurd result if the taxpayer has the onus of proving new facts pleaded as the Minister’s assumptions where an objection results in a reassessment, but the Crown has the onus of proving new facts pleaded as the Minister’s assumptions where an objection results in the confirmation of an assessment.
The respondent’s contentions
[21]First, the respondent argues that the case law is clear that the taxpayer bears the onus of proof only with respect to the Minister’s assumptions of fact made at the time of assessment. The term “assessment” refers to the administrative act of fixing tax liability culminating in the issuance of a notice of assessment. It does not include the administrative appeal process which involves the confirmation of the assessment: see respondent’s memorandum of fact and law, at paragraphs 15-17. The respondent relies upon paragraph 49(1)(d) of the Tax Court of Canada Rules (General Procedure) requiring every reply to state “the findings or assumptions of fact made by the Minister when making the assessment”.
[22]Second, the respondent points to this Court’s holding in Canada v. Anchor Pointe Energy Ltd., which, its counsel says, is to the effect that allegations made at the time of confirmation cannot be pleaded in the reply as assumptions, but must be pleaded separately. Counsel for the respondent submits that the distinction between these two types of allegations would serve no purpose if there is no difference in the parties’ onus as regards each type of allegation. As assessments form the basis for appeals to the Tax Court, the ordinary rules of pleading support the view that a taxpayer need only refute the facts and law that the Minister adopted in determining the amount of the assessment. If the Minister alleges new facts on confirming the assessments, these facts are not part of the assessment, but rather the Minister’s own affirmative pleadings which he should be required to prove: respondent’s memorandum of fact and law, at paragraphs 19, 22 and 23.
[23]Third, the respondent maintains that though the Act requires the Minister to consider an objection “with all due dispatch,” it stipulates no consequences for the failure of the Minister to deal with a notice of objection in a timely manner. The notice of confirmation in this case was issued in 2000, more than four years after the expiration of the normal reassessment period. This time delay would prejudice the respondent were it required to demolish the Minister’s assumptions which related to a period eight years prior to the confirmation. On the other hand, imposing the duty on the Minister will minimize this prejudice and create an incentive for Crown auditors to be thorough, timely and accurate in fact and law. This rule would not prejudice the Minister, who always has the option of reassessing within the normal reassessing period: if the Minister wishes to have the benefit of an assumption not made at the time of the initial assessment, he can reassess: respondent’s memorandum of fact and law, at paragraphs 25, 26, 29 and 30.
[24]Fourth, the respondent contends that when an appeals officer assumes new facts in confirming an assessment, the taxpayer is denied the opportunity to be heard on those new facts within the administrative appeal framework. The taxpayer’s only opportunity to refute these new facts is to appeal to the Tax Court. The denial of independent administrative review is further reason for imposing the burden of proof on the Crown. Where an appeals officer has reassessed the taxpayer, on an appeal to the Tax Court the burden is justifiably placed on the taxpayer, who would have had the opportunity for administrative review of the reassessment. Further, the taxpayer would be appealing the reassessment, not the initial assessment, and delay is not likely to be a factor because reassessments must generally be issued within the normal reassessment period: respondent’s memorandum of fact and law, at paragraphs 36 and 37.
[25]Finally, the respondent argues that the appellant’s interpretation of Johnston, cannot be sustained. Under the appellant’s interpretation of Johnston, the Crown would be entitled to assume new facts even in its reply to the taxpayer’s appeal to the Tax Court. This is clearly not the case. Further, Johnston was based on significantly different legislation, and its pronouncements on the burden of proof appear to be obiter dicta as there is no indication that there was any difference between what was assumed by the assessor and what was assumed by the Minister in that case: respondent’s memorandum of fact and law, at paragraphs 39-41.
Analysis of the Tax Court decision
[26]Though the courts have ruled many times on the question of the burden of proof in tax cases, this appears to be the first where the issue of a new assumption of fact made by the Minister at the confirmation stage of an assessment is specifically raised. While there is no Canadian judicial precedent squarely on point, some previous decisions tend to support the appellant’s position.
Whether assumptions of fact can be made by the Minister at the confirmation stage of an assessment
[27]In our self‑reporting system of taxation, the Minister makes assumptions of fact in determining the tax liability of a taxpayer. As Rothstein J.A., as he then was, said in Canada v. Anchor Pointe Energy Ltd., “[t]he practice is for the Crown to disclose in its pleadings, assumptions of fact made by the Minister upon which his determination of the tax owing is based”, at paragraph 2. In the words of Bowman A.C.J.T.C., as he then was, these assumptions “are supposed to be a full and honest disclosure of the facts upon which the Minister of National Revenue relied in making the assessment”: Holm v. Canada, [2003] 2 C.T.C. 2041, at paragraph 9.
[28]When pleaded, assumptions of fact place on the taxpayers the initial onus of disproving, on a balance of probabilities, the facts that the Minister assumed: see Canada v. Anchor Pointe Energy Ltd., at paragraph 2 and Hickman Motors Ltd. v. Canada, [1997] 2 S.C.R. 336, at paragraph 92. Unpleaded assumptions have no effect on the burden of proof one way or the other: see Bowens v. Canada, [1996] 2 C.T.C. 120 (F.C.A.), at paragraph 5 and Pollock v. Canada (1993), 3 C.C.P.B. 307 (F.C.A.), at paragraph 18.
[29]Fairness requires that the facts pleaded as assumptions be complete, precise, accurate and honestly and truthfully stated so that the taxpayer knows exactly the case and the burden that he or she has to meet: Canada v. Anchor Pointe Energy Ltd., at paragraph 23; Holm v. Canada; Canada v. Loewen, [2004] 4 F.C.R. 3 (F.C.A.), at paragraph 9; Grant v. Canada, [2003] 3 C.T.C. 34 (F.C.A.), at paragraph 18; First Fund Genesis Corp. v. Canada, [1990] 2 C.T.C. 24 (F.C.T.D.), at pages 26-27; Shaughnessy v. Canada, [2002] 2 C.T.C. 2035 (T.C.C.), at paragraph 13; Stephen v. Canada, [2001] 2 C.T.C. 2621 (T.C.C.), at paragraph 6.
[30]That being said, I cannot accept the rationale underlying the respondent’s submission that new facts alleged at the confirmation stage cannot be pleaded as assumptions. In its view, this is so because these facts were not part of the initial assessment of the tax owing.
[31]First, this Court found in Canada v. Anchor Pointe Energy Ltd. and Canada v. Loewen, that the Crown may in its reply “plead that the Minister assumed, when confirming an assessment, something that was not assumed when the assessment was first made”: see Loewen, at paragraph 10. In Canada v. Anchor Pointe Energy Ltd., Rothstein J.A. approved the deletion made by the Tax Court of two assumptions that were not accurately pleaded. But addressing the issue of whether the Crown’s pleadings in the Tax Court may contain the Minister’s assumptions made at the time of his confirmation of a reassessment, he went on to say, at paragraph 28:
If paragraphs 10(q) and (r) had been properly pleaded, they would be unobjectionable. However, paragraphs 10(q), (r) and (z) were not accurately pleaded. Rip J. was correct in striking them out. As I read his reasons, Rip J.’s sole reasons for striking paragraphs 10(q), (r) and (z) were inaccuracy and pleading conclusions of law. I do not understand him to say that assumptions of fact made on confirming a reassessment cannot be pleaded. The Minister, as a result of reading the Notice of Objection filed by a taxpayer or a subsequently decided case such as Global, may make assumptions of fact. I see no reason why such assumptions may not be included in the Crown’s Reply. However, the assumptions must be pleaded accurately. [Emphasis added.]
[32]Second, while it is true that assessment, reassessment and confirmation refer to three specific actions by the Minister under the Act in the process of determining the tax liability of a taxpayer, the word “assessment” also refers to the product of that process. Hugessen J.A. nicely described the two meanings of the word in Canada v. Consumers’ Gas Co., [1987] 2 F.C. 60 (C.A.). At page 67 he wrote:
What is put in issue on an appeal to the courts under the Income Tax Act is the Minister’s assessment. While the word “assessment” can bear two constructions, as being either the process by which tax is assessed or the product of that assessment, it seems to me clear, from a reading of sections 152 to 177 of the Income Tax Act, that the word is there employed in the second sense only. This conclusion flows in particular from subsection 165(1) and from the well established principle that a taxpayer can neither object to nor appeal from a nil assessment.
[33]I agree with the motions Judge that the appeal is not from the confirmation of the assessment. The appeal is, to use the words of Hugessen J.A., from the product of that assessment: see also Parsons, at page 814, where Cattanach J. held that the “assessment by the Minister, which fixes the quantum and tax liability, is that which is the subject of the appeal.” That product refers to the amount of the tax owing as initially assessed or determined, and subsequently confirmed. From the perspective of the process itself, the assessment pursuant to sections 152 to 165 is not completed by the Minister until, within the time allotted by the Act, the amount of the tax owing is finally determined, whether by way of reconsideration, variation, vacation or confirmation of the initial assessment: see Parsons, at page 814.
[34]I have answered some of the debated questions between the appellant and the respondent in order to lay the foundation for the issue that is before us. This brings me to the question of the onus of proof with respect to assumptions of fact made by the Minister at the stage of confirmation of the initial assessment.
The onus of proof in this case with respect to the assumptions of fact made by the Minister at the confirmation stage of the initial assessment
[35]It is trite law that, barring exceptions, the initial onus of proof with respect to assumptions of fact made by the Minister in assessing a taxpayer’s tax liability and quantum rests with the taxpayer. In Orly Automobiles Inc. v. Canada, [2005] FCA 425, at paragraph 20, this Court reasserted the importance of the rule in the following terms:
To sum up, we see no merit in the submissions of the appellant that it no longer had the burden of disproving the assumptions made by the Minister. We want to firmly and strongly reassert the principle that the burden of proof put on the taxpayer is not to be lightly, capriciously or casually shifted. There is a very simple and pragmatic reason going back to over 80 years ago as to why the burden is on the taxpayer: see Anderson Logging Co. v. British Columbia, [1925] S.C.R. 45, Pollock v. Canada (Minister of National Revenue) (1993), 161 N.R. 232 (F.C.A.), Vacation Villas of Collingwood Inc. v. Canada (1996) 133 D.L.R. (4th) 374 (F.C.A.), Anchor Pointe Energy Ltd. v. Canada, [2003] F.C.J. No. 1045, 2003 FCA 294. It is the taxpayer’s business. He knows how and why it is run in a particular fashion rather than in some other ways. He knows and possesses information that the Minister does not. He has information within his reach and under his control. The taxation system is a self‑reporting system. Any shifting of the taxpayer’s burden to provide and to report information that he knows or controls can compromise the integrity, enforceability and, therefore, the credibility of the system. That being said, we recognize that there are instances where the shifting of the burden may be warranted. This is simply not one of those cases.
[36]I agree with Bowman A.C.J.T.C., that there may be instances where the pleaded assumptions of fact are exclusively or peculiarly within the Minister’s knowledge and that the rule as to the onus of proof may work so unfairly as to require a corrective measure: see Holm v. Canada, at paragraph 20.
[37]However, the case before us is, as was the Orly Automobiles Inc. case, not one of those cases. The purpose in buying the seismic data and the subsequent use made of that data are within the exclusive and peculiar knowledge of the respondent. In fact, the respondent in its notice of appeal, dated June 26, 2000, at page 27 of the appeal book, has asserted purpose and use in the following terms:
Each Predecessor Company purchased the Seismic Data with the intention that it would be used for the purpose of determining the existence, location, extent and quality of accumulations of petroleum and natural gas in Canada, and it has been used for that purpose.
The exploration activities undertaken by the Appellant and its Predecessor Companies in connection with the Seismic Data have included:
a) geological, geophysical and engineering analyses of the Seismic Data to determine potential prospects;
b) analysis of land availability;
c) farm‑out agreements;
d) purchase of petroleum and natural gas leases; and
e) drilling of wells. [My emphasis.]
Unless these allegations are unsubstantiated, the evidence supporting them is in the hands of the respondent. One would expect that, with the pending litigation, measures have been taken to secure and preserve that evidence.
[38]The motions Judge pointed out, in his reasons for order, the existence of diverging views in the jurisprudence as to what I would call the scope of application of the rule regarding the onus of proof. Some cases appear to be limiting the application of the rule to assumptions of fact made by the Minister at the stage of the initial assessment. Consequently, assumptions of fact made thereafter at the objection stage would not be governed by the rule, so that the taxpayer would not bear the onus of disproving them. The motions Judge adopted this limitation. In his reasons, at paragraph 27, he provided the following reasons in support of the limitation:
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.
[39]With respect, I disagree with this position. First, I do not think that the confirmation of Justice Rip’s finding in paragraph 27 of his reasons in Anchor Pointe Energy Ltd. v. Canada (2002) (T.C.C.) goes beyond an acknowledgment of the Crown’s obligation to plead accurately its assumptions of fact. As previously mentioned, Rothstein J.A. reiterated that assumptions of fact can be made at the confirmation stage of the assessment, but never addressed the issue of the onus of proof of these assumptions.
[40]Second, the position taken by the motions Judge ignores the second meaning of assessment under sections 152 to 177 of the Act, i.e. the product of the assessment as opposed to the process. Either at the initial or at the objection stage, the Minister is attempting to determine the tax liability, and quantum, of the taxpayer. He is entitled throughout this period, until his final determination, to rely upon facts newly discovered or revealed by the taxpayer, and assume them. Nothing in the meaning of assessment requires or permits that some facts be assumed by the Minister, others not, and that, as a result, two categories of assumptions of fact can be created with a different onus for each one. In my respectful view, this runs contrary to the rationale behind the onus of proof, especially in this case where the Minister would have to prove a negative, when all the evidence is in the hands of the taxpayer.
Whether the respondent is prejudiced by the delay
[41]Reassessments took place in February and March 1994. The respondent’s notice of objection was filed in March 1994. Under subsection 169(1) [as am. by S.C. 1994, c. 7, Sch. II, s. 140] of the Act, the respondent could have expedited the process by filing an appeal before the Minister responded to the notice of objection. Paragraph 169(1)(b) gives a taxpayer the right to appeal to the Tax Court to have the assessments vacated or varied after 90 days have elapsed after service of the notice of appeal and the Minister has not notified the taxpayer that he has vacated or confirmed the assessment or reassessed. For reasons only and best known to the respondent, it decided not to avail itself of that possibility. Rather it agreed to hold in abeyance its appeal pending the determination of a related issue in Global Communications.
[42]As for the delay between the time of the release of the decision in Global Communications and the time taken by the Minister to confirm the initial reassessment, the respondent’s allegations of prejudice are, at this time, merely allegations. No evidence has been submitted as to the existence, nature and extent of that prejudice and whether it is irreparable. The credibility of that allegation is undermined by the absence of any explanation as to why the respondent did not exercise its right to proceed to an appeal in the Tax Court once its objection had been outstanding for 90 days.
Other arguments raised by the respondent
[43]I need not address other arguments raised by the respondent as I see no merit in them.
Conclusion
[44]To sum up, the Minister was entitled, at the stage of confirmation of the initial assessment, to plead new facts as assumptions of fact. The initial onus of proof was on the respondent to demolish these assumptions, especially because all relevant evidence was in the hands of the respondent and, if the onus were to be on the appellant, the appellant would be facing the daunting, if not impossible, task of proving a negative, i.e. that the seismic data was not bought by the five predecessors of the respondent, and subsequently used by them and the respondent, for exploration purposes.
[45]For these reasons, I would allow the appeal with costs for two counsel in this Court and in the Tax Court, and I would set aside the decision of the Tax Court rendered on July 21, 2006. Answering the question put on consent of the parties to the Tax Court, I would rule that the respondent bears the onus of proof with respect to assumptions of fact first relied on by the Minister in confirming a reassessment pursuant to subsection 165(3) of the Income Tax Act.
Evans J.A.: I agree.
Sharlow J.A.: I agree.