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(1998), Vol. 46, No. 6 / no 6 1187

Onus of Proof and Ministerial Assumptions:The Role and Evolution of Burden ofProof in Income Tax Appeals

William Innes and Hemamalini Moorthy*

PRÉCISLa notion de l’inversion du fardeau de la preuve dans le cadre des appelsen matière d’impôt sur le revenu, c’est-à-dire la réfutation par lecontribuable « des hypothèses ministérielles », a une longue histoirequelque peu trouble sur le plan de la jurisprudence canadienne enmatière d’impôt sur le revenu. Les auteurs examinent ici l’évolution de lanotion du fardeau de la preuve dans le cadre des appels en matièred’impôt sur le revenu, ainsi que les racines réglementaires etjurisprudentielles de cette notion.

Les auteurs concluent que la décision d’imposer au contribuable lefardeau de réfuter les hypothèses ministérielles est une forme d’inférencenégative tirée par les tribunaux, à titre de question d’ordre public, lorsqueles faits sous-jacents sont surtout connus du contribuable, et non pas duministre. Le contribuable qui doit « démolir » les hypothèses ministériellesreposant sur les faits n’a qu’à présenter une preuve prima facie démontrantque ces hypothèses sont erronées. Si la Couronne ne présente alorsaucune preuve, il sera généralement admis que la preuve du contribuabledémolit les hypothèses du ministre, à moins qu’elle ne soit rejetée encontre-interrogatoire, qu’elle ne soulève des questions sérieuses du pointde vue de la crédibilité, ou que le tribunal ne tire une inférence négativede l’omission du contribuable de présenter une preuve substantielle.Après que le contribuable a présenté une preuve prima facie réfutant leshypothèses du ministre, les règles usuelles de procédure civiles’appliquent. Le fardeau de prouver les faits importants invoqués dansl’avis d’appel incombe au contribuable et celui de prouver les faits

* Of Genest Murray DesBrisay Lamek, Toronto. We would like to express our gratitudeto our colleagues Sean Horgan and Christopher Moore for their gracious and enthusiasticassistance in the preparation of this article. In addition, we are indebted to four authors fortheir very thorough and intelligent observations in this area: A. Christina Tari, FederalIncome Tax Litigation in Canada (Markham, Ont.: Butterworths) (looseleaf ); CharlesMcNab, “The Burden of Proof in Income Tax Cases” (1978), vol. 26, no. 4 Canadian TaxJournal 393-411; and A. Meghji and G. Genron, “New Arguments in Support of an Assess-ment: More Than an Issue of Onus” (1997), 5 Tax Litigation 344-47. Any remaining errorsare, of course, the sole responsibility of the authors.

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importants invoqués dans la réponse revient au ministre. Si le tribunalconclut que tous les faits importants ont été présentés en preuve, il seraalors en mesure de rendre une décision sur le fond, sans tenir comptedes hypothèses du ministre, mais en déterminant si le contribuable et laCouronne se sont acquittés du fardeau de la preuve qui leur est imposé envertu des règles de procédure civile sur la prépondérance des probabilités.

ABSTRACTThe concept of a reverse onus in income tax appeals—that the taxpayermust disprove “ministerial assumptions”—has a long and somewhatconfused history in Canadian income tax jurisprudence. In this article, theauthors examine the evolution of the concept of onus of proof in taxappeals and review the statutory and jurisprudential roots of the concept.

The authors conclude that the onus placed on a taxpayer to disproveministerial assumptions is a form of negative inference drawn by thecourts as a matter of public policy where the underlying facts arepeculiarly within the knowledge of the taxpayer, not of the minister.Where a taxpayer is called upon to “demolish” ministerial assumptions offact, this involves nothing more complicated than adducing a prima faciecase that such assumptions are incorrect. If the Crown calls no evidence,a taxpayer’s evidence will normally be accepted as demolishing theminister’s assumptions unless it is successfully challenged on cross-examination or presents serious issues of credibility, or unless the courtdraws a negative inference from the taxpayer’s failure to call materialevidence at his or her disposal. Once a taxpayer has adduced a primafacie case rebutting the minister’s assumptions, the normal rules of civilprocedure apply; that is, the taxpayer has the burden of proving materialfacts alleged in the notice of appeal, and the minister has the burden ofproving material facts alleged in the reply. If the court concludes that allmaterial facts have been adduced in evidence, it will be in a position todispose of the appeal on its merits without having regard to the minister’sassumptions but solely on the basis of a determination of whether thetaxpayer and the Crown have met the normal evidentiary burdens imposedon them under the rules of civil procedure on the balance of probabilities.

INTRODUCTIONThe related concepts of “onus of proof” and “ministerial assumptions”are two of the least understood and most easily confused aspects of litiga-tion arising under the Income Tax Act.1 We think that a great deal ofunnecessary time and effort are devoted in tax litigation to argumentationconcerning ministerial assumptions and whether the taxpayer has or has

1 RSC 1985, c. 1 (5th Supp.), as amended (herein referred to as “the Act”). Unlessotherwise stated, statutory references in this article are to the Act.

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not met the onus of “demolishing” those assumptions.2 In recent years,the courts appear to have been moving toward a demystification of thewhole notion of onus and a common-sense approach to the role of “assump-tions” in tax proceedings. In this article, we propose to examine the evolutionof these concepts in an effort to dispel some of the uncertainty that hasbeen evident in the case law and commentary. We also hope to demon-strate that the current model of these concepts that has emerged from thejurisprudence is closely related to the concepts of onus and standard ofproof in normal civil litigation, albeit tailored to certain specific exigen-cies of tax litigation.

The starting point for civil litigation under the Act is that the taxpayeris an appellant.3 As such, a taxpayer must allege and prove all factsmaterial to his or her appeal unless those facts are admitted (or, in certaincases, not denied4 by the minister). The Crown, as respondent, has theobligation of alleging and proving any facts material to the appeal thatwould raise a defence to the claims made by the taxpayer. To this extent,tax appeals do not differ from normal civil litigation. The two forms oflitigation begin to diverge, however, because of the peculiar nature of theassessing process. In Canada’s self-assessment system, the minister’s as-sessment is initially based solely upon the facts related to him or her bythe taxpayer. The facts material to most assessments are peculiarly withinthe knowledge of the taxpayer; as a purely practical matter, the minister’sknowledge of a taxpayer’s affairs is extremely circumscribed and nor-mally almost entirely dependent upon the taxpayer’s cooperation.5

This disparity of information between the taxpayer and the ministermanifests itself in two procedural rules. In the first place, the Crown canoblige the taxpayer to prove any material facts alleged if the Crowndenies knowledge of these allegations.6 This rule is no different from the

2 “I think, frankly, that altogether too much time is spent on the question of assump-tions and of onus of proof in tax cases. One should bear in mind that the ultimate questionis whether the assessment is right or wrong, not what thoughts might have been goingthrough the assessor’s mind when the assessment was made.” The Honourable Mr. JusticeDonald G.H. Bowman, “Proceeding Before the Tax Court,” The Essentials of Tax Litiga-tion: Practice, Procedure and Evidence (Toronto: Law Society of Upper Canada, Departmentof Continuing Legal Education, 1994), F-1 to F-22, at F-11. Similarly, according to JoanneE. Swystun, “[i]n the typical tax case . . . the onus usually does not have a great impact onthe outcome.” Joanne E. Swystun, “Presenting a Tax Appeal,” ibid., B-1 to B-17, at B-3.

3 A “plaintiff” in cases commenced in the Federal Court—Trial Division before January 1,1991 under former section 176 of the Act. In the authors’ view, nothing turns on thisdistinction.

4 Rule 49(2) of the Tax Court of Canada Rules (General Procedure), SOR/90-688 (1990),vol. 124, no. 22 Canada Gazette Part II 4376-4476, as amended, states, “All allegations offact contained in a notice of appeal that are not denied in the reply shall be deemed to beadmitted unless it is pleaded that the respondent has no knowledge of the fact.”

5 While it is true that the minister has broad powers of investigation under the Act, theself-assessment system would essentially collapse if the minister were required to provethe facts underlying every disputed assessment.

6 Supra footnote 4.


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normal rules of civil procedure and simply responds to the common-sensenotion that a party cannot be called upon to either deny or admit allega-tions of which he or she has no means of knowledge.7 It is on the level ofthe second procedural rule that the two systems diverge significantly: ifthe Crown alleges that the minister assumed a particular fact in the assess-ment process, that fact is presumed to be true unless the taxpayer (1)demonstrates that the minister did not rely upon that fact, (2) shows it tobe irrelevant, or (3) “demolishes” the assumption.

While a great deal of concern has been expressed about the fairness ofthis “reverse onus,”8 we think that the system is less draconian than coun-sel for taxpayers sometimes appear to believe and less of a weapon forthe minister than counsel for the Crown sometimes seem to suggest. Insubstance, the rule respecting ministerial assumptions of fact is nothingmore than a form of negative inference. If the Crown alleges that a par-ticular material fact was assumed by the minister in the assessment processand that fact was peculiarly within the knowledge of the taxpayer, thecourt will draw a negative inference if the taxpayer does not lead evi-dence to disprove that fact.9 The odd judicial terminology of “demolishing”a ministerial assumption has undoubtedly contributed to the confusion inthis area, conjuring up as it does visions of adamantine pleadings that canbe dislodged only through the use of evidentiary explosives. On the con-trary, in our view what is necessary to “demolish” a ministerial assumptionis to prove the material facts that are within the knowledge of the tax-payer if those facts do not support the minister’s assumption. If the courtis convinced that all material facts within the taxpayer’s knowledge arebefore the court10 and those facts prima facie rebut the minister’s assump-tions, then such assumptions cease to have any continuing role in theproceedings. At that point, insofar as standard and onus of proof are

7 See, for example, rule 25.07(2) of the Ontario Rules of Civil Procedure, RRO 1990,O. Reg. 194, as amended.

8 See, for example, Horst G. Wolff, “The Burden of Proof in Tax Disputes” (1970), vol. 18,no. 1 Canadian Tax Journal 1-18; and Hugh F. Gibson, “An Overview of Income TaxLitigation,” in Report of Proceedings of the Thirty-Fifth Tax Conference, 1983 ConferenceReport (Toronto: Canadian Tax Foundation, 1984), 967-77.

9 Although the case law does not appear to have examined this point in any depth, wethink that the minister’s assumptions must be confined to facts peculiarly within the knowl-edge of a taxpayer; in other words, the minister cannot plead as an assumption a fact thatthe taxpayer could not reasonably be expected to either prove or disprove (for example,dealings of unrelated parties of which the taxpayer is unaware). In such a case, the courtswould likely proceed “generally on the basis of respect for equity and common sense”:The Queen v. J. Leung, [1993] 2 CTC 284, at 304 (FCTD). As well, the onus does notextend beyond factual considerations to questions of law. H. Goldman v. MNR, [1951]CTC 241, at 247 (Ex. Ct.). See also Paul Festeryga, “The Onus Issue: Who Carries theBurden of Proof in an Income Tax Appeal?” (July 1992), 125 CA Magazine 34-36, at 36.

10 If the court concluded that the taxpayer had failed to bring forward material evi-dence of which he or she had knowledge, that would justify a negative inference based onthe minister’s assumptions. The same would hold true if the court found the taxpayer’switnesses to lack credibility.


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concerned, the tax appeal returns to exactly the same status as any normalcivil litigation. If the minister has adduced no evidence (as is often thecase), the court will accept the taxpayer’s factual assertions and deter-mine whether, as a matter of law, the relief sought is available to him orher. If the minister has adduced evidence, the court will weigh the evi-dence; in that determination, the taxpayer will have the onus of provinghis or her allegations on the balance of probabilities; similarly, the minis-ter will have to establish his or her allegations to the same standard. Oncethat evidence is weighed, the court will apply the law to determine whetherthe taxpayer has made out a case for the relief sought or whether theminister has raised effective defences.

In this article, we will attempt to trace the evolution of these rules withparticular emphasis on recent developments in the case law. We hopethat, in the course of our review, we can reduce the level of anxiety andconfusion that tends to plague this area of the law.

BASIC RULE AND UNDERLYING POLICYThe Supreme Court of Canada recently confirmed in Hickman MotorsLimited v. The Queen11 that, in income tax appeals, the taxpayer bears theinitial burden of establishing, on a balance of probabilities, sufficientevidence to cast doubt on the facts found or assumed by the minister inassessing the taxpayer. Specifically, the taxpayer must “demolish the exactassumptions made by the Minister but no more.”12

The most important distinguishing feature between a hearing under theAct and an ordinary civil trial is the nature of the onus that rests on thetaxpayer. An income tax appeal is an “appeal from taxation,”13 as distinctfrom a civil proceeding in which each party has independent knowledgeof the facts underlying the dispute. In Canada’s self-assessment system,where the facts “are in a special degree if not exclusively, within the[taxpayer’s] cognizance,”14 the minister is obliged to rely, as a rule, onthe taxpayer’s disclosures.15 As a consequence, when assessing the tax-payer, the minister may have to assume certain matters to be differentfrom, or additions to, what the taxpayer has disclosed. The issues indispute will often deal with subjective elements such as the taxpayer’sknowledge, intention, or motives. The equities between the parties, interms of knowledge of the facts, are therefore skewed in favour of thetaxpayer. The taxpayer is contesting the assessment in relation to his orher own affairs and is therefore in the best position to adduce the relevantevidence to prove the material facts. Were the minister to bear the burden

11 97 DTC 5363 (SCC).12 Ibid., at 5376. See also First Fund Genesis Corporation v. The Queen, 90 DTC 6337

(FCTD).13 Johnston v. Minister of National Revenue (1948), 3 DTC 1182, at 1183 (SCC).14 Anderson Logging Co. v. The King (1924), 52 DTC 1209, at 1211 (SCC).15 Pollock v. The Queen, 94 DTC 6050, at 6053 (FCA).


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of proving facts of which he or she had no firsthand knowledge, thesystem would not function effectively (if at all). Thus, given the natureand structure of the income tax regime and the taxpayer’s degree of accessto and control over the relevant information, the taxpayer must bear theinitial burden in contesting the minister’s assessment.

EVOLUTION OF THE BURDEN OF PROOFThe exact origin of the rule that the Canadian taxpayer should bear theonus of proof in a tax appeal is uncertain. Some judges and authors claima statutory basis while others rely on the common law. Vern Krishna, oneof those advocating a statutory basis for the onus, thinks that “the law inrespect of the burden of proof in income tax cases is simple”16 and pointsto subsection 152(8) of the Act. This section states that

an assessment shall, subject to being varied or vacated on an objection orappeal under this Part and subject to a reassessment, be deemed to be validand binding notwithstanding any error, defect or omission in the assess-ment or in any proceeding under this Act relating thereto.

If subsection 152(8) does indeed serve as the basis for the imposition ofthe onus of proof on the taxpayer, it does so, at the very least, “rathercryptically.”17

In our view, subsection 152(8) should be read in conjunction withsection 166.18 Both these sections deal with the effect of errors or omis-sions, and both can be traced back to the Income War Tax Act, 1917.19

Subsection 152(8) can be traced back to section 14, which provided:

16 Vern Krishna, Essentials of Canadian Law: Income Tax Law (Concord, Ont.: IrwinLaw, 1997), 18. See also A. Christina Tari, “The Crown’s Reply,” in Pleading with Rev-enue Canada: New Opportunities, New Procedures, May 31, 1993 (Toronto: Canadian BarAssociation—Ontario, Continuing Legal Education, 1993), tab 5, at 7.

17 Peter W. Hogg and Joanne E. Magee, Principles of Income Tax Law, 2d ed.(Scarborough, Ont.: Carswell, 1997), 19. Hogg and Magee seem to prefer the rationaleargued for above, namely, that the taxpayer should bear the onus because “the taxpayer hasthe best access to the facts.” Ibid., at 20. It is likely that this practical consideration alsoled the Carter commission to support the imposition of the burden of proof on the appel-lant in tax appeals. Canada, Report of the Royal Commission on Taxation, vol. 5 (Ottawa:Queen’s Printer, 1966), 166.

18 Section 166 states, “An assessment shall not be vacated or varied on appeal byreason only of any irregularity, informality, omission or error on the part of any person inthe observation of any directory provision of this Act.” Section 166, subsection 152(3)(which states that “[l]iability for the tax under this Part is not affected by an incorrect orincomplete assessment or by the fact that no assessment has been made”), and subsection152(8) have been properly called “the curative provisions” of the Act responsible fordealing with “a defect as to form,” and not of substance, in an assessment. R. Kirby v.MNR, [1991] 2 CTC 2639, at 2643 (TCC).

19 SC 1917, c. 28. Subsection 152(8) was also formerly subsection 46(7) of the IncomeTax Act, RSC 1952, c. 148 and subsection 42(6) of the 1948 Income Tax Act, c. 52 andwas derived from section 69A of the Income War Tax Act, RSC 1927, c. 97. Section 166was also formerly section 61 of the Income Tax Act, RSC 1952, c. 148 and section 56 of

(The footnote is continued on the next page.)


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Any person objecting to the amount at which he is assessed, or as havingbeen wrongfully assessed, may, personally or by his agent, within twentydays after the date of mailing of the notice of assessment, as provided insection ten of this Act, give notice in writing to the Minister in form II ofthe Schedule to this Act that he considers himself aggrieved for either ofthe causes aforesaid, otherwise such person’s right to appeal shall cease,and the assessment made shall stand and be valid and binding upon allparties concerned, notwithstanding any defect, error or omission that mayhave been made therein, or in any proceeding required by this Act or anyregulation hereunder: Provided, however, that the Minister, either beforeor after the expiry of the said twenty days, may give a taxpayer furthertime in which to appeal [emphasis added].

Section 166 can be traced back to subsection 19(1) of the Income WarTax Act, which stated:

No assessment shall be set aside by a Board or by the Court upon theground that there has been any error or omission in connection with anyproceedings required to be taken under this Act or any regulation here-under, but such Board or Court in any case that may come before it maydetermine the true and proper amount of the tax to be paid hereunder[emphasis added].

In our view, the proper construction of these sections precludes the useof technical errors or omissions to overturn otherwise valid assessments.Section 14 (now subsection 152(8)) ensured this result once the time foran appeal was over, and section 19 (now section 166) achieved the sameresult but dealt with these concerns when raised within the appeal process.20

It is submitted that this is exactly what subsection 152(8) and section 166are still meant to accomplish in the present Act. These sections, alongwith subsection 152(3), “were designed to relieve the Minister from detri-mental consequences of errors in his department.”21

the 1948 Income Tax Act, c. 52 and was derived from section 69D of the Income War TaxAct, RSC 1927, c. 97. The present wording of subsection 152(8), with the exception of thefinal phrase “in the assessment or in any proceeding under this Act relating,” was firstintroduced as subsection 42(6) of the 1948 Income Tax Act.

20 If the error had been in respect of the jurisdiction to tax, however, it is unlikely thatsection 14 would have validated the assessment. Charles Percy Plaxton and FrederickPercy Varcoe, A Treatise on the Dominion Income Tax Law (Toronto: Carswell, 1921), 255.

21 The Queen v. L. Riendeau, [1990] 1 CTC 141, at 145 (FCTD), Cullen J, aff ’d. [1991]2 CTC 64 (FCA). See also Leung, supra footnote 9, at 302: “It may be assumed theParliament had a purpose in enacting subsection 152(3) and subsection 152(8). That pur-pose, in my view, was to ensure that in the process of issuing millions of assessmentsyearly, many of these involving complex statutory provisions and equally complex calcu-lations, technical accuracy or a peremptory level of disclosure, reference and source wouldnot be imposed on the assessor. The notice of assessment is an administrative procedureand reliance on the technical rules applicable to other processes to defeat it ab initio is notnecessarily warranted.” These two sections also serve to demonstrate that the liability topay tax “arises by the operation of the Act and not by the process of assessment.” ArthurR.A. Scace, The Income Tax Law of Canada, 5th ed. (Scarborough, Ont.: Carswell, 1983), 568.

19 Continued . . .


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What specific kinds of errors were being contemplated? One indicationcomes from the discussion in the House of Commons Standing Committeeon Banking and Commerce concerning section 56 of the 1948 IncomeTax Act (now section 166). Appearing before the committee, the ministerof finance, D.C. Abbott, stated:

One example might be the sending of a notice of assessment by registeredmail. Suppose it went by ordinary mail. It was received and the rest of it,but through a mistake it went by ordinary mail instead of registered mail.You would not vacate the assessment and declare the taxpayer to be free oftax because of that irregularity.22

When viewed in conjunction with section 166 and in its historicalcontext, therefore, subsection 152(8) should not be seen as mandating anyburden of proof on the taxpayer during the appeal process, but rather assimply depriving the taxpayer of the ability to take advantage of minor,technical errors on the part of government officials to vary or vacate anassessment outside the appeal process.

Had Parliament wished to provide a statutory basis for the impositionof the onus on the taxpayer, it likely would have used language similar tothat of section 190(b) of the Australian Income Tax Assessment Act, 1936,which stated, “The burden of proving that the assessment is excessiveshall lie upon the taxpayer.”23 Alternatively, the wording employed insection 137(4) of the UK Income Tax Act, 1918, c. 40 could have beenused. That section stated:

If, on an appeal, it appears to the majority of the Commissioners present atthe hearing, by examination of the appellant on oath or affirmation, or byother lawful evidence, that the appellant is overcharged by any assessmentor surcharge, the commissioners shall abate or reduce the assessment orsurcharge accordingly, but otherwise every such assessment or surchargeshall stand good.24

Whether the approach is legitimate or not, there is no doubt that sub-section 152(8) and its predecessors have been held by some judges to bestatutory authority for the proposition that the burden of proof in a taxappeal lies with the taxpayer.25

22 Testimony of D.C. Abbott as contained in Canada, Standing Committee on Bankingand Commerce, Consideration of Bill No. 338, Entitled, “An Act Respecting Income Taxes”(Ottawa: King’s Printer, 1948), 651.

23 As quoted in Charles MacNab, “The Burden of Proof in Income Tax Cases” (1978),vol. 26, no. 4 Canadian Tax Journal 393-411, at 400.

24 This wording has survived to the present day in the United Kingdom as section 50(6)of the Taxes Management Act (UK) 1970, c. 9. In Norman v. Golder (HM Inspector ofTaxes) (1944), 26 TC 293, at 297 (CA), Lord Greene MR held that the language of thissection “makes it clear, beyond possibility of doubt, that the assessment stands, unless anduntil the taxpayer satisfies the commissioners that it is wrong.”

25 See, for example, Noralta Hotel Ltd. v. MNR, 54 DTC 1079, at 1080 (Ex. Ct.); TheQueen v. W. Taylor, [1984] CTC 436, at 439 (FCTD); and J. Levy v. The Queen, [1989] 2

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While the basis for the taxpayer’s assumption of the burden of proofhas consistently attracted the attention of commentators and judges inrecent times, it was far from a burning issue in the early years of Canada’sfederal income tax system.26 It is remarkable that during the first sixyears after the adoption of the federal income tax (1917-1923), there wasnot a single formal appeal of a tax assessment.27 When the appeal processwas revised in 1923, Finance Minister Fielding explained this past successas being due to “a little patience, correspondence, and negotiation.”28 Theprocess needed to be changed to give the Exchequer Court exclusive

CTC 151, at 156-57 (FCTD). There is also, however, support for viewing the onus asarising out of the common law only: “The burden of proof is on the appellant to show thatthe respondent’s assessments are incorrect. This burden of proof derives not from oneparticular section of the Income Tax Act, but from a number of judicial decisions.” C. Piettev. MNR, [1979] CTC 2577, at 2578 (TRB), Tremblay J. The question whether the taxpayer’sassumption of the onus is based on statute or common law will not likely be of greatimportance to most taxpayers. It could, however, lead to complications arising out of theundermining of the reasoning in certain judicial decisions. MNR v. Simpson’s Ltd., [1953]CTC 203 (Ex. Ct.), for example, stands for the proposition that an appeal from an IncomeTax Appeal Board is a trial de novo and thus the onus remains on the taxpayer. Absent anoriginal statutory basis for the onus, however, “there would appear to be no authority otherthan the Simpson case itself for the statement made by Thorson, P. in his reasons forjudgment in that case.” MacNab, supra footnote 23, at 400.

26 Indeed, it is not clear that the Income War Tax Act, 1917 even contemplated theadoption of the adversarial system for appealing assessments. A “Board or Boards ofReferees” could be appointed under subsection 12(1) of the Act, but such a board was tobe given the “powers and authority of a commissioner appointed under Part I of theInquiries Act,” (RSC 1906, c. 104). Subsection 15(1) provided that the board, in reviewingan assessment, could embark “upon such other inquiry as it considers advisable.” Section16 provided that the board could proceed ex parte if the taxpayer did not appear at thehearing. In the House of Commons debate on the Income War Tax Act, Prime Minister SirRobert Borden described the board’s procedure as an “inquisitorial proceeding” and notedthat “the object of the Bill is to procure a fair assessment, and we have, as a guarantee thatthis will be done, an investigation by the Board of Referees in the first instance.” Canada,House of Commons, Debates, September 15, 1917, 5884. As noted in a recent appeal of amunicipal tax board decision, “Because the proceedings are inquisitorial, the onus is reallyon no party. However, it will obviously be in the interests of all parties to present theevidence which best supports the position which is most advantageous to them.” Burnaby/New Westminster Assessor, Area No. 10 v. Haggerty Equipment Co., [1997] CanRepBC1453, at paragraph 14 (BC SC, in Chambers), Burnyeat J. If the Income War Tax Act, 1917did not foresee the use of the adversarial system, the argument above is strengthened thatsubsection 152(8), which is derived from section 14 of the Income War Tax Act, 1917, isnot related to the issue of onus on appeals. It should be noted, however, that section 17 ofthe Income War Tax Act did allow for an appeal of a board’s decision to the ExchequerCourt. It was the responsibility of this court to “hear and consider such matter upon thepapers and evidence referred, and upon any further evidence which the taxpayer or theCrown produces under the direction of the Court, and the decision of the Exchequer Courtthereon shall be final and conclusive.”

27 Robert McMechan and Gordon Bourgard, Tax Court Practice (Scarborough, Ont.:Carswell) (looseleaf), 1-4; and Colin Campbell, Income Tax Administration in Canada(Scarborough, Ont.: Carswell) (looseleaf ), 13-1.

28 Canada, House of Commons, Debates, June 27, 1923, 4499.

25 Continued . . .


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original jurisdiction over appeals, however, because “if in any case acantankerous person is not satisfied with the judgment of the local officers,he ought to have the right of appeal but he had better not go to theMinister of Finance.”29

Eventually, however, courts were asked to assume a larger role in set-tling tax appeals and, inevitably, also to determine the question of theburden of proof. The first pronouncement on this issue by the SupremeCourt of Canada came in 1924 in Anderson Logging Company v. TheKing, wherein Duff J, as he then was, stated:

[The appellant] must show that the impeached assessment is an assessmentwhich ought not to have been made; that is to say, he must establish factsupon which it can be affirmatively asserted that the assessment was notauthorized by the taxing statute, or which bring the matter into such a stateof doubt that, on the principles alluded to, the liability of the appellantmust be negative.30

Twenty-four years later, the Supreme Court of Canada once again dealtwith the burden of proof in Johnston v. Minister of National Revenue.31 Inthat case, the taxpayer had been assessed under the provisions of theIncome War Tax Act32 on the basis that he was subject to income tax at arate of 9 percent as opposed to 7 percent, because his spouse had income,other than earned income, in excess of $660.00. The higher rate of taxapplied to taxpayers who “supported” spouses having income, other thanearned income, in excess of $660.00; the taxpayer contended that sincehe did not “support” his spouse, he should be taxed at the lower rate. Thecourt considered the question who should bear the onus of proof in respectof this issue. In simple terms, the issue was whether the taxpayer wasrequired to prove that he did not support his wife or the minister wasrequired to prove that the taxpayer did support his wife.

In the following passage, Rand J, speaking for himself, Rinfret CJ, andKerwin J, expressed what is now viewed as the general rule:

Every such fact found or assumed by the assessor or the Minister must thenbe accepted as it was dealt with by these persons unless questioned by theappellant. If the appellant here intended to contest the fact that he sup-ported his wife within the meaning of the Rules mentioned he should haveraised that issue in his pleading, and the burden would have rested on himas on any appellant to show that the conclusion below was not warranted. Forthat purpose he might bring evidence before the Court notwithstanding thatit had not been placed before the assessor or the Minister, but the onus washis to demolish the basic fact on which the taxation rested [emphasis added].33

29 Ibid.30 Supra footnote 14, at 1211.31 Supra footnote 13.32 RSC 1927, c. 97, as amended.33 Supra footnote 13, at 1183.


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The court thus accorded the facts found or assumed by the minister therebuttable presumption of correctness and validity, thereby casting the bur-den of disproving the minister’s grounds for the assessment on the taxpayer.Although Rand J’s decision resolved the question who bore the initialonus on an appeal of an assessment, it did not elaborate on the waysthrough which the taxpayer could meet this burden.

In a series of cases beginning with MNR v. Pillsbury Holdings Ltd.34 in1964, the Exchequer Court attempted to explain and elaborate on theprinciples established in the Johnston decision. In Pillsbury Holdings, thetaxpayer company borrowed over $1 million from two of its subsidiarycompanies, with each loan bearing interest payable semi-annually. Whenthe first interest payment came due, each of the subsidiaries agreed towaive and forgo the interest. Subsequently, the taxpayer company repaidboth loans and each of the subsidiaries agreed to waive the interest accruedsince the last waiver. The minister assessed the taxpayer on the basis thatthe waiver of the interest was a benefit that was conferred on the share-holder (the taxpayer company). The taxpayer was successful in an appealto the Tax Appeal Board, and the minister appealed from that judgment tothe Exchequer Court. In his notice of appeal, the minister did not allegethat the series of waivers was anything other than the granting of relief bya lender to a borrower. There was no allegation that this arrangement wasmere subterfuge to confer a benefit on the borrower qua shareholder.35

The taxpayer did not dispute the assumptions or suggest that the assump-tions were incorrect; instead, it adduced evidence as to the facts thatexisted at the time and argued that those facts did not support the assess-ment. The minister alleged that waiver of interest, in and of itself,constituted a benefit that was conferred on the shareholder. The court disa-greed and dismissed the minister’s appeal, thereby striking out theassessment. In so doing, the court found that the minister was required tospecifically plead that the waivers in question were arrangements thatconferred a benefit. The court concluded that the taxpayer had dischargedits onus by simply raising the minister’s failure to make this allegation.

Pillsbury Holdings is often cited as the blueprint for the strategy that ataxpayer should adopt when appealing an assessment. Cattanach J, afterciting Johnston for the proposition that “every such fact found or assumedby the Minister must then be accepted . . . unless questioned by the appel-lant,”36 suggested that a taxpayer may attack the minister’s assumptions by

a) challenging the Minister’s allegation that he did assume those facts;

b) assuming the onus of showing that one or more of the assumptionswas wrong; or

34 64 DTC 5184 (Ex. Ct.).35 Ibid., at 5189.36 Supra footnote 13, at 1183.


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c) contending that, even if the assumptions were justified, they do notof themselves support the assessment.37

Cattanach J also made the parenthetical observation that the minister isnot bound by the facts and assumptions made at the time of assessment,but if he changes his position before the court, he will bear the burden ofproof to the extent of the change:

The Minister could, of course, as an alternative to relying on the factsfound or assumed in assessing the respondent, have alleged by his Noticeof Appeal further or other facts that would support or help in supportingthe assessment. If he had alleged such further or other facts, the onuswould presumably have been on him to establish them [emphasis added].38

ANALYSIS OF THE PILLSBURY HOLDINGS STRATEGYChallenging the Minister’s Allegation That He DidAssume Those FactsSince only facts and assumptions raised by the minister in the assessmentare accorded the presumption of correctness, where a taxpayer is able toshow that any of these purported assumptions was not in fact assumed bythe minister, the assumption cannot be presumed to be correct. Conse-quently, the Crown must then bear the burden of proving the facts necessaryto uphold the assessment. If, however, the assumption in question was notcrucial to the defence of the assessment, the minister may “rest” on theremainder of the assumptions pleaded.

Showing That One or More of the Assumptions Was WrongThe taxpayer may attack the minister’s assessment by adducing evidenceto demonstrate that one or more of the minister’s assumptions was incor-rect. This tactic does not guarantee success on an appeal, for two reasons.First, the Crown may show that the assumptions that remain are, in and ofthemselves, sufficient to support the assessment. Second, the Crown in

37 Supra footnote 34, at 5188. “These three possibilities should be taken as exhaustiveof a taxpayer’s options for overcoming assumptions of fact pleaded by the Minister.”944787 Ontario Inc. v. The Queen, [1998] 3 CTC 2293, at 2295 (TCC), Brulé TCCJ. It isinteresting to contrast these criteria for appealing an assessment with what the 1946 SpecialCommittee of the Senate on Taxation believed existed under the Income War Tax Act:“[U]nder the express language of the statute an appeal is stated to be from an assessmentonly. This has been confirmed on a number of occasions by the Exchequer Court ofCanada and the inference is clear that there is no direct appeal from the exercise of theMinister’s discretion per se. The only method by which a taxpayer can attack or evenquestion the exercise of ministerial discretion under the law as presently constituted is bymeans of taking an appeal to the Exchequer Court and urging that the Court consider theexercise of discretion as one of the factors in the assessment which is appealed against. . . .[A] Court may only interfere with the exercise of a discretionary power where it appearsthat 1. The discretion has not really been exercised. 2. It has not been exercised honestlyand fairly. 3. The person exercising the discretion was influenced by extraneous and irrel-evant facts. 4. The decision was based on principles incorrect in law.” Canada, SpecialCommittee of the Senate on Taxation, Final Report, part 1 (Ottawa: King’s Printer, 1946), 381.

38 Supra footnote 34, at 5188.


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defending the assessment is not precluded from adopting a different posi-tion from that taken by the minister in the assessment. In such circum-stances, the Crown would bear the burden of proving the facts in supportof the new position.39

Showing That Assumptions Do Not Support the AssessmentWhere the taxpayer can show that the facts and assumptions put forwardby the minister should not result in taxation, the appeal must be allowed.In essence, this is a question of law. The taxpayer raises no dispute as tothe facts and assumptions of the minister but instead argues that the factsdo not deprive the taxpayer of the relief sought in the appeal.

COMMON LAW EXCEPTIONS TO THE GENERAL RULEAlthough Johnston and Pillsbury Holdings made it clear that, in general,it is the taxpayer who bears the initial burden of proof in income taxappeals, the courts in subsequent decisions have attempted to reconcilethis rule with those circumstances in which it seemed to place a particu-larly onerous and unfair burden on the taxpayer. As a consequence, severalexceptions to the general rule emerged from the common law,40 wherebyit has been established that the Crown, rather than the taxpayer, bears theinitial burden of proof. These exceptions include the following:

• additional, new, or other facts raised subsequent to the assessment;

• unpleaded assumptions; and

• alternative pleadings.

The underlying rationale behind these exceptions is a concern that thetaxpayer would not know the precise nature of the case against him orher. The lack of clarity in the facts and assumptions asserted by theminister in the assessment would therefore render it unfair to expect thetaxpayer to bear the initial onus.

Additional, New, or Other Facts Raised Subsequent tothe Initial AssessmentIn Pillsbury Holdings, Cattanach J in obiter stated that the minister couldallege in the notice of appeal further or other facts supporting the assess-ment, rather than relying only upon the facts that he found or assumed inassessing the taxpayer at first instance. He added that, if such further

39 Ibid. Also note that “in certain circumstances, it may be enough to show that some(not all) of the Minister’s assumptions are incorrect to shift the onus from the taxpayer tothe Minister.” Thomas E. McDonnell, “Administrative Matters and Appeals,” in IncomeTax for the General Practitioner, Special Lectures of the Law Society of Upper Canada,1986 (Don Mills, Ont.: De Boo, 1986), 181-205, at 199, citing The Queen v. FarmpartsDistributing Ltd., [1980] CTC 205 (FCA).

40 In addition, other exceptions have been codified in the Income Tax Act and the TaxCourt of Canada Rules (General Procedure). These exceptions are discussed in greaterdetail below.


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facts were indeed alleged, the minister would have the onus of establish-ing them. Since Cattanach J’s decision in Pillsbury Holdings, the courtshave continued to hold that the Crown is not restricted to merely relyingupon the assumptions made by the minister in the initial assessment. TheCrown may plead allegations of fact in the reply that are different from,or in addition to, the facts found or assumptions made by the minister atthe audit or objection stage. Nevertheless, as Cattanach J made clear,where the Crown pleads additional, new, or other facts, it bears the bur-den of establishing these facts. Since these new pleadings are not factsfound or assumptions made by the minister in the initial assessment, theywill not be accorded a presumption of correctness by the court.

In Continental Bank Leasing Corporation et al. v. The Queen,41 Bow-man TCCJ reiterated the principle that the minister is not bound by theassumptions made on the initial assessment. He added that the minister,in support of an assessment of a taxpayer, is entitled to allege new factsor facts inconsistent with those assumed on the initial assessment pro-vided that he or she bears the onus of proving those facts. In addition,Bowman TCCJ clarified that an assumption, as the word is used in incometax appeals, is not a binding admission.42

Unpleaded AssumptionsIt is the general rule that every party to litigation must plead the factsupon which he or she relies in such a way as to put his or her opponent onnotice of the case that is to be met.43 Thus, where an assumption is notpleaded by the minister, the courts have ruled that there is no onus on thetaxpayer to disprove the assumption.

In del Valle v. MNR,44 the issue before the Tax Court of Canada waswhether the Crown was correct in reassessing the taxpayer on the basisthat she had received $5,100 from her husband. There was no evidencebefore the court to establish that this payment had been made, nor anyfactual basis or assumption pleaded in support of this allegation. Sincethe minister had failed to allege an ingredient essential to the validity ofthe reassessment, there was no onus on the taxpayer to prove a phantomor non-existent fact or an assumption not made by the minister.45

The Federal Court of Appeal reviewed at length the onus of proof inthe case of unpleaded assumptions in Pollock v. The Queen.46 The courtcommenced by stating the aforementioned general principle that “everyparty to litigation . . . must plead the facts upon which he relies in such a

41 93 DTC 298 (TCC).42 Ibid., at 302.43 See Pollock, supra footnote 15, at 6053.44 86 DTC 1235 (TCC).45 Ibid., at 1237.46 Supra footnote 15.


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way as to put his opponent fairly on notice of the case he has to meet.”47

It then went on to explain that, in the case of taxation litigation, whereassumptions are pleaded by the minister in the assessment, the burden iscast on the taxpayer to disprove those assumptions. The court determined,however, that the same effect could not result where the assumptionswere not in fact pleaded. In the case of unpleaded assumptions, the tax-payer does not have the advantage of knowing the case against him orher. Consequently, in such circumstances, the onus instead must fall uponthe Crown to establish the correctness of the minister’s assessment. Thecourt stated:

Where pleaded, however, assumptions have the effect of reversing the bur-den of proof and of casting on the taxpayer the onus of disproving thatwhich the Minister has assumed. Unpleaded assumptions, of course, cannothave that effect and are therefore, in my view, of no consequence to ushere. . . .

Where, however, the Minister has pleaded no assumptions, or wheresome or all of the pleaded assumptions have been successfully rebutted, itremains open to the Minister, as defendant, to establish the correctness ofhis assessment if he can. In undertaking this task, the Minister bears theordinary burden of any party to a lawsuit, namely to prove the facts whichsupport his position unless those facts have already been put in evidenceby his opponent. This is settled law.48

In Bowens v. The Queen,49 Bowman TCCJ cited Pollock as authority forthe proposition that there is an onus on the minister to disprove unpleadedassumptions in certain situations. The facts of this case were highly unu-sual. In raising the assessment under appeal, the minister had originallyassumed that the parties to the transaction in question were not dealing atarm’s length. In the reply filed in response to the taxpayer’s appeal, theCrown did not disclose this assumption; rather, it pleaded a completelydifferent theory of the case—that is, that the transaction was in fact anarm’s-length transaction between the parties. The taxpayer sought to relyupon the minister’s original, unpleaded assumption. Bowman TCCJ con-cluded that the taxpayer could in fact rely upon this unpleaded assumption.He went on to add that it was “incumbent upon the Crown to pleadhonestly and fully all of the assumptions relevant to the assessment.”50

He added that if the Crown wished to advance at trial a new basis forupholding the minister’s assessment which was inconsistent with the origi-nal assumption, it would normally be required to disclose the originalassumption in its reply and to demonstrate why it was wrong. Thus, thetaxpayer did not have to adduce any evidence to support the contentionthat the parties were not dealing at arm’s length because the minister’s

47 Ibid., at 6053.48 Ibid.49 94 DTC 1853 (TCC).50 Ibid., at 1856.


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original assumption to that effect survived its abandonment by the Crownand the Crown bore the burden of disproving it.51

Alternative PleadingsHistorically, the courts have held the view that the minister cannot pleadalternative bases for liability. In Brewster v. The Queen,52 Gibson J of theFederal Court—Trial Division considered whether the income at issuewas that of the individual taxpayer or that of a corporation that he con-trolled and to which he had transferred a partnership interest. The ministerpleaded that either the transfer of the partnership interest was ineffectiveor the corporation was a sham. The court found that these assertions weremutually exclusive and therefore unfair to the taxpayer. Since the tax-payer was unable to discern the precise facts of the case against him,Gibson J concluded:

It seems therefore that it is fundamentally wrong to plead assumptions inthe alternative. In like manner, it is fundamentally wrong in law for asses-sors of the Minister of National Revenue to assess or reassess and not tellprecisely the basis for such assessment or reassessment.53

In subsequent decisions, however, the courts have adopted a lessstringent view of pleadings in the alternative. For example, in HillsdaleShopping Centre Limited v. MNR, the Federal Court of Appeal stated:

If a taxpayer, after considering a reassessment made by the Minister, theMinister’s reply to the taxpayer’s objections, and the Minister’s pleadingsin the appeal, has not been aware of the basis upon which he is sought tobe taxed, the onus of proving the taxpayer’s liability in a proceeding similarto this one would lie upon the Minister. This defect may be due to a numberof reasons such as lack of clarity on the part of the Minister in expoundingthe alleged basis of the taxability which could include an attempt by theMinister to attach liability on one of two or more alternative bases thusfailing to make clear to the taxpayer the assumption on which he relies.54

Where the minister attempts to attach liability to a taxpayer on variousalternative bases, he or she may fail to make clear to the taxpayer whichassumptions he or she is relying upon. Although the court was cognizantof this possibility, the practice of pleading in the alternative was notchallenged. Instead, the court merely concluded that, where the ministerproceeded by way of alternative pleadings, the Crown had to bear theinitial burden of proof in the case of the alternative allegations.

The Federal Court of Appeal reconfirmed the view that the ministerwas entitled to plead alternative bases for liability in Schultz v. TheQueen.55 In this case, the minister in making his assessment had proceeded

51 Ibid.52 76 DTC 6046 (FCTD).53 Ibid., at 6049.54 81 DTC 5261, at 5266 (FCA).55 [1996] 2 CTC 127 (FCA).


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on the assumption that the two taxpayers were in an agency relationship.At trial before the Tax Court of Canada, however, the minister, in addi-tion to the agency argument, espoused the alternative position that thetransaction at issue constituted a joint venture or partnership. The taxpay-ers on appeal contended that the Tax Court of Canada erred in permittingthe minister to make the alternative argument.

In dismissing the appeal, the Federal Court of Appeal concluded thatthe minister was entitled to plead, in the alternative, the joint venture orpartnership argument. In so doing, the court recognized that there arecertain restraints on the minister’s ability to plead in the alternative.Notably, it was pointed out that the minister “cannot plead an alternativeassumption when to do so would [so] fundamentally alter the basis onwhich his assessment was based as to render it an entirely new assess-ment.”56 In other words, the minister’s alternative pleading must arisefrom the same set of facts upon which the principal pleading is based.The minister may rely upon additional facts, but he cannot assert a com-pletely different set of facts and assumptions. In addition, the courtreiterated that, where the minister pleads in the alternative, the Crownmust bear the burden of establishing the grounds for that pleading.

CODIFIED EXCEPTIONS TO THE GENERAL RULEIn addition to the common law exceptions described above, severalexceptions to the general rule have been codified in both the Income TaxAct and the General Procedure Rules.

Reverse Onus Provisions of the ActSeveral sections of the Act either specifically stipulate that the Crownbears the initial burden of proof or have been interpreted by the courts asimposing this onus on the Crown. The most common reverse onus provisionsare subsection 110.6(6), subparagraph 152(4)(a)(i), and subsection 163(2).

Subsection 110.6(6): Denial of Capital Gains ExemptionSubsection 110.6(6) permits the minister to deny a capital gains exemp-tion where a taxpayer has failed to report a capital gain either knowinglyor under circumstances amounting to gross negligence. It states:

Notwithstanding subsections (2) and (2.1), where an individual has a capi-tal gain for a taxation year from the disposition of a capital property andknowingly or under circumstances amounting to gross negligence

(a) fails to file a return of the individual’s income for the year withinone year after the day on or before which the individual is required to filea return of the individual’s income for the year pursuant to section 150, or

(b) fails to report the capital gain in the individual’s return of incomefor the year required to be filed pursuant to section 150,

56 Ibid., at 136.


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no amount may be deducted under this section in respect of the capital gainin computing the individual’s taxable income for that or any subsequenttaxation year and the burden of establishing the facts justifying the denialof such an amount under this section is on the Minister.

This provision clearly stipulates that, if the minister seeks to deny acapital gains exemption, he or she must bear the burden of establishingthe facts that justify the denial. The reverse onus is appropriate in thiscontext given that, by invoking this section, the minister is alleging thatthe taxpayer either with knowledge or under circumstances amounting togross negligence failed to report a capital gain. The minister not onlymakes a bald declaration about the state of the taxpayer’s knowledge, butuses the allegation as the basis for penalizing the taxpayer by denying thecapital gains exemption to which the taxpayer would otherwise be entitled.Consequently, it is reasonable for the Crown, rather than the taxpayer, toshoulder the responsibility of demonstrating the facts that support thedenial of the exemption.

Subparagraph 152(4)(a)(i): Statute-Barred Taxation Yearsand Allegations of Fraud or MisrepresentationSubsection 152(3.1) stipulates that the normal reassessment period for ataxpayer in respect of a specific taxation year is four years where thetaxpayer is a mutual fund trust or a corporation other than a Canadian-controlled private corporation, and three years in all other cases. Never-theless, paragraph 152(4)(a) permits the minister to assess the taxpayer atany time where a misrepresentation in the return may be attributed toneglect, carelessness, or wilful default, or where the taxpayer has com-mitted a fraud in filing the return or in supplying information under theAct. Subparagraph 152(4)(a)(i) states:

The Minister may at any time make an assessment, reassessment or addi-tional assessment of tax for a taxation year, interest or penalties, if any,payable under this Part by a taxpayer or notify in writing any person bywhom a return of income for a taxation year has been filed that no tax ispayable for the year, except that an assessment, reassessment or additionalassessment may be made after the taxpayer’s normal reassessment periodin respect of the year only if

(a) the taxpayer or person filing the return

(i) has made any misrepresentation that is attributable to neglect,carelessness or wilful default or has committed any fraud in filingthe return or in supplying any information under this Act.

Thus, subparagraph 152(4)(a)(i) confers upon the minister the extra-ordinary power to open up a statute-barred taxation year where the taxpayerhas committed a fraud or made a misrepresentation in filing the return forthat particular year. In MNR v. Taylor,57 Cameron J specifically consideredthe issue of burden of proof in circumstances where a reassessment based

57 61 DTC 1139 (Ex. Ct.).


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on fraud or misrepresentation was made after the statutory period of limi-tation had expired. He concluded that the initial burden of proof belongedto the minister to establish to the satisfaction of the court that the tax-payer had made the misrepresentation or committed the fraud. He addedthat the only exception to this rule would arise where the taxpayer had, inthe pleadings, in the notice of appeal, or at the hearing of the appeal,admitted the misrepresentation or fraud alleged by the minister. Cameron J’sconclusions were based on fundamental common law principles that anindividual who alleges fraud must clearly and distinctly prove the fraudthat he or she alleges. Thus, the minister cannot assume in an assessmentthat the taxpayer has committed a fraud or misrepresentation; moreover,the court will not presume that such an allegation is correct. Instead, theCrown must prove the validity of its assertion in order to assess thetaxpayer for a statute-barred year.

Subsection 163(2): False Statements or OmissionsSubsection 163(2) permits the minister to impose a penalty on a taxpayerwho has knowingly, or under circumstances that amount to gross negligence,made a false statement or omission in his or her tax return. It states:

Every person who, knowingly, or under circumstances amounting to grossnegligence in the carrying out of any duty or obligation imposed by orunder this Act, has made or has participated in, assented to or acquiescedin the making of, a false statement or omission in a return, form, certifi-cate, statement or answer (in this section referred to as a “return”) filed ormade in respect of a taxation year as required by or under this Act or aregulation, is liable to a penalty.

The penalty that may be charged pursuant to this section is a punitivemeasure, similar to the fines that may be levied under provisions of theCriminal Code of Canada. In the criminal law context, it is the Crownthat bears the burden of proving beyond a reasonable doubt the chargeslaid against the accused. Similarly, where the minister seeks to impose apenalty against a taxpayer under the Income Tax Act, the Crown bears theonus of proving the facts that justify such a charge. The standard ofproof, however, remains the civil standard of a balance of probabilitiesrather than the criminal standard.

Failure of the Crown To Reply Within the PrescribedTime LimitsPursuant to section 63 of the Tax Court of Canada Rules (General Procedure),a taxpayer may bring a motion for judgment where a reply to a notice ofappeal has not been filed and served by the Crown within the prescribedtime limits. Section 63(2) grants the court the discretion to “direct thatthe appeal proceed to hearing on the basis that the facts alleged in thenotice of appeal are presumed to be true [emphasis added].”58 Thus, the

58 See the Tax Court of Canada Rules (General Procedure), supra footnote 4.


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presumption of correctness applies to the facts asserted in the taxpayer’snotice of appeal rather than the minister’s assessment. Consequently, it isthe Crown that bears the initial onus of rebutting and disproving thetaxpayer’s assertions in his or her notice of appeal.

HICKMAN MOTORS AND CADILLAC FAIRVIEWThe case law subsequent to Johnston and Pillsbury Holdings demon-strates the courts’ preoccupation with the taxpayer’s initial burden ofproof in income tax appeals. In particular, the courts, in striving to findexceptions to this general rule, were caught up in analyzing the nature ofthe facts and assumptions pleaded by the minister in the assessment.Following the early decisions, taxpayers attempted to circumscribe andlimit the assumptions pleaded by the minister. In order to reconcile thecompeting interests of the taxpayer and the Crown, the courts developedexceptions to the general rule where the initial burden on the taxpayer wasperceived to be particularly onerous. In so doing, the courts categorizedand pigeon-holed the minister’s assumptions, thereby overlooking theunderlying principles applicable to the burden of proof in litigation. Tworecent decisions, one in the Supreme Court of Canada and one in the TaxCourt of Canada, have re-examined and rearticulated the law in this areaand in so doing have provided a much-needed clarification of the entirearea of onus and ministerial assumptions.

In Hickman Motors, L’Heureux-Dubé J set out her view of the ministe-rial assumptions in clear and unambiguous terms:

K. Onus of Proof

As I have noted, the appellant adduced clear, uncontradicted evidence,while the respondent did not adduce any evidence whatsoever. In my view,the law on that point is well settled, and the respondent failed to dischargeits burden of proof for the following reasons.

It is trite law that in taxation the standard of proof is the civil balance ofprobabilities: Dobieco Ltd. v. M.N.R., [1966] S.C.R. 95, and that withinbalance of probabilities, there can be varying degrees of proof required inorder to discharge the onus, depending on the subject matter: ContinentalInsurance v. Dalton Cartage, [1982] 1 S.C.R. 164; Pallan v. M.N.R., 90DTC 1102 (T.C.C.) at p. 1106. The Minister, in making assessments, pro-ceeds on assumptions (Bayridge Estates v. M.N.R., 59 DTC 1098 (Ex. Ct.),at p. 1101) and the initial onus is on the taxpayer to “demolish” the Minis-ter’s assumptions in the assessment (Johnston v. M.N.R., S.C.R. 486; Kennedyv. M.N.R., 73 DTC 5359 (F.C.A.), at p. 5361). The initial burden is only to“demolish” the exact assumptions made by the Minister but no more: FirstFund Genesis v. The Queen, 90 D.T.C. 6337 (F.C.T.D.), at p. 6340.

This initial onus of “demolishing” the Minister’s exact assumptions ismet where the appellant makes out at least a prima facie case: Kamin v.M.N.R., 93 DTC 62 (T.C.C.); Goodwin v. M.N.R., 82 DTC 1679 (T.R.B.). Inthe case at bar, the appellant adduced evidence which met not only a primafacie standard, but also, in my view, even a higher one. In my view, theappellant “demolished” the following assumptions as follows: (a) theassumption of “two businesses,” by adducing clear evidence of only onebusiness; (b) the assumption of “no income,” by adducing clear evidence of


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income. The law is settled that unchallenged and uncontradicted evidence“demolishes” the Minister’s assumptions: see for example MacIsaac v.M.N.R., 74 DTC 6380 (F.C.A.), at p. 6381; Zink v. M.N.R., 87 DTC 652(T.C.C.). As stated above, all of the appellant’s evidence in the case at barremained unchallenged and uncontradicted. Accordingly, in my view, theassumptions of “two businesses” and “no income” have been “demolished”by the appellant.

Where the Minister’s assumptions have been “demolished” by the ap-pellant, “the onus shifts to the Minister to rebut the prima facie case”made out by the appellant and to prove the assumptions: Magilb Develop-ment Corp. v. The Queen, 87 DTC 5012 (FCTD), at p. 5018. Hence, in thecase at bar, the onus has shifted to the Minister to prove its assumptionsthat there are “two businesses” and “no income.”

Where the burden has shifted to the Minister, and the Minister adducesno evidence whatsoever, the taxpayer is entitled to succeed: see for exam-ple MacIsaac, supra, where the Federal Court of Appeal set aside thejudgment of the Trial Division, on the grounds that (at pp. 6381-2) the“evidence was not challenged or contradicted and no objection of any kindwas taken thereto.” See also Waxstein v. M.N.R., 80 DTC 1348 (TRB);Roselawn Investments Ltd. v. M.N.R., 80 DTC 1271 (T.R.B.). Refer also toZink v. M.N.R., supra, at p. 653, where, even if the evidence contained“gaps in logic, chronology and substance,” the taxpayer’s appeal was al-lowed as the Minister failed to present any evidence as to the source ofincome. I note that, in the case at bar, the evidence contains no such “gaps.”Therefore, in the case at bar, since the Minister adduced no evidence what-soever, and no question of credibility was ever raised by anyone, theappellant is entitled to succeed.

In the present case, without any evidence, both the Trial Division andthe Court of Appeal purported to transform the Minister’s unsubstantiatedand unproven assumptions into “factual findings,” thus making errors oflaw on the onus of proof. My colleague Iacobucci, J. defers to these so-called “concurrent findings” of the courts below, but, while I fully agree ingeneral with the principle of deference, in this case two wrongs cannotmake a right. Even with “concurrent findings,” unchallenged and uncontra-dicted evidence positively rebuts the Minister’s assumptions: MacIsaac,supra. As Rip T.C.J. stated in Gelber v. M.N.R., 91 DTC 1030 (T.C.C.), at p.1033, “[the Minister] is not the arbiter of what is right or wrong in taxlaw.” As Brulé T.C.J., stated in Kamin, supra, at p. 64:

the Minister should be able to rebut such [prima facie] evidence andbring forth some foundation for his assumptions. . . .

The Minister does not have a carte blanche in terms of setting outany assumption which suits his convenience. On being challenged byevidence in chief he must be expected to present something moreconcrete than a simple assumption. [Emphasis added.]

In my view, the above statement is apposite in the present case: therespondent, on being challenged by evidence in chief, failed to presentanything more concrete than simple assumptions and failed to bring forthany foundation. The respondent chose not to rebut any of the appellant’sevidence. Accordingly, the respondent failed to discharge her onus of proof.

I note that, in upholding the Minister’s unproven assumptions, my col-league Iacobucci, J. may be seen as reversing the above-stated line of


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caselaw, without explicitly providing the rationale for doing so. With respectfor the contrary opinion, in my view, changes in the jurisprudence regard-ing the onus of proof in tax law should be left for another day. Furthermore,on the facts of the case at bar, sanctioning the respondent’s total lack ofevidence could seem unreasonable and perhaps even unjust, given that theappellant complied with a well-established line of jurisprudence as regardsits onus of proof.59

Before we turn to the content of the preceding remarks, it is importantto put them into a juristic context. L’Heureux-Dubé J allowed the taxpayer’sappeal; McLachlin J wrote separate reasons allowing the appeal, whichwere concurred in by La Forest and Major JJ. Iacobucci J, in dissent,would have dismissed the appeal; his dissent was concurred in by Sopinkaand Cory JJ. McLachlin J made the following observation with respect tothe reasons of L’Heureux-Dubé J:

While I concur in the general approach and the conclusion of JusticeL’Heureux-Dubé, I prefer to decide the appeal on somewhat narrowergrounds.60

While Iacobucci J took issue with a number of L’Heureux-Dubé J’s con-clusions, both legal and evidentiary, he did not comment directly uponher observations on onus.

We are therefore left with a very recent decision of the Supreme Courtof Canada that deals directly with the question of onus in tax appeals. Inour view, L’Heureux-Dubé J’s comments on onus formed part of her “gen-eral approach,” which was concurred in by a majority of the court (andwith which the dissenting justices did not take issue), and therefore isbinding upon lower courts in accordance with the stare decisis doctrine.In any event, since there is no such thing as obiter61 in a decision of theSupreme Court of Canada, the observations of L’Heureux-Dubé J arebinding on lower courts unless and until they are reversed by a subse-quent decision of that court.

The fundamental principle to be taken from Hickman Motors is that allthat is required for a taxpayer to rebut a ministerial assumption is a primafacie case. That is achieved where the taxpayer puts forward credible,uncontradicted evidence on the point. If the Crown chooses to call noevidence, as it did in Hickman Motors, it does so at its peril. It would be“unreasonable and perhaps even unjust” to permit the Crown to rely uponassumptions without adducing any evidence in the face of credible evi-dence put forward by the taxpayer.

The general approach advocated by L’Heureux-Dubé J in HickmanMotors is mirrored in a recent decision of Bowman TCCJ in the Tax Court

59 Supra footnote 11, at 5376-77.60 Ibid., at 5363.61 R v. Matheson, [1994] 3 SCR 328, at 335; and Sellars v. The Queen, [1980] 1 SCR

527, at 529.


(1998), Vol. 46, No. 6 / no 6

of Canada. In an endnote to his decision in The Cadillac Fairview Corpo-ration Limited v. The Queen,62 Bowman TCCJ observed that the traditionalapproach focusing upon the nature and content of the minister’s assump-tion is misguided. Rather, Bowman TCCJ enunciated an approach relyingupon the ordinary rules of practice and pleadings:

An inordinate amount of time is wasted in income tax appeals on questionsof onus of proof and on chasing the will-o’-the-wisp of what the Ministermay or may not have “assumed.” I do not believe that M.N.R. v. PillsburyHoldings Ltd., [1964] DTC 5184, has completely turned the ordinary rulesof practice and pleading on their head. The usual rule—and I see no reasonwhy it should not apply in income tax appeals—is set out in Odgers’ Prin-ciples of Pleading and Practice, 22nd edition at p. 532:

The “burden of proof” is the duty which lies on a party to establishhis case. It will lie on A, whenever A must call some evidence orhave judgment given against him. As a rule (but not invariably) itlies upon the party who has in his pleading maintained the affirma-tive of the issue; for a negative is in general incapable of proof. Eiincumbit probatio qui dicit, non qui negat. The affirmative is gener-ally, but not necessarily, maintained by the party who first raises theissue. Thus the onus lies, as a rule, on the plaintiff to establish everyfact which he has asserted in the statement of claim, and on the de-fendant to prove all facts which he has pleaded by way of confessionand avoidance, such as fraud, performance, release, rescission, etc.63

Thus, Bowman TCCJ implies that an analysis focused on the nature of theassumption (that is, unpleaded, alternative, or additional) is too narrow.This restrictive analysis results in obscuring the principled approach tothe burden of proof. Emphasizing the nature of the assumption fails torecognize the idea that a person who puts forth an affirmative assertionbears the onus of proof with respect to that assertion.

We think that the observations of Bowman TCCJ are completely inkeeping with the policy considerations underlying the burden of proofrules, the growing judicial tendency to demystify the operation of theserules, and the observations of L’Heureux-Dubé J in Hickman Motors.

CONCLUSIONIt seems clear to us that in recent years the courts have moved consider-ably in the direction of simplifying and clarifying the rules respectingonus and ministerial assumptions in tax litigation. Apart from certainexceptions such as false statements or omissions, statute-barred years,and alternative pleadings (which we have dealt with above), we believethat the rules can be summarized as follows:

1) The rule respecting ministerial assumptions is a form of negativeinference drawn by the courts as a matter of policy in light of the common-

62 97 DTC 405 (TCC).63 Ibid., at 407, footnote 2.


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sense proposition that the material facts underlying an assessment arepeculiarly within the knowledge of the taxpayer, not of the minister.

2) While the point is not entirely free from doubt, the rule probablydoes not extend to facts assumed by the minister that the taxpayer couldnot reasonably be expected to either prove or disprove (for example,dealings of unrelated parties of which the taxpayer is unaware); it islikely that the onus is on the Crown to prove such facts.

3) In a tax appeal, the taxpayer has the normal burden of an appellantin civil litigation: proving, on the balance of probabilities, the materialfacts to support his or her appeal.

4) In a tax appeal, the Crown has the normal burden of a respondent incivil litigation: proving, on the balance of probabilities, material facts tosupport a defence against claims raised by the taxpayer.

5) If the Crown pleads that it has no knowledge of material facts, thetaxpayer must prove those facts on the balance of probabilities.

6) If the Crown alleges that the minister relied upon specific assump-tions of fact in the course of raising an assessment, the taxpayer musteither

a) prove, on the balance of probabilities, that the minister did notrely upon such assumptions of fact;

b) demonstrate that the minister’s assumptions of fact are irrelevant; or

c) demolish the minister’s assumptions of fact.

7) “Demolition” of the minister’s assumptions of fact involves noth-ing more complicated than adducing a prima facie case that thoseassumptions are incorrect.

8) Where the Crown calls no evidence, a taxpayer’s evidence willnormally be accepted as demolishing the minister’s assumptions unless

a) it is successfully challenged on cross-examination;

b) it presents serious issues of credibility; or

c) the court draws a negative inference from the taxpayer’s failureto call all material evidence at his or her disposal.

9) Where a taxpayer has adduced a prima facie case rebutting theminister’s assumptions, the onus and standard of proof revert to the normalrules of civil procedure.

10) If the court concludes that all material facts have been adduced inevidence, it will be in a position to dispose of the appeal on its meritswithout having regard to the minister’s assumptions but solely on thebasis of a determination of whether the taxpayer and the Crown have metthe normal evidentiary burdens imposed on them under the rules of civilprocedure on the balance of probabilities.

While to some extent our conclusions differ from historical expres-sions of these rules, we think that they are completely consistent with the


(1998), Vol. 46, No. 6 / no 6

principles set out in Hickman Motors and Cadillac Fairview. In tax litiga-tion, as in other areas of the law, the courts are showing an increasingtendency to base their decisions on a measured assessment of all materialfacts, rather than on technical procedural niceties. In a tax appeal, minis-terial assumptions cease to be relevant if a court believes that all materialfacts are in evidence. Ministerial assumptions should be invoked to dis-miss an appeal only in cases where a court concludes that a taxpayer hasnot adduced material evidence in his or her possession or control; whereserious doubts as to credibility are raised by the taxpayer’s case; or where,quite simply, the taxpayer’s evidence can reasonably be seen as support-ing the minister’s assumptions.

onus of proof and ministerial assumptions: the role … · 2016-10-05 · normal rules of civil...

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