What does it mean to "Demolish" the Minister's Assumptions?
The good thing about tax disputes is that there is little to no room to personally and vexatiously malign a party in an attempt to gain an advantage. For example, in civil litigation the concept of “absolute privilege” means that fiction can be pleaded to try to discourage a party from proceeding with their claim. In contrast, determining the correctness of a tax assessment, even when considering varying factual circumstances, is an objective exercise by the Tax Court of Canada.
Factual Assumptions
Another unique aspect of tax litigation is that Canada Revenue Agency (CRA) can assume facts to support its tax assessment. Noteably, CRA’s factual assumptions are deemed true unless disproven. The onus is then on the taxpayer to “demolish” the CRA’s assumptions but to do so on a “balance of probabilities”, a much lower standard than “beyond a reasonable doubt.” At that point CRA must prove its factual assumptions.
However, it is important to note that these legal concepts are only strictly enforced at the Tax Court stage and not so much during the internal CRA tax assessment and appeal process. Accordingly, CRA’s ability to make factual assumptions is essentially unconstrained and only truly tested in Tax Court.
Demolish & Prima Facie
The term “demolish” at first implies a high benchmark; however it is misleading and that has been recognized by the Courts. In the decision in House v. Canada, 2011 FCA 234, the Federal Court of Appeal held that the taxpayer only has to make a prima facie case that the facts asserted are true. At paragraph 23 of the decision of the Federal Court of Appeal in Amiante Spec Inc. v. Canada 2009 FCA 139, a prima facie case was defined as:
one supported by evidence which raises such a degree of probability in its favour that it must be accepted if believed by the Court unless it is rebutted or the contrary is proved. It may be contrasted with conclusive evidence which excludes the possibility of the truth of any other conclusion than the one established by that evidence…
The Burden of Proof in Tax Cases as per Hickman Motors Ltd. v. Canada [1997] 2 SCR 336
In the Supreme Court of Canada (SCC) decision in Hickman Motors Ltd. v. Canada,[1997] 2 SCR 336, at paragraphs 92 to 95, the SCC outlined the principles that govern the burden of proof in tax cases as follows:
1. The burden of proof in taxation cases is that of the balance of probabilities.
2. With regard to the assumptions on which the Minister relies for his assessment, the taxpayer has the initial onus to “demolish” the assumptions.
3. The taxpayer will have met his initial onus when he or she makes a prima facie case.
4. Once the taxpayer has established a prima facie case, the burden then shifts to the Minister, who must rebut the taxpayer’s prima facie case by proving, on a balance of probabilities, his assumptions.
5. If the Minister fails to adduce satisfactory evidence, the taxpayer will succeed.
SpenceDrake Tax Law – Tax Lawyers
Disclaimer
Each article/blog post is only meant to provide general information. It is posted on a specific date. Laws and rules change. Please know that it may be out of date. It is not meant to provide legal advice, and it does not provide legal advice. It cannot be relied on. Every tax situation is unique, and that may mean situations differ from this article/blog. If you have legal questions, please consult a lawyer.