Crown’s Pleadings Struck in Tax Shelter Case

In one of his first decisions on the bench of the Tax Court of Canada, recent appointee Justice Randall Bocock wasted no time showing his teeth: see O’Dwyer v. The Queen, 2012 TCC 261.

On a motion by the Appellant to strike the Reply in its entirety, or in the alternative, to strike portions of the Reply and to respond to the Appellant’s demands for particulars, Justice Bocock struck the Reply, without granting leave to the Respondent to amend its pleadings.

The taxpayer had been assessed a penalty under subsection 237.1(7.4) of the Income Tax Act for (allegedly) selling interests in a tax shelter without first obtaining a tax shelter identification number. The Reply filed by the Crown, most of which is reproduced in an Appendix to the Court’s decision, failed to:

• properly identify the property that was the tax shelter property,
• identify any particular statements or representations made by any particular person, that were made in respect of the property and that represented to prospective purchasers that their deductions would exceed their cost over four years, or
• make any particular factual assumptions concerning the taxpayer’s role as principal or agent in respect of selling, issuing or accepting consideration for the property.

Inexplicably, at the hearing of the Motion the Crown failed to take the opportunity to request permission to amend the Reply. The Court was reasonably left wondering if the Crown sought to use the discovery process to obtain particulars in order to back-fill its pleadings — and would have none of it.

The decision is a warning: to the Crown, about abuse of the Court’s process to take advantage of the reverse onus in tax litigation; to all litigants, about the importance of proper and precise pleading; and to the tax bar, that Justice Bocock means business.