January 27, 2012

Anchor Pointe Energy Ltd. v. Her Majesty the Queen

2006 DTC 3365
Neutral Citation: 2006 TCC 424
Tax Court of Canada
Date: July 21, 2006

Court File No. 2000-2864(IT)G (General Procedure)

Appeal procedure — Determination of questions — Onus of proof — Whether Minister or taxpayer bears onus of proof about assumptions of fact — Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), ss. 66.1(6), 152(3.1), 163(2), 165(1), 165(3), 169(1) — Tax Court of Canada Rules (General Procedure), SOR/90-688a, ss. 49(1), 58(1)(a).

Facts: In reassessments for 1991 (the “Reassessments”), the Minister reduced the Canadian exploration expense (“CEE”) claimed by the taxpayer’s predecessor corporations on their purchases of seismic data. After receipt of notices of objection, the Minister confirmed the Reassessments under subsection 165(3) of the Act on the stated grounds that (a) seismic data purchased for resale or licensing does not qualify as a CEE under paragraph 66.1(6)(a) of the Act, and (b) in the alternative, the taxpayer failed to establish that the seismic data at issue had the fair market value (“FMV”) claimed. The first of these grounds was based on the Minister’s interpretation of the Federal Court of Appeal’s decision in Global Communications Limited v. The Queen. This ground, however, was incompatible with the assumption underlying the Reassessments, which was that the seismic data purchased by the taxpayer’s predecessors for resale or licensing qualified for CEE treatment, but only to the extent that the purchase price of the data did not exceed its FMV. On the taxpayer’s appeal to the Tax Court of Canada, the parties submitted for determination the question of “who bears the onus of proof with respect to assumptions of fact first relied on by the Minister of National Revenue in confirming a reassessment pursuant to subsection 165(3) of the Income Tax Act?”

Held: The answer was that the Minister bears the onus of proof. Taking into account the well-established line of Supreme Court of Canada decisions about the onus of proof in tax litigation, it was inappropriate to impose on the taxpayer the additional burden of demolishing further assumptions made by the Minister in confirming the Reassessments at the objection level. If the rules about the onus of proof in tax litigation are to be changed, Parliament or the Supreme Court of Canada, and not the lower courts, must do this.