This was a non-arm’s length transfer case (here, under ITA s. 160). This rule taxes a transferee of property from a person who owed taxes at the time of the transfer. This was a strategic dispute over the lack of particulars in the Notice of Appeal.
The appellant had been the major shareholder of a bankrupt corporation which the Crown said owed taxes at the time the appellant got property from the Corporation. The appellant here took the approach in his notice of appeal that he could simply challenge the underlying corporate tax debt, claiming that the Crown has the onus of proving that debt. The Crown asked for particulars (under GP rule 52) from the appellant before filing the Reply. The Crown wanted to know which tax debts the appellant was challenging and on what basis the appellant said no tax was owed.
The court refused the Crown’s request. So the taxpayer notionally won. But how valuable was this exercise? The Crown can still ask all the questions it likes about the appellant’s position during examination for discovery. That, in fact, seems to have been the main reason for the court’s decision, although the basic rule the court applies for cases like these is this:
“Here again, the appellants misapprehend the purpose of particulars. They are not supplied because they will make a pleading better or more forceful. They are supplied because without them they cannot plead in response to an important point.” Imperial Manufacturing Group Inc. v. Decor Grates Incorporated, 2015 FCA 100 ¶35.
So, the appellant can maintain his position right through the hearing that he does not have the documents or detail he needs to be able to show that there was no tax owing by the Corporation and that the Crown must prove the debt. That seems a bit of a risky approach, since the Crown likely had some evidence to support the original corporate assessments and the appellant seems to have been a key party in the running of the Corporation. But, perhaps this preliminary result will have some strategic value for settlement or might even succeed with the judge at the hearing if the Crown’s evidence supporting the corporate assessments is materially flawed.
What the case does show is the advantage that taxpayers have in being able to challenge underlying tax debts in these kinds of cases. Normally, taxpayers have the burden of proof, but in these non-arm’s length transfer cases, it is possible to reverse that burden (though that may not always work). So, even if the debtor did not have evidence to challenge the assumptions of the original assessments, the transferee might not have the same onus of proof.