It seems equally obvious that if we impose retaliatory tariffs, then those products that we buy will be more expensive. The list proposed includes grocery products we can’t get practically elsewhere or, even if we can, the cost of these products will rise. This can’t be good for Canadians.

Why, though, is it necessary for us to retaliate? The objective of the retaliation is to induce the US government to change its policy. The best people to do that are citizens of the United States. If the products are essential, then they will object. If the costs of tariffs being imposed, not only on Canadian goods but on products from other nations, increase consumer prices directly or by impacting producers who use Canadian products, those ultimate users are going to complain.

The best penalty for punishing a nation which imposes tariffs seems to be those same tariffs themselves. Tariffs penalize their own nationals.

Now, the thinking seems to be one of two themes: the top one seems to be reducing US trade imbalances. That seems to be an appropriate impulse, as the trade imbalances of the US are not sustainable for them or, therefore, any nation trading with them. You can’t keep selling to someone who can’t afford it. But achieving a restored balance by tariffs seems more likely to damage further the American economy than cure it. At the least, it will be very destabilizing economically, with consequent political instability you might expect.

The other mooted theme is that these tariffs are meant to extract greater effort by the Canadian government to impede migrants and illegal drugs from entry into the United States.  That doesn’t seem to be a logical explanation but it is one offered.  If that is the reason, then dealing with the objection directly seems much better for everybody than retaliatory tariffs.

Whether we impose tariffs in retaliation or not, the process of working through whatever issues we must with the United States are not going to be accelerated in an obvious way by our retaliation. But the cost and the disturbance to our economy seem assured.

An incidental effect of these tariffs would seem to be that they would further depress the Canadian dollar against the American currency. That would have the ironic effect of lowering the cost to Americans of Canadian goods, counteracting the effects, in part, of the tariffs.

No doubt, as a politician, one wants to show some sensitivity to Canadian producers and a willingness to act decisively. Tariffs don’t seem to be the way to improve Canada’s conditions.

[15] …  Pursuant to subsection 226(2) of the Canada Business Corporations Act (“CBCA”), the Minister had only two years to issue the assessment after the corporation dissolved.2

That’s a remarkable point to know about related to dissolutions of corporations.  Here is the actual CBCA wording:

Continuation of actions

226. (2) Notwithstanding the dissolution of a body corporate under this Act,

(a) a civil, criminal or administrative action or proceeding commenced by or against the body corporate before its dissolution may be continued as if the body corporate had not been dissolved;

(b) a civil, criminal or administrative action or proceeding may be brought against the body corporate within two years after its dissolution as if the body corporate had not been dissolved; and

(c) any property that would have been available to satisfy any judgment or order if the body corporate had not been dissolved remains available for such purpose.

We had commentary on the corporation’s ability to continue or start an appeal not long ago in 1455257 Ontario Inc. v. Canada, 2016 FCA 100.  But it did not deal with that two-year time limit federally, of course.

Here is the Ontario rule, which lacks the two-year time limit:

Proceedings after dissolution

242 (1) Despite the dissolution of a corporation under this Act,

(a)  a civil, criminal, administrative, investigative or other action or proceeding commenced by or against the corporation before its dissolution may be continued as if it had not been dissolved;

(b)  a civil, criminal, administrative, investigative or other action or proceeding may be brought against the corporation as if it had not been dissolved;

(c)  property that would have been available to satisfy a judgment, order or decision if the corporation had not been dissolved remains available for that purpose, subject to subsections (1.1) and (1.2); and

(d)  land belonging to the corporation immediately before the dissolution remains available to be sold in power of sale proceedings, subject to subsection (1.1). 2015, c. 38, Sched. 7, s. 44 (11).

That seems a noteworthy distinction.

Justice MacPhee continued:

[36] The burden is on the taxpayer to raise in the pleadings any dispute in law or fact. The Appellant must challenge the facts and assumptions pled by the Respondent in their respective pleadings. Failing to dispute facts via the pleadings leads to the Court accepting undisputed statements of fact to be true.6

For authority, he cites the SCC 1948 Johnston decision, which is the origin of the principle that taxpayers must disprove the Minister’s assumptions of fact.  But the way the judge has posed it makes it seem a dangerous statement to leave hanging.

First, it should be obvious that an appellant cannot challenge facts and assumptions pled by the respondent at the time the appellant files his notice of appeal, given that the reply, which states the Minister’s assumptions and facts, is filed after the notice of appeal.

Further, the Judge’s remark disregards GPR r. 50(2):

(2) An appellant shall be deemed to deny the allegations of fact made in the reply if an answer is not delivered.

So, while it’s true that the pleading rules require the Appellant to state the material facts he relies on, they don’t say or give a good basis for saying that failing to dispute facts leads the court to accept undisputed statements as true. At least, it’s a rebuttable acceptance and can be overcome by evidence at the hearing, even if specific facts proved are not pled by the Appellant.

One could conclude that the judge was a little inelegant in his statements and that one need not interpret him to be suggesting that you can’t lead evidence supporting a fact you have not plead. But, if so, his point is disconcertingly clouded by what he writes further:

[37] At trial, the Appellant bears the onus of demolishing the Minister’s assumption of facts on a balance of probabilities.7 If the Appellant fails to demolish the assumptions, the Minister’s assumptions stand. However, it is not open to a trial judge to make a finding on a point not raised in the pleadings and where no evidence had been particularly directed to it.8

You get more clarity on what the judge was preoccupied about just a little further on. The assessment was for $138,500.  The judge looked at the evidence and could only find support for transfers totaling $104,174.  But he concludes it’s not open to him to find something different from what the parties seem to have admitted:

[44] In the case before me, neither party challenged the total transfer amount of $138,550 in their respective pleadings, nor did any party dispute this amount at trial. …

We have authority that makes it very clear that a judge is not bound by facts pled by the parties or even their agreement on the facts.  If the judge finds something different, then he should make his decision on that basis. It’s also a little unclear whether Justice MacPhee misdirected himself by ignoring the impact of r. 50(2) and the fact that the notice of appeal can’t challenge assumptions in a reply not yet made. Further, the fact that the Appellant amended its notice of appeal doesn’t change the rule on the failure to file an answer and the deemed denial of the facts in the reply.

While some previous TCC decisions might have agreed with the idea that judges are bound by factual admissions of the parties, Sommerfeldt J. took a different tack which seems sensible and which has FCA authority in its favour:

[80] Given that this Court has a statutory mandate to confirm or vary an assessment, based on the facts, whether proven or admitted, this Court is not required to follow the principle applied in civil proceedings to the effect that an admission is binding on the party which gave it. Thus, while this Court will not generally look behind a formal admission by a party, this Court is not bound by an admission that is shown, through properly tendered evidence, to be contrary to the facts. [121] In other words, a judge of this Court should not turn a blind eye on evidence placed before him or her. [122] Accordingly, where an admission is contradicted by the evidence, the admission should be regarded as having been made in error. [123]

Leonard v. The Queen, 2021 TCC 33 (CanLII), at para 80, <https://canlii.ca/t/jfr8c#par80>, retrieved on 2023-02-16

FN 121 cites the decision of Hogan in Paletta:

[102] A judicial admission (also known as a formal or express admission) is a concession by a party that a certain fact or issue is not in dispute. [42] In civil cases, a judicial admission is normally conclusive and binds the Court, even if contradicted by the evidence. However, it is not necessarily the same in tax cases….

[105] Even if I am wrong and the Respondent has admitted that the Option Agreements were valid and not shams, I do not think that the Court is bound by this admission in the circumstances. In Hammill v. The Queen [45] the Federal Court of Appeal held that the Tax Court is not bound by an admission which is shown to be contrary to the facts where the party benefitting from the admission has adduced evidence going beyond the admission. [46] This decision was followed in Fiducie Alex Trust v. The Queen [47] as well as in Doiron v. The Queen. [48]

[106] The Federal Court of Appeal held that due to the public nature of a tax appeal, the normal rule applicable to admissions in the civil context does not apply where a party itself places evidence in the record over and above what was agreed to:

[29] Specifically, the appellant argues that the Tax Court Judge was bound by the facts as admitted, even if contrary evidence was adduced at trial. Sopinka, The Law of Evidence in Canada, 2nd ed, Butterworths, 2004 at page 1051; Urquhart v. Butterfield (1887), 37 Ch. D. 357, at 369 and 374; Copp v. Clancy (1957), 1957 CanLII 348 (NB CA), 16 D.L.R. (2d) 415, at 425, are relied upon in this regard.

[30] In my view, these authorities which derive from private party civil proceedings are of no assistance to the appellant in the context of this appeal. While the admission reflected in the Agreed Statement of Facts was favourable to the appellant, he was not satisfied to have his appeal disposed of on that basis. The appellant chose to place extensive evidence before the Court, over and beyond what had been agreed to, about the nature and extent of the scam.

[31] In an appeal against an assessment under the Act, the outcome does not belong to the parties. Public funds are involved and the Tax Court is given, in the first instance, the statutory mandate to confirm or vary the assessment based on the facts, proven or admitted. In this respect, while the Court will not generally look behind a formal admission, the parties cannot by agreement dictate the outcome of a tax appeal. The Tax Court is not bound by an admission which is shown, through properly tendered evidence, to be contrary to the facts.

[32] In this case, the relevant evidence was tendered by the appellant himself, and the Tax Court Judge concluded from this evidence that he had been the subject of a fraud from beginning to end, a conclusion which precludes the existence of a business. In my view, the Tax Court Judge could not pronounce on the validity of the reassessments while turning a blind eye on the evidence placed before him.

[33] Moreover, there is no basis for the appellant’s contention (made during the hearing of the appeal) that this finding was not open to the Tax Court Judge because the statutory period for reassessing had expired when it was made (Pedwell v. The Queen, 2000 CanLII 17141 (FCA), 2000 D.T.C. 6405 (F.C.A.)). The decision of the Tax Court Judge on this point confirms the reassessments on the primary basis on which they were issued (paragraph 18(1)(a)) and results in no taxes being payable beyond those originally assessed (compare Anchor Pointe Energy Ltd. v. The Queen, 2003 D.T.C. 5512 (F.C.A.) at paragraphs 39 and 40). [49]

Paletta v. The Queen, 2019 TCC 205 (CanLII), at para 102, <https://canlii.ca/t/j2qh3#par102>, retrieved on 2023-02-16

In the present case, Watts, the judge says that he took his calculations from the Crown’s evidence.  The Crown was the beneficiary of the presumed admission but based on the extract from Hammill, it wouldn’t matter if the evidence came from the Appellant himself.  (The highlighting in paragraph 31 was by Hogan in Paletta.)

It may be that there is a policy reason supporting prohibiting a party who has made a prohibition from leading evidence to disprove his admission, because the beneficiary of the admission would rightly have concluded he had no need to prepare evidence to prove the admitted fact. So that may be the basis for the courts’ emphasis on requiring that the evidence be produced by the beneficiary of the admission. But that was what occurred here; so that concern was not a bar for Justice MacPhee.

Possibly MacPhee J. might still be supported because he adds:

As to whether my calculation is correct, or missing further necessary analysis, I do not know.

But if the only evidence he had on amounts transferred came from the Respondent and it contradicted the assumptions, it seems MacPhee J. should have come to the conclusion that the correct assessment was $104,000.

One minor point to note about this judgement is the choice of wording, which is a little unusual:

Judgment: In accordance with the attached Reasons for Judgment, the appeal is denied. Costs are payable by the Appellant.

Not much should turn on that choice of wording but, strictly, the choices open to a judge or these:

171. (1) Disposal of appeal — The Tax Court of Canada may dispose of an appeal by
     (a) dismissing it; or
     (b) allowing it and
     (i) vacating the assessment,
     (ii) varying the assessment, or
     (iii) referring the assessment back to the Minister for reconsideration and reassessment.

So, commonly judgements will say that the appeal is dismissed not denied.

Dans les provinces de common law, l’administrateur de jure d’une société est celui qui a expressément ou implicitement consenti à sa nomination. Cette règle est généralement suivie en matière fiscale fédérale (Hay c. La Reine, 2004 CCI 51 au para. 34 ; MacDonald au para. 35).

[In the common law provinces, a de jure director of a corporation is one who has explicitly or implicitly agreed to his appointment. That rule is generally followed in federal tax matters (Hay c. La Reine, 2004 CCI 51 au para. 34 ; MacDonald au para. 35).]

Hay, a decision of Justice Archambault, has this at paragraph 34:

[34]    However, it cannot be inferred from the wording of subsection 106(9) CBCA that the legislator intended provisional directors to be appointed directors without their consent.[18] In the common law, it has been recognized that a director must consent either explicitly or implicitly in order to be considered a director. In West Leechburg Steel Co. (referred to in De Witt)[19], the Supreme Court of Michigan cited with approval the following statements, at pages 183 and 184:

“The person who never accepted the office of director, but was simply held out as such by others without his knowledge, cannot be held liable for any failure on the part of the board to comply with the statute.” 2 Thompson on Corporations (3d Ed.), p. 1010, § 1450.[20]

. . .

“To make one an officer of a corporation, his consent, as well as an appointment or election is necessary. A person who is elected without his knowledge, and who does not accept the office, or act as an officer, is not an officer, although he may have received stock after his election. . . .” 2 Fletcher Cyclopedia Corporations (Perm. Ed.), p. 71, § 314.

Hay v. The Queen, 2004 TCC 51 (CanLII), at para 34, <https://canlii.ca/t/1g7bq#par34>

In MacDonald, Rossiter ACJ follows Hay:

[35]        In Hay v. Canada, 2004 TCC 51, the Minister argued that Mr. Hay was a de jure director. However, Mr. Hay claimed he was never a director because he never agreed to act in that capacity. Apparently Mr. Hay was named as a provisional director by virtue of a form provided with the articles of incorporation despite never having authorized the incorporator to designate him as such and was only made aware of this designation three of four years later. In Hay, Mr. Justice Archambault recognized that in the common law a director must consent either explicitly or implicitly in order to be considered a director. He held that because Mr. Hay’s designation as a provisional director was made by the incorporator without his consent, the designation was not valid and he therefore could not be considered a de jure director.

[36]        The evidence in this appeal discloses that there was no director’s meeting, of any nature or kind whatsoever, by which directors were appointed. There were no dossiers signed by the Appellant consenting to do any business as a director. In fact, the Appellant did not even know he was a director even though he signed some documents to that effect. According to his own evidence, he was just signing documents, some of which required two signatures, when asked. The Appellant specifically acknowledged he was one of two persons with signing authority for cheques for the GCPI but stated firmly and repeatedly that he did not consent to be a director nor did he intend to be a director at any time for the corporation. The evidence presented showed that the directorship appointment of the Appellant was not carried out in accordance with the applicable statute. Also, there was nothing in the corporate minute book that showed that his appointment as a director was proper and carried out in accordance with subsection 63(3) of the Business Corporations Act of New Brunswick. In April 2012, the shareholders of the GCPI passed a resolution confirming the Appellant was never a director of the corporation at any time.

[37]        Based on the evidence it is clear that the Appellant had not consented to be a director. The Appellant did not know he was a director until 2010, he did not execute the appropriate documentation to be a director, and proper steps were not taken by the corporation to appoint the Appellant as a director. Under the Business Corporations Act of New Brunswick, the Appellant therefore could not have been and was not a de jure director.

MacDonald v. The Queen, 2014 TCC 308 (CanLII), at paras 35-37, <https://canlii.ca/t/gf32f#par35>

From the foregoing, you can conclude that a director will be liable only if he consents to his appointment but that his consent may be implied and accepted by the court if he knew about the appointment (and presumably, did not object). It’s also interesting that MacDonald escaped, even though he did sign documents agreeing to be a director.

A peculiar feature of Québec corporate law observed by the FCA in Gagne is that consent need not be in writing, unlike other provinces, among which the court especially noted Ontario and New Brunswick. 

Here, Gagne’s Estate argued that there was no evidence he ever agreed to be a director. The FCA acknowledged that but said there was no evidence he did not agree. The FCA said the Crown was entitled to rely on the public register because of its presumed validity in favour of innocent third parties, under Québec law.

In Ontario, there is a similar rule under s. 20(2) of the Corporations Information Act, which makes a certificate of the Minister overseeing the Act, attesting to the status of the person as a director or officer, “proof, in the absence of evidence to the contrary, of the facts so certified.”

Nonetheless, a putative director in a common-law province could say he never agreed to be director and, possibly, succeed unless the Crown can show a written consent. After all, how could the putative director prove that there was no written consent? The court might ask where minute books are. But very often they don’t exist. Nonetheless, the defending taxpayer may have to show some effort to get the minute books. However, if he does, the court may accept that the defending taxpayer has disproved the public record, as the court did in MacDonald (although, there were minute books produced in that case.).

[6] I have never seen so many different alternative assessment techniques used for one taxpayer. …  Ultimately, to best determine Mr. Bousfield’s revenue, I have had to create a modified technique of my own.

[7] These appeals raise interesting issues concerning how alternative assessment techniques can be attacked, the use of industry averages in alternative assessment techniques, the use of assumptions of fact in alternative assessment techniques and the ability of a taxpayer to rely on his or her own alternative assessment techniques.

[17] Alternative assessment techniques should not be the norm. They should be a last resort.3 … 

[20] While some cases seem to suggest that unreliable books and records are a prerequisite to a subsection 152(7) assessment, a more accurate description is that reliable books and records are one way that a taxpayer can attack an alternative assessment technique. The five ways of attacking an alternative assessment technique are described below.

[21] When the Minister determines a taxpayer’s income or revenue using an alternative assessment technique, the taxpayer can win:

(a) by showing that the taxpayer’s income or revenue can be more accurately calculated using the taxpayer’s own books and records;5

(b) by accepting that the alternative assessment technique used by the Minister is appropriate but attacking components of the calculation in an effort to reduce the income or revenue;6

(c) if the year in question is statute barred, by showing that the alternative assessment technique used by the Minister is fundamentally flawed;7

(d) by presenting a different alternative assessment technique that more accurately calculates the taxpayer’s income or revenue;8 or 

(e) by accepting that the alternative assessment technique used by the Minister was appropriate but showing that the income or revenue calculated by the technique was from a non-taxable source.9

[24] The taxpayer cannot demolish the assumption by simply showing that the alternative assessment technique is fundamentally flawed. The taxpayer can only demolish the assumption by either showing that the assumed revenue or income was from a non-taxable source or presenting the Court with a viable alternative for determining the taxpayer’s revenue or income – be it the taxpayer’s own records or some other technique.

[58] Both parties relied on or attempted to rely on industry averages and Statistics Canada figures in their alternative assessment techniques. These types of averages and figures often appear in alternative assessment techniques. However, it would be extremely unusual for a party to actually call a witness to explain how the averages or figures were determined. In the absence of such a witness, what should the Court do with these types of averages and figures? The answer depends on how they are being used.

[61] In other words, the Minister does not have to prove that the average or figure is accurate. The Minister simply makes an assumption of fact that the average or figure applied to the taxpayer. It is up to the taxpayer to demolish the assumption.

[62] By contrast, if either party wants to rely on industry averages or Statistics Canada figures as evidence, that party will need to call a witness to explain how the averages or figures were determined. In the absence of such a witness, such averages and figures should not be admitted into evidence. They are hearsay.

Here, Graham J. rejected all four of the Crown’s approaches because they relied on facts that were not proved and weren’t assumed, so that the Minister could not rely on them without evidence.   

To challenge the Minister, the taxpayer need not call an expert witness:  

[118] It would be grossly unfair for me to allow the Minister to put forward evidence of the alternative assessment techniques that she employed while preventing a taxpayer from doing the same without calling an expert witness.

[119] As a CPA, Mr. Wirth brought his accounting expertise to bear in preparing his net worth assessment just as Ms. Canton brought her auditing expertise to bear in preparing her calculations. Their respective skills allowed them to perform competent calculations that I would be more likely to accept. But neither of them provided expert evidence.

[120] I am a judge of the Tax Court of Canada. My role is to determine what Mr. Bousfield’s income was. I do that based on the evidence and the law. Ms. Canton’s and Mr. Wirth’s calculations may assist me by collating and organizing parts of that evidence, but their calculations are not expert evidence. To hold otherwise would be to delegate to them the very task assigned to me—the task of determining Mr. Bousfield’s income.

This case is about claims for travel expenses (lodging, meals, travel). Generally, employees aren’t allowed to claim many expenses against taxable employment income. They can claim travel costs, if their employers require them to travel for work away from the employer’s place of business and to pay for their own travel expenses.  (ITA s. 8(1)(h).)

McCulloch was only claiming about $24,000 of expenses for one year and about $11,000 for another, whereas his employment income was hundreds of thousands of dollars.  So these were not big amounts in the context — something to consider a little later when we ask why CRA pressed the point.

His employer was Savage Canada (a strange name to see used by an arms manufacturer). Savage Canada asked him to help Savage USA, which was having problems prospering in the US market. McCulloch agreed; he signed an amended contract with Savage Canada, requiring him to work 2 to 3 weeks monthly at Savage USA’s office in Westfield Massachusetts. (That draws up some interesting history. Westfield is about 10 miles from Springfield, which was the home of the first US armoury, set up on direction of George Washington in 1776. Smith & Wesson set up their first plant in Springfield in the 1850s. Had they not done so, Clint Eastwood’s Dirty Harry would have been unarmed.)

CRA and the courts have been a bit conflicted over whether a temporary work location, such as a construction site, can constitute an employer’s place of business. It’s well established that a taxpayer can’t claim expenses for travelling from home to work. But things become more difficult when you are travelling from home to a regular worksite. It seems the problem for CRA was that McCulloch was working, whether in Canada or the US, for the same corporate group, and the US work was regular. In that way, it wasn’t like a construction site or work at a third party customer’s offices.

Here’s what we like about the case: First, Justice MacPhee recognized the US affiliate as a separate, irregular worksite, because McCulloch only worked there about 21 months. CRA had tried to treat the US and Canadian affiliates as a single employer. But there was no strict legal basis for that view. McCulloch had no contractual relationship with Savage USA; it didn’t pay him; Savage Canada contractually required him to go there. So, the US office could not be “the employer’s place of business”.

It seems worth noticing that the rule says: “employment away from the employer’s place of business or in different places”.  That suggests that even if the employee goes to the employer’s place of business, the deductions are still available if the employer requires the employee to go to “different places”, not just one ordinary place of business.

You can understand why these facts confused CRA. One of the beautiful things about the Agency is that its officers will enforce the law, regardless of the amount at stake. They take the view that they are administrators; they don’t make the law. That said, you very often get quite good discretion exercised by auditors, who choose, in appropriate cases, not to press the law to the strictest detail. And, where CRA has explicit direction to exercise discretion, such as with the interest and penalty taxpayer relief rules, it can be remarkably generous. (So I’m remarking on it here.)

As an agency, CRA has to draw a line. You can’t have people (as tax protesters try to do) claim personal living expenses against employment (or business) income; else you possibly would have no tax revenue at all.  But you might ask whether, in the context, the relatively modest travel expenses (which earned McCulloch an extra $100,000 a year) needed to be challenged. His deductions seem far from abusive. The factual context is well contained by the 21 months limited for the contract work.  This is not a never-ending expense.

And here’s another thing: if you think about the GST context, we go a bit out of our way to encourage Canadian competitiveness in international commerce. For that reason, we have zero-rating rules for exported services and goods and we don’t charge tax on supplies made outside Canada. So why would we want to discourage Savage Canada from servicing a US affiliate?

It would have been nice to know whether Savage USA paid Savage Canada for this extra service. If it did, that would be a further reason for wanting to encourage Savage Canada and McCullough by allowing the expense deduction. Note that you would wind up with the same issues if Savage Canada gave McCulloch an allowance, instead of requiring him to pay the travel costs on his own. Savage Canada, in that case, would have a business expense to claim against its revenue. McCulloch would have to confront, with CRA, similar issues about the purpose of the travel and whether it was away from the employer’s place of business, but the rules would be in ITA s. 6(1)(b)(vii) & (vii.1). 

One interesting difference between ss. 6 and 8, though, would be that the s. 6 income exclusion rules don’t require that the employment contract require the employee to pay for the automobile or travel expenses. You might say that it’s obvious the contract wouldn’t require that because the employer is paying. But the two sections (6 and 8) seem to get at the same thing: that the costs of living and travel are for the benefit of the employer and required by the employer.

That distinction, between expenses primarily for the benefit of the employer or for the benefit of the employee, is a broader principle that the CRA applies to decide whether any particular employment expense is a taxable benefit to the employee.  If the expense is more of benefit to the employer, it is not taxed in the hands of the employee.

Second, the judge rejected an affidavit that the appellant sought to enter as evidence in this informal procedure appeal. Although the Tax Court rules allow flexibility in accepting evidence for informal procedure appeals (and the evidentiary rules have become more flexible for all courts now because of the Supreme Court of Canada’s more expansive “principled approach” to the admission of evidence), the judge disliked the fact that the appellant gave the evidence to the Crown shortly before the hearing and did not answer the Crown’s questions about the affidavit. Because the witness did not come to court and the appellant did not answer Crown questions, the Crown didn’t have a fair chance to review and consider the evidence or to get something like cross-examination of what was written in the affidavit. So the judge rejected the affidavit. Of course, this ruling didn’t impair McCulloch’s success.

Third, Justice MacPhee raised a question about whether the travel was incurred “in the course of… employment”. He was surprised that neither CRA nor the appellant discussed that. Probably, it seemed to both parties obvious that the travel was part of employment, once you accept that the travel was required under contract and McCulloch was required to pay the expenses.  Justice MacPhee summarizes two lines of cases but, because the parties didn’t dispute the point, accepts that the condition was met.

What makes this question (whether the travel was “in the course of employment”) seem trivial is that the nature of these expenses is necessarily personal: they include lodging and meals after all.   When you go to sleep at night, are you sleeping in the course of employment? When you have your dinner, is that in the course of your employment?  So the fact that travel, lodging and meals are personal can’t be relevant for deciding if they were incurred in the course of employment. The issue seems to be satisfied just by knowing that the contract required the employee to work elsewhere and to pay the cost of getting there and staying there.McCullough v. The King, 2022 TCC 118, https://canlii.ca/t/jsvcn

The Small Claims Court action had been started more than two years after the last payment, when Dr. Ghotbi said he was not going to pay more.  But the action did start within two years of that follow-up text exchange.

Section 13 of the Ontario Limitations Act, 2002 restarts the two-year normal limitation period for civil actions if there is an acknowledgement of the debt. But subsection 13(10) require the acknowledgement to be “in writing and signed by the person making it or the person’s agent. ”  So the question here was whether a text message acknowledging the debt was valid because a text message is not signed in the traditional way. In fact, it’s not signed at all.

The Superior Court judge (sitting alone as the Divisional Court for a Small Claims Court appeal) concluded that a text message is “signed” for purposes of the limitations act where its authenticity is admitted, because the person using it uses a unique cell phone number with other
unique identifiers:

“[47] On the facts of the case at bar, Dr. Ghotbi’s texts were obviously not “signed” in the traditional sense. But s. 13(10) does not prescribe any particular type of signature.

[48] The world is changing. Everyone knows that. We live in a digital world now, much more than was the case when the Act came into force in 2002. It is incumbent upon the court to consider not just traditional means of affixing one’s signature to a document, but other, more modern means, including digital signatures.

[49] In this instance, there is no question about the authenticity of the text messages. There is no question that Dr. Ghotbi was the author of the June 2, 2016 texts in issue. From that perspective, the underlying purpose of s. 13(10) has been satisfied.

[50] I would also find that the express requirement of a signature is met in this case. Dr. Ghotbi used his cellular telephone to send and receive texts with Mr. Lupo. Dr. Ghotbi, like all other cellular telephone users, has a unique phone number linked with his phone. In fact, there will undoubtedly be other unique identifiers associated with Dr. Ghotbi’s phone including, without limitation, an International Mobile Equipment Identifier (IMEI) number. These unique identifiers provide, in effect, a digital signature on every message sent by the user of that particular device. Again, there is no dispute that the user of the device was Dr. Ghotbi and that he sent the texts in issue. In my view, that digital signature is sufficient to meet the requirements of s. 13(10) of the Act.”

There isn’t any special reason to restrict this reasoning to the Limitations Act, 2002. It might have broader application for other contexts. For example, what a text message satisfy the requirements of the Electronic Commerce Act, 2000, S.O. 2000, c. 17?

In the course of these long reasons (53 pages), Justice Sommerfeldt reviews the law on admissions, and the Court’s freedom to disregard them if the evidence is contrary.

“[80] Given that this Court has a statutory mandate to confirm or vary an assessment, based on the facts, whether proven or admitted, this Court is not required to follow the principle applied in civil proceedings to the effect that an admission is binding on the party which gave it. Thus, while this Court will not generally look behind a formal admission by a party, this Court is not bound by an admission that is shown, through properly tendered evidence, to be contrary to the facts.121 In other words, a judge of this Court should not turn a blind eye on evidence placed before him or her.122 Accordingly, where an admission is contradicted by the evidence, the admission should be regarded as having been made in error.123”

The footnotes, 121 through 123, read:

“121 Paletta, supra note 63, ¶102 & 105-106.
122 Hammill v. The Queen, 2005 FCA 252, ¶29-32; and Fiducie Alex Trust v. The Queen, 2014 FCA 123, ¶9.
123 Wardean Drilling Company Limited v. MNR, [1978] CTC 270, 78 DTC 6202 (FCA), ¶11 & footnote 1. See also McKervey v. MNR, [1992] 2 CTC 2015, 92 DTC 1570 (TCC), ¶21.”

“●         Expectations of a substantive outcome. Sometimes an administrative decision-maker may lead one to believe that a particular substantive decision will be made but then fails to make it. Even though the person has a legitimate expectation that a particular substantive outcome will be reached, that expectation is not enforceable: … St. Ann’s IslandShooting and Fishing Club Ltd. v. The King, 1950 CanLII 28 (SCC), [1950] S.C.R. 211, per Rand J., at page 220 (“there can be no estoppel in the face of an express provision of a statute”); …  In the tax context, see …; Louis Sheff (1984) Inc. v. The Queen, 2003 TCC 589 at paragraph 45 (“an estoppel cannot override the law of the land and…the Crown is not bound by the errors or omissions of its servants”); ….

●         Departures from policies. Changes in policies or departures from policies, by themselves, do not constitute an abuse of discretion or make a decision unreasonable: …  Administrative decision-makers are bound to apply the law of the land, not their administrative policies, to the facts before them. For example, in the tax context, information bulletins do not create estoppels: Vaillancourt v. Deputy M.N.R., [1991] 3 F.C. 663 at page 674 (C.A.); Stickel v. Minister of National Revenue, [1972] F.C. 672 at page 685 (T.D.).”

Canada (National Revenue) v. JP Morgan Asset Management (Canada) Inc., 2013 FCA 250 at para 75.

Even so, there might be some especially rare cases where the issue comes up. Settlement agreements might be such a case, as these comments from the Federal Court of Appeal suggest:

“[35] The general rule is that parties should be bound by the agreements that they make. There is no good reason to create an exception here. As suggested by the Tax Court in 1390758 Ontario Corp. v. R., 2010 TCC 572, 2010 D.T.C. 1385, this would be very unfair to CBS: “[b]oth sides of a dispute are entitled to know that if they invest the time and effort required to negotiate a settlement, then their agreement will bind both parties” (at para. 37).

[36] The Crown entered into the settlement agreement believing that it was in its best interest to do so. It should be required to live up to its bargain. In my view, it would not be appropriate for the Court to wade into the merits of the agreement.”

Canada v. CBS Canada Holdings Co., 2020 FCA 4.

In CBS Canada Holdings, the Crown had sought to rely on long settled authority for the principle that it is not bound by settlements that are contrary to the law and the facts. As the FCA explained above, it did not accept the principle to be so broad.
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The Ontario case that is the topic of this post was a dispute over a land development project in the Northeast of Toronto. Although the Court of Appeals decision was split on application of the estoppel principles, there is no dispute about what the principles are:

“B. Estoppel by Representation
(1) Governing Legal Principles
[134] In Canadian Superior Oil Ltd. v. Paddon-Hughes Development Co., 1970 CanLII 3 (SCC), [1970] S.C.R. 932, at pp. 939-40, the Supreme Court stated that the essential factors giving rise to estoppel by representation are:

(1) a representation or conduct amounting to a representation intended to induce a course of conduct on the part of the person to whom the representation is made;
(2) an act or omission resulting from the representation, whether actual or by conduct, by the person to whom the representation is made; and
(3) detriment to such person as a consequence of the act or omission.

[135] More recently in Ryan v. Moore, at para. 5, the Supreme Court referred to its much earlier decision in Page v. Austin (1884), 1884 CanLII 6 (SCC), 10 S.C.R. 132, at para. 164, to describe the doctrine of estoppel by representation as follows:

‘Estoppel by representation requires a positive representation made by the party whom it is sought to bind, with the intention that it shall be acted on by the party with whom he or she is dealing, the latter having so acted upon it as to make it inequitable that the party making the representation should be permitted to dispute its truth, or do anything inconsistent with it.'”

…
“C. Estoppel by Convention
(1) Governing Legal Principles
[144] At para. 59 of Ryan v. Moore, the Supreme Court states that the following criteria form the basis of the doctrine of estoppel by convention:

(1) The parties’ dealings must have been based on a shared assumption of fact or law: estoppel requires manifest representation by statement or conduct creating a mutual assumption. Nevertheless, estoppel can arise out of silence (impliedly). [Emphasis in original.]
(2) A party must have conducted itself, i.e. acted, in reliance on such shared assumption, its actions resulting in a change of its legal position.
(3) It must also be unjust or unfair to allow one of the parties to resile or depart from the common assumption. The party seeking to establish estoppel therefore has to prove that detriment will be suffered if the other party is allowed to resile from the assumption since there has been a change from the presumed position.

[145] On the first criterion – which the Court refers to as “Assumption Shared and Communicated” – the Court provides the following additional guidance, at paras. 61-62:

‘The crucial requirement for estoppel by convention, which distinguishes it from the other types of estoppel, is that at the material time both parties must be of “a like mind”. The court must determine what state of affairs the parties have accepted, and decide whether there is sufficient certainty and clarity in the terms of the convention to give rise to any enforceable equity.
‘While it may not be necessary that the assumption by the party raising estoppel be created or encouraged by the estopped party, it must be shared in the sense that each is aware of the assumption of the other. Mutual assent is what distinguishes the estoppel by convention from other types of estoppel. … Thus, it is not enough that each of the two parties acts on an assumption not communicated to the other. Further, the estopped party must have, at the very least, communicated to the other that he or she is indeed sharing the other party’s (ex hypothesi) mistaken assumption.’ [Citations omitted.]

[146] The court also offers further guidance on the second and third criteria, namely, reliance and detriment. It notes that the requirement of detrimental reliance lies at the heart of true estoppel and that detrimental reliance encompasses two distinct, but interrelated concepts: reliance and detriment: at paras. 68-69.

[147] Reliance requires a finding that the party seeking to establish the estoppel changed its course of conduct by acting, or abstaining from acting, in reliance upon the assumption, thereby altering its legal position: at para. 69.

[148] In terms of detriment, the Court offers this guidance, at para. 73 of Ryan v. Moore. Once the party seeking to establish estoppel shows that it acted on a shared assumption, it must prove detriment. For the plea to succeed, it must be unjust or unfair to allow a party to resile from the common assumption. A change from the presumed legal position will facilitate the establishment of detriment “because there is an element of injustice inherent within the concept of the shared assumption – one party has acted unjustly in allowing the belief or expectation to ‘cross the line’ and arise in the other’s mind”: at para. 73, citing Sean Wilken, Wilken and Villiers: The Law of Waiver, Variation and Estoppel, 2nd ed. (Oxford: Oxford University Press, 2002), at p. 228.”

Over the past year, there has been some news about the impact on universities of being closed off from foreign students.  In July 2020, there was news about UK universities: Coronavirus: 13 UK universities ‘could go bust without bailout’.

The BBC report at the time explained the factors creating the financial pressure:

• “fewer international student enrolments
• less income from student accommodation, conferences and catering
• losses on long-term investments

“In addition, universities which are running pension scheme deficits will see them widen during the pandemic as investments stagnate.”

​The study analysis, interestingly speculated that larger universities would be better able to withstand the pressure than smaller ones. 

“Universities with many international students which also have substantial pension obligations are often also higher-ranking institutions, with “large financial buffers” and the option of alleviating losses by admitting more UK-based students.”

“But this behaviour could harm less selective universities, which could see their potential students recruited by higher-ranking institutions.”

As the year progresses, we may see more insolvencies of public institutions. Even those that are not insolvent, maybe rely on greater support from provincial governments. If so, we would have an implicit further drain on government finances not, perhaps, immediately evident in budget deficits.

The orthodontic appliances (such as braces or retainers) and their installation are listed as zero-rated in Schedule VI (listing zero-rated supplies) Part II (Medical and Assistive Devices) sections 11.1 (for the braces) and 34 for their installation.  

Despite that arrangement, it seems that CRA has been assessing orthodontists to disallow the input tax credits. Apparently, the basis for the disallowance was that “patient invoices did not set out the consideration for the zero-rated supply of orthodontic appliances separately from the consideration for the exempt supply of orthodontic services.”  Consequently, the CRA said that it could not tell the portion of supplies that were for zero-rated appliances and the portion that was exempt dental services. So it treated all the supplies as exempt, with the result that no ITC could be claimed. (See the Kevin Davis reasons at para. 2.)  

The agency succeeded on this basis in the Informal Procedure decision of Justice Campbell in Dr. Brian Hurd Dentistry Professional Corporation v. The Queen, 2017 TCC 142.  But there, Justice Campbell took the view that, regardless of the zero-rating rules, dentists treating patients for orthodontics are making a single supply of an exempt dental service and not separate supplies of (1) exempt dental services and (2) zero-rated appliances (with their installation).

Despite that earlier decision, Justice Wong decided that the intent of the law was to allow dentists to treat their supplies of orthodontic appliances and their installation as zero-rated, not exempt. And her reasoning makes sense, as why are those two rules in the statute if Parliament expected a single supply analysis?

That said, it was very odd to see that Justice Wong gave no discussion of Justice Campbell’s reasons in Dr. Brian Hurd Dentistry Professional Corporation.    

Justice Wong wrote:

[42] I am unaware of a legislative basis for finding that Schedule V takes precedence over Schedule VI where there is an apparent or potential conflict between the two. In my view, the correct reading of the provisions dealing with orthodontic services and appliances does not lead to a conflict in any event.  

That conclusion is hard to reconcile with the fact that she obviously looked at section VI:II:34, which excludes “a service the supply of which is included in any provision of Part II of Schedule V”.  And there is caselaw that says that a supply cannot be zero-rated if it is also exempt. (See below.)

After considering the Department of Finance explanations of these rules and their changes in 1997, she wrote at paragraph 41:

“The statute makes it clear (and Parliamentary intent confirms) that a conventional orthodontic practice consists of exempt supplies of services and zero-rated supplies of appliances. It is unnecessary to use the common law test44 for determining single versus multiple supplies or to consider whether the supply of an appliance is incidental to the supply of orthodontic treatment45 because the statute has directly addressed the tax status of both.”

That certainly wasn’t how Justice Campbell approached the rules. Justice Campbell decided Hurd on the basis that there was a single exempt supply. Justice Campbell nonetheless does go on to say (para. 44) that, had there been separate supplies, she would have come to the precise conclusion that Justice Wong does in Kevin Davis:

“… According to the decision in Buccal Services, Schedule V however takes precedence over Schedule VI in the event that a supply falls within either of those Schedules.”

That passage addresses Justice Wong’s view that there is no legislative basis for finding that the exempt supply rules override the zero-rated rules. The legislative basis is that the definition of a “taxable supply” requires a “commercial activity” and commercial activity excludes exempt supplies.”

Justice Campbell continued in her para. 44, where, had she agreed with Justice Wong that there is no place for single supply analysis, she offers reasons that parallel those of Justice Wong:

“The term “orthodontic appliance” appears only in Schedule VI and does not appear anywhere in Schedule V. While a prosthesis may, according to the medical definitions of “prosthesis, orthodontics and appliance” include an orthodontic appliance, the Act has set out the scheme for an orthodontic appliance entirely separate and apart from the provisions that apply to a prosthesis. In addition the evidence, which remained unchallenged, suggests that the only way to manufacture or assemble an orthodontic appliance is in the patient’s mouth. Therefore, the supply of an orthodontic appliance, being a medical device assembled by a licensed dental professional in a patient’s mouth, falls within the zero-rated scheme contained in Schedule VI. This interpretation is also consistent with the Department of Finance Technical Notes to section 11.1 of Schedule VI, Part II which unconditionally zero-rates an appliance.”

So, we now have two divergent approaches to precisely the same issue. Typically, one would expect the Court to explain why it was deviating from its prior decision, even if it was an Informal Procedure decision, which is not binding precedent.  But Justice Wong has not done that.

In Friedman v. Canada (National Revenue), 2021 FCA 101, the Federal Court of Appeal explained judicial comity:

“[30] [The fact that there is no error of law in failing to follow the decision of a judge of the same court] does not mean that judges are free to disregard the decisions of their colleagues. Judicial comity is a doctrine which seeks to promote uniformity and predictability in the law. Litigants and appellate courts expect that judges will consider the decisions of their colleagues carefully and, if they choose to differ, will explain why. One way of doing this is to distinguish the facts of the two cases or to identify relevant legal principles which were not addressed.
​
[31] But the failure to do so, or to do it convincingly, while regrettable, is not a basis for appellate intervention. As a result, the use of the expression “horizontal stare decisis” to refer to judicial comity is misleading precisely because judicial comity is not enforced by courts of appeal while stare decisis is.”

Curiously, Justice Wong has an “obiter” discussion about ITC documentation in which she focuses on supplies made to patients, not receipts or invoices issued to Kevin Davis PC.  Was Justice Wong confused about the ITC documentation to be considered? 

In para. 43 of her reasons, we seem to be concerned with Davis’s failure to allocate inputs clearly between its taxable and exempt supplies.  That apportionment issue is one under ETA s. 169(1), not one under the documentation requirements for ITCs under s. 169(4) and s. 3 of the Input Tax Credit Information (GST/HST) Regulations.  Nor would it be relevant to discuss, as she does, ministerial discretion under s. 169(5) to waive ITC documentation requirements.  

It’s not quite clear what drove that discussion. It may be that she was misled by the fact that CRA was objecting to the failure of the financial agreements with patients to specify which parts of the fee was for orthodontic appliances.  (The statements simply had a generic claim that the “fee includes a portion, up to 35%, relating to the value of orthodontic appliances as well as the value for the services of installing, maintaining, restoring, repairing or modifying your orthodontic appliances.”  (Para. 29)  But there was no specific itemized of those charges.)

This was more an issue of proof to support the allocation of the ITCs to zero-rated appliances and installation services.  (See especially ETA ss. 169(1) and 141.01(5)). It was not the kind of ITC documentation issue covered by section 169(4).