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When an appeal is instituted before the Tax Court of Canada, the Crown is not limited to the position the Canada Revenue Agency (“CRA”) took in support of the assessment. Subsection 152(9) of the Income Tax Act allows the Crown to advance an alternative basis or argument unless:
- there is relevant evidence that the taxpayer is no longer able to adduce without leave of the court; and
- it is not appropriate in the circumstances for the court to order that the evidence be adduced.
The Crown is not limited to the CRA’s position because the ultimate goal of a tax appeal is to ascertain whether an assessment is correct or not. Generally, a person’s tax liability is independent on the CRA’s course of action. It is dependent on the application of the law to the specific facts of each case.
That being said, the Crown does not have free rein. A recent Federal Court of Appeal decision clarified the scope of what is permissible when the Crown tries to advance a new basis or argument during an appeal:
[84] In interpreting and applying subsection 152(9) of the Act, the Tax Court and this Court have balanced the right of the Minister to raise an alternative argument against the principles that the Minister cannot appeal an assessment and the Minister cannot reassess after the expiration of the normal reassessment period, absent a misstatement as contemplated by subparagraph 152(4)(a)(i) of the Act or a waiver as contemplated by subparagraph 152(4)(b)(i) of the Act. The concern is that since the Minister cannot reassess after the expiration of the normal reassessment period, the Minister should not be allowed to do indirectly what the Minister cannot do directly. These Courts have rejected the proposition that the Minister can raise any argument or basis in support of an assessment so long as the tax liability of the taxpayer is not increased.
[85] This Court has not allowed the Minister to raise a new argument based on a transaction that did not form the basis on which a taxpayer was assessed…
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[87] This Court has also confirmed that the Minister is not barred from making an argument in support of an assessment that is contrary to the position taken by the Minister in assessing a taxpayer…