Tax Court of Canada Judgments

[OFFICIAL ENGLISH TRANSLATION]

Docket: 2000-587(IT)G

BETWEEN:

LOUIS MASSICOTTE,

Appellant,

And

HER MAJESTY THE QUEEN,

Respondent.

____________________________________________________________________

Motion heard on common evidence with the motion in the appeal of

Les Consultants Pub Création Inc. (2000-590(IT)G),

on August 28, 2003, at Québec, Quebec

Before: The Honourable Judge Alain Tardif
Appearances:
Counsel for the Appellant:	Richard Généreux
Counsel for the Respondent:	Nathalie Labbé

____________________________________________________________________

ORDER

          Upon motion by the Respondent for an order granting leave to amend the Reply to the Notice of Appeal;

          And upon reading the written submissions of the parties;

The motion is granted in accordance with the attached Reasons for Order.

Signed at Ottawa, Canada, this 30th day of August 2004.

"Alain Tardif"

Tardif J.

Certified true translation

Colette Dupuis-Beaulne

[OFFICIAL ENGLISH TRANSLATION]

Docket: 2000-590(IT)G

BETWEEN:

LES CONSULTANTS PUB CRÉATION INC.,

Appellant,

And

HER MAJESTY THE QUEEN,

Respondent.

____________________________________________________________________

Motion heard on common evidence with the motion in the appeal of

Louis Massicotte (2000-587(IT)G), on August 28, 2003, at Québec, Quebec

Before: The Honourable Judge Alain Tardif
Appearances:
Counsel for the Appellant:	Richard Généreux
Counsel for the Respondent:	Nathalie Labbé

____________________________________________________________________

ORDER

          Upon motion by the Respondent for an order granting leave to amend the Reply to the Notice of Appeal;

          And upon reading the written submissions of the parties;

The motion is granted, in accordance with the attached Reasons for Order.

Signed at Ottawa, Canada, this 30th day of August 2004.

"Alain Tardif"

Tardif J.

Certified true translation

Colette Dupuis-Beaulne

[OFFICIAL ENGLISH TRANSLATION]

Citation: 2004TCC558

Date: 20040830

Dockets: 2000-587(IT)G

2000-590(IT)G

BETWEEN:

LOUIS MASSICOTTE and LES CONSULTANTS PUB CRÉATION INC.,

Appellants,

And

HER MAJESTY THE QUEEN,

Respondent.

REASONS FOR ORDER

Tardif, J.

[1]      On appearing in Court before the hearing began in Louis Massicotte (2000-587(IT)G) and Les Consultants Pub Création Inc. (2000-590(IT)G), the Respondent brought a motion for leave to amend subparagraph 17(o) and paragraph 23 of the Reply to the Notice of Appeal. That Reply had previously been amended as a result of certain amendments made to the Notice of Appeal by the Appellant.[1] The amendment sought is as follows:

[TRANSLATION]

17.(o) The corporation Pub Création [amended to "Gestion Amadéus-Amadéus"] conferred a benefit on the Appellant, within the meaning of subsection 246(1) of the Income Tax Act, in the amount of $240,000.

23. He contends that Pub Création [amended to "Gestion Amadéus-Amadéus"] conferred a benefit on the Appellant, within the meaning of subsection 246(1) of the Income Tax Act, in the amount of $240,000 during the 1995 taxation year.

[2]      The Respondent claims that Louis Massicotte received a claim the fair market value ("FMV") of which was $0. Since the claim was worth nothing, and an amount of $240,000 was credited against Louis Massicotte's debt in consideration of the transfer of that claim,[2] the Respondent contends that Louis Massicotte received a taxable benefit within the meaning of subsection 246(1) of the Income Tax Act ("ITA").

[3]      In other words, having claimed that Les Consultants Pub Création Inc. had conferred a benefit on Louis Massicotte, the Respondent now wishes to allege that Gestion Amadéus-Amadéus is the person that conferred this benefit on Mr. Massicotte. Although the Appellants have not objected to these amendments, they contend that the amendment transfers the burden of proof onto the Minister of National Revenue (the "Minister").

[4]      In their written submissions, the Appellants state their objections as follows, at paragraph 13:

[TRANSLATION]

(a) The Respondent told the Court that subsection 246(1) was the basis of its assessment at the time the assessment at issue was made. The Respondent is therefore relying on new facts in support of the assessment at issue in seeking an amendment on a point fundamental to the application of subsection 246(1) of the ITA, that is to say, the identification of the person that allegedly conferred a benefit within the meaning of that provision.

(b) Subsection 246(1) of the ITA cannot, in fact or in law, form the subject of a principal argument;

[5]      In paragraph 6 of their submissions, the Appellants also state the following:

[TRANSLATION]

As a result of the Respondent's late declaration on her position stated in paragraph 24.1 of her Amended Reply to Louis Massicotte's Notice of Appeal, the Appellant maintains that he is entitled to claim the reserve provided for in subsection 40(1) of the ITA so that only the capital gain on the amount of $144,281 received in the 1995 taxation year can be included in computing his income. [...]

[6]      On October 30, 2003, the Respondent filed her written submissions and withdrew the alternative argument based on paragraph 6(1)(a) of the ITA, which is stated in paragraphs 18 and 24 of the Amended Reply to the Notice of Appeal filed on April 29, 2003 (see Respondent's comments, paragraphs 11 and 17). The Respondent also withdrew subparagraph 17(o) of her Reply. The Respondent's arguments are as follows:

[TRANSLATION]

18.        The statutory provision relied upon at the assessment stage was subsection 246(1) of the ITA. In the Reply to the Notice of Appeal, that same statutory provision was still cited. Moreover, the facts in support of that argument remain unchanged.

19.        Only the wording of the argument based on subsection 246(1) of the ITA, stated in paragraph 23 of the Reply, is amended to state that the person that indirectly conferred the benefit on Mr. Massicotte, within the meaning of subsection 246(1) of the ITA, was Amadeus, not Pub Création. The wording of the point at issue in subparagraph 19(b) of the Reply¹⁰ is amended accordingly.

            ¹⁰ Subparagraph 20(c) of the Amended Reply to the Notice of Appeal of Pub Création is amended in the same manner.

20.        This is not tantamount to the addition of a new fact to the basis of the assessment. It is known that, in the facts assumed by the Minister, Mr. Massicotte transferred a claim with a fair market value of nil to Pub Création; in consideration thereof, his "Advance" account was credited by the amount of $240,000. The legal consequence arising from these facts is, in the Respondent's view, that a benefit of $240,000 (or a lesser amount if the fair market value of the claim is greater) was indirectly conferred on Mr. Massicotte by Amadeus.

21.        Should the Court find that this is a new argument in law, subsection 152(9) of the Income Tax Act permits it.¹¹ On this point, the Respondent refers the Court again to Anchor Pointe Energy Ltd, in which the Federal Court of Appeal states at paragraph 37:

            ¹¹ The decision in General Motors Acceptance Corp. of Canada v. Canada, [1999] 4 C.T.C. 2251, cited in paragraph 21 of the Appellants' written submissions, was rendered before subsection 152(9) came into force. We would emphasize that this provision is applicable after June 17, 1999.

[...]

26.        In paragraph 15 of their written submissions, the Appellants claim that subsection 246(1), like subsection 56(2) of the ITA, cannot form the subject of a principal argument because these are anti-avoidance provisions. The Appellants state that these provisions must be argued only in the "alternative".

27.        The reference to the term "alternative" is confusing.

28.        It is true that subsections 246(1) and 56(2) are anti-avoidance provisions. However, under subsection 56(2), the benefit is taxed in the hands of the person that confers the benefit, whereas, under subsection 246(1), it is the recipient of the benefit who is taxed.

29.        The intent of subsection 246(1), by its very terms, is that no amount shall be taxed in the hands of the person that receives the benefit, either directly or indirectly, if that amount has previously been taxed in that person's hands under Part I of the ITA (more precisely, if the value of the benefit "is not otherwise included" in computing that person's income under Part I). In this way, the legislator prevents double taxation.

30.        The wording of subsection 56(2) of the ITA in fine, according to which the benefit is taxed in the hands of the person that confers it to the extent that it would be if it had been made to that person directly,¹³ should not be interpreted as making it possible to double the amount of tax normally payable (that is to say, both in the hands of the person that confers the benefit and in those of the person that receives the benefit). It is in this sense that the passage from the decision in Smith v. The Queen,¹⁴ to which the Appellants refer, must be read.

            ¹³ "A payment or transfer of property made pursuant to the direction of, or with the concurrence of, a taxpayer to some other person for the benefit of the taxpayer or as a benefit that the taxpayer desired to have conferred on the other person [...] shall be included in computing the taxpayer's income to the extent that it would be if the payment or transfer had been made to the taxpayer." (Emphasis added.)

            ¹⁴ Smith v. The Queen, 93 DTC 5351, p. 5356.

31.        The fact remains that the same principles apply with respect to the burden of proof, no matter whether subsection 246(1) or subsection 56(2) or any other provision of the ITA concerning the taxation of an amount is in issue: the onus is on the taxpayer to prove that the facts assumed by the Minister are incorrect. The decisions cited by the Appellants in their written submissions do not state the contrary. They do not address the issue.

[7]      On November 25, 2003, the Appellants filed their response to the Respondent's written submissions. In paragraph 5 of that response, the Appellants acknowledge the withdrawal of the Respondent's argument based on paragraph 6(1)(a) of the ITA and state that the Court must answer a priori the following questions:

[TRANSLATION]

(a) Was the amount of $240,000 provided for in the separation agreement in the nature of damages that cannot be included in computing the Appellant's income under the ITA (windfall gain)?

(b) Is the value of the alleged "benefit" not moreover included in computing the taxpayer's income under Part I of the Act?

(c) Should the amount of $240,000 be included in computing the income of the Appellant Louis Massicotte for his 1995 taxation year under subsections 39(1) and 40(1) of the ITA?

(d) Should the Court answer the question in subparagraph (c) in the affirmative, is the Appellant Louis Massicotte entitled to seek the reserve provided for in subsection 40(1) of the ITA so that only the amount of $144,281 can be subject to tax in the 1995 taxation year?

[8]      As an argument, the Appellants state in paragraph 8 of their response that "the change in designation of [the person that conferred a benefit] at this stage of the proceedings constitutes a fundamental amendment of the facts assumed at the time the assessment was made." In paragraph 14, the Appellants contend furthermore that the Respondent's arguments are contradictory: how can the Respondent still claim that subsection 246(1) of the ITA is applicable if the $240,000 amount is included as a capital gain in computing the income of the Appellant Louis Massicotte? In fact, the Respondent is apparently seeking application of the capital gains provisions and of subsection 246(1) of the ITA. This position of the Respondent's is contrary to one of the conditions for application of subsection 246(1) of the ITA. Furthermore, the Respondent states in paragraph 7 of her written submissions that subsection 246(1) of the ITA is applicable only where the value of the benefit is not otherwise included in computing the taxpayer's income under Part I of the Act.

[9]      The Appellants claim that the allegation respecting the benefit conferred on Les Consultants Pub Création Inc. (2000-590(IT)G) thus appears moot.

[10]     They therefore seek to have subparagraphs 18(ff) and 20(c) and paragraphs 19 and 25 of the Reply in docket 2000-590(IT)G struck out. Lastly, the Appellants seek leave to file a second Amended Notice of Appeal as a result of the changes in the Respondent's position announced at the hearing of August 28, 2003, and in her written submissions.

POINTS AT ISSUE

[11]     The points at issue are thus as follows:

(1) Should the amendment of the Reply to the Notice of Appeal be allowed?

(2) What effect does that amendment have on the burden of proof?

(3) Does the fact that an assessment is based on subsection 246(1) of the ITA imply that the burden of proof is on the Minister?

(4) Should the amendment of the Notice of Appeal be allowed?

(5) Should subparagraphs 18(ff) and 20(c) as well as paragraphs 19 and 25 be struck from the Reply to the Notice of Appeal in Les Consultants Pub Création Inc. (2000-590(IT)G)?

(1) SHOULD THE AMENDMENT SOUGHT BE ALLOWED?

·         Subsection 152(9) of the ITA

[12]     Following the Supreme Court's decision in Continental Bank Leasing Corp. v. Canada, [1998] 2 S.C.R. 298, the legislator amended the ITA to add subsection 152(9). That subsection provides that the "Minister may advance an alternative argument in support of an assessment at any time after the normal reassessment period", except in certain situations.

[13]     It is important to emphasize the confusion that arises from a reading of subsection 152(9) of the ITA. The marginal note of that subsection reads, "Alternative basis for assessment", and the subsection begins by stating that the "Minister may advance an alternative argument...". However, paragraphs (a) and (b) refer to "evidence". The question that thus arises is whether the term "argument" should be interpreted as an argument in law or an argument in law and fact.

[14]     In March 2003, Associate Chief Justice Bowman conducted a full analysis of subsection 152(9) of the ITA in Loewen v. Canada, [2003] T.C.J. 282, underscoring, at paragraph 41, the problem in that case, which was the difference between the marginal note and the wording of the section: "Here we have a marginal note that speaks of an alternative basis for assessment and the statute itself that refers to an alternative argument." The other relevant passages of that decision are as follows:

52    In what way then did subsection 152(9) modify the judgment of Bastarache J. or for that matter the law that has existed since the SS. Euphemia case? Bastarache J.'s comments were not confined to appellate courts. They appear to apply to all courts, including the Tax Court of Canada. Subsection 152(9) permits the raising of new arguments in support of an assessment. An argument is something that is advanced in support of a basis of assessing. A basis in the fundamental principle underlying an assessment.

53    In Schultz v. The Queen, [1996] 2 C.T.C. 127, which was decided before the Supreme Court of Canada decision in Continental Bank, Stone J., after referring to a number of cases stated:

24 I do not understand that the law as developed in these cases prevented the Minister from pleading the alternative defence before the Tax Court of Canada. It is true that in pleading he is subject to certain constraints. For example, he cannot plead an alternative assumption when to do so would fundamentally alter the basis on which his assessment was based as to render it an entirely new assessment. In my view, in the present cases the Minister has not so changed the basis of the assessments. What he did was merely to assert a different legal result flowing from the self-same set of facts by alleging that those facts show the existence of a joint venture or partnership if they do not show an agency relationship. Even if it could be said that the Minister has alleged new "facts" by adopting the alternative posture, the law as developed allowed him to do so but imposed upon him the onus of proving those facts: Pillsbury, supra, at page 302-03 (D.T.C. 5188); Continental Bank Leasing Corp. v. Canada, [1993] 1 C.T.C. 2306, 93 D.T.C. 298 (T.C.C.), at page 2310 (D.T.C. 302).

54    These observations must of course be read in light of the subsequent comments by Bastarache J. in Continental Bank but they are useful in that they draw a distinction between, on the one hand, so fundamental an alteration in the basis of the assessment that, if accepted, would lead to a result that is tantamount to an entirely new assessment and, on the other hand, an assertion of a different legal result flowing from the same set of facts by alleging that those facts lead to an alternative legal relationship.

55    In paragraph 10 of his judgment quoted above Bastarache J. refers with approval to the Federal Court Trial Division's judgment in The Queen v. McLeod, 90 D.T.C. 6281, and the Federal Court of Appeal's judgment in British Columbia Telephone Company Co. v. Minister of National Revenue, (1994) 167 N.R. 112.

56    These are examples of the type of change in position by the Crown that Bastarache J. considered unacceptable. The question of course remains whether the result would have been the same if subsection 152(9) had been in force. I do not think that subsection 152(9), speaking as it does of an alternative argument, goes so far as to permit the Crown to in effect "appeal its own assessment" or put its case "on a new footing".

[...]

61    What then does it all boil down to? Any attempt to find perfect consistency among all of these cases - and there are others that have not been cited - would be utopian. Some of the broad principles that have emerged since Continental Bank are:

1.    The decision in Continental Bank stands for the proposition that the Crown cannot advance, after the limitation period has expired, a fundamentally different basis of assessment that amounts in essence to a different assessment. This is a fortiori true at the appellate level but it also applies to trial courts.

2.    Subsection 152(9) of the Act does not overrule Continental Bank. It does not sanction the substitution of a wholly different basis of assessment. It permits the Crown to put forward new arguments in support of the existing basis of assessment.

3.    Subsection 152(9) is particularly relevant at the trial level because it contemplates the possibility of an Appellant adducing evidence. At an appellate level new evidence is rarely, if ever, adduced and the rule stated in the SS. Euphemia has been quite adequate to prevent new arguments being raised in the appeal courts.

[...]

69    Can the Crown plead a fact that is diametrically opposed to what the Minister assumed on assessing? I think it can but it takes on the onus of proving it and it must go further and specifically repudiate the Minister's assumption. See The Queen v. Bowens, 96 DTC 6128, discussed in Holm v. Canada (supra). It is important to emphasize here the necessity of the Minister's pleading honestly all assumptions made on assessing, including those that assist the taxpayer. This was accentuated in the recent decision of the Federal Court of Appeal in Grant v. Canada, 2003 F.C.A. 77, paragraphs 17 and 18. To allege that the parties were not at arm's length is not, in my view, tantamount to raising a new assessment or a new basis for the assessment. It is simply an additional argument supporting the reduction of the cost to $1,600,000. The reason for the reduction on assessing seems arguably to have been section 67. Section 69 is another reason if the Crown can plead and prove facts to support the application of the section. It does seem a little surprising that nowhere in the auditor's report are any facts found, assumed or mentioned that would support the view that the parties are not at arm's length. Given the thoroughness of Ms. Jang's review one might wonder if any such facts exist. This will be however a matter for the trial judge. I might observe further that the mere bald assertion that the parties are not at arm's length is an insufficient basis for advancing the argument. This is, however, not a reason to strike it out. See Satin Finish Hardwood Flooring (Ontario) Limited v. The Queen, 96 DTC 1402. However a trial judge may well refuse to permit the argument to be advanced on the ground that no facts supporting the conclusion have been pleaded.

[15]     Thus, under subsection 152(9) of the ITA, the Minister may bring new arguments, provided they are consistent with the basis of the assessment. Should the newly argued facts contradict those considered at the time of the initial assessment, Associate Chief Justice Bowman contends that the burden of proof will then be reversed and that the Minister will have to discharge that burden in respect of the new arguments raised.

[16]     In the instant case, the Minister claims that the person that conferred a benefit on Louis Massicotte was "Gestion Amadéus-Amadéus", not "Les Consultants Pub Création Inc.". This amendment is consistent with the amendments permitted under subsection 152(9) of the ITA, since the basis of the assessment remains unchanged: Louis Massicotte received a benefit and is thus subject to an assessment based on subsection 246(1) of the ITA.

[17]     By the amendment sought, the Respondent nevertheless introduces a new fact in addition to those initially considered. The amendment sought is consistent with the provisions of subsection 152(9) of the ITA; however, the onus is on the Respondent to prove this new fact.

[18]     By her amendment, the Respondent substitutes another person for the person that allegedly conferred a benefit on Louis Massicotte. Although this is a very significant amendment and change, the amendment sought does not however alter the amount of the assessment. The value of the benefit conferred on Louis Massicotte remains $240,000.

[19]     In Canderel Ltd. v. Canada, [1993] F.C.J. No. 777, Décary J.A. considered the approach that should be taken to a motion for leave to amend. In paragraphs 10 and 12, he emphasized the importance of keeping the party opposing the party seeking the amendment in the same position that party would have been in if the pleading had been correctly drafted at the outset:

10.    As regards injustice to the other party, I cannot but adopt, as Mahoney J.A. has done in Meyer, the following statement by Lord Esher, M.R. in Steward v. North Metropolitan Tramway Company (1886), 16 Q.B.D. 556 (C.A.), at page 558:

[...]

           To apply that rule to the present case; if the amendment is allowed now, will the plaintiff be in the same position as if the defendants had pleaded correctly in the first instance?

[...]

12.    As regards interests of justice, it may be said that the courts and the parties have a legitimate expectation in the litigation coming to an end and delays and consequent strain and anxiety imposed on all concerned by a late amendment raising a new issue may well be seen as frustrating the course of justice. The principles were in our view best summarized by Lord Griffiths, speaking for the majority, in Ketteman v. Hansel Properties Ltd:

This was not a case in which an application had been made to amend during the final speeches and the court was not considering the special nature of a limitation defence. Furthermore, whatever may have been the rule of conduct a hundred years ago, today it is not the practice invariably to allow a defence which is wholly different from that pleaded to be raised by amendment at the end of the trial even on terms that an adjournment is granted and that the defendant pays all the costs thrown away. There is a clear difference between allowing amendments to clarify the issues in dispute and those that permit a distinct defence to be raised for the first time.

Whether an amendment should be granted is a matter for the discretion of the trial judge and he should be guided in the exercise of the discretion by his assessment of where justice lies. Many and diverse factors will bear on the exercise of this discretion. I do not think it possible to enumerate them all or wise to attempt to do so. But justice cannot always be measured in terms of money and in my view a judge is entitled to weigh in the balance the strain the litigation imposes on litigants, particularly if they are personal litigants rather than business corporations, the anxieties occasioned by facing new issues, the raising of false hopes, and the legitimate expectation that the trial will determine the issues one way or the other. Furthermore, to allow an amendment before a trial begins is quite different from allowing it at the end of the trial to give an apparently unsuccessful defendant an opportunity to renew the fight on an entirely different defence.

Another factor that a judge must weight in the balance is the pressure on the courts caused by the great increase in litigation and the consequent necessity that, in the interests of the whole community, legal business should be conducted efficiently. We can no longer afford to show the same indulgence towards the negligent conduct of litigation as was perhaps possible in a more leisured age. There will be cases in which justice will be better served by allowing the consequences of the negligence of the lawyers to fall on their own heads rather than by allowing an amendment at a very late stage of the proceedings.

and by Bowman T.C.J. in Continental Bank Leasing Corporation et al. v. The Queen:

. . . I prefer to put the matter on a broader basis: whether it is more consonant with the interests of justice that the withdrawal or amendment be permitted or that it be denied. The tests mentioned in cases in other courts are of course helpful but other factors should also be emphasized, including the timeliness of the motion to amend or withdraw, the extent to which the proposed amendments would delay the expeditious trial of the matter, the extent to which a position taken originally by one party has led another party to follow a course of action in the litigation which it would be difficult or impossible to alter and whether the amendments sought will facilitate the court's consideration of the true substance of the dispute on its merits. No single factor predominates nor is its presence or absence necessarily determinative. All must be assigned their proper weight in the context of the particular case. Ultimately it boils down to a consideration of simple fairness, common sense and the interest that the courts have that justice be done.

[20]     A taxpayer should not suffer prejudice as a result of an amendment to the Reply to the Notice of Appeal. There is no question of any prejudice in the instant case, particularly since the Appellants do not object to the amendment.

[21]     Their reservations are essentially based on the potential impact of the amendment on the burden of proof, which they would like to see reversed. However, the Appellants seek leave to amend their Notices of Appeal as a result of the amendments sought by the Respondent. In that way, in the event of any prejudice, if the Court allowed the amendment sought by the Appellants, that leave would have effect of eliminating any risk of prejudice against them.

[22]     Below I will answer the question whether the Appellants must obtain leave to reamend their Notices of Appeal. For these reasons, I allow the amendment of the Reply to the Notice of Appeal.

(2) WHAT EFFECT DOES THIS AMENDMENT HAVE ON THE BURDEN OF PROOF?

[23]     A purely technical amendment has no effect on the burden of proof, which remains on the taxpayer. For example, a correction to an ordinary error of syntax cannot reverse the burden of proof. On the other hand, the effect will be quite different if the Minister seeks to amend the Reply to the Notice of Appeal with respect to the facts assumed to be true.

[24]     The facts the Minister considers in making his assessment are assumed to be true as a result of the decision in Johnston v. M.N.R., [1948] S.C.R. 486. As the facts are assumed to be true, the onus is on the taxpayer to prove that the assessment is incorrect.

[25]     However, where those facts are amended after the assessment, there is no longer any presumption of truth. The burden is then twofold: the Minister must establish that the amended facts are true, and the taxpayer must prove that the assessment is incorrect. In Marina Québec Inc. v. M.N.R., 92 D.T.C. 1337, [1990] T.C.J. No. 1124, Judge Tremblay stated at point 4.03.1:

[...] The burden on the taxpayer is to demolish the fundamental facts on which the notice of assessment was based at the time it was issued. The taxpayer accordingly does not have the burden of destroying facts which were not considered at the time of the assessment. It is therefore for the Respondent to prove the alternative facts which he puts forward.

[26]     In Holm v. Canada, [2002] T.C.J. No. 641, at paragraphs 17 ff., Associate Chief Justice Bowman cites the concerns of a number of judges of this Court regarding the circumstances of the burden of proof where the Minister pleads assumptions of facts that were not known or were disregarded on assessing. Such assumptions made after the fact should thus not be assumed to be true. Consequently, any amendment to the assumptions of fact results in the reversal of the burden of proof in respect of the new facts.

[27]     In the instant case, the Respondent wishes to amend subparagraph 19(b) and paragraph 23, which appear respectively under the headings "Points at Issue" and "Statutory Provisions, Grounds Relied on and Relief Sought". These are thus not amendments of the facts assumed to be true. The Respondent, who would in any case have to bear the burden of proof in respect of that subparagraph and paragraph prior to the said amendments, will therefore still bear that burden.

(3) DOES AN ASSESSMENT BASED ON SUBSECTION 246(1) OF THE ITA MEAN THAT THE BURDEN OF PROOF IS ON THE MINISTER?

[28]     Subsection 246(1) of the ITA is drafted as follows:

Where at any time a person confers a benefit, either directly or indirectly, by any means whatever, on a taxpayer, the amount of the benefit shall, to the extent that it is not otherwise included in the taxpayer's income or taxable income earned in Canada under Part I and would be included in the taxpayer's income if the amount of the benefit were a payment made directly by the person to the taxpayer and if the taxpayer were resident in Canada, be:

(a) included in computing the taxpayer's income or taxable income earned in Canada under Part I for the taxation year that includes that time; or

(b) where the taxpayer is a non-resident person, deemed for the purposes of Part XIII to be a payment made at that time to the taxpayer in respect of property, services or otherwise, depending on the nature of the benefit.

[29]     It may be seen from a reading of subsection 246(1) of the ITA that this provision sets out three conditions, that:

(1) a person must confer a benefit, either directly or indirectly, by any means whatever;

(2) the value of the benefit must not be otherwise included in the taxpayer's income under Part I of the Act;

(3) the value of the benefit must be included if it was a payment that that person made directly to the taxpayer.

[30]     Once these conditions have been met, the taxpayer must include the benefit in computing his income. Does this provision cause a reversal of the burden of proof such that it is on the Minister?

[31]     The Appellants are of the view that subsection 246(1) of the ITA is an anti-avoidance provision, since it appears in Part XVI, entitled "Tax Avoidance". They argue that these provisions are of alternative application and that the burden of proof is consequently on the Respondent.

[32]     The Appellants confuse the notions of "alternative application" and "alternative argument". An alternative argument reverses the burden of proof if it is not presumed to be valid. This will be the case if the argument is at odds with the facts assumed to be true by the Minister at the time of the initial assessment and is added after the Reply to the Notice of Appeal.

[33]     On the other hand, a taxing provision of alternative application simply means that that provision applies where other provisions do not.

[34]     Subsection 246(1) of the ITA is a provision of alternative application since it must be shown that the amount is not otherwise included (for example, under subsection 15(1) of the ITA) and that it would be included if the payment made to the taxpayer was made to him directly.

[35]     In the instant case, the amount was paid to Louis Massicotte. As a result, it is not a benefit conferred on a shareholder in accordance with subsection 15(1) of the ITA since Louis Massicotte is not a shareholder of Pub Création. However, Mr. Massicotte is a shareholder of Gestion Amadéus-Amadéus Inc., which holds 100 percent of the shares of Pub Création.

[36]     Consequently, subsection 246(1) of the ITA will be applied "alternatively". That does not mean that the Respondent may not assess solely on the basis of subsection 246(1) of the ITA, since that provision is sufficient basis for an assessment.

[37]     It is enough simply to establish that the amount is not otherwise included, whereas it would be included were it not for the fact that the payment was made indirectly. The way to prove this is to enumerate the facts constituting the basis of the assessment in the Reply to the Notice of Appeal. This proof should normally show that the amount is not included in computing the taxpayer's income, but would have been if the payment had been made directly.

[38]     The Minister's proof will thus be made since the facts on which the assessment is based are assumed to be true. The onus, as usual, will thus be on the taxpayer to establish that the assessment is incorrect. An assessment based on subsection 246(1) of the ITA does not have the effect of placing the burden of proof on the Respondent.

(4) SHOULD THE MOTION TO AMEND THE NOTICE OF APPEAL BE GRANTED?

[39]     As the Respondent has expressed her consent in this matter, I allow the amendment of the Notice of Appeal sought by the Appellants.

(5) SHOULD SUBPARAGRAPHS 18(ff) AND 20(c) AND PARAGRAPHS 19 AND 25 BE STRUCK FROM THE REPLY TO THE NOTICE OF APPEAL IN LES CONSULTANTS PUB CRÉATION INC. (2000-590(IT)G)?

[40]     It goes without saying that subparagraphs 18(ff) and 20(c) and paragraphs 19 and 25 in Les Consultants Pub Création Inc. (2000-590(IT)G) should be struck out. As the Respondent now contends that Gestion Amadéus-Amadéus is the person that conferred a benefit on Louis Massicotte, not Les Consultants Pub Création Inc., the latter thus becomes a third party in respect of the question of the benefit conferred on Louis Massicotte, and subparagraphs 18(ff) and 20(c) and paragraphs 19 and 25 become moot.

[41]     By way of recapitulation, the Court:

·         allows the amendment of the Reply to the Notice of Appeal, which is consistent with subsection 152(9) of the ITA;

·         grants the Appellants leave to amend their Notices of Appeal, given that the Respondent does not object;

·         orders that subparagraphs 18(ff) and 20(c) and paragraphs 19 and 25 of the Reply to the Notice of Appeal in docket 2000-590(IT)G, which are moot since Les Consultants Pub Création Inc. is no longer the person that allegedly conferred a benefit on Louis Massicotte, be struck out; those subparagraphs and paragraphs shall therefore be struck from the Reply to the Notice of Appeal in Les Consultants Pub Création Inc. (2000-590(IT)G);

·         finds that the onus shall be on the Respondent to prove the new fact introduced by the amendment granted, that is, that Gestion Amadéus-Amadéus is allegedly the corporation that conferred a benefit, not Pub Création Inc;

·         finds that the fact that the assessment is based on subsection 246(1) of the ITA has no effect on the burden of proof, which shall remain on the Appellants, except however as regards the new fact introduced by the amendment granted.

Signed at Ottawa, Canada, this 30th day of August 2004.

"Alain Tardif"

Tardif J.

Certified true translation

Colette Dupuis-Beaulne

CITATION:

2004TCC558

COURT FILE NOS.:

2000-587(IT)G and 2000-590(IT)G

STYLE OF CAUSE:

Louis Massicotte and Les Consultants Pub Création Inc. and Her Majesty the Queen

PLACE OF HEARING:

Québec, Quebec

Dates Appellants' written arguments: Amended Reply 2000-587(IT)G: Amended Reply 2000-590(IT)G: Respondent's submissions: Reamended Notice of Appeal:

September 12, 2003 October 29, 2003 October 30, 2003 October 30, 2003 November 28, 2003

REASONS FOR ORDER BY:

The Honourable Judge Alain Tardif

DATE OF ORDER:

August 30, 2004

APPEARANCES:

For the Appellants:	Richard Généreux
For the Respondent	Nathalie Labbé

COUNSEL OF RECORD:

For the Appellants
	Name:	Richard Généreux
	Firm: City:	Généreux Côté Drummondville, Quebec
For the Respondent:		Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada

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