Background
10038555 Canada Limited, a manufacturer of custom stairs and stair railings, appealed GST/HST assessments under Part IX of the Excise Tax Act. Its Notice of Appeal alleged that the Canada Revenue Agency had assessed arbitrarily, overstated the company’s sales and GST/HST collectible, understated its input tax credits, and consequently overstated its net tax.
The Crown moved under section 53 of the Tax Court of Canada Rules (General Procedure) to strike the Notice of Appeal with leave to amend. It argued that the pleading lacked specific material facts and could prejudice or delay a fair hearing. The company maintained that its allegations were sufficiently clear and concise to permit a reply. The motion proceeded through written submissions.
The Court’s Holding
Justice Cook granted the Crown’s motion. The Court held that the Notice of Appeal identified only one material fact—the nature of the company’s business. Its assertions about overstated sales and tax, understated input tax credits, and arbitrary assessments were conclusions rather than the underlying material facts needed to support them.
Because the pleading was so devoid of material facts that the Crown could not know how to answer, the Court found that it could prejudice or delay the fair hearing of the appeal. Discovery could not cure that defect because properly pleaded material facts define the issues and establish the scope of discovery and trial.
The Court struck the Notice of Appeal but granted leave to file a fresh amended pleading setting out the material facts relied upon. The company received 60 days from the signing of the order to do so, after which the Crown would have 60 days to reply. Costs were awarded to the Crown in any event of the cause.
Key Takeaways
- A tax appeal must plead the concrete material facts supporting the taxpayer’s position, not merely conclusions that an assessment is arbitrary or that amounts were overstated or understated.
- A pleading may be struck when its factual deficiencies prevent the Crown from knowing how to respond and may prejudice or delay a fair hearing.
- Discovery is not a substitute for adequate pleadings; material facts must first define the issues and the boundaries of relevance.
Why It Matters
The decision underscores that taxpayers challenging GST/HST assessments must explain the factual basis of each alleged error—for example, the transactions, amounts, periods, and claimed credits at issue. Broad assertions about an assessment’s incorrectness will not satisfy the pleading requirements.
Although the Court permitted amendment rather than terminating the appeal, it imposed costs and a firm deadline. The ruling therefore highlights both the curable nature and the practical consequences of materially deficient tax pleadings.