Background
United Health Services Corporation (UHSC) appealed reassessments for its 2020 and 2021 taxation years, maintaining that it qualified as a non-profit organization exempt from tax under paragraph 149(1)(l) of the Income Tax Act. UHSC alleged that the pandemic years were anomalous because its revenues remained constant while costs and services declined.
Before filing its reply, the Crown moved under subsection 53(1) of the Tax Court of Canada Rules (General Procedure) to strike numerous portions of UHSC’s notice of appeal. The Crown argued that the pleading included immaterial facts from outside the taxation years, irrelevant allegations about UHSC’s relationship with Manitoba, legal conclusions and arguments presented as facts, scandalous or vexatious language, extraneous statutory references, and insufficiently explained reasons for the appeal.
The Court’s Holding
The Tax Court dismissed the Crown’s motion in full. Applying the stringent “plain and obvious” standard, Justice Bodie held that the power to strike pleadings must be exercised carefully and generously, without allowing a preliminary motion to become an editing exercise or to displace the trial judge’s role in assessing relevance after hearing the evidence.
It was not plain and obvious that UHSC’s history, its operations before and after the pandemic, or its relationship with Manitoba were irrelevant to whether it was organized and operated for a qualifying non-profit purpose. Nor did references to UHSC as a non-profit, interpretations of its governing legislation, descriptions of the reassessments as erroneous, or the pleading’s colourful criticism of the Minister meet any ground for striking under subsection 53(1).
The Court also declined to strike statutory references beyond paragraph 149(1)(l), including the Constitution Act, 1867, because their possible relevance could become clearer after the Crown’s reply and discovery. The pleaded reasons for appeal were sufficient to comply with the Rules, although their ultimate merit remained for trial. The Crown was ordered to pay fixed costs of $5,000 by September 1, 2026, and received 60 days from the order to file its reply.
Key Takeaways
- A pleading or part of one should be struck only where it is plain and obvious that a ground in subsection 53(1) is established.
- Facts predating or postdating the taxation years may remain relevant when they could illuminate an organization’s purpose and manner of operation.
- Motions to strike are not vehicles for polishing an opponent’s wording or prematurely narrowing issues that can be clarified through particulars and discovery.
Why It Matters
The decision emphasizes the Tax Court’s restrained approach to striking pleadings at an early stage. Even imperfect, argumentative, or colourful allegations may stand unless they plainly threaten a fair hearing, constitute an abuse of process, are sufficiently scandalous, frivolous, or vexatious, or disclose no reasonable ground of appeal.
The ruling did not decide whether UHSC qualified for the paragraph 149(1)(l) exemption or whether the reassessments were correct. It allowed UHSC’s pleaded case to proceed so those questions could be developed through the ordinary litigation process and ultimately determined at trial.