Tax Court of Canada


Income tax
Facts did not support allegations of fraud on court

Taxpayer was lawyer at litigation counsel until mid-2007. Taxpayer’s initial appeal was part of appeals involving 25 to 30 taxpayers represented by litigation counsel, and concerned taxpayer’s 2005-07 taxation years regarding deductibility of certain capital cost allowance in respect of purchased software licence. Taxpayer was reassessed in 2009 and his claimed capital cost allowance was disallowed; appeals were filed shortly after. For three years taxpayer had no communication with litigation counsel silent period, which ended when taxpayer received email from litigation counsel advising initial appeal was settled. Taxpayer sought to set aside minutes of settlement and prevent filing of notice of discontinuance (rescission period). Following receipt of advice by court that appeal was discontinued, taxpayer filed supplementary appeal. Taxpayer brought motion to set aside notice of discontinuance and to reinstate initial appeal; minister brought motion to dismiss appeals and that supplementary appeal was otherwise resolved and dismissed by Court. Taxpayer’s motion dismissed; minister’s motion granted. Initial appeal was dismissed in 2013, and supplementary appeal was dismissed on basis that substantive issues under appeal were resolved pursuant to s. 169(3) of Income Tax Act (Can.) and all rights of appeal from consequent reassessment were irrevocably waived under s. 169(2.2). Facts did not support allegations of fraud on Court at time of filing of discontinuance, recklessness in respect of truth or knowledgeable misrepresentation. Legal logic and common sense were followed by minister’s counsel; his analysis did not ignore or misrepresent attempted post-reassessment rescission by taxpayer or litigation counsel. Even if Court were to find such logic faulty, error did not constitute fraud. Post-facto and untimely disavowal by single taxpayer, entirely caused by omission of litigation counsel, and subsequent advice of same to minister’s counsel, could not revoke, rescind or avoid pre-existing settlement reflected in minutes of settlement and discontinuance and fully performed by notices of reassessment. No one was aware of lack of authority granted by taxpayer to litigation counsel to settle appeal until after execution of minutes and, most importantly, consequential issuance of notices of reassessment to 25 taxpayers. There was no evidence that minister’s counsel had any knowledge whatsoever of lack of authority until after all documents, actions and conditions subsequent were effected and concluded, otherwise entirely in accordance with terms of minutes and related documents.

Davies v. R. (April 27, 2016, T.C.C. [General Procedure], Randall S. Bocock J., 2010-3571(IT)G, 2014-2450(IT)G) 265 A.C.W.S. (3d) 811.

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