Tax Court of Canada


Income tax

Administration and enforcement

Taxpayer required to answer why document were being produced with some general sense of proposed relevance

Taxpayer claimed deductions for guarantee fees paid to parent company with respect to its guarantees of bonds under which taxpayer borrowed funds from third parties that were on-loaned to sister companies. Minister reassessed taxpayer, disallowing deductions on bases including that guarantee arrangement was not on arm’s length terms. Taxpayer appealed. In discovery, taxpayer refused to answer certain questions. Minister brought motion for order directing taxpayer to answer disputed questions. Motion granted in part. Cost, time and effort involved for taxpayer to respond to any relevant questions would not be disproportionate, given amount of money involved, importance of case and complexity of issues. Minister was not attempting to examine on basis of assessment that was not set out in pleadings. Certain questions, including whether guarantee fees were necessary for parent company to give guarantee, were speculative and need not be answered. Questions relating to other guarantees within corporate family, to parent company’s use of taxpayer’s credit rating imputed from related companies, about liquidity of taxpayer’s assets, and parent company’s capital contributions were relevant. Questions relating to credit ratings of companies were relevant but, to extent that they sought expressions of opinion, were improper. Some of disputed questions, including those with purportedly “non-responsive answers”, had already been sufficiently answered but others had to be better answered. Some requests for certain types of documents were too vague to be answered and others improperly sought work product. Requests that taxpayer provide documents mentioning request to parent company for guarantee and guarantee fees were relevant, as were requests for documents relating to credit ratings of parent company and sister companies. Questions about arm’s length terms of guarantee and guarantee fees had to be answered so Minister could find out what taxpayer’s position at trial would be. Taxpayer was required to answer why documents were being produced with some general sense of their proposed relevance. Answers taking questions “under advisement” amounted to refusals but questions were of marginal relevance that need not be answered.

Burlington Resources Finance Company v. The Queen (2017), 2017 CarswellNat 3752, 2017 TCC 144, Johanne D'Auray J. (T.C.C. [General Procedure]).

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