Heron v. The Queen (May 3, 2017 – 2017 TCC 71, D’Auray J.).
Précis: In its Reply the Crown pleaded that the taxpayer had been involved in criminal activity for which he was charged and convicted. The taxpayer moved to strike the impugned portions of the Reply. The taxpayer was modestly successful in that two paragraphs were struck that were pleadings of argument, and not fact. In addition one paragraph detailing the sentence the taxpayer received in the criminal proceeding was struck. The balance of the impugned pleading was not struck. There was no order as to costs.
Decision: The taxpayer objected to the following provisions of the Reply:
 The appellant is asking the Court to strike the underlined paragraphs of the Reply, namely:
 In determining the Appellant’s tax liability for the 2010 and 2011 taxation years, the Minister made the following assumptions of fact:
(a) the facts stated and admitted above;
(b) the Appellant was a police officer with the Niagara Regional Police Service;
(c) the Appellant was in the business of reselling cheese and other food products (the “products”) to restaurants in southern Ontario (the “business”);
(d) the Appellant was charged with conspiracy to commit an indictable offence – smuggled goods and breach of trust;
(e) the Appellant was also charged with four counts under the Customs Act;
(f) the charges identified in subparagraphs 16d) and 16e) related to the smuggling of the products into Canada;
 The Minister now relies on the following additional facts:
(a) the Appellant was tried and convicted on three charges under the Customs Act and one breach of trust charge in relation to the smuggling of the products; and
(b) the Appellant was sentenced to four months in jail.
 In determining that the Appellant was liable to a penalty pursuant to subsection 163(2) of the Income Tax Act (the “Act”), the Minister relied on the following facts:
(a) the assumptions stated in paragraph 16;
(g) given the illegal source of the income, the Appellant knowingly did not report the income from the business;
(h) given the Appellant’s employment, it would not have been in his best interest to admit his illegal activity;
(i) had he reported the income from the resale of the products there could have been duties imposed by the Canada Border Services Agency which would have undermined the profitability of the business;
The Court struck paragraphs 18(h) and (i) on the basis that they were argument:
 I do not agree with the appellant with respect to subparagraph 18(g) of the Reply – the allegation of fact is relevant for the purposes of subsection 163(2) of the Act. It cannot be said that it is plain and obvious that the allegation discloses no reasonable cause of action.
 However, I am of the view that subparagraphs 18(h) and (i) of the Reply should be struck. Subparagraphs 18(h) and 18(i) are not facts, they are hypothetical and argumentative. In addition, they are not relevant for the purposes of the penalty pursuant to subsection 163(2) of the Act.
Moreover the sentence given to the taxpayer was of no relevance and was struck:
 I am of the view that subparagraph 17(a) of the Reply is relevant for the purposes of the penalty levied pursuant to 163(2) of the Act for the same reasons that I mentioned in my reasons when I was dealing with paragraph 16 of the Reply.
 However, I am of the view that subparagraph 17(b) should be struck since this allegation has no reasonable prospect of successfully defending the validity of the assessment with respect to the penalty.
The taxpayer did not obtain any further relief and there was no order as to costs.