https://decisia.lexum.com/tcc-cci/decisions/en/item/311064/index.do
Mont-Bruno C.C. Inc. v. The Queen (June 4, 2018 – 2018 TCC 105, Favreau J.).
Précis: The taxpayer was a non-profit corporation which operated a golf course. In 2006 it disposed of a vacant wooded area (the Parcel of Land) at a gain of some $1.7 million. It did not report the gain on its T3 Trust Income Tax return and in 2015 the Minister reassessed the taxpayer for not reporting the disposition and gain on its T3. The taxpayer’s position was that the gain was exempt since the Parcel of Land “was used exclusively and directly for providing dining, recreational or sporting facilities to its members, as required to fit the exemption under subparagraph 149(5)(e)(ii) of the Income Tax Act, RSC 1985 c. 1 (5th Supp) as amended, (the “ITA”).” [para. [3]]. While the Minister’s Amended Reply had been struck (with leave to further amend) by Paris J. in a prior hearing on the basis that it simply paraphrased the statute, the new Further Amended Reply was held by Favreau J. to be an appropriate statement of the facts behind the Minister’s position, not a paraphrase of the language of the ITA. The taxpayer’s motion to strike was dismissed with costs to the Minister on a party and party basis.
Decision: The decision is lengthy and thorough but the gist of the decision can be discerned from two paragraphs:
[41] In striking the Amended Reply, Paris J. noted that a sentence in paragraph 12(h) of the Amended Reply stated that “The Parcel of Land was never used exclusively for and directly in the course of providing dining, recreational or sporting facilities for its members.” Paris J. stated that this sentence was an improper pleading of mixed fact and law and thus could not be taken into account or assumed to be true because it only paraphrased the language of subparagraph 149(5)(e)(ii) of the ITA. Based on Paris J.’s reasoning, rectification of this issue in paragraph 12(h) of the Amended Reply required that the Respondent plead facts which could allow the Court to conclude that “The Parcel of Land was never used exclusively for and directly in the course of providing dining, recreational or sporting facilities for its members.”
[42] In her written submissions in response to the Appellant’s motion to strike the Further Amended Reply, the Respondent stated that paragraph 12(h) of the Amended Reply was replaced with the following facts in paragraph 12 of the Further Amended Reply “(h) The Parcel of Land was a vacant wooded area segregated from the golf course by a municipal road, rue des Hirondelles, (i) The golf course was further segregated from rue des Hirondelles by a chain link fence, (j) The Appellant did not organize any activities on the Parcel of Land, (k) The Appellant did not develop or otherwise transform the Parcel of Land to accommodate activities of any type, (l), The Appellant’s members did not access the Parcel of Land in the course of club activities.” All these facts can support the conclusion that “The Parcel of Land was never used exclusively for and directly in the course of providing dining, recreational or sporting facilities for its members” and do not simply paraphrase subparagraph 149(5)(e)(ii) of the ITA. In my opinion, the issue with paragraph 12(h) has been rectified in the Further Amended Reply.
Thus the taxpayer’s motion to strike was dismissed with costs to the Minister on a party and party basis.