http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/68864/index.do 
Bolton Steel Tube Co. Ltd. v. The Queen (March 26, 2014 – 2014 TCC 94) involved a very odd set of facts. The taxpayer had been reassessed for 1994, 1995 1996 and 1997 with respect to alleged undisclosed income arising from its operations in the United States.
[4] In 2007, the Minister reassessed the Appellant for its 1994, 1995, 1996 and 1997 taxation years for which the Appellant reported net business income in the amounts of $224,534, $413,085, $1,260,074 and $1,599,580 respectively. The Minister determined that the Appellant had failed to report income in each of these taxation years and, for the 1996 taxation year, the Appellant’s income was increased by an amount of $602,998, that is, from the reported income for that year of $1,260,074 to $1,863,072. This adjustment to the Appellant’s income was based on the Minister’s assumption that the Appellant had not reported income from sales to United States customers which, in the 1996 taxation year, totalled $602,998 (Canadian dollars). The Minister based this determination on photocopies of cancelled cheques allegedly deposited to U.S. bank accounts. The cheques were provided to the Minister by Randall Sullivan, a former sales manager of the Appellant. Mr. Sullivan had allegedly obtained these cheques from another former employee of the Appellant, who is now deceased.
The appellant appealed to the Tax Court and during the course of discovery the Crown admitted that the additional income assessed in 1996 was overstated by CRA:
[6] In February, 2011, during examinations for discovery, Donald Lee-Poy, the Minister’s representative, admitted that cheques totalling $199,779 (Canadian dollars) should not have been included as unreported income for the 1996 taxation year because notations on the back of those cheques indicated that they had been deposited to Canadian, not U.S., bank accounts. The maximum amount, therefore, that the Minister could have added as unreported income for the Appellant’s 1996 taxation year was $403,219 (Canadian dollars) and not $602,998.
As a result, the appellant made a settlement offer to the Crown, which was accepted:
[8] On June 15, 2012, the Appellant delivered to the Respondent an offer to settle the appeal in respect to the 2007 Reassessment. In this offer, the Appellant proposed, among other things, to settle on the basis that:
1. a. vary the reassessment of Bolton’s 1996 taxation year in order to add $403,219 to Bolton’s income under subsection 9(1) of the Income Tax Act (the “Act”). This amount would be subject to the penalty under subsection 163(2) of the Act;
b. vacate the reassessments (including all taxes and penalties) of Bolton’s 1994, 1995 and 1997 taxation years;
[ … ]
(Appellant’s Motion Record, Tab A)
[9] On June 19, 2012, the Respondent accepted the Appellant’s offer, without any intervening negotiations or other communications between the parties.
At this point matters took a strange twist:
[11] On August 31, 2012, the Minister issued the 2012 Reassessment, which calculated the Appellant’s taxable income for the 1996 taxation year to be $2,266,291. The Minister calculated this amount by adding $403,219 to the Minister’s 2007 Reassessment amount of $1,863,072, which effectively added $1,006,217 to the Appellant’s reported income in 1996 of $1,260,074.
In other words, the 2012 Reassessment added to the 1996 income originally reported:
1. $403,219 of unreported US source income;
2. $199,779 of income which was admitted on discovery not to be unreported US source income; and
3. $403,219 being the amount referred to in the settlement which had no apparent source other than double-counting item 1.
One can perhaps understand that a clerk processing the reassessment of 1996 pursuant to the settlement might make an error like that. It is difficult to understand why it was defended by the Crown in the Tax Court.
The Crown’s argument was threefold:
[13] The Respondent argued that the 2012 Reassessment has been validly issued in accordance with the facts and the law. Since the Minister calculated the Appellant’s 1996 income to be $1,863,072 and not its reported income of $1,260,074, the Minister’s interpretation of the settlement offer correctly allows the amount of $403,219 to be added to the total income amount assessed for that year.
[14] In addition, the Respondent contends that the 2012 Reassessment is not an appeal of the Minister’s own assessment because it is not a consent to judgment pursuant to subsection 152(5) of the Act and was instead settled in accordance with subsection 169(3) which entitled the Minister to issue a reassessment for an amount higher than a prior reassessment. The settlement agreement specifically referenced subsection 169(3) and the Appellant did provide its consent in accordance with this provision.
[15] Finally, the Respondent, as an alternative argument, raised the validity of the settlement agreement as an issue and argued that, if the 2012 Reassessment is found to be void, then there was no “meeting of minds” of the parties respecting the settlement agreement and it would not be valid. Therefore, the 2007 Reassessment is still valid and remains before the Court in its entirety.
The court rejected Crown’s arguments in a careful and thorough set of reasons:
[27] I am left with the unanswered question of how a settlement offer of $403,219, which both parties agreed in the pleadings is the maximum amount in dispute pursuant to the 2007 Reassessment, could in any way be interpreted to be an invitation by the Appellant to add this additional unreported income amount to the original assessed amount of $602,998 that the Minister had added to the reported income in 1996. This would amount to an offer by the Appellant which would equate to a double-counting of the amount of $403,219. From the Appellant’s perspective, there is no justification for making such an offer. The Respondent’s proposition is unsupported by both the facts and the law and, even if both parties consented to settling in this manner, it could not be permitted.
[28] The Respondent contended that the offer provided no explanation as to the origin of the amount offered or the basis for vacating the other taxation years. I do not believe the offer required an addendum with an explanation. It appears clear where the $403,219 amount originated on its face and, even if this was not as apparent as I have concluded, the Respondent could have requested such information prior to accepting the offer or it could have made a counter-offer. That is part of the art of negotiation. It did neither and should not be heard now to claim that the Appellant had some type of onus to explain the offer to the Respondent.
[29] For these reasons, the 2012 Reassessment is void and should be vacated because it amounts to an arbitrary reassessment that is not supported by the factual matrix or the law. On this basis alone, the Minister would not be permitted to issue the 2012 Reassessment.
In the interests of brevity I will not deal with the Crown’s two alternative arguments which the court also soundly rejected.
In the result, the court struck out the 2013 Reassessment and ordered the issuance of a new reassessment in conformity with the settlement agreement:
[51] In conclusion, since I have determined that the 2012 Reassessment is void and should be set aside and that the settlement agreement is validly enforceable, the 2007 Reassessment survives and, according to the Minister’s own admission, the amount of $403,219 will be added to the Appellant’s reported income of $1,260,074 for the 1996 taxation year in accordance with the Minutes of Settlement dated June 21, 2012. Also in accordance with these Minutes of Settlement, the reassessments for the remaining taxation years under dispute are vacated.
[52] The Appellant’s motion is therefore allowed, with costs, in accordance with my reasons.
Comment: This decision is clear and well-reasoned. The only possible question is whether the Crown’s position was so patently unreasonable as to have justified a significantly larger award of costs.