Brown v. R. – FCA: Taxpayer’s appeal allowed from two Tax Court decisions striking Notice of Appeal – allowed to proceed on penalties

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Brown v. The Queen (December 17, 2014 – 2014 FCA 301, Pelletier, Stratas, Webb (Author) JJA).

Précis: The Tax Court struck Mr. Brown’s notice of appeal in respect of business losses it found to be non-existent. The Federal Court of Appeal allowed his appeal but only to the extent that he was entitled to contest the imposition of penalties.

Decision:  This is an odd turn by the Federal Court of Appeal in the spate of cases in recent years involving the claiming of losses from businesses that the courts have held did not exist. In Mr. Brown’s case two Tax Court Judges struck down notices of appeal he had filed in respect of such losses. In the more recent of those decisions Justice Campbell wrote:

[6] Respondent Counsel provided a transcript of the oral reasons of Justice Boyle in which Mr. Brown’s appeal was struck. Throughout that transcript, there were attempts at getting Mr. Brown to provide information on the type of business he operated. The ensuing exchange went in circles. Mr. Brown’s only comment concerning the transcript contents was that he, and I quote, “misspoke” when he responded to Justice Boyle’s questions concerning a business. He advised me that it was simply Justice Boyle’s opinion, that Mr. Brown had his own opinion and that opinions were equal before the law. Mr. Brown believes the section 248 portion of the Income Tax Act definition of “business”, that is, “undertaking of any kind” leaves it pretty much wide open for interpretation. It was also clear to me that Mr. Brown was not going to be cooperative in providing any more particulars to me concerning his operation of a business than he had been with Justice Boyle. Where Mr. Brown is an employee and yet is alleging that he has a business and that he has suffered business losses, it is incumbent upon him to include those facts in his pleadings. He refused to do so and was evasive in responding to my questions concerning an alleged business, which leaves him with pleadings that are deficient in material facts so that the Respondent cannot know how to properly respond. This is a fundamental rule of pleadings.

[7] I have purposively issued my oral reasons in several prior motions respecting this group of appeals. I meet this argument of fictitional, artificial entities, that are somehow exempt from tax, head-on when I refer to such arguments as unintelligible and incomprehensible at best and at worst as complete nonsense and a waste of this Court’s resources and time. It is a very clear case of abuse of process. The Appellant’s attempt at persuading me that I should not hear this motion because it would be an “abridgment of his Charter rights” has no basis. Nor does the fact that he filed a “Fresh Notice of Appeal” yesterday, render the motion moot. New Window

Mr. Brown appealed both decisions to the Federal Court of Appeal. He had only two arguments on appeal. In the first place he argued that the Income Tax Act was void for vagueness. Needless to say the Court of Appeal made short work of that claim. His second point however was that both Tax Court Judges erred by not allowing him to appeal the imposition of penalties. In a somewhat head-turning decision the Court of Appeal agreed with him:

[20] Therefore the Minister, and not Mr. Brown, would have the burden of establishing the facts justifying the assessment of the gross negligence penalties imposed for 2009 and 2010. Since the only documents filed in these matters at the Tax Court of Canada were the notices of appeal (and amended notices of appeal) filed by Mr. Brown, it is not plain and obvious that the Minister will be successful in establishing the facts justifying the assessment of the gross negligence penalties. Since this is the Minister’s burden, there are no material facts that Mr. Brown would need to allege (and then have the onus to prove) in his notices of appeal.

[21] The Tax Court erred in law in striking those parts of Mr. Brown’s notices of appeal that address the issue of whether gross negligence penalties should have been assessed. Striking these parts of the notices of appeal means that he is denied a hearing in the Tax Court of Canada on a matter for which the onus of proof rests with the Minister.

The Court of Appeal then revised Mr. Brown’s notices of appeal of its own motion and referred the appeals back to the Tax Court solely on the imposition of penalties.

Comment: It is difficult to know what to make of this decision. If the businesses did not in fact exist is it not clear and obvious that Mr. Brown could not successfully resist the imposition of penalties? Does it further the interests of justice to encourage penalty appeals in these cases? On the other hand it could be argued that the Court of Appeal is zealously guarding the concept of Ministerial onus of proof in the case of penalties. This is probably a case where the Crown should seek review by the Supreme Court of Canada.