Ironside v. R. - TCC: Court orders hearing whether decision in prior tax years gives rise to issue estoppel - Rule 58

Ironside v. R. - TCC:  Court orders hearing whether decision in prior tax years gives rise to issue estoppel - Rule 58

Ironside v. The Queen (May 6, 2015 – 2015 TCC 116, Campbell J.).

Précis:   In 2013 the Tax Court reached a decision dismissing Mr. Ironside’s appeal concerning the deduction in 2003 and 2004 (and resulting losses applied to 2002 and 2006) of  legal and other professional fees to defend himself against allegations of committing improper disclosures after being charged in June of 2001 by the Alberta Securities Commission.  In this appeal Mr. Ironside claimed to deduct expenses incurred in 2007 and 2008 (and losses carried forward to 2009) arising out of an appeal of the earlier securities proceedings.  The Crown moved for a hearing under Rule 58 of the Tax Court of Canada Rules (General Procedure) to determine whether the new appeal was barred by virtue of issue estoppel or abuse of process.

The Tax Court allowed the Crownʼs motion to proceed and left the costs determination to the motions judge.

Decision: Mr. Ironside framed the issue in this new appeal narrowly:

[3]  By way of brief background, the Appellant filed his Notice of Appeal with the Court on May 9, 2014 with respect to his 2007, 2008 and 2009 taxation years. He frames his issues as follows:

1. Whether or not the legal and consulting fees incurred by the Taxpayer in relation to the Sanctions Decision and the Appeal are amounts incurred to gain or produce income from a business or property in the taxation year 2007 and 2008,

2. Whether the non-capital losses should have been deductible in calculation (sic) the Taxpayer’s taxable income in 2009,

3. Whether the costs incurred to dispute prior reassessments are deductible in calculating the Taxpayer’s income in 2007 and 2008 taxation years, and

4. Whether the Reassessments, or some of them, are statute-barred in whole or in part.
(Notice of Appeal, page 4)

The Crown asked for the determination of a question:

[5]  The Respondent, in this motion, argues that the Appellant is attempting to re-litigate the characterization of the legal and consulting fees, which were in issue in the prior appeals and, consequently, it proposes that the following is a proper question of law that should be determined before the hearing of the present appeal:

Whether the Appellant is barred from litigating within proceeding 2014 1619(IT)G whether the legal and professional fees paid to defend himself in Alberta Securities Commission proceedings and the subsequent appeal are deductible as amounts incurred to gain or produce income from a business or property, on the basis that the characterization of such fees has been previously adjudicated upon and therefore the doctrines of issue estoppel and or abuse of process operate to bar re-litigation of the issue. (the “Question”).

(Respondent’s Notice of Motion)

The Court concluded that the facts supported allowing the Crown`s motion:

[6]  Rule 58 of the Rules provides, in part, that the Court may grant an Order that a question be determined prior to a hearing if it appears that the determination of that question may dispose of all or part of the proceeding, substantially shorten the hearing or result in a substantial saving of costs.

[7]   At the first stage of this process, which is the proceeding that is before me today, in order to conclude that the Respondent’s proposed question is a suitable one for determination, I must be satisfied that three elements exist:

1.  that the question proposed by the Respondent is a question of law, fact or mixed law and fact;

2.  that the Respondent has raised the proposed question in the pleadings; and

3.  that a determination of the proposed question “may” (not “will” as the Respondent stated at paragraph 12 of its motion materials) dispose of all or part of the appeal, may substantially shorten the hearing or may result in a substantial cost saving.

[8]  If I answer “yes” to all three of these elements, then I “may” set a hearing of the proposed question before a motions judge prior to a hearing of the appeal.

[9]  It is abundantly clear that all three elements are satisfied. First, the question centers around the doctrine of issue estoppel and/or abuse of process involving issues and facts that were before this Court in a prior appeal. This is a question of law, or perhaps to a lesser extent one of mixed fact and law, but nevertheless it satisfies the first criterion. Second, the question has also been raised in the pleadings. It is the first issue raised by the Respondent and is further addressed in a number of paragraphs under the heading “GROUNDS RELIED ON AND RELIEF SOUGHT”. Finally, the third criterion is also satisfied. The pleadings highlight this question as a central one to the appeals and, clearly, one that may have the potential to dispose of a substantial portion of the proceedings which would result in a shorter hearing and a cost savings.

As a result the motion was allowed, with costs reserved to the motions judge.

TAGS:  Deductible Expenses, Income Tax Act, Source of Income, Tax Litigation, Rule 58(1) Applications