http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/71935/index.do 
Kinglon Investments Inc. v. The Queen (May 5, 2014 – 2014 TCC 131) was a procedural decision dealing with the operation of the tax shelter rules. The appellant brought a motion to strike those portions of the Minister’s Reply that raised the tax shelter rules:
[1] Kinglon Investments Inc. is an Ontario corporation formed by the amalgamation of a company of the same name and a company named Jackes Holdings Inc. … In computing its income for its taxation years ending August 31, 2006, October 31, 2006, August 31, 2007, August 31, 2008, August 31, 2009 and August 31, 2010, Kinglon claimed over $12 million in capital cost allowance (“CCA”) relating to a licence that it purchased from a company named Cardiopharma Inc. to market a heart drug named CardiaPill. The Minister of National Revenue denied the entire CCA claim on a number of grounds. One of those grounds was that the Minister believed that the licence was an unregistered tax shelter. Kinglon has brought a motion under Rule 53(1)(d) of the
Tax Court of Canada Rules (General Procedure) to strike various portions of the Reply relating to the issue of whether the license was a tax shelter.
[Footnotes omitted]
The appellant’s position was that the pleadings did not allege that the representations at issue were made by or on behalf of the vendor of the licence, Cardiopharma Inc., and therefore the tax shelter rules could not apply:
[7] Kinglon submits that the foregoing passage makes it clear that to be a tax shelter, not only must statements or representations be made, they must be made by or on behalf of the vendor of the property. Kinglon argues that it is plain and obvious that the facts in the Reply could not support a finding that statements or representations had been made by or on behalf of Cardiopharma.
The argument was that, based on the Reply, the licence was a product devised by parties who were not agents of, and did not otherwise act for Cardiopharma. In arguing that the vendor of the property must be the person making the representations, or on whose behalf the representations are made, the appellant relied on a single paragraph of a leading Federal Court of Appeal decision:
[6] Counsel for the Appellant referred me to paragraph 9 of
Baxter:
The definition requires that statements or representations must be made, at some time, in connection with the property that is offered for sale. If no statements or representations have ever been made in connection with a property, then that property cannot constitute a tax shelter. Because the property that is contemplated by the definition of tax shelter is a property that is assumed to have been acquired by the prospective purchaser and the statements or representations are required to have been made in connection with that property, it follows that the statements or representations must have been made prior to any actual sale of the property that is offered for sale. Further,
while the definition does not specify to whom or by whom the statements or representations must be made, in my view they must be made to the prospective purchasers of the property by or on behalf of the person who proposes to sell the property.
[emphasis added
[by the court]]
Counsel for the respondent relied on another paragraph of the same decision:
[8] Counsel for the Respondent referred me to paragraph 44 of
Baxter:
While neither of the parties to this appeal, nor the TCC in its decision, focused much attention on the identity of the party who must have made the statements or representations, in my view, it would be reasonable to conclude that it must be each person who constitutes a promoter, as defined in subsection 237.1(1) (a “promoter”).
[9] The Respondent submits that paragraph 44 of
Baxter imports the definition of “promoter” into the definition of “tax shelter”. Thus, so long as the statements or representations are made by someone who fits the definition of “promoter”, the Respondent submits that a tax shelter exists.
The definition of “promoter” is comparatively broad and is not limited to the vendor of the tax shelter property:
[10] Subsection 237.1(1) defines “promoter” as follows:
“promoter” in respect of a tax shelter means a person who in the course of a business
(a) sells or issues, or promotes the sale, issuance or acquisition of, the tax shelter,
(b) acts as an agent or adviser in respect of the sale or issuance, or the promotion of the sale, issuance or acquisition, of the tax shelter, or
(c) accepts, whether as a principal or agent, consideration in respect of the tax shelter,
and more than one person may be a tax shelter promoter in respect of the same tax shelter;
In the face of plausible arguments on both sides of the question the court declined to strike the provisions on the basis advanced by counsel for the appellant:
[16] The parties agree that, in Kinglon’s case, the statements or representations in question were made by an accountant and / or a lawyer. It appears that one or both of those individuals was acting on behalf of Kinglon at the time. It is possible that one or both of these individuals may have been acting for Cardiopharma either exclusively or in addition to acting for Kinglon.
[17] Based on the foregoing, I am not prepared at this point in the proceedings to foreclose the possibility that a judge of this Court, upon hearing all of the evidence, could reasonably conclude that:
(a) a tax shelter can exist regardless of who makes the statements or representations so long as they are made to the taxpayer;
(b) a tax shelter can exist in a circumstance where an individual who acts for both the taxpayer and the vendor makes statements or representations to the taxpayer; or
(c) a tax shelter can exist in a circumstance where an individual, acting solely on behalf of the taxpayer, designs a transaction which will have the desired effect, then arranges for a vendor to participate in the transaction and finally makes statements or representations to the taxpayer.
That could have ended matters but the court then went on to examine the pleading as to “on whose behalf” were the representations made. In a very unusual admission counsel for the respondent conceded that this ambiguity was an intentional, tactical move:
[22] The foregoing lack of specificity was not accidental. Counsel for the Respondent admits that the Respondent was “intentionally non-committal” in drafting the Reply. At the hearing of the motion, counsel was still unwilling to commit to whether the Respondent’s position was that the statements or representations were made on behalf of Cardiopharma or Kinglon. Counsel for Kinglon suggested that the Respondent was attempting to wait in the weeds until examinations for discovery in order to see what evidence might emerge to support its various theories of the case. I agree that this is what the Respondent appears to be doing.
On the basis of this tactical pleading, the court struck those portions of the Reply that related to the tax shelter argument:
[25] Since the Respondent has not pled the specific facts necessary to show on whose behalf the statements or representations were made, I am left with no choice but to strike the portions of the Reply dealing with the tax shelter argument. Even if I assume that the facts pled are true, there is insufficient evidence to prove that the license was a tax shelter even on the Respondent’s broader interpretation of the law.
The court gave the respondent thirty days to file an amended Reply and some direction on how to proceed with the amendments.
Finally, in a somewhat uncommon exercise of its discretion the court awarded (by the standards of the Tax Court) substantial costs against the respondent:
[30] In awarding costs, I am mindful not only of the fact that Kinglon has been successful on this motion but, more importantly, that the Respondent made a conscious choice to draft the Reply in a vague manner and to refuse to commit herself to a particular position on the facts. The Minister is given a powerful advantage in tax litigation through the ability to plead assumptions of fact. With that advantage comes the responsibility “… that the facts pleaded as assumptions be complete, precise, accurate and honestly and truthfully stated so that the taxpayer knows exactly the case and the burden that he or she has to meet”. That responsibility was clearly not met by the Respondent in this case. In the circumstances, I do not think that an award of costs in accordance with the Tariff is appropriate. Accordingly, I award costs to Kinglon in the amount of $3,000.
[Footnote omitted]
Comment: Reported motions are not common in the Tax Court. This decision is significant since it clearly chastises the Crown for purely tactical pleading, recognizing the powerful advantages already available to the Crown under the rules of tax litigation. That having been said both counsel for the appellant and the respondent deserve credit. Counsel for the appellant demonstrated considerable creativity in structuring arguments. Counsel for the respondent demonstrated commendable candour in fairly characterizing his pleadings for the court.