http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/66840/index.do 
Martin v. The Queen[1] (February 14, 2014) was a decision on costs arising out of the taxpayer’s complete success appealing a section 160 assessment arising from transfers of property to her by her deceased husband:
http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/31083/index.do 
That appeal concerned transfers to her from 1999 to 2004. The court found in that appeal that she was in fact underpaid (or, in some cases, unpaid) for services to her late husband’s medical practice. As well, she was owed money for her husband’s unpaid use of a property owned in part by her. That property was used as the husband’s medical office.
What makes this case so interesting is that the court held that Mrs. Martin and her late husband had been actually deceived by an officer carrying on an earlier CRA audit:
[16] However, I wrote in my Reasons for Judgment in this case at paragraph 21:
[21] As mentioned above there is some considerable concern raised by the CRA correspondence with Dr. Martin and the Appellant in relation to the 1994 resolution of the prior audit of 1990 to 1992. There is a shocking difference between what CRA communicated in writing regarding the acceptable reasonable arm’s length salary to be paid to Mrs. Martin for her work at her husband’s dermatology practice, and what has now been confirmed by CRA to have been told to the Martins by that CRA auditor. This is not a case of a CRA auditor writing something incorrect or stating something incorrectly. It appears that it can only be considered to have been intentionally deceitful. Such actions by public servants are entirely inexcusable. The Court is very surprised that the CRA would in these circumstances have pursued its section 160 case against Mrs. Martin with such vigour given that the deceit related precisely to the most significant issue in this case being the worth of Mrs. Martin’s services to her husband’s practice. The Court has accepted Mrs. Martin’s version that in 1994 the auditor told them in relation to the resolution of both her and her husband’s audits that he could no longer deduct any portion of any salary he chose to pay her. The CRA has since acknowledged in writing that in fact that was what they were told, notwithstanding what the same auditor wrote. According to the Appellant this is what led her to continuing to work for her husband but to not be paid for the years prior to the years of her husband’s tax arrears and transfers to her, and to be paid a much lesser amount in some of the later years after her husband’s business accountant advised them that a reasonable salary was in fact properly deductible and always had been. I accept this explanation fully and believe this reinforces overall Mrs. Martin’s credibility.
I remain very much of that view. This remains very disappointing and I remain very surprised that Mrs. Martin’s appeal proceeded to trial – indeed the dollar values determined by me were entirely consistent with those determined by CRA in its preceding but recent audit.
Thus the prior CRA audit had determined that amounts of salary and rent paid in the past had in fact been reasonable and deductible by Dr. Martin. The threat to disallow future payments led directly to Mrs. Martin receiving no further rents and a reduced (or, in some years, no) salary. As a result the tax burden on Dr. Martin was increased.
The Tax Court asked CRA to determine when it had become aware of the impugned conduct on the prior audit:
[13] In response to the Court’s request to be informed of the date (prior to the June 2008 Report on Objection) at which CRA satisfied itself that one of its officers did indeed mislead the Martins by telling them something that was completely at odds with his or her written audit findings on the very subject of amounts payable to Mrs. Martin as expenses of Dr. Martin’s dermatology practice, the Court was advised that it was sometime between the September 2006 Reassessment and the June 2008 Report on Objection, and that the parties would, for the sake of efficiency, agree to July 2007 being used for this purpose.
Thus CRA was aware of this matter for roughly five and a half years before the trial date (January 9, 2013).
Counsel for Mrs. Martin appears to have carried on the appeal with great efficiency and her actual out of pocket costs were small:
[10] The legal fees of the counsel who represented the Appellant and the Estate at trial were $9,250 (before HST/GST) for preparing and filing the Notice of Appeal through to judgment. This amount was not recorded separately nor broken down as between the two taxpayers. The parties have agreed that an appropriate allocation would be 50/50. The Appellant’s actual legal fees were therefore $4,625 plus HST/GST.
She had however paid substantial amounts to her previous counsel after July 2007 (when CRA became aware of the prior deceit by one of its officers):
[23] CRA was aware that Mrs. Martin was telling the truth about what the prior CRA auditor had told the Martins since the Appeals Officer in this proceeding determined exactly that in the course of reviewing Mrs. Martin’s Objection. After that time, presumed by the parties and the Court for this purpose to be July 2007, Mrs. Martin paid legal fees of approximately $21,000 to Thorsteinssons in pursuing the Objection and for several months after the Report on Objection and the subsequent Reassessment giving rise to this appeal (I see no relevance whatsoever in this case to the time accrued but never billed to Mrs. Martin).
The Tax Court (somewhat reluctantly it would appear) decided against an award of solicitor client costs but did conclude that an award in excess of the Tariff was in order:
[17] However, it is not entirely clear to me that CRA’s misleading, incorrect and deceptive communications with the Martins warrant an award of solicitor/client costs, even though they would surely be considered reprehensible, scandalous and outrageous to the Canadian taxpayers CRA serves. It may well be, but I did not hear from the auditor involved or his or her colleague, nor did I hear from the Appeals Officer who determined it did indeed occur as Mrs. Martin described. While it is exceedingly difficult in the circumstances to imagine how this auditor’s actions could have been accidental, inadvertent or innocent, I would prefer to exercise my discretion towards solicitor/client costs only in the clearest of cases, and for that reason only I am not exercising it in this case. This should not be construed as a comment or guidance on what action does or does not meet the threshold level of reprehensible, scandalous or outrageous conduct.
[18] Nonetheless, I am satisfied that this is a relevant consideration in fixing costs and I am fixing costs in excess of the Tariff amount which in the circumstances would not be appropriate or satisfactory.
In the result the court made an award slightly in excess of twice Mrs. Martin’s actual costs of the appeal (taking into account her large expenses incurred at the Notice of Objection level):
[24] This is a very unusual, difficult, and hopefully exceptional, case. In the circumstances, I am fixing total costs, including disbursements, payable to the Appellant in the amount of $10,635.
[25] The Appellant is also entitled to her costs for the costs submissions and hearing in accordance with the Tariff at $700.
Comment: This case at first blush may seem unusual in that the taxpayer was awarded more than the actual costs of pursuing her appeal (although that would seem in part to arise from the extreme efficiency of her counsel). Nevertheless the uncontradicted evidence was that CRA dragged Mrs. Martin and her husband (both elderly individuals) through the objection and appeal processes for five and a half years knowing that they had been the victims of deceit by a CRA officer. The Tax Court judge summarized his position aptly by remarking that there are some cases CRA simply should not pursue:
[21] In my costs decision in Jolly Farmer Products Inc. v. The Queen, 2008 TCC 693, I wrote in conclusion:
[26] There are perhaps some arguments and some cases that the Canada Revenue Agency just should not pursue. The Crown is not a private party. By reassessing a taxpayer and failing to resolve its objection, the Crown is forcing its citizen/taxpayers to take it to Court. If the Crown’s position does not have a reasonable degree of sustainability, and is in fact entirely rejected, it is entirely appropriate that the Crown should be aware it is proceeding subject to the risk of a possibly increased award of costs against it if it is unsuccessful. The Crown is not a private party and tax litigation is not a dispute like others between two Canadians. This is the government effectively pursuing one of its citizens. There will be many times when the Crown will lose cases in circumstances where prior to the hearing the Crown was not fully aware of the taxpayer’s evidence or could not test its credibility, or could not fully understand the taxpayer’s position. There will be times when the Crown unsuccessfully pursues new or novel arguments. None of those appear to have been the case here. The essential facts do not appear to have been in dispute and there had been lengthy discovery of the taxpayer. As mentioned, the taxpayer’s first settlement letter included a detailed analysis of the taxpayer’s legal position.
These same comments are equally apt and a relevant consideration in this case.
[1] 2014 TCC 50.