Yu v. R. – FCA: Appeal of section 160 assessment dismissed by Federal Court of Appeal

Yu v. R. – FCA:  Appeal of section 160 assessment dismissed by Federal Court of Appeal


Yu v. Canada (April 4, 2018 – 2018 FCA 68, Webb (author), Near, Laskin JJ.A.).

Précis:  The taxpayer was assessed pursuant to section 160 of the Income Tax Act (the “Act”) in respect of a transfer to him by his sister-in-law.  He appealed unsuccessfully to the Tax Court.  He next appealed to the Federal Court of Appeal.  He had two grounds of appeal:  1.  the Tax Court Judge incorrectly refused to allow him to break his direct examination to consult with his lawyer;  and 2.  the Tax Court Judge incorrectly rejected an argument that the monies transferred were the subject of a trust created by his mother-in-law.  The Court of Appeal rejected both grounds of appeal and dismissed the appeal with costs.

Decision:   On the question of interrupting the taxpayer’s direct examination the Court of Appeal found no error on the part of the Tax Court Judge:

[17]  The issue that the appellant raised in relation to the denial of the adjournment request is a question of procedural fairness. At the hearing before the Tax Court judge, the position of counsel for the appellant was that he had a right to request this adjournment so long as cross-examination had not commenced. This statement is repeated in the appellant’s memorandum. However, the source of this right is not identified by the appellant.

[18]  It would appear that counsel for the appellant was referring to the Code of Professional Conduct for British Columbia adopted by the Law Society of British Columbia in 2013. Section 5.4-2 of this Code provides, in part, that:

5.4-2  Subject to the direction of the tribunal, a lawyer must observe the following rules respecting communication with witnesses giving evidence:

(a)  during examination-in-chief, the examining lawyer may discuss with the witness any matter;

(b)  during cross-examination of the lawyer’s own witness, the lawyer must not discuss with the witness the evidence given in chief or relating to any matter introduced or touched on during the examination-in-chief;

(c)  upon the conclusion of cross-examination and during any re-examination, with the leave of the court, the lawyer may discuss with the witness any matter;

(emphasis added)

[19]  The general rule related to discussions with a witness during examination-in-chief is subject to the direction of the tribunal (the Tax Court in this case). Therefore, there is no absolute right under this Code to have an adjournment to discuss any matter with a witness while that witness is being examined in chief.

[20]  In this case, the appellant was unable to identify any document that he wanted to introduce or any question that he wanted to ask but was prevented from doing so. Therefore, there is no basis for any claim of a breach of procedural fairness.

Similarly the Court rejected the ground of appeal based upon the alleged existence of a trust created by the taxpayer’s mother-in-law:

[25]  The Tax Court judge was not satisfied that the evidence that was before him established the existence of the trust. In my view, there is no basis to interfere with this finding. The only document that was introduced at the hearing was the document from HSBC Bank Canada related to two transfers of funds from Yan Siang Yu to the appellant. These transfers were not in dispute. There were no documents to establish the proceeds that the mother received from the sale of her house nor was there any explanation provided to explain why the appellant’s mother-in-law would give significant sums to her eldest daughter to hold in trust for her sister after the police had searched her house and discovered the marijuana grow operation and at a time when Yan Siang Yu was presumably facing criminal charges.

As a result the appeal was dismissed with costs.