Uppal Estate v The King – Tax Court Emphasizes Procedural Fairness for Canadian Taxpayers in Tax Litigation Matters
In Uppal Estate v The King, 2025 TCC 34 [“Decision”], the Tax Court of Canada (“Tax Court”) was tasked with deciding whether to grant a motion brought by the Appellant, to strike portions of the Amended Reply (“Motion”). The Tax Court granted the Motion with permission for the Crown to amend its Amended Reply.
Minister’s Assessing Position
The appeals at issue involved inter alia alleged unreported income from the sale of shares in Ranger Gold Corp. (“Ranger”).
The Minister’s primary assessing position was that Mr. Uppal was the beneficial owner of both the Ranger shares registered in his name and the shares held in the name of Chambord Media Inc. (“Chambord”).
The Minister’s alternative assessing position was that Mr. Uppal was the beneficial owner of the Ranger shares in his name, while Chambord was the beneficial owner of the Ranger shares in its name. According to this alternative position, when Chambord sold its shares, Mr. Uppal appropriated the sale proceeds. The Minister contended that under subsection 15(1) of the Income Tax Act R.S.C., 1985, c. 1 (5th Supp.) (“Act”), those proceeds should be included in Mr. Uppal’s income.
Appellant’s Position
The Appellant filed the Motion on the grounds that:
- Alternative Assumptions of Fact: Certain factual assumptions in the Amended Reply should be struck, with leave to amend, because they were pleaded in the alternative, potentially leading to different amounts of unreported income for the Appellant.
- Jurisdiction Over Alternative Penalties: The Tax Court does not have the authority to impose penalties that were not originally assessed by the Minister, based on paragraph 53(1)(d) of the Tax Court of Canada Rules (General Procedure) (SOR/90-688a) (“Rules”).
Analysis and Ruling
Tax Court’s response to Alternative Assumptions of Fact Argument
It is important to first recognize that taxpayers have the burden of rebutting the factual assumptions that form the basis of the Minister’s primary assessing position, which are considered true. However, the taxpayer is not required to rebut facts presented by the Crown that do not form part of the Minister’s primary assessing position.
In this case, the Crown should have placed the assumptions supporting the Minister’s primary assessing position in the “assumptions of fact” section and should have presented the alternative facts supporting the alternative assessing position in a separate section of the Reply.
Although the Respondent incorrectly presented the assumptions of fact, as per Preston v. The King 2023 FCA 178 [Preston], the Tax Court can only strike relevant paragraphs in the Amended Reply if it is satisfied that one of the conditions in subsection 53(1) of the Rules has been met.
In Preston, the Court stated that a motion to strike, which merely relocates an inappropriate assumption to another section of a Reply, should not be granted if the taxpayer knew the case to be met and would not be prejudiced from not removing the paragraphs and leaving them as they were.
The Court found that the Appellant would be prejudiced for two key reasons:
- Different Income: The different assumptions of fact lead to different amounts of alleged unreported income. For example, if Mr. Uppal was the beneficial owner of the Ranger shares in his name personally and in the name of Chambord, his unreported income could be reduced by the cost of acquiring the Ranger shares. Additionally, Mr. Uppal’s unreported income would only be a taxable gain if the Ranger shares were held on capital account. The Appellant has the right to know which assumption they must disprove.
- Appellant is an Estate: The person who best understands the appellant’s affairs is typically the taxpayer. However, when a taxpayer dies, their estate becomes the taxpayer, and in this case, Mr. Uppal is no longer available to provide evidence or testify to rebut the assumptions of fact.
Based on the foregoing, the Tax Court struck the relevant paragraphs of the Amended Reply, because of the improper use of assumptions of fact was prejudicial to the Appellant, but allowed the Crown leave to amend.
Tax Court’s Response To Jurisdiction Over Alternative Penalties Argument
The Respondent in the Amended Reply pleaded that the Appellant should be liable for penalties under subsections 162(7) and (10) of the Act for failing to either file T1134 returns or, in the alternative, T1135 returns (collectively, “T1134/T1135 Paragraphs”). The Respondent argues that the penalties under subsection 162(7) and (10) of the Act are alternative bases of assessment and that subsection 152(9) of the Act allows the Minister to rely on them.
The Tax Court concluded that it lacks the authority to increase the assessed amount, as this would effectively allow the Minister to appeal her own assessment. Similarly, the Court cannot impose penalties not originally assessed by the Minister. Under the Act, only the Minister has the power to impose penalties, and such penalties must be applied as part of the assessment.
The alternative penalties under subsections 162(7) and 162(10) of the Act are distinct from the gross negligence penalties under subsection 163(2) of the Act, which had already been assessed.
Furthermore, the Court clarified that subsection 171(1) of the Act does not grant the Tax Court the authority to refer a matter back to the CRA to impose a new penalty. Therefore, the paragraphs referencing the alternative penalties under subsections 162(7) and 162(10) of the Act, should be struck under subsection 53(1)(d) of the Rules, as they fail to provide a reasonable ground for opposing the appeal.
Key Insights
The Decision reinforces the importance of the Minister’s initial Notice of (Re)Assessment because the Tax Court does not have the power to impose or direct the imposition of penalties that were not previously raised by the Minister. Secondly, the Decision emphasizes that the CRA must ensure that assumptions of fact are clear to avoid prejudicing the taxpayer.
