In Ironside v. The Queen (2015 TCC 116), the Tax Court allowed the Crown’s Rule 58 motion for a determination of a question of law before the hearing, namely whether the taxpayer was estopped from litigating an issue that had been adjudicated in an earlier Tax Court decision.

In the prior case (Ironside v. The Queen (2013 TCC 339)), the taxpayer had incurred legal and professional fees to defend himself against allegations of committing improper disclosures after being charged in June 2001 by the Alberta Securities Commission. The taxpayer sought to deduct such fees in the 2003 and 2004 tax years.

The Tax Court concluded that the taxpayer’s legal and professional fees had not been incurred to gain or produce income from his chartered accounting business, rather such expenses were personal in nature and were incurred to protect his reputation in the oil and gas industry. The Tax Court dismissed the taxpayer’s appeal.

Subsequently, the taxpayer sought to make the same deductions in the 2007, 2008 and 2009 tax years. The CRA reassessed to deny the deductions, and the taxpayer again appealed to the Tax Court.

In its Reply, the Crown raised the issue of whether “the appeal or a portion of it is barred by application of the doctrine of issue estoppel or is otherwise an abuse of the process of the Court”. The Crown then brought a motion for an order pursuant to Rule 58 of the Tax Court of Canada Rules (General Procedure) for a determination of a question prior to the 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 Tax Court noted that Rule 58 contains a two-step process. At the first stage, the Tax Court must determine whether the question posed by the moving party is an appropriate one that should be heard in a subsequent hearing (the second stage).

At the first stage, three elements must exist:

The question proposed must be a question of law, fact, or mixed fact and law;
The question must be raised in the pleadings; and
The determination of the question may dispose of all or part of the appeal, may substantially shorten the hearing, or may result in substantial cost saving.
If all of these elements are present, the Court may set a hearing of the proposed question before a motions judge prior to the hearing of the appeal.

In the present case, the Tax Court held that all three requirements were satisfied. The Court stated,

[12] Clearly, there is the potential that a determination of this question may, according to the materials I have before me and the submissions I heard, dispose of part of the appeal and I need only be satisfied that it “may” so dispose of some of the appeal. I do not have to be absolutely convinced that it will do so in order to refer the question to a Stage Two determination prior to the hearing. If part of the appeal is disposed of, it follows that the proceeding will be substantially shortened. This is precisely the type of question that Rule 58 is meant to target.

The Tax Court ordered that the Crown’s question be set down for a hearing for determination by a motions judge and that certain evidence be presented at the determination (i.e., the pleadings from both appeals, and the Tax Court’s decision in Ironside v. The Queen (2013 TCC 339)).

For more information, visit our Canadian Tax Litigation blog at www.canadiantaxlitigation.com

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