When are the parties to a civil tax dispute bound by agreed facts from a criminal proceeding?
This was the question considered by the Tax Court of Canada on a Rule 58 motion made by the taxpayers in McIntrye et al v. The Queen (2014 TCC 111). Specifically, the taxpayers argued the principles of issue estoppel, res judicata, and abuse of process applied to prevent the Minister of National Revenue (the "Minister") from assuming facts inconsistent with agreed facts from a prior criminal guilty plea.
In McIntyre, two individuals and their corporation were audited for the 2002 to 2007 tax years. The individuals and the corporation were charged with criminal income tax evasion. As part of a plea bargain, one individual and the corporation plead guilty based on certain agreed facts, and the court imposed sentences accordingly. The other individual was not convicted.
Subsequently, the Minister issued GST reassessments of the corporation, and further reassessments of the individuals for income tax. In issuing the reassessments, the Minister refused to be bound by the agreed facts from the criminal proceeding. In the Notices of Appeal in the Tax Court, the taxpayers argued the reassessments must be consistent with the agreed facts.
The taxpayers brought a motion under section 58 of the Tax Court Rules (General Procedure) for a determination of a question of law or mixed fact and law before the hearing of the appeals. Specifically, the taxpayers asked (i) whether the doctrines of issue estoppel, res judicata and abuse of process prevented the Minister from making assumptions inconsistent with the agreed facts, and (ii) whether the parties were bound by the agreed facts in respect of the calculation of certain capital gains, shareholder debts, losses and shareholder benefits.
The taxpayers argued that it was appropriate to deal with these issues before the hearing, whereas the Crown argued that these issues could not be determined on a Rule 58 motion because, in this case, the facts arose from a plea bargain rather than a determination by a court, the agreed facts did not address the GST liability of the corporation or the other individual's income tax liability, and the facts (and tax liability) of a criminal proceeding would only prohibit the parties from alleging a lower tax liability in a civil proceeding.
The Tax Court dismissed the taxpayer's motion. The Court considered the applicable test on a Rule 58 motion, namely that there must be a question of law or mixed fact and law, the question must be raised by a pleading, and the determination of the question must dispose of all or part of the proceeding (see HSBC Bank Canada v. The Queen, 2011 TCC 37).
The Court stated that, in this case, only the first two requirements were met:
[35] I agree with the Respondent's analysis of the caselaw. It confirms that prior convictions in criminal proceedings resulting from plea bargains, although a factor that may go to weight in a civil tax proceeding, are not determinative of the relevant facts and issues in a subsequent tax appeal.
...
[38] In MacIver v The Queen, 2005 TCC 250, 2005 DTC 654, Justice Hershfield also concluded that a question is best left to the trial Judge where the motion is merely to estop a party from contesting certain facts that will not dismiss an entire appeal. As noted in his reasons, unless such a question can fully dispose of an appeal by finding that issue estoppel applies, a Rule 58 determination could do little more than split an appeal and tie the hands of the trial Judge.
The Court noted that the agreed facts did not address the corporate GST liability or the second individual's income tax liability, dealt only with the 2004 to 2007 tax years, and did not address the imposition of gross negligence penalties. The Court concluded that issue estoppel would not apply because there was not a sufficient identity of issues between the criminal and civil proceedings. It would be unfair, the Tax Court stated, to prohibit the parties from adducing evidence in the civil tax appeals where there had been no introduction and weighing of evidence in the criminal proceeding.
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About Dentons
Dentons is a global firm driven to provide you with the competitive edge in an increasingly complex and interconnected marketplace. We were formed by the March 2013 combination of international law firm Salans LLP, Canadian law firm Fraser Milner Casgrain LLP (FMC) and international law firm SNR Denton.
Dentons is built on the solid foundations of three highly regarded law firms. Each built its outstanding reputation and valued clientele by responding to the local, regional and national needs of a broad spectrum of clients of all sizes – individuals; entrepreneurs; small businesses and start-ups; local, regional and national governments and government agencies; and mid-sized and larger private and public corporations, including international and global entities.
Now clients benefit from more than 2,500 lawyers and professionals in 79 locations in 52 countries across Africa, Asia Pacific, Canada, Central Asia, Europe, the Middle East, Russia and the CIS, the UK and the US who are committed to challenging the status quo to offer creative, actionable business and legal solutions.
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