In the main appeal (2015 TCC 119, under appeal to the Federal
Court of Appeal (A-296-15)), the Tax Court had allowed the
taxpayer's appeal on the basis that certain foreign
exchange option contracts should be valued in accordance with
subsection 10(1) of the Income Tax Act (see our previous
here). However, success in the appeal was divided because
certain of the taxpayer's other foreign exchange option
contracts were to be valued on a realization basis, as
The Tax Court asked the parties to provide submissions on
The taxpayer asked for costs on the basis that the appeal had
been allowed. The Crown asked for costs on the basis that the
result of the proceeding was substantially in its favour as to the
amounts in issue and the determination of the issue.
Interestingly, after the Court's decision allowing the
appeal, the parties discovered that the underlying assessment
would not change. The Tax Court called this an
The Tax Court stated that, despite its decision allowing the
appeal, the Crown was the successful party. The case law on costs
cautions against awarding amounts based on the success of
particular arguments (see, for example, General Electric Capital Canada Inc. v. The
Queen (2010 TCC 490)). However, the Tax Court noted
that this was not a case in which a party won a Pyrrhic victory, as each party had
been successful to different degrees.
The Court considered the factors listed in section 147 of the
Tax Court of Canada Rules (General Procedure), including
the amounts in issue, the volume of work, the complexity of the
matter, and the conduct of the parties. The Court noted that two of
the Crown's witnesses were of significant assistance to the
The Court concluded that no rule prohibits a judge from
distributing costs between the parties, although this is not
encouraged. In this case, it was appropriate to recognize the
The Court awarded costs to the Crown in respect of two
witnesses, and 50 percent of all other costs. In the Court's
view, this was an unconventional but reasonable award.
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