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Introduction: Tax Litigation & Examination for Discovery
The Tax Court of Canada serves as a federal court that adjudicates disputes arising from tax matters between individuals or companies and the Canada Revenue Agency. The court's jurisdiction primarily encompasses appeals related to income tax, GST/HST returns, and employment insurance.
Canadian tax litigation involves numerous procedural rules governing almost every aspect of the lawsuit, including the examination-for-discovery process. Moreover, parties must complete these procedural steps within the deadlines that the Tax Court of Canada establishes in a timetable order.
In Golden Mind Investment Ltd. v. The King, 2025 TCC 77, the Canada Revenue Agency failed to abide by the court's timetable order, yet the Tax Court of Canada granted the Canada Revenue Agency's extension-of-time motion, thereby allowing the CRA to serve its discovery answers despite ignoring the Tax Court's previous timetable order, taking over six months to request the extension, and despite the evidence of possible deceit by the Canada Revenue Agency or by the CRA's tax lawyer.
The Golden Mind decision illustrates one of the many tactics that the Canada Revenue Agency's tax lawyers often employ to undermine a taxpayer's tax appeal, and it underscores the importance of engaging a highly skilled Canadian tax-litigation lawyer.
After discussing the examination-for-discovery process, the article analyzes the Tax Court of Canada's decision in Golden Mind Investment Ltd. v. The King, 2025 TCC 77. It then concludes by providing pro tax tips from our experienced Canadian tax-litigation lawyers on the implications of the Golden Mind decision and on securing effective representation during the tax litigation process.
What Is Examination for Discovery?
Examination for discovery is a pre-trial procedure in tax litigation (and civil litigation) where each party may subject the opposing party to questioning so that the parties may gather relevant facts and evidence before the actual trial takes place. Typically, during the examination for discovery, the taxpayer's tax-litigation lawyer will question a CRA employee—such as a tax auditor, appeals officer, or tax collector—whom the Canada Revenue Agency has nominated to give answers on behalf of the CRA, and the CRA's tax-litigation lawyer will question the taxpayer who initiated the tax appeal.
In the context of tax litigation before the Tax Court of Canada, the Tax Court of Canada Rules (General Procedure) govern the process for examination for discovery. The Rules allow the parties to select one of two methods for conducting an examination for discovery.
The parties may either conduct an oral examination for discovery (also known as a deposition) or conduct written examinations for discovery. If parties agree to written examinations for discovery, they must exchange their written questions and written answers within the deadlines set forth in the Tax Court's timetable order.
Golden Mind Investment Ltd. v. The King, 2025 TCC 77
In Golden Mind Investment Ltd v The King, 2025 TCC 77, the taxpayers and the Canada Revenue Agency agreed to conduct examinations for discovery in writing.
The Tax Court required each party to serve that party's written discovery answers by October 10, 2023. In accordance with the Tax Court's order, the taxpayers served their written discovery answers upon the CRA's tax lawyer on October 10, 2023.
But a few hours after receiving the taxpayers' discovery answers, the Canada Revenue Agency's tax lawyer sent an email asking the taxpayers' tax-litigation lawyer for an extension of time. According to the email from the CRA's tax lawyer, the income-tax auditor "appear[ed] to be out of the office" and the Canada Revenue Agency required "a brief, one-week extension to allow for [the CRA's lawyer] to have [the income-tax auditor's] answers sworn."
The taxpayers consented to the CRA's extension request and agreed to allow the Canada Revenue Agency to serve its discovery answers by October 17, 2023.
The Tax Court of Canada ultimately issued an amended timetable order reflecting the new October 17, 2023, deadline.
Yet on October 17, 2023, the CRA's tax lawyer failed to serve the CRA's discovery answers.
And for the next several months, the taxpayers' tax lawyer made several attempts to contact the CRA's tax lawyer about the status of the Canada Revenue Agency's discovery answers and about whether the Canada Revenue Agency intended to file an extension-of-time motion with respect to the CRA's discovery answers.
On November 13, 2023, the Canada Revenue Agency's tax lawyer stated that the Canada Revenue Agency would file an extension-of-time motion during the week of November 20, 2023.
But the CRA never filed that motion.
When the CRA's tax lawyer ceased responding to all communications, the taxpayers' tax lawyer notified the Tax Court of Canada that the Canada Revenue Agency had yet to serve the CRA's discovery answers.
On February 14, 2024, the court wrote a letter asking the Canada Revenue Agency to advise on the status of the CRA's discovery answers.
On February 16, 2024, the CRA's lawyer sent the Tax Court a letter confirming that the Canada Revenue Agency "was unable to provide the answers to the written questions on examination for discovery, and wished to provide the answers prior to submitting a timetable extension."
The letter went on to explain that the CRA "intends to provide the answers shortly, as well as submit a motion to extend the timetable. [The Canada Revenue Agency] intends to complete its work on the answers and continue these matters."
After sending this letter to the Tax Court on February 16, 2024, the Canada Revenue Agency's lawyer again ceased all communications with the taxpayers' lawyer. After yet another four weeks of radio silence from the CRA's tax lawyer, the taxpayers' lawyer tried one final, last-ditch effort to get the taxpayers' appeals back on track.
On March 15, 2024, the taxpayers' lawyer wrote a letter to the CRA's lawyer. The letter stated that the taxpayers were willing to consent to the CRA's extension-of-time motion if the Canada Revenue Agency filed that motion by April 19, 2024.
This letter seemed to have produced the desired effect, because, on April 19, 2024, the CRA's tax lawyer finally—over six months after the agreed-upon October 17, 2023 deadline—filed a motion asking that the Tax Court for additional time to serve the Canada Revenue Agency's discovery answers.
Yet the materials accompanying the CRA's motion raised several concerns for the taxpayers' lawyer.
First, the Canada Revenue Agency's motion contradicted what the Canada Revenue Agency's tax lawyer had stated, in writing, back in October 2023. As detailed above, on October 10, 2023, the CRA's lawyer requested a one-week extension, indicating that the CRA's discovery answers were already complete and just needed to be sworn.
Yet the CRA's April 2024 motion included an affidavit confirming that, as of April 19, 2024, the CRA income-tax auditor had yet to answer over 25 discovery questions: paragraphs 5-6 of the affidavit accompanying the Respondent's motion dated April 19, 2024.
Second, the motion materials were also self-contradictory. The affidavit accompanying the CRA's April 2024 motion stated that an "error by counsel" had caused the Canada Revenue Agency to miss the deadline on October 17, 2023, yet that same affidavit also stated that the CRA's discovery answers were still incomplete as of April 19, 2024: paragraphs 4, 5, and 6 of the affidavit accompanying the Respondent's motion dated April 19, 2024.
If the discovery answers were still incomplete in April 2024, how did an "error by counsel" cause the CRA to miss the deadline in October 2023?
Finally, the CRA's April 2024 motion contained absolutely nothing to explain why it took over 6 months for the Canada Revenue Agency's lawyer to file the motion.
These contradictions and the absence of any explanation suggested that the Canada Revenue Agency had wilfully delayed bringing the extension-of-time motion so that the Canada Revenue Agency could gain sufficient time to analyze the taxpayers' discovery answers and adjust or redo the CRA's own discovery answers as needed.
The chronology of events also supported that conclusion. In October 2023, the CRA purported that its discovery answers were complete, but six months later, in April 2024, the CRA now claimed that it was still working on the discovery answers. The only thing that changed during that interim was that the Canada Revenue Agency's lawyer had received the taxpayers' discovery answers.
So, if the CRA's lawyer was telling the truth in October 2023, when he indicated that the CRA's answers were already complete and just needed to be affirmed, and if the CRA's affiant was telling the truth in April 2024, when he swore that the CRA's answers were still incomplete, then the only rational conclusion was that the Canada Revenue Agency had been using those six months to redo the CRA's answers in light of the taxpayers' answers.
The alternatives, of course, were either that the CRA's lawyer had lied in October 2023 or that the CRA's affiant had lied under oath in April 2024. Indeed, as the taxpayers saw it, the most troubling aspect of the CRA's motion was that it evidenced possible deceit by the Canada Revenue Agency or by the CRA's lawyer.
Because of these concerns, the taxpayers' lawyer decided against consenting to the CRA's extension-of-time motion and opposed the motion instead. In response, the Tax Court of Canada ordered the parties to appear at a motion hearing.
The Tax Court of Canada recognized that the CRA's motion could succeed only if the Canada Revenue Agency satisfied the test articulated by the Federal Court of Appeal in Canada (AG) v Hennelly, [1999] FCJ No 846, 1999 CanLII 8190 (FCA). In particular, according to the Hennelly test, the Canada Revenue Agency would need to demonstrate that:
- It had a reasonable explanation for the delay in bringing the motion;
- It had a continuing intention to pursue the underlying tax appeals;
- Granting the CRA's motion would not prejudice the taxpayers; and
- The CRA's position in the underlying tax appeals had some merit.
The court also recognized that the Canada Revenue Agency needn't satisfy all four of these factors because the overriding consideration is that the interests of justice be served: Attorney General of Canada v Larkman, 2012 FCA 204, at para 62.
While delivering oral arguments at the motion hearing, the taxpayers' lawyer pointed out that, while it may be true that the CRA needn't satisfy all four factors of the Hennelly test, the corollary was that the court could still reject the CRA's extension-of-time motion even if the CRA managed to satisfy one or more Hennelly factors: page 32, lines 6-13, of transcript of proceedings.
For example, in Gratl v HMQ, 2019 TCC 9, the court dismissed the CRA's extension-of-time motion, even though the CRA had satisfied two of the four factors in the Hennelly test.
In this case, the court found, on the one hand, that the Canada Revenue Agency intended to pursue the underlying tax appeals, and that the CRA's position in the appeals was not without merit.
On the other hand, the court found that the Canada Revenue Agency had failed to provide a reasonable explanation for the delay: "In fact, none was given, other than that it was due to an error by the Respondent's counsel.": para 66.
The court then turned to the final factor of the Hennelly test: prejudice. The court reasoned that "it is the [taxpayers] who have the burden to prove that they have suffered prejudice": para 55. In other words, the taxpayers must "allege and prove the existence of prejudice.": para 70.
Appearing before the court, the taxpayers' lawyer argued that the Canada Revenue Agency used the six-month delay to redo the CRA's discovery answers after having reviewed the taxpayers' discovery answers. This allowed the CRA's witness to provide answers that she would not otherwise have given if she hadn't enjoyed the benefit of the additional time and the advantage of reviewing the taxpayers' answers.
In support of these arguments, the taxpayers' Canadian lawyer brought the court's attention to the above-mentioned contradictions between the email that the taxpayers' lawyer had received from the CRA's lawyer in October 2023 and statements in the affidavit that accompanied the CRA's April 2024 motion: pages 37-38 of the transcript of proceedings.
On the one hand, in October 2023, the CRA's tax lawyer purported that the CRA's discovery answers were complete. Yet on the other hand, the CRA's April 2024 affidavit now claimed that the CRA's discovery answers were still incomplete as of April 19, 2024.
These contradictory statements could mean only one of three things:
- The CRA's lawyer had lied in October 2023 when indicating that the CRA's discovery answers were already complete;
- The CRA's affiant had lied under oath in April 2024 when swearing that the CRA's discovery answers were still incomplete as of April 19, 2024; or
- The CRA's lawyer and the CRA's affiant had each told the truth, which meant that the CRA's discovery answers were initially complete in October 2023, but the CRA decided to redo those answers after receiving and reviewing the taxpayers' discovery answers.
The Tax Court characterized these events as "a possible sequence of occurrences that corresponds with [the] hypothesis [that the Canada Revenue Agency had used the six-month delay to redo its discovery answers after having reviewed the taxpayers' discovery answers]." Yet the court found that the taxpayers "do not otherwise provide any evidence in support thereof.": para 72.
The court observed that, in support of its extension-of-time motion, the CRA had submitted excerpts of the CRA's discovery answers, which stated that the CRA's nominee "had not seen" the taxpayers' discovery answers "when answering" the taxpayers' discovery questions: para 73.
During the motion hearing, the taxpayers' lawyer pointed out that the Tax Court's procedural rules permitted the CRA's lawyer to answer discovery questions on the CRA's behalf, so it was certainly possible that the CRA's tax lawyer had reviewed the taxpayers' discovery answers and answered questions on behalf of the CRA's nominee, revised one or more of the nominee's answers, or advised the nominee about how to answer.
Yet the Tax Court concluded that it had "not been shown any particular reason to disbelieve" that the CRA had not seen the taxpayers' discovery answers when answering the discovery questions: para 73.
The court also observed that "even if all the parties abided by the timetables, it remains possible that they did not serve their answers on each other at the same time, and that this time difference does not necessarily mean that there was foul play behind it.": para 74.
Granted, the relevance of this observation seems unclear, and the court makes little effort to expand on it. It is certainly possible—and indeed is often the case—that, when the parties exchange their written discovery answers with one another, one party will inevitably serve the answers a few minutes or a few hours before receiving the opposing party's answers.
But this isn't what happened in Golden Mind. During the hearing, the taxpayers' lawyer explained—and the court acknowledged—that, in this case, the Canada Revenue Agency had initially suggested that the CRA's answers were complete, and what followed was an inexplicable 6-month delay and then an admission that the answers remained incomplete: page 40, lines 1-17, of the transcript of proceedings.
The court also cited the letter that the taxpayers' lawyer had sent to the CRA's lawyer on March 15, 2024. This letter stated that the taxpayers were willing to consent to the CRA's extension-of-time motion if the Canada Revenue Agency filed that motion by April 19, 2024.
According to the Court, "such consent suggests the absence of any prejudice.": para 75. Yet it wasn't until after receiving the CRA's motion that the taxpayers' lawyer discovered that the CRA's lawyer may have lied, and that the CRA may have wilfully caused the preceding 6-month delay.
Still, the Tax Court of Canada ultimately concluded that "in neither their written nor their oral representations have the [taxpayers] provided the Court with clear and comprehensive evidence to substantiate their claim that the [Canada Revenue Agency] adjusted [its discovery answers] after having reviewed the [taxpayers' discovery answers].": para 76.
As a result, the court granted the Canada Revenue Agency's extension-of-time motion, thereby allowing the CRA to serve its discovery answers despite ignoring the Tax Court's previous timetable order, despite the 6-month delay in bringing the motion, and despite the evidence of possible deceit by the Canada Revenue Agency or by the CRA's tax lawyer.
Pro Tax Tips: Analyzing the Golden Mind Decision & The Need for Effective Representation by an Expert Canadian Tax-Litigation Lawyer
The Tax Court's decision in Golden Mind carries several important implications for tax litigation in Canada.
First, even if we assume that neither the CRA nor the CRA's tax lawyer did anything improper during discovery, the precedent resulting from the Golden Mind decision may encourage future litigants to manufacture a similar situation specifically so that they can gain an unfair advantage during written discovery.
The decision gives all future litigants a blueprint for doing this: Wait for the opposing party to serve that party's discovery answers, request a brief extension at the last minute, ignore that new deadline, and simply help yourself to the next six months so that you can review the opposing party's discovery answers and adjust your own answers as needed. You may then serve your discovery answers on some arbitrary date of your choosing, file a motion requesting that your answers be deemed to have been duly served on the date that you selected, and cite the Golden Mind decisionas supporting precedent.
Moreover, the court seemed willing to overlook the wilful delay by the Canada Revenue Agency's lawyer, and although the only sensible reason for this delay was that it allowed the CRA to redo its discovery answers, the court remained unconvinced.
Although the Canada Revenue Agency ignored the Tax Court's previous timetable order, and despite the CRA's inexplicable 6-month delay in bringing the motion, and despite receiving the evidence of possible deceit by the Canada Revenue Agency or by the CRA's tax lawyer, the Tax Court concluded that the taxpayers hadn't adduced "clear and comprehensive evidence" that the Canada Revenue Agency had adjusted its discovery answers after having reviewed the taxpayers' discovery answers.
Yet it remains unclear how the court expected the taxpayers to possibly obtain such "clear and comprehensive evidence" of the Canada Revenue Agency's litigation strategy or of the intentions underlying the conduct of the CRA's lawyer. That sort of smoking-gun evidence would almost certainly fall under the protection of solicitor-client privilege and litigation privilege, which makes securing such evidence an exceedingly difficult (if not, legally impossible) proposition.
The Golden Mind decisionshould therefore alert Canadian taxpayers to one of the many tactics that the Canada Revenue Agency's tax lawyers often employ to undermine a taxpayer's tax appeal.
Canadian tax litigation involves numerous procedural rules governing almost every aspect of the lawsuit, including specific deadlines, acceptable evidence, settlement negotiations, and the contents of pleadings.
What's more, the substantive tax issues are often themselves very complicated, involving intricate, sometimes convoluted tax legislation. As a result, Canadian taxpayers who represent themselves will typically be at a heavy disadvantage against the Canada Revenue Agency's Canadian tax-litigation lawyers at the Department of Justice.
Instead of taking your chances on your own, consult one of our expert Canadian tax-litigation lawyers who can simplify the tax-litigation process, review your evidence, prepare you for depositions, devise a litigation strategy for your case, and represent you before the Tax Court of Canada during the hearing or settle your appeal before the hearing by negotiating a settlement with the lawyer representing the Canada Revenue Agency.
FREQUENTLY ASKED QUESTIONS
What is an examination for discovery?
Examination for discovery is a pre-trial procedure in tax litigation where each party may subject the opposing party to questioning so that the parties may gather relevant facts and evidence before the actual trial takes place. Typically, during the examination for discovery, the taxpayer's lawyer will question a CRA employee—such as a tax auditor, appeals officer, or tax collector—who the Canada Revenue Agency has nominated to give answers on behalf of the CRA, and the CRA's Canadian tax-litigation lawyer will question the taxpayer who initiated the tax appeal.
The Tax Court of Canada Rules (General Procedure) allow the parties to select one of two methods for conducting an examination for discovery. The parties may either conduct an oral examination for discovery (also known as a deposition) or conduct written examinations for discovery. If parties agree to written examinations for discovery, they must exchange their written questions and written answers within the deadlines set forth in the Tax Court's timetable order.
I recently received a notice of reassessment, and I want to dispute this tax reassessment in the Tax Court of Canada. Why should I hire a Canadian tax-litigation lawyer? Isn't tax litigation something that I can handle myself?
Canadian tax litigation involves numerous procedural rules governing almost every aspect of the lawsuit, including specific deadlines, acceptable evidence, settlement negotiations, and the contents of pleadings. What's more, the substantive tax issues are often themselves very complicated, involving intricate, sometimes convoluted tax legislation.
As a result, Canadian taxpayers who represent themselves will typically be at a heavy disadvantage against the Canada Revenue Agency's Canadian tax-litigation lawyers at the Department of Justice.
Instead of taking your chances on your own, consult one of our expert Canadian tax lawyers who can simplify the tax-litigation process, review your evidence, prepare you for depositions, devise a litigation strategy for your case, and represent you before the Tax Court of Canada during the hearing or settle your appeal before the hearing by negotiating a settlement with the lawyer representing the Canada Revenue Agency.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
