The Burden of Proof in Tax Matters: Insights from the Tax Court Ruling
The recent Tax Court of Canada decision of Robillard v The King, 2024 TCC 90 (“Robillard”) highlights the critical role of the burden of proof in tax disputes. The Appellant contested a reassessment that denied significant employment expense deductions for the 2016 and 2017 taxation years.
In this case, the court highlighted the key principle that in tax litigation, the burden of proof lies with the taxpayer. This means that an appellant is required to provide credible evidence to support their claims and importantly, to counter the assumptions made by the Minister.
The Burden of Proof
The court articulated the process of burden of proof as established in previous rulings. The principles were first established in the Supreme Court of Canada decision in Hickson Motors Ltd. v Canada, 1997 2 SCR 336 (“Hickson Motors”) and were later summarized by the Federal Court of Appeal in House v. Canada, 2011 FCA 234 (“House v. Canada”) as follows:
- The burden of proof in taxation cases is that of the balance of probabilities.
- With regard to the assumptions on which the Minister relies for the assessment, the taxpayer has the initial onus to “demolish” the assumptions.
- The taxpayer will have met his initial onus when he or she makes a prima facie case.
- Once the taxpayer has established a prima facie case, the burden then shifts to the Minister, who must rebut the taxpayer’s prima facie case by proving, on a balance of probabilities, his assumptions.
- If the Minister fails to adduce satisfactory evidence, the taxpayer will succeed.
The court articulated the process of burden of proof as established in previous rulings. Simply, the taxpayer must present a prima facie case—sufficient evidence to suggest that the claims are valid. Once this is established, the burden shifts to the Minister to rebut the evidence presented. However, if the taxpayer fails to meet the initial burden, as in Robillard case, the reassessment will likely stand.
Specifically, as in the case of Robillard, the Appellant argued that payments to his spouse and to a third party, Fernand Doucet, were necessary business expenses. However, he did not provide adequate documentation to substantiate these claims. The court found that the evidence presented—such as invoices and receipts—lacked clarity and specificity, failing to demonstrate that the expenses were actually incurred for business purposes.
Moreover, the court emphasized the importance of maintaining proper records, particularly in transactions involving non-arm’s length parties, such as family members. Without robust documentation, claims can be easily challenged. The absence of proof showing a legitimate employment relationship, or the services rendered was a critical factor in the court’s decision.
Conclusion
Robillard illustrates the stringent requirements placed on taxpayers regarding the burden of proof in both their arguments and their documents. It serves as a reminder that comprehensive and credible documentation is essential for substantiating claims for deductions. Understanding the implications of the burden of proof is vital for taxpayers, particularly those who are self-employed or claiming deductions for expenses paid to family members.
***Disclaimer: This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions, you should consult a lawyer.
Michelle Kosarnia