Tax Court of Canada Discovery: Documents and Examination

Once a general procedure appeal is under way, both sides must share information before the hearing. This stage is called discovery, and it can feel intrusive if you have never been through it.

This article walks through the documents you must disclose, the questions you may face, and practical steps to prepare. It covers the general procedure only. The informal procedure is simpler and works differently.

This article covers Canadian federal tax law, which applies in every province.

Where discovery fits in the appeal

A general procedure appeal starts when you file an originating document in the Registry. The Crown must file its reply within 60 days after service of the notice of appeal. Any answer to the reply is filed within thirty days after service of the reply.

The pleadings matter because allegations of fact in your notice of appeal that are not denied in the reply are deemed admitted. The reply must set out, among other things, the facts admitted and denied and the issues to be decided. The Crown's assumptions are also set out in the reply, and you may answer it under Rule 45. Discovery then fills in the detail.

The Court may extend or abridge any time in the Rules on just terms. That does not mean you should expect a deadline to move. Whether an extension is realistic depends on your situation, so it is worth confirming with a lawyer.

Lists of documents

Each party files and serves a list of documents within thirty days following the closing of the pleadings. A party may apply for an order requiring a full list of relevant documents.

Which documents are relevant depends on the issues in your case. Common examples include bank records, receipts, contracts and correspondence, but a lawyer can confirm what applies to you.

The list is a disclosure step, not the hearing itself. Gathering your records early makes it much easier to meet the thirty-day timeline. If the other side's list looks incomplete, the order described above is the tool the rules provide.

Examination for discovery

An examination for discovery is a question-and-answer session, held before the hearing, in which one side questions a representative of the other. The rules set out the main duties:

• A person examined must answer proper questions relevant to a matter in issue.
• If an earlier answer was wrong or incomplete, the person must notify the other parties.
• A party may read the adverse party's discovery evidence into its own case at the hearing.

That last point is why preparation matters. What you say on discovery can be used at the hearing, so answers should be accurate and considered.

In plain terms, discovery is meant to let each side understand the other's case before the hearing. Listen to each question, answer what is asked, and avoid guessing. If you realize later that something you said was wrong or incomplete, the duty to notify the other parties applies.

Representation, privacy and settlement

An individual may appear in person or be represented by counsel in the general procedure. Given the discovery rules, many people choose to have help.

Privacy tools exist. A hearing may be held in camera on a party's application if the circumstances of the case justify it. A confidentiality order may be sought by motion under Rule 16.1, and filers must redact SINs, business numbers and full birth dates.

Settlement can happen at any stage. With your written consent, the Minister may reassess to dispose of an appeal. A written settlement offer can also affect costs. It can increase recovery to substantial indemnity costs (80% of solicitor-and-client costs) if the judgment is as favourable, and the offer must be served at least 30 days after pleadings close and at least 90 days before the hearing, and not withdrawn.

How the informal procedure differs

The informal procedure applies where the aggregate of all amounts in issue is $25,000 or less, or the loss in issue is $50,000 or less, and the taxpayer elects it. It also applies where the only subject-matter of the appeal is interest assessed under the Income Tax Act, but in that case the Attorney General may apply to move the case to the general procedure, and the Court must grant it if the interest in issue exceeds $25,000, not counting interest accruing after the notice of assessment. The table shows a few differences from the general procedure.

If you later wish to appeal a Tax Court judgment to the Federal Court of Appeal, the notice of appeal must be filed within 30 days, not counting days in July and August, after the judgment. Informal procedure judgments can be appealed only on limited grounds, such as lack of jurisdiction, breach of procedural fairness or an error of law.

What to do next

• Note the date the pleadings close and count thirty days for your list of documents.
• Collect records tied to each issue in the reply and in your notice of appeal.
• Keep your records organized in one place so you can find them easily when the list is prepared.
• Review the Crown's reply with someone who can explain its assumptions.
• Prepare for questions with a lawyer or accountant before any examination.

Frequently asked questions