Executive Summary: Key Legal and Evidentiary Issues

• The Minister applied the transfer pricing recharacterization rules in paragraphs 247(2)(b) and (d) of the Income Tax Act to cross-border financing transactions and reassessed Redpath Sugar Ltd. by denying interest deductions on a $100 million loan.

• The Respondent moved, under section 54 of the Tax Court of Canada Rules (General Procedure) and subsection 152(9) of the Income Tax Act, to amend its Amended Reply to plead in the further alternative the transfer pricing rules in paragraphs 247(2)(a) and (c), including an allegation that the arm’s length interest rate on the borrowed money was 0%.

• The Court applied the common law test for amendments (assisting in determining the real questions in controversy, avoiding non-compensable injustice, and serving the interests of justice) and found that the Respondent satisfied this test, and that the requirements of subsection 152(9) were also met.

• The Court held that the proposed amendments concerned the same cross-border transactions and the arm’s length principle, involved only one additional factual allegation (that the arm’s length interest rate was 0%), and would leave the Respondent with the onus of proving that additional fact.

• The Court acknowledged concerns about the timing of the Respondent’s change in position and the absence of an affidavit explaining when the decision to amend was made, but concluded that these concerns should be addressed through costs rather than by refusing the amendment.

• The motion to amend was granted; the Amended Amended Reply attached to the Respondent’s November 7, 2025 Notice of Motion is deemed filed as of November 27, 2025, and Redpath is awarded costs on the motion and costs in any event of the cause for additional pre-trial steps, with the amounts to be determined after written submissions due January 23, 2026 (Appellant) and February 2, 2026 (Respondent).

Facts of the case
Redpath Sugar Ltd. appealed reassessments in which the Minister of National Revenue applied the transfer pricing recharacterization rules in paragraphs 247(2)(b) and (d) of the Income Tax Act to cross-border financing transactions involving Redpath, its former parent company, and another subsidiary holding company. The reassessments denied interest deductions claimed by Redpath related to a $100 million loan. The Minister also assessed a penalty under subsection 247(3) and issued Part XIII assessments for withholding tax on a resulting deemed dividend, and those Part XIII assessments are also under appeal. The reassessments relate to the 2013, 2014 and 2015 taxation years. Redpath filed its appeal on September 29, 2021, before the Minister rendered a decision on its Notices of Objection.

The Respondent filed a Reply to the Notice of Appeal on January 10, 2022, relying only on paragraphs 247(2)(b) and (d). On January 31, 2022, the Respondent amended its Reply to add a further alternative argument that the interest was not deductible under paragraph 20(1)(c) of the Income Tax Act because the loan was not used to earn income. Redpath filed an Answer on February 22, 2022.

The appellant’s Rule 58 motion
On July 1, 2022, Redpath brought a Stage 1 motion under Rule 58 of the Tax Court of Canada Rules (General Procedure) seeking the determination, before the hearing of the appeal, of whether the transactions at issue satisfied the condition precedent in subparagraph 247(2)(b)(i) that they would not have been entered into between persons dealing at arm’s length, so that paragraph 247(2)(d) could properly apply. Redpath stated that, if this question were answered in its favour, only the separate paragraph 20(1)(c) issue would need to be decided at trial, and that even if the question were determined in the Respondent’s favour, the scope of the trial, including disclosure and discoveries, would be “substantially reduced.”

The Rule 58 motion was heard on August 18, 2022. The Court adjourned the motion sine die and directed the parties to provide a timetable to complete discoveries. An order to this effect was issued by Justice Patrick Boyle on September 29, 2022. After discoveries were completed in 2024, Redpath advised the Court that it wished to proceed with the Rule 58 motion instead of setting the appeal down for trial.

The resumption of the Rule 58 motion was delayed when the presiding judge retired on October 31, 2024. Following a case management conference on December 20, 2024, the parties agreed that a new judge would determine the Rule 58 motion based on the transcript of the first hearing and any additional submissions. An order reflecting this was issued on February 6, 2025. The Rule 58 hearing resumed on April 2, 2025. Further to an order dated April 4, 2025, Redpath filed additional written submissions on April 18, 2025 regarding the scope of the transactions at issue, and the Respondent replied by letter dated April 24, 2025. As of the date of Justice Hill’s Reasons on the present motion, the Rule 58 decision remained under reserve before another judge.

The respondent’s motion to amend the Amended Reply
On July 17, 2025, the Respondent wrote to the Court to request a hearing date for a motion to amend its Amended Reply, seeking to add an alternative transfer pricing argument under paragraphs 247(2)(a) and (c). The Respondent filed its Notice of Motion, with a proposed Amended Amended Reply, on November 7, 2025, in accordance with the deadline in Rule 67(6) for the hearing scheduled on November 17, 2025.

The proposed amendments consist of three new paragraphs. First, paragraph 10.1(c) pleads, in the alternative and to the extent that parties dealing at arm’s length would have entered into the series of transactions, which the Respondent denies, that at all times the arm’s length interest rate for the money Redpath borrowed from ASR as part of the series of transactions was 0%. Second, a new issue at paragraph 11(e) asks, in the further alternative and to the extent that arm’s length parties would have entered into the series of transactions, whether the terms and conditions made or imposed in respect of the series between Redpath and ASR differed from those that would have been made between persons dealing at arm’s length under section 247(2)(a) of the Act, such that the arm’s length interest rate on the money Redpath borrowed from ASR was 0% under section 247(2)(c). Third, paragraph 15.2 pleads, in the further alternative, that if arm’s length parties would have entered into the series of transactions, then the terms and conditions between Redpath and ASR differed from those that would have been made between persons dealing at arm’s length within section 247(2)(a), and that, had ASR and Redpath been dealing at arm’s length, the arm’s length interest rate for the money Redpath borrowed would have been 0% under section 247(2)(c).

The Respondent did not file an affidavit in support of its motion. At the hearing, counsel for the Respondent advised the Court that the decision to amend followed discussions with its experts, and that the Respondent advised the Appellant and requested its consent to the amendment in “early June.” No specific sworn evidence set out the exact timing of the decision to amend.

Redpath filed a responding motion record setting out the procedural history, including its outstanding Rule 58 motion. It also filed excerpts from the examination for discovery of the Respondent’s nominee and the Respondent’s answers to undertakings, advisements, and follow-up questions. Those excerpts showed that the Respondent refused to answer questions about the analysis under paragraphs 247(2)(a) and (c) conducted, but not ultimately pursued, by the Canada Revenue Agency at audit. The Respondent refused those questions and undertakings on the basis of relevance, since the then-current pleadings defined the transfer pricing issue solely by reference to paragraphs 247(2)(b) and (d).

Legal test and the Court’s analysis on the amendment
The parties agreed that the applicable test is that an amendment should be allowed at any stage of a proceeding if it assists the Court in determining the real questions in controversy, does not result in an injustice to the other party that cannot be compensated by costs, and serves the interests of justice. The Court noted the Federal Court of Appeal’s decision in Polarstat Inc. v HMTK and that this test has been applied in many Tax Court cases. Justice Hill also stated that the requirements of subsection 152(9) of the Income Tax Act were met and that these Reasons did not address that provision further because the Appellant did not argue otherwise.

Justice Hill concluded that the proposed amendments would assist in determining the real question in controversy because they invoke the other assessing position available under subsection 247(2) of the Income Tax Act. She noted that these provisions address issues related to transactions between a Canadian taxpayer and a non-arm’s length person in another lower tax jurisdiction, and that subsection 247(2) provides for two types of adjustments. The Minister had reassessed based on paragraphs 247(2)(b) and (d) and now sought to rely on paragraphs 247(2)(a) and (c) as an alternative argument.

Justice Hill accepted the Respondent’s argument that both positions are related because they involve the arm’s length principle and address the same transactions from a different perspective, based on the same relevant facts and transactions. She noted that the Minister’s position remains that Redpath is not entitled to the interest deduction because of the circular flow of funds in the transactions at issue.

On prejudice, Justice Hill held that the proposed amendments did not result in an injustice to Redpath that could not be compensated by costs. She observed that there was no impending trial date that would be delayed, and that there were no radical changes such as unrelated new arguments, new assumptions of fact, or a withdrawal of admissions. The Respondent would bear the onus to support the alternative argument and to prove the single additional fact that the arm’s length interest rate was 0%. The Respondent also agreed that it should contribute to Redpath’s costs for additional examination for discovery, and suggested a lump sum in the range of $3,000, which Redpath argued would be insufficient.

On the interests of justice, Justice Hill found that they were served by allowing the amendment. She disagreed with Redpath’s position that the factors from Continental Bank Leasing Corp. were engaged in a way that would prevent the amendment, although she noted that this paragraph had been recently cited by the Tax Court in Lux Operating Limited Partnership v HMTK. She addressed two of Redpath’s arguments in more detail: the impact on the Rule 58 motion and the timing of the Respondent’s change in position.

Regarding the Rule 58 motion, Justice Hill stated that although she had expressed concern about the possible impact of the amendment on Redpath’s outstanding Rule 58 motion, she could not and should not take this into account because the Rule 58 motion was before another judge. She stated that if either party believed that a potential amendment to the Reply would affect the Rule 58 motion, it was their responsibility to raise that matter with the judge seized of that motion. She noted that neither party requested an adjournment of the amendment motion until a decision was rendered on the Rule 58 motion, despite having ample time.

As to timing, Justice Hill agreed with Redpath that the Respondent failed to put its “best foot forward” on the motion. She stated that, although affidavits are not always required, the Court and possibly the Appellant could have been reassured by a sworn statement from the Respondent setting out the specific timing of the decision to amend. She considered this information relevant because the Minister had considered but did not pursue paragraphs 247(2)(a) and (c) when reassessing, and because the Rule 58 motion had effectively been held in abeyance until the hearing resumed in April 2025. She noted that counsel for the Respondent had said he contacted the Appellant in early June 2025, but that he did not specify when the decision to amend was actually made. Justice Hill concluded that this factor, on its own, was not enough to deny the motion, but that it supported an award of costs to Redpath.

Costs and outcome of the motion
In her conclusion, Justice Hill stated that she was satisfied that the Respondent had met the test to amend, but that Redpath would suffer prejudice that could and should be compensated through costs. She agreed with Redpath that detailed costs submissions were required to assist in determining the appropriate amounts.

The Court therefore ordered that the Respondent’s motion to amend its Amended Reply under section 54 of the Tax Court of Canada Rules (General Procedure) be granted. The Amended Amended Reply attached as Schedule “A” to the Respondent’s Notice of Motion dated November 7, 2025 is deemed to have been filed with the Court as of November 27, 2025. The Court further ordered that Redpath is entitled to costs on the motion and costs in any event of the cause with respect to additional pre-trial steps required because of the amendment. The Court directed that the amounts of costs are to be determined after consideration of written submissions, not exceeding 15 pages. Redpath must file its written submissions on costs on or before January 23, 2026, and the Respondent must file its written submissions on or before February 2, 2026. No specific monetary amount of costs is fixed in the Reasons or the Order.