Executive Summary: Key Legal and Evidentiary Issues

• Appellants were denied business losses under Article 9 of the Income Tax Act for alleged foreign commercial activities, with the Crown contending no enterprises existed during the relevant years.

• Alternative arguments raised by the Crown invoked sections 18(1)(a), 18(1)(h), and Article 67 of the LIR regarding personal nature and reasonableness of claimed expenses.

• Criteria for amending pleadings under El Ad Ontario Trust require modifications to assist in resolving genuine issues without causing irreparable injustice.

• Minister's conduct in assessment cannot serve as grounds to annul, modify, or refer back a tax assessment according to established Federal Court of Appeal jurisprudence.

• Questionable factual assumptions in the Replies—such as the appellant's inability to explain revenue sources—were left for the trial judge to assess regarding burden of proof.

• Costs of $1,000 were awarded to each appellant despite the Crown's motion being granted, due to delays caused by the original improper pleading content.

Background and procedural history

This consolidated matter before the Tax Court of Canada involved three appellants—Mouhammad Mouwaffak Bouraima, Lorng Esmel Adje, and Jeanne Bazie—who filed appeals challenging reassessments that denied their claimed business losses. The appellants maintained they had incurred business expenses related to foreign commercial activities and sought to have these deductions restored. The Crown's position was that the appellants did not operate businesses during the taxation years in question, or alternatively, that certain claimed expenses were personal in nature or unreasonable under the applicable provisions of the Loi de l'impôt sur le revenu (Income Tax Act).

The notices of appeal were filed on October 30, 2024, and the Crown filed its Replies on February 10, 2025. However, on June 30, 2025, the Crown notified the Court and the appellants of its intention to amend the Replies. All three appeals were scheduled for hearing on the same day, and the Court heard the amendment motions based on common arguments since the proposed modifications were identical across all files.

The proposed amendments

The Crown's proposed amendments sought to remove certain "overview" sections and "additional facts" from the Replies. These removed portions contained allegations that the appellants were part of a larger group of taxpayers making similar expense claims related to "alleged businesses." Notably, and without clear explanation, the original Replies had implicated the appellants' counsel, Me Issiakou Moustapha, as being central to this initiative. The Crown's motion essentially aimed to strike these allegations by subtraction rather than addition.

The appellants' objections

The appellants opposed the amendments on several grounds. They argued the motion was untimely and represented a strategic maneuver to conceal that the Minister's decision to deny the business expenses was influenced not only by the Income Tax Act provisions but also by allegations regarding the conduct of their counsel. The appellants further contended that the original inclusion of the overview and additional facts was designed to prejudice the Court against the merits of their appeals, discourage other taxpayers from appealing similar assessments, and intimidate the appellants through what they characterized as "virulent attacks" against their lawyer.

The Court's analysis on amendments

Associate Judge Andrew Miller applied the well-established test from El Ad Ontario Trust, which provides that amendments to pleadings should be permitted if they assist the Court in determining the genuine issues between the parties, provided they do not cause the opposing party an injustice that costs cannot remedy and serve the interests of justice. The Court found that the Crown's modifications met these criteria. Removing the references to other taxpayers' conduct and the role attributed to the appellants' counsel would help focus the proceedings on the actual issues in dispute.

The Court observed that regardless of the Crown's reasons for wanting to amend the Replies, the Minister's conduct is not a valid ground to annul, modify, or refer back an assessment under the Income Tax Act. As the Federal Court of Appeal has consistently held, when a tax assessment is appealed, the sole question is the validity of the assessment based on applicable statutory provisions. The Tax Court lacks jurisdiction to set aside an assessment based on ministerial misconduct, even if such conduct is proven and constitutes an abuse of power or breach of fairness.

Factual assumptions and burden of proof

The Court raised concerns about certain factual assumptions in the Replies that were not subject to the proposed amendments. These included assertions that the appellants could not explain the source of their gross business income, could not justify claimed expenses, provided no sufficient justification for their expenses, and that their tax preparer was Me Issiakou Moustapha. While Associate Judge Miller expressed doubts about the quality of these assumptions and the burden they might impose on the appellants, he declined to strike them, noting that an invalid or inapplicable assumption does not impose a burden on a taxpayer merely because it was pleaded. The determination of any burden would be left to the trial judge considering the peremptory nature of these assumptions and their relevance to the issues.

The costs award

Although the Crown's motions were granted, the Court awarded costs of $1,000 to each of the three appellants—an unusual outcome in informal procedure appeals where the moving party succeeded. Associate Judge Miller explained this decision was not made lightly. The necessity for these motions arose from a decision by the Crown that fell somewhere between being clumsy or ill-timed and demonstrating a complete lack of judgment. The Court found it difficult to reconcile the original inclusion of the overview and additional facts with any legitimate litigation purpose, and this caused delays in hearing the appeals and undoubtedly forced the appellants to incur unforeseen expenses. The Court emphasized it was making no findings regarding the Crown's motives due to insufficient evidence but concluded that including these allegations in the original Replies constituted a significant error warranting a costs award.

Outcome

The Court granted the Crown's motion to amend the Replies in all three appeals. The amended Replies dated June 30, 2025, were deemed filed with the Court and served on the appellants as of the date of the Order. Each appellant was awarded costs in the fixed amount of $1,000, payable by the Crown within 60 days of the Order. The decision was signed on January 12, 2026.