Executive Summary: Key Legal and Evidentiary Issues

• Appellant Quan Gao challenged $281,873 in penalties for failing to file Form T1135, claiming exemption as a person whose taxable income was "exempt from tax under Part I"

• Central dispute arose over whether oral examination for discovery must occur in-person in Canada when the self-represented appellant was located in China

• The Court declined to dismiss the appeal under Rule 110(b), finding the appellant's non-compliance was an honest mistake rather than egregious or intentional conduct

• Respondent's failure to timely respond to written discovery questions was deemed only a "technical" breach after requesting an extension

• Novel legal question emerged regarding virtual cross-border discoveries, with insufficient evidence from either party on Chinese law compliance

• Statute-barring arguments under paragraphs 152(4)(b) and 152(4)(b.2) of the Income Tax Act were at issue

Background and tax history

Quan Gao, a CPA who was in China during these proceedings, filed his 2016 tax return reporting only $503.59 of income, which resulted in nil tax payable. However, that same year, he disposed of shares in non-resident public corporations for aggregate proceeds of $5,519,280. The Minister initially reassessed him on July 2, 2021, deeming the adjusted cost base of those shares to be nil because he did not provide any supporting documentation. After Gao filed a notice of objection on August 19, 2021, the Minister accepted his reported figures on March 30, 2023. However, on March 22, 2023, the Minister had issued a notice of additional assessment for $281,873 of penalties under subsections 162(7), 162(10), and 162(10.1) of the Income Tax Act for failing to file Form T1135, which requires disclosure of specified foreign property where the total cost amount exceeds $100,000.

The appellant's legal position

Gao's appeal, filed June 24, 2023, rested on two primary arguments. First, he contended that he was not a "specified Canadian entity" required to file Form T1135 because subparagraph (iii)(a) of the definition in subsection 233.3(1) excludes a person "(other than a trust) all of whose taxable income for the year is exempt from tax under Part I." Since his taxable income of $503.59 was not high enough for him to owe any tax under Part I, he argued the filing requirement did not apply to him. Second, he maintained that his 2016 taxation year was statute-barred at the time the Minister issued the reassessment under appeal.

Discovery disputes and procedural history

The litigation became mired in disputes over examination for discovery procedures. Gao, located in China, proposed written discovery or examination by videoconference, while the Respondent insisted on oral examination in Canada, citing the need to test the appellant's credibility given the highly factual nature of the statute-barring issue. Two status hearings before Justice Bodie—on August 16, 2024, and September 18, 2024—failed to resolve the impasse. The Court issued timetable orders without specifying where or how discovery must occur. On February 19, 2025, the Respondent served a notice to attend for March 10, 2025, at 9 a.m. in Montreal. Gao did not appear. He sent an email on March 8, 2025, accusing the Respondent of "3 million miscarriages" and three years of "abusive malpractice," and suggesting he would stop the "suing" if the Respondent agreed to vacate his assessment.

The Court's analysis on dismissal

Justice Rabinovitch applied the factors from Choptiany to determine whether dismissal under Rule 110(b) was warranted. The Court found that Gao failed to attend because he considered his obligation to attend in person to remain an open question and did not understand the seriousness of his failure to attend. His breach of the September 22, 2024 Order was characterized as a mistake that was not egregious or intentional. The Court noted that neither of the timetable orders issued were specific in the sense of specifying that the appellant must come to Canada for discovery. The Court also observed that the first decision of this Court on cross-border virtual discoveries was handed down on June 6, 2025—three months after March 10, 2025. While troubled by the appellant's tone in correspondence, the Court noted that English does not appear to be the appellant's first language, which may make it harder for him to measure the level of aggressivity of his communications.

Cross-border discovery and Rule 112 considerations

The Court examined whether it could order examination by videoconference from China under Rule 112(1), which applies "[w]here the person to be examined resides outside of Canada." The Respondent argued that the mere fact that the appellant was not physically in Canada did not make him a non-resident under Canadian income tax principles and that Rule 112 is a complete code. Neither party provided the Court with any information regarding the Chinese government's position on conducting a virtual examination for discovery of a person within its borders, whether there are any Chinese laws that prohibit it, or whether it can be arranged for a person to administer an oath or affirmation in compliance with Chinese law and the Rules. The appellant's submissions stated that whether the Court should order discovery from China "depends on the Respondent's willingness" and suggested it was not worth pursuing, stating "[n]o need to comment [on] the party's willingness or competency. We cannot wake up people who pretend to be asleep."

Ruling on the appellant's motion

Gao's cross-motion sought to allow his appeal without further discovery or trial, invoking multiple provisions including Rules 53(1), 114, and 116(4)(a). The Court rejected each ground. The Respondent's delay in answering discovery questions was deemed not a meaningful breach, as he had asked the Court for an extension prior to the relevant deadline. The Respondent's pleadings were found neither scandalous, frivolous, nor vexatious, and did not constitute an abuse of process. On the statute-barring issue, the Court found the Respondent's position under paragraph 152(4)(b) had sufficient merit to avoid the application of Rule 53(1)(d). Evidence suggested Gao held specified foreign property with cost amount exceeding $100,000, he was a CPA who appears to have filed Form T1135 for 2015, and Box 266 on his return—asking whether he owned specified foreign property exceeding $100,000—was checked "no," which the Minister evidently disagreed with. While Gao's interpretation of "exempt from tax under Part I" was described as "interesting," the purpose of section 233.3—to ensure that taxpayers with significant offshore assets make them known to the Minister—supported the contrary interpretation.

Costs and final orders

The Court awarded costs thrown away to the Respondent under Rule 110(d) for the appellant's failure to attend his examination on March 10, 2025, and costs for both motions. The Respondent received an extension, with the appellant's examination to take place on or before April 30, 2026, undertakings to be satisfied by May 31, 2026, questions regarding undertakings by June 30, 2026, and answers to those questions by July 31, 2026. The Respondent may specify any place in Vancouver, Calgary, Toronto, Montreal, or Ottawa if the parties cannot agree on a Canadian location within seven days of receiving notice. If Gao fails to attend his examination at the time and Canadian location specified in a notice to attend, his appeal will be dismissed. The exact amount of costs will be determined after written submissions, with the Respondent given 30 days to provide submissions on quantum and the appellant given 30 days to respond.