Executive Summary: Key Legal and Evidentiary Issues

• The Respondent sought to strike portions of the Appellant's Fresh Amended Notice of Appeal under paragraph 53(1)(d) of the Tax Court of Canada Rules for disclosing no reasonable grounds for appeal.

• Procedural fairness claims relating to inconsistent CRA treatment of CEWS and CERS audits were struck as beyond the Court's jurisdiction.

• CERS-related facts were preserved as potentially relevant to the Appellant's defence against gross negligence penalties under subsection 163(2) of the Income Tax Act.

• Relief seeking cancellation of the Notice of Confirmation was struck without leave to amend as beyond the Court's remedial powers.

• The Court applied the "plain and obvious" test, finding ambiguous grounds should be left for the trial judge to resolve.

• Costs were awarded in the cause due to mixed results for both parties.

Background of the dispute

1478873 Ontario Inc. operates a retail jewelry business that was severely impacted by the outbreak of the COVID-19 pandemic. The company applied for both the Canada Emergency Wage Subsidy (CEWS) for qualifying periods beginning on March 15, 2020, and ending on August 28, 2021, and the Canada Emergency Rent Subsidy (CERS) for overlapping qualifying periods. The Canada Revenue Agency (CRA) audited both subsidy claims, ultimately reducing the Appellant's CEWS eligibility and claims to nil through Notices of Determination and Redetermination. The Minister of National Revenue also issued a Notice of Reassessment assessing gross negligence penalties totaling $81,636 under subsection 163(2) of the Income Tax Act for the Appellant's 2020 and 2021 taxation years.

The motion to strike

The Respondent, His Majesty the King, brought a motion under section 69 of the Tax Court of Canada Rules (General Procedure) seeking to strike numerous paragraphs from the Appellant's Fresh Amended Notice of Appeal. The Respondent argued these portions related to procedural fairness concerns—specifically the alleged inconsistent application of rules in the CEWS and CERS audits leading to contradictory decisions based on identical financial records—which fall outside the Tax Court's jurisdiction. The Appellant conceded that paragraphs 56 and 101 to 111 relating directly to the procedural fairness issue should be struck but argued that the remaining CERS references are pleaded solely to demonstrate the factual incorrectness of the CEWS assessment and penalties under the ITA—not to challenge procedural fairness.

Legal framework for striking pleadings

The Court confirmed that striking pleadings under paragraph 53(1)(d) requires demonstrating it is "plain and obvious," assuming the facts pleaded to be true, that the pleading discloses no reasonable grounds for appeal, with the onus on the party seeking such relief. Associate Judge Miller referenced established jurisprudence including R. v. Imperial Tobacco Canada Ltd. and Main Rehabilitation Co. Ltd. v. Canada, emphasizing that a motions judge should be very cautious about categorizing an allegation and deciding to strike part of a pleading, and that it is generally appropriate to leave questions as to the category of an allegation and the consequences that may arise to the trial judge.

Treatment of CERS-related facts

The Court declined to strike the impugned facts relating to the CERS audit despite the Respondent's arguments. Associate Judge Miller found that while he was not convinced that inconsistencies between the CERS and CEWS audit results will have any bearing on the appeal before this Court, it is not for him as motions judge to rule on this matter. However, he noted how the facts of the CERS audit could be used by the Appellant in mounting a defence in respect of the Respondent's evidence relating to the gross negligence penalties assessed under subsection 163(2) of the ITA. The Respondent's Reply to the Notice of Appeal stated as a fact in support of the gross negligence penalties that the Appellant did not maintain adequate books and records to support its CEWS claims and that these books and records were "insufficient and unreconcilable." If the same books and records were sufficient to determine the validity of the CERS claims, the apparent inconsistent treatment of them might be material to determining whether the Appellant knowingly, or under circumstances amounting to gross negligence, made or participated in, assented to or acquiesced in the making of, false statements or omissions in its applications for the CEWS.

Treatment of impugned grounds

The Court similarly refused to strike grounds at paragraphs 59 to 80, 92, and 95, which fell under various headings including "Validation of Financial Records Across CRA Audits," "CEWS Eligibility Through Corrected Revenue Calculations," "Alternative Treatment Options for GroupCo Sales," "Legitimacy of Non-Arm's Length Salaries," and "Unjust Imposition of GNP." Associate Judge Miller acknowledged it is difficult to determine how these grounds precisely relate to the remaining issues raised in the appeal. However, the difficulty in understanding the precise nature of the arguments laid out in the impugned grounds is the very reason why the Courts have expressed that it should only be in a plain and obvious case that a paragraph should be struck. The Court found it is not plain and obvious that the impugned grounds relate solely to matters beyond the jurisdiction of this Court, and any ambiguity or uncertainty surrounding these grounds can be addressed at discovery or by any other appropriate means, with the trial judge to ultimately resolve these matters.

Relief beyond the Court's jurisdiction

The Court struck paragraph 112(ii), which requested that this Court "CANCEL the Confirmation in issue pertaining to the Determination, Redetermination and Reassessment." The Tax Court of Canada has exclusive jurisdiction to hear appeals of assessments, reassessments, or determinations but may only dispose of an appeal by dismissing it or allowing it. If the appeal is allowed, the Court can only vacate the assessment, vary the assessment, or refer the assessment back to the Minister for reconsideration and reassessment. Accordingly, this Court cannot cancel the Notice of Confirmation. This request was struck without leave to amend.

Ruling and outcome

Associate Judge Andrew Miller granted the Respondent's motion in part on January 26, 2026. The Court ordered struck from the Fresh Amended Notice of Appeal: the words "(attached as Schedule D)" from paragraph 33; paragraphs 56, 101 to 111, and 112(ii); and Schedule D. The Appellant was given 30 days from the date of the Order to file and serve an Amended Fresh as Amended Notice of Appeal, with the Respondent having 60 days of service of that document to file and serve an Amended Reply. Given the mixed results—the Respondent was successful in having the issue of procedural fairness and paragraph 112(ii) struck from the Fresh Amended Notice of Appeal, but was not successful with the balance of the motion—costs were awarded in the cause.