Executive Summary: Key Legal and Evidentiary Issues

• The Tax Court considered whether portions of a notice of appeal should be struck under subsection 53(1) of the Tax Court of Canada Rules.
   
• Immateriality and relevance were disputed for paragraphs describing UHSC's founding history, pandemic-era losses, and its relationship with the Government of Manitoba.
   
• Certain paragraphs were challenged as improperly containing legal conclusions, legal interpretations, or legal argument rather than material facts.
   
• Allegations of scandalous, frivolous, or vexatious language were raised over paragraphs describing the Minister's conduct in issuing the assessments.
   
• References to additional statutory provisions and to the Constitution Act, 1867 were contested as unrelated to the sole issue of non-profit status under paragraph 149(1)(l).
   
• Justice Bodie applied the stringent "plain and obvious" standard and declined to strike any of the challenged provisions.
   

Facts of the case

United Health Services Corporation ("UHSC") filed a Notice of Appeal on January 15, 2026, challenging the reassessment of its 2020 and 2021 taxation years. UHSC's position is that it qualifies as a non-profit organization under paragraph 149(1)(l) of the Income Tax Act, and that the 2020 and 2021 years were anomalous because revenues stayed constant while costs and services declined due to the Covid-19 pandemic. The Respondent, His Majesty the King, had not yet filed a Reply and instead brought a motion under subsection 53(1) of the Tax Court of Canada Rules (General Procedure) seeking to strike numerous portions of the Notice of Appeal. The Respondent grouped the alleged deficiencies into three categories: facts appearing under "Facts to be Relied Upon" that were said to be either immaterial and irrelevant or improperly framed as legal conclusions or legal arguments; passages said to be scandalous, frivolous, or vexatious; and portions under the headings "Statutory Provisions Relied On" and "Reasons Upon Which [UHSC] Intends to Rely" said to be improper. The specific paragraphs at issue were set out in an Appendix to the decision, with the challenged wording highlighted. The motion was heard virtually on July 3, 2026, in Ottawa, Ontario, with Jeff Pniowsky appearing for UHSC and Allanah Smith appearing for the Respondent.

Policy and legislative provisions at issue

The central provision is paragraph 149(1)(l) of the Income Tax Act, which exempts from tax an organization that is not a charity and was organized and operated exclusively for social welfare, civic improvement, pleasure or recreation, or for any other purpose except profit. The Notice of Appeal also listed paragraphs 149(1)(c) and (d), subsections 149(1.3) and 149(5), subsection 152(4) of the Act, and the Constitution Act, 1867, though UHSC's counsel confirmed the sole issue in the appeal is the applicability of paragraph 149(1)(l). Procedurally, section 48 and Form 21(1)(a) of the Rules set out the required contents of a notice of appeal, including material facts, the issues to be decided, the statutory provisions relied on, the reasons relied on, and the relief sought. Subsection 53(1) sets out four grounds on which a pleading may be struck: that it may prejudice or delay the fair hearing of the appeal; that it is scandalous, frivolous, or vexatious; that it is an abuse of process; or that it discloses no reasonable grounds for appeal. The decision also referenced section 52 (demand for particulars) and section 19.2 of the Tax Court of Canada Act (notice of constitutional issues) as procedural tools available to the Respondent short of striking the pleadings.

Reasoning and analysis

Justice Bodie applied the well-established "plain and obvious" test, under which a pleading must be assumed true and can only be struck where it is plain and obvious that it meets one of the subsection 53(1) grounds; courts are directed to take a generous approach favouring novel but arguable claims, citing Gramiak v. The Queen, 2013 TCC 383; R v. Imperial Tobacco Canada Ltd., 2011 SCC 42; Metrobec Inc. v. The Queen, 2018 TCC 115; and Jensen v. Samsung Electronics Co. Ltd., 2023 FCA 89. On the immateriality challenges concerning UHSC's 1938 origins, pandemic-related losses in 2022 and 2023, post-pandemic audit history, and its relationship with the Manitoba government, the Court made no finding on ultimate relevance — that being reserved for the trial judge per Mudge v. The Queen, 2020 TCC 77, and Sentinel Hill Productions v. The Queen, 2007 TCC 742 — but held it was not plain and obvious that these facts, if proven, could not support UHSC's position under paragraph 149(1)(l). On the legal-conclusion and legal-interpretation challenges, the Court distinguished the taxpayer's pleading obligations from the Minister's factual assumptions discussed in Adboss Ltd v. The King, 2023 FCA 201, noting per Canada v. Preston, 2023 FCA 178, that not every mixed statement of fact and law must be struck, particularly where tangential, non-prejudicial, or where allowing it to stand would better serve the trial process. On the scandalous, frivolous, or vexatious allegations, the Court acknowledged the language was colourful but held, per the standard in Mudge, that it was not "strikingly or startingly objectionable" [as worded in the source document] enough to warrant striking. On the statutory-reference challenges, the Court held, citing Martineau v. The King, 2023 TCC 25, that it was premature to strike references to provisions raised by the Minister in the assessments themselves, since their relevance would become clearer through discovery and particulars. The Court similarly found no basis to strike the "Reasons" paragraphs, concluding UHSC had adequately complied with section 48's requirements and that sufficiency of those reasons was a matter for trial.

Ruling and overall outcome
Justice Bodie dismissed the Respondent's motion to strike in its entirety, allowing all of the challenged portions of the Notice of Appeal to stand. The Order fixes costs of $5,000, payable on or before September 1, 2026, though the specific party entitled to receive these costs is not stated. The Respondent was granted sixty days from the date of the Order to file its Reply.