Executive Summary: Key Legal and Evidentiary Issues

• The Crown sought leave under Rule 54 of the Tax Court of Canada Rules (General Procedure) to amend its Replies in two related income tax appeals.
   
• Appellants consented to every proposed amendment except six “additional facts” clauses that appeared in both proposed Amended Replies.
   
• Those clauses describe a 2015 BMO personal loan to three siblings, secured by Holdco pledging the cash surrender value of two life insurance policies.
   
• Materiality under Rule 49(1)(e) was the central dispute, and neither of the two further alleged shareholder benefits the clauses described had been assessed or was at issue in either appeal.
   
• Applying the test in Pomeroy Acquireco Ltd., the court found the amendments would help determine the real questions in controversy, with no apparent injustice to the Appellants.
   
• Leave was granted, with costs to the Respondent in the cause and 30 days for the Appellants to file Amended Answers.
   

Facts of the case

The two related appeals were brought by 1088858 B.C. Ltd. (108) and Ideal Supply Holdings Corporation (Ideal Holdco). 108 was previously named Ideal Supply Company Limited (Ideal Opco) and sold mostly auto parts to retail stores. Its shares were owned by three siblings, who sold them in 2008 to three holding companies, one for each sibling. In 2015, those holding companies sold their Ideal Opco shares to Ideal Holdco in exchange for Ideal Holdco shares.

Ideal Holdco and Ideal Opco co-purchased two joint, last-to-die life insurance policies in 2014. One policy covered one sibling and the siblings’ mother, while the other covered another sibling and the mother. Co-owner Agreements between the two companies set out which company paid what portion of the premiums and which received what benefit, including the cash surrender value (CSV) of the policies.

The Minister of National Revenue reassessed Ideal Holdco for a shareholder benefit under subsection 15(1) of the Income Tax Act. That reassessment rested on three assumptions: that Ideal Holdco was entitled to the CSVs under the Co-owner Agreements, that Ideal Opco paid more than its share of the premiums, and that Ideal Opco therefore conferred a shareholder benefit on Ideal Holdco by increasing its CSVs. The Crown moved to amend its two Replies in various respects, including pleading additional facts that emerged from the Appellants’ discovery examinations. The motion was heard by teleconference on October 27, 2025, and the order was issued on October 7, 2026.

Policy and legislative provisions at issue

Rule 54 provides that a pleading “may be amended by the party filing it, at any time before the close of pleadings, and thereafter either on filing the consent of all other parties, or with leave of the Court,” and that the court may impose terms that are just when granting leave. Subsection 152(9) of the Act was also cited. It allows the Minister, after the normal reassessment period, to advance an alternative basis or argument in support of an assessed amount, unless, on an appeal, there is relevant evidence the taxpayer can no longer adduce without the court’s leave and it is not appropriate for the court to order that evidence be adduced. The Appellants pointed to Rule 49(1)(e), under which material facts are the facts to be pleaded in a Reply.

The six disputed clauses appeared as clauses 15(ppp) to 15(uuu) in the proposed Amended Reply in the 108 appeal and as clauses 18(j) to 18(o) in the proposed Amended Reply in the Ideal Holdco appeal. They stated that in 2015, Timothy MacDonald, John MacDonald and Joan Waechter borrowed from BMO under a loan agreement allowing borrowings of up to $1.54 million, to repay debt owed by Timothy MacDonald and to make payments supporting their mother’s living expenses. According to the clauses, repayment was secured by Holdco pledging the CSV of the Co-operators Policies, and Holdco was never paid any compensation for doing so. The clauses further stated that without the premiums Opco paid, the CSV would not have carried enough equity to act as sufficient collateral for the Personal Loan and the BMO Borrowings, and that Opco was never compensated for those premium payments. A final clause pleaded that Holdco realized an additional benefit arising from the Premiums Benefit, because its indirect shareholders were able to borrow the Personal Loan on the strength of the policies’ CSV.

Reasoning and analysis

The proposed amendments identified two further alleged shareholder benefits. One was conferred by Ideal Holdco, indirectly through the sibling holding companies, on the siblings by allowing them to use its CSVs as security for their personal loan. Ideal Opco allegedly conferred the other indirectly on Ideal Holdco for the same thing. Neither Ideal Holdco nor any sibling had been assessed for these benefits, and neither benefit was at issue in either appeal. It was undisputed that the underlying facts were disclosed in the Appellants’ discovery examinations.

Relying on Pomeroy Acquireco Ltd., 2021 FCA 187, the Crown argued that amendments should be allowed at any stage if they assist in determining the real questions in controversy, do not cause the other party an injustice that costs cannot compensate, and serve the interests of justice. Baffinland Iron Mines Corporation, 2025 TCC 73, at paragraph 69, is also cited on this point. The Appellants countered that the clauses were not material facts, citing Leonard v. The Queen, 2022 FCA 195, which affirmed that “[m]aterial facts are those facts which, if established at the trial, will tend to show that the party pleading is entitled to the relief sought.” In their view, the two further alleged benefits did not prove the existence of the shareholder benefit in issue in the appeals.

The court described the underlying facts as complex, involving many players and many moving parts. Putting the discovery facts before the Court hearing the appeals would improve understanding of the relevant circumstances and assist in adjudicating fact-intensive appeals, meeting the Pomeroy concern with the real questions in controversy. No injustice to the Appellants was apparent, since the information came from their own discovery examinations. In the court’s view, the interests of justice favoured not closing the door to facts learned only at discovery, an approach consistent with the utility of discovery in giving the court a clearer, more accurate and more complete picture of the facts. On that basis, the court treated the additional facts as material, not merely relevant.

Ruling and overall outcome

The Crown’s motion was allowed, with costs to the Respondent in the cause. Leave was granted to file the proposed Amended Replies, attached as Appendices A and B to the Notice of Motion, and the Appellants were given 30 days from the date of the order to file Amended Answers if they wished. While the Crown was the successful party, the decision does not specify any monetary amount, so no exact figure for the costs award can be determined.