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2026-10-11

Eba, 2026 TCC 11: the Crown may add a section 67 argument, but cannot rewrite the Minister's assumptions without evidence, and pays costs for a pleading that attacked opposing counsel

2026 TCC 11 · Tax Court of Canada

Provisions

ITA s. 9ITA s. 18ITA s. 67

Text

Author: Sas Tullo

This is a procedural decision in an informal procedure income tax appeal about disallowed business losses. The Crown wanted to amend its reply before trial, and the taxpayer objected. Associate Judge Miller allowed some amendments, refused others, and, unusually in the informal procedure, ordered the Crown to pay $1,000 in costs because an earlier draft of the amended reply had accused the taxpayer’s lawyer of orchestrating a scheme among dozens of taxpayers. The decision states the limits on the Crown’s power to reshape its pleading and shows the Tax Court’s willingness to sanction conduct that derails a hearing.

Facts

Mr. Eba was reassessed to disallow net business losses of $16,788 for 2019 and $16,756 for 2020 under section 9 of the Income Tax Act. He says he incurred business expenses for commercial activities outside Canada (paras 2, 14). The Crown’s original position was that he was not carrying on a business and, alternatively, that the expenses were personal and barred by paragraphs 18(1)(a) and (h) (para 3).

The reply was filed on October 3, 2024. On February 12, 2025, the Crown gave notice of a motion to amend and attached a first proposed amended reply, which added an overview and additional facts asserting that the appellant belonged to a larger group of taxpayers claiming expenses for alleged businesses and that his counsel was at the centre of the initiative (paras 4-5). On June 13, 2025, the appellant subpoenaed Crown counsel, the author of that document, to produce all documents relating to the 57 taxpayers mentioned in it. On June 16 the Crown substituted a second proposed amended reply without the overview and the allegations about counsel, and on June 17 asked for case management to quash the subpoena (paras 6-7). The hearing set for June 25, 2025, was adjourned to December 12, 2025 (para 8).

Issues

The only question before the court was whether the Crown should have leave to amend the reply as set out in the second proposed amended reply (para 9). The court dealt in turn with the clarified issues and grounds, the withdrawal of an admission, the assumptions of fact, and costs.

Holding

The motion was granted in part. The Crown may clarify the issues and restate its grounds, including adding reasonableness under section 67, but may not withdraw its admission or amend and add the Minister’s assumptions of fact. The Crown was ordered to file an amended reply limited to the permitted amendments within 30 days and to pay the appellant lump sum costs of $1,000 within 60 days (order; paras 16-19, 25, 29, 35).

The court’s reasoning

The governing test was taken from El Ad Ontario Trust, 2023 FCA 231 at paragraph 4, which in turn applies Canada v. Pomeroy Acquireco Ltd., 2021 FCA 187 at paragraph 4: an amendment should be allowed where it assists in determining the real questions in controversy, unless it does not serve the interests of justice or causes an injustice not compensable by costs (para 9).

The court first rejected the appellant’s request to preserve the overview and additional facts from the first draft: that document was never filed, the court cannot compel a party to add allegations to its own pleading, and the Minister’s conduct is not a ground to vacate, vary, or refer back an assessment, citing Hud, 2024 FCA 82 at paragraph 39 (para 13).

The original reply framed a single vague issue, whether the Minister was justified in disallowing the losses; the new paragraphs 9 and 10 identified the real issues, whether there was a business and, alternatively, the nature of the expenses, and the appellant was better off knowing the arguments he had to meet (paras 14-16). The revisions to subparagraph 12(a) were stylistic (para 17). The addition of section 67 as an alternative ground related to an issue already pleaded and served the interests of justice; the court would have refused it had it been sprung at the opening of trial, but the appellant had known of it since February 12, 2025, and had ample time to prepare (paras 18-19).

The court refused the withdrawal of the admission in paragraph 2. The proposed replacement merely takes note of paragraph B of the notice of appeal, and the amendment would put in issue a fact on which the parties agreed and which was irrelevant to the outcome (paras 20-22). Rule 6(1) of the Tax Court of Canada Rules (Informal Procedure) requires a reply to admit, deny, or plead no knowledge of each fact, and taking note does none of those things (paras 23-24). Although the test for withdrawing an admission differs from the test for amendment, the Crown failed both for the same reasons (para 25 and footnote 6).

The refusal of the amended and added assumptions of fact is the most significant part of the reasons. Assumptions generally place the burden on the appellant to disprove them, so the Crown must disclose all assumptions the Minister actually relied on; the court cited Anchor Pointe Energy Ltd., 2007 FCA 188 at paragraphs 28 and 29, including the requirement that pleaded assumptions be complete, precise, and accurate (para 26). Where the Crown seeks to amend and add assumptions, the court expected evidence that the Minister in fact considered them when reassessing; none was offered, no CRA witness testified, and no affidavit was filed (paras 27-28). Allowing the amendments would therefore cause the appellant a prejudice not compensable by costs (para 29).

On costs, the court noted that an award in an informal procedure appeal is unusual but justified here because the Crown’s efforts to amend unduly delayed the hearing (paras 30-31). The decision to plead, in the first draft, that counsel for the appellant was at the centre of a scheme among 57 taxpayers was described as “at best, clumsy or inappropriate, and at worst, the result of a total lack of judgment”, and allegations of that kind “have no place in a pleading before this Court” (para 34). Costs of $1,000 were awarded under section 18.26 of the Tax Court of Canada Act, Rules 10 and 21(4) of the Informal Procedure Rules, and the court’s inherent jurisdiction, citing R. v. Cunningham, 2010 SCC 10 at paragraph 18 and Levy v. Canada, 2021 FCA 93 at paragraph 1 (para 35).

Practical implications

The decision draws a helpful line. Clarifying the issues and adding an alternative legal argument such as section 67 is treated as ordinary pleading hygiene where the taxpayer has had months of notice. Changing the Minister’s assumptions of fact is different in kind: because assumptions shift the burden of proof, the Crown must show, by affidavit or CRA testimony, that the new assumptions were in fact made when the reassessment issued. In my view this evidentiary requirement, applied even in the informal procedure, is a meaningful protection against retrofitting assumptions to the case the Crown would now like to run, and it reinforces the distinction between assumptions, which the taxpayer must demolish, and additional facts, which the Crown must prove.

The costs award is the other notable feature. The court relied on section 18.26 of the Tax Court of Canada Act and on its inherent jurisdiction to control its own process, and the reasons leave no doubt that pleading allegations about opposing counsel rather than about the taxpayer’s own affairs will be treated as a serious error. Section 67 of the Income Tax Act was checked on the Justice Laws site and is in force in the terms applied by the court. Whether an appeal was taken is not verified here.

For a taxpayer facing a late Crown motion to amend, the lesson is to concede harmless clarifications, resist new or altered assumptions of fact unless the Crown proves the Minister relied on them, and ask for costs where the Crown’s conduct has delayed the hearing. The merits of Mr. Eba’s appeal remain to be heard.

This comment is general information, not legal advice. The law may have changed since the decision; check the current text in the tax wiki.

Eba v. The King, 2026 TCC 11, reasons for order dated January 13, 2026 (motion heard December 12, 2025), Associate Judge Andrew Miller, docket 2024-1844(IT)I. The reasons were delivered in French; the official English translation was published on October 9, 2026. Reasons on the Tax Court’s site. Also on CanLII. Interlocutory order; no decision under appeal.