"Brief Reasons" just don't cut it

National Post


In a rare decision released this week, the Federal Court of Appeal called a Tax Court judge to task over his failure to provide proper reasons in a 2011 tax case and ordered the matter to be retried again under a new judge.

The issue in the 2011 tax case was whether SRI Homes Inc. was entitled to deduct nearly $412,000 of tax losses. In what the appeal court described as "brief reasons," the Tax Court dismissed SRI's case and found the losses were not deductible. The issue to be determined by the appeal court, then, was whether now-retired Tax Court Justice Leslie Little made an error in law by failing to provide adequate reasons for his decision.

"I am not aware of any other decisions by the FCA that have overturned a Tax Court decision on this basis," said Kenneth J. Ihas, of Rush Ihas Hardwick LLP, who represented SRI.

While the facts of the case are somewhat complex, both the Canada Revenue Agency and SRI presented competing theories at the Tax Court trial, which took place over three days last summer, over why the losses should be (dis)allowed.

The judge's "reasons" were divided into three sections. The first section, running 32 of 42 paragraphs, set out the facts and paraphrased some of the assumptions the CRA had presented in its court filing.

The second section where the judge listed the issues to be decided was a "verbatim quotation of the issues as framed by the (CRA)."

In the final section, entitled "Analysis and Decision," the judge quoted from the opening statements of SRI and the CRA and then quoted briefly from the closing argument of SRI and then, more extensively, from the closing argument of the CRA.

The judge then concluded, in the final two paragraphs, "I agree with the reasoning outlined by (the CRA) in (its) argument. The appeals are dismissed, with costs."

The Federal Court of Appeal, in reviewing whether the judge's reasons were adequate, quoted an earlier Supreme Court of Canada case on what exactly constitutes "sufficient reasons." The Supreme Court explained that "the object is not to show how the judge arrived at his or her conclusion, in a 'watch me think' fashion. It is rather to show why the judge made that decision."

The Federal Court of Appeal concluded that the Tax Court judge "erred in law by failing to give adequate reasons for his decision" and ordered a new trial.

Mr. Ihas now has to argue the case again before a different judge.

"The entire experience has been very frustrating for my client," Mr. Ihas said.