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Don’t Screw Up The Rules of Evidence in Tax Appeals: The Boroumand Case

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In order to be successful in tax appeals, the rules of evidence can sometimes play a key role.

In Boroumand, the Appellant appealed assessments for unreported income under the Income Tax Act to the Tax Court of Canada (“TCC”) (2015 TCC 239).  The Appellant’s position was that the funds came from non-taxable sources, including primarily an inheritance from family in Iran. The Appellant sought to introduce documents from money exchange enterprises purporting to show that he received nearly $2 million from Iran. The Minister objected to admitting the documents as they were hearsay and under normal circumstances were inadmissible. 


With respect to the evidence, the Tax Court determined that the Appellant failed to (a) support his assertions with evidence, either by oral testimony or by affidavit attesting to the circumstances surrounding the creation of the documents in the usual and ordinary course of business; (b) give the Minister seven days’ notice of his intention to introduce the documents as business records, as required by the Canada Evidence Act; and (c) satisfy the requirements of the common law business records exception as he had not provided evidence as to the circumstances in which the documents were made. The TCC further determined that the hearsay evidence did not satisfy the requirement of reliability and, therefore, the documents could not be admitted under the principled approach.  At the end, the TCC refused to admit the documents and found that the Appellant had unreported income and failed to show the source of the unreported funds was not taxable.  Accordingly, the TCC dismissed the appeal. 


The Appellant further appealed to the Federal Court of Appeal (“FCA”), on the basis that the Tax Court erred in refusing to admit the documents (2016 FCA 313).  The FCA, after determining that the TCC’s rulings on admissibility were made on correct principles of law, upheld the decisions of the TCC and dismissed the appeal.


What is the key lesson from the decisions?  Taxpayers should be aware that any screw up in the rules of evidence may result in certain documents/records becoming inadmissible, directly affecting their chance of winning their tax appeals. It is therefore advisable to seek legal advice in tax litigation.


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