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TCC: DISCOVERY QUESTIONS NEED ANSWERS!

BROAD DISCOVERY RULES CAN WORK FOR TAXPAYERS TOO

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Taxpayers who appeal to the Tax Court of Canada (“TCC”) under the General Procedure must submit to Examinations for Discovery (“Discovery”) and must answer “any proper question relevant to any matter in issue”: see Rule 95(1). That means virtually any question relevant to the appeal must be answered, aside from those subject to Solicitor-Client Privilege. This obligation continues even if the relevant business has been sold, the knowledgeable employees have left, or key documents are hard to find.

In this Tax Appeals Report, we review the TCC’s decision in RF Securities Clearing LP v. The King, 2026 TCC 120 (“RF Securities”), which confirmed and restated the guiding principles governing discovery questions and document production – highlighting how Experienced Tax Litigation Counsel can use the Discovery process to a taxpayer’s advantage.

The RF Securities Decision

The Appellant in the case appealed GST/HST reassessments of over $1.6 million for 2014 to 2016. The reassessments related to success fees charged to 19 clients, with the legal question being whether they were exempt financial services or taxable.

After three rounds of Discovery (which was conducted, unusually, in writing) the Crown moved to compel further and better answers to 41 Questions. The Appellant resisted on proportionality, privilege and Rule 81 partial-disclosure grounds. It noted that the relevant business division was sold in December 2019 and that no involved employees remained.

Guiding Principles Confirmed

The TCC ultimately ruled that 19 of the 41 Questions needed to be answered – the rest being repetitive, or about fees the Appellant no longer disputed – and also ordered parallel production of documents, restating the governing principles as follows.

Relevance is the test, and it is liberally construed: a question is proper if it is reasonably likely to lead to a train of inquiry that may advance the examiner’s case or damage the opponent’s, short of a “fishing expedition”. Proportionality still matters, but a party cannot avoid a relevant question simply by arguing that answering would be too costly or burdensome for what is at stake. Some questions do remain improper, however: a party can be asked for the facts underlying an allegation, but not for the evidence it has to prove it.

The TCC also reviewed Rule 95(2), which requires reasonable enquiries of officers and employees “past or present” – and which frequently comes into play when a business has been sold and its staff dispersed.

Finally, the TCC ruled that an agreement on partial disclosure under Rule 81 does not limit what must be produced in answering Discovery questions.

These principles cut BOTH ways: the Crown, too, must answer any proper question, so taxpayers can press it for the facts behind the Minister’s assumptions. And RF Securities shows that a taxpayer’s own Discovery burden can be limited: the TCC refused to order answers to questions that simply repeated earlier ones, or that related to issues the Appellant had chosen to stop disputing.

Takeaways

Taxpayers in TCC appeals should expect to explain their fundamental position in the case when questioned by the opposing party on Discovery. Very few questions can be refused.

On the flipside, Experienced Tax Litigation Counsel can help identify the weaknesses in the CRA’s case through equally targeted examinations. Used well, Discovery is not just an obligation to be managed, but a tool that can change the direction of a tax appeal.

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