The taxpayer, who had been assessed beyond the normal reassessment period to treat a capital gain from the disposition of real property as a business profit, moved pursuant to ss. 53 and 65 of the Tax Court of Canada General Procedure Rules to have the Crown’s Reply struck on the basis that such reporting could not be a misrepresentation for purposes of s. 152(4)(a)(i), because misrepresentation (in light of the French version) meant a misrepresentation of fact, whereas the characterization of the gain was a question of mixed fact and law.
Before indicating that the taxpayer had not persuaded him that the characterization of the gain as a capital gain rather than a business profit could not be a misrepresentation for such purposes before a surfacing of the factual context at trial, Gagnon J stated (at paras. 53, 56, 59, 78 and 80):
[B]oth language versions of the provision are equivalent and indeed refer to a misrepresentation of the facts. …
[T]he word “misrepresentation” in English, alone, encapsulates the concept of a false, misleading, wrong or incorrect representation in relation to facts. …
… Because the filing position of a taxpayer involves the disclosing, reporting or characterization of the taxpayer’s underlying factual situation, any false, misleading, incorrect or incomplete disclosure, reporting, or characterization of those facts could constitute a misrepresentation [of the facts]. For that reason, a characterization issue concerning a question of mixed law and fact can constitute a misrepresentation [of the facts]. …
[A] reasonable filing position would be one where, upon review of all of the facts and circumstances that underlie a taxpayer’s situation (fully and accurately addressed), the Minister and the taxpayer could arrive at reasonable—albeit different—conclusions or positions based on a characterization of (or an application of the law to) such facts. Indeed, such an instance would be what [Inwest] has termed a mere “difference of opinion between the CRA and the taxpayer” .. .
[T]he Court cannot agree with the Appellant’s proposition that a question of income versus capital necessarily amounts to a mere difference of opinion. The reasonableness of the Appellant’s filing position—and relatedly, whether a misrepresentation has been made—ought properly to be put before the trial judge.