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When the subject is income tax appeals, Mr. Justice Rand's (in)famous judgment in Johnston v. M.N.R., (1948) S.C.R. 486, C.T.C. 195 (S.C.C.) has often been cited as authority for the proposition that the burden is on the taxpayer to show that the assessment is incorrect.
In a note to the original report of Johnston v. M.N.R., the C.T.C. editors concluded their comments on the onus issue prophetically: "It is hoped that further jurisprudence will clarify this matter as this judgment raises a serious and difficult technical obstacle in the path of all taxpayers appealing under the provisions of the Income War Tax Act" Johnston v. M.N.R., (1948) C.T.C. 195 at p. 200).
Judge Rand, however, had a great deal more to say about the onus issue than he is often given credit for, and for that reason his decision is often misunderstood and misapplied by lawyers, accountants, Revenue Canada and the courts. The recent decisions of the Tax Court of Canada in Leung v. M.N.R. (1991), 91 D.T.C. 1020 and Kirby v. M.N.R. (1991), 91 D.T.C. 1453, illustrate not only the importance of understanding Judge Rand's judgment but also the potential to use it in the taxpayer's favour.
Johnston v. M.N.R. basically involved a question of statutory interpretation, which must not be confused with the question of onus in income tax appeals. The comments with respect to onus arose out of a ruling on an alter native argument proposed by the taxpayer. Interestingly, the taxpayer, a lawyer, represented himself before the Supreme Court.
The subject provision of the Income War Tax Act provided a beneficial tax rate to (among others): 1. A married person who supported his (sic) spouse and whose spouse was resident in any part of His Majesty's dominions.
2. A person with a son or daughter wholly dependent upon him (sic) for support.
The statute further provided, however, that "a person described" in the first alternative was denied the beneficial tax rate if the taxpayer's spouse earned more than $660 a year (excluding salary and wages).
The taxpayer admitted that his spouse earned more than the specified sum. He did, however, have dependent children. The primary issue before the Supreme Court was whether the taxpayer was entitled to the beneficial tax...