Another Step Forward in the John Tavares Case versus the Crown
The Tax Court of Canada’s decision in Tavares v. H.M.K. (The King), 2026 TCC 58, offers an instructive application of the procedural safeguards embedded in the Tax Court of Canada Rules (General Procedure), specifically in reference to section 99, which governs examinations for discovery of non-parties. The Court’s approach in this decision underscores the exceptional nature of said examinations and the high threshold parties must meet before a third party can be compelled to participate in discovery in the Tax Court litigation process.
For those who may not know, the main appeal concerns the 2018 taxation year of John Tavares, former Captain of the Toronto Maple Leafs. The central issue in that appeal is regarding the tax treatment of a signing bonus he received from the Leafs. Specifically, Mr. Tavares’ dispute is over whether the bonus he received qualifies as an “inducement to sign an agreement relating to the performance of the services of an athlete”, under Article XVI(4) of the Canada-US Tax Treaty [Canada-United States Convention with Respect to Taxes on Income and on Capital]. Taxation of professional athletes has been a hot topic over the past few years given its applicability to Canadian professional teams’ ability to attract and retain high-end talent (i.e., consider the situations of Vladimir Guerrero Jr., Josh Donaldson, Russell Martin, among others).
The Court’s recent decision in Tavares does not decide the merits of the main appeal but rather addresses a motion brought by the Respondent (the Crown). The Crown sought leave from the Court under section 99 of the Tax Court of Canada Rules (General Procedure) to conduct an examination for discovery of a representative from Maple Leaf Sports & Entertainment Partnership Ltd. (MLSE), which is not a party to the appeal. The Crown argued that MLSE’s intentions and motivations for offering the signing bonus were central to determining whether it was an “inducement”. Mr. Tavares opposed the motion.
The sole issue on the motion was whether the Court should grant the Crown’s motion for leave to examine a third party (i.e., MLSE). The Court found it sufficient to resolve the motion by considering paragraph 99(2)(a), without commenting on the other mandatory conditions in section 99.
The Court noted that granting leave to examine a third party under section 99 is an “extraordinary remedy” that should be applied sparingly. To grant leave, the Court must be satisfied that several conditions are met. The decision focused on paragraph 99(2)(a), which requires the moving party (the Crown, here) to demonstrate that it has been unable to obtain the information sought from:
- The person it is already entitled to examine (i.e., Mr. Tavares); and,
- The person sought to be examined (i.e., MLSE).
The Court confirmed that this is a conjunctive test, meaning the Crown had to prove its inability to get the information from both sources. The Court ultimately decided to dismiss the Crown’s motion, finding that the Crown had failed to satisfy either part of the test in paragraph 99(2)(a). The Court found that the Crown had not exhausted its ability to obtain information from Mr. Tavares during his examination for discovery. While the Crown did ask questions related to MLSE’s intentions, it did not ask specific follow-up questions when Mr. Tavares’ counsel indicated they would rely on documents and testimony from MLSE at trial. The Court stated that the Crown’s lack of information was a result of its own, “decision to not further pursue that line of questioning in discovery rather than an inability to obtain it.” Further, Mr. Tavares had successfully obtained other information from MLSE to answer undertakings given, but he was never asked to make an undertaking to inquire about the specific information the Crown had now sought.
The Court also found that the Crown failed to demonstrate it was unable to obtain the information directly from MLSE. The Crown’s only effort was an indirect inquiry through Mr. Tavares’ counsel. The Crown never made a direct request to MLSE for the information, either informally or through written questions. The Court held that simply anticipating that a third party will not provide information is insufficient. Rather, there must be evidence that the information could not be obtained from the third party. On these facts, there had been no direct request, no attempt to use written questions, and no explicit refusal, although the Court accepted that delay or non-response may in some circumstances amount to refusal.
In the end, the Crown’s motion was dismissed because it failed to meet the mandatory conditions under section 99, and the Court concluded that the Crown had not proven it was unable to obtain the desired information from either Mr. Tavares or MLSE. Costs for the motion were awarded to Mr. Tavares in any event of the cause.
The Court’s analysis in Tavares is rooted in a textual strict reading of Rule 99(2)(a), which requires the moving party (here, the Crown) to demonstrate an inability to obtain the information from both the party already subjected to discovery (here, Mr. Tavares), and the third party (here, MLSE). The conjunctive nature of this test is significant. It is not enough for the Crown to show difficulty or inconvenience; it must show actual inability on both fronts. This interpretation aligns with the principle that extraordinary remedies should be reserved for truly exceptional circumstances, thereby protecting non-parties from unnecessary intrusion into litigation in which they are not directly involved.
The Court’s reasoning highlights the importance of diligence by the moving party. The Crown’s failure to exhaust its discovery rights with Mr. Tavares, by not pursuing further questioning or requesting undertakings, was fatal to its motion. The Court’s expectation is that parties must fully utilize the ordinary discovery process before seeking to involve third parties. This serves as both judicial economy and fairness, ensuring that non-parties are not drawn into litigation unless absolutely necessary.
The Court was equally clear that the Crown’s indirect approach to MLSE, relying on Mr. Tavares’ counsel to make inquiries, was insufficient. The requirement is for a direct request to the third party, followed by a refusal or non-response. More precisely, the Court required meaningful effort to obtain the information directly from MLSE and found those efforts lacking on the facts. This procedural rigor ensures that the Court is not asked to intervene prematurely or unnecessarily, and that third parties are given a fair opportunity to respond voluntarily before being compelled.
Underlying the Court’s decision is a policy concern for the rights of non-parties. The “extraordinary” nature of third-party discovery is a recognition that non-parties should not be lightly burdened with obligations of litigation. The Court’s approach balances the need for relevant evidence with the protection of third-party interests, reinforcing the principle that litigation should, as much as possible, be resolved between the parties directly involved.
For tax practitioners, this decision is a reminder to be thorough and strategic in discovery. Counsel must anticipate the need for information from third parties and take all reasonable steps to obtain it from the parties to the litigation first. Only after demonstrating genuine inability to obtain the information through ordinary means should a motion under section 99 be considered. Further, the award of costs to Mr. Tavares further signals the Court’s intent to discourage unnecessary or premature motions for third-party discovery. This serves as a practical deterrent against overreaching by litigants and encourages careful adherence to procedural rules.
In the end, the Tavares decision reinforces the high bar for third-party discovery in tax litigation, emphasizing procedural fairness, judicial economy, and the protection of non-parties. It serves as a valuable precedent for both the Crown and taxpayers, clarifying the steps that must be taken before the Court will grant leave to examine a non-party and ensure that such measures remain truly exceptional.
Loopstra Nixon’s Tax Group represents clients in complex disputes, including audits, objections, and litigation before the Tax Court of Canada. For more information, please contact the authors or a member of the team.
This content is intended for general informational purposes only and is not legal advice. Specific legal advice should be obtained before taking any action.