Ruling of the Canadian Tax Court |  Fiscal Failures Costing Millions

Ruling of the Canadian Tax Court | Fiscal Failures Costing Millions

“Unfair”, “highly inappropriate”, “deeply disturbing”… Millions of dollars have slipped into the hands of the State due to the conduct of the Canadian tax authorities and the Department of Justice, scathingly slashed by the Canadian Court (ICC), forced to agree with taxpayers who tried to pay less taxes through a form of tax evasion.

Posted at 5:00 am

Julien Arsenault

Julien Arsenault
Press

These warnings stem from a decision by Judge Patrick Boyle, handed down about a month ago. He believes that this “disregard for the rules and orders of the court” deprived the taxpayers at the center of the case of their right to a fair trial despite what they were charged by the Canada Revenue Agency (CRA). .

“Abuse of process […] it caused considerable delays and expenses to the three appellants, writes the magistrate in his long list of reproaches. They are an inefficient use of publicly funded resources for all Canadians. »

Result: the plaintiffs, who were asked for 3 million in fines for “serious negligence”, will not have to pay a penny. However, they found themselves on the CRA’s radar screen after enlisting the services of firms posting generous tax returns several years ago thanks to a scheme that earned some of its promoters jail terms.

But after years of delays caused by the CRA’s refusal to comply with his orders, the magistrate decided the prank had gone on too long.

“This outcome is the sole responsibility of the defendant,” Judge Boyle said.

The case could be appealed, but there is no guarantee that this process will be successful. This trial was due to start in March 2019. When the ICC decision was issued on October 5, we were still in the preliminary investigation stage.

“The judge was desperate,” says associate professor of tax law at Université Laval André Lareau. “Typically, it is the taxpayers who are criticized for extending deadlines, not the CRA. The State has just been deprived of 3 million inflows of funds due to the negligence of the Agency. »

Pay less taxes

The three plaintiffs, a psychiatrist from Manitoba, a nurse from Ontario and a pilot from British Columbia, faced penalties for gross negligence. They were among hundreds of taxpayers who, about a decade ago, enlisted the services of DeMara Consulting and Fiscal Arbitrators, two firms based outside of Quebec, to file their tax returns. In 2016, an employee of the first firm was sentenced to prison while the co-founder of the second was sentenced to six years in prison.

The scheme deployed essentially consisted of inventing deductions, in particular accounting for debts and personal expenses as capital losses. Taxpayers could thus reduce their taxable income. the Law of income tax allows the CRA to impose gross negligence penalties for “knowing” omissions on a return. This is what the tax authorities had decided to do for the clients of DeMara Consulting and Fiscal Arbitrators.


LAVAL UNIVERSITY WEBSITE

André Lareau is Associate Professor of Tax Law at Université Laval.

“In the decision, the taxpayers showed a form of willful blindness,” explains Professor Lareau. We were writing down thousands of dollars in deductions thinking what was going to happen. »

serial faults

The TCC’s decision points to the multiple flaws observed by Judge Boyle during the preliminary inquiry. For example, in October 2019, the CRA “repeatedly failed” to disclose evidence to whistleblowers, unnecessarily prolonging legal proceedings, he notes.

Additionally, tax officials have been “uncooperative” and “evasive.” The judge cites a hearing where a CRA investigator admitted he failed to “report” investigations involving the three taxpayers.

This shows a lack of preparation and cooperation.

judge patrick boyle

The latter says he has trouble understanding how the case could have taken such a turn since the tax authorities were represented by the Department of Justice, “which is essentially Canada’s largest law firm” and knows how taxes work. .

“However, this did not prevent tax officials from providing incorrect answers to what the court and plaintiffs asked. Others have deliberately tried to stretch deadlines unduly, Judge Boyle writes. At another point, the prosecution deliberately failed to provide the defense with a page of a report that was part of the exhibit presented. »

“This is misleading and inappropriate,” the judge said.

The CRA and its lawyers also interpreted another order in which it was requested to provide documents related to the investigations of the three taxpayers.

” Either [l’Agence] felt my orders were unclear, he could have asked me for clarification, the decision says. If he believed they were wrong, he could have appealed. She chose to do neither. »

Invited by Press to comment on the TCC ruling, the CRA declined. In an email, the tax authorities limited themselves to noting that the courts “offer Canadians an independent review of the issues in dispute.”

The plaintiffs were originally going to be the representatives of a group made up of hundreds of taxpayers who wanted to appeal the sums claimed by the tax authorities. The decision is limited in scope. The magistrate takes the trouble to specify that he only concerns the three complainants, and not the entire group.

More information

  • 47,400 people
    Approximate workforce from the Canada Revenue Agency, based on the most recent estimates

    government of canada


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