Tax

CRA wins appeal against couple who alleged 'malicious' tax evasion probe

By AdvocateDaily.com Staff

Canadian PressTHE CANADIAN PRESS

VANCOUVER — The British Columbia Court of Appeal has set aside a $1.7-million damage award to a Vancouver Island couple who a lower court had said were ruined through the “malicious'' actions of the Canada Revenue Agency.

The couple were operating a restaurant, nightclub and motel in Nanaimo in 2008 when they were charged with 21 counts of tax evasion for allegedly skimming $1.7 million from their businesses.

They were acquitted of all charges in provincial court in 2010 in what the judge hearing the case agreed amounted to the Crown using “voodoo accounting'' to support its case, and the couple then sued for malicious prosecution.

A B.C. Supreme Court judge ruled last year that the couple were the victims of an “egregious'' prosecution based on an unfounded theory and suspicion about the alleged tax evasion.

But in a decision released Tuesday on behalf of the three-judge panel, a British Columbia Court of Appeal judge says the trial judge was wrong to base his analysis on the idea that tax evasion can't be proven without also proving exactly how it was done.

As a result, the British Columbia Court of Appeal says the trial judge dismissed some relevant evidence as “mere hypothesis,'' instead of recognizing there was a reasonable and probable cause to launch a case.

Because the analysis was faulty, the British Columbia Court of Appeal judge says it's unnecessary to look at whether the trial judge erred in his conclusion that the Crown was motivated by malice or the investigator for the CRA acted for an “improper purpose.''

“When the correct legal test is applied properly to the elements of the offence, with a correct onus of proof in a claim of malicious prosecution, and viewing the issue objectively, the [couple] cannot succeed in showing that there was an absence of reasonable and probable cause to initiate and continue the prosecution,'' the decision says.

In an interview with AdvocateDaily.com, Canadian tax lawyer David J. Rotfleisch says the British Columbia Court of Appeal properly carried out a technical analysis of the reasons for which the trial court judge found that the CRA had committed malicious prosecution of the couple.

“The Court of Appeal stated that with the correct onus of proof in a claim of malicious prosecution, and viewing the issue objectively, the couple cannot succeed in showing that there was an absence of reasonable and probable cause to initiate and continue the prosecution. Accordingly, their case was dismissed,” says Rotfleisch, founding tax lawyer with Rotfleisch & Samulovitch Professional Corporation, who is not involved in the matter and is commenting generally.

However, he adds: “While this is, of course, unfortunate for the taxpayers who were put through the wringer by the CRA, it does not change the important principle that CRA auditors can be held accountable for bad behaviour.”

© 2019 The Canadian Press

- With files from AdvocateDaily.com

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