Tax Schemes and Procedural Justice

I’m on the mailing lists for the Tax Court of Canada, the Federal Court, the Federal Court of Appeal and the Supreme Court. As such, on a near daily basis I receive new court cases to review and the one today, regarding taxpayers who entered into agreements with two disgraced tax consultancies (Fiscal Arbitrators and Demara Consulting) that fraudulently claimed business deductions where there were none reminds me of how long and far reaching these cases can go. These 1800 cases have been winding their way through audit, appeals and the courts for more than a decade. It’s very clear that these taxpayers ought to have at least verified the tax scheme was legal before committing to tax self immolation and ten years of heartache for a tax refund that will cost them far more in penalties and interest than they would have ever gained. If it sounds too good to be true, it usually is.

‘deeply, deeply disturbed,’ ‘highly inappropriate’ and ‘I don’t think you were reasonably mistaken,'” Boyle wrote.

With that said, the CRA took whatever high ground they had on the matter and debased themselves and the reputation of the tax regime when they denied basic procedural fairness to the taxpayers under investigation and in respect of their tax court appeals. The CBC covered this travesty of the appearance of justice in 2022:

“Boyle’s detailed 53-page ruling goes through the history of the case, and the circumstances that led to each of the orders he found the CRA later ignored.

The fight centred on pre-trial discovery, and the rights of the taxpayers to examine a CRA representative or “nominee” who was “knowledgeable” about their case.

The first person the agency put forward was “unaware of any criminal investigation and had not informed himself” about any involvement of the CRA’s criminal investigators in the case.

The second nominee was a lead criminal investigator who “did not even inform himself … whether any investigation was undertaken of any of these three appellants.”

At one point, Boyle called the investigator “thoroughly unprepared, unco-operative or untruthful.”

The judge said the CRA and its lawyers twisted the words of an order that boiled down to a demand for the agency to hand over any documents relating to any investigations that touched on the three appellants.

“I variously described this as ‘outrageously misleading and inappropriate,’ ‘this might be contemptuous,’ … ‘deeply, deeply disturbed,’ ‘highly inappropriate’ and ‘I don’t think you were reasonably mistaken,'” Boyle wrote.

The judge also zeroed in on the CRA’s failure to tell the defence that the second page of a three-page “Investigation Abort Report” against one of the plaintiffs had gone missing. The report was handed over in the middle of hundreds of documents. The missing page explained why a criminal investigation was dropped.

The CRA claimed it had no “specific obligation” to point out missing pages — a position Boyle found “shocking.”

“Courts do not consider discovery to be a game, and it is particularly disappointing when the Crown is the offending party,” the judge said.

He said the omission gave credence to the idea the CRA “is hiding something from them, from the Court and from Canadians about how these investigations have been conducted.”

The moral of the story is that both sides of tax have a responsibility to be honest and fair. Both sides failed in this case.