CRA adds weapon to arsenal against tax evasion

In a previous article, I wrote about the dangers of commingling business and personal assets. 

Mixing business and personal assets is simply a nice way of saying, “tax evasion.” In my previous article, I highlighted the Alberta Court’s conclusions that Alberta Hot Oil Services Ltd. owners engaged in schemes to deduct personal expenses as business expenses. The court found that the convicted parties evaded $73,406.83 and convicted the parties to a jail sentence and significant fines.

New Case

In a new case reported by the CBC, CRA is alleging that an Ottawa couple evaded $523,532 in taxes by operating schemes to: “under-report their taxable income.” At the date of writing, these allegations had not yet been proven.

In this new case, however, CRA has taken the unusual step of seizing property under proceeds of crime provisions in Canada’s Criminal Code. According to the CRA website, this marks the first time the agency used this tactic.

Proceeds of Crime Laws

Under proceeds of crime legislation, the Attorney General can apply for an order authorizing the seizure of property used in criminal activity. Normally, when the authorities charge an individual (or individuals) with a criminal offence, as they charged the couple from Ottawa, the authorities carry the heaviest burden of proof. They must satisfy a court that the offenders are guilty “beyond a reasonable doubt.” This is the highest burden of proof in our legal system. The reason for this is quite simple. Someone charged with a criminal offence can lose his or her liberty. Under our laws (the Charter of Rights and Freedoms), the authorities can only take away someone’s liberty if justified. This justification translates into a heavy burden of proof imposed on the authorities.

However, because seizing property doesn’t jeopardize someone’s liberty, the burden of proof imposed on authorities to seize property is lower. In law, they must prove the property was used in criminal activity on a balance of probabilities. This burden is often referred to as 50 per cent +  one. This threshold is much easier to do than to prove the parties committed the offence beyond a reasonable doubt.

Right Balance?

While many may applaud the government for taking a more aggressive stance, the practice of seizing property is controversial. In a case in Toronto, the police dropped drug charges against two homeowners, presumably due to problems with the evidence. Nevertheless, the government proceeded to seize 60 per cent of the value of their home. The couple could not afford to fight the government in that case.

When you consider a British Columbia court awarded 1.7 million dollars in damages($750,000.00 of which was awarded as punitive damages) against CRA for a “high-handed, reprehensible and malicious” behaviour,” this new tactic takes on a more ominous tone. What would have happened had CRA applied for forfeiture in that case?

Conclusion

No one wants to see someone take advantage of the system or commit tax fraud. If we were able to rout offenders out with 100 per cent accuracy, then, by all means, let’s seize their stuff. However, as life has taught us, the authorities are not always right. They are often wrong. Giving authorities the power to seize assets when the case against the alleged perpetrator is less than solid can lead to serious injustice.

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Disclaimer – Legalese

This article is presented for informational purposes only. The content does not constitute legal advice or solicitation and does not create a solicitor-client relationship (this means that I am not your lawyer until we both agree that I am). If you are seeking advice on specific matters, please contact Philippe Richer at 204.925.1900. We cannot consider any unsolicited information sent to the author as solicitor-client privileged (this means confidential).

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