Articles
CRA punished for malicious behaviour towards small business owners
Author: Philippe Richer
Small Business Should Fear the Canadian Revenue Agency
CRA doesn’t need much introduction. We all know it. It is the agency responsible for collecting taxes—every Canadian deals with it at some point or another. Small business owners and managers also have the “pleasure” of dealing with the agency’s business end. Especially now that the tax rules for small businesses have changed, we need to be more vigilant. In any event, we record our financial transactions following certain principles and provide our accountant or bookkeeper with the data. More often than not, they interact directly with the agency on our behalf. Now, in addition to collecting taxes, CRA also investigates. So as part of its process, CRA can audit taxpayers. If its auditors find anything wrong, CRA investigates. CRA can prosecute a taxpayer two ways. If the investigator concludes the taxpayer attempted to evade paying taxes (essentially, committing certain offences under the Income Tax Act (ITA)), CRA can prosecute in criminal court. If the taxpayer’s behaviour doesn’t amount to evasion, it can also prosecute in tax court.
As you can see, CRA has a tremendous amount of power. A trial can be extremely expensive. Having to defend yourself in both tax court and the criminal court is enough to ruin any small business owner.
The Samaroos
The Samaroo’s owned a nightclub, restaurant and motel in Nanaimo, B.C. In 2008, CRA charged them with tax evasion claiming they skimmed $1.7 million between 2004 and 2005. The theory of the offence was quite simple. The Samaroos provided their bookkeeper with a daily sales summary sheet. However, according to a former employee, the midnight shift summary was not provided, which was the prosecution’s only evidence. Because they were charged with tax evasion, the first trial was in criminal court. In 2011, the criminal court judge acquitted them of all 21 charges. Essentially, the prosecution was unable to prove that the Samaroo’s actively concealed the midnight shift data (proving something doesn’t exist is impossible). During the trial, the Samaroos and their lawyer discovered that CRA falsified evidence and the Crown attorney withheld critical information.
Samaroo v. Canada Revenue Agency 2018 BCSC 324
Following the trial, the Samaroos sued the CRA for malicious prosecution. The case was finally decided earlier this year (2018). Justice Punnett ordered CRA to pay over $1.7 million in damages, $750 000 of which were punitive. The judge did not mince his words. He qualified CRA’s behaviour as “high-handed, reprehensible and malicious.” He said the charges “should never have proceeded” and “founded on an assumption, and grounded in mere suspicion and hypotheses, which did not and could not constitute reasonable and probable cause.”The conduct of Mr. Kendal [the CRA investigator] was reprehensible. Evidence was concealed, “the conduct was highly blameworthy as it engaged core values in our society and the checks and balances that exist when invoking the power of the state against the individual.”
Tax Court
Unfortunately, and unbelievably for those not familiar with our justice system, the Samaroos still face tax court litigation. The alleged offences occurred in 2004 and 2005, yet in 2018 they must still pay a lawyer to defend against prosecution.
Effect on the Samaroos
According to the Times Colonist who interviewed the Samaroos, it reported “Helen Samaroo said her life was turned upside down by the charges. She felt that others now looked at her differently and she felt embarrassed to go to the restaurant and visit with her customers,” and “Helen testified that she had a breakdown and took to bed for six months. Even with the acquittal, she will never feel the same, she told the court.” To justify the damages imposed, the judge quoted her testimony: “She said she had worked hard to build up her reputation as a reputable nightclub operator and felt that the charges had ruined her reputation,” “She testified that the charges had a significant impact on her husband who became stressed and got quieter and quieter, and over time worked less and less and stopped socializing.”
Conclusion
The Samaroos have gone through what can only be described as an ordeal in the classic sense. The CRA went off the rails and, despite very little evidence, prosecuted a small business. While the payout might give a reader a sense justice was done, I believe that the payout simply reimbursed them for a portion of lost business and expenses related to their legal defence if you look closer. After facing an overwhelming adversary, the emotional toll exacted from the Samaroos cannot be made right. Officials at CRA can go home at night. Their lives change very little. Yet, their judgement can ruin people. Even worse, according to some, this is not an isolated case. Many tax experts are sounding the alarm that problems at CRA are systemic. Hopefully, this apparent downward slide will eventually stop, and clearer minds will prevail. But until then, be very careful when dealing with the CRA.
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).