Her Majesty the Queen v. R. v. Spears, Spears Framing Limited, Spears Concrete Formwork, Inc., v. SCF Services Incorporated, 2017 NSPC 53

IN THE PROVINCIAL COURT OF NOVA SCOTIA R. v. Spears, 2017 NSPC 53 DATE: October 16, 2017 DOCKET: 2571965; 2571966; 2571967; 2571968; 2571969 REGISTRY: Halifax BETWEEN: Her Majesty the Queen v. R. v. Spears, Spears Framing Limited, Spears Concrete Formwork, Inc., and SCF Services Incorporated TRIAL DECISION JUDGE: The Honourable Justice Anne S. Derrick HEARD: January 12, 13, 14, 15; 25, 26, 27, 28, 29; February 1, 2, 3, 4, 5; July 18, 19, 20, 21; August 22, 23, 24, 25, 26, 2016 and April 18, 19, 24, 25, 26, 27, 28; May 15,16, 17; June 12 and 13, 2017; August 25 and 31, 2017. DECISION: October 16, 2017 CHARGES: section 380(1) (

a) of the Criminal Code (Darrell Spears); section 327(1) (

c) x 3 of the Excise Tax Act (Spears Framing Limited and Darrell Spears as an officer, director or agent; Spears Concrete Formwork Inc. and Darrell Spears as an officer, director or agent; and SCF Services Incorporated and Darrell Spears, as an officer, director or agent); and section 239(1)(

d) of the Income Tax Act (Darrell Spears) COUNSEL: Constantin Draghici-Vasilescu, for the Crown David Bright, Q.C. and Edward Sawa, for the Defendants (Trial) Brian Casey, Q.C. and Edward Sawa, for the Defendants (Final Submissions) By the Court: Introduction [ 1 ] This case is about unremitted employee source deductions and HST for Darrell Spears ’ business operations in the period of 2006 to 2008. The Crown accuses Mr. Spears of fraud, alleging that, by dishonest means, he sought to deprive the Receiver General of these funds, instead repurposing them to serve his own uses. Mr.

Spears denies any fraudulent purpose and says his reason for not remitting was because he did not have the funds due to financial hardship. [ 2 ] Mr. Spears is also charged with evading the payment of personal income tax for the 2007 taxation year, and he and his companies – Spears Framing Limited (“Framing”), Spears Concrete Formworks, Inc. (“Formwork”) and SCF Services Incorporated (“Services”) are alleged to have evaded the payment of HST. In short, the Crown accuses Mr. Spears of being a tax cheat and says that his conduct was dishonest and intended to deprive. [ 3 ] Mr.

Spears acknowledges that he and his companies did not remit employee source deductions and HST but he has vigorously contested the Crown’s allegation that he acted dishonestly in his dealings with the Canada Revenue Agency. He says that he and his companies were simply trying to stay afloat in difficult financial circumstances so that the business could be viable and ultimately satisfy the tax obligations. He says he incorporated his businesses and organized his business affairs to stay in business not to dodge his tax obligations. [ 4 ] The Information sworn against Mr.

Spears and his companies contains five charges. Count 1 is a charge under the Criminal Code of fraud against Mr. Spears. Counts 2, 3 and 4 are charges under the Excise Tax Act against three companies controlled by Mr. Spears – Framing, Formwork, and Services. Count 5 charges Mr. Spears under the Income Tax Ac t for wilfully evading the payment of personal income tax for 2007. [ 5 ] In the period of 2006 to 2008, Mr. Spears was first operating his concrete formwork business through Spears Framing, then Spears Concrete and then briefly, SCF Services, all companies of which he was the sole Director.

He is alleged, in Count 1 of the Information, to have committed fraud between July 31, 2006 and June 1, 2008 in relation to unremitted employee source deductions and HST totaling $766,788.67. In the Crown’s submission, Mr. Spears misappropriated payroll remittances in the amount of $492,002.78 ( Exhibit 89 ) and HST in the amount of $264,321.52 ( Exhibit 90 ). Those sums actually total $756,324.30. [ 6 ] Mr. Spears and Framing are alleged in Count 2 to have evaded payment of HST in the period of July 31, 2006 to September 1, 2007 in the amount of $143,039.97.

In Count 3, he and Formworks are alleged to have evaded payment of HST in the period of December 7, 2006 to May 1, 2008 in the amount of $115,693.68. And he and Services are alleged in Count 4 to have evaded payment of HST in the period of August 8, 2007 to June 1, 2008 in the amount of $15,925.50. [ 7 ] Mr. Spears’ companies came into existence sequentially. Framing was already in existence by July 31, 2006. It had been

incorporated in 1991. Formwork was incorporated in December 2006 and Services was incorporated as a numbered company in August 2007 with a name change in October. ( Exhibit 2 ) [ 8 ] Mr. Spears incorporated another company – SCFS, Inc. and was the sole Director for a brief period – April 24, 2007 to June 19, 2007. On June 19, 2007, he transferred the company to his ex-wife, Joanne Spears. SCFS, Inc. is not being prosecuted for any offences but, as I will be discussing, it is relevant to this case.

The Crown’s Theory of the Case [ 9 ] With some modifications, the following includes passages adopted from the Crown’s final written submissions. [ 10 ] Darrell Spears has been responsible for source deductions from payroll from 1991. As he testified, he has always been solely and directly in charge of management and administration, that is, everything related to operating his business, except accounting. [ 11 ] Between 2006 and 2008, Darrell Spears managed a non-unionized crew of between 25 to 40 construction workers providing moulding framing for foundation and structural components of high rise buildings.

In direct connection with running a payroll of this size, Darrell Spears had a legal obligation to deduct at source the statutory payroll deductions for all his employees and remit such deductions plus a statutory mandated employer portion (contribution) for CPP (Canada Pension Plan) and EI (Employment Insurance) to the Receiver General on a regular basis. [ 12 ] Framing’s statutory payroll deductions and the employer contributions did not get remitted to CRA. In December 2006, Mr. Spears incorporated a new company, Spears Concrete Formwork, that also did not remit.

In August 2007, another company, Services, was incorporated. It too did not remit. [ 13 ] These three companies, under the control of Mr. Spears, collected but did not remit HST to the Receiver General. [ 14 ] Mr. Spears’ T1 personal income tax return for 2007 was filed in 2014. It was due to be filed at the end of April 2008. Mr. Spears has since paid any outstanding personal income tax, interest and penalties. The Crown submits that this is irrelevant to the issue of whether Mr. Spears intended to evade payment of his personal income tax liability in 2007. The Crown says in 2007 Mr.

Spears made himself collection-proof by divesting himself of “all personal assets and viewed himself as having retained full control of when and if he would tend” to his personal and his companies’ liabilities. The Position of the Defence [ 15 ] I have lifted an overview of the Defence position on the fraud charge from the written submissions of the Defence and incorporated it here: Spears was behind in his payments to creditors, subject to builders' liens and at different times, Workers' Compensation assessments.

He was also behind in the payment of employee remittances and HST in 2006. (CRA has not alleged that his actions in falling behind were criminal.) Spears arranged to make catch up payments to CRA. He found it impossible to catch up (as CRA required that he pay his current remittances and all of his past remittances). Spears could not keep operating his business and meet the current expenses (including the creditor lawsuits) from the cash flow of his business while keeping up with the payment arrangement CRA imposed. Spears sought legal advice.

The legal advice was to set up a ladder of companies, to allow him a fresh start. It was not for the purpose of insulating Spears from his tax obligations (and it doesn't have that effect). [ 16 ] As for the HST and personal tax evasion charges, the Defence submissions say the following: While the defendant companies failed to remit HST by the deadlines imposed by the Excise Tax Act , Spears did not do this for the purpose of evading the payment of HST.

Spears testified that he would have remitted the tax if funds were available but he nevertheless believed that he was ultimately responsible for the tax debts of companies if he was the director. Similarly, Spears did not fail to file his 2007 personal income tax return on time for the purpose of evading the payment of income tax. Spears' bookkeeper testified that she advised the CRA that she required information to complete his return. [ 17 ] This was a 35-day trial. Determining whether the Crown has proven beyond a reasonable doubt that Mr.

Spears and the companies he controlled were engaged in fraud and tax evasion has required me to conduct a detailed examination of the evidence. I have not attempted to review it all in these reasons. In addition to lengthy examinations of witnesses, hundreds of pages of documentary evidence were admitted as exhibits. The Crown and Defence each filed extensive and detailed written submissions and made final oral submissions as well. I will be describing aspects of the Crown’s allegations against Mr. Spears, and the Defence evidence, including from Mr.

Spears, that was offered in response. [ 18 ] Fundamentally, my assessment of the charges against Mr. Spears and his companies comes down to this question: Considering the whole of the evidence, including the evidence of Darrell Spears , am I satisfied the Crown has proven the charges of fraud and tax evasion beyond a reasonable doubt? The Nature of Darrell Spears’ Business [ 19 ] Darrell Spears is a self-made businessman. He left school following Grade 9, worked in construction in Toronto and then took up carpentry as a trade. After starting a wood-framing business in Ontario, Mr.

Spears eventually moved back to Nova Scotia.

[ 20 ] Mr. Spears originally simply supplied labour, not supplies, for framing residential homes. From 1983 to 1991 he operated as a sole proprietorship but then incorporated his business, Spears Framing Limited, on the advice of his accountant at the time. [ 21 ] Mr. Spears understood that incorporation would protect him, in the event of law suits, from personal liability. He testified it had been explained to him by the accountant he was using at the time that he would be liable as a director for any unpaid payroll remittances and HST. [ 22 ] In the 1990’s Mr.

Spears started working on large framed apartment buildings. The nature of his business changed when he moved into doing structural formwork. He testified there was maybe one year in the early 2000’s when Framing did both framing and formwork. [ 23 ] None of the businesses Mr. Spears operated were unionized. This created tensions with the Carpenters’ Union, in particular. The Union openly protested against developers who used Mr. Spears on their projects and viewed him as having the ability, with a non- unionized workforce, to unfairly compete on contracts. Mr.

Spears saw the Union as trying to put him out of the business. He testified that the Union was “going around to all the developers and threatening to slow their projects down.” [ 24 ] It was Mr. Spears’ evidence that his concrete formwork business experienced financial difficulties from the start. Formwork projects required Mr. Spears to provide labour and there was more capital expenditure than wood framing. Mr. Spears had to supply all the materials and equipment, such as staging, plywood, and shoring jacks. Flat slab work required a system that rented for more than $50,000 a month.

For certain formwork projects, cranes, which are also expensive, had to be rented. [ 25 ] Mr. Spears testified that he was new to the formwork business and it cost him more than he had calculated. There were a lot of “external variables” outside of his control such as other trades having to do their work before he could get his underway. While he waited for a site to be ready, he was paying rent on equipment that was not being used. [ 26 ] Mr. Spears provided an example of the problems he encountered.

He testified that sometime around 2004, Spears Framing signed a contract with an American company, Horizon Estates, to do concrete formwork for a development they were undertaking. Horizon was pressured by the Carpenters’ Union about the use of non-union labour. This led to Horizon requiring that Framing agree to a completion

schedule with penalties for non-performance. Excavation problems delayed the start of Framing’s work on the project and, despite that not being Framing’s responsibility, Horizon took a hard line on the contract price. Mr. Spears testified that he needed the money so he had to accept a reduced amount which made cash “very short.” It was Mr.

Spears’ evidence that this meant there were “bills that needed to be paid and there weren’t the funds to pay them.” Projects Undertaken by Spears Framing [ 27 ] Louis Lawen, a local developer, testified that sometime in the summer of 2006 his company, Dexel, got its 1239 Barrington Street “W” Suites project underway. Dexel did not have a signed contract with Darrell Spears who did the concrete formwork for the project. Mr. Lawen testified that contracting on the basis of a handshake is not unusual in the construction industry. Mr.

Lawen testified that the construction project went relatively well and progressed quite quickly. He thinks it was late winter/early spring when the formwork for the building was completed. [ 28 ] A vendor listing from Dexel Developments in relation to Spears Framing was obtained by Laura Dauphinee, the HST auditor for CRA. It records payments to Framing starting on June 23, 2006 and ending May 11, 2007 for a total of $923,555. ( Exhibit 70 ) [ 29 ] In 2006, Spears Framing secured a contract with developer, Wes Campbell. Mr.

Campbell’s company, Dicam Management, was building the Berkley Gladstone, a retirement home. The original subtrade agreement between Dicam Management and Spears Framing was dated August 29, 2006. ( Exhibit 18 ) The contract start date was indicated to be October 15, 2006. The concrete pouring for the Berkley job started somewhere prior to December 15, 2006. [ 30 ] Framing was still receiving payment for work in early 2007.

Two cheques were written to Spears Framing from Russell Lake Developments on January 5 and 12, 2007 respectively, for work done on 30 Freshwater Trail, a multi-unit apartment building. ( Exhibit 43 ) The cheques were for $23,529.60 and $50,735.70. [ 31 ] George Daniel, the owner of Russell Lake Developments, recalls that there was a change during the project in the company being paid for the formwork. The cheques indicate this. On January 19, 2007, Russell Lake Developments, having paid Framing the two previous weeks, wrote a cheque to Formwork for $23,897.25. ( Exhibit 43 ) [ 32 ] Mr.

Daniel testified that his company “paid the bill, whatever bill was given to us.” He does not recall a written contract with Darrell Spears for the work and confirmed the work was done to his satisfaction and completed. [ 33 ] Despite Mr. Spears’ continued success in obtaining and completing contracts, Spears Framing was enmeshed in law suits and carrying a very significant debt load. Exhibit 111 is a tabbed volume of documents relating to litigation involving Mr. Spears’ companies. Mr. Spears testified he was finding it very difficult to operate his business with all the pending law suits. [ 34 ] It was Mr.

Spears’ evidence that “Cash was very short.” He described considerable expenses to be paid, including crane rental, supplies, and payroll. He was defaulting on equipment rental and was in arrears with Workers’ Compensation. (Law suits ensued as a result.) He says he was not able to remit source deductions and HST to CRA. Spears Framing’s Financial Difficulties [ 35 ] Glenda Power, a Certified General Accountant, had been Mr. Spears’ bookkeeper since 1994 and was well aware of the financial problems being experienced by Spears Framing. [ 36 ] Ms.

Power’s responsibilities included doing data entry, payroll and corporate income tax returns (T2’

s) for Mr. Spears’ companies.

She testified that she received the bank statements for the companies and entered the information from them into her accounting program, Simply Accounting. She did payroll based on the hours that were called in and prepared the final tax returns for the corporation. [ 37 ] Ms. Power testified that in 2006, Framing was having financial trouble. Its corporate tax return for 2006 ( Exhibit 27 ) shows a net loss for income tax purposes of $211,505. The unaudited comparative income statement Ms.

Power prepared for Framing ( Exhibit 25 ) shows a total operating expenses loss for August 1, 2005 to July 31, 2006 of $362,565.23. Ms. Power confirmed that to be an accurate figure. She noted that equipment rentals for formwork were much higher than for wood framing. Exhibit 25 shows Framing’s equipment rental to have been $577,915 for 2006. Framing also showed a business loss on its corporate tax return for 2005 of $59,844. (Exhibit 26) [ 38 ] Framing’s financial problems extended to its non-remittance of employee source deductions and HST. This brought it to the attention of the Canada Revenue Agency (“CRA”).

On July 7, 2006, the Framing file was sent to the inventory of Alex Grover, a collections officer with CRA. The company had an outstanding HST debt totalling $210,000. Alex Grover’s evidence about his dealings with Mr. Spears is a crucial aspect of the Crown’s case and I will be returning to discuss it separately. [ 39 ] In November 2006, the Workers’ Compensation Board sent Framing a letter to Ms. Power’s address indicating that a clearance letter could not be issued on Framing’s account. ( Exhibit 28 ) Although Ms.

Power now does not remember receiving this letter, she confirmed that her handwriting on it says, “copy to Darrell November 13, 2006.” Ms. Power testified that she would have been aware that Framing had an outstanding account with Workers’ Compensation. [ 40 ] Given Framing’s financial difficulties, it did not surprise Ms. Power to be told by Mr. Spears in late 2006 to stop working on Framing’s accounts. She testified that she thought Framing had stopped operations at the time of its last payroll of January 8, 2007. [ 41 ] In late 2006 Ms. Power knew Framing’s remittances hadn’t been paid.

She had no discussion with Mr. Spears about this. It was her evidence that Mr. Spears always directed her when there was money to be paid so he would have known the remittances were in arrears. Ms. Power testified that the prioritizing of bill payments was made by Mr. Spears. She says: “I would know how much money would be in the account because I would be tracking it. Darrell would be the one to tell me what to pay with that money.” [ 42 ] Ms. Power testified that toward the end of 2006 she was having some difficulty getting source documentation from Mr. Spears. She wasn’t getting records from Mr.

Spears in as timely a fashion as she had been. Previously this had not been a problem because Mr. Spears and his wife, Joanne, lived on the Eastern Shore and, as they went back and forth, would drive past Musquodoboit Harbour where Ms. Power had her office. However, they moved and Ms. Power had less contact with them as a result. [ 43 ] If the source documentation was not available, Ms. Power would use the bank statements although without the source documentation she would not necessarily know the origin of the debits and credits. [ 44 ] Ms. Power did the T4

Summary for Framing for 2007. As Framing only had one payroll period in 2007, the source deductions due were relatively small - $14,309.35 for 27 pay slips filed. ( Exhibit 9, page 150 ) [ 45 ] On March 27, 2007 Framing was sent a collection notice for its WCB arrears in the amount of $40,266.11. ( Exhibit 9, page 94 ) [ 46 ] In May 2007, Framing’s line of credit at the Bank of Nova Scotia in Musquodoboit Harbour was paid out with funds from a mortgage taken out on a property owned by Joanne Spears in Enfield.

Framing was no longer an active entity. [ 47 ] Laura Dauphinee learned in the course of her HST audit in 2008 that Framing was still indebted to Rapicon for the unpaid rental of a crane. (Exhibit 111, Tab 13, indicates the crane had been rented in 2006.) Ms. Dauphinee determined that a Peri Skydeck system had been returned to Concrete Shoring due to non-payment of the rental fees. ( Exhibit 82 ) Spears’ Concrete Formwork Limited [ 48 ] In late 2006, Mr. Spears started plying his formwork trade under the auspices of a new company, Spears Concrete Formwork Limited.

On December 13, 2006, he effected the name change for a numbered company – 3194832 Nova Scotia Limited – that he had previously incorporated. He says he hoped this would enable him to develop a profitable business. [ 49 ] 3194832 Nova Scotia Limited had been incorporated on December 8, 2006 by Karen Gardiner, a lawyer with McInnis Cooper who had a generic corporate practice. ( Exhibit 2, page 38 ) Mr. Spears, by then living at 79 Bedros Lane, Halifax was named as Director. ( Exhibit 2, page 39 ) Ms.

Gardiner’s reporting letter ( Exhibit 106 ) noted that CRA had issued a business number for the company. ( Exhibit 29 ) [ 50 ] During her testimony as a Defence witness, Ms. Gardiner referred to her notes from Mr. Spears’ client file. What she read from them was admitted into evidence by consent on the basis of past recollection recorded. [ 51 ] Ms. Gardiner’s file notes indicate “Spears Concrete Formwork Inc.” and “Spears Framing” and “wants to assign contracts to new company” which she says means the party to the contract want to assign its rights and obligations to another entity.

It means basically that somebody else is going to be preforming the contract. [ 52 ] Ms. Gardiner’s notes also contain the notation, “Director liability” and although she now does not recall what that referred to, she testified that directors have certain obligations, such as remitting employee source deductions. Unfulfilled obligations can lead to personal liability. [ 53 ] Framing did one payroll in 2007 and then the employees were brought under the new company. In January 2007, Ms. Power had prepared the payroll for Framing but did not issue the cheques.

She learned that the payroll should have been from the Formwork account and so prepared cheques for the identical amounts from this account as the employees now worked for Formwork. It was Ms. Power’s evidence that from an accounting perspective it did not matter if the contract is with one company and the payroll with another.

This is not unusual. [ 54 ] Formwork started doing business immediately. On December 13, 2006, Formwork issued an invoice to Wes Campbell’s company, Berkeley Holdings, developing the retirement home. [ 55 ] Formwork also did projects in 2007 with developers, W.M. Fares and George Daniel.

As I noted earlier, Russell Lake Developments issued a cheque dated January 19, 2007 to Formwork for work on 30 Freshwater Trail. [ 56 ] In early January 2007, Formwork applied to CRA for an HST number and indicated in the documentation that it would be making payroll remittances for a maximum number of 30 employees starting on January 23, 2007. ( Exhibit 30, page 004776 ) [ 57 ] CRA approved Formworks application and advised that its registration was effective as of January 12, 2007.

Formworks was informed that its first HST return would cover January 12 to March 31, 2007 and be due on April 30, 2007. ( Exhibit 5 ) [ 58 ] In its application for HST registration, Formwork noted its business number as BN 83379 9760, the number that had been assigned to Mr. Spears’ predecessor numbered company. The documentation included Mr. Spears’ phone number, business address (79 Bedros Lane) and social insurance number.

The “major business activity” was described as “concrete formwork” and its business operation was noted to be “year round.” ( Exhibit 30 ) [ 59 ] The original subtrade contract between Dicam Management Limited, the company doing the Berkeley-Gladstone development ( Exhibit 18 ) was amended with a handwritten date change to February 7, 2007, a change made by Wes Campbell, and a subcontractor change from Spears Framing to Spears Concrete Formwork, Inc. ( Exhibit 18 ) Wes Campbell and Darrell Spears had signed the original contract. Mr.

Campbell remembers that it was Formwork he dealt with for the Berkeley-Gladstone project. The project spanned the period of late 2006 to mid-2007. [ 60 ] Invoices from Formwork to Berkeley Holdings for the Berkeley Gladstone project were dated throughout 2007: January 24, 2007; March 6, 2007; March 29, 2007; April 14, 2007; April 30, 2007; May 14, 2007; June 10, 2007; June 25, 2007; July 8, 2007; July 23, 2007 and August 21, 2007. [ 61 ] A new subtrade contract was prepared ( Exhibit 19 ) that showed the date of February 7, 2007 and the parties as Berkeley Holdings Limited and Spears Concrete Formwork Inc. Mr.

Campbell testified that he must have received an invoice and, having seen that he was dealing with Spears Concrete, amended the original contract. (As I noted, Formwork issued an invoice dated December 13, 2006.) Mr. Spears and Mr. Campbell signed the new contract and it was witnessed. Mr. Campbell says the signing would have happened sometime after February 7. [ 62 ] Mr. Spears testified that Framing and Formwork were working on contracts at the same time. It was his evidence that Formwork got work the same way Framing did. Mr.

Spears says he would be doing a project and “just asked the developer to sign the contract over to Spears Concrete.” As I mentioned, he had told Karen Gardiner he was intending to do this. [ 63 ] Mr. Campbell testified that there was a clear trail between the project owner and the subcontractors with HST numbers attached to the invoices and payments made by cheque. It was only Formwork’s last four invoices to Berkeley Holding Limited that did not show an HST number. Each of these invoices did show Formwork’s business number issued by CRA. ( Exhibit 23, pages 48, 49, 50, 51 ) [ 64 ] In a fax on March 29, 2007, Ms.

Power advised Wes Campbell that Formwork had requested a clearance letter from Workers’ Compensation. She attached CRA’s HST registration approval for Formworks. ( Exhibit 5 ) [ 65 ] A letter dated June 4, 2007 from Workers’ Compensation threw a spanner into the works. Workers’ Compensation indicated they would not issue a clearance letter for Formwork because of the arrears owed by Framing. Mr. Spears was required to produce to the developers he was contracting with a letter of good standing with Workers’ Compensation.

The June 4, 2007 letter told him that his new company, Formwork, would not qualify for the letter of good standing he needed. It was obvious to Mr. Spears from the Workers’ Compensation June 4, 2007 letter that notwithstanding the incorporation of the new company he was still liable for Framing’s debt to Workers’ Compensation. [ 66 ] The Workers’ Compensation letter affected Formwork’s ability to fulfill its contracts. One example involved a contract with W.M.

Fares for the MU-9 project, a 130-unit apartment building with a concrete construction. [ 67 ] The contract for the MU-9 project was between the numbered company doing the project and SCFS Inc. ( Exhibit 39 ) There is no indication of the date when the contract was signed but the signature for SCFS, Inc. is Joanne Spears’ signature. She did not become President of SCFS, Inc. until June 19, 2007.

The contract provides for the work to be started by March 1, 2007 and substantially completed by August 31, 2007. ( Exhibit 39 ) [ 68 ] Darrell Spears testified that Spears Concrete was to supply the labour on the contracts acquired by SCFS, Inc. Without the Workers’ Compensation clearance letter, Formwork would have been unable to perform the MU-9 contract. [ 69 ] Douglas Kaizer was the Chief Financial Officer for the Fares Group in the period of 2006 to 2008. He recalls the original contract for the MU-9 formwork was not with SCFS, Inc.

It is his recollection that the contract was originally with Formwork and that it was later changed to SCFS, Inc. [ 70 ] Mr. Kaizer testified that name changes to contracts were not uncommon. W.M. Fares had itself sought a name change from W.M. Fares Group to a numbered company. ( Exhibit 37 ) It was necessary to show the correct name on the invoices as it was expected that CRA would audit the Input Tax Credits and want to see invoices from the subcontractor to the owner of the project. As Mr.

Kaizer explained, the paperwork had to align with the parties who were doing the work – the contractor and the owner. [ 71 ] Ms. Power testified that she was retained only to do payroll for Formwork. To do payroll Ms. Power had the employee’s rate of

pay, their deductions, and their hours of work, information she received from Mr. Spears. She did not receive bank statements from Mr. Spears for Formwork. [ 72 ] Ms. Power’s responsibilities included preparing the T4

Summary for Formwork for 2007 and 2008. ( Exhibit 9, pages 151 and 152 ) For 2007, Ms. Power recorded 34 T4 slips filed and a total source deductions of $396,184.92. She indicated this amount at line 86 for “Balance due.” For 2008, Ms. Powers recorded 21 T4 slips filed and $46,805.73 in source deductions as “Balance due.” [ 73 ] Ms. Power testified that she believes – “I’d say” – that she used the bank statements for the HST ledgers. She says she would have been doing the accounting for SCFS, Inc. and would have broken it down by subcontracting expenses and HST.

SCF Services [ 74 ] SCF Services Inc. (“Services”) was incorporated as a numbered company in August 2007 with a name change in October. ( Exhibit 2 ) It opened a bank account with TD-Canada Trust in Bedford in October 2007. ( Exhibit 9, page 000123 ) Ms. Power considered the Services account to be a Formwork account. She testified that the money belonged to Formwork and the expenses were Formwork’s. Services did not have any contracts. The Services’ bank statement for November 2007 shows payroll cheques coming out of the account.

There were two deposits that month – for $10,000 on November 9 and for $35,000 on November 23. These deposits came from SCFS, Inc. They were for labour supplied by Services. [ 75 ] Darrell Spears testified that he didn’t know if Services was ever registered as a payroll company. He does not know if Glenda Power obtained an HST number for Services. If that was done, it would have been by Ms. Power. [ 76 ] Services only paid four payrolls for labour performed on SCFS, Inc. contracts before its workforce was transferred to SCFS, Inc., which I will be describing later in these reasons.

This caused Services to cease operation. It no longer had any employees and therefore no way to generate any money. Darrell Spears’ Investment in the Business [ 77 ] Having identified the respective companies controlled by Mr. Spears, I am going to now address the evidence concerning the investment that Mr. Spears made in his formwork business. [ 78 ] Mr. Spears claims he dipped deep into his own pockets to keep Framing alive. There is evidence to support his having done so. Ms. Power confirmed that in 2003, Mr.

Spears cashed in his RRSP’s in the amount of $89,702. ( Exhibit 34 ) She testified to her belief that, after taxes, the balance of Mr. Spears’ redeemed RRSP’s was invested into Framing. [ 79 ] Mr. Spears’ ex-wife, Joanne Spears, also remembers “something about” Mr. Spears cashing in RRSP’s for the business. She testified that, “Everything went toward the business to keep it going.” [ 80 ] Mr. Spears testified that he had sold a piece of property and cashed in bank stocks to keep Framing going.

He invested the money that was generated in the company. [ 81 ] Exhibit 33, General Ledger Report for Spears Framing, shows money being deposited into Spears Framing Ltd. – October 13, 2005 - $5000; November 18, 2005 - $20,000; November 22, 2005 - $30,000; November 23, 2005 - $14,000; and December 5, 2005 - $15,000. In each case, these amounts are identified as “loan” from Darrell Spears. Although Glenda Power testified that these amounts came from Joanne Spears’ loaning money to Mr. Spears from the sale of their matrimonial home, that sale did not occur until August 2006.

In any event, the deposits in 2005 indicate that Mr. Spears having to inject money into Framing. [ 82 ] In addition to his own funds, Mr. Spears relied on Joanne Spears, as a source of revenue. She also played a central role in keeping the business going by accepting the sole Directorship of SCFS, Inc. so that it could obtain Workers’ Compensation clearance and acquire contracts for formwork projects. I will explain the genesis of SCFS, Inc. in due course. [ 83 ] Ms. Spears had an interest in three properties that generated funds Mr. Spears says were put to use to keep his formwork business afloat.

The first of these properties was the matrimonial home in Beaver Harbour on the Eastern Shore. It was sold on August 16, 2006 ( Exhibit 51 ) Joanne Spears testified on cross-examination that she loaned Mr. Spears the house sale proceeds and received a Potain tower crane as collateral. Mr.

Spears penned a handwritten note - Exhibit 36 - as President of Framing, giving Joanne Spears title to the crane and stating that “the crane is hers to do with as she pleases” if the loan of $80,000, representing the total value of the Beaver Harbour sale, was not repaid by Framing by December 1, 2007. [ 84 ] Darrell Spears testified that, before the sale of their matrimonial home, he had promised Ms. Spears she would have the sale proceeds. He says he did this because this was her “nest egg for the future”. Mr. Spears testified that he felt Ms.

Spears should get the matrimonial home sale proceeds because she had cashed in her RRSP’s and “believed in me for 29 years” so he felt his promise was appropriate for her security, “not mine.” [ 85 ] Mr. Spears says he considered the Potain crane to be Ms. Spears’ unless he was able to pay her the funds he had promised her. It was an asset she could sell. He testified that he thought he would be able to repay Ms.

Spears by the first of December 2007 which is why he selected that date for the document he signed transferring the Potain crane. ( Exhibit 36 ) [ 86 ] The money paid at the closing of the sale of Beaver Harbour - $64,700 ( Exhibit 114 ) - went into the personal account of Mr. and Ms. Spears ( Exhibit 103, pp. 18 – 23 ) and a cheque was written to Spears Framing and deposited into the Framing business account on September 8, 2006. ( Exhibit 101-D, page 5569 ) [ 87 ] It was Joanne Spears’ evidence that after the sale of the Beaver Harbour property, she and Mr.

Spears moved to Portland Estates in Dartmouth to live in a condominium in the Russell Lake development. That condominium had been purchased by them in June 2005 with a mortgage of $224,620. ( Exhibit 102 ) It was sold in September 2006. ( Exhibit 102 ) Mr. Spears testified that equity in the amount of

$16,000 to $20,000 was invested in Framing. [ 88 ] In February 2006, Mr. Spears purchased a house for Ms. Spears on Boyd Avenue in Enfield. In September 2006, Scotiabank was given a first collateral charge on Boyd Avenue against a line of credit for Spears Framing in the amount of $125,000. ( Exhibit 40 ) [ 89 ] About 10 days later, on September 25, 2006, Darrell Spears mortgaged his condominium on Bedros Lane for $202, 991. ( Exhibit 102 ) He had bought the condo in July 2005 and mortgaged it that September through private lenders for $125,000 who were paid off when Mr. Spears remortgaged in September 2006. Mr.

Spears says he put $20,000 to $30,000 from that remortgaging into Framing. [ 90 ] On May 18, 2007 Joanne Spears re-mortgaged her Enfield home for $125,000. ( Exhibit 41 ) She says the money went to help Mr. Spears’ business. It paid off Framing’s line of credit. ( Exhibit 65 ) Ms. Power testified that $129,159.13 was identified in the General Ledger for Framing as a Shareholder’s Loan on May 18, 2007. ( Exhibit 33, page 7 ) [ 91 ] Also recorded by Ms. Power on the Framing General Ledger is “deposit from McInnis Cooper” in the amount of $35,000 on May 3, 2007. Ms.

Power testified that this “may have been” from the sale of the Russell Lake condo. ( Exhibit 33 ) This however seems unlikely. Although Mr. and Ms. Spears used the McInnis Cooper law firm for the sale of the Russell Lake condo, it was sold in September 2006. There is no $35,000 deposit recorded in the Framing General Ledger for September 2006. [ 92 ] Mr. Spears never repaid Ms. Spears for the matrimonial home sale proceeds. Nor did he ever pay any spousal support. He testified that he does not know if she received any consideration for transferring the crane to SCFS, Inc. [ 93 ] Mr. Spears testified that when Ms.

Spears re-mortgaged Boyd Avenue to help Spears Framing he would have given her some security for this loan if he had had any to give, but he didn’t. He says he would also have liked to have given her some security for her RRSP’s that were cashed in for the business, but he didn’t have anything then either. He did however co-sign the September 2006 and May 2007 mortgages. [ 94 ] Mr. Spears does not recall making any payments between September 2006 and December 2007 toward the value of the crane. He says he can’t change the fact that he didn’t have the funds.

He understood what would transpire if he didn’t pay, that the crane would belong to Ms. Spears. Darrell Spears and Payroll Source Deductions and HST Remittances – An Overview [ 95 ] Darrell Spears’ companies – Framing, Formwork and Services – were delinquent in making payroll and HST remittances. Mr. Spears testified he knew that remittances were not being made. He was receiving information from Glenda Power about remittances relating to Framing and Formwork and agreed it is a reasonable assumption that Ms. Power would have forwarded important information about remittances to him. [ 96 ] Mr.

Spears says he assumed the company’s business number was the HST number. He testified that Glenda Power was responsible for handling HST. He has always been satisfied with her performance and thinks of her as very thorough and professional. He did not have any involvement in the HST registration process until Ms. Power gave him something to sign. [ 97 ] Mr. Spears says his move to Dartmouth from Beaver Harbour had a negative effect on his ability to get information to Ms. Power.

He was no longer passing by her office in Musquodoboit Harbour twice a day as he had been when he had lived in Beaver Harbour, farther along the Eastern Shore. Joanne Spears testified that when she had been living in Beaver Harbour she too had dropped documents off with Ms. Power as the location of the office was a natural bypass. [ 98 ] It was Mr. Spears’ evidence that any amounts owed to CRA could be pursued against him on the basis of Director’s liability unless he was able to show due diligence. He understood this to mean he had to take every possible step to satisfy his debts. Mr.

Spears testified that he viewed being duly diligent as ensuring that his business would be profitable so it could pay its debts, and that due diligence included his capitalization of the business with personal money. [ 99 ] Mr. Spears testified that his plan was to pay payroll remittances when he had the money. He says he thought that in order to file remittances, he had to have the funds to send in at the same time. It was his evidence that he didn’t remit HST for the same reason: he thought that if he didn’t have the money, he didn’t file the returns. [ 100 ] Mr.

Spears testified that he did mental calculations of what money was to come out when money would come in so as to ensure he was able to operate. [ 101 ] Mr. Spears testified that his plan with respect to making payroll remittances from Formwork between the first payroll in January 2007 and the end of April was: “When I got money to pay it, I was going to pay it, when I had money to pay it.” [page 234] It was his evidence that he would deal with the combined debt of Framing and Formwork when he got back on his feet. “I’d make a deal with people to find a solution to pay back debts.” [ 102 ] It was Mr.

Spears’ evidence that he always received HST and understood he was to remit it. When asked by the Crown why the HST amount was not available to Mr. Spears to remit to CRA when it was paid to him, Mr. Spears said that subcontractors would invoice him for HST and he would pay HST to them. [ 103 ] The Crown pointed out that Mr. Spears did have the ability in 2007 to set priorities in relation to financial expenditures. He gave his employees raises, purchased a diamond engagement ring, may have taken a cruise, and shopped at a high-end men’s clothing shop. [ 104 ] Mr.

Spears says he felt it was an obligation to the workforce to pay raises in order to move forward or lose employees. “Without employees, we don’t operate.” He made raises a priority over payroll remittances because “there would be no way to ever get to a position where I could deal with those debts without the employees.”

[ 105 ] Mr. Spears acknowledged that in July 2007 he purchased a $13,000 diamond engagement ring, paying it off at $3000 per month. ( Exhibit 116 ) He addressed this discretionary expenditure by saying that he made “certain things a priority. For the person I did it for, I would have let a lot of things go.” [ 106 ] Mr. Spears says “to a certain degree” his lifestyle “took a hit” in 2006 to 2007 because of the financial difficulties of his business, although he did shop at a high-end men’s clothing store. He says he did so infrequently.

What the Crown produced -receipts for purchases in November 2006 for a scarf costing $118 and pants costing $176 – does not contradict this. (Mr. Spears says he does not think the scarf was a purchase he made for himself.) [ 107 ] The Crown has shown however that in 2007 Mr. Spears drew significant money out of his companies - $30,352 (Framing) and $176,298 (Formwork). ( Exhibit 100 ) What I don’t know is what withdrawals were business-related. [ 108 ] Mr. Spears testified that he supplied Ms. Power with every receipt he had. If the purchase had been for something personal, Ms. Power would record it as income.

These personal purchases were not treated as business expenses. [ 109 ] By the end of 2007, Mr. Spears says his net worth was in a “strong, negative position” because of what he owed and the law suits against Framing and Formwork. [ 110 ] Mr. Spears has never paid the payroll remittance and HST arrears. He responded to the Crown’s question “If you had that intention why didn’t you follow up on that?” by saying that if CRA had pursued Director’s liability instead of criminal charges and had a “What can we do?” attitude, he would have conducted himself differently. Mr.

Spears went on to say that: “When you come in and take away employees and cause embarrassment – the damage to reputation cost a lot of opportunities. Criminal charges shut down my reputation along with my company (Spears Concrete) instead of seeing what we could work out.” [ 111 ] Mr. Spears testified that this was not his attitude in 2006 to 2008 when he fully intended to pay the source deductions and HST once he had the money to do so. His statement that CRA must have “recognized they can’t get blood from a stone” was made in the context of not hearing from CRA after the January 2008 meeting at his condo. Mr.

Spears says it was not, as the Crown has alleged in its written submissions, that “any future collection” was dependent on Mr. Spears’ “entirely discretionary good will.” 2016 [ 112 ] In February 2016, Mr. Spears received two letters from CRA. One letter, Exhibit 109, refers to Mr. Spears’ liability for unpaid source deductions of Spears Concrete in the amount of $143,731.98. The other letter, Exhibit 110, is very similar. It refers to unpaid GST/HST for Spears Concrete and indicates that CRA is considering assessing Mr.

Spears personally for $213,551.06. [ 113 ] These amounts are smaller than the amounts that CRA calculated as the amounts owed by Framing, Concrete and Services. In Exhibit 89, “Payroll Quantum Consent Exhibit”, the unremitted source deductions for November 2006 to February 29, 2008 assessed by CRA for these companies totals $492,002.78. The figures accepted by the Defence are $53,622.43 for Framing and $358,115.15 for Formwork.

The Defence disputes the figure of $80,265.20 for Services stating: “The defendants do not admit that SCF Services Incorporates was or is liable with respect to withholding any remittance of source deductions. Any unremitted source deductions allegedly owing by SCF Services Incorporated would have been the responsibility of Spears Concrete Formwork Inc.” ( Exhibit 89 ) [ 114 ] Exhibit 90 (“HST Quantum – Consent Exhibit”) assesses the unremitted HST for the period of October 31, 2006 to December 31, 2008 for Framing as $132,702.33; and for Formwork as $115,693.69.

The Defence disputes the $15,925.50 assessment for Services, stating: “The defence do not admit that SCF Services Incorporated is or was liable with respect to remitting HST and any amount allegedly owing by SCF Services Incorporated would have been the responsibility of Spears Concrete Formwork Inc.” Also noted on Exhibit 90 is this statement: “There is a continuing disagreement between Crown and Defence with respect to the appropriate HST component of the [transfer of the Potain crane to Joanne Spears].

The amount in dispute would be the HST on $80,000 sale for the total of $9,824.56.” Defence and Crown indicated that the Crown would double this amount. [ 115 ] Mr. Spears testified that he has no knowledge of whether the February 2016 letters indicate that CRA has written off a large amount of source deductions and HST remittances. He says he does not know how CRA came up with the $148,731.98 number in the unpaid source deductions letter. He passed the letters on to his lawyer.

The Creation, Corporate Structure and Operation of SCFS, Inc. [ 116 ] SCFS, Inc. came into existence essentially because of Spears Framing’s financial problems. As I have mentioned, Mr. Spears sought to extricate his business operations from Framing’s issues by incorporating Spears Concrete Formwork.

But he soon learned that Workers’ Compensation would not issue a clearance letter for his new company, Formwork, because of Framing’s Workers’ Comp indebtedness. (Daren Baxter said in his evidence that Workers’ Compensation can pierce the corporate veil.) A clearance letter was essential for securing contracts. [ 117 ] As I mentioned early in these reasons, Darrell Spears was SCFS, Inc.’s first President from May 1, 2007 to June 19, 2007. ( Exhibit 2, page 116 ) He resigned ( Exhibit 113, page 4 ) and Joanne Spears became the President until April 2013. (The company is now owned by Darrell and Joanne Spears’ daughter, Sabrina Sabic, who has followed Mr.

Spears into the formwork business and is a licensed crane operator.) [ 118 ] Joanne Spears had no history with Workers’ Compensation which allowed SCFS, Inc. to obtain the crucial Workers’ Comp clearance letter. [ 119 ] Ms. Spears testified that Mr. Spears controlled SCFS, Inc. and Glenda Power did the accounting. Of her role, Ms. Spears says: “I was just a figure.” She says she had very little to do with the business. She testified that Mr. Spears asked to have the company incorporated in her name and that her role was to open bank accounts and make deposits as needed, “whatever was asked” of her.

[ 120 ] Ms. Spears testified that Ms. Power received the bank statements for SCFS, Inc. and Mr. Spears would have made the banking decisions. [ 121 ] Ms. Spears testified that ownership of SCFS, Inc. was transferred to Sabrina because she, Ms. Spears, did not want to “do it anymore because I don’t understand it and it was too stressful. If someone called I didn’t know what to say. I wanted Sabrina to take it over; she has more knowledge than I’ll ever have.” [ 122 ] Ms. Spears was paid out of SCFS, Inc. every two weeks. They were regular payments like a regular salary.

These payments stopped when she no longer owned the company. [ 123 ] Mr. Spears never paid Joanne Spears the money from the sale of their matrimonial home. She either sold or transferred the crane to SCFS, Inc. It was Mr. Spears’ evidence that part of the income that Ms. Spears received from SCFS, Inc. was related to her ownership of the Potain crane. Mr.

Spears testified that “indirectly I expect she got an income from the fact that she owned that crane.” SCFS, Inc.’s Bank Accounts [ 124 ] The evidence disclosed that SCFS, Inc. had two bank accounts, one opened in May 2007 at the Halifax Shopping Centre Branch of the Royal Bank of Canada and another opened on January 24, 2008 at the CIBC in Lower Sackville. [ 125 ] The first bank statement for the RBC account went to Mr. Spears’ address on Bedros Lane. ( Exhibit 10 ) After that, the statements were sent to Glenda Power. The “business address” provided to the CIBC for SCFS, Inc. was also Ms.

Power’s address in Musquodoboit Harbour. ( Exhibit 45 ) [ 126 ] Mr. Spears testified that he did not recall opening SCFS, Inc.’s RBC account although it seems likely that he did as the first statement went to his residence and the account was opened while he was the sole Director of the company. [ 127 ] It was Mr. Spears’ evidence that he did not know whose idea it was to open the CIBC account and says he believes Ms. Power informed him there were two bank accounts. Mr. Spears testified that whatever was convenient for Ms. Spears and Ms. Power “was fine with me.” When the CIBC account was opened, Ms.

Spears was the sole Director of the company. SCFS, Inc. and HST Remittances [ 128 ] SCFS, Inc. did not immediately register for HST. A fax to Mr. Spears from Amir Arab of W.M. Fares dated June 27, 2007 requested a Workers’ Compensation clearance letter and an HST number. ( Exhibit 42 ) On this same date a request was made for a change to the W.M. Fares MU-9 contract from Spears Concrete to SCFS, Inc. [ 129 ] On September 18, 2007, Ms. Power sent an urgent fax to CRA asking that SCFS, Inc. be registered for HST as of June 1, 2007 or its date of incorporation – April 24, 2007.

She referenced SCFS, Inc.’s business number and noted: “This company should have been registered for HST upon incorporation…” She attached an invoice dated June 1, 2007 from SCFS, Inc. to W.M. Fares for the MU-9 project. ( Exhibit 11 ) The invoice had the company’s business number on it. [ 130 ] By a “Registration Confirmation Notice” dated September 25, 2007 addressed to SCFS Inc. care of Ms. Power, CRA approved SCFS, Inc. for HST registration, effective April 24, 2007. ( Exhibit 12 ) [ 131 ] Having an HST registration did not lead to SCFS, Inc. filing HST returns.

A Notice of (Re) Assessment dated January 14, 2008 was sent from CRA to SCFS, Inc. care of Ms. Power advising that as SCFS, Inc. had not responded to requests to file HST returns “as required under the Excise Act”, CRA had estimated the amount of tax owed as $157,919.53. ( Exhibit 13 ) [ 132 ] On January 22, 2008, Ms. Power faxed Brian Smith HST “Return for Registrants” for SCFS, Inc. for two reporting periods – April 24 to June 30, 2007 and July 1 to September 30, 2007. ( Exhibit 15 ) The April to June Return showed HST collected and Input Tax Credits (ITC’

s) applied with a balance due of $4,265.69. The July to September Return showed HST collected and ITC’s applied with a balance due of $13,002.72. Ms. Power calculated the due balances from the SCFS, Inc. General Ledger Reports on her Simply Accounting system. ( Exhibit 16 ) [ 133 ] Ms. Power prepared a further HST return for SCFS, Inc. dated February 20, 2008 and faxed it to Brian Smith at CRA on that date. ( Exhibit 14 ) It was for the period October 1 to December 31, 2007. With Input Tax Credits claimed, primarily in relation to payments to Spears Concrete, SCFS Inc. sought a net refund of $635.19.

SCFS, Inc.’s Role and SCF Services [ 134 ] Mr. Spears acknowledged on cross-examination that the decision to have SCFS, Inc. own the equipment for the jobs and handle the contracts significantly predated the corporate structuring advised by his lawyer, Daren Baxter, in October 2007, that I will be discussing. Mr. Spears testified that SCFS, Inc.’s role was conceived “probably in January of that year, because Joanne already owned the Potain…” (The contract, Exhibit 36, giving Ms. Spears the Potain crane as collateral against the money she loaned Mr.

Spears in undated.) [ 135 ] Initially, SCFS, Inc. did not have any employees. It was Glenda Power’s evidence that in 2007 SCFS, Inc. subcontracted with Spears Concrete who did have the employees to do the formwork contracts. Ms. Power was aware of that because she was doing the accounting for SCFS, Inc. and they were paying Spears Concrete as a sub-contractor. Ms. Power testified this was not unusual; that she had more than one client who used different companies to look after different aspects of their business. [ 136 ] When SCFS, Inc. was established it was Mr.

Spears’ understanding that it would be assigned the contracts and would subcontract to SCF Services to fulfill the contractual obligations. SCFS, Inc. would have the contracts and Services would supply the labour. SCFS, Inc. would pay Services for using its labour to perform the contracts.

[ 137 ] But the subcontracting relationship between SCFS, Inc. and Services was short-lived. In early 2008, CRA sought to have SCFS, Inc. take the employees onto its payroll which caused Services to cease operations as it then had no labour force to perform the subcontracting. [ 138 ] Mr. Spears testified that the transfer of the labour force to SCFS, Inc. created some “hostility” between Ms. Spears and himself. Ms. Spears was not happy about the transfer to the employees to her company. It was Mr. Spears’ evidence that Ms. Spears had not wanted any responsibility for payroll.

She did not want CRA harassing her for any amounts that SCFS Inc couldn’t pay. [ 139 ] The transfer of the employees to SCFS, Inc. worked well for CRA. Mr. Spears agrees that SCFS, Inc. pays its bills and does its payroll and has done so since it was required to take over Services’ employees. Canada Revenue Agency’s Involvement with Darrell Spears [ 140 ] Canada Revenue Agency was engaged with Mr. Spears throughout 2006 and 2007 and into 2008. Collections, auditors, trust examiners and investigators have all been involved.

Alex Grover – Collections Officer [ 141 ] Alex Grover works for CRA as a collection officer, collecting monies that are owed to the Crown. Collections officers also make sure taxpayers comply with the tax laws by filing returns on time and paying remittances such as source deductions and HST and personal income tax. [ 142 ] Mr. Grover testified that an account either gets paid or it is determined to be uncollectable and submitted for “segregation” which means the debt is written off.

He explained that an uncollectable account means the taxpayer or registrant does not have the ability to address the debt. “They can’t pay it. They can’t obtain financing. They don’t have the assets…to pay off the debt and there’s no deemed trust. There’s no…non-arm’s length. There’s no director’s liability assessments that can be raised. There’s just nothing there.” [ 143 ] Mr. Grover made the point that it is not CRA’s intention to put companies out of business. [ 144 ] Mr. Grover testified with reference to his CRA diary (ACSES) entries. He was permitted to refer to these notes to refresh his memory.

Crown and Defence also agreed that the basis for his evidence as past recollection recorded had been made out and that he could read his notes on that basis in response to questions. Mr. Grover did acknowledge on cross-examination that these notes were not reviewed by Mr. Spears for accuracy. [ 145 ] Spears Framing came to Mr. Grover’s attention on July 7, 2006 as an HST account. A recent trust exam by Gerry Chisholm had raised an assessment in the amount of $210,000 for the outstanding HST. Mr.

Chisholm had collected six post-dated, monthly cheques from Framing of $42,000 to cover the HST debt. [ 146 ] The six post-dated cheques were enough to cover the HST arrears so Mr. Grover’s role was to monitor the cheques to make sure they were going through and monitor the account to see that the current year’s HST remittances were being paid. [ 147 ] Mr. Grover noticed on Framing’s payroll account that there was a balance of about $7200 outstanding. A post-dated cheque for $7000 have been obtained by the trust examiner so Mr.

Grover simply monitored that account as well. [ 148 ] Framing was the only company of Mr. Spears that Mr. Grover knew about. He did not know about Formwork or SCF Services. It was later in 2007 that CRA research determined that these two other companies had been incorporated. [ 149 ] Mr. Grover testified that on July 26, 2006 he received a call from Glenda Power to advise that there weren’t sufficient funds to cover the July cheque for $42,000 but that it should be cleared by August 8 th . The prospective payment was monitored but it did not get made on August 8 th . On August 14 th , Mr. Grover learned from Ms.

Power that Mr. Spears had put a stop payment on the cheque. Mr. Grover knew the cheque was drawn on the account of Spears Framing Limited, Bank of Nova Scotia, Sheet Harbour and had the account number. [ 150 ] On August 17, Mr. Grover spoke to Mr. Spears who advised that he would have Ms. Power complete the payroll remittances for June and July. Mr. Grover testified that Mr. Spears said he would come into the office the next day to cover the cheque on the HST account. Mr. Grover’s diary indicates that a legal warning was given to Mr. Spears to maintain compliance. Mr.

Grover explained that a legal warning may involve issuing requirements to pay or garnishees to third parties, such as a bank, and putting liens on property if there is any. Mr. Grover says he told Mr. Spears that if he didn’t remain compliant, requirements to pay could be issued to his accounts receivables. [ 151 ] Mr. Grover spoke with Ms. Power on August 17 about the payroll remittances for June, July and August. She told him she would fax remittances for these months to Mr. Spears and Mr. Grover. The fax from Ms. Power for June and July was received by Mr. Grover on August 18.

It contained the figures for the source deductions but no payment. [ 152 ] Mr. Spears did not go into the CRA offices on August 18 with a payment. He called with a request to postpone until August 21. [ 153 ] Mr. Spears did meet with Mr. Grover on August 21. He provided a cheque in the amount of $42,000 for the HST payment that the July cheque had been supposed to cover, a $50,000 cheque for the payroll deductions, and a cheque post-dated to September 5, 2006 for payroll deductions in the amount of $26,000. [ 154 ] Asked by Mr. Grover what jobs he had on the go and lined up, Mr.

Spears advised he was doing a job for Paramount Properties on the old YMCA property on Barrington Street and had a job with Greater Homes coming up. I note that there is no old YMCA site on Barrington Street. Where Dexel’s “W” Suites development went up on Barrington Street is the site of the old YWCA. Mr. Grover explained in his evidence later that Paramount is Dexel, Mr. Lawen’s company.

[ 155 ] According to Mr. Grover’s diary entry, Mr. Spears also mentioned a receivable with Pinnacle Condominium Construction Limited. [ 156 ] Mr. Grover was pleased with the progress that had been achieved on Mr. Spears’ accounts with CRA. He testified he was “happy”; Mr. Spears had covered the July cheque he had previously cancelled, he had given Mr. Grover a list of receivables, and brought his source deductions up to date. “Everything seemed fine.” [ 157 ] Mr.

Grover continued to monitor the Spears’ accounts and sent off a request for a payroll auditor to review Framing’s books and records to make sure the reported source deductions were correct. [ 158 ] On October 4, 2006 the post-dated cheque Mr. Spears had provided for payroll deductions in the amount of $26,000 was returned by the Bank of Nova Scotia for insufficient funds. Mr. Grover was satisfied when the cheque was covered a couple of days later as a result of Mr. Chisholm’s trust examination. [ 159 ] But Framing was not keeping up with its payment obligations to CRA. Mr.

Grover testified that by December 2006, the HST return for October had not been filed and the source deductions were falling behind. In late December Mr. Grover was phoning Ms. Power and Mr. Spears and leaving messages for them. [ 160 ] When Mr. Grover spoke to Ms. Power she advised that she was working on the HST return for October. She said she required some bank statements “and there was a question in regard to loans before she could complete it.” [ 161 ] By late December 2006, Mr. Grover had a growing concern that Framing was not “keeping current” with respect to its HST and payroll source deductions.

Both accounts were in arrears. In their telephone conversation of December 5, 2006, Ms. Power indicated she would speak to Mr. Spears about the matter. [ 162 ] According to Mr. Grover’s diary, Framing’s HST arrears as of December 12, 2006 were $120,710.63, including interest and penalty, for assessed returns, in other words, returns that had been filed and processed. No such returns had been filed and processed for Framing in the last quarter of 2006. [ 163 ] Framing’s arrears for payroll source deductions as of December 12, 2006 were not a concern for Mr. Grover. They amounted to only $1500. Mr.

Grover testified that this amount was only for interest and penalty and that “There would have been some periods that were not filed, not assessed.” He was monitoring the account for the results of the trust exam. [ 164 ] Mr. Grover made several attempts during December to contact Mr. Spears and finally spoke to him on December 21. Mr. Spears indicated that at that time of year, he would not be able to make the October HST payment and would have to wait until the new year when he “received some money from draws” to do so. As for the payroll deductions, Mr. Spears told Mr. Grover that if Ms.

Power had a form for the remittance, he would make arrangements to pay it. [ 165 ] Mr. Grover testified that on December 21 he indicated to Mr. Spears that for a payment arrangement to be in place, Framing would have to maintain current year remittances and file its returns to date and pay them on time. He gave Mr. Spears another legal warning. [ 166 ] Mr. Grover brought the file forward to January 16. By then there was still no return for HST and the current year payroll remittances weren’t being made. The post-dated cheque of $40,000 for December’s HST remittance had been returned by the Bank. Mr.

Grover decided to issue a requirement to pay to the Bank of Nova Scotia. He also issued a garnishee to Greater Homes which he thought was an accounts receivable for Framing. [ 167 ] The payroll account was still in arrears for interest and penalties, now in the amount of $4432.97 as Framing’s October payment had been late. [ 168 ] Mr. Grover’s requirement to pay to the Bank of Nova Scotia had the effect of freezing Framing’s account there. The Bank is required to remit to CRA from the account the amount being sought under the requirement to pay. [ 169 ] Mr. Grover talked to Ms. Power on January 22, 2007.

She said she would fax him copies of the payroll remittances for November, December and January. She also advised that she was working on the October HST return. [ 170 ] Mr. Grover kept monitoring Framing’s HST and payroll accounts. On January 25, 2007, Mr. Grover received a fax from Ms. Power with the HST return ending October 31, 2006. With the Input Tax Credits calculated, the HST payable was $57,141. [ 171 ] Mr. Grover’s diary notes indicate that Mr. Spears called him on January 31 and advised that there would be approximately $100,000 coming from the Bank of Nova Scotia as a result of the requirement to pay.

The notes also record that Mr. Spears told Mr. Grover: he was “stiffed” on a couple of jobs; collection of accounts receivable had been slow, causing cashflow problems; and he had work lined up but needed to have the bank account free in order to operate. Mr. Spears supplied his address – Suite 114, Bedros Lane, Halifax with his postal code, and asked to have all CRA correspondence sent to Ms. Power. [ 172 ] Mr. Spears came and met with Mr. Grover on February 1, 2007 and they discussed the accounts. Mr. Grover testified that Mr.

Spears advised that the requirement to pay sent to the Bank of Nova Scotia would secure $100,000 for CRA, leaving another $100,000 owing for HST and payroll. A payment arrangement of $20,000 per month to pay off that balance was discussed provided that current year remittances were paid up to date. Mr. Spears told Mr. Grover that there were “holdback monies” he was expecting from a couple of sources and that these monies and work he had lined up would be “more than enough to pay the HST and payroll accounts.” [ 173 ] Mr. Spears advised Mr.

Grover that there was $60,000 coming from a project he did for Ghosn on “the Barrington Street property.” He was also expecting to do a job at Greater Homes that might be worth $1.5 million. Mr. Grover’s diary notes indicate that Mr. Spears also mentioned doing work for W.M. Fares which he said was worth $1.3 million.

[ 174 ] Mr. Grover wanted Mr. Spears to provide an updated accounts receivable listing and to be made aware of new contracts. Mr. Spears also told Mr. Grover about some of his expenses - $27,000 per month to Concrete Shoring for the rental of a Skydeck System and $15,000 per month to Rapicon for equipment rental. [ 175 ] Later in March, Mr. Grover checked on the balance in the Framing account at the Bank of Nova Scotia and it was $83,000. (I believe the correct amount was $84,000.) [ 176 ] Mr. Grover called Mr. Spears on February 13 and learned that he would be out of town until February 19. Mr.

Spears called back on February 20. Mr. Spears told Mr. Grover that he was putting extra money into the bank so there should be $90,000 in the bank account. He told Mr. Grover that he had a contract with Greater Homes. He said he would call Ms. Power for an update on the payroll figures on Monday, February 26, and advise Mr. Grover. [ 177 ] Mr. Grover lifted the requirement to pay from the Bank and provided Mr. Spears with a requirement to pay letter to be given to Greater Homes. [ 178 ] When Mr. Spears met again with Mr.

Grover he advised that he was starting a job at the end of March with Campbell Comeau Engineering Limited at Gladstone Street. He also told Mr. Grover that he had jobs with Greater Homes, the “Waterton Project” in Halifax in mid-April, and the W.M. Fares Mount Royal Project (this refers to the Fares MU-9 project) mid-April to May. He said he had $150,000 pending from Ghosn and $100,000 for Louis Lawen. Mr. Grover’s diary notes indicate that Mr. Spears expected to have the hold-back monies by mid-April, and intended to pay off the accounts with these funds. [ 179 ] It was Mr. Grover’s evidence that he believed Mr.

Spears was trying to address the debts and was being upfront about the jobs he said he had lined up. Mr. Grover testified: “…there’s some issues in regard to compliance issues that were ongoing, but he was trying to address them and…I was trying to work with him [in] regard to making sure he would be able to have a bank account to operate by and…if anything would happen down the road where the situation got worse, then we had collectability from the accounts receivable.” He brought the file forward to mid-April. [ 180 ] Mr.

Grover’s diary showed that the results from the trust exam by Gerry Chisholm were entered on April 19, 2007. It increased the outstanding debt on both accounts. Mr. Grover called and left messages for Ms. Power and Mr. Spears. It was Mr. Grover’s intention to talk to Mr. Spears about what was going to be done to pay down the new balances as they exceeded the amounts previously discussed. Mr. Grover also wanted to know what was going to happen with the holdback monies. [ 181 ] Mr. Grover spoke to Ms. Power on April 26.

She did not have the bank statements for Framing and could not do the payroll remittances. [ 182 ] At this point, Mr. Grover’s concern was growing. He was “getting concerned that there may be a danger of loss on the account.” He spoke with Mr. Spears on May 9. According to Mr. Grover’s diary notes, Mr. Spears indicated he was going to meet with Louie Lawen about the holdback monies. He told Mr. Grover that there was a lien on the Ghosn project. To Mr. Grover it looked as though there were some issues around whether Mr. Spears was going to be receiving the holdback monies after all. [ 183 ] A meeting with Mr.

Spears set up by Mr. Grover didn’t occur. Mr. Grover had told Mr. Spears the balances on the accounts were “going in the wrong direction.” When Mr. Spears didn’t come in, Mr. Grover issued garnishees to the Bank and the accounts receivables he had been told about by Mr. Spears – Campbell, Dexel, Fares, and Greater Homes. [ 184 ] Mr. Grover spoke with Ms. Power on June 6. She advised that the last payroll she had processed for Framing was in January. She said she would advise Mr. Spears to give Mr. Grover a call. [ 185 ] Mr. Grover contacted the companies he had sent the garnishees to.

Greater Homes advised they had not hired Mr. Spears for a job. Mr. Grover also contacted the Bank of Nova Scotia and as a result did not release the garnishment on the account. [ 186 ] By accessing the Registry of Joint Stocks online on July 31, 2007, Mr. Grover learned that Mr. Spears had incorporated Spears Concrete Formworks Limited on December 8, 2006. He also learned that SCFS, Inc. had been incorporated on April 24, 2007 and that Ms. Spears was the Director. [ 187 ] CRA had also opened an HST account for Formworks, confirming this in a notice dated February 13, 2007 that was sent to Ms.

Power. ( Exhibit 5 ) [ 188 ] On cross-examination Mr. Grover acknowledged that through CRA’s database he could obtain a company’s business number, HST and payroll numbers. He agreed that CRA have a number of avenues open to it for pursuing delinquent companies that have failed to remit the appropriate amount in a timely fashion. CRA can go after a named director on the basis of director’s liability. [ 189 ] Mr. Grover agreed that Mr. Spears may have told him that there had been no Framing employees since mid-January 2007. That is indicated in the ACSES diary that Mr. Grover had access to.

The entry for May 1, 2007 states: “Examiner spoke to Alex and he was already aware that there have been no employees since mid-January.” On redirect Mr. Grover said there was no indication in the diary as to when Mr. Spears told him this. He said that it was Glenda Power who told him there were no Framing employees since January. [ 190 ] Mr. Grover acknowledged there were other avenues available to him in addition to what he did, speaking to Mr. Spears and Ms. Power, monitoring the accounts and issuing the requirement to pay.

Field work was an option and could have involved finding out if Framing’s employees were working, visiting the developers, and talking to crane operators to see if Framing was renting a crane. Mr. Grover testified he didn’t feel field work was required at the time. Mr. Grover also did not inquire with the companies Mr. Spears says he rented equipment from – Concrete Shoring and Rapicon – to see if Framing was making its payments and where the rented equipment was. [ 191 ] Mr. Grover acknowledged that he always had phone numbers for Mr. Spears and Ms. Power. He also agreed that a large amount

of money was paid to CRA on February 20, 2007 and that it came from the Bank of Nova Scotia in Musquodoboit Harbour. [ 192 ] Mr. Grover was shown Exhibit 30 and agreed that CRA was aware that Formwork had received a business number and that Darrell Spears was the President. In the application for a business number Mr. Spears had provided his social insurance number and his work telephone number. Mr. Grover acknowledged that this information should have been available in the CRA database. [ 193 ] Ms. Power testified that she had instructions from Mr.

Spears to discuss the Formwork payroll with CRA as of January 23, 2007. Gerry Chisholm – Trust Examiner [ 194 ] As I have noted, Spears Framing had been on the CRA radar in 2006 through trust examinations. Gerry Chisholm, a CRA trust account payroll examiner, was assigned to the Framing file three times because current year remittances were not being made. Mr. Chisholm testified that he raised an assessment on the missed remittances so that Collections could collect the arrears and prevent the balance on the account from ballooning. It was Mr.

Chisholm’s evidence that the arrears were being paid but the current remittances were not being paid. [ 195 ] Mr. Chisholm’s April 10, 2007 trust examination was a referral from Alex Grover in Collections. There were remittances missing for the latter part of 2006 and early January 2007. The overdue amount in Framing’s source deductions account at the start of Mr. Chisholm’s examination was $4525. Mr. Chisholm described this as a fairly insignificant arrears balance and said it indicated that Mr. Spears was keeping on top of the account. He agreed there had been large payments in 2006.

The missing deductions from the latter part of 2006 and early 2007 brought the arrears up to $40,000. [ 196 ] Mr. Chisholm’s trust examination included comments for the Collections officer, in this case, Alex Grover. It noted that “The last pay issued was for Jan 8/07 for all the bi-weekly employees and Jan 15/07 for the weekly employee.” These were indicated to have been the last Framing pay cheques to have gone through the Bank. ( Exhibit 46, page 2 ) [ 197 ] In Mr. Chisholm’s trust examination he noted that Mr. Spears had spoken to Mr. Grover and Mr.

Grover was “already aware that there have been no EE’s [employees] since mid January.” [ 198 ] Mr. Chisholm accessed Framing’s financial documentation – Simply Accounting Payroll Journals and bank statements with cancelled cheques – at Glenda Power’s office. He testified that Ms. Power’s records were accurate. There was no indication of amounts paid outside the payroll to individuals. All employees were accounted for and the deductions were accurate. Mr. Chisholm raised an assessment for collection totaling $65,197.40 including penalty and interest. ( Exhibit 46, page 49 ) [ 199 ] Mr.

Chisholm also did an HST examination as well. ( Exhibit 46, page 3 ) He estimated the amount of outstanding HST returns as $152,275. ( Exhibit 46, page 47 ) [ 200 ] At the time of the April 2007 trust examination, it was not Mr. Chisholm’s understanding that Framing had ceased operation. Had this been the case, he would have been responsible for preparing the T-4’s for the employees but he did not do so. There was no indication of any employees being laid off. A lay off would have generated an ROE (Record of Employment) and there were no ROE’s in the files. [ 201 ] When the file was referred to Mr.

Chisholm again by Collections in the fall of 2007, he was told by Glenda Power that Framing was a dormant company and there was a new company. As a consequence of this information, Mr. Chisholm prepared T-4’s for Framing for 2007. [ 202 ] Mr. Chisholm asked Ms. Power for the records of the new company but she was unable to help him. Their schedules did not coordinate and Mr. Chisholm advised Ms. Power that another trust examination officer would be contacting her to review Formwork’s records. Mr.

Chisholm testified that he then learned the Integrated Underground Economy Unit would be dealing with the file so he backed away from it. [ 203 ] Mr. Chisholm confirmed on cross-examination that Ms. Power had kept clear, accurate records, was respectful, cooperative and accessible. She was helpful and answered all his questions. In the context of the HST examination Mr. Chisholm said he looked at the documentation and was satisfied that the Input Tax Credits Ms. Power was claiming were accurate. Input Tax Credits offset all or part of the HST collected from a business’ customers.

Brian Smith – Collections Officer and Integrated Underground Economy Team Member [ 204 ] It was Alex Grover’s referral in June 2007 of his Framing file to Brian Smith that lead to the involvement of the Integrated Underground Economy Team (IUET). Brian Smith was a Collections Officer with CRA and a member of the IUET. [ 205 ] The file became part of Mr. Smith’s inventory on October 11, 2007. He summarized the file and put together a plan of action.

He looked for collections sources – bank accounts, any assets that could be seized, any non-arms length transactions, contracts – whether there were ongoing jobs, any new contracts being signed that could be garnisheed. He and the IUET knew there were two other companies – Spears Concrete Formwork and SCFS, Inc. [ 206 ] Mr. Smith was intending to seize assets to pay Framing’s payroll debt to CRA but he had to be satisfied the assets were worth seizing. Although Mr. Smith was not sure if Framing was active, he knew that employees were being paid through Formwork and not Framing.

Knowing that Formwork had made no payroll or HST remittances, it was decided there should be a payroll audit to determine what remittances should have been paid. This was assigned to Rachel Henry. [ 207 ] Mr. Smith attended Ms. Henry’s December 5, 2007 payroll audit because he wanted to look at the bank records for Formwork. He was interested in finding sources for collection. He expected that Rachel Henry’s payroll examination would raise a substantial indebtedness to CRA for Formwork which it did. Mr. Smith attended Ms. Henry’s payroll examination at Glenda Power’s office.

[ 208 ] Ms. Henry had a copy of Mr. Chisholm’s trust examination for Framing. ( Exhibit 46 ) She testified there was no filing history for Formwork and no payroll or HST remittances. No HST returns had been filed which was a major compliance issue. [ 209 ] Ms. Power advised Ms. Henry at the trust examination that the employees had stopped working for Framing and then started to work for Formwork. This left Ms.

Henry with nothing to do in relation to the Framing file but she knew there were approximately 10 months of outstanding payroll remittances. [ 210 ] Glenda Power did not have bank records and cancelled cheques for Formwork but she did have the payroll ledger. Ms. Henry examined this to determine the source deductions for Formwork. She found Ms. Power’s payroll records, including the source deductions, to be up-to-date. She assessed $346,547 as unremitted payroll deductions. Ms. Power advised Ms. Henry that she prepared the payroll based on information from Mr. Spears.

She did a complete payroll service except she did not do the remittances to the Receiver General. She told Ms. Henry she had given the remittance figures to Mr. Spears. [ 211 ] Ms. Power advised Ms. Henry that she had not prepared any HST returns for Formwork. She had figures which Ms. Henry was unable to verify without any bank statements. Ms. Henry does not recall being shown the invoices, later entered as Exhibit 85, which she says would have been “directly relevant” to what she was examining. Ms.

Henry says she would have made a note had she seen the invoices and that especially as they were in round figures and note “HST in” they would have caught her at

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