R. v. Andrus Date:, 2013 BCPC 160

Citation: R. v. Andrus Date: 20130531 2013 BCPC 0160 File No: 567-1 Registry: Vancouver IN THE PROVINCIAL COURT OF BRITISH COLUMBIA REGINA v. RANDALL ANDRUS ORAL REASONS FOR JUDGMENT OF THE HONOURABLE JUDGE EHRCKE Counsel for the Crown: N. Preshaw Appearing on their own behalf: Randall Andrus Place of Hearing: Vancouver , B.C. Date of Judgment: May 31, 2013 [ 1 ] THE COURT: Mr. Andrus is charged with 13 counts of wilfully evading or attempting to evade the payment of taxes by failing to report taxable income for the tax years 1991 through 2005 excepting the years 2002 and 2003.

[ 2 ] Count 1 concerns the tax year 1991, and the offence period is between December 31, 1990, and October 20, 2006. Each count is framed in a similar way, with the offence period between December 31 of the year preceding the taxation year and ending on October 20, 2006. [ 3 ] On July 27, 2007, the defendant filed the tax returns for the years 1991 through 2005, about nine months after his offices and those of his accountant were searched and items were seized by the Canada Revenue Agency on October 19 and October 20, 2006.

The CRA accepted the returns and has assessed them with minor adjustments which are not in issue. [ 4 ] There are no charges for 2002 and 2003 because there was little or no tax owing for those years. [ 5 ] The offence

section is 239(1) (

d) of the Income Tax Act , which reads: 239.

(1) Every person who has . . . (

d) wilfully, in any manner, evaded or attempted to evade compliance with this Act or payment of taxes imposed by this Act . . . is guilty of an offence and, in addition to any penalty otherwise provided, is liable on

summary conviction to (

f) a fine of not less than 50%, and not more than 200%, of the amount of the tax that was sought to be evaded, or (

g) both the fine described in paragraph 239(1)(

f) and imprisonment for a term not exceeding 2 years. [ 6 ] The Crown must prove the acts charged and the intent beyond a reasonable doubt. There is no question that the defendant did not file tax returns prior to October 20, 2006, failed to report his income for the years in question, and failed to pay taxes.

The issue in this case is whether the Crown has proven his intent to evade taxes by doing so. [ 7 ] The defendant submits that the Crown has not shown intent. [ 8 ] The Crown called a number of witnesses, and the defendant chose not to testify or call any evidence. [ 9 ] Numerous documents were made exhibits, including the tax returns for the years in question and the records of the defendant's tax accountant, Mr. Stafford. [ 10 ] The first witness was Donelda Kerr, the CRA lead investigator. Ms. Kerr was given this case in June 2006 as a referral from an auditor on Vancouver Island.

Prior to the filings in 2007, the last filings by the defendant were in 1989 and 1990, and they were associated with a bankruptcy. [ 11 ] Ms. Kerr executed a search warrant on October 19, 2006, in three locations: the office of the defendant, the office of Pat Lawless of Primary Ventures Corporation, and the office of Bradley Stafford, a chartered accountant. She then obtained a second search warrant which she executed the next day at the offices of the defendant and Mr. Stafford.

She said that by then some documents had been mailed away but did not give any further details. [ 12 ] In November 2006, she provided copies of all the documents seized from Mr. Stafford's office at the request of the defendant's legal counsel. [ 13 ] On January 16, 2007, Ms. Kerr wrote a letter to the defendant telling him he was under criminal investigation for income tax offences, that the originals of the documents seized were available for inspection and that copies of all seized materials were being provided.

The copies plus some documents that had been seized in error were provided to the defendant at that time. [ 14 ] On March 28, 2007, Ms. Kerr wrote again to the defendant saying charges for certain years were being considered. [ 15 ] Ms. Kerr swore the information in this case on January 8, 2008. This trial commenced on the fourth trial date. Ms. Kerr had learned earlier, in the fall of 2007, that the defendant had filed tax returns.

The returns are all stamped as received on July 27, 2007, and they are all signed by Bradley Stafford, the defendant's accountant, on behalf of the defendant. [ 16 ] The returns and notices of assessment which were reviewed by Ms. Kerr are in Exhibit 2. With the exception of a source deduction in 1991, the taxes have not been paid. In fact, as far as Ms.

Kerr could ascertain from CRA records, the defendant has never voluntarily paid tax. [ 17 ] The amounts of taxable income and federal tax payable for each year are as follows: • 1991 taxable income $35,400, federal tax owing $1,437.77; • 1992 taxable income of $9,000, federal tax owing $451.94; • 1993 taxable income $12,118.69, federal tax owing $991.41;

• 1994 taxable income $28,126.99, federal tax owing $3,794.41; • 1995 taxable income $12,000, federal tax owing $970.75; • 1996 taxable income $36,000, federal tax owing $5,767.05; • 1997 taxable income $594,990.05, federal tax owing $179,747.29; • 1998 taxable income $484,926.65, federal tax owing $145,275.24; • 1999 taxable income $145,858.87, federal tax owing $36,306.95; • 2000 taxable income $1,000,658.36, federal tax owing $282,245.90; • 2001 taxable income $40,341, federal tax owing $3,722.52; • 2004 taxable income $58,168.50, federal tax owing $7,535.02; • 2005 taxable income $58,138.80, federal tax owing $8,309.03. [ 18 ] During the period in question, the total taxable income was $2,515,727.91, and the federal tax owing is $676,555.28. [ 19 ] Ms.

Kerr outlined the reasons for the minor adjustments that were made in the notices of assessment. In 2002 and 2003, the net federal tax was adjusted to zero because of RRSP contributions; thus there are no charges for those years. [ 20 ] I note that the tax payable amounts are limited to federal tax. The total tax obligation is higher. [ 21 ] On cross-examination, Ms. Kerr confirmed that the people at the defendant's offices were cooperative when the warrants were executed. She met with Malcolm Burke, a previous business associate of the defendant, and Pat Lawless, an accountant involved in that business. Ms.

Lawless told her he was helping the defendant prepare tax information. [ 22 ] Malcolm Burke testified that he is an entrepreneur who has been involved in various businesses. He is the president of Primary Ventures Corporation, which held another company called Animatronic Entertainment Corp. He met the defendant in the early 1990s. Animatronic needed someone for investor relations work and hired the defendant. After the defendant left Animatronic, Mr. Burke lent him $22,000 for a natural resource exploration project. [ 23 ] Mr. Burke next met the defendant in about 1999.

The defendant repaid the loan at that time. The defendant was looking for new office space and ended up moving into the space adjoining Mr. Burke's offices. They started doing business together. [ 24 ] In about 2000, Mr. Burke and the defendant discussed the defendant's tax situation. The defendant told Mr. Burke he had not filed for years but that he had not earned income prior to their business together and also that he had filed for bankruptcy in the early 1990s. The accountant who had handled the bankruptcy was contacted and confirmed that the defendant had been discharged. Mr.

Burke encouraged the defendant to get a lawyer or an accountant concerning his tax returns. [ 25 ] In 2003, the defendant told Mr. Burke he had done this and was pursuing it. [ 26 ] In 2004, there was a falling out between the defendant and Mr. Burke, and the defendant left. [ 27 ] Their joint ventures included trying to match European investors with promising technology companies in North America. They invested in several businesses together. They were paid fees and/or given stock options.

They created proper structures based on professional advice received in the United Kingdom. [ 28 ] The defendant knew someone who was involved in a company called InvestAmerica. They were going to assist InvestAmerica to acquire two B.C. companies. Mr. Andrus secured 1.5 million shares of InvestAmerica, half of which went to Mr. Burke. They each opened personal accounts in Guernsey to hold these shares and other investments. [ 29 ] The defendant controlled a company called Woodcross, which was used to transfer capital from the accounts in Guernsey to Canada in order to pay for expenses and investments. Mr.

Burke's understanding was that they held the Guernsey accounts in trust for a company to be formed. [ 30 ] In June 2004, the defendant sued Mr. Burke. As a consequence, Mr. Burke sought advice, learned that there was no trust and that the capital gains from the Guernsey transactions had to be reported as personal income. [ 31 ] In 2005, he informed the CRA. Mr. Burke had been concerned that should the lawsuit proceed, the shares would become public knowledge. Mr.

Burke denied that setting up the Guernsey accounts and funnelling the money through Woodcross was done to conceal income. [ 32 ] On cross-examination, Mr. Burke agreed that he and the defendant could have discussed the defendant's tax issues as early as 1999 and that the discussions continued into 2003. The defendant said he wanted to resolve the issues and was taking steps to do so. The defendant mentioned a lawyer and an accountant he had consulted. The defendant never told Mr.

Burke that he wanted to avoid filing his returns or paying tax. [ 33 ] Patrick Lawless is an accountant who worked as a contractor with Mr. Burke starting in 1991. He is not a tax accountant. He was a director, officer, partner, and shareholder in Primary Ventures Corporation, which provided investment consulting and services.

[ 34 ] Mr. Burke introduced Mr. Lawless to Mr. Andrus in 1998 or 1999. They had adjoining office space starting in 1999. In late 1999, Mr. Burke and Mr. Andrus developed a plan to form an investment company, and the offices were integrated. [ 35 ] About June of 2004, the defendant and his executive assistant, Linda Vallon, left the offices. [ 36 ] In about 2000 or 2001, the defendant told Mr. Lawless that he needed to get his taxes filed. There was some contact with an accountant named Rick Lee. The defendant received some legal advice in 2000 or 2001.

The defendant needed some information from his bankruptcy in 1990. It was a question of getting the paperwork together. Mr. Lawless was going to do the preliminary accounting and the defendant would get another accountant to prepare the tax filings. The information sources were largely brokerage statements and bank statements. [ 37 ] The defendant had an account in Jersey with a financial institution called Caldwell. It was opened in 1998 or 1999 and used for InvestAmerica shares and shares from another company. Credit Suisse did the trading for Caldwell. [ 38 ] Between 2002 and 2005, Mr.

Lawless put all the files together and then gave them to Bradley Stafford, the defendant's tax accountant. The defendant had introduced Mr. Lawless to Mr. Stafford sometime in 2003 or 2004. Ms. Vallon helped obtain documents. The most difficult part was getting the Guernsey account sorted out. The statements did not specify the number of shares sold, just the value. The number sold had to be estimated. From memory, Mr. Lawless thought about $2 million worth of shares were sold. Mr. Lawless gave his working papers to Mr. Stafford. Mr. Andrus provided a T4 and donation receipts. [ 39 ] Mr.

Lawless testified that Woodcross was a private capital management company set up by the defendant and Ms. Vallon in 1998 or 1999. Mr. Lawless and Ms. Vallon were the directors at the relevant times as representatives of Mr. Burke and Mr. Andrus. A U.K. company called EuroCapital also held a 40 percent interest. Woodcross managed the office space, made investments, and paid expenses and draws. Woodcross has not filed tax returns. Mr. Lawless does not think it has any taxable income to report. [ 40 ] In about June 2003, Mr. Lawless told Mr. Burke and Mr.

Andrus they would have to report the profit from the sale of shares from the Caldwell accounts as personal income to the CRA. The corporate structure had not been properly set up. Mr. Lawless prepared financial summaries for Mr. Burke, who reported the income to the CRA. Mr. Lawless told the defendant that Mr. Burke was working with tax lawyers on the issue because, in the words of Mr. Lawless, it was important for the defendant.

He also, in 2003 or 2004, told the defendant he should not sue anyone until his tax work was done. [ 41 ] The defendant had various investment accounts in addition to the Caldwell account. The defendant told Mr. Lawless to give the documents to Bradley Stafford in about 2005. Mr. Lawless was present when the search warrants were executed. The defendant never indicated to Lawless that he did not want to disclose his income. [ 42 ] On cross-examination, Mr. Lawless said the contact with Rick Lee was in 2000. The defendant wanted to file quickly before his planned marriage in 2001. Mr.

Lee advised the defendant to file all the returns at the same time. At some point, the defendant told Mr. Lawless that his advisors were proceeding with a voluntary tax disclosure. [ 43 ] Mr. Lawless said that by late 2002 or early 2003, the real problem with the business was cash flow. The Guernsey funds had run out in 2001. [ 44 ] Ms. Vallon was the defendant's executive assistant for over 30 years until 2010. She testified that in 1998, Mr. Andrus was the president of a company called Ikar Minerals. Later, he was working with venture capitalists. She heard he had gone bankrupt, but this was not discussed.

She first learned that the defendant had not filed taxes in 1999 or 2000. The defendant said he needed to get it done. Ms. Vallon gathered information and put documents together but was unable to say when. [ 45 ] When the defendant and Mr. Burke became partners, Ms. Vallon worked for both of them. Woodcross had initially been the defendant's company. At the relevant times, Ms. Vallon was a director as a nominee for the defendant, who controlled the company. She was also an officer in several other companies, always as a nominee for the defendant. Woodcross was used to pay bills or give funds to the defendant. Ms.

Vallon was paid by Woodcross. [ 46 ] Ms. Vallon was aware of the InvestAmerica shares and that they were held by Caldwell, a bank in Guernsey, for Mr. Burke and the defendant. She was an authorized signatory on the Caldwell accounts. When directed, she would instruct Caldwell to sell shares or transfer funds to Woodcross. Sometimes the defendant would ask for money, and she would write a cheque. Woodcross funds were also used for investments. Both the defendant and Mr. Burke would ask her to get funds from Caldwell. [ 47 ] Ms. Vallon said it was easy to communicate with Caldwell.

She received monthly statements and passed them on to the defendant or Mr. Burke. She asked for some missing statements when the defendant and Mr. Burke were parting ways, and there was no problem getting them. This was in about 2004. [ 48 ] Ms. Vallon was never aware that the accounts in Guernsey were intended to be corporate accounts. They were personal accounts. [ 49 ] Ms. Vallon was present for the searches. Copies of the material taken were provided, as well as lists of the documents, but Ms. Vallon did not think everything was there. [ 50 ] After the CRA search, Ms.

Vallon met with Bradley Stafford about getting the defendant's taxes done. She gathered documents as required but did not personally give them to Mr. Stafford. [ 51 ] On cross-examination, Ms. Vallon did not recall getting the defendant's tax documents for Mr. Lawless, only for Mr. Stafford. She did not recall a discussion about getting the defendant's taxes done because of his marriage. She did recall the defendant saying he would get a lawyer named Blair to help with his late filings. Both Blair and the accountant Rick Lee were friends of the defendant.

[ 52 ] Ms. Vallon did not recall any meeting with Mr. Stafford prior to the searches. After that, the defendant and Ms. Vallon met with Stafford about the defendant's tax filings. The defendant intended to get his taxes filed. [ 53 ] Ms. Vallon also said she had a medical issue which has affected her memory, especially prior to 2002. [ 54 ] The final witness was Bradley Stafford, the tax accountant who prepared the defendant's tax filings in 2007. He said the initial referral of the defendant was probably in 2006. The defendant was possibly referred by another client or by the former lawyer for the defendant.

In the hallway prior to his testimony, the defendant told Mr. Stafford the referral had been made by another client. [ 55 ] When he began working with the defendant, legal counsel contacted him. There are two engagement letters, one dated January 25, 2007, for the tax years 2001 to 2005, and another dated July 9, 2007, for the years 1991 to 2005. There is normally some lag time between the first meeting with a client and the engagement letter. It took longer than usual for "client acceptance" with the defendant.

A number of boxes of documents were delivered to his office, and within a few days, the CRA seized them. He had not yet started to work on the file. The CRA provided the records so he could complete the returns. [ 56 ] The returns took some time to complete because of the number of years involved, getting the documents required, including records of stock transactions, and the need for a series of meetings to go through the items and obtain information. He advised the defendant not to understate his income. [ 57 ] The CRA adjustments made to the returns were minor.

The documents he relied on were handwritten statements of business income, one T4, bank and brokerage statements, and some expense documents. 1991 was based on a T4. 1992 was based on a handwritten statement of business income. 1993 was based on a handwritten statement of business income and an interest statement from Pacific International Securities. 1994 was based on a handwritten statement of business income and 11 brokerage statements. 1995 was based solely on a handwritten statement of business income. 1996 was based on a handwritten statement and a typed

summary. 1997 involved interest, over $500,000 in capital gains taken from brokerage statements, and business income from the typed

summary. 1998 involved interest, $75,000 in business income from the typed

summary, and capital gains taken from brokerage statements. 1999 involved capital gains of $107,000 and net business income of about $38,000. In 2000, there were capital gains of about $938,000 plus business income, resulting in a taxable income of over $1 million. The documents include a statement from Caldwell Associates. In 2001, there was a capital loss and a taxable income of about $40,000. A request to carry back this loss has apparently not been granted. In 2004 and 2005, there was a taxable income of $58,000 for each year. [ 58 ] The defendant told Mr.

Stafford that he had not filed because he was trying to figure out the numbers and get records and because of a falling out with his business partner. Once the documents had been gathered, these were not difficult or complex returns. It took as long as it did because Mr. Stafford was preparing returns for a large number of years to a high standard. [ 59 ] On cross-examination, Mr. Stafford said that it was possible that a client, who was named, phoned him and recommended the defendant as a client. Mr. Stafford did not recall the defendant calling him at that time. He confirmed that Pat Lawless and Ms.

Vallon were helping the defendant gather the required records. Mr. Stafford thinks the handwritten summaries he used were prepared by Mr. Lawless, who he believed was a bookkeeper. [ 60 ] Mr. Stafford said that the defendant never asked to hide anything. There were several months between his first meeting with the defendant and the signing of the engagement letter, so the first meeting was probably in 2006. The defendant had told him he was having problems getting materials due to the partnership with Mr. Burke dissolving. [ 61 ] The tax returns are part of Exhibit 2.

I will review some aspects of the returns. [ 62 ] The 1991 return shows an income of $35,400 based entirely on the amount in a T4 slip. There was a source deduction or deductions of $6,130 by the employer. [ 63 ] The 1992 return shows a total income of $9,000. [ 64 ] The 1993 return shows business income of $12,000 and interest income of $118. [ 65 ] The 1994 return shows capital gains of $15,975 and business income of $12,000. The total proceeds from the sale of securities that year was $49,173, but there were some capital losses.

It is clear from the return that in 1994, where there were net capital gains, 75 percent of these were taxable. Thus the actual gains are higher than the taxable amount. That percentage has changed over time. [ 66 ] The 1995 return shows a total income of $12,000. [ 67 ] The 1996 return shows a total income of $36,000 and a taxable income of the same amount. [ 68 ] The 1997 return shows a taxable income of $594,990, including taxable gains of $557,906. The actual capital gains shown are over $700,000.

There is also other investment income of $3,083 and business income of $34,000. [ 69 ] The 1998 return shows a taxable income of $484,926. This includes a taxable capital gain of $409,467, interest of $5,387, and business income of $75,000. The actual proceeds from the sale of securities that year were $1,356,638. [ 70 ] The 1999 return shows a taxable income of $145,858, including taxable capital gains of $107,333 and net business income of $38,525.

It also shows charitable donations of $7,075. [ 71 ] The 2000 return shows a taxable income of $1,000,658, including taxable capital gains of $938,175 and a net business income of $72,117. There is an RRSP contribution of $45,750 and charitable donations of $50,487. The total capital gain that year was $1,846,381. In 2000, 50 percent of capital gains were taxable.

[72] In 2001, the assessed taxable income was $41,836. The 2001 return shows a net business income of $54,703 and a net capitalloss of $63,613. The actual capital loss was double that. The actual proceeds from the sale of securities were $142,731.

There was anRRSP deduction of $12,981 and charitable donations of $8,540. [73] There are no charges for 2002, but the return shows an RRSP deduction of $9,846 and charitable donations of $9,190. [74] There were no charges for 2003, but the return shows an RRSP deduction of $2,487 and charitable donations of $9,975. [75] In 2004, there were gross capital losses of $231,757, net capital losses of $115,878, and charitable donations of $5,562. [76] In 2005, there were charitable donations of $1,520.

Findings of Fact [77] Again, the defendant failed to report his income for the years in question and never made any payments. As a consequence, heevaded paying tax for the periods charged in the information. He did the acts required to be proven. The issue is whether he had therequisite intent. This is a criminal proceeding, and findings must be made beyond a reasonable doubt. [78] From about 2000 onwards, the defendant told various associates he wanted to file his tax returns. He told Mr. Burke he wastaking steps to do so. He talked to an accountant and a lawyer.

He was probably told that he should file all the overdue returns at once. There is no evidence that he told anyone he wanted to avoid tax or conceal relevant information. [79] Until 2006, shortly before the searches took place, the defendant did not provide documents to Mr. Stafford, his tax accountant,so that his taxes could actually be prepared. Mr. Stafford testified that the initial documents were provided shortly before the searcheswhich took place in October. [80] I prefer Mr. Stafford's evidence on the timing to that of Mr. Lawless. Mr.

Stafford recalled that he had not opened the boxes ofdocuments because he was not yet retained. The defendant did not formally retain Mr. Stafford until January 2007. In the interim,between 1991 and 2006, there were years where his taxable income was very considerable. [81] Although there were some issues gathering the documents, by the fall of 2006, the defendant managed to do this. He had helpfrom the business accountant, Patrick Lawless, and his executive assistant, Ms.

Vallon. [82] I am satisfied beyond a reasonable doubt that the defendant had the resources and the assistance which would have allowed himto gather the documents and prepare tax returns by the tax filing deadlines for each year or soon afterwards had he made it a priority. [83] The documents for a number of years were handwritten statements of his business income. The document for 1991 was a singleT4 slip. For other years, the primary documents were bank and brokerage statements from financial institutions. These are obtainable,and those he did not have already were obtained.

He had an assistant who could have compiled the necessary information about theoffice expenses. Once his taxes became more complicated, he had the money and resources to have returns prepared. [84] For a number of years, the defendant had considerable assets and income he could have applied to his taxes. Even if he couldnot pay them all immediately, he could have reported his income and dealt with the CRA. He chose not to, and there is no evidence thathe put any money aside so that he could pay all or some of his tax bill when he finally managed to file.

Rather, the evidence indicatesthat he applied substantial funds to other purposes. [85] I am not satisfied beyond a reasonable doubt that the defendant's plan or ulterior motive was to avoid filing indefinitely. Although some of his dealings, such as the accounts in Guernsey, raise questions, he talked about filing and finally, before the search,took some concrete steps in that direction. It appears he talked about filing and got some advice before he learned in 2003 or 2004 thatthe Guersney income had to be reported as personal income. [86] Learning that Mr.

Burke was reporting the Guernsey income to the CRA must have alerted the defendant to the likely prospectthat his parallel income would come to light. [87] I am not satisfied that for the years 1991, 1992, 1993, and 1995 the defendant realized any tax was payable, on the basis that in1991 there was an employer source deduction and his sole income was from the employment, and for the latter three years his incomewas quite low: $9,000, $12,118, and $12,000 respectively. [88] The issue is whether he nonetheless had the intent required for all or some of these offences.

Legal Considerations [89] The parties provided a number of cases on the issue of intent. The Crown reviewed all the cases it provided in some detail asthe defendant is self-represented. The question is whether the Crown must prove a deliberate purpose and an ulterior motive to evadetaxes. [90] The defendant relies primarily on R. v. Paveley (1976), (SK CA), 30 C.C.C. (2d) 483 (Sask. C.A.). It datesfrom February 1975. Paveley was a physician charged with tax evasion for the years 1970, 1971, and 1972. In the face of formaldemands, he failed to file his returns.

The Crown conceded that there was no scheme to mislead the CRA or falsification of records. Attrial, he was acquitted for lack of intent. The Court of Appeal upheld the acquittal. Woods J.A. held that the requisite intent required ascheme or artifice with intent to deceive. Brownridge J.A. said that he was not satisfied that either artifice or an attempt to concealincome is required or that there cannot be temporary evasion.

In his view, the question was, "Did the respondent in wilfully refusing tofile income tax returns as and when required, do so with the intention of evading or attempting to evade the payment of taxes?": page488. He concurred in the result because of the doubt expressed by the trial judge.

[91] Mr. Justice Bayda held that the question was whether there was a wilful evasion and that in the context of tax evasion, the wordwilfully "carries a distinct connotation of deliberate purpose and ulterior motive": page 492.

The failure to file taxes must have beendone for the purpose of evading tax. [92] Justice Bayda also stated, on page 493, that: ...in those cases where a particular purpose or a specific intent is an essential element of the offence, then proof of the act the naturalconsequence of which would be a certain result and no explanation is given, entitles, but does not bind, the Court hearing the matter, tofind the accused guilty of doing the act with the necessary intent. [93] The defendant provided two other cases. In R. v. Topedge Investments Ltd., [2007] A.J. No. 981 (Prov.

Ct.), the court foundthat the personal defendant, Edgelow, and his company, Topedge, had a deliberate scheme to evade taxes and convicted on that basis. However, at paragraph 53, the test for intent in R. v. Klundert, Ontario Court of Appeal, February 18, 2004, which I will review in detail,is cited. [94] The other case is Schwarz v. Canada (Minister of National Revenue), [1991] T.C.J. No. 419, Tax Court of Canada, in which thecourt acquitted the defendant of wilfully evading taxes by failure to file based on a finding that the defendant had no deliberate intentionor plan to avoid taxes.

The defendant in that case essentially had had an emotional or mental breakdown. [95] The decision in Paveley requiring an ulterior motive has been overtaken by R. v. Klundert, R. v. de Wolf, February 17, 1982,British Columbia Court of Appeal, and R. v. Kennedy, 2004 BCCA 638. [96] Klundert involved an optometrist who believed that the Government of Canada did not have the legislative power to imposeincome tax. He was charged firstly with making a false statement in his 1993 tax return by failing to report any income and writing zeroas the balance due.

Secondly, he was charged with tax evasion between 1992 and 1998, contrary to s. 239(1)(d). He took the positionthat his refusal to pay taxes was an honest protest.

He was convicted of the first charge but acquitted of the tax evasion on the basis thatan honest belief that the federal government did not have the requisite legislative power was relevant to a finding of intent. [97] Both the conviction and the acquittal were appealed. [98] The Crown submitted that the trial judge erred in instructing the jury that "tax evasion required proof of an intention to deceiveand proof of an artifice scheme or strategy; and a refusal to pay tax in protest based on an honest belief that the federal government didnot have the power to impose the tax negated an intention to evade the payment of taxes and entitled Dr.

Klundert to an acquittal": paragraph 18. [99] In his reasons for the court, Mr. Justice Doherty held that the mens rea or fault component of tax evasion is in the wordwilfully. He referred to the reasons of Mr. Justice Bayda in Paveley, where Mr.

Justice Bayda states that wilfully connotes deliberatepurpose or ulterior motive: paragraph 45. [100] He then stated, at paragraphs 46 and 47: 46 Although I would avoid the use of the phrase "ulterior motive", I agree with Bayda J.A. that the word "wilfully" in s. 239(1)(d)signals that culpability will follow only where the accused engages in conduct intended to avoid the payment of tax owing under the Act.More precisely, I think the fault component in s. 239(1)(

d) is twofold. First, the accused must know that tax is owing under the Act andsecond, the accused must intend to avoid or intend to attempt to avoid payment of that tax.

An accused intends to avoid, or intends toattempt to avoid, payment of taxes owing under the Act where that is his purpose, or where he knows that his course of conduct isvirtually certain to result in the avoiding of tax owing under the Act . . . 47 In most cases of tax evasion, the trial judge will adequately describe the elements of the offence by instructing the jury that theymust be satisfied beyond a reasonable doubt that the accused: * did something or engaged in a course of conduct that avoided or attempted to avoid the payment of tax imposed by the Act; * knew there was tax imposed by the Act; and * engaged in the conduct for the purpose of avoiding or attempting to avoid payment of tax imposed by the Act or knowing thatavoiding payment of tax imposed by the Act was a virtual certain consequence of his actions. [101] Justice Doherty went on to hold that a mistaken belief that a statute is invalid is a mistake of law that is irrelevant to the offenceof tax evasion.

In the result, a new trial was ordered on both counts. [102] I will note three cases before turning to R. v. Kennedy which also concerns a tax protestor. The first is R. v. Théroux, (SCC), [1993] 2 S.C.R. 5 (S.C.C.). The case concerned the mens rea required for fraud. The accused, through a company,took deposits for the purchase of residences to be built. He told the purchasers the deposits were insured when, in fact, they were not. The company became insolvent, and most of the purchasers lost their deposits.

The issue was whether the accused had the mens rea forfraud since he believed the project would complete as planned. The appeal from conviction was dismissed. The court held that the mensrea for fraud is established by subjective knowledge of the prohibited act, that is, a falsehood or deceit, and subjective knowledge that

the act could result in the deprivation of another. The accused is guilty whether he actually intended the consequence or was reckless asto whether it would occur. [103] In R. v. Teodori, [1997] Q.J. No. 1793 (Que. S.C.), the defendant, who ran a restaurant through a company, failed to remit GSThe had collected from customers. He was charged under the Excise Tax Act with wilfully evading or attempting to evade remittance ofthe tax. At some point, Mr. Teodori told an auditor he would pay the arrears.

He was hoping he could do this from accounts receivable,but the tax was never paid and the company went bankrupt. [104] The trial judge acquitted the accused because it was possible the input tax credits would have exceeded the tax liability andbecause he was not convinced beyond a reasonable doubt that Mr. Teodori's acts were intentional or wilful. [105] On appeal, Mr. Justice Gomery noted that the wording of the charging

section was identical with the wording of s. 239(1)(

d) ofthe Income Tax Act. He also compared the offence to fraud and cited Théroux for the test for mens rea. On that basis, he found thatTeodori had the requisite mens rea. He knew or could be presumed to have known that customers had paid GST and that he was notentitled to use the funds for other purposes. [106] The third case is R. v. de Wolf, February 17, 1982, British Columbia Court of Appeal. De Wolf was charged with tax evasionfor the years 1973 to 1978. As in this case, he had failed to file returns for a number of years, starting in 1963.

He testified that in 1973and 1974, he did not believe he had any taxable income. In 1975, he did not have the means to pay tax. At one point he was told by alawyer to wait until he had the funds to pay and then go to the CRA. In 1976, he used some funds he had received for other purposes. [107] In reference to the

interpretation of wilfully in Paveley as requiring a deliberate purpose or ulterior motive, Mr. Justice Hinksonstated at page 2: 12 While in my view that does not provide the sole

interpretation to be given to that term in s. 239(1)(

d) of the Income Tax Act,because it was relied upon in the two lower courts I am prepared to approach the matter on the basis of the

interpretation there adoptedby Mr. Justice Bayda. [108] The Court of Appeal held that de Wolf made a deliberate choice to use funds for other purposes and that he had a motive for notfiling because to do so would have alerted the CRA. Thus, even under the test in Paveley, the accused had wilfully evaded tax. [109] In the same case, at page 4, Mr. Justice Lambert said: 35 The test that was used in the Paveley case by Mr. Justice Bayda was an appropriate one for that case and, in my view, was anappropriate one for this case.

That is, that there was a deliberate purpose in the nonpayment and an ulterior motive in the nonpaymentwhich, together, would establish the wilful evasion of payment. 36 I wish to make it clear, as I understand my brothers do, that this is not in our view the only test for this offence. [110] In R. v. Kennedy, 2004 BCCA 638, Mr. Kennedy faced charges of making false statements on his 1996 and 1997 tax returns andtax evasion between December 31, 1995, and August 14, 1998, by understating his taxable income for the 1996 and 1997 tax years.

Attrial, he was convicted of the first two counts but acquitted of tax evasion. There were appeals to the Supreme Court and then to theCourt of Appeal. The case involved a sale of property with a significant capital gain in 1996 and interest received on a mortgage. Mr.Kennedy filed no income tax returns for both years because, like Klundert, he believed that the federal government imposing andcollecting tax was unconstitutional. [111] The trial judge acquitted him of tax evasion because it was not proven that evading tax was his purpose when he filed the nilreturns.

The Supreme Court on appeal upheld the acquittal. [112] The Court of Appeal dismissed Mr. Kennedy's appeal of the two convictions but allowed the Crown's appeal of the acquittal ontax evasion. After referring extensively to the reasons in Klundert, Mr. Justice Hall referred to both Teodori and Théroux respecting thetest for mens rea. [113] He concluded that once the trial judge had found that Mr. Kennedy had an obligation to report his income regardless of hisbeliefs about the powers of the federal government, nothing further was required for a conviction.

At page 15, he said: Having reached this conclusion about the appellant's duty to report income, it seems to me that the trial judge was bound to find theappellant guilty on count 3 in the Information. No additional mental element was required. He then cited Paveley and de Wolf. [114] Finally, Sansregret v. The Queen, (SCC), [1985] 1 S.C.R. 570, concerns wilful blindness, that is, where a personis aware of the need for some inquiry but does not inquire because he or she does not want to know the truth. Wilful blindness isequivalent to knowledge. Conclusions [115] In my view, the test described by Mr.

Justice Doherty in Klundert accurately reflects the current law. The law on intent isbroader than the ulterior motive test in Paveley. As stated quite clearly in de Wolfe, ulterior motive is not the only test. I must be

satisfied beyond a reasonable doubt that the defendant (1) did something or engaged in a course of conduct that avoided or attempted to avoid the payment of tax imposed by the Act, and this is the actus reus , (2) knew there was tax imposed by the Act or, I will add, was wilfully blind to that fact, and (3) engaged in the conduct for the purpose of avoiding or attempting to avoid payment of tax imposed by the Act or knowing that avoiding payment of tax imposed by the Act was a virtual certain consequence of his actions. [ 116 ] Respecting the first requirement, for all the years charged, Mr.

Andrus engaged in conduct that avoided or attempted to avoid the payment of tax. He did not report his income and, except for a source deduction in 1991, did not pay any tax. He lived tax-free for those years. [ 117 ] Respecting the second requirement, for the years 1991, 1992, 1993, and 1995, I am not satisfied that he either knew there would be tax imposed by the Act or was wilfully blind to that fact. [ 118 ] In 1991, his employer had deducted tax, and in 1992, 1993, and 1995, his income was quite low.

Based on that finding, he will be acquitted of Counts 1, 2, 3, and 5. [ 119 ] Although he did not testify, the defendant submitted at the end of the trial that he was unaware of the tax, if any, that he owed. However, aside from the four years I have noted, I am satisfied that the defendant knew or was wilfully blind to the fact that he would owe tax under the Act. He knew he had to file and do the calculations.

For a number of years when he was cashing in securities for hundreds of thousands of dollars, he must have realized he would owe substantial amounts of tax. [ 120 ] Respecting the third requirement, I am satisfied that Mr. Andrus failed to report his income or pay any tax for the purpose of avoiding or attempting to avoid payment of tax imposed by the Act or, at the very least, for the periods charged, knowing that avoiding payment of tax imposed by the Act was a virtually certain consequence of his actions. [ 121 ] The evidence indicated that Mr.

Andrus told others he was going to file and at times during the periods in the charges consulted with his advisers. His submission has been that he always intended to file, and he told people that. But he did not file, although he had more than enough resources to do so. Talking about filing is not filing. Consulting about filing is not filing. He did not report his very substantial income for a number of years. [ 122 ] Additionally, addressing tax issues involves more than filing. The ultimate responsibility is to pay the taxes. There is no evidence that during the years Mr.

Andrus was cashing in large investments and earning a substantial amount of business income he put anything aside for taxes. If he was waiting to file all the returns at once, he could have indicated a serious intent to meet his tax obligations, that is, not evade taxes, by putting aside funds or paying instalments.

Instead, as in Teodori and de Wolf , he used his money for other purposes on a much larger scale. [ 123 ] Although the full scope of his spending is not in evidence, there were substantial RRSP contributions, large charitable donations - one year involved $50,000 in donations - and substantial reinvestment of funds. This money could have been applied to taxes. Instead, Mr. Andrus has now filed his back returns but not paid any tax. [ 124 ] For these reasons, I find Mr. Andrus guilty of Counts 4 and 6 through 13. (REASONS CONCLUDED)