Her Majesty the Queen v. Ralston MacDonnell MacDonnell Security Risk Management Limited MacDonnell Group of Canada Limited 3182552 Nova Scotia Limited Judge: The Honourable Judge Paul Scovil, JPC, 2021 NSPC 22

PROVINCIAL COURT OF NOVA SCOTIA Citation : R. v. MacDonnell , 2021 NSPC 22 Date: 20210518 Docket: 8266201-8266201 Registry: Halifax Between: Her Majesty the Queen v. Ralston MacDonnell MacDonnell Security Risk Management Limited MacDonnell Group of Canada Limited 3182552 Nova Scotia Limited Judge: The Honourable Judge Paul Scovil, JPC Heard: January 18, 19, 21, 22, 26, 27, 28, 2021; February 2, 3, 4, 5, 9, 10, 2021; March12, 2021 in Halifax, Nova Scotia Decision May 18, 2021 Charge: 380(1)(

a) of the Criminal Code of Canada x 7 327(1)(

c) of the Excise Tax Act x 4 Counsel: Scott Millar, Counsel for Her Majesty the Queen Brian Casey, Q.C., Counsel for the Accused By the Court: [ 1 ] Ralston MacDonnell is an engineer who operated an engineering firm in Halifax in early 2009. Incorporated in 2003, the company went by the name MacDonnell Group Consulting Limited (MGCL). This company splintered into MacDonnell Security Risk Management Ltd. (MSRM) and MacDonnell Group of Canada Ltd. (MGOC) Later, 3182552 Nova Scotia Limited was formed. [ 2 ] Mr.

MacDonnell had other business ventures during this period of time including Bowood Corporation, which consisted of the property in Shelburne that at one time housed the Youth Correctional Facility known locally as the ‘boy’s school’. This housed a recycling center but was purchased by Mr. MacDonnell in the hopes of turning it into a permanent training facility. [ 3 ] During the period from January 1, 2009 to December 31, 2014, Mr. MacDonnell and the subject companies, MSRM, MGOC and 3182552, were in arrears of monies owing to the Canada Revenue Agency (CRA) for HST and Payroll Source Deductions.

These arrears ultimately led to the charges before this court. [ 4 ] Ralston MacDonnell is charged with two counts under s. 380(1)(

a) for fraud relating to unremitted HST and payroll source deductions. MacDonnell Security Risk Management Limited faces two counts under s. 380(1)(

a) again for failure to remit HST and payroll source deductions. MacDonnell Group of Canada Limited faces two counts of fraud for relating to HST and Payroll Source deductions. As well, the numbered company is charged with one count of fraud. [ 5 ] Each of the above entities also are charged with one count of tax evasion under s. 327(1) (

c) of the Excise Tax Act . Overview: [ 6 ] As indicated above, Ralston MacDonnell was an engineer during his career. He began work in Halifax with Vaughn Engineering. Vaughn Engineering was a well-known engineering firm and from all accounts was successful.

[ 7 ] In 1988, the owner of Vaughn Construction retired and sold the firm to Mr. MacDonnell. In 1999, Mr. MacDonnell began operating several companies under the banner of MacDonnell Group Consulting Ltd. [ 8 ] Over the years, Mr. MacDonnell bought several personal properties which will become important in this matter, they included his family home on Park Street in Halifax, a separate residence in Chester Basin, Nova Scotia and in 2008 a condominium in the area of Tampa, Florida. [ 9 ] Mr.

MacDonnell also became involved in an attempt to lure a professional hockey team to conduct their spring training in Halifax. [ 10 ] In the recession of 2008, Ralston MacDonnell’s businesses began to see significant reductions in revenue. While revenues decreased, Mr. MacDonnell continued to strip cash from the businesses to prop up his expenditures for personal uses, which included mortgages, car leases, life insurance and personal spending.

At the same time there were occasions where payroll cheques bounced and virtually no payments were made on CRA, HST and Payroll Source Deduction accounts. [ 11 ] CRA argues that fraudulent activity by Mr. MacDonnell led to deprivation of money owed to tax-payers through HST and payroll source deductions which ultimately led to the charges before the court. [ 12 ] The trial in the matter spanned 16 days. Crown evidence consisted of the CRA employees, Resource Officer / Complex Case Officers (ROCCOs), Trust Examiners, the lead CRA investigator, as well as employees of Mr. MacDonnell.

The accused took the witness stand on his own behalf. [ 13 ] Most evidence in this matter was entered by an Agreed Statement of Facts provided electronically and through paper exhibits. Some exhibits overlapped but at the end of the day they were substantial. Kristina Dobson [ 14 ] Kristina Dobson was employed for the Canada Revenue Agency (CRA) since January of 2012. She was shown in CRA records by her maiden name, Kristina Walsh. During the period that she was involved in this matter she was a Resource Officer in the Complex Case Office for CRA. They are referred to, literally, as ROCCOs.

Files end up in the hands of ROCCOs when accounts of taxpayers have been extremely delinquent and present difficulties in collection. [ 15 ] Ms. Dobson testified that HST and Payroll Source Deduction are deemed trust funds over which the Government has a trust interest. [ 16 ] Ms. Dobson, as well, was examined regarding entries she had made in the Automated Collection and Source Deductions Enforcement System (ACSES) Diaries. These diaries contained in Exhibit 4 are required by CRA to be kept when any actions happen on a file.

They are accurate summaries of actions involving CRA employees and formed the records that CRA witnesses, including Ms. Dobson, referred to when giving evidence with regards to their dealings with Mr. MacDonnell. [ 17 ] A large portion of Ms. Dobson’s evidence as well as other Crown witnesses was spent in reviewing the ACSES diaries. Ms. Dobson’s review of these diaries when she took over the file for the MacDonnell Group showed a complex system due to the numerous businesses Mr. MacDonnell was operating and their intertwining. [ 18 ] Her review also showed a long history of Mr.

MacDonnell and his companies of non-compliance in both filing returns for HST and payroll source deductions and remittance of the same. These difficulties led to Ms. Dobson being unclear as to which were operating businesses, and which were closed. [ 19 ] Ms. Dobson explained that companies remit HST on a regular basis with amounts being determined based on revenues containing HST amounts less input tax-credits calculated on the HST the company itself payed on goods and services included. Payroll source deductions are due monthly on the 15 th of each month based on tax deductions taken from employees pay.

Filing requisite forms with CRA showing amounts of HST were due yearly and payroll source deductions, monthly on the 15 th of each month. [ 20 ] Ms. Dobson, as well, was quite clear that all ROCCOs relied heavily on what clients told them and therefore the accuracy there of. She also outlined that employers were required to deduct the correct amount of income tax from an employee’s payroll, remit the same and pay on

schedule and finally to file an accurate T4

summary. [ 21 ] Ms. Dobson reviewed ACSES’s diary entry for August 13, 2013 (Exhibit 4, Tab 2, pg. 17) which outlined that Mr. MacDonnell continued to put forward security arrangements to stave off CRA activity of putting requirements to pay on bank accounts. The arrangement Mr. MacDonnell attempted to broker that day involved using his South Park Street home as security. As Ms. Dobson pointed out, the home was already heavily encumbered and would provide no security at all. [ 22 ] The above followed conversations that Mr. MacDonnell and Ms. Dobson had on August 9, 2013 where Mr.

MacDonnell offered personal guarantees which were unacceptable to CRA as he personally had nothing to back the guarantees. When Mr. MacDonnell asked what other action CRA might take, Dobson advised that ERTP’s and RTP’s (requirement to pay) were all ready to go. Shortly after that Ms. Dobson became aware that accounts at the Royal Bank had been closed. In fact, on August 8, she had been advised that bank accounts held by Mr.

MacDonnell at the Bank of Nova Scotia were not attachable, as they had been closed. [ 23 ] It should be noted, in the month of August when it would have been clear that RTPs were being placed on accounts known to CRA, Mr. MacDonnell opened accounts at the Toronto Dominion Bank which CRA was not aware of. [ 24 ] Ms. Dobson also reviewed efforts in August 2012 by Mr. MacDonnell to have proposals accepted by CRA. On August 13, 2013, Mr. MacDonnell wrote offering 30% of gross income on a forward going basis. Despite Ms. Dobson’s efforts to have Mr.

MacDonnell keep his filings of HST and payroll obligations up to date, not only did Mr. MacDonnell not make any payment he also

failed to file as required. [ 25 ] On August 16, 2013, Mr. MacDonnell again made a proposal including paying 30% of gross income of the companies to CRA. At page 2 of that letter he stated, “we are requesting this arrangement to allow the monies and RBC banking accounts to be released as soon as possible so as to operate in a normal fashion”. As noted above, Mr. MacDonnell had previously opened an account with TD Bank in the name of a numbered company through which he operated businesses. The TD account was not disclosed to CRA. [ 26 ] Mr. MacDonnell wrote to Ms.

Dobson again on August 20, 2013 with another proposal. He indicated all filings would be kept current and that a minimum of $20,000 per month with, presumably, $5,000.00 deposited weekly to go to arrears. He also was clear that only the RBC bank accounts would be maintained. Again, while putting this forward, he was operating out of the TD account which was undisclosed to CRA. While the proposal was not accepted due to lack of prior follow-through on proposals, nothing would have prevented him on doing exactly what he proposed. The last voluntary payments made by Mr.

MacDonnell were a year prior in May of 2012. [ 27 ] The proposal was again put to CRA on August 23, 2013 when Mr. MacDonnell wrote to the Acting Assistant Director, Ms. Dave. In that correspondence, Mr. MacDonnell blamed failure to maintain filing due to a “loss of the financial and accounting management team staff” and that there had been a replacement by a ‘highly qualified team”. He stated that 2011 filings were completed and filing for 2012 would come forward shortly. Neither of these things were forthcoming (See Exhibit 17) bar charts, filings). [ 28 ] The same nature of proposal was forwarded to Ms.

Dobson on September 6, 2013. [ 29 ] In cross-examination, Ms. Dobson indicated why Mr. MacDonnell’s proposals were rejected. They included that the securities offered had nothing tangible that backed them up, it was against CRA policy to accept assignment of potential life insurance proceeds and the fact that Mr. MacDonnell had a lengthy history of non-compliance with proposal and obligations to CRA. [ 30 ] It was also clear through Ms. Dobson’s testimony as well as every other CRA employee called as witnesses, that while a proposal may have been rejected, CRA would accept any payment on accounts.

Jennifer Levy [ 31 ] Jennifer Levy also interacted with Mr. MacDonnell and his companies. In reviewing her entries in ACSES Diaries, she testified that on the 28 th of July, 2011, CRA had agreed to release the requirement to pay on Mr. MacDonnell’s account at the Credit Union Atlantic for all three active corporations on the understanding that current year filings and payments would be maintained on a current and up-to-date basis. [ 32 ] In September of 2011, Ms.

Levy noted that no payments had been received and only the filing for June. [ 33 ] Later, it was agreed to release requirement to pay on the basis of $5,000 a month being remitted to the CRA. The $5,000 per month never materialized. Trust Examiners Mark Wolfe [ 34 ] Mark Wolfe was employed by CRA for 28 years. During the period in question, Mr. Wolfe was a Trust Examiner and conducted Trust examinations. Trust examinations were conducted to verify that HST and payroll remittances were being withheld and property accounted for. It also included an educational component when working with taxpayers. [ 35 ] Mr.

Wolfe conducted several trust exams on Mr. MacDonnell and his companies. These exams were triggered by requests from collection officers due to lack of filing or failure to pay remittances. [ 36 ] Mr. Wolfe reviewed an example of his trust exams at Tab 10 of Exhibit 8. That exam showed arears during the examination consisted of $70,790.35 with prior arrears of $116,233.01 with a total arrears of $188,819.36 relating to payroll tax deductions. [ 37 ] Mr. Wolfe testified to a failed visit to the businesses on February 25, 2013. During a meeting with Pari Bamonia, one of Mr.

MacDonnell’s bookkeepers, he provided a list of records that were required. She listed what was needed and agreed to call Mr. Wolfe later. Mr. Wolfe testified he never received the records and felt he was given no cooperation. William Chisholm [ 38 ] Mr. Chisholm was another Trust Examiner at CRA who conducted trust exams on the accused. Mr. Chisholm completed trust exams on April 12, 2011 on MacDonnell Security Risk Management and MacDonnell Group of Canada Limited. Similar to issues which challenged a number of Trust examiners, Mr. Chisholm lacked access to accurate and current information.

This was reflected in ACSES diary entries. (See for example entry for 2011-06-07 at page 81 of Tab 2, Exhibit 4) Michael McDonah [ 39 ] Mr. McDonah was a 28-year employee at CRA and conducted trust examinations related to payroll source deductions for MacDonnell Group of Canada Limited and 7128789 Canada Inc. for the periods January 1, 2009 to October 31, 2009. The only bank records that were revealed to Mr. McDonah was from The Royal Bank of Canada on George Street in Halifax. What was later determined was that MacDonnell Group was also operating out of a bank account at the Credit Union of the Atlantic.

William Thoms

[ 40 ] Mr. Thoms had 24 years experience with CRA. He conducted four trust exams in total of Mr. MacDonnell’s group of companies. Mr. Thoms also confirmed that it was important that CRA was made aware of bank accounts that were in existence for companies as it would allow for garnishee if necessary. Operating a bank account without CRA knowing of its existence would avoid garnishment and thereby keep monies due and owing to CRA out of reach of the agency. [ 41 ] Mr.

Thoms also outlined that where some trust exams on the MacDonnell companies were conducted there was no underlying documentation available to complete an exam. This would lead to a “notional assessment” based on prior known financial interactions. John Skelton [ 42 ] The final trust examiner testifying was John Skelton, who conducted the trust exam for the subject companies for 2014 and 2015. Like other trust examiners, he outlined that his ability to conduct the trust exam was hampered by a lack of banking records, pay- cheque copies, and other lack of data.

MacDonnell’s Employees Paula Walker [ 43 ] Paula Walker was employed by the MacDonnell Group as an accountant from 2009 to 2011. In addition to a university background, she had obtained a partial certificate as a Certified General Accountant. [ 44 ] She was originally with the Group for three months then due to finances was laid off but worked part time for Mr. MacDonnell before being hired back as the Chief Financial Officer. She is currently employed with Saint Mary’s University in their accounting office. [ 45 ] She described the banking and inter-financial dealings between the three companies under Mr.

MacDonnell. She was also able to describe Mr. MacDonnell’s personal financial activity with the companies. Mr. MacDonnell would remove money from the companies for items like personal mortgages and expenses. These amounts would be taken as company loans. This was a regular occurrence. [ 46 ] It was clear from the evidence that Ralston MacDonnell was the primary manager of the companies. As Ms. Walker stated, “Mr. MacDonnell made the decisions on where the money was to go “. [ 47 ] Ms. Walker outlined that Mr. MacDonnell’s directing of where funds were moved made it difficult to keep accounting straight.

Reviewing Exhibit 9, Tab 2, Ms. Walker exampled an invoice from MacDonnell Security Risk Management to Industrial Security Ltd. for a security training program. The check from Industrial Security came in made out to MacDonnell Security Risk Management but was directed by Mr. MacDonnell to be deposited to MacDonnell Group of Canada Limited. [ 48 ] Mr. MacDonnell’s personal expenses would be the first place where money would be directed to go. Exhibit 9, tab 3, contained an email from Mr. MacDonnell to Ms.

Walker directing her to pay his life insurance, mortgages, personal power bills for his Halifax and Chester residences as well as mortgage payments on Mr. MacDonnell’s Florida condominium. [ 49 ] Ms. Walker indicated that there were regular meetings almost daily between her and Mr. MacDonnell as to where cash was to flow. She was clear that priority was on Mr. MacDonnell’s debts ahead of payroll and CRA payments. She noted he had three personal mortgages, credit cards, BMW car payments and spending money which claimed first-priority on company funds. [ 50 ] This led to Ms.

Walker describing the business as engaging in the worst instances of NSF cheques she had ever seen. If there were insufficient funds to cover the entire payroll, Mr. MacDonnell would direct who would get paid on the payroll and if money would be diverted to his own account, leading to NSF paycheques. [ 51 ] At one point, Mr. MacDonnell had his home power cut off and had Ms. Walker pay the arrears from her own credit card to have his power turned back on. [ 52 ] She testified it was a practice that if bank accounts had liens on them the result would be the opening of a new account at another bank.

This is corroborated throughout the evidence tendered by the Crown. [ 53 ] The final straw with Ms. Walker was December 24, 2010. Pay cheques for employees were to go out, were signed and had just enough money in the account to cover them. Shortly after the office closed, Mr. MacDonnell called Ms. Walker and directed her to forward a large sum to him in Florida. She did so but it caused payroll cheques to be NSF. She left several weeks later and was owed $22,000.00 for back pay and expenses she had covered on her personal credit cards.

The amount had to be recovered through the Nova Scotia Labour Standards Board. [ 54 ] The evidence of Ms. Walker was clear that Mr. MacDonnell himself made all major financial decision across all companies. Robert Johnson [ 55 ] Robert Johnson was hired as a controller by Mr. MacDonnell for a two-month period in 2012. He was told he was hired to bring the books up to date. Mr. Johnson recalled that the cash flow of the companies was “not that great”. He recalled that his first payroll at the company he was instructed not to give out pay cheques until 5:00 pm sharp. [ 56 ] Mr.

Johnson specifically recalled an incident where Mr. MacDonnell had signed a cheque to the Receiver General for HST remittance. Mr. Johnson advised Mr. MacDonnell that there were insufficient funds to cover the cheque. In direct examination, Mr. Johnson testified that Mr. MacDonnell said, “that’s okay, if it bounces it will buy us some time”. In cross, he agreed that Mr. MacDonnell could have said, “there should be money in the account but if it bounces it will give us some time”.

[ 57 ] Mr. Johnson saw money going in and out of the companies in rapid succession. He stated money would be transferred out right after coming in. Like others, Mr. Johnson had to resort to going through the Labour Board to recover income after his pay cheques were returned NSF. Irene Green [ 58 ] Irene Green is a self-employed bookkeeper who worked with Mr. MacDonnell regarding his companies from December 2011 until July of 2012. She advised that she worked mainly from home but ceased as Mr. MacDonnell had no money to pay her.

In addition to work done on the MacDonnell Group she was also involved with some work regarding Mr. MacDonnell’s hockey efforts. [ 59 ] She reviewed a number of filings she prepared for CRA purposes and confirmed that her payroll calculations were accurate. [ 60 ] In cross-examination she indicated the business records were in terrible shape when she took over. Janna Warren [ 61 ] Jenna Warren is the current owner of a Maritime training company. Her background is an undergraduate degree in accounting, together with accounting work with a marine company.

She was employed by the MacDonnell Group from November 24, 2014 to January 31, 2015. She was very clear on the date she was hired and when she could no longer continue to work for Mr. MacDonnell and felt she had to leave. [ 62 ] Her employment was specific to help with what Mr. MacDonnell termed “the project”. Ms. Warren was told by Mr. MacDonnell that a previous accountant got the companies into trouble with CRA and he wanted her help to get them out of the problem. Mr. MacDonnell told her if he owed CRA anything he would pay but he didn’t believe he owed anything. It became very clear to Ms.

Warren very quickly that this was not the case. [ 63 ] Ms. Warren described what was clear from all the evidence that the companies were all extensively intertwined. Having said that, she also said that payroll came out of the numbered company, 3182552 Nova Scotia Limited. [ 64 ] She described her efforts to put salary data in the online CRA employee calculator which would automatically calculate remittances owed. [ 65 ] She described her first occasion doing payroll and her interactions with Mr. MacDonnell concerning the same, Mr. MacDonnell clearly forbid her to file the remittances with CRA.

She could not confirm which employee worked for which company. It was very clear to Ms. Warren that all employees worked for the same company. This all led to many angry exchanges between Ms. Warren and Mr. MacDonnell. [ 66 ] Ms. Warren described the Trust exam conducted by Trust Examiner, Mr. Skelton. Mr. MacDonnell was insistent that she push the audit to a further date. Ms. Warren told Mr. MacDonnell that the trust exam had to be done and advised him of exactly what material she would be providing. This again led to a heated exchange between her and Mr. MacDonnell. Ms.

Warren told him that if he wanted it done differently, he would have to meet with the trust examiner himself. Mr. MacDonnell refused to do that. [ 67 ] Working in the MacDonnell companies quickly took a toll on Janna Warren. She described the consistent bouncing of cheques recalling only one time that payroll didn’t bounce. She described from the beginning of her employment coming home and crying in her driveway due to the stress. She had just purchased a home and needed the income but simply could no longer continue in that environment and consequently left at the end of January 2015.

CRA Employees Allison Brown [ 68 ] Allison Brown (maiden name Allison Williams) was an acting Senior Investigator with CRA at the time covered by these offences. She was approached in the winter of 2012 to assist with the investigation of these charges. She was able to examine all relevant documents from CRA together with documents obtained through judicial authorization. [ 69 ] Before the Court, she reviewed how she calculated total HST collected by the accounts together with computing input tax credits. Her analysis found that the recording by Mr.

MacDonnell of gross sales were accurate and that the records provided to her were fairly complete. She completed a

summary which was entered as working paper #108

Summary of HST owing from 2010 to 2014 for the companies involved based on when the companies were operating. [ 70 ] Ms. Brown’s

summary shows HST collected for the three accused corporate entities together with HST remitted and the final accounts outstanding and owed to CRA. These covered those years the companies were operating from 2010 to 2014. 3182552 N.S. Ltd. Owed $52,067.18, MacDonnell Security Risk Management Ltd. owed $185,584.83 and MacDonnell Group of Canada Ltd.

Owed $63,859.24. [ 71 ] While a great deal of Allison Brown’s testimony dealt with her overall methodology in determining what significant accounts were outstanding, she was also able to outline amounts that were taken from payments owed to MacDonnell Security Risk Management but paid directly to Mr. MacDonnell’s personal account thereby resulting in HST being siphoned off to Mr. MacDonnell personally. [ 72 ] Allison Brown reviewed her Working Paper Number 1 showing eight separate transactions where corporate accounts were by- passed. These sales amounts were not recorded anywhere in corporate ledgers in 2011.

These sales all included HST payments which were owed CRA. [ 73 ] Working Paper 104-2 was shown in Exhibit 13 at tab 2. This analysis showed where invoice sales were paid to a Pay Pal

account and then withdrawn directly into Ralston MacDonnell’s personal Scotia Bank account. [ 74 ] Ms. Brown also testified to the methodology used in in creating Working Paper 105-2. This evidence again showed sales to MacDonnell Security Risk Management in 2011 where invoices to customers were paid and the proceeds were directed into Ralston MacDonnell’s personal bank account. These sums covered HST payments which were never shown in the company books nor were they paid to CRA.

This included both the depositing of cheques made out to MacDonnell Security Risk Management directly to his personal account as well as the direct payments from Pay Pal account that were directly deposited into his account. [ 75 ] Her final calculation showed $66,707.89 worth of sales from MacDonnell companies went into Mr. MacDonnell’s personal account. This included $7,591.28 of HST deductions that were not shown in the corporate bookkeeping. [ 76 ] In cross-examination, Ms. Brown confirmed that HST collected in 2011 is only due and payable in 2012. She also confirmed that monies from clients of Mr.

MacDonnell, that were subject to requirements to pay, would be paid directly to CRA. Also, she confirmed that once CRA had the results of a Requirement to Pay then Mr. MacDonnell did not control which account that money was paid to. Other evidence directly contradicted this. Stephen Tucker [ 77 ] Stephen Tucker is a senior investigator with CRA. He has a lengthy background in accounting with a designation of a Certified Public Accountant in both the UK and Canada. He was the lead investigator relating to the charges before the Court. [ 78 ] He was assigned the MacDonnell file and reviewed the same.

He had initial discussions regarding the matter with Kristina Dobson at the end of which it was recommended that there be a full-scale investigation. [ 79 ] The investigation led to a series of judicially authorized searches of both Mr. MacDonnell’s business and home. Production Orders were also obtained relating to a number of financial institutions. These orders also included credit card companies, Merchant Service companies, Pay Pal as well as others. Mr. Tucker as well, interviewed a number of individuals. [ 80 ] Mr. Tucker created a number of Working Papers taking data from evidence.

These numbered in excess of 110 and were for the most

part contained on Excel spread sheets. Several other exhibits were also created by Mr. Tucker. Exhibit 15, Working Paper 92A was a key document outlining banking activity as well as a graphic representation of that activity. [ 81 ] It also showed visually Mr. MacDonnell’s responses to both requirements to pay and Trust Exams. [ 82 ] Mr. Tucker also testified that the exhibit showed that the companies had sufficient funds to pay both HST and Payroll Source deductions that were due to CRA. [ 83 ] Exhibit 15 contained 13 columns representing 12 known bank accounts attributable to companies under Mr.

MacDonnell’s control and a final column showing total bank deposits. Also, displayed were records from each month from January 2009 to December of 2014. Bank accounts that were unknown to CRA were provided with a pink background. If there was a month where a requirement to pay was placed on a bank account it was given a green background and if there was a month where a trust exam had been conducted there was a separate row for the month in yellow. The name of the Trust Examiner was placed in the yellow row directly under bank accounts which became known to the examiner while conducting the trust exam. [ 84 ] Mr.

Tucker also introduced Exhibit 16 which was a binder containing monthly overview data for 2009 to 2014. Each contained a chart for the year looking at each month with columns containing business bank accounts, significant uses and trust fund activity, for example PSD’s due each month, net HST collected, annual HST obligations, voluntary payments and total trust liability. [ 85 ] Through Mr.

Tupper, the Crown also introduced Exhibit 17, which showed by way of bar graphs, MacDonnell Security Risk Management and MacDonnell Group of Canada unassessed payroll taxes from February 2009 to December 2014, requirements to pay by the two companies for same period, assessed payroll tax for these periods, payments made both voluntary and through RTP’s, voluntary payments that were made for current payments and arrears payments, monthly business cash, outflow and RP payments These charts showed how Mr. MacDonnell’s debts to CRA increased uniformly through persistent non-compliance. [ 86 ] Mr.

Tucker reviewed CRA’s detailed transaction statement, dated March 30, 2015. This document showed both current arrears payments and other information. It also showed a large number of payments by Mr. MacDonnell which were returned as NSF cheques. The charts showed that Mr. MacDonnell made a few voluntary payments between August 2009 and May 2010 and very little thereafter. Exhibit 17 also demonstrated visually the appropriation by Mr. MacDonnell of company funds for personal use and how these uses stood up against continued obligations by the companies to CRA that went unmet. [ 87 ] Mr.

Tucker’s investigation also showed that while Mr. MacDonnell advised Ms. Walsh that when MSRM and MGCL were created all monies were flowing through MGCL, quite the opposite was true. These companies were all utilizing the Bank account 69060-10-6 at CUA to operate and had done so since at least January 2009. [ 88 ] Again, Mr. Tucker’s evidence in reviewing this matter canvassed that in August 14, 2009, Mr. MacDonnell directed the company which processed credit card payments to his corporation, Moneris, to deposit any funds due to restructuring to RBC account 1042738. August 27, 2009 was the date that Mr.

MacDonnell responded to Ms. Walsh that the two new companies were banking using only the same old bank account used by MGCL. [ 89 ] Further evidence from Mr. Tucker showed bank accounts where cheques were not covered and were returned NSF, and another account which was used for personal expenses to Mr. MacDonnell. [ 90 ] Mr. Tucker also reviewed the Trust Exam conducted by Michael McDonah. That trust exam was conducted on the two new MacDonnell companies. He was provided one bank account for the companies. However, there was another bank account being used at

the Credit Union of the Atlantic the upshot of this being that the Credit Union account was undisclosed to the trust examiner. [ 91 ] Further examination showed that in early 2010 Mr. MacDonnell made a payment proposal to Kelly Walsh. That proposed a weekly payment to CRA by way of certified cheques over a number of weeks. Exhibit 5, Tab 3 was the letter from February 8, 2010 setting out the

schedule of cheques. Mr. MacDonnell indicated only core business expenses would be paid during this period. The period covered from February 12, 2010 to April 2, 2010. [ 92 ] This proposal did not happen and in fact substantial personal expenses of Mr. MacDonnell were paid out of company funds. What did go towards funding went for CRA arrears of $47,697.98 for payroll source deductions $32,596.18 for HST was a voluntary payment of $6,043.89. A number of other cheques were written by Mr.

MacDonnell to CRA during this period which were returned NSF. [ 93 ] It was further shown in Exhibit 18, Tab 5 that when an RTP was placed on February 9, 2010 on RBC account, Mr. MacDonnell wrote a cheque for $10,995.00 to MacDonnell Group Consulting Ltd.’s CUA account, thereby evading the RTP. This left very little cash in the RBC account. On the 15 th of February 2010, Mr. MacDonnell then wrote a cheque for $17,977.65 to the Receiver General which, of course, bounced. Likewise, the RBC account of MacDonnell Security Risk Management showed activity to defund the account in anticipation of the RTP.

This involved e-transfers and cheques out of the account into the Credit Union Account which was unknown to CRA. Evidence disclosed a total of $823,931.29 went through this Credit Union Atlantic account up until its discovery by CRA in May 2010. [ 94 ] Mr. Tucker also reviewed in 2010 where funds were moved by Mr. MacDonnell from the Credit Union Atlantic account to the account for Bowood and then stripped for Mr. MacDonnell’s own personal uses. [ 95 ] From 2011, Mr. Tucker showed a large invoice to the Department of National Defence for $15,820.00. Of that amount, $1,820 was HST.

Tab 10 of Exhibit 13 contains the invoice and the cheque issued by DND to pay the invoice. The back of the cheque shows the money being directly deposited into Ralston MacDonnell’s personal account at Scotia Bank, Scotia Square. This includes the $1,820.00 of HST. Tab 9 of Exhibit 18 shows the deposit of the cheque and a transfer out of Mr. MacDonnell’s account on February 10, 2011 to a Florida bank by wire transfer. Likewise, the same occurred for an invoice to Parks Canada dated January 28, 2011 for $20,700.00 of which $2,700.00 was HST.

The cheque paying this was deposited in Ralston MacDonnell’s account at Scotia Square on March 24, 2011. $18,022.50 was then sent by wire transfer to Ralston MacDonnell in Florida. [ 96 ] Mr. Tucker reviewed the change in interactions between Mr. MacDonnell’s companies and CRA after July 2009. Up until August 2009, the Chief Financial Officer was a woman named Brenda King. After she left the company in 2009, CRA filings changed becoming less frequent and with a number of NSF cheques. This dwindled off to no filings or very infrequent and no cheques being forwarded.

This evidence was visually demonstrated in Exhibit 17 charts for assessed payroll taxes for MSRM and MGOC. [ 97 ] Steven Tucker also reviewed communications between Mr. MacDonnell and CRA of July 28, 2011 which set out a payment scheduled by Mr. MacDonnell to pay out arrears at CRA. This

schedule was relied upon by CRA to cancel a RTP to CRA. Following that a further letter of August 12, 2011 to CRA, providing his banking information at CUA. That letter did not disclose the bank account at TD being utilized by Mr. MacDonnell and was unknown to CRA. The TD account was opened June 2, 2011. [ 98 ] During the period from August to December 2011, significant sums were taken from the corporations and placed into Mr. MacDonnell’s personal account for personal use. [ 99 ] Mr. Tucker also reviewed the period that was previously covered by Robert Johnson.

During that period, an agreement for payments being made had been reached by CRA and Mr. MacDonnell. Mr. Tucker showed where payments that were to be made pursuant to that agreement were subject to NSF cheques to CRA. This is where Mr. Johnson had pointed out to Mr. MacDonnell that there were insufficient funds to cover these cheques, but that Mr. MacDonnell said the money might be there and if not, it would buy some time. Again, during this period of time funds were syphoned off by Mr. MacDonnell to his personal accounts.

During the period, $33,000.00 went to his personal account, the timing of which, caused four cheques to CRA to bounce. [ 100 ] Mr. Tucker discussed Mr. MacDonnell opening a Bank of Nova Scotia account which was unknown to CRA. While this account was unknown to CRA, $842,516.46 was deposited to that Bank of Nova Scotia account. No voluntary payments to CRA were made through that account up to March 2013. From May 2011 to March 2013, the total deposits were $852,155.25 of which there were expenditures of $851,768.00. Of that, $422,000.00 went to Mr.

MacDonnell’s personal account. $45,059.59 was transferred back to the business. [ 101 ] Mr. Tucker’s evidence included a review of several letters from Mr. MacDonnell to CRA attempting to negotiate terms which would include removing RTPs on his RBC bank account and his Moneris credit card transaction company. These happened in late August and early September of 2013. Mr. MacDonnell had opened the account with TD Bank through which company transactions flowed through. [ 102 ] With the RTP on the Moneris account, Mr. MacDonnell then opened a Pay-Pal account which would allow an end run around the Moneris account.

He then shifted to TD merchant services. The Pay Pal account was linked to Mr. MacDonnell’s personal bank account and those funds never appeared in company books. [ 103 ] In cross-examination of Mr. Tucker, three perceived problems with Exhibits 16 and 15 were brought out. The first problem was with Exhibit 16 on page 1 in the first column as it shows total deposits for each month of 2009. These deposits include deposits made to MacDonnell Group of Canada Limited, who is not an accused company. The second issue was that for the same year in the

section for Trust Funds, there was no provisions for voluntary payments to CRA that would have come from MacDonnell Group of Canada Limited. The third identified issue through cross-examination of Mr. Tucker was the failure to reflect inter-company transfer of money in Exhibit 15. This would lead to double counting and inflating the total deposits listed in the final column of Exhibit 15. Mr. Tucker agreed that would be the case.

[ 104 ] Mr. Tucker was cross-examined in relation to the conversation of ROCCO Walsh with Mr. MacDonnell on August 27, 2009 where Mr. MacDonnell advised her that all business was still flowing through the MacDonnell Group of Canada Ltd. bank account. Mr. Tucker was directed to a cheque contained in Tab 3 of Exhibit 18, dated August 17, 2009 to the Receiver General for $3,024.56. Counsel pointed out that this cheque had the new bank account number and the new company name on it.

The upshot of that portion of the cross- examination for the defence argument was that sending that cheque in, and that cheque alone would effectively cover the conversation that Mr. MacDonnell had with Ms. Walsh regarding running businesses through the one bank. In effect that, as counsel put it, it was not Mr. MacDonnell’s fault that no one picked up on this and advised Ms. Walsh of the new account. [ 105 ] It was pointed out by Mr. Tucker that the ROCCOs would not get to see those cheques.

Ralston MacDonnell [ 106 ] Ralston MacDonnell reviewed his resume and background leading up to that period covered by the charges in question. His engineering firm of MacDonnell Group of Canada Ltd. morphed in mid 2009 into two companies, MacDonnell Security Risk Management and MacDonnell Group of Canada. MacDonnell Security Risk Management was created to handle the business of port security training and MacDonnell Group of Canada would conduct the traditional engineering work. [ 107 ] At that time Mr. MacDonnell also was attempting to bring NHL hockey training to Nova Scotia.

He also purchased a property in Shelburne County with the company name of Bowood. That property was what was known locally as the “old boy’s school”, which was a provincial Youth Correctional facility for many years. The intention was to upgrade the facilities to create a campus for port security training. [ 108 ] Mr. MacDonnell used an interesting vernacular regarding his testimony surrounding his business. Often, he talked in terms of, “we”. An example is, “we considered Florida an important part of our business development” or words to that effect.

The evidence through out the entire trial was that there was no “we” but only Mr. MacDonnell himself, who was the management of the company. [ 109 ] Mr. MacDonnell testified that in relation to the economic health of his businesses, the economy’s downturn in 2008 and 2009 effect upon his businesses was not known until 2012. He then immediately after saying that outlined how they had to deal with an absence of cash and further business losses in 2009. Further, that the 2009 tax return showed over a $500.000.00 reduction of revenue from prior years. [ 110 ] Counsel for Mr.

MacDonnell spent some time throughout the trial on what appeared to be the contention that Mr. MacDonnell had no say over which arrears account with CRA would receive payments. The impression was that CRA arbitrarily assigned the accounts which would benefit on arrears payments. In his direct examination, Mr. MacDonnell testified that he never requested that arrears payment be directed to any specific company’s account with CRA.

His recollection was that on one occasion the collection officer that he was dealing with told him that payment would go to HST owing and not payroll source deduction. [ 111 ] In relation to other evidence before the court, it showed in fact that there was ability for Mr. MacDonnell to direct what arrears payment went to. Automated Collections and Source Deductions Enforcement Systems (ACSES), being Exhibit 4 at Tab 2, page 76 has the entry that the CRA employee advised that Collection Officer Hubley would be in touch with Mr.

MacDonnell to determine which account the first $48,000.00 in payments would be applied to. Exhibit 4 at tab 1, page 107 shows where requests were made by Ms. Walsh to transfer $13,245.60 from an arears payment of $55,000.00 to an account as specified by Mr. MacDonnell. Further, at page 100 of the same tab Ms. Walsh indicated she had contacted Mr. MacDonnell to see if payments that had been made were to be directed to arrears accounts. Exhibit 4 at tab 2, page 116 shows on January 22, 2010 shows Mr. MacDonnell again contacting CRA to direct where payments should be posted.

This same action took place on January 6, 2020 as evidenced again in Exhibit 4 at tab 2, page 118. The facts contradict Mr. MacDonnell’s testimony. [ 112 ] Mr. MacDonnell was questioned in direct-examination, concerning his comments to Ms. Walsh on August 27, 2009 about banking arrangements for the two new companies. His indication to Ms. Walsh was that all banking was to be conducted at that time through MGCL’s account. When asked in direct, Mr. MacDonnell said, “Well, yeah, you know a couple of things are, I’m not sure that’s the way, I’d disagree but…maybe a misunderstanding.” [ 113 ] Mr.

MacDonnell did not address the discrepancy between telling Ms. Walsh that MGCL’s bank account would be used and the fact that he did not disclose that as of July he had three other operating bank accounts for the new companies. Rather, Mr. MacDonnell stated that collections officers often did not understand what his companies did. This was again contrary to the evidence. [ 114 ] Mr. MacDonnell outlined some of his business challenges but stated that they were always able to work through them.

This testimony of having worked through things greatly conflicts with the evidence that was before this court. [ 115 ] In describing his, ‘average work-day’, he described every other day or at least every third day he would get an update from his financial officers. He and his financial officers would make decisions regarding finances. Yet within one or two sentences later he testified that he “was not really calculating financial things”. [ 116 ] Mr. MacDonnell, in his evidence, discussed what he felt was the intransigence of CRA to make arrangements with him. Mr.

MacDonnell stated he could not make any payments into bank accounts that were subject to CRA’s requirements to pay as it would then go directly to CRA. That would cause the account to go into overdraft and the account would be closed. [ 117 ] These explanations by Mr. MacDonnell did nothing to explain his contention that he could not make payments to CRA because they would only accept complete payments. There was nothing in the evidence to suggest that partial payments on accounts would not have been taken by CRA. [ 118 ] When asked how he decided who to pay, Mr.

MacDonnell answered he did not always decide who to pay. It was, he said, “some kind of team effort”. Further, that the biggest priority for him was payroll. In truth, the evidence shows that Mr. MacDonnell was the sole final arbiter of payments that were made, and that making sure payrolls were met was not, by far, his top priority. This despite him

saying payroll was his number one priority. [ 119 ] Mr. MacDonnell further stated if he did not have the ability to make a payroll his choice was to not write the cheques. Again, evidence suggested otherwise. [ 120 ] When asked in direct-examination concerning his directions on Christmas Eve of 2010 to have his financial officer drain money from the business and forward it to him in Florida causing payroll cheques on Christmas Eve to bounce, Mr.

MacDonnell stated it was necessary to pay the Florida mortgage and that it was made as he expected Credit Union Atlantic to honour the payroll cheques despite having no money in the account. This explanation simply has no credibility. [ 121 ] Mr. MacDonnell was asked why his companies began using a Pay Pal account. He explained, “that something closed our merchant services account”. He said, “with those closed you could not accept credit card payments”. The evidence showed the merchant services accounts were at that time subject to RTP’s. Mr.

MacDonnell went on to say, “well, I think what happened there was we had a young person in accounting”. Mr. MacDonnell said, “she said I can open up a Pay Pal account”. The Pay Pal had to be tied to a personal account and a personal email account. Mr. MacDonnell said employee would track this method of payment and track them to the business. He stated the business records were very good. [ 122 ] In relation to filings to be made to CRA, Mr. MacDonnell stated he was insistent that they be made on time. That would be the case even if the amounts owed would not be made. When things got behind, Mr.

MacDonnell blamed it on staff. He stated, “we made CRA records a priority and Job 1”. [ 123 ] When asked if he knew that CRA was seeking payments from him, Mr. MacDonnell said he knew it from time to time. However, he said at any time he would not know the extent of it. Mr. MacDonnell also stated in his evidence that he was in contact with CRA fairly often and met with his financial officer every 2 nd to 3 rd day. Not knowing the extent of his arrears to CRA would seem to be in direct opposition to the bulk of the evidence and Mr. MacDonnell’s own testimony. [ 124 ] Mr.

MacDonnell testified about Exhibit 18, Tab 6 which contained communication of Moneris and Amex regarding changes in banking. Of interest, specifically were two bank cheques. One had the company name of MSRM Ltd., while the other had MGCL. Both were cheque #601072 with the same banking identifiers on it. These were copies of the same cheque with MSRM Ltd. Being overlayed in some fashion of MGC Ltd on one cheque and not the other. Mr. MacDonnell denied any knowledge of alteration being made. [ 125 ] Mr. MacDonnell was asked about his conversation with Robert Johnson. Mr. Johnson reported that Mr.

MacDonnell was advised there were insufficient funds to cover a cheque to CRA. MacDonnell replied, “the funds might be there but if they are not it will buy us some time”. Mr. MacDonnell in his evidence said that Mr. Johnson was a young new employee. Mr. MacDonnell stated, “If one were to say that it would not be something you would say to a young employee”. Mr. MacDonnell said Mr. Johnson may have thought he heard it, but it is not, “ “something I re-collected”, and “I would not imagine saying that”. Further, “that we would never release cheques if they were not able to be covered.

We would ask them to hold the cheque”. [ 126 ] Mr. MacDonnell was asked on the first question in cross-examination if his income up to 2009 came from MGCL, MGOC and MSRM. While the evidence of the trial, which was extensive, showed this clearly to be the case where reviewed, Mr. MacDonnell chose to respond that he could not say anything specific about that, “he would have to review the documents and that pretty much was the case”. This type of answer that was vague, was typical of Mr. MacDonnell’s evidence. [ 127 ] Mr.

MacDonnell was asked about MGCL’s HST quarterly fillings for January and April of 2009 and that MGLC showed no HST received thereafter. This taken from the Agreed Statement of Facts. Mr. MacDonnell very quickly distanced himself of this fact by saying that he never personally filed HST as it was the companies responsibility. Further, that T2 returns for after 2009 showed no corporate activity after 2009. This would be in contradiction to his early statement in cross-examination that MGCL activity was potentially on going for a lengthy period after that creation of MGOC and MSRM. [ 128 ] Mr.

MacDonnell was reluctant to clearly answer the most basic of questions in his cross-examination. When Crown counsel asked about his growing frustration when dealing with ROCCO, Kristina Dobson, which was very clear from his direct examination and his evidence, Mr. MacDonnell stated that he would not call it “frustrated with Ms. Dobson”. [ 129 ] Mr. MacDonnell was cross-examined on whether he had the ability to contact CRA with requests on which account payments might be directed to. Crown counsel referred Mr.

MacDonnell to the entry of Kristina Walsh in AECS diary of April 12, 2007 in which she stated that he had asked that $13,245.00 of a $55,000 payment be directed to a T2 corporate tax account. This request was to be directed to the appropriate department of CRA. Mr. MacDonnell in cross categorically denied that was the case and that this was done at Ms. Walsh’s request. His answers do not accord with the evidence. As with several aspects of his evidence, Mr. MacDonnell pushed back in his cross-examination by suggesting it was at CRA’s request, not him. [ 130 ] Mr.

MacDonnell was cross-examined on his taking out a loan of $220,000 on his Chester Basin property. In direct, he stated he needed that money to put into the business. Twelve days later he placed $210,483 as a down payment for his Florida condominium. His answer was that it was unrelated. When asked why he bought a luxury condo if he needed $200,000 due to a cash crunch for your business, his answer was that at the time it seemed reasonable. There was some back and forth between the Crown and Mr. MacDonnell as to whether it could be classified as a ‘luxury condo”.

Nothing turns on that, although to this Court, anywhere where you do not need snow tires and a shovel, is a luxury. [ 131 ] The Crown cross-examined Mr. MacDonnell regarding his letter to Kelly Walsh dated February 8, 2010 which gave a

schedule of certified cheques that would be sent to CRA. These would commence on the 12 th of February 2010 with a cheque for $21,325.00. Mr. MacDonnell was asked why some four days later that did not happen. Mr. MacDonnell replied because the funds were not available. He then qualified that in that by saying, “there was not enough funds to do all he wanted to do”. The Crown then pointed out, through Exhibit 15, that in March of 2010 there was a total of $228,827.48 deposited into the CUA account. His reply was, “it was due to inter-

company transfers”. MacDonnell also argued that the number in Exhibit 15 showing the deposits were incorrect. The Crown, of course,pointed out as an Agreed Statement of Fact that Exhibit 15 was correct. Again, when this period was canvassed by the Crown in Exhibit16, Mr. MacDonnell stated that the figures were not accurate despite having the accuracy of Exhibit 16 being part of an AgreedStatement of Facts. [132] The Crown went on to point out to Mr.

MacDonnell that in March of 2010, $3,298.36 was paid towards his Halifax homemortgage; $3,191.88 towards the Chester cottage mortgage; $2,300 on the CUA loan; $8,058.38 towards the mortgage on the Floridacondominium; $4,020.35 on his BMW lease and $3,591.41 on life insurance. [133] In his evidence in cross, Mr. MacDonnell was asked about bank accounts not being revealed to trust examiners during trustexamination. In three separate occasions, trust exams were conducted with bank accounts being unknown to CRA, both before and afterthe trust exam.

MacDonnell said that they were not produced to the trust examiner because the Examiner never asked for them. Theevidence from the trust examiners was clear that they would ask for documentation from all corporate bank accounts. LAW [134] The Crown’s case against Ralston MacDonnell and the three accused corporate entities rests on a complex extensive amount ofseized documents, CRA documentation, witness testimony and circumstantial evidence. What is abundantly clear here like all casesbefore courts, proof of guilt must be found to be beyond any reasonable doubt before conviction can take place. [135]

Section 11(

d) of the Canadian Charter of Rights and Freedoms provides that a person charged with an offence has the right “tobe presumed innocent until proven guilty according to law in a fair and public hearing by an independent and impartial tribunal”. RalstonMacDonnell and the corporate accused are presumed innocent of the charges unless the Crown proves each element beyond a reasonabledoubt. [136] Justice Cory speaking for the majority in R. v. Lifchus, (SCC), [1997] 3 S.C.R. 320, summarized the principlesof reasonable doubt as follows: 36 Perhaps a brief

summary of what the definition should and should not contain may be helpful.

It should be explained that: - the standard of proof beyond a reasonable doubt is inextricably intertwined with that principle fundamental to all criminal trials,the presumption of innocence; - the burden of proof rests on the prosecution throughout the trial and never shifts to the accused; - a reasonable doubt is not a doubt based upon sympathy or prejudice; - rather, it is based upon reason and common sense; - it is logically connected to the evidence or absence of evidence; - it does not involve proof to an absolute certainty; it is not proof beyond any doubt nor is it an imaginary or frivolous doubt; and - more is required than proof that the accused is probably guilty -- a jury which concludes only that the accused is probably guiltymust acquit. [137] Justice Iacobucci, of the Supreme Court of Canada for the majority, said in R. v.

Starr, 2000 SCC 40 that “an effective way todefine the reasonable doubt standard for a jury is to explain that it falls much closer to absolute certainty than to proof on a balance ofprobabilities”. Mere probability of guilty is never enough in a criminal matter. The Crown must prove the guilty of an accused personbeyond a reasonable doubt – which lies somewhere between probability and absolute certainty, but closer to absolute certainty. [138] In this matter, given that the accused has testified, I must also apply the principles of R. v. W.D., [1991] 1 S.C.R.

If having heardall the evidence, I believe the accused, then I must acquit him. If I do not know whether to believe the accused and his testimony raises areasonable doubt, I must acquit. If any of the evidence called by the accused raises a reasonable doubt on any of the elements of theoffence, I must acquit.

Even if I reject his evidence, before I can convict, I must ensure myself that on each and every element of theoffence, there is proof beyond a reasonable doubt, if not then I must acquit. [139] Credibility plays a crucial role in the matter before this court. [140] While a trial judge must give reasons for how they resolved credibility issues the Supreme Court of Canada has recognized thatit is difficult, “to articulate with precision the complex intermingling of the impressions that emerge after watching and listening towitnesses”. It is not a “purely intellectual” exercise. See R. v.

R.E.M., 2008 SCC 51 , [2008] 3 S.C.R. 3. [141] Judges are entitled to accept all, some, or none of a witness’s evidence. [142] Trial judges must scrutinize and examine all of the evidence when considering the credibility of any single witness. In R. v.D.D.S., 2006 NSCA 34 , [2006] NSJ No. 103 (NSCA), Justice Saunders of our Court of Appeal stated as follows: 77 Before leaving the subject and for the sake of future guidance it would be wise to consider what has been said about the trier's placeand responsibility in the search for truth.

Centuries of case law remind us that there is no formula with which to uncover deceit or rankcredibility. There is no crucible for truth, as if pieces of evidence, a dash of procedure, and a measure of principle mixed together byseasoned judicial stirring will yield proof of veracity. Human nature, common sense and life's experience are indispensable whenassessing creditworthiness, but they cannot be the only guide posts. Demeanour too can be a factor taken into account by the trier of factwhen testing the evidence, but standing alone it is hardly determinative.

Experience tells us that one of the best tools to determinecredibility and reliability is the painstaking, careful and repeated testing of the evidence to see how it stacks up. How does the witness's

account stand in harmony with the other evidence pertaining to it, while applying the appropriate standard of proof in a civil or a criminal case? [ 143 ] Credibility cannot be determined by following some prescribed set of rules. Having said that, trial judges can and have assessed credibility by using a number of guideposts. While not exhaustive, Justice Mossip in R. v. Filion , [2004] O.J. No. 3419 (Ont. SCJ) set out a series of factors which are instructive.

He stated: In assessing the reliability and credibility of witnesses testimony, I have considered factors that judges invite juries to consider such as: does the witness seem honest? Is there any particular reason why the witness should not be telling the truth or that his/her evidence would not be reliable? Does the witness have an interest in the outcome of the case, or any reason to give evidence that is more favourable to one side than to the other? Does the witness seem to have a good memory?

Does any inability or difficulty that the witness has and remembering events seem genuine, or does it seem made up as an excuse to avoid answering questions? Does the witness's testimony seem reasonable and consistent as she/he gives it? Is it similar to or different from what other witnesses say about the same event? Did the witness say or do something different on an earlier occasion? Do any inconsistencies in the witness's evidence make the main point of the testimony more or less believable and reliable? Is the inconsistency about something important, or minor detail? Does it seem like an honest mistake?

Is it a deliberate lie? Is the inconsistency because the witness said something different, or because she/he failed to mention something? Is there any explanation for it? Does it make sense? The manner in which a witness testifies may be a factor, and it may not, depending on other variables with respect to a particular witness. Deemed Trust Provisions [ 144 ] This trial concerns two taxation aspects that all Canadians face under the tax provisions of our country.

These are payroll source deductions for income tax and a goods and services tax known as the Harmonized Sales Tax or HST, which applies to most goods and services transactions. [ 145 ] The taxation scheme provides that HST is collected by the purveyor of the goods and services and then remitted to the government minus input tax credits for HST payed by that entity. Likewise, employers are obligated to collect income tax occurring on employee’s income and then remit the same to the government.

Payroll source deductions require the employer to file appropriate forms monthly by the 15 th of each month together with the amounts owed. HST is filed yearly. [ 146 ] The nature of the above amounts were part of arguments by both the Crown and Mr. MacDonnell. Section 222(1) of the Excise Tax Act of Canada sets out the statutory nature of funds collected by employer and HST recipients as follows: 222

(1) Subject to subsection (1.1), every person who collects an amount as or on account of tax under Division II is deemed, for all purposes and despite any security interest in the amount, to hold the amount in trust for Her Majesty in right of Canada, separate and apart from the property of the person and from property held by any secured creditor of the person that, but for a security interest, would be property of the person, until the amount is remitted to the Receiver General or withdrawn under subsection (2).

Amounts collected before bankruptcy (1.1) Subsection (1) does not apply, at or after the time a person becomes a bankrupt (within the meaning of the Bankruptcy and Insolvency Act ), to any amounts that, before that time, were collected or became collectible by the person as or on account of tax under Division II. Withdrawal from trust

(2) A person who holds tax or amounts in trust by reason of subsection (1) may withdraw from the aggregate of the moneys so held in trust (

a) the amount of any input tax credit claimed by the person in a return under this Division filed by the person in respect of a reporting period of the person, and (

b) any amount that may be deducted by the person in determining the net tax of the person for a reporting period of the person, as and when the return under this Division for the reporting period in which the input tax credit is claimed or the deduction is made is filed with the Minister.

Extension of trust

(3) Despite any other provision of this Act (except subsection (4)), any other enactment of Canada (except the Bankruptcy andInsolvency Act), any enactment of a province or any other law, if at any time an amount deemed by subsection (1) to be held by a personin trust for Her Majesty is not remitted to the Receiver General or withdrawn in the manner and at the time provided under this Part,property of the person and property held by any secured creditor of the person that, but for a security interest, would be property of theperson, equal in value to the amount so deemed to be held in trust, is deemed (

a) to be held, from the time the amount was collected by the person, in trust for Her Majesty, separate and apart from the property of theperson, whether or not the property is subject to a security interest, and (

b) to form no part of the estate or property of the person from the time the amount was collected, whether or not the property has in factbeen kept separate and apart from the estate or property of the person and whether or not the property is subject to a security interest and is property beneficially owned by Her Majesty in right of Canada despite any security interest in the property or in the proceedsthereof and the proceeds of the property shall be paid to the Receiver General in priority to all security interests. Meaning of security interest

(4) For the purposes of subsections (1) and (3), a security interest does not include a prescribed security interest. [147] Mr. MacDonnell argues that the case law regarding the deemed trust provisions deal primarily with situations of bankruptcy andreceivership and the standing among creditors in those situations regarding HST and payroll deductions. [148] This question was dealt with by Judge Derrick (as she then was) in R. v. Spears, 2017 NSPC 53, starting at paragraph 403 whereshe stated: 403 In its "trust funds" submission, the Crown points to the language of "deemed trust" in section 227(4) of the Income Tax Act andsection 222(1) of the Excise Tax Act. 404 The ITA provides that, 227

(4) Trust for moneys deducted - Every person who deducts or withholds an amount under this Act is deemed, notwithstanding anysecurity interest...in the amount so deducted or withheld, to hold the amount separate and apart from the property of the person and fromproperty held by any secured creditor...of that person...in trust for Her Majesty and for payment to Her Majesty in the manner and at thetime provided under this Act. 405 The ETA provides that: 222.

(1) Trust for amounts collected - ...every person who collects an amount as or on account of tax...is deemed, for all purposes anddespite any security interest in the amount, to hold the amount in trust for Her Majesty in right of Canada, separate and apart from theproperty of the person and from property held by any secured creditor of the person...until the amount is remitted to the ReceiverGeneral... 406 The "in trust" language of these statutory provisions seems clear enough. Mr.

Draghici-Vasilescu has described the sourcedeductions obligations of employers as being governed by a "very tightly regulated system" under which the employer is collecting taxesfrom its employees on behalf of CRA and holding these funds in trust.

Section 4.1 of the ETA extends the trust and creates a floatingcharge over the assets of the tax debtor. 407 But as I stated earlier, the failure to remit source deductions and HST does not, by itself, amount to fraud. The Defence madesubmissions on the trust funds issue with reference to jurisprudence from the Supreme Court of Canada. I do not find it necessary toaddress the arguments around what significance these cases could have to a case like this one. What the cases broadly acknowledge isthat the deemed trust funds referred to under the ITA and ETA are not always remitted as directed by the legislation.

Delinquency doesnot automatically amount to fraud. Commentary from two of the three cases provided by Mr. Casey illustrates this point. In FirstVancouver Finance v. Canada (Minister of National Revenue) 2002 SCC 49 the Court said the following: 3 ... By virtue of s. 227(4), when source deductions are made, they are deemed to be held separate and apart from the property of theemployer in trust for Her Majesty.

If the source deductions are not remitted to the Receiver General by the due date, the deemed trust ins. 227(4.1) of the ITA becomes operative and attaches to property of the employer to the extent of the amount of the unremitted sourcedeductions. As well, the trust is deemed to have existed from the moment the source deductions were made. 4 For the reasons set forth below, I find that the s. 227(4.1) deemed trust is similar in principle to a floating charge over all the taxdebtor's assets in favour of Her Majesty.

The trust arises the moment the tax debtor fails to remit source deductions by the specified duedate, but is deemed to have been in existence from the moment the deductions were made. As long as the tax debtor continues to be indefault, the trust continues to float over the tax debtor's property. Thus, at any given point in time, whatever property then belonging tothe tax debtor is subject to the deemed trust. 408 In Royal Bank v. Sparrow Electric Corp., (SCC), [1997] S.C.J.

No. 25, Gonthier, J., in a dissenting judgment,described the "unfortunate" reality of non-remittance: 25 ...In a perfect world, these deductions would be made, a cash fund would be set aside by the employer, and the withheld amountswould be promptly remitted to the Receiver General when due. The deducted amounts, lawfully the property of the employee, would inthis way be transferred to Her Majesty to be set against his overall tax payable.

26 As a practical reality, however, these deductions are often not remitted as required under the ITA. Instead, the withholdings arecommonly made solely as a book entry, and therefore the deduction of taxes from wages becomes merely a notional transaction; no cashis actually set aside for remittance and, often, the deductions are not transferred to the Receiver General: see, e.g., Re DeslauriersConstruction Products Ltd., (ON CA), [1970] 3 O.R. 599 (C.A.), at p. 601. It is at this point which a business becomesindebted to Her Majesty for the amount of moneys only fictionally deducted.

I hasten to add, however, that while it can be said HerMajesty at this point becomes de facto, if not de jure, a creditor of the non-remitting employer, the arrangement is dissimilar to anordinary debtor-creditor situation in two fundamental respects. First, in contrast to usual negotiated credit arrangements, this transactionis of manifestly a non-consensual nature. Second, by virtue of s. 153(3), the debtor can in law be considered to be utilizing an asset whichis the property of its employees.

In this sense, it is not inaccurate to characterize the non-remittance of payroll deductions as a"misappropriation" of the property of another. Indeed, the authorities, correctly in my view, commonly refer to the conduct of the taxdebtor in this manner: Roynat, supra, at p. 646, per Twaddle J.A.; and Pembina on the Red Development Corp. Ltd. v. Triman IndustriesLtd. (1991), (MB CA), 85 D.L.R. (4th) 29 (Man. C.A.), at p. 48, per Lyon J.A. dissenting. 27 The economic reality of this sort of misappropriation of statutory deductions is artificially to increase the working capital of the taxdebtor.

By foregoing a cash payment to Her Majesty in the amount of the payroll deductions, the tax debtor is able to utilize the freedresources elsewhere in its business... 409 My point in mentioning these cases is this: failure to remit to CRA and utilization of those funds in a taxpayer's business is notuncommon and, by itself, is not fraud. 410 The Crown has made the point that a taxpayer cannot simply decide to re-purpose monies owing for source deductions and HSTand utilize them for other priorities. That appears to be what happened in Dieckmann. Here, Mr.

Spears has said he would have paid whathe owed if he could have but because his business was in difficult financial straits he worked at keeping his head above water with theexpectation that he could turn the situation around. It was Mr. Spears' evidence that "there was always an attempt to make payments toCRA, not successfully maybe, but the intention was always to make it work." [149] Mr. MacDonnell uses the above to argue that at no time were the funds collected for HST and payroll source deduction theproperty of CRA while the funds were in the hands of the MacDonnell companies. Mr.

MacDonnell argues that therefore, he wassimply in debt to the CRA for the amounts and failure to pay a debt is not in and of itself a criminal matter. [150] The Crown argues that the sections of Federal Statues setting up the deemed trust regime and the requirements of taxes to be paidto the Government of Canada are fundamental and integral to the ongoing operation of our country. [151] The Crown in its brief, stated the following: In Canada Trustco Mortgage Corp. v.

Port O’Call Hotel Inc., (SCC), [1996] 1 S.C.R 963, the Supreme Court ofCanada demonstrated just how important the garnishment powers is to the integrity of our system: There can be no doubt of the importance of levying taxation. The ITA entrusts to employers the duty of deducting income tax from thewages of employees and remitting it on their behalf. Similarly the ETA imposes on those who provide goods and services to others theduty to collect and remit the GST which is payable. In essence, companies collect taxes which they hold in trust for the government.

Citing an earlier decision of the Manitoba Court of Appeal, Justice Cory agreed with the following: To determine the dominant characteristic of the legislation, it is important to know the governmental policy behind the section. The taxdebtor's bank is in the best position to know its customer and to structure its business arrangements accordingly. Revenue Canada, on theother hand, does not have the same opportunity to become acquainted with the affairs of the tax debtor or its creditors.

It must thereforerely solely on the provisions of the legislation to mandate the employer to remit the employee income tax deductions as required by the[Income Tax] Act . . One must always remember that the withholding tax or source deduction to which s. 224 applies is at the heart of the collectionprocedures for personal income taxation in Canada. Indeed, if one makes a calculation from the statistics reported in "Taxation Statistics,1987," a publication of Revenue Canada Taxation, catalogue No. RV-1987, one finds that 87 per cent of all personal income taxes paidin Canada are collected by source deductions.

It can thus be seen that Parliament in passing s. 224(1.2) made it as all-encompassing as itis in order to ensure its continued viability. No other system is so crucial to the overall collection procedure adopted by the Crown.Parliament clearly meant to protect this system. Using the employer as a tax collector requires such extra protection in cases such as theone at bar where the employer converts the withheld tax money to its own purposes. Understandably, that conversion cannot becountenanced if the integrity of that system is to be preserved.

Parliament, therefore, acting within its constitutional authority, has takenthis extraordinary remedy to protect a major collection source. This last sentence highlights an important distinction: the regime created by sections 224 and 231 of the ITA (and their sister sections inthe ETA) is a regulatory regime, in place to “protect a major collection source” and ensure that taxpayer money gets where it belongs. But these sections are separate and distinct from the criminal law powers engaged by

section 327 of the ETA and

section 380 of theCriminal Code, which are enacted to sanction criminal wrongdoing. [152] At the end of the day the deemed trust provisions make it quite clear that the money an entity receives through HST, charged andcollected, and payroll tax deduction must be accounted for and must be paid to the government.

To suggest that such funds in the handsof a business are able to be dealt with anyway that business want and then turn to CRA and say that the only interest you have in theaccounting process is a debt that has to be payed could result in business delaying tax payment until collection action occurs. [153] As was stated in Sparrow, this tax arrangement is dissimilar to ordinary debtor-creditor situations as it is a non-consensual andsecondly, it is not inaccurate to characterize the non-remittance of HST and payroll deduction as a misappropriation of the property ofanother.

[154] The bottom line here is that this Court must look to whether Mr. MacDonnell and his companies committed fraud and tax evasionin dealing with CRA. Fraud [155] S. 380 (1) of the Criminal Code set out the offence of fraud as follows: 380

(1) Every one who, by deceit, falsehood or other fraudulent means, whether or not it is a false pretense within the meaning ofthis Act, defrauds the public or any person, whether ascertained or not, of any property, money or valuable security or any service, (

a) is guilty of an indictable offence and liable to a term of imprisonment not exceeding fourteen years, where the subject-matter of theoffence is a testamentary instrument or the value of the subject-matter of the offence exceeds five thousand dollars [156] Fraud, not unlike almost all offences consists of two main components, the prohibited act or actus reus and the required state ofmind, mens rea. [157] Proof of fraud requires

an act of deceit, a falsehood or some other fraudulent means and a deprivation caused by the prohibitedact. That deprivation may consist in actual loss or placing of the victim’s pecuniary interests at risk. (See R. v. Riesberry, 2015 SCC 65, [2015] 3 S.C.R. 1167, R. v. Theroux, (SCC), [1993] 2 S.C.R, 5 and R. v. Zlatic (SCC),[1993] 2 S.C.R.29) [158] In Riesberry, Justice Cromwell stated at p. 23-24: 23 . . . Fraudulent conduct for the purposes of a fraud prosecution is not limited to deception, such as deception by misrepresentations offact.

Rather, fraud requires proof of "deceit, falsehood or other fraudulent means": s. 380(1). The term "other fraudulent means"encompasses "all other means which can properly be stigmatized as dishonest": R. v. Olan, (SCC), [1978] 2 S.C.R. 1175,at p. 1180. The House of Lords [page1176] made the same point in Scott v. Metropolitan Police Commissioner, [1975] A.C. 819, a caseapproved by the Court in Olan (p. 1181).

Fraud, according to Viscount Dilhorne in Scott, may consist of depriving "a person dishonestlyof something which is his or of something to which he is or would or might but for the perpetration of the fraud be entitled": p. 839.

Andas Lord Diplock said, the fraudulent means "need not involve fraudulent misrepresentation such as is needed to constitute the civil tort ofdeceit": ibid., at p. 841. 24 It follows that where the alleged fraudulent act is not in the nature of deceit or falsehood, such as a misrepresentation of fact, thecausal link between the dishonest conduct and the deprivation may not depend on showing that the victim relied on or was induced to actby the fraudulent act. This is such a case. [159] The actus reus of the offence of fraud was examined in R. v. Olam, [1978] 2 S.C.R. 1178.

The elements needed to prove theoffence are dishonesty and deprivation. The wording in s. 380 of “other fraudulent means” include means which may not be in thenature of deceit or a falsehood and encompass all other means which can properly be stigmatized as dishonest. The element ofdeprivation can be satisfied on proof of detriment, prejudice, or risk of prejudice to the economic interests of the victim. [160] In Theroux, Justice McLachlin stated: 24 Having ventured these general comments on mens rea, I return to the offence of fraud. The prohibited act is deceit, falsehood, orsome other dishonest act.

The prohibited consequence is depriving another of what is or should be his, which may, as we have seen,consist in merely placing another's property at risk. The mens rea would then consist in the subjective awareness that one wasundertaking a prohibited act (the deceit, falsehood or other dishonest act) which could cause deprivation in the sense of depriving anotherof property or putting that property at risk. If this is shown, the crime is complete.

The fact that the accused may have hoped thedeprivation would not take place, or may have felt there was nothing wrong with what he or she was doing, provides no defence.

To putit another way, following the traditional criminal law principle that the mental state necessary to the offence must be determined byreference to the external acts which constitute the actus of the offence (see Williams, supra, c. 3), the proper focus in determining themens rea of fraud is to ask whether the accused intentionally committed the prohibited acts (deceit, falsehood, or other dishonest act)knowing or desiring the consequences proscribed by the offence (deprivation, including the risk of deprivation).

The personal feeling ofthe accused about the morality or honesty of the act or its consequences is no more relevant to the analysis than is the accused'sawareness that the particular acts undertaken constitute a criminal offence. 25 This applies as much to the third head of fraud, "other fraudulent means", as to lies and acts of deceit. Although other fraudulentmeans have been broadly defined as means which are "dishonest", it is not necessary that an

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