Tax & Trade Blog

This is an update of our May 2018 blog regarding Samaroo v. Canada Revenue Agency (2018 BCSC 324), a landmark decision for a successful claim against the Canada Revenue Agency (“CRA”) for malicious prosecution.  The underlying prosecution involved allegations that Tony and Helen Samaroo (the “Samaroos”) and their companies evaded income tax by not reporting income generated by their businesses.  The Samaroos were also charged criminally for tax evasion. After their acquittals of all the charges in the criminal trial, the Samaroos brought an action against the CRA for malicious prosecution.  The trial judge found the CRA liable principally because its investigator knew that the actus reus of the tax evasion offence could not be proven, misled others involved in the prosecution and, by abusing his office, acted with malice.  At the end, the trial judge ordered the CRA to pay approximately $1.7 million in damages to the Samaroos.

The Ontario Ministry of Finance is continuing to “lead the charge” against Ontario tobacco wholesalers – turning the industry upside down with assessments worth tens of millions of dollars for failure to collect the Ontario Provincial Tobacco Tax (PTT) on sales of cigars and other non-cigarette tobacco (loose tobacco, pipe tobacco chewing tobacco, snuff, etc.) to Status Indians on Federal Indian reserves.

For many wholesalers these assessments come as a complete surprise, and often years after the actual sales have been made, resulting in significant interest amounts owing on top of the penalty assessed.

When it comes to policing Canada’s voluntary tax compliance system (for income taxes and the GST/HST), the CRA has several effective enforcement weapons in its arsenal. One weapon that one does not often see employed is international extradition of individuals wanted for Canadian tax evasion and/or fraud.

One recent case made the headlines in Canada, when the CRA announced March 11, 2019 that a man living in Costa Rica has been successfully extradited to Canada under charges of tax fraud.

Section 182 of the Excise Tax Act (“ETA”) generally deems any payment made to a registrant as a consequence of a breach, modification, or cancellation of an agreement (other than as consideration for a supply), to be a taxable supply. This rule, in effect, means that where there is a breach of an agreement to supply property or services, a payment to the supplier by the recipient to compensate for that breach will generally be deemed to include GST/HST.

Unfortunately, section 182 is often overlooked by parties resolving legal disputes, as the recent Tax Court of Canada (“TCC”) decision in THD Inc. c. La Reine, 2018 CCI 147 demonstrates.

Special rules in the Excise Tax Act (“ETA”) provide the Canada Revenue Agency (“CRA”) with tools to request or require information for verification and administrative purposes. The CRA can send out a “requirement to provide information” – known as RFI – relating to the enforcement of Part IX of the ETA to a registrant or third party (section 289). Where the person refuses to comply with an RFI, the Minister may make an application to the Federal Court and obtain a “compliance order” and, if the person still fails to comply with the compliance Order and provide the information as ordered, the person can be subject to contempt of court penalties (section 289.1). (Note that there are parallel provisions under the Income Tax Act (“ITA”): see section 231.2(1) and section 231.7 of the ITA).

As shown in the recent federal court decision, Minister of National Revenue v. Chi (2018 FC 897), contempt of court is a serious offence and failure to properly respond to a CRA RFI can lead to substantial fines and/or imprisonment.