R. v. Dipasquale, 93 DTC 5389, [1994] 1 CTC 131 (Ont. G. D.)

Sheppard, J.:—This is an appeal by the appellant from his conviction on one count of wilfully evading payment of taxes in the amount of $95,967 imposed by the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") in respect of his failure to declare income in the amount of $329,613 for the taxation years 1984, 1985 and 1986 contrary to paragraph 239(1 )(d) of the Income Tax Act.

Counts 2, 3 and 4 in the Information were stayed by the learned provincial court judge. Count 2 charged the appellant with making a false statement in his 1984 income tax return by failing to declare income in the amount of $94,854 contrary to paragraph 239(1 )(a) of the Act; count 3 charged the appellant in the same terms as in count 2 except that the amount of undeclared income was stated to be $105,192 and it related to the appellant’s 1985 taxation year; and count 4 charged the appellant in the same terms as counts 2 and 3 except that the amount of undeclared income was stated to be $129,567 and it related to the appellant's 1986 taxation year.

With respect to the validity of count 1 framed in the manner it was, charging evasion of the payment of income tax in a lump sum relating to a series of taxation years, I discussed this point in R. v. Fogazzi, [1992] 2 C.T.C. 321, 92 D.T.C. 6421 and held that such a charge is an offence which is unknown to income tax law. On April 19, 1993, the Ontario Court of Appeal overruled me on the point concerning the taxability of the amount there in issue but the court made no comment on that part of my decision concerning the validity of a count concerning multiple taxation years. I am still of the view that such a charge is an offence which is unknown to income tax law for the reasons stated in Fogazzi, supra. Consequently, I am obliged to declare count 1 a nullity and the Court quashes count 1 in the information. In the result, the conviction must be and it is hereby as well quashed.

Counsel for the respondent urged the court to apply sections 822 and 683(1 )(g) of the Criminal Code to amend count 1 and subdivide it into three counts, each charging an offence against paragraph 239(1 )(d) of the Act and each relating to one taxation year. He suggested that I could do that by using the amounts stated to be undeclared income in counts 2, 3, and 4 and applying them to each of the taxation years 1984, 1985 and 1986. Paragraph 683(1 )(g) allows the Court to amend the indictment and by section 2 an indictment includes an information or a count therein. Any amendment I make would have to conform to the evidence. A charge under paragraph 239(1 )(d) of the Act is a charge alleging the wilful evasion of the payment of taxes imposed by the Act. As every taxpayer knows, the tax calculation is the application of the appropriate rate of tax to the taxable income so calculated. Taxable income is the net income of a taxpayer calculated in accordance with the act minus deductions permitted in computing taxable income. There was no evidence as to what amount of tax the appellant sought to evade with respect to each of his 1984, 1985 and 1986 taxation years. This is the thrust of a paragraph 239(1 )(d) offence. The amounts of income stated in counts 2, 3 and 4 fulfil the thrust of a paragraph 239(1)(a) offence because by failing to report such amounts the appellant made a false statement in his return of income but without the further calculations of the fax sought to be evaded the thrust of a paragraph 239(1 )(d) offence is not made out. The learned trial judge did not make any such distinction in his reasons, (there was no reason why he should) and the evidence led at trial did not make any such distinction so there is no evidentiary basis upon which the court could amend count 1 and divide it into 3 counts each alleging a paragraph 239(1 )(d) offence in respect of each of the taxation years 1984, 1985 and 1986.

If 1 am incorrect in my view expressed above, then I shall deal with the other grounds of appeal: namely, the learned trial judge erred in his decision with respect to the actus reus of the offence and with respect to the mens rea of the offence.

I agree with counsel for the appellant that the learned trial judge erred on both issues.

With respect to an offence charged under paragraph 239(1 )(d) of the Act, the act is the wilful evasion of the payment of taxes imposed by the Act. As I stated earlier, the amount of tax payable is a calculated amount in respect of each taxation year. The Crown charged the appellant with failing to pay income tax on undeclared income in the amount of $329,613. The Crown alleged that this money represented unreported income from the appellant’s medical practice; specifically, from his dispensing drugs and other medication. The Court below accepted the appellant's evidence that some of this alleged unreported income, as evidenced by bank deposits, was not income at all but proceeds from the sale of assets and repayment of loans. The Court therefore reduced the amount of undeclared income from $329,613 to $202,000, and found the appellant guilty on the reduced amount. In coming to this conclusion the Court said at page 5 line 20:

The question arises, how does a man overlook reporting over a three-year span a total of $202,000 or (emphasis added) up to $329,000 of income?

With respect to the learned trial judge, this does not appear to be a finding of fact beyond a reasonable doubt as to the amount of undeclared income. Further, the appellant claimed at trial that he had failed to deduct losses suffered from the rental of properties and he adduced evidence to support this position. The learned trial judge seemed to accept this evidence when he said at page 5 line 2 of his reasons:

As it turned out, the defendant had estimated his rental income for tax purposes as well. In this case, he had lost a good deal more in his family’s real estate business than he had estimated.

Having accepted this evidence, it would appear that the learned trial judge then failed to give any effect to it in calculating the appellant's income. The appellant claimed in his factum at paragraph 16:

At the end of the day, if Dr. DiPasquale had computed his drug income, and all other incomes, losses and expenses, instead of estimating them, Dr. DiPasquale would have paid tax on $68,000 less than the amount he actually declared.

With respect to the actus reus of the offence, it would appear that the learned trial judge erred in not considering all the evidence and making the necessary findings of fact relevant to the determination of the amount of the appellant’s income in respect of each taxation year.

With respect to the mens rea of the offence, a charge of wilful evasion is a specific intent offence. A court must find on the evidence beyond a reasonable doubt an intent to evade the payment of income tax. Carelessness or recklessness without knowledge of the facts constituting the offence is not sufficient. Wilful blindness may be the equivalent of knowledge if the facts are such that a court can infer knowledge (see R. v. Sandhu (1989), 50 C.C.C. (3d) 492, 73 C.R. (3d) 162 (Ont. C.A.)

In this case, the learned trial judge found the appellant to have been wilfully blind and therefore found him to be guilty.

It appears that he may have come to this decision by asking the question: "how does a man overlook reporting over a three-year span a total of $202,000 or up to $329,000 of income? This averages out at about $70,000 to $110,000 of undeclared income per year.”

With respect, the finding that the appellant was wilfully blind in the sense that he knew that he was evading the payment of tax is totally inconsistent with the evidence that had he computed his tax correctly he would have paid less tax than he did. The evidence was such that the appellant was careless, indeed possibly reckless, but, in my view, the evidence is insufficient to raise the level of motivation to that of knowledge or wilful blindness.

I would allow the appeal, quash the conviction and order a new trial, subject to the continuing validity of count 1 as previously discussed. “I would also allow the appeal again” sentence for the reasons contained in the appellant's factum but that can be better addressed later.

Appeal allowed.