Her Majesty the Queen, Respondent v. Wallace Robson, Appellant, 98 DTC 6452, [1999] 2 CTC 171 (Ont CA)

Krever J.A.:

The Conviction Appeal

We will assume that on the case as framed and presented by the Crown, the Crown was required to show that the secret commissions paid to Quenneville constituted employment income (as opposed to any other form of taxable income) in the hands of Quenneville. We read R. v. Poynton (1972), 9 C.C.C. (2d) 32 (Ont. C.A.) as directly on point and against the appellant’s submission that the secret commissions could not be employment income. Poynton holds that “kickbacks” paid to an employee by subcontractors doing business with the employee’s employer were taxable income within the meaning of s. 3 of the Income Tax Act and that the payments constituted employment income within the meaning of s. 5 of the Act as it then stood. The terms of the former s. 5 are now found in ss. 5 and 6 of the Income Tax Act. Evans J.A., for the court, said, at p. 43:

... There is no difference between money and money’s worth in calculating income. They are both benefits and fall within the language of sections 3 and 5 of the Act, being benefits received or enjoyed by the respondent in respect of, in the course, or by virtue of his office or employment. I do not believe the language to be restricted to benefits that are related to the office or employment in the sense that they represent a form of remuneration for services rendered. If it is a material acquisition which confers an economic benefit on the taxpayer and does not constitute an exemption, e.g., loan or gift, then it is within the all embracing definition of s. 3.

This passage was quoted with approval by the Supreme Court of Canada in À. v. Savage (1983), 83 D.T.C. 5409 (S.C.C.) at 5413. In Savage, the court accepted that the words of s. 5 (now s. 5 and s. 6) have a very wide scope and go beyond payments made by employers as remuneration for services provided.

If a taxpayer receives a benefit because of his or her employment then it must be said that the benefit was received in respect of or by virtue of the employment. This is so whether the benefit comes from the employer or a third party. Subject to any applicable exemption or exception, the benefit is, therefore, income from employment within the meaning of s. 5 and s. 6 of the Income Tax Act.

On the evidence, the suppliers paid benefits to Quenneville only because Quenneville’s position with Fleetwood enabled him to direct specific contracts to specific suppliers. Absent Quenneville’s employment and the authority it gave him over the business affairs of Fleetwood, the suppliers would not have paid the benefits. We need not, and do not, decide whether other more tenuous connections between the taxpayer’s employment and a benefit received by that taxpayer would suffice to make that benefit employment income within the meaning of ss. 5 and 6.

It was ultimately for the jury to decide whether, on the facts as they found them to be, the benefits paid by the suppliers constituted employment income in the hands of Quenneville as defined in the Act and explained by the trial judge. Once the jury found, as they clearly did, that each of the various corporations to which the suppliers made payments at Quenneville’s directions was a sham with no legitimate business purpose, it was inevitable that the jury would find that the benefits paid by the suppliers constituted employment income in the hands of Quenneville.

The trial judge’s instructions with respect to the use of the acts and declarations of Quenneville and others against the appellant was incomplete, confusing, and probably unnecessary. It was also wrong to instruct the jury that Quenneville’s admissions made upon his guilty plea to the same charges could have any evidentiary value against the appellant.

We are, however, satisfied that these errors occasioned no substantial wrong or miscarriage of justice. Given our interpretation of the relevant provisions of the Income Tax Act, there were only two live issues at trial:

• Were the benefits paid to Quenneville?

• If the benefits were paid to Quenneville, was the appellant aware that they were secret commissions paid to Quenneville in relation to his employment with Fleetwood?

The evidence on both these issues was overwhelmingly against the appellant. Indeed, in this court the appellant through counsel conceded that he was party with Quenneville to a scheme to evade the payment of income tax. He took the position, however, that his involvement was limited to cer- tain interest payments which were fraudulently attributed to a third party rather than Quenneville. The appellant did not testify and, in our view, no reasonable jury, properly instructed, could come to any conclusion other than that he was privy to the entire fraudulent scheme.

The conviction appeal is dismissed.

The appellant received a sentence of 3 years. Quenneville had pleaded guilty to the same charges earlier and received a sentence of 2 years less a day. That sentence was the product of a joint submission. We are troubled by the disparity. The benefits were the product of Quenneville’s criminal activity. He was the source of, the driving force behind, and the sole beneficiary of this fraudulent scheme. The appellant received only normal accounting fees. The appellant was, however, crucial to the scheme. He had the expertise and the stature as an accountant needed to fashion and implement the scheme. In doing so, the appellant clearly breached his professional obligations and did a great disservice to his family, his community, his profession in general and, in particular, to the other accountants with whom he worked. The duration and complexity of the scheme are also aggravating features of this case.

Quenneville pleaded guilty, although he denied his guilt when he testified at the appellant’s trial. He was no doubt given credit on sentence for his guilty plea. The appellant cannot, however, be punished for exercising his right to a trial.

Balancing the various factors as best we can, we conclude that the trial judge erred in principle in imposing a greater sentence on the appellant than was meted out to Quenneville. We think the same sentence, 2 years less a day, would give effect to the applicable sentencing principles and avoid unjustifiable disparity.

Leave to appeal sentence is granted. The appeal is allowed and the sentence is reduced to 2 years less I day.

Appeal from conviction dismissed; Appeal from sentence allowed.