R. v. Landes, [1988] 1 CTC 124 (Queb. Ct. S.P.)

Schecter, Ct. S.P.J:—As appears from the above title, there are three separate cases and three accused in the trial before me. The Crown proceeded in case number 27-009753-76 where Maurice Landes is the accused, and, by consent, the proof adduced in that case was declared to be common to all three cases. The accused were charged with violating subsection 239(1) of the Income Tax Act (analogous to subsection 132(1) under the old Act) i.e. that they were guilty of the offences of making false or deceptive statements in their income tax returns (paragraph 239(1)(a)), and wilfully evading payment of taxes imposed by the Act (paragraph 239(1)(d)).

The pertinent provisions of subsection 239(1) of the Act declare:

Sec. 239, (1): Every person who has

(a) made, or participated in, assented to or acquiesced in the making of, false or deceptive statements in a return, . . .filed or made as required by or under this Act or a regulation. . .

(d) wilfully, in any manner, evaded or attempted to evade, compliance with this Act or payment of taxes imposed by this Act,. . .

is guilty of an offence and, in addition to any penalty otherwise provided, is liable on summary conviction to

(a) a fine of not less than 25% and not more than double the amount of the tax that was sought to be evaded, or

(g) both the fine described in paragraph (f) and imprisonment for a term not exceeding 2 years.

[Emphasis added.]

More particularly, Maurice Landes was charged as follows in case no. 27-009753-76:

1. Le ou vers le 30 avril 1968 a illégalement fait une déeclaration fausse ou trompeuse dans sa déclaration de revenus faite en vertu de la Loi de l'impôt sur le Revenu, S.R.C. 1952, chap. 148 et ses amendements, pour l'année d’imposition 1967, savoir: en omettant dans ladite déclaration un revenu au montant de $10,000.00, commettant par là une infraction prévue à l'alinéa 239(1)(a) de ladite Loi de l'impôt sur le Revenu;

2. Le ou vers le 30 avril 1969 a illégalement fait une déclaration fausse ou trompeuse dans sa déclaration de revenus faite en vertu de la Loi de l'impôt sur le Revenu, S.R.C. 1952, chap. 148 et ses amendements, pour l'année d'imposition 1968, savoir: en omettant dans ladite déclaration un revenu au montant de $19,488.55, commettant par là une infraction prévue à l'alinéa 239(1)(a) de ladite Loi de l'impôt sur le Revenu;

3. Le ou vers le 30 avril 1970 a illégalement fait une déclaration fausse ou trompeuse dans sa déclaration de revenus faite en vertu de la Loi de l'impôt sur le Revenu, S.R.C. 1952, chap. 148, et ses amendements, pour l'année d'imposition 1969, savoir: en omettant dans ladite déclaration un revenu au montant de $3,500.00, commettant par là une infraction prévue à l'alinéa 239(1)(a) de ladite Loi de l'impôt sur le Revenu;

4. Le ou vers le 30 avril 1971 a illégalement fait une déclaration fausse ou trompeuse dans sa déclaration de revenus faite en vertu de la Loi de l'impôt sur le Revenu, S.R.C. 1952, chap. 148 et ses amendements, pour l'anée d'imposition 7970, savoir: en omettant dans ladite déclaration un revenu au montant de $2,150.00, commettant par là une infraction prévue à l'alineâ 239(1)(a) de ladite Loi de l'impôt sur le Revenu;

5. Le ou vers le 30 avril 1972 a illégalement fait une déclaration fausse ou trompeuse dans sa déclaration de revenus faite en vertu de la Loi de l'impôt sur le Revenu, S.R.C. 1952, chap. 148 et ses amendements, pour l’année d'imposition 1971, savoir: en omettant dans ladite déclaration un revenu au montant de $19,272.31, commettant par là une infraction prévue à l'alinéa 239(1)(a) de ladite Loi de l'impôt sur le Revenu;

6. Entre le 1er janvier 1967 et le 30 avril 1972 a volontairement éludé le paiement d'un impôt établi en vertu de la Loi de l'impôt sur le Revenu, S.R.C. 1952, chap. 148 et ses amendements, pour les années d'imposition 1967, 1968, 1969, 1970 et 1971 inclusivement, en omettant dans ses déclarations de revenus pour lesdites années d'imposition un revenu au montant total de $54,410.86, éludant ainsi le paiement d'un impôt au montant de $12,281.93, commettant par là une infraction prévue à l'alinéa 239(1)(d) de ladite Loi de l'impôt sur le Revenu.

In file number 27-009754-76, there are three co-accused: Le Village International Incorporé, Jean-C. Larue (president); Maurice Landes (vice- president).

There is one count against the three accused which reads as follows:

Entre le 1er janvier 1968 et le 30 juin 1972 ont volontairement éludé le paiement d'un impôt établi en vertu de la Loi de l'impôt sur le Revenu, S.R.C. 1952, chap. 148 et ses amendements, pour les années d’imposition 1968, 1969, 1970 et 1971 inclusivement en ne produisant pas de déclaration de revenus pour la compagnie pour lesdites années d’imposition, éludant ainsi le paiement d'un impôt au montant de $7,351.05, commettant par là une infraction prévue à l'article 239(1)(d) de ladite Loi de l'impôt sur le Revenu.

In file number 27-009755-76, the accused is Jean-C. Larue, and he is charged as follows:

1. Le ou vers le 30 avril 1966 a illégalement fait une déclaration fausse ou trompeuse dans sa déclaration de revenus faite en vertu de la Loi de l'impôt sur le Revenu, S.R.C. 1952, chap. 148 et ses amendements, pour l'année d’imposition 1965, savoir: en omettant dans ladite déclaration un revenu au montant de $7,800.00, commettant par là une infraction prévue à l'alinéa 239(1)(a) de ladite Loi de l'impôt sur le Revenu;

2. Le ou vers le 30 avril 1968 a illégalement fait une déclaration fausse ou trompeuse dans sa déclaration de revenus faite en vertu de la Loi de l'impôt sur le Revenu, S.R.C. 1952, chap. 148 et ses amendements, pour l'année d'imposition 1967, savoir: en omettant dans ladite déclaration un revenu au montant de $10,000.00, commettant par là une infraction prévue à l'alinéa 239(1)(a) de ladite Loi de l'impôt sur le Revenu;

3. Le ou vers le 30 avril 1969 a illégalement fait une déclaration fausse ou trompeuse dans sa déclaration de revenus faite en vertu de la Loi de l'impôt sur le Revenu, S.R.C. 1952, chap. 148 et ses amendements, pour l'année d'imposition 1968, savoir: en omettant dans ladite déclaration un revenu au montant de $19,488.55, commettant par là une infraction prévue à l'alinéa 239(1)(a) de ladite Loi de l'impôt sur le Revenu;

4. Le ou vers le 30 avril 1970 a illégalement fait une déclaration fausse ou trompeuse dans sa déclaration de revenus faite en vertu de la Loi de l'impôt sur le Revenu, S.R.C. 1952, chap. 148 et ses amendements, pour l'année d'imposition 1969, savoir: en omettant dans ladite déclaration un revenu au montant de $3,500.00, commettant par là une infraction prévue à l'alinéa 239(1)(a) de ladite Loi de l'impôt sur le Revenu;

5. Entre le 1er janvier 1965 et le 30 avril 1970 a volontairement éludé le paiement d'un impôt établi en vertu de la Loi de l'impôt sur le Revenu, S.R.C. 1952, chap. 148 et ses amendements, pour les années d'imposition 1965, 1967, 1968 et 1969, en omettant dans ses déclarations de revenus pour lesdites années d'imposition un revenu au montant total de $40,788.55, éludant ainsi le paiement d'un impôt au montant de $5,696.94, commettant par là une infraction prévue à l'alineâ 239(1)(d) de ladite Loi de l'impôt sur le Revenu.

In respect to the second case, (27-009754-76) the Crown has filed a "nolle prosequi" quoad the accused, "Le Village International Inc.", because the character of that corporation had been annulled since June 16, 1973 for failure to produce annual reports. (See Ex. D-1).

Nevertheless, the liability, if any, of the two individuals accused in the same case, as officers of the corporation, remains unchanged and unimpaired, pursuant to section 242 of the Income Tax Act (hereafter referred to as "the Act").

Section 242:

Where a corporation is guilty of an offence under this Act, an officer, director or agent of the corporation who directed, authorized, assented to, acquiesced in, or participated in, the commission of the offence is a party to and guilty of the offence and is liable on conviction to the punishment provided for the offence whether or not the corporation has been prosecuted or convicted.

The Facts

The facts of the case emerge very clearly from the documents and exhibits produced. Still, it is necessary to outline the circumstances in some detail.

Prior to the advent of Expo 1967, the two accused, Landes and Larue, incorporated a Quebec Company known as "Le Village International Inc.” (hereinafter referred to as "the Corporation"), the letters patent bearing the date, September 20, 1966. (Exhibit P-5). Among the many purposes specifically mentioned in the charter of the Corporation are the following: To build, lease, sell, and exploit hotels, taverns, motels and restaurants, and to carry on all kinds of businesses incidental to the business of hotel keepers; to carry on the business of ticket agents and tourist offices, and to deal with persons involved in transport whether by land, sea or air; to prepare construction sites and theron to erect buildings; to make leases and collect the revenue therefrom.

It soon becomes amply clear that the letters patent of the Corporation contemplate and anticipate precisely the type of business which, in fact, was ultimately carried on by the accused and their partners, and which generated the moneys of which the accused received their fair share. It is manifest that the charter was obtained for the purpose of using it as a vehicle for the proposed enterprise, which is the subject of the tax investigation in the case at bar. On December 7, 1966, shortly after receiving its charter, the Corporation entered into a notarial agreement (P-7, hereinafter referred to as "the Agreement") with two other Montreal companies, Paré et Quart Ltée. and Les Entreprises Désourdy Ltée., who were active in the field of construction and engineering. The accused, Maurice Landes and Jean-C. Larue, both officers of the Corporation, also appear as parties to the Agreement, together with two representatives from each of the other two participating companies.

The Agreement merits careful study. It states, inter alia, that the Corporation has acquired a valid lease for a large tract of land facing the Expo Marina; that the parties have agreed to launch a “Joint Venture" for the purpose of building on the said land, temporary chalets destined to lodge visitors to Expo 1967; and the Corporation represents that its lease permits the implementing and execution of such a project.

The Agreement enumerates the respective duties and obligations of the parties, but it is clear that the principal contribution of the Corporation was to furnish, for the purposes of the Joint Venture, the exclusive use of its prime land, from the date of the Agreement to the expiration of the Corporation's lease on December 31, 1967.

The Agreement further stipulates that the losses and profits of the Joint Venture were to be borne and shared in equal proportions by the Corporation (50 per cent), and by the other two companies (25 per cent each). The Agreement defines "profits" as including "the net benefits resulting from the sale of the chalets after Expo". (My translation).

The main function of Paré et Quart Limitée and Les Entreprises Désourdy Limitée was to furnish the necessary finance for the Joint Venture and to construct at least 25 chalets containing 100 rooms, which chalets would immediately become the property of the Joint Venture. The Corporation obliged itself to obtain from its lessor, the Trizec corporation, a written consent which would permit the joint venture to dispose gradually of all of its chalets during a period of six months following the termination of the lease, the whole without indemnity. Landes and Larue personally guaranteed all the obligations of the Corporation. The Crown makes much of Clause 8 of the Agreement, which states that each of the six individual parties to the Agreement, including the accused, would have the right to receive a fee ("un honoraire") of $10,000, for which fee Landes would be required to render services normally executed by a Notary, and Larue would assist in the public relations ("Promotion") and "hôtellerie" of the Joint Venture.

The enterprise proposed in the Agreement was carried out successfully, and prospered to the point where, on May 31, 1968, Mr. Gilles Doré, C.A., accountant for the Joint Venture, was able to report that, from April 1967 to March 31, 1968, the operation had realized gross revenues of $1,374,839.26 comprised principally of the following two items:

The auditor's report showed an operating profit of $161,000.24 as at March 31, 1968, which was later increased by an additional sum of $16,253.96 realized from the mopping-up operation carried on to August 27, 1971. (Ex. P-12, P-13a, P-13b, P-13c, P-13d).

In other words, the total profits of the Joint Venture amounted to $177,254.20 (Exhibit P-13d), and the Corporation was entitled to receive 50 per cent of these profits. In fact, the full share of the Corporation was paid out to Landes and Larue personally, on their request and instructions.

Several additional, cogent facts were elicited from the testimony, and from the admissions which were filed in the record:

1- Unlike the accused, Paré et Quart Ltée. and Les Entreprises Désourdy Ltée., both partners in the Joint Venture, duly declared to the Income Tax Department, the profits which they realized from the enterprise;

2- The Corporation did not, at any time, file income tax returns for the taxation years 1968 to 1971, and it was Mr. Yvon Demers who reconstituted and prepared these returns (P-23); Mr. Demers was the investigator of the Department;

3- Apart from the profits realized from the Joint Venture, which were not reported by Landes and Larue, there are two other items which Landes failed to report and which are indisputably taxable professional fees, namely a fee of $10,000 paid to Landes by Famous Players Limited, and a fee of $7,574.20 paid to him by Bijar Ltée. These fees do not appear anywhere in the records kept by Landes (P-20). Likewise, Larue received several large sums from Triagone Inc., a company with which he and Landes were associated, and he failed to report these payments, although the company entered them as fees.

The Argument

There are two issues to be resolved in the instant case:

Firstly: Are the sums collected by the accused from the Joint

Venture, capital receipts, or income subject to tax?

(Obviously, if the sums are not taxable income, then the case falls ab initio);

Secondly: Even if the moneys are taxable income, are the accused, in

the circumstances, criminally liable and subject to the penalties provided by subsection 239(1) of the Income Tax Act?

The Minister seeks to have the profits designated as income, taking the position, (in the language of the Supreme Court in the case of Irrigation Industries Ltd. (infra)) that the transaction in question resulted in "a gain made in an operation of business, in carrying out a scheme for profitmaking . . . an adventure in the nature of a trade, and that consequently the profit arising from it was taxable. [Emphasis added.]

The accused, in their defence, argue that the profits represent a capital gain, and are not taxable. The position of the accused has the attraction of simplicity. They say: We realized our profit from the Joint Venture because we liquidated a profit-earning asset, indeed, the entire substance of our business, and it follows therefore that we made a capital gain. They also have a subsidiary approach to the problem. They say: Our partners were involved, as part of their regular business, in construction, development, operation of hotels, motels, restaurants, etc, but for us it was not part of our regular business, and we realized our gain by way of a casual, isolated transaction and only when the chalets, the buildings were finally disposed of. Landes candidly admits that the two sums received from Famous Players and Bijar were professional fees, which were inexplicably but inadvertently omitted from his records, and Larue claims that the moneys which he received from Triagone were refunds of disbursements which he had made on behalf of the Company.

Before embarking on an analysis of the foregoing facts, and a study of the law applicable to the present case, I believe that a few brief comments are in order.

I am obligated to counsel for both parties, who were of great assistance to the Court by producing a series of admissions, (P-25) as well as mathematical tables, which provided me with all the necessary calculations and computations, and spared me from involvement in a maze of figures which are normally the speialized and arcane domain of bookkeepers and auditors. The manner and thoroughness with which this case has been investigated and prepared by the Department were of considerable help to the Court, and reflect much credit upon Mr. Yvon Demers, who was in charge of the investigation and who prepared a meticulous audit. Due to his efforts, I have been saved a great deal of labour. I am also indebted to counsel for their exhaustive research of case law and their excellent presentations.

Upon commencing this trial, I thought that it would have been appropriate, and, indeed, necessary, for the Minister of National Revenue first to determine whether the profits in question were capital gains or income subject to tax, before a prosecution could proceed successfully. My thinking was in conformity with that of the trial judge in the case of Ciglen (infra) who held that the Minister, rather than the Court, had the duty of designating whether the impugned transactions resulted in taxable income or capital gains. However, the Ontario Court of Appeal and the Supreme Court of Canada decided, in that case, that the trial judge had erred in law in this respect, and it is, therefore, necessary for me to launch into the fine distinctions of this labyrinthian problem of income tax law, and to render judgment on this thorny and much debated point.

It also occurred to me, as it did to Marshman, ]., in the case of Greer (infra), (where numerous items of taxable income had been omitted), that the Minister might have proceeded against the accused in this case by way of reassessment, rather than by laying criminal charges, bearing in mind that the omissions complained of, in the main, referred to one isolated transaction. However, my reflection was merely speculative and not made in the spirit of criticism, because I must assume that the Minister had his reasons for choosing this forum. Perhaps the taxpayers were intransigent in the position which they assumed, and the Minister decided to employ the heavy artillery of the Criminal Code and to deal with them as firmly as possible in order to collect the sums allegedly due. More to the point, the Minister obviously decided that the accused had omitted certain items of income with a "guilty-intent", with a “culpable mind”, and it is for that reason, no doubt, that the Department decided to lay charges before this Court, rather than to proceed by way of reassessment.

The Law

"A"

Firstly: Are the Sums Received by the Accused, Capital Gains or Taxable Income?

What are the criteria which distinguish business income from capital receipts? One thing is certain: there is no single criterion which can serve as a conclusive and definitive guide. The Canadian tax authorities have listed six factors which serve as guidance to help decide the issue, and cite a multitude of cases illustrating these factors.

(See CCH Canadian Limited, Canadian Tax Reporter, 2nd Edition, Volume 2, pages 5165 et seq., Sections 6078-6200) :

(Here it is to be noted that many of the cases cited in the present case were decided before the 1971 amendments to the income tax law making 50 per cent of capital gains taxable. However, the cases distinguishing between taxable income and exempt capital receipts may still be used in determining whether a profit is business income or capital gains.)

The six factors are the following:

(1) Intention;

(2) Number and Frequency of Transactions;

(3) Relation to Taxpayer's Regular Business;

(4) Nature of the Transaction;

(5) Declared Objects of a Corporation;

(6) Type of Asset Being Disposed of — Fixed and Circulating Capital.

At page 5165 (CCH, supra):

(1) Intention

. . . One of the most important factors in determining whether a receipt is business income or capital is whether the taxpayer intended to make a profit when he entered into the transaction.

At page 5166:

. . . In Jones v. Leeming (1930), A.C. 415 it was made apparent that although intention is an important factor, intention alone is not conclusive in determining whether a transaction is taxable . . .

. . . the intention with which a taxpayer purchases property is most important in determining whether a profit on the resale of the property is income or is capital. However, such intention does not appear to be conclusive . . .

At page 5221 :

. . . The Canadian Courts have shown a tendency in real estate cases to place the greatest emphasis upon the factor of intention, sometimes almost to the exclusion of other factors. It has been held that the profit realized from a single transaction in real estate was taxable when the property was purchased with the intention of reselling it at a profit (Chabot v. M.N.R., 55 DTC 355 (T.A.B.)). The intention, of course, will ordinarily be gathered from all the evidence including the taxpayer's whole course of conduct and not simply from his statement as to what his intention was (Campbell v. M.N.R., 52 DTC 1187 (S.C.C.)).

The wide divergence of opinion in respect to the weight to be attributed to the taxpayer's intention is well illustrated by the decision of the Supreme Court in the case of Irrigation Industries Ltd. v. M.N.R., [1962] C.T.C. 215; 62 D.T.C. 1131, Martland, J., (for the majority) at page 219; D.T.C. 1133:

In my opinion, a person who puts money into a business enterprise by the purchase of the shares of a company, on an isolated occasion, and notas part of his regular business, cannot be said to have engaged in an adventure in the nature of trade merely because the purchase was speculative in that, at that time, he did not intend to hold the shares indefinitely, but intended, if possible to sell them at a profit as soon as he reasonably could. I think that there must be clearer indication of "trade" than this before it can be said that there has been an adventure in the nature of trade. [Emphasis added.]

And at page 223; D.T.C. 1135, Martland, J., says on the "Question of Intention”:

The only test which was applied in the present case was whether the appellant entered into the transaction with the intention of disposing of the shares at a profit so soon as there was a reasonable opportunity of so doing. Is that a sufficient test for determining whether or not this transaction constitutes an adventure in the nature of trade? I do not think that, standing alone, it is sufficient.

[Emphasis added.]

Cartwright, J., speaking for the dissenting minority, held the view (but with some hesitation) that the intention of the taxpayer should be considered the deciding factor.

At page 230; D.T.C. 1136:

lt appears to me to involve the result that in cases of this nature the answer to the question whether profit is or is not taxable depends on the purely subjective test as to the intention of the taxpayer. . . It seems strange that the question whether a certain profit is subject to tax should depend on the intention with which the taxpayer entered into the transaction from which it resulted, but the words of Bowen, L.J. in Edgington v. Fitzmaurice (1885), 29 Ch. D. 459 at p. 483, have often been quoted with approval:

. . . the state of a man's mind is as much a fact as the state of his digestion. It is true that it is very difficult to prove what the state of a man's mind at a particular time is, but if it can be ascertained it is as much a fact as anything else . . .

In McIntosh v. M.N.R., [1958] S.C.R. 119, Kerwin, C.J., delivering the judgment of the Court said at page 121:

It is impossible to lay down a test that will meet the multifarious circumstances that may arise in all fields of human endeavour . . . it is a question of fact in each case. [Emphasis added.]

At page 5175 (CCH Supra):

(2) Number and Frequency of Transactions

. . . Another important factor in determining whether profit derived from a transaction is capital or income is the frequency with which the taxpayer has engaged in such transactions.

At page 5176:

. . .However, the fact that a transaction is isolated is not conclusive that the profit realized is not income. If a single transaction is in the nature of trade, it may result in a profit of an income nature.

At page 5179:

. . . It has been decided in a number of cases that a non-active or silent partner who was quite content to leave the handling of the business to another partner was in no different position that that of the active partner. Wiss v. M.N.R., 72 DTC 6231 (F.C.T.D.).

Single transaction in machinery — Profit from purchase and resale of used machinery was held to be taxable income of a taxpayer who admitted he had purchased the machinery for resale. Although the transaction was an isolated one, it was nevertheless an adventure in the nature of trade within the meaning of section 139(1)(e). Chutter v. M.N.R., 55 DTC 1239 (Ex. Ct.).

(3) Relation to Taxpayer's Regular Business

. . . The relation of a transaction to the regular business of a taxpayer is an important factor in determining whether a profit on the transaction is capital or income.

The reasoning behind this proposition is that:

At page 5182:

. . . if the taxpayer already is in a business of a similar nature to the transaction in question, it is more likely that the transaction will be considered part of his business, whereas if the transaction is completely removed from his normal field of activity, it is more unlikely that a business will be held to be carried on. Thus, in Whiteside v. M.N.R., 51 DTC 401 (T.A.B.), a single transaction in a timber limit by a solicitor was held not taxable. [Emphasis added.]

(4) Nature of the transaction

. . . The nature of the transaction will play an important part in determining whether an amount may be considered as a capital or income receipt. The type of asset involved; the purpose of the purchase; the method of sale; and the reason for sale all have an important bearing.

At page 5192 :

. . . One test that has been suggested for determining whether an isolated transaction is in the nature of trade is whether it is similar to transactions carried on by a person engaged in that line of business (C./.R. v. Livingston (1926), 11 T.C. 538). In that case three individuals purchased a cargo vessel, converted it into a steam drifter by their own labour and resold it at a profit. The profit was held to be taxable. The Lord President laid down the following test at p. 542:

I think the test, which must be used to determine whether a venture such as we are now considering is, or is not, “in the nature of trade”, is whether the operations involved in it are of the same kind, and carried on in the same way, as those which are characteristic of ordinary trading in the line of business in which the venture was made. If they are, I do not see why the venture should not be regarded as "in the nature of trade" merely because it was a single venture which took only three months to complete. [Emphasis added.]

At page 5201 :

(5) Declared Objects of a Corporation

It has been held in a number of cases that in determining whether a transaction by a corporation gives rise to an income receipt, it is of importance to determine whether the transaction in question is within the scope of its declared objects.

In the well known case of Anderson Logging Co. v. The King, [1925] S.C.R. 45; [1917-27] C.T.C. 198; 52 D.T.C. 1209, Chief Justice Duff quotes from the judgment of Lord Sterndale, M.R. in the English Court of Appeal decision in C.I.R. v. Korean Syndicate Ltd., [1921] 3 K.B. 258 at 273 as follows:

I do not admit, either, that there can be no difference for this purpose between an individual and a company. If once you get the individual and the company spending money on exactly the same basis, then there should be no difference between them at all. But the fact that the limited company comes into existence in a different way from that in which an individual comes into existence is a matter to be considered. An individual comes into existence for many purposes, or perhaps sometimes for none, whereas a limited company comes into existence for some particular purpose, and if it comes into existence for the particular purpose of carrying out a transaction by obtaining concessions and turning them to account, then that is a matter to be considered when you come to decide whether doing that is carrying on a business or not. [Emphasis added.]

At page 5204:

. . . If a company has only one object and it has only one transaction which is in furtherance of that object, any profit realized on the transaction will ordinarily be income (In re Hastings Street Properties Ltd. (1930), 3 W.W.R. 561 (B.C.C.A.)).

[Emphasis added.]

(6) Type of Asset Being Disposed of - Fixed and Circulating Capital

This factor is somewhat esoteric but the following cases may throw some light, by analogy and persuasion, on the principle involved and on the case before me.

Miller v. M.N.R., [1962] C.T.C. 199; 62 D.T.C. 1139, (Thurlow, J., Exchequer Court of Canada, March 23, 1962):

Held: The principles of law established that where a substantial part of a taxpayer's

business is sold, the amount received will be regarded as a capital gain. [Emphasis added.]

At page 207; D.T.C. 1144, Thurlow, J., says:

Sums Payable on Termination of Business

The question of when sums payable in connection with the termination of business arrangements are to be regarded as profits of a business and when as capital receipts has been considered in a number of English and Scottish cases which were referred to in the course of the argument and the principles applied in them appear from the following extracts. In C./.R. v. Fleming & Co. (Machinery), Ltd., 33 T.C. 57, Lord Russell stated the matter thus, at page 63:

The sum received by a commercial firm as compensation for the loss sustained by the cancellation of a trading contract or the premature termination of an agency agreement may in the recipient's hands be regarded either as a capital receipt or as a trading receipt forming part of the trading profit. It may be difficult to formulate a general principle by reference to which in all cases the correct decision will be arrived at since each case the question comes to be one of circumstance and degree. When the rights and advantages surrendered on cancellation are such as to destroy or materially to cripple the whole structure of the recipient's profit-making apparatus, involving the serious dislocation of the normal commercial organisation and resulting perhaps in the cutting down of the staff previously required, the recipient of the compensation may properly affirm that the compensation represents the price paid for the loss or sterilisation of a capital asset and is therefore a capital and not a revenue receipt. Illustrations of such cases are to be found in Van Den Berghs, Ltd., [1935] A.C. 431, and Barr, Crombie & Co., Ltd. [1945] S.C. 271.

At page 209; D. T. C. 1145 (citing Lord Normand in the case of Kelsall Parsons & Co.):

No infallible criterion emerges from a consideration of the case law. Each case depends upon its own facts. [Emphasis added.]

H.A. Roberts Limited v. M.N.R., [1969] C.T.C. 369; 69 D.T.C. 5249, (Supreme Court of Canada, June 6, 1969:)

Held: The payments totalling $83,000.00 received by the appellant Company on

the termination of its mortgage agency were capital receipts and not income subject to tax. A review of leading cases (both British and Canadian) led to the conclusions that the payments were payments of compensation for the termination of a separate business of the appellant and that the cancellation of the appellant's two agency contracts represented a loss of capital asset of an enduring nature, the value of which had been built up over the years. [Emphasis added.]

Barr, Crombie & Co. Ltd. v. C.I.R., 26 T.C. 406:

At page 412, Lord Moncrieff says:

In cases such as this, which are so dependent each upon its own complicated circumstances, it is not possible to get much guidance by way of comparison from the decisions in other related cases. I think, however, that a general guide for application in all such cases is to be found in the passage from Lord Cave's speech in the case of British Insulated and Helsby Cables Ltd. v. Atherton, [1926] A.C., at page 213; 10 T.C., at page 192 (as approved in the subsequent case of Van Den Berghs, Ltd. v. Clark, [1935] A.C., at page 439; 19 T.C., at page 429, by Lord Macmillan), in which he indicated that, when the transaction takes the form of a transfer from one party to another of something that has formed part of the enduring trading assets of one of them, any such transfer for a price points rather to a transaction on capital than on revenue account.

Van Den Berghs Limited v. Clark, [1935] A.C. 431; T.C. 390:

At page 438 (T.C. 428), Lord Macmillan says

My Lords, the problem of discriminating between an income receipt and a capital receipt and between an income disbursement and a capital disbursement is one which in recent years has frequently engaged your Lordships' attention. In general the distinction is well recognised and easily applied, but from time to time cases arise where the item lies on the borderline and the task of assigning it to income or to capital becomes one of much refinement, as the decisions show.

And at page 443 (T. C. 432):

I have not overlooked the criterion afforded by the economists' differentiation between fixed and circulating capital which Lord Haldane invoked in John Smith & Son v. Moore, 12 T.C. 266, and on which the Court of Appeal relied in the present case, but I confess that I have not found it very helpful. Circulating capital is capital which is turned over and in the process of being turned over yields profit or loss. Fixed capital is not involved directly in that process, and remains unaffected by it.

[Emphasis added.]

Parsons-Steiner Ltd. v. M.N.R. [1962] C.T.C. 231; 62 D.T.C. 1148, (Thurlow J., Exchequer Court of Canada, 1962,)

(This case likewise dealt with the question as to whether moneys derived from a business by a taxpayer was income, or a Capital receipt. The dispute centred over whether or not a payment of $100,000 made to the appellant upon severance of an agency relationship was an income or a Capital gain.)

Held: . . . To obtain exemption a party must show that he has actually parted

with one of his enduring capital assets . . . considering the duration of the agency, the unique quality of the product sold . . . the payment was regarded as compensation for loss of "a capital asset of an enduring nature" and was accordingly a capital receipt. [Emphasis added.]

Racine, Demers and Nolin v. M.N.R., [1965] C.T.C. 150; 65 D.T.C. 5098, Noël, J., at page 163 (D.T.C. 5114):

En effet, si un profit est un profit provenant d'un commerce ou d'une initiative d'une nature or d'un caractère commercial, il est imposable. Si le profit est fait par la vente d'une propriété qui n'a pas été faite dans le cours d'un commerce ou d'une telle initiative, il n'est pas imposable. Il est également clair que la vente par quelqu'un de toute son entreprise d’affaires ou commerciale (autrement que par un moyen prévu à l'art. 85E de la loi), n'est pas une transaction imposable. Il se pourrait en effet que, par ses efforts durant une période couvrant toute sa vie, un homme ait réussi à donner à un commerce qui n'avait aucune valeur une valeur de plusieurs millions de dollars. Cependant, lorsqu'il vend ses intérêts dans ce commerce ou se retire, il n'est pas imposable sur le gain capital provenant de la vente . . . Si en accomplissant ces choses les appelants avaient comme un des mobiles les dirigeant l'idée de revendre le commerce à profit, ce profit serait imposable. Si, d’autre part, tel que je le décide, ils accomplirent ces choses dans le cours de l'exécution de leur intention avouée d'opérer ce commerce indéfiniment, le profit provenant de la vente qu'ils firent dans ces circonstances n'est pas imposable. [Emphasis added.]

Courrier, MH, Inc, v. The Queen, [1976] C.T.C. 567; 76 D.T.C. 6331 (Federal Court, Trial Division (Dubé, J), August 19,1976):

The taxpayer was awarded two contracts for the transportation of mail but two months later, and before any service had been rendered, the contracts were cancelled by the Postmaster General. In the meantime the taxpayer had ordered 81 trucks and purchased premises in Montreal. Compensation of $293,015 was received by the taxpayer for the cancellation of the contracts, based on an estimate of expected proceeds for 3 months, and in addition the Postmaster General took over the 81 trucks and the Department of Public Works rented the premises from the taxpayer. The compensation was treated as business income by the Minister of National Revenue but as a capital sum by the taxpayer.

Held: . . .The compensation represented an amount received for the sterilization

of a capital asset and was not taxable.

At page 569 (D.T.C. 6333):

Claude Marcoux also testified that at the time he bid for the contracts he did not anticipate the course of events . . . [Emphasis added.]

In M.N.R. v. Import Motors Limited, [1973] C.T.C. 719; 73 D.T.C. 5530:

. .. my brother Urie held that, notwithstanding the form of the transaction, the business substance was the cancellation of the distributionship agreement, a capital asset which could never be recovered. At page 726 . . . he quoted Lord Russell in C./.R. v. Flemining & Co. (Machinery), Ltd., 33 T.C. 57, wherein he said at page 63 :

The sum received by a commercial firm as compensation for the loss sustained by the cancellation of a trading contract or the premature termination of an agency agreement may in the recipient's hands be regarded either as a capital receipt or as a trading receipt forming part of the trading profit. It may be difficult to formulate a general principle by reference to which in all cases the correct decision will be arrived at since in each case the question comes to be one of circumstance and degree. When the rights and advantages surrendered on cancellation are such as to destroy or materially to cripple the whole structure of the recipient's profit-making apparatus, involving the serious dislocation of the normal commercial organisation and resulting perhaps in the cutting down of the staff previously required, the recipient of the compensation may properly affirm that the compensation represents the price paid for the loss or sterilisation of a capital asset and is therefore a capital and not a revenue receipt; illustrations of such cases are to be found in Van den Berghs, Ltd., 19 T.C. 390; [1935] A.C. 431, and Barr, Crombie & Co., Ltd., 26 T.C. 406; [1945] S.C. 271. On the other hand when the benefit surrendered on cancellation does not represent the loss of an enduring asset in circumstances such as those above- mentioned — where for example the structure of the recipient’s business is so fashioned as to absorb the shock as one of the normal incidents to be looked for and where it appears that the compensation received is no more than a surrogatum for the future profits surrendered — the compensation received is in use to be treated as a revenue receipt and not a capital receipt. See e.g. Short Brothers, Ltd., 12 T.C. 955; Kelsall Parsons & Co., 21 T.C. 608; [1938] S.C. 238. [Emphasis added.]

	Conclusions
"A"	“A7

Although I cannot find any direct guidance in the cases which I have reviewed above, because most of them are distinguishable in some significant degree, and because the present case is, to some extent, "sui generis", I have, nevertheless, been able to reach a firm conclusion in the case at bar. In reaching this conclusion, I have not isolated any single factor or element of proof; I have, rather, considered all of the evidence in its ensemble, and I have concluded that the moneys received by the accused from the transaction relating to the Joint Venture, must properly be described as a profit accruing to them from the carrying on of a trade or business and that such profit should consequently be designated as income receipt.

My reasons, in brief, are the following: If I begin with a consideration of the "intention" of the accused, there is no doubt in my mind whatsoever, that the accused had formed a plan, as did so many other persons prior to the time of the World Exposition in Montreal, to engage in a business which would exploit the occasion and would yield them a quick profit. Their intention is manifest from the charter of the Corporation (P-5) and from the expressed terms of the Agreement (P-7). According to the accused, the Corporation never really functioned, it was aborted shortly after the charter was granted, and this is the reason why they did not file any declarations for the years 1968 to 1971. In my view, this pretension does not stand up under scrutiny. There is no doubt that the Corporation was used as a vehicle to deal with the all-important lease for the land on which the chalets were constructed. There is also no doubt that, from the point of view of the auditors, and in accordance with the records of the Joint Venture, the Corporation continued to exist as one of the contracting parties to the Agreement (P-7) and as one of partners in the Joint Venture.

Furthermore, I consider that, from the point of view of benefits received, the Corporation and its two controlling shareholders, Landes and Larue, are indistinguishable, the Corporation being merely the “alter ego" of the two individuals. The fact that the profits were collected by the accused personally, does not affect my view to any considerable degree. I note that Mr. Demers has a different approach, the more technical point of view of an auditor, and he treats part of the profits as fees paid to the individuals. I have no need to quarrel with him because the final result as to the taxes exigible, flows from his calculations and tables, by reason of the admissions of the accused. I refer specifically to the admission on page 6 of Ex. 25 which states, in effect, that if I come to the conclusion, as I have, that there was undeclared income by the accused, then the additional taxes to be imposed would be those established by Mr. Demers in Exhibits P-24c, P-24d and P-24e.

I do not attach great importance to the argument of the accused that their profit resulted from an isolated transaction, from the winding-up of the entire Joint Venture, and from the sale of immoveables. All of these elements were inherent in the very nature of the transaction from its inception. The Joint Venture was clearly understood and stipulated to be determinable within a relatively short period of time, and the winding-up of the whole operation was clearly foreseen and anticipated, including the disposal and sale of the chalets, the proceeds of which blended, so to speak, with the overall profits. Incidentally, these chalets were clearly of a mobile nature, and were installed only temporarily on the site of Expo. I doubt whether they can be properly qualified as "immoveables".

I also stress the fact that, in this instance, the Corporation (P-5) and the Agreement (P-7) had only one object and one transaction in mind, and the profits were realized in furtherance of that object. (In re Hastings, supra).

The following hypothetical case occurs to me: A taxpayer decides to construct a large ice castle in Montreal, outside of his regular business activities, and during the winter months he makes a handsome profit by exhibiting his structure to the public, charging an admission fee. At the approach of spring, he has the opportunity to sell the ice to ice merchants, but at a price inferior to his cost of construction. Will the taxpayer be permitted to claim that the profits which he earned, are a capital gain, merely because it was an isolated transaction and that he has lost his principal capital asset, indeed the only capital asset? I hardly think so. It was clearly contemplated at the outset of the venture that it had a short life span and would not survive the spring. This is not the “loss of capital asset of an enduring nature, the value of which had been built up over the years", (H.A. Roberts Ltd., supra). In this connection I note, and adopt, the dictum approved by Lord Evershed, in Wiseburgh v. Domville, [1956] 1 All E.R. 754;

It was a normal incident in this kind of business that an agency should come to an end and it seems to me that the compensation paid is quite clearly income. [Emphasis added.]

Furthermore, I share the opinion that if a single transaction is in the nature of trade, it should result in a profit of an income nature (See C.C.H. at pages 5176 and 5179 supra).

The two fees earned and not reported by Landes are indisputably taxable. I also find that the Joint Venture from which the accused benefited, was an adventure in the nature of trade and that the profits are likewise taxable.

As to the precise amount of taxes due and owing by the accused, the parties have agreed to accept the figures established in the schedules prepared by Mr. Demers, Exhibits P-24c, P-24d and P-24e, and I ratify these figures, with the following exception pertaining to Larue. The Crown stated in open Court that it considered the evidence of Larue as being frank and honest. He testified that the amounts received by him from Triagone Inc. were merely repayments of moneys which he had disbursed on behalf of that Company, and for which he had furnished vouchers. This would appear to be in contradiction with the entries in the books of Triagone Inc. which indicate that the sums paid to Larue were recorded as "honoraires". However, since the Crown is inclined to accept the testimony of Larue on this point, I shall not reject it. Consequently, when calculating the taxes due by Larue, a downward adjustment should be made to reflect the fact that the payments made to him by Triagone Inc. were merely refunds of out-of- pocket expenses.

Secondly: Since I have concluded that the moneys received by the accused

represent taxable income, must I necessarily find them

criminally guilty under paragraphs 2391(a) and (d)?

The Law

"B"

Regina v. Manuel Wineberg, 55 D.T.C. 1078, (Supreme Court of Ontario, February 8, 1955):

V. company was convicted of failure to pay balance of sales and excise taxes from March 17 to November 30, 1952. The accused was found guilty of having participated in the company's offence in not paying the taxes for the period from March 17 to June 13, 1952. The accused appealed by way of a stated case.

Held: . . . that the appeal is allowed and the accused acquitted . . . Mens Rea is a

necessary ingredient of the offence aginst the accused. There was no evidence that he had committed the act charged with a guilty mind.

Danis, J. at page 1082:

[Guilty knowledge necessary ingredient in crime]:

In Brend v. Wood (1946), Law Times Reports, 306 at p. 307, Lord Goddard, C.J. said:

It is of the utmost importance for the protection of the liberty of the subject that a court should always bear in mind that unless a statute, either clearly or by necessary implication, rules out mens rea as a constituent part of a crime, the court should not find a man guilty of an offence against the criminal law unless he has a guilty mind.

The Queen v. Henry Heinz Regehr, [1968] C.T.C. 122; 68 D.T.C. 5078, (Court of Appeal for the Yukon Territory, December 6,1967)

The taxpayer, a practising lawyer and businessman, was charged with making false statements in his returns for several years contrary to section 132(1)(a), and with evading payment of taxes contrary to section 132(1)(d). It was brought out in evidence that the taxpayer had inadequate books and records, that he had no competent clerical help and that he had not reported a number of items of income. The charges against the taxpayer were dismissed first by a magistrate and then, on appeal by the Crown, by the Yukon Territorial Court (67 D.T.C. 512). In both instances it was held that the Crown failed to prove that mens rea or guilty intent, an integral part of the offence under section 132, could be attributed to the taxpayer, that at the most the taxpayer was careless and negligent. The Crown then appealed to the Court of Appeal for the Yukon Territory on the grounds that the judge of the lower Court: (a) "misdirected himself in law by holding that the number of proved omissions due to carelessness and negligence does not constitute some evidence . . . of guilty intent . . .

Held : . . . The appeal was dismissed. There was nothing in the evidence to prove

any lack of the lower Court's awareness that repeated negligent omissions could justify the inference of planned, intended or wilful deception or concealment.

McFarlane, J.A. (for the Court) at page 123 (D.T.C. 5079):

The learned Magistrate and the learned Judge on appeal have both found that during the period of five years the respondent failed to include in his income tax returns some fifty items of income and that the failure was due to carelessness and negligence without any intention to conceal or deceive. These are findings of fact which can not be reviewed or set aside by this Court.

(Guilty intent)

With regard to the five counts under the Income Tax Act, Section 132(1)(a) a great amount of consideration in both Courts was given to the question whether or not mens rea is an essential element. Both tribunals held that it is.

The Court of Appeal fully approved of the two following extracts from the learned judge’s reasons for judgment:

The learned Magistrate delat with each particular item making up the basis of each of the charges. He made a careful analysis in each case and in the end result, although he found that the Respondent had been in general negligent, he held that there was no evidence that the Respondent acted surreptitiously or with the intention of deceiving anyone. I have carefully examined his judgment and the evidence and the many exhibits filed and am unable to reach any different conclusion. I see no need to myself repeat the analysis of the evidence item by item. As to the factual situation, therefore, I am not satisfied that the Appellant has proven that there has been any mens rea or any plan to cheat the taxation authorities but that, at most all that has been proven is carelessness and negligence.

I am unable to agree that Section 132(1)(a) making use of "false or deceptive” as it does could reasonably be interpreted to mean mere carelessness or recklessness, but rather that mens rea or guilty intent forms an integral part of the offence to be established by the Crown. [Emphasis added.]

Acme Slide Fastener Company Limited v. Knott (The Queen), [1962] C.T.C. 320; 62 D.T.C. 1261, (Quebec Superior Court, May 18, 1962):

The appellant company, a manufacturer of zippers, was charged in 1955 with making false statements in its returns for the 1949 to 1952 taxation years. The Crown claimed that the appellant had decreased the value of its inventory, had omitted to report certain sales, and had wrongfully charged as doubtful debts amounts which were recoverable. The appellant was found guilty by a magistrate and sentenced to a fine of $12,000. The appellant appealed to the Quebec Superior Court.

Held: . . . The appeal was allowed and the appellant acquitted. The presumption

of innocence applied in the present case as in all other criminal cases, and the appellant was at all times entitled to the benefit of a reasonable doubt. The Crown had not discharged the onus of establishing that false and deceptive statements had been made by the appellant in its returns.

Ouimet, J., at page 336 (D.T.C. 1270):

CONSIDERING that the presumption of innocence applies in the present case as in all other criminal cases and that, in any event, the appellant was at all times entitled to the benefit of a reasonable doubt. [Emphasis added.]

The Queen v. Samuel Ciglen and Morris Black, 69 D.T.C. 5045 (Ontario Court of Appeal, December 20, 1968):

The first taxpayer, C, was a Toronto lawyer: the second taxpayer, B, was a promoter and stock market operator. They were prosecuted upon indictment (under section 132(1) and (2) of the Act), the charge being that they had conspired together and with others (numerous individuals, corporations and trusts) to wilfully evade payment of tax by suppressing taxable income . . . At the trial before a judge of a County Court, the Crown contended (and submitted extensive evidence to show) that the taxpayers had concealed their profits from the stock deals by false documentation made after the event (including a report made by a firm of accountants at C's request) purporting to show the profits as profits of corporations and trusts they controlled . . .

The trial judge acquitted both C and B in a very lengthy judgment. Expressing the view that nothing displaces the ordinary law in relation to a criminal case, which is that the Crown must establish the guilt of the accused beyond a reasonable doubt, he stated that he was unable to establish by inference from the conduct of the two taxpayers and the cumulative effect of the evidence, any agreement to conspire as charged in the indictment. The Crown appealed the acquittal to the Ontario Court of Appeal.

Held: . . . The Crown's appeal as against C was allowed, his acquittal set aside,

and his conviction as charged recorded; the appeal against B’s aquittal was dismissed . . .

The trial judge's key finding of fact as far as B was concerned was that he had nothing to do with any of the many instances of back-dating and

falsification of documents and that he was in no way responsible for the preparation of the accounting firm’s report. This finding, with which the Court could not interfere in the present proceedings, left the question of B’s guilt subject to a reasonable doubt.

Aylesworth, J.A., (For the Court) at page 5058:

In my view the trial judge erred in law in attributing to the Minister the duty of determining whether the impugned transactions resulted in taxable income or capital gain. This was for the trial judge himself. . . everything Black was proven to have done was consistent not only with his guilt as charged, but also with a private decision on his part to conspire with no one, but solely as a personal decision to assume his profits from the deals to have been capital gains (however illogical that assumption) and to decide not to report them as taxable income. A Fortiori the

finding made by The trial judge which, in the circumstances, we must accept, leaves the question of his guilt subject to a reasonable doubt. I would, therefore, dismiss the appeal against Black's acquittal. [Emphasis added.]

Ciglen v. The Queen, [1970] S.C.R. 804; 11 C.R.N.S. 129, (The Supreme Court of Canada, March 20, 1970) dismissed the appeal of Ciglen and maintained his conviction.

Cartwright C.J.C.:

(dissenting, but concurring in the following point of law)

At page 814 (C.R.N.S. 136):

It is clear that mens rea is an essential element of an offence against s. 132(1)(d) of the Income Tax Act; the use of the word "wilfully" in the clause puts this beyond question. It is trite law that a taxpayer is free to so arrange his affairs as to attract as little liability to tax as possible, provided that in so doing he does not employ unlawful means. Of course, guilty intent may be inferred from the actions of an accused but the question whether or not the guilty intent exists is one of fact. This is expressly stated in the judgment of this Court in Lampard v. The Queen, [1969] S.C.R. 373, 6 C.R.N.S. 157, (1969) 3 C.C.C. 249, 4 D.L.R (3d) 98.

Martland, J., at page 818 (C.R.N.S. 139):

The trial Judge erred in law in holding that the determination as to whether the profits were income or capital gains was for the Minister, and beyond the purview of the Court, and that he was unable to make a decision on the evidence before him.

Spence, J., at page 622 (C.R.N.S. 143):

The charges were based upon an exceedingly complicated series of transactions in reference to the shares in two corporations, Great Sweet Grass Oils Limited and Kroy Oils Limited. After an abortive trial, lasting 68 days and terminated by the unfortunate death of the first trial Court Judge, the second trial took 115 days before Rogers Co. Ct. J., in the County Court of the County of York. The accused called no evidence.

At page 824 (C.R.N.S. 144):

Falsification of documents for one's own benefit surely is the most cogent evidence of the existence of the benefit itself.

At page 832 (C.R.N.S. 151):

In short, the learned trial Judge did find there was a Prima Facie case adduced by the Crown which rebutted the general presumption of innocence in favour of an accused. Since no evidence was given on behalf of the defence, there was nothing to discharge the burden which, as the learned trial Judge pointed out, was, under such circumstances, put on the defence. [Emphasis added.]

Regina v. Kipnes, 2 C.C.C. (2d) 56, (Alberta Supreme Court, Appellate Division, November 30, 1970):

Smith, C.J.A., at page 61:

In my opinion, in the circumstances of this case, the guilt of the respondent depends upon the legal effect of the facts found or the inferences drawn by the trial Judge.

What were the facts found or the inference drawn by the trial Judge? They were:

1. That there was no doubt on the evidence that the 7-7 General of the respondent for the year 1961 does contain false, deceptive and untrue statements.

2. That such T-1 General return was filed on behalf of the respondent.

3. That the company, Pacific Building Supplies Ltd., had previously reported that the respondent had earned $32,324 in commissions for that year and that that sum was substantiated by the company's records, by the commission ledger, and was established as a fact.

4, That the respondent was to all intents and purposes the sole operator of the

company and that he had the sole management and control of it.

5. That the reduction of the accused's commission from $32,000 and some to $12,000 was inserted in the T-1 General return by L.E. Miller, a chartered accountant . ..

8. That mens rea was established by the conduct of the respondent in his dealings with Miller, the chartered accountant mentioned.

Regina v. Hummel, [1971] C.T.C. 803; 76 D.T.C. 6114, (B.C. Prov. Ct.) June 1, 1971):

The accused taxpayer was charged under paragraph 132(1)(a) of the former Act (now ss. 239(1)(a)), on four counts of making false and deceptive statements in his income tax returns. He was also charged under paragraph 132(1)(d) (now ss. 239(1)(d)) for wilful evasion of taxes. The taxpayer who owned a family business, failed to report as income gains resulting from the sale of shares and other assets and claimed as deductions car expenses and other allowances, including salaries paid to his wife for her participation in the business. The Crown argued that the offences were absolute and that proof of mens rea was not necessary; alternatively, if mens rea was essential, sufficient evidence was adduced to show the guilty intention of the taxpayer. The taxpayer countered that proof of Mens Rea was essential and in its absence he was not guilty.

Held: . . . The taxpayer was not guilty. Mens Rea was an essential ingredient in

the offences charged and the Crown failed to discharge the onus of proving that the taxpayer had any guilty intention. The evidence established that the offences were borderline cases and the taxpayer's treatment of the items of income and expenditure to his advantage did not make him guilty, even though that treatment was wrong.

Robinson, Prov. Ct. J., at page 806 (D.T.C. 6716):

I feel that I can take judicial notice of the large number of cases reported with respect to whether the gain on sale of shares is capital or income. Each case depends on its own circumstances and there are different findings in the various tribunals . . . In summary, a number of these types of cases are borderline. They are in the grey area, and certainly, if the taxpayer decides it is capital this does not necessarily mean that this is evidence of, or evidence from which an inference of guilty intention may be inferred, as opposed to the matter of obvious income that has not been disclosed. [Emphasis added.]

Regina v. Poynton, [1972] C.T.C. 411; 9 C.C.C. (2d) 32, (Ontario Court of Appeal, June 29, 1972):

Held: . . . The word "income" is in the Income Tax Act, R.S.C. 1952, c. 148, is

sufficiently wide to include money other than that received from bona fide transaction . . . Therefore, money which an employee has stolen from his employer and the value of certain benefits obtained by fraud and paid for by funds unlawfully appropriated from the employer are amounts required to be included in the computation of his income, and where the employee has not declared these amounts he is guilty of making false or deceptive statements in his tax returns and evading payment of income.

Evans, J.A., at page 45:

It cannot be questioned that mens rea is an essential element to be proven by the Crown in order to support a conviction: R v. Regehr (1967), 66 D.L.R. (2d) 78, 3 C.C.C. 72, [1968] C.T.C. 122, and R v. Kipnes (1970), 15 D.L.R. (3d) 449, 2 C.C.C. (2d) 56, 12 C.R.N.S. 335.

Regina v. Greer, 13 C.C.C. (2d) 318, (Ontario Provincial Court, July 12, 1973):

The accused, charged with wilfully evading the payment of taxes contrary to s. 239(1)(d) of the Income Tax Act, R.S.C. 1952, c. 148 (am. 1970-71-72, c. 63), testified on his own behalf that he did not file returns because he “did not think he was making enough money to have to do so".

Held: . . . The accused should be convicted. While the accused may have believed

he was not taxable, it was an unreasonable belief and his explanations for not filing were unreasonable. The number of transactions and the amounts involved were too great. The absence of any efforts by the accused to hide any transactions was more consistent with the interpretation that he hoped, in the event there was an investigation, that it would in fact all be considered merely a mistake on his part. [Emphasis added. ]

Marshman, Prov. Ct. J., at page 324:

I also adopt the reasoning of His Honour, Judge Colter in R. v. Horowitz, 71 D.T.C. 5350 at p. 5353:

One of the main submissions of the defence is that each of the items complained of by the Department could very well have been handled by a reassessment rather than through the laying of criminal charges. This is undoubtedly correct; however, when there are twenty-three items, some of extremely large amounts, spread over this period of four years, with many other questionable items which have not been made the subject of a charge, it is more than understandable why the Department would decide to proceed by way of a charge rather than by way of a re-assessment.

Regina v. Baker, 16 C.C.C. (2d) 126; 45 D.L.R. (3d) 247 (County Court, Nova Scotia, July 17, 1973):

Held: . . . A taxpayer who fails to file annual tax returns is not guilty of the

“evasion” of income tax contrary to s. 239(1) of the Income Tax Act, R.S.C. 1952, c. 148 (am. 1970-71-72, c. 63), where he makes no attempt to conceal income and accurately maintains books of account from which his tax can be accurately determined. “Evasion” requires an element of artifice, craft or strategy not present in the mere failure to file returns. (R. v. Sumarah et al. 70 D.T.C. 6164; Bullivant v. A.-G. Victoria [1901] A.C. 196, [1900-03] All E.R. Rep. 812, refd. to).

McLellan, Co. Ct. J. at page 130 (D.L.R. 251):

The learned Provincial Magistrate in a reserved reasoned decision considered several dictionary definitions of the word "evade" and then continued:

These definitions seem to be divisible into “avoid” or its synonyms and “avoid by strategy or craft” and similar phrases. Parliament has used the word "avoidance", however, in s. 246(6) of the Income Tax Act, in such a way that makes it clear that not all avoidance of taxes is contrary to s. 239(1)(d). It seems obvious, then, that Parliament did not intend the word "evasion" in s. 239(1)(d) to mean simple avoidance, and, therefore, I think that the other meaning given by the dictionaries in explanation of "evade" - to avoid by craft, artifice or strategy — is the meaning of the word "evade" as used in s. 239(1)(d). I am supported in this view by the definition of "evasion" in Black's Law Dictionary — "artifice or cunning is implicit in the term as applied to contest between citizen and government over taxation."

I come to the same decision if I take the view that, as there is more than one choice of meaning for the word “evade”, I must, in a penal section of a taxation statute, use the meaning most favourable to the accused. In this case, it would be the meaning of “avoiding by artifice, craft or strategy".

At page 131 (D.L.R. 252):

With that finding I entirely agree, and would point out that the English authorities referred to above reinforce the conclusion reached by Her Honour — namely, that where the evasion referred to is in a penal statute or is between citizen and Government, it is intended to include something like underhand dealing, or to use her words, it is intended to include some “element of artifice, craft or strategy".

At page 132 (D.L.R. 253):

Counsel with the respondent made reference to Information Circular No. 73-10 issued by the Department of National Revenue, Taxation, on May 9, 1973. Paragraph 8 reads:

Tax evasion is the commission or omission of an act knowingly with intent to deceive so that the tax reported by the taxpayer is less than the tax payable under the law, or a conspiracy to commit such an offence.

Of course, such a definition is not binding on a Court, but it is interesting to observe that the meaning attributed by the Department to "evade" is the same as that attributed by Her Honour Judge Oxner, Prov. Mag., and myself. There must be some element of deceit before there is an evasion within the meaning of s. 239(1)(d), and so, given the favourable finding of fact, on the Department's own definition, this accused is not guilty. [Emphasis added.]

The Queen v. Thistle, [1974] C.T.C. 798; 74 D.T.C. 6632, Grossberg, Co. Ct. J., said:

Counsel for the Accused does not in this Court, submit that the failure of the accused to file Income Tax Returns, and pay Income Tax was inadvertent. On the evidence it is clear that the failure to file such returns and to pay income tax was wilful. I have no hesitation in so finding . . . I find on the totality of the evidence that the deliberate failure to file returns, and to pay income taxes on the part of the accused, was a cunning scheme and was conceived in evil and intended deceit, and in trickery and in subterfuge . . . The accused deliberately conceived and planned his failure to file returns to refrain and avoid paying income taxes and to evade the required yearly payments. I am unable to accept the contention that there was no evasion within Section 239(d). . . The evidence indicates that he is a knowledgeable person with respect to the requirements of filing income tax returns and paying income taxes. In addition he has a responsible position. It is straining credulity to believe that his conduct was other than a deliberate and wicked scheme to evade payment of taxes. [Emphasis added.]

Regina v. Metke, 76 D.T.C. 6313, (Provincial Court of Alberta, December 10, 1975):

The defendant taxpayer, a dairy farmer, was charged under paragraph 239(1)(d) of the Act for unlawfully and wilfully evading the payment of taxes between December 1968 and May 1972. In addition to his mixed dairy farming operation, he was also a shareholder and director of a company engaged in a similar business. He allegedly gave money to the company to purchase cattle for him, but the company recorded the money as a shareholder's loan for operational purposes and subsequently repaid the taxpayer with interest. On the other hand, the taxpayer, in computing his income, deducted the money as operational expenses. The taxpayer kept improper business records. He kept his bills, receipts, cheques and invoices in various boxes and at the end of the year gave them to his accountant who prepared the taxpayer's journals, ledgers and income tax returns. Both parties having conceded that mens rea was an essential element of the offence, the Crown submitted that the taxpayer had a culpable mind and was, therefore, guilty of the offence.

Held : . . . The taxpayer was not guilty. The evidence cogently established that his

knowledge of bookkeeping, accounting and income tax procedures was nil. While he might have been negligent, he certainly did not have the required mens rea.

Cawsey, J. at page 6315:

(No Mens Rea)

It was conceded by both counsel that mens rea is an essential element to this charge and that the accused must have a guilty mind before he can be convicted under this section. The investigation of this case was very thorough, and at the conclusion of the Crown's case there was a very strong inference of guilt. However, after seeing the accused on the stand, observing his demeanour, I have a very grave

doubt as to whether what was done was done intentionally, and not merely by indoubt as to whether what was done was done intentionally, and not merely by inadvertence or ignorance of accounting and income tax procedures . . . However, the method of scheme is so obvious and transparent that I do not think that anyone who was wilfully trying to evade the payment of Income Tax could have adopted such an obvious and transparent scheme, and this is one of the reaspns I find the mental element required for a conviction to be lacking. [Emphasis added.]

The Queen v. Durai Pal Pandia, 76 D.T.C. 6165, (County Court of Vancouver, June 24, 1975):

The appellant taxpayer, a lawyer, was charged under paragraph 239(1)(d) of the Act on one count of wilfully evading the payment of taxes between December 1966 and May 1970 and under paragraph 239(1)(a) on three counts of making false or deceptive statements in his returns for the 1968, 1969 and 1970 taxation years, respectively . . . The audit revealed that substantial sums had been received as fees but not reported as income. The taxpayer had several bank accounts and one, in particular, which was his personal account, had been credited with large amounts of unreported fees. He argued that it was in reality a business account into which clients' fees were held in trust and did not become taxable income until earned at sometime after they were initially received. He also argued that the unreported sums were either attributable to horse race winnings or gifts. The taxpayer also submitted that if he were to be convicted of wilfully evading the payment of taxes, on the authority of R v. Kienapple (1974), 26 C.R.N.S. 1 (S.C.C.), he could not be convicted of the other charges of making false or deceptive statements.

Held: . . . The taxpayer was found guilty on the charge of wilfully evading the

payment of taxes and not guilty on the charges of making false and deceptive statements. The evidence established beyond reasonable doubt that the account into which large sums of unreported fees had been deposited, was a personal account. Since the same set of facts and circumstances which constituted the charge of wilfully evading the payment of taxes also constituted the charges of making false and deceptive statements, on the authority of R. v. Kienapple, the taxpayer was entitled to be acquitted of the latter charges.

Paris, Co. Ct. J. at page 6170:

Pandia did not maintain even the most rudimentary of accounting records for it in his office — no trust ledger, no duplicate deposit slips, no entries in the synoptic. He kept only, according to Pandia, a handwritten list which disappeared sometime before the first audit by the Tax Department. [Emphasis added.]

The Queen v. Branch, [1976] C.T.C. 193; 76 D.T.C. 6112, (District Court of Alberta, November 25, 1975):

The appellant taxpayer a dentist, was charged under paragraph 239(1)(d) with unlawfully and wilfully evading the payment of taxes between June 1969 and May 1973. He did not file returns for the years 1970 to 1974, inclusive, and was convicted on three occasions for failing to file a return for the year 1970. He kept records, but alleged that he was emotionally embroiled and was, therefore, unable to file his returns. The Crown argued that failure to file returns and pay taxes constituted the evasion contemplated by the Act. The taxpayer was convicted by the lower court and the Crown appealed against the sentence by way of trial De Novo.

Held: . . . The taxpayer was acquitted. The evidence established that he had no

mens rea. There was no suggestion that there was anything secretive about his default. Further, when his records were taken over by the Revenue Department, they were intact. [Emphasis added.]

The Queen v. Garshman, [1976] C.T.C. 197; 76 D.T.C. 6103, (District Court of Alberta, January 12, 1976):

The taxpayer was charged with unlawfully and wilfully evading the payment of taxes between December 1968 and May 1973. He owned a number of incorporated companies which he treated as proprietorships. He kept a number of bank accounts in his own name and in the names of the companies. He conducted his business affairs in a careless manner and his tax returns were prepared on a net worth basis. The Crwon alleged that he failed to disclose certain sums of money. The taxpayer argued that there was no wilful evasion on his part, he has no mens rea and further there was no proof of any taxes due in any event.

Held: . . . The Taxpayer was not guilty. The evidence established that there was

no demand for immediate payment of taxes and, therefore, the taxpayer was charged for wilfully evading taxes before the taxes were due. Further, there was a total absence of mens rea, since his net worth returns both favoured him and worked adversely to his interests; in addition he was completely co-operative with the Department's investigators.

(Note: It is interesting that the accused was acquitted, even though, among other facts, it was established that the accused had $35,000 in cash in a safety deposit box, which was not satisfactorily explained).

It is noteworthy that in this case, the accused was acquitted, although the Court found, as a matter of fact, that

There is no doubt but that the Accused was extremely careless in keeping records. His financial affairs were confused and careless. He formed numbers of Companies and treated them all as proprietorships except that in the case of Joy Toy it did keep separate records and filed its own Income Tax returns. There is no doubt but that he failed to report some assets as for example the $35,000 in cash in his safety-deposit box and some of the bank accounts. There is also no doubt but that he underestimated some of his assets as for example his advances to Joy Toy.

R v. Paveley, [1976] C.T.C. 477; 76 D.T.C. 6415 (Saskatchewan Court of Appeal, February 11, 1976):

Despite formal demands on him to file tax returns for 1970, 1971 and 1972 the taxpayer, a medical doctor, failed to do so, even after being fined therefor in respect of returns for 1970 and 1971. The Crown conceded that there had been no attempt at subterfuge or falsification of records and the taxpayer admitted to taxable income of some $38,000 as determined by the tax officials. The sole issue was whether the taxpayer's wilful refusal to file constituted wilful evasion of payment of tax within paragraph 239(1)(d) of the Act. The stated question had been answered in the negative in the court below.

Held: . . . To fall within paragraph 239(1)(d) required a scheme or artifice with

intent to deceive, which was not the case here (per Woods, JA, who would dismiss the appeal).

The question was not whether the wilful refusal to file constituted evasion but whether, in any case, the wilful refusal was motivated by the intention of evading payment of tax, a question of which in this case there was a doubt, the benefit of which should be given the taxpayer (per Brownridge, JA, who would dismiss the appeal).

The existence of artifice was not a necessary ingredient of an offence under paragraph 239(1)(d); that the Act did not contemplate this was evidenced by subsection 163(1) which clearly stated that attempted evasion could take place by simply failing to file (per Bayda, JA, who would nevertheless dismiss the appeal).

Woods, J.A., referring to Regina v. Baker (supra) says at page 479 (D.T.C. 6416):

I am in substantial agreement with the reasoning and conclusions fo that case.

And at page 480 (D. T. C. 6417):

Viewing paragraph 239(1)(d) in the context of the other provisions of the Act, and taking note that the provisions of the section are penal, it would seem to me that to fall within the section would require a scheme or artifice with intent to deceive. The facts in the case as stated makes it clear that such is not the case here. The appeal is dismissed.

Brown ridge, J.A. appears to give approval to the decisions in Thistle and Greer (supra) and says at page 480 (D.T.C. 6417):

The real problem, however, in answering the question posed by the stated case is whether the interpretation placed on the word “evade” by the Baker case, that is, to "avoid by craft, stratagem or artifice", should be approved and adopted. With the greatest respect I am not prepared to give unqualified approval to that decision.

And at page 481 (D.T.C. 6417):

In my opinion “wilfully” should be interpreted as "with an evil intention": Regina v. Miller, (1944) 1 W.W.R. 415 at 417; 81 C.C.C. 110; (1944) 1 D.L.R 802 (Sask.), so that the question in this case becomes not, was the wilful refusal to file income tax returns as required by the Act “evasion” under paragraph 239(1)(d), but rather: Did the respondent in wilfully refusing to file income tax returns, as and when required, do so with the intention of evading or attempting to evade the payment of taxes? If the answer to that question is either "no" or if the issue cannot be resolved beyond a reasonable doubt, then the respondent is entitled to an acquittal. But if the question is answered in the affirmative there should be a conviction even if there is no intention to deceive within the meaning of Regina v. Baker.

However, because of the doubt which he expressed and which, in my opinion, is well founded, I agree that the respondent must be given the benefit of that doubt.

Bay da, J.A., at page 485 (D.T.C. 6420) :

The word "wilfully", as used in the subsection under consideration (i.e. 239(1)(d) carried a distinct connotation of deliberate purpose and ulterior motive.

[Emphasis added.]

(NOTE: I find this case of Paveley somewhat confusing and far from conclusive.

The three learned Judges all dismissed the appeal of the Crown, but they arrived at their decisions by three different routes of reasoning.)

The Queen v. Thetrault, [1976] C.T.C. 719; 76 D.T.C. 6425, (Provincial Court of Alberta, October 1, 1976):

The defendant taxpayer was charged under paragraph 239(1)(a) of the Act on five counts of “unlawfully making, participating in, assenting to or acquiescing in the making of a false statement in his return "for each of the taxation years 1969 to 1973, inclusive; he was also charged under paragraph 239(1)(d) of the Act on a sixth count of wilfully evading the payment of taxes during the same period. In 1969, the taxpayer took over a general store business from his mother who operated it from 1949. His mother's method of keeping accounts was very unsophisticated; she filed all her invoices for each year on a clipboard, added them up at the end of the year and took 15% of the total as the gross profit of the store and on this basis prepared her income tax returns. When the taxpayer took over, he began to keep proper records, but in preparing his returns, he sought the assistance of his mother who consistently used her own method. Pursuant to an audit investigation, it was discovered that the taxpayer had failed to report income during the period in question, amounting to $34,930 with the result that the aforementioned charges were filed against him. Since all the charges were based on the same facts, it was decided that the doctrine enunciated in the Kienapple case (1974), 26 C.R.N.S. 1 (S.C.C.) was applicable and, therefore, the taxpayer was to be tried on the charge of wilful evasion first. However, while the Crown was required to adduce evidence relating to all the charges, the taxpayer, at his option, was required to offer a defence only to the charge being tried; if he was convicted, the other charges would be quashed; if he was acquitted, the other charges would be considered and he could then call evidence in his defence with respect to those other charges.

Held: The taxpayer was acquitted on the charge of wilful evasion. Though the

evidence established that he kept his accounts which he did not use in preparing his returns, he was very cooperative during the audit investigation. The Crown failed to discharge the onus of proving the necessary Mens Rea beyond reasonable doubt. [Emphasis added.]

	Conclusions
"B"	l/B/I

The Canadian cases which I have cited above, covering the period from 1955 to 1976, and the English cases referred to which go back much further in time, established that mens rea is a necessary element, the sine qua non, in the offences set out in subsection 239(1) of the Income Tax Act. The Crown does not dispute this proposition and admits that it has the burden (a rather heavy one) of proving guilty intent. The question, therefore, which I have to answer is whether the accused had a "guilty mind” when they omitted to report the sums under consideration and to pay the required tax. I shall deal first with the moneys earned from the Joint Venture, which I have designated as taxable income. Throughout the trial, both Landes and Larue adamantly insisted that they always considered these profits as a capital gain which it was not necessary to report. I do not agree with them, and I have rendered judgment accordingly. However, can it be said that the position assumed by the accused was so untenable, that their explanation, by way of defence, so utterly unreasonable (Greer, supra, page 34) as to lead me to conclude that the accused were guilty of contriving and carrying out a deliberate scheme to evade payment of tax? I cannot reach this conclusion.

I subscribe to the proposition enunciated by Lord Tomlin in the C./.R. v. Duke of Westminster, [1936] A.C. 1 at 19; 19 T.C. 490 at 520:

Every man is entitled if he can to order his affairs so as that the tax attaching under the appropriate Acts is less than it otherwise would be.

Cartwright, C.J.C., stated the proposition with greater clarity in the Ciglen case (supra):

It is trite law that a taxpayer is free to so arrange his affairs as to attract as little liability to tax as possible, provided that in so doing he does not employ unlawful means. [Emphasis added.]

Obviously, I am of the opinion that the assumption of the accused that their profits were capital gains and not taxable income, was incorrect. I think the assumption may have been illogical, naive, unsophisticated for people with business experience, and based on mere wishful thinking. (I think it was Julius Caesar who said: "Homines credunt quod id volunt").

In my view, however, their treatment of the profits of the Joint Venture does not make their conduct criminal. I agree with the trial judge in the case of Hummel (supra), when he says:

I feel that I can take judicial notice of the large number of cases reported with respect to whether the gain on sale of shares is capital or income. Each case depends on its own circumstances and there are different findings in the various tribunals . . . In summary, a number of these types of cases are borderline. They are in the grey area . . .

In other words, the accused chose to lean in the direction of an interpretation most favourable to them, by deciding that their profits were capital gains rather than taxable income but I do not think that they should be held criminally responsible for their decision, considering that the pundits themselves are often in disagreement on this complicated point of law.

Of course, the two large fees which Landes omitted to report, ($10,000. and $7,574.20) are glaring omissions. Landes could not explain satisfactorily why they were not reported, except to say that he has always had a strong distaste for figures and bookkeeping, that he passed those chores on to others, and that he personally never meddles in these matters (see Metka, p. 37 supra). However, Landes did not attempt, as others might have done, to lay the blame on his former bookkeeper, who had died by the time the case came up for trial. He simply stated that he did not know why the fees had not been reported, but insisted that it was not done intentionally on his part. I carefully observed the demeanour of Landes in the witness box and I find that his evidence in this respect is deserving of credibility. As a matter of fact, I have the same opinion of the testimony of both accused throughout the trial.

I might have reached a different decision, in respect to Landes, if the invoices and records pertaining to the fees in question had been destroyed, or if the fees had been concealed, instead of being deposited in Landes' bank account for anyone to verify; or if there has been a series of similar omissions, similar acts, (I am sure that Mr. Demers would have found them)

— as in the case of Greer, (supra) where there were 23 omissions, or in the case of Regehr, (supra, where the accused was acquitted) where there were 50 omissions. I believe that the two fees which Landes failed to report were omitted inadvertently, and not through any criminal intent.

The Crown makes a capital point of the fact that the accused formed the Corporation, "Le Village International Inc.", and then proceeded to deal with the profits as if the Corporation did not exist, treating the Corporation as a proprietorship. I cannot see anything particularly sinister in this procedure on the part of the accused, nor any ulterior motivation. Most laymen — and for present purposes, I consider the accused as such, notwithstanding their occupations, — do not deal with their private companies with such nice distinction and precise separation between the corporation and its individual shareholders, as a trained, puritanical, corporate lawyer might do. I do not condone or approve of the unorthodox treatment of a corporation as a personal proprietorship, but in this case, I cannot see any evil intent or purpose on the part of the accused. Very often, men of affairs carry on their business through corporations, rather than personally, not only for the purpose of avoiding personal liability but also in order to minimize tax incidence, and sometimes for the purpose of concealing taxable income altogether. If the accused had set up off-shore corporations to siphon off their profits, (as in Ciglen, pp. 30 and 31), say in Bermuda, Cayman Island, the Netherland Antilles, Lichtenstein, or some other remote, exotic taxhaven, then I might have had reason to suspect a scheme on their part. Instead, and contrary to the common practice, they paid the profits to themselves, rather than to their Quebec corporation, and left a complete and meticulous set of books and records behind them to be discovered at any time. I cannot overlook the fact that the accused were not in possession or control of the books and records of the Joint Venture, which were kept by their partners, who did report their respective shares of the profit as income. Surely, the accused must have realized that the Income Tax Depart- ment would eventually examine these documents. I cannot conclude that the accused were attempting to hide income or that they participated in a scheme to evade payment of tax. The entire conduct of the accused is too transparent, and always comes back to their stubborn, (and, in my view, fallacious) notion that their gain was of a capital nature which they did not have to report.

Cases Distinguished

The cases where the accused were convicted of what is now sections 239(1) and (d) of the Income Tax Act, are easily distinguishable from the present case.

In Ciglen (supra) it was obvious that the accused, who did not testify, had concealed the profits derived from certain stock deals, by falsifying documents after the event and by filing false reports made by a firm of accountants at Ciglen’s request. Ciglen’s partner, Black, was acquitted because he had nothing to do with the many instances of backdating and falsification of documents, and even though he had erred in making “a personal decision to assume his profits from the deals to have been capital gains (however illogical that assumption) and to decide not to report them as taxable income”. (Aylesworth, J.A. at p. 30, supra).

In the case of Kipnes, (supra), a careful reading discloses that the accused was guilty of a premeditated deception and a deliberate falsification. I cannot see that the facts and reasons for judgment in that case apply to the case before me.

There is no need for lengthy comment in respect to the case of Poynton. The accused was guilty of a conspiracy to rob his employer and then evaded payment of taxes on the illegal proceeds resulting from his criminal offence, which proceeds the Court qualified as "income".

In the Greer case, (supra), a written demand had been made on the accused to file an Income Tax return, followed by registered letters, and no response was received. The accused refused to file returns for six years, while he was engaged in several businesses. The accused also sold two houses at a substantial profit and he “frankly admitted that both of these homes he had purchased on speculation to be resold at a profit" (page 321 of the case). Furthermore, there were numerous transactions involved, in a variety of business activities, and the Court was of the opinion that “in this day and age it is very difficult to comprehend how a man who was in business in the type and to the extent that Greer was, meeting the public every day, could fail to have brought to his attention the fact that certain types of transactions are in fact taxable" (page 323).

The case of Durai Pal Pandia (supra). It is obvious from the facts disclosed, that the accused was guilty of positive, fraudulent acts, such as doing away with important records and documents, and hiding bank accounts, all for the purpose of concealing income and thereby evading tax.

The oral judgment in the case of Thistle (supra) lacks detailed facts and the ratio decidendi is not clear. What the judgment lacks in facts it makes up in vituperative language, but it cannot serve as a guide. The learned trial judge says: "On the evidence it is clear that the failure to file such returns and pay income tax was wilful”, and he comes to the conclusion that the accused was guilty of a "cunning scheme, conceived in evil and intended deceit, and in trickery, and in subterfuge . . ., a deliberate and wicked scheme to evade payment of taxes".

In the Queen v. Laval Rondeau, (Court of Sessions, Montreal, April 7, 1977, case no. 27-000120-768), my brother Judge Albert Ouellette found the accused guilty of having wilfully evaded payment of taxes, contrary to paragraph 239(1)(d) of the Income Tax Act. In this case, the accused had registered several enterprises for the purpose of carrying on businesses which would generate additional income for him, "de se faire un surplus”. He carried on these businesses with others for a period of about three years, during which time he earned gross revenues in excess of $95,000, resulting in considerable profits. These business ventures were not reported to the Department nor was any tax paid on the income earned. It is manifest that there was a deliberate attempt on the part of the accused to evade taxes on income which he had wilfully failed to report, but which he knew to be taxable income.

In the cases which I have reviewed, the following words and phrases frequently recur in respect to conduct which would incur guilt under sections 239(1) and (d) of the Income Tax Act, to wit:

‘Artifice, craft or strategy" (Baker, supra);

"Secretive"; "underhanded or deceitful nature" (Branch, supra);

"Scheme or artifice with intent to deceive";

“With an evil intention";

"Underhanded dealing”;

"Deliberate purpose and ulterior motive" (Paveley, supra);

"Evil and intended deceit”; "Trickery . . . subterfuge . . . a deliberate and wicked scheme" (Thistle, supra).

The accused before me testified on their own behalf and presented a defence ostensibly based on law, and having at least some colour of validity. I do not find anything in the evidence from which I may infer that the conduct of Landes and Larue can properly be described in the accusatory terms above mentioned. Therefore I acquit them in all three cases and on all counts.

Defendants acquitted.

Appendix

The ubiquitous rule in Kienapple has found its way into cases dealing with subsection 293(1) of the Income Tax Act. The judgments in Durai Pal Pandia and Thetrault illustrate interesting variations in the application of the Kienapple rule and are worth citing at length.

The Queen v. Durai Pal Pandia, 76 D.T.C. 6165, (County Court of Vancouver, June 24, 1975):

Paris, C.C.J. at page 6173 :

Counsel has submitted that if the appellant is convicted on count 1 (wilful evasion) he cannot be convicted of counts 2, 3 and 4 (making false statements). He cites as authority R. v. Kienapple (1974) 26 C.R.N.S. 1 (S.C.C.). In that case, which involved convictions for rape and unlawful carnal knowledge arising from the same circumstances, the Court quashed the second conviction on the principle that there should not be multiple convictions for the same delict or matter.

And at page 6174:

I take Kienapple to have decided that not only if an issue of fact is decided in favour of the accused, but also if it is decided against him resulting in a conviction, he is entitled subsequently to be acquitted on the basis of the defence of Res Judicata. It is Res Judicata, Laskin, C.J.C. says, which is the basis of the ''Nemo Bis Vexari" principle, the rule against multiple convictions, which he says "has a long history in common law".

If I am right, it seems clear that henceforth the Crown will have to be careful as to which charge it chooses to prosecute first in any given set of circumstances.

(NOT GUILTY OF MAKING STATEMENTS)

It is clear in the case at bar that the matters or circumstances which comprise each of counts 2, 3 and 4 are part of the matter or circumstances which comprise count 1. The filing of the three false returns which are the basis of counts 2, 3 and 4 are part of the means by which the appellant committed the offence of tax evasion charged in count 1. . .

The appeal is therefore allowed as to counts 2, 3 and 4 and those charges are dismissed.

[Emphasis added.]

The Queen v. Thetrault, [1976] C.T.C. 719; 76 D.T.C. 6425, (Provincial Court of Alberta, October 1, 1976):

Patterson, Prov. Ct. J. at pages 719-20 (D.T.C. 6426-27):

The accused is charged with five counts of unlawfully making, participating in, assenting to or acquiescing in the making of a false statement in his return of income for each of the taxation years 1969 through 1973 inclusive, contrary to paragraph 239(1)(a) of the Income Tax Act. He further stands charged with a sixth count alleging unlawful and wilful evasion of payment of income tax in relation to unreported income totalling approximately $34,930.50 for the same five year period, contrary to paragraph 239(1 )(d) of the Income Tax Act. It was conceded by the Crown that the sixth count was based on the alleged false statements contained in the first five counts, and accordingly, the doctrine enunciated in Kienapple v. The Queen (1974), 26 C.R.N.S. 1 was applicable.

(Procedural Rulings Regarding Multiple Charges)

As a result, the Court was asked to make a number of preliminary decisions as to the proper procedure to be followed so that the maxim Nemo Debit Bis Vexari Pro Uno Delicto would not be offended. Counsel for both Crown and Defence agreed that such procedures have not been subject to judicial review by the Appellate Courts, and accordingly, there are no firm guidelines in that respect.

Accordingly, the following preliminary rulings were made:

1. That the information was proper and valid, notwithstanding the conflict between Count 6 and the first five counts.

2. That either Count 6 or the first five counts must be designated for adjudication first at the end of the evidence and that this designation rested with the Crown. For the sake of clarity, the charge or charges so designated were referred to as the "primary" charge or charges.

3. That in order that the accused should not be prejudiced in making his full answer and defence, the Crown should make this designation at the outset of the trial.

4. That the Crown's evidence during the trial would relate to all of the charges in the information.

5. That the accused, however, at his option, would only be required to present a defence in respect of the primary count.

6. That if the adjudication on the primary charge resulted in a conviction, the remaining charge or charges would be quashed. If the accused was acquitted on the primary charge, the remaining charge or charges would be considered and the Defence could then call evidence in respect of them.

I appreciate the reasoning of Laskin, J., as he then was, in Kienapple in applying the principle of res judicata and specifically rejecting the narrower grounds of autrefois convict. Prima facie, the principle of res judicata is as applicable to an acquittal as it is to a conviction. However, Kienapple was concerned only with the consequences of multiple convictions and in my view, with respect, does not restrict the adjudication of a second charge based on the same facts where the first resulted in an acquittal.

I am not unmindful of the procedural consequences of the Defence being permitted to call evidence following an adjudication on one charge. This may particularly create inconveniences in Jury trials. Nevertheless, it would seem to me to be a negation of the Vexari principle of Kienapple to require an accused person to provide an answer and defence to a charge on which he may not stand in peril of conviction. While the procedure may be novel, it is by no means unique. For different reasons, somewhat the same situation prevails in the Narcotic Control Act.

(THE PRIMARY CHARGE)

Pursuant to the ruling in number 3 above, the Crown designated Count 6 as the primary charge. [Emphasis added.]

I must admit that I find the “procedural rulings” above set out to be somewhat convoluted.

In rendering my judgment in the case at bar, I chose to hear all the evidence on all counts, and since I came to the conclusion the charges were unfounded in law, I simply dismissed them all.