R. v. Coffen, 97 DTC 5552, [1998] 3 CTC 285 (Ont. Ct. J. (G.D.))

Sheppard J.:

Reasons for Judgment

The Appellant appeals his conviction and sentence on:

(a) one count of wilfully evading the payment of federal taxes in the amount of $86,814.16 imposed by the Income Tax Act by failing to report income in the amount of $312,535.86 in respect of the taxation years 1985, 1986 and 1987, thereby committing an offence under s.239(l)(d) of the Act; and

(b) three counts of unlawfully making false or deceptive statements in his tax returns filed in respect of the taxation years 1985, 1986 and 1987 by understating his income as follows:

(i) in respect of 1985 - $40,701.60;

(ii) in respect of 1986 - $203,152.60; and

(iii) in respect of 1987 - $68,681.66,

thereby committing an offence under s.239(l)(a) of the Act.

The Appellant was a businessman during these taxation years. He operated, as a proprietorship, a moving business and a real estate business.

The Appellant failed to keep proper books and records. Rather, he operated through business bank accounts and a personal bank account. As is often the case in cases such as this, money which is received as income from one business gets co-mingled with personal amounts. Further, payments for business-related expenses are often paid in cash and no receipt is required. No proper books of original entry are kept; rather what is kept is often copies of bank deposit slips, some cancelled cheques, some copies of invoices, scraps of paper containing information as to what was paid to someone for something. When Revenue Canada encounters a situation such as this, what can they reasonably be expected to do? Often they do as they did here — seize records and then do a tedious, time-consuming analysis of the taxpayer’s records such as they are in an attempt to see if the taxpayer has failed to disclose all his income or has claimed non-allowable expenses. It is a difficult process. Frequently as happened here, by making a lot of assumptions, Revenue Canada recreates the net income position for the taxpayer and, equally frequently, the taxpayer vehemently objects to the position taken by Revenue Canada. But what is Revenue Canada to do? The taxpayer in this type of case is the only person who has knowledge of his business affairs. Revenue Canada has no such knowledge. Revenue Canada encounter prima facie evidence that the taxpayer has committed an offence. All they can do in these circumstances is to make assumptions and draw inferences, hopefully but not always, reasonable assumptions and inferences, as to what the taxpayer’s proper net income is for a taxation year and assess and/or charge accordingly. Who is to be blamed for this less-than- perfect approach? Certainly not Revenue Canada. The taxpayer who chooses to maintain his business records in the manner described and who pays expenses in cash can reasonably expect to have a problem sooner or later with Revenue Canada and, in my view, such a taxpayer has nobody to blame but himself. He or she is the author of his or her own misfortune. A taxpayer does not need to keep accountant-perfect books and records, but a taxpayer has an obligation to maintain such records as will permit Revenue Canada to review and determine the correctness of the taxpayer’s income as reported on his or her annual tax return. When a situation such as the case here is encountered, Revenue Canada has little option but to include in income all amounts of money which fall into the taxpayer’s dominion and control leaving it to the taxpayer to adduce evidence to show that a particular amount is not income. The same onus falls on the taxpayer to establish his properly deductible expenses. If a taxpayer chooses to pay his business- related expenses in cash, then when it comes time to prove such payments, he is at a significant disadvantage. He would be and should be obliged to disclose how much he paid, to whom and for what. Should Revenue Canada accept such proof, the expense will likely be allowed, but if none of this type is proof is forthcoming, then Revenue Canada is justified in disallowing such amounts although they might allow some amount when common sense and common knowledge indicate that in certain types of businesses, cash payments are commonplace. A taxpayer ought to expect, however, that he will not likely see 100 per cent allowance for such payments but, once again, that is the risk a taxpayer takes who chooses to carry on business in that fashion.

This court is sitting in appeal from the judgment of the Ontario Court (Provincial Division). As such, the court’s function is limited. It is not the function of this court to substitute its decision for that of the trial court. It is, as I appreciate it, this court’s function to see if the court below committed an error or errors such that it would be manifestly unjust to allow the judgment to stand. It is with regret that in my view it would be manifestly unjust to allow the judgment to stand; regrettably, because much time and expense was incurred in bringing these charges to trial. The trial occupied 34 days extending from August 1991 to July 1992. In my view, it is unreasonable to ask any Judge hearing matters involving such complexity as this to do so over such an extended period of time. No one can retain the necessary degree of comprehension of the array of numbers present here over such an extended period. It is understandable then that a Judge might decide the case based on his assessment of the evidence presented by each parties’ respective witnesses as is very often the case in the usual and ordinary criminal case for an offence under the Criminal Code. But this is not an offence under the Criminal Code; it is an offence under the Income Tax Act prosecuted under the Criminal Code by reason of s.34(2) of the Interpretation Act. Only the procedural provisions of the Code are called into play the substantive law to be applied is the law of income tax. As such, credibility has a significantly less role to play particularly as it applies to the evidence adduced by officers of Revenue Canada. The trial Judge noted that the assessor “gave her evidence in a straight-forward, honest fashion and was not really challenged upon cross-examination.” (page 5). With respect to the evidence of the assessor from the Special Investigation Branch of Revenue Canada, the trial Judge said “The same can be said for Mr. Moore, and in addition if one were searching for the paradigm of a truthful, fair and honest witness, he certainly fulfils that role.” (page 5). At page 12, the trial Judge said, “The court must consider the totality of the credible evidence” citing À. v. Morin, [1988] 2 S.C.R. 345, 88 N.R. 161, 44 C.C.C. (3d) 193, 66 C.R. (3d) 1 (S.C.C.). Rarely if ever is the credibility of the assessor an issue. An assessor is just doing his or her job. They examine a taxpayer’s return of income and if further examination or investigation is required they or someone else does it. They gather what information they can and they make judgment calls as to whether there was unreported income or improperly claimed expenses. They may fervently believe in their own opinion on an issue but that does not make it right. If it did there would be no need for the Tax Court of Canada and Parliament could repeal the objection and appeal provisions contained in the Income Tax Act.

When a court is faced with an assessment to which an appeal is taken civilly or an information laid under s.239 of the Income Tax Act, the court’s function, with respect, is to determine the taxability of the unreported income or the deductibility of the claimed expenses applying the principles and jurisprudence of income tax law. In other words: is the item sought to be subjected to tax properly taxable; or is the item sought to be deducted in computing income properly deductible. As such, credibility has a much less role to play in deciding these issues than in the ordinary criminal case. This is not to say that credibility has no role to play in considering the evidence of the taxpayer. It most certainly does. An active broker in real estate may allege that he honestly believed that all his gains from numerous real estate transactions were capital gains but it would test the objectivity of any Judge to accept such testimony in the light of the established tax jurisprudence. On the other hand, a person active in real estate trading may in certain circumstances and depending upon those circumstances realize a capital gain on the sale of a piece of real estate. There are many reported cases to this effect even where the period of holding was one day (see Warnford Court (Can.) Ltd. v. Minister of National Revenue (1964), 64 D.T.C. 5103 (Can. Ex. Ct.) or where the person was an active real estate agent as is the case here. (See Von Richthofen v. Minister of National Revenue (1968), 68 D.T.C. 5346 (Can. Ex. Ct.)).

So the issue in a case such as this has to be decided not subjectively based on an assessment of credibility but objectively based on the analysis of the facts and the application of tax law. Tedious and difficult as it may be, and it is often that, such analysis must be brought to bear on each amount sought to be taxed as income and each amount sought to be disallowed as a deduction in computing income.

There is also the question of onus. In a civil appeal, the onus is upon the taxpayer to demolish the basic assumptions upon which the reassessment rests (see Johnston v. Minister of National Revenue (1948), 3 D.T.C. 1182 (S.C.C.)). In a proceeding under the Criminal Code, the onus is upon the Crown to prove the guilt of the accused of the offence(s) charged beyond a reasonable doubt. In an income tax case that means the Crown must prove beyond a reasonable doubt that each item of income sought to be taxed is properly subject to tax in accordance with tax law and each expense disallowed is properly disallowed in accordance with tax law. In cases such as this where the volume of paper is enough to fill a small room, it is a daunting task. But it must be done, and it must be done for each taxation year, (see R. v. Ciglen (1969), 69 D.T.C. 5045 (Ont. C.A.); R. v. Ciglen (1970), 70 D.T.C. 6118 (S.C.C.)).

How can Revenue Canada ever hope to succeed in meeting the onus of proof beyond a reasonable doubt when it charges a person under s.239? In my view, it discharges that onus when an assessor testifies:

(a) with respect to unreported income, that the item has the quality of income as determined by tax law; that the item is related to a source of income as determined by tax law; and that the taxpayer had domimain and control over it; and

(b) with respect to an expense disallowed in computing income (assuming it is not a fictitious claim) that it was not an outlay or expenses made or incurred for the purpose of gaining or producing income as determined by tax law.

Assuming the evidence adduced on behalf of Revenue Canada objectively meets that criteria, then, in my view, Revenue Canada has produced all the evidence that it is reasonably capable of producing to meet the required onus of proof beyond a reasonable doubt.

It is then incumbent upon the taxpayer to adduce evidence designed at a minimum to raise a reasonable doubt in the mind of the Judge as to whether an item of income sought to be included by Revenue Canada in the income of the taxpayer is, under tax law, income and/or whether an expense sought to be disallowed by Revenue Canada as a deduction in computing income is, under tax law, properly deductible. If an analysis of the evidence relating to each item, be it an item of income or expense, leaves a reasonable doubt in the mind of the Judge, then the Judge must acquit the accused of the offence charged in respect of that item. With respect, there is no room for approaching the problem globally and deciding the issues based on findings of credibility except where the issue of intent on the part of the taxpayer is relevant.

These principles are laid down in the law.

In R. v. W. (D.), [1991] 1 S.C.R. 742 (S.C.C.), Cory J. said at pages 757- 58:

It is incorrect to instruct a jury in a criminal case that, in order to render a verdict, they must decide whether they believe the defence evidence or the Crown’s evidence. Putting this either/or proposition to the jury excludes the third alternative; namely, that the jury, without believing the accused, after considering the accused’s evidence in the context of the evidence as a whole, may still have a reasonable doubt as to his guilt.

In a case where credibility is important, the trial judge must instruct the jury that the role of reasonable doubt applies to that issue. The trial judge should instruct the jury that they need not firmly believe or disbelieve any witness or set of witnesses. Specifically, the trial judge is required to instruct the jury that they must acquit the accused in two situations. First, if they believe the accused. Second, if they do not believe the accused’s evidence but still have a reasonable doubt as to his guilt after considering the accused’s evidence in the context of the evidence as a whole. See R. v. Chailice (1979), 45 C.C.C. (2d) 546 (Ont. C.A.), approved in R. v. Morin, supra, at p. 357.

Ideally, appropriate instructions on the issue of credibility should be given, not only during the main charge, but on any recharge. A trial judge might well instruct the jury on the question of credibility along these lines:

First, if you believe the evidence of the accused, obviously you must acquit.

Second, if you do not believe the testimony of the accused but you are left in reasonable doubt by it, you must acquit.

Third, even if you are not left in doubt by the evidence of the accused, you must ask yourself whether, on the basis of the evidence which you do accept, you are convinced beyond a reasonable doubt by that evidence of the guilt of the accused.

In R. v. Redpath Industries Ltd. (1984), 84 D.T.C. 6349 (Que. S.C.) at p.6351:

A criminal court is not the forum to determine income taxability and to make determinations as to rights to tax assessment or absence of rights of assessment involved. In a tax evasion charge, it must appear prima facie from the evidence that the taxability is clear-cut, obvious, indisputable, unquestionable from lack of reporting, before entering the examination of the other facts of the charge, eg, whether the undisputable taxability, based on income gained, proven and undeclared, leads to a conclusion beyond reasonable doubt that it was wilfully omitted by a taxpayer in his tax returns.

If such basis is not present and there exists an obligation to enter into the examination of the merit of a possible assessment in respect of a declared income in order to weigh whether a taxpayer is susceptible to taxation or not, may or may not take advantage of claimed exemptions, a criminal court usurps its function and appropriates itself of a jurisdiction which it does not possess.

It may then be on an analysis of all the relevant evidence that a proper inference may be drawn that the taxpayer made a false or deceptive statement in his income tax return or he wilfully evaded the payment of tax by failing to report income justifying a finding of guilt.

Where the evidence, as here, establishes a pattern of numerous items of unreported income amounting to recklessness combined with the absence of anything approaching an acceptable level of record keeping, then an inference of wilfulness may reasonably and logically be drawn.

Unfortunately there are matters which do not appear to have been specifically addressed by the trial Judge in his reasons, matters of such significance that they warrant this court setting aside the conviction and sentence and ordering a new trial. There is also one particular error which affects both the Appellant’s 1995 and 1996 taxation years. The Crown was permitted, despite defence counsel’s objection, to adduce evidence in Reply which had the effect of bringing into income for each year additional amounts of income. Strangely the net effect was to reduce the Appellant’s income for the 1995 taxation year. What happened in respect of the calculation of the Appellant’s income for 1995 was most unusual.

Attached as Schedule “A” to these reasons is a schedule setting forth for each of the Appellant’s 1985, 1986 and 1987 taxation years the net income calculations which resulted in the charges being laid and the net income calculations upon which the court found the Appellant guilty as charged on all counts. It is apparent that the final numbers changed considerably from the numbers going in. That, of itself, is not significant. It is what caused the numbers to change particularly in 1985 and to a lesser extent in 1986 which is significant. It should be noted that the trial judge’s Certificate of Conviction found in Appeal Book Vol. I at page 21 convicted the Appellant on all charges in the amount set forth in count one of the Information ($312, 535.86) and assessed a fine of $146,000. in respect thereto even though the Appellant was found guilty of evading the payment of tax on the lesser amounts shown on Schedule “A”.

Revenue Canada alleged that the Appellant failed to report the following amounts of income in respect of the following taxation years: (Appeal Book Vol. 1, page 10):

1985 - $40,701.60

1986 - $203,152.60

1987 - $68,681.66

With Respect to 1985 and 1996

The T7W-C attached to the notice of re-assessment dated January 11, 1991 for 1985 (Appeal Book Vol. IV p.610) added into income:

guilty was $33,365.09 (See Appeal Book Vol. IV, p.730). The fact that the numbers might change based on the evidence heard is not unusual but what is unusual is what happened here.

The Respondent sought to introduce Reply evidence to include $75,822.73 in the Appellant’s income based on the evidence of Nigel Cof- fen, the Appellant’s son who said in his cross-examination (transcript Vol. 18, p.38):

MR. SAWERS: 1986 we’re talking about, and the personal account, sir, is 1515438.

THE COURT: Yes.

MR. SAWERS: Q. That’s your father’s personal account, correct?

A. That’s correct.

Q. He did not have any businesses, other than real estate and moving in that year, correct?

A. I guess.

Q. No other sources of income, correct?

A. Not that I know of.

Q. And thus, you would not be putting cheques into the account, other than moving cheques or real estate cheques?

A. I only dealt with the moving, sir. I don’t know what else he dealt with in that account.

Although the question was directed to 1986 the result was that $75,822.73 was added to the Appellant’s income for 1985 and $10,291.55 was added to the Appellant’s income for 1986. These amounts were not included in the amounts specified in counts 1, 2 and 3; yet the court permitted the evidence to be received and the court found the Appellant guilty presumably of an offence under s.239(l)(d) and s.239(l)(a) of the Act. There are two problems here: one - as a matter of tax law, the Minister of National Revenue is not permitted to appeal his own assessment (see Harris v. Minister of National Revenue (1965), 64 D.T.C. 5332 (Can. Ex. Ct.), R. v. Scheller (1976), 75 D.T.C. 5406 (Fed. T.D.) at p. 5409-10 and R. v. McLeod (1990), 90 D.T.C. 6281 (Fed. T.D.) at p. 6285-6. By “appealing his own assessment”, the court means that if in the course of an appeal the evidence shows that the taxable income of the Appellant should be higher than the amount assessed, the Minister is precluded by law from asking the court to issue a judgment based on the higher amount. Two, what the Respondent did was to effectively split his case. The assessor was aware of various bank deposits totalling $75,822.73 and $10,291.55 but he had not included them in income until he heard the evidence of Nigel Coffen. With respect, the evidence was not proper reply evidence and in my view it ought not to have been admitted. The admission was contrary to law as laid down by the Supreme Court of Canada in R. v. Biddle (1995), 36 C.R. (4th) 321 (S.C.C.), Sopinka J. and R. v. Krause (1986), 29 C.C.C. (3d) 385, 33 D.L.R. (4th) 267, [1986] 2 S.C.R. 466 (S.C.C.) where McIntyre J. said at p.390-1:

The Crown or the plaintiff must produce and enter in its own case all the clearly relevant evidence it has, or that it intends to rely upon, to establish its case with respect to all the issues raised in the pleadings, in a criminal case, the indictment and any particulars ... This rule prevents unfair surprise, prejudice and confusion which could result if the Crown or the plaintiff were allowed to split its case, that is, to put in part of its evidence — as much as it deemed necessary at the outset — then to close the case and after the defence is complete to add further evidence to bolster the position originally advanced. The underlying reason for this rule is that the defendant or the accused is entitled at the close of the Crown’s case to have before it the full case for the Crown so that it is known from the outset what must be met in response.

This statement by McIntyre J. was recently cited with approval by the Supreme Court of Canada in R. v. Biddle (cited above).

The effect of adding this $75,822.73 into income for 1985 after making allowance for expenses was to reduce the previously determined net unreported income (which is unusual) but if the $75,822.73 had not been allowed into income the net effect of the calculation of additional expenses which Revenue Canada apparently acknowledged were properly deductible would be to turn a taxable income for 1985 to a loss position. (There is no calculation for this in the record. The discovery was made in the course of the appeal). If the Appellant in fact had a loss for tax purposes in 1985 he cannot be found guilty of any offence under s.239. Sections 2 and 150 of the Income Tax Act provide as follows:

2.(1) An income tax shall be paid, as required by this Act, on the taxable income for each taxation year of every person resident in Canada at any time in the year.

150.(1) A return of income for each taxation year in the case of a corporation (other than a corporation that was a registered charity throughout the year) and in the case of an individual, for each taxation year for which tax is payable by the individual or in which the individual has a taxable capital gain or has disposed of a capital property, shall, without notice or demand therefor, be filed with the Minister in prescribed form and containing prescribed information,

A person resident in Canada is taxed on his taxable income. No taxable income; no tax payable. A return of income is required by an individual for a taxation year for which tax is payable. No taxable income, no tax payable and no return is required to be filed. The Minister may, however, by demand require a person to file a return of income but that is not the case here.

If a taxpayer has no taxable income for a taxation year and therefore no tax is payable, that taxpayer is not obliged to file an income tax return for that year even if the taxpayer received substantial income for the year if the expenses incurred to produce the income exceed the income thereby resulting in a loss and no tax payable. At page 16 of the trial judge’s reasons he stated:

Thus, the deceitful, wilful suppression of income in one’s income tax return, is an offence under section 239(1 )(d) of the Income Tax Act even if it turns out in the end that the taxpayer does not have to pay tax.

With respect, I believe that statement is an incorrect statement of the law as contained in section 2 of the Income Tax Act.

Again, with respect, it would appear that the trial judge misunderstood the statements by Bergeron J. in the Redpath Industries Ltd. case (cited above) which may have prompted him to make the above statement. At pages 17 and 18 of his reasons, the trial judge excerpted the following statements by Bergeron J.:

The main thrust of the Act is to compel the taxpayer to declare his income, no matter what the source may be, and the taxpayer has no choice but to declare it as faithfully as his activities engendered. In doing so, he is entitled to take into account whatever exemptions are recognized by the Act and he may claim the benefit of such exemptions in his tax return.

The Revenue, upon such disclosure, may not agree with the taxpayer’s exemptions claim and may move to reject such claim by notice of assessment, opening the door to legal civil proceedings to be decided on the merit of the respective contentions of the parties by the Appeal Board and the Exchequer Court (for the years involved), later on by the Tax Appeal Board (now the Tax Court of Canada) and the Federal Court.

These authorities constitute the forum where adverse contentions are debated as to taxability or not.

The obligation to declare his revenue on the part of the taxpayer is unquestionable and wilful failure to do so may entail the commission of an offence of evading compliance with the Act, which is not to be confused with an avoidance of tax.

The case law is replete with prosecution for failure to declare, but it is worth noting that in regard to a charge of tax evasion, not a single reported case could be found based on wilful omission to declare income such as in the present case where the total income is declared, and declared as non-taxable by virtue of an exemption simultaneously claimed in tax returns.

This mutism in the case law seems to me to stem from logic in that, once a total income is duly declared, whatever qualifications are attached to it, the taxpayer has satisfied his main and principal obligation. He may wrongly claim an exemption, possibly opening the way to other recourses if the exemption claim is tainted with fraud, etc., but the necessary element for an offence of omission to declare is not present to support a charge of that nature.

In the Redpath Industries Ltd. case Redpath Sugar created a subsidiary corporation in Bermuda to trade in sugar and sugar futures. The profits of the subsidiary were paid to Redpath and Dominion as dividends, were reported by each corporation as dividend-source income in their respective income tax returns and were deducted as deductions in computing taxable income as permitted by s.28(l)(d) of the Act as it applied in the years 1966 to 1971. The two corporations were charged under s.239(l)(d) of the Act with wilfully evading the payment of tax. The receipts of the income were disclosed; what was in issue was the taxpayers’ entitlement to deduct the inter-corporate dividend as a deduction in computing taxable income as provided by s.28(l)(d), the Crown alleging that the Bermuda corporation was a “sham” and the profits earned by the Bermuda corporation were properly the profits of the two corporations. Had the argument of “sham” been successful then the two corporations would not have been entitled to the inter-corporate dividend received deduction as claimed and each corporation would have been taxed on its share of the income earned by the subsidiary. The court held that the Bermuda corporation was not a sham and the charge was dismissed.

When Bergeron J. said at page 6350, “The main thrust of the Act is to compel the taxpayer to declare his income ...” he must be taken to mean “his income” which results in his having a taxable income within the meaning of s.2 of the Act and therefore a filing requirement as required by s.150 of the Act.

Where Bergeron J. said at page 6350, “The obligation to declare his revenue on the part of the taxpayer is unquestionable ...” he must be taken to mean “his income” not “his revenue” and that which results in his having a taxable income within the meaning of s.2 of the Act and therefore a filing requirement as required by section 150 of the Act.

It would appear that the trial judge understood these statements to mean that a taxpayer is required to file a return of income declaring all sources of income even though he does not have for whatever reason taxable income and therefore no tax is payable.

This is not to say that a person cannot be charged under s.239( 1 )(d) with intent to evade where he alleges no taxable income if the income otherwise realized is said to result in no taxable income and no tax payable by making false and fictitious claims for deductions which reduce income to zero. The offence of evasion is not the failing to disclose income; it is the claiming of fraudulent deductions, (see R. v. Ciglen (1970), 70 D.T.C. 6118 (S.C.C.)). More with Respect to 1936

The error in admitting the evidence in reply affected 1985 and 1986 and would require the setting aside of the conviction for these two years and directing a new trial but there is more with respect to 1986. Included in income for 1986 as shown in Appeal Book IV, p.730 is $60,451.00. Page 731 shows how that figure was calculated. Included was the amount $9,660.00 representing an alleged commission received by the Appellant on the sale of 852 Dovercourt.

The Appellant’s position on this amount is well described in the following para. 21 of the Appellant’s Factum and is supported by the citations in the transcript:

852 Dovercourt

The Appellant took a listing for the sale in 1986, of 852 Dovercourt from one, Roland Bramble on whose behalf the Appellant had acted on the purchase of the same property in 1985. Bramble, however, found his own buyer and asked the Appellant to forego his commission on the basis of their past relationship and on the promise of providing to the Appellant future business. The Appellant agreed to forego his commission. The Appellant, having made this agreement, accordingly, received no commission in respect of the transaction. The Respondent nevertheless added an imputed commission on the listing price, to the Appellant’s income, and then taxed, penalized and prosecuted the Appellant on this amount which he agreed to forego and never received. The Respondent called no evidence on this issue, offered no proof of receipt of monies by the Appellant in respect of this item, failed to call Bramble or anyone to testify on the subject of whether a commission payment was received or receivable by the Appellant.

Evidence - Kenneth Coffen - Vol. 19, February 12, 1992, p. 107;

Evidence - Kenneth Coffen - Vol. 20, February 13, 1992, p. 132;

Evidence - John Moore - Vol. 14, January 24, 1992, p. 65;

Evidence - John Moore - Vol. 15, January 28, 1992, pp 42 - 50;

The trial judge’s reasons do not appear to address the evidence on this issue. I can do not better than to quote the decision of Estey J. in R. v. Harper (1982), 65 C.C.C. (2d) 193 (S.C.C.) at p.210 Supreme Court of Canada:

An appellate tribunal has neither the duty nor the right to reassess evidence at trial for the purpose of determining guilt or innocence. The duty of the appellate tribunal does, however, include a review of the record below in order to determine whether the trial Court has properly directed itself to all the evidence bearing on the relevant issues. Where the record, including the reasons for judgment, discloses a lack of appreciation of relevant evidence and more particularly the complete disregard of such evidence, then it falls upon the reviewing tribunal to intercede.

Given the evidence adduced by the respective parties, it would be my view that such evidence might well have left the trial judge with a reasonable doubt. It might well have been incumbent upon Revenue Canada to call as its witness Roland Bramble in order to discharge its onus of proof beyond a reasonable doubt. Based on the evidence adduced on this point it might well have been argued that there was no case to answer.

I appreciate that Revenue Canada cannot be expected to chase down proof for each item of alleged unreported income it seeks to criminally charge a taxpayer for, but to the extent it chooses not to then it may, on the weight of such evidence, succeed civilly, even including penalties, but it should not reasonably expect to succeed criminally.

With Respect to 1987

I am unable to relate the numbers contained in the T7W-C attached to the Notice of Reassessment dated January 11, 1991 issued in respect of the Appellant’s 1987 taxation year (Appeal Book Vol. IV, p. 614) to the number upon which the Appellant was convicted - $68,681.66 - (Appeal Book Vol. IV, p. 730). Nonetheless, included in the latter number were the following two amounts as unreported real estate commissions (Appeal Book Vol. IV, p.731):

1191 Kennedy Road - $27,050.00

46 Milford - $14,845.00

The trial judge said this about these two items:

He misinformed Sukhi Choe as to his business activities qua the real estate and moving businesses. He put some $40,000 commission incomes from two real estate transactions, Kennedy Road and Milford, into term deposits, taking the interest therefrom, under the spurious, and untruthful convenience explanation that he had put the monies aside for fear of potential pending litigation — such fear being without any real sound basis and substance, and most unreasonable in all of the circumstances: again an explanation of convenience, but in fact part of Mr. Coffen’s pattern of chicanery in hiding income and attempting to deceive the federal income tax authorities.

The Appellant’s position is set out in paragraph 23 of his Factum. The Respondent’s position is set out in paragraphs 20 to 30 of his Factum.

What happened is the Appellant earned the two commissions from being involved in two different real estate transactions. Another agent, Gary Sylvester, believed he was entitled to some or all of the commission on the sale of Kennedy Road and he told the witness Winnie To who purchased Kennedy Road that he was going to sue everybody to recover his share. Winnie To reported this to the Appellant. On advice received from his adviser, Mr. Feder, and based on a previous experience over a disputed commission which apparently took three years to resolve, the Appellant deposited the commissions into a separate bank account and invested the money in a G.I.C. The evidence is lacking on what steps Sylvester took in 1987 to enforce collection. There is no evidence as to whether the dispute was resolved or unresolved at the end of 1987 or even 1988. The amount may not have had the quality of income about it to require its inclusion in income in 1987 but it may have attained that quality in 1988 but there appears to be no evidence on the point. By “quality” I mean as Thorson J. said in Robertson Ltd. v. Minister of National Revenue (1944), 2 D.T.C. 655 (Can. Ex. Ct.):

Is his right to it absolute and under no restriction, contractual or otherwise, as to its disposition, use or enjoyment? To put it in another way, can an amount in a taxpayer’s hand be regarded as an item of profit or gain from his business, so long as he holds it subject to specific and unfulfilled conditions and his right to retain it and apply it to his own use has not yet accrued, and may never accrue?

(ffd in Canadian Fruit Distributors Ltd. v. Minister of National Revenue (1954), 54 D.T.C. 1145 (Can. Ex. Ct.))

There is as well the decision of the Ontario Court of Appeal in R. v. Sihler (1976), 13 O.R. (2d) 285 (Ont. C.A.). At page 291 Brooke J.A. on behalf of the court said:

The learned trial Judge considered all of the circumstances and found that there was a general intent on the part of Dr. Sihler to mislead the Department and suppress income. Be that as it may, I am of the view that there was no evidence of a specific intention to mislead and so to make a false or misleading statement in his tax return with respect to the loss of his property on Brandon Ave. by reason of the foreclosure. Indeed, the evidence called by the Crown is to the contrary. The Crown called the witness, E. Houser, one of Her Majesty’s counsel, who testified that as counsel for the Mercantile Bank (which had certain claims against the appellant) he met with him with respect to his properties. He testified that he had advised both the bank and Dr. Sihler that he was of the opinion that if foreclosed the appellant would not be required to recapture depreciation for the purposes of income tax. Mens rea is an essential element of the offence with which the appellant was charged, and in so far as the Crown’s allegation depended upon the failure to report the sale or disposition of the Brandon Ave. property, it has failed to show that he intended to report falsely or misleadingly in this regard. With the greatest deference, the learned trial Judge’s finding of a general intention based on the overall dealings of Dr. Sihler with his tax problems was quite insufficient to support his findings with respect to this matter in the face of the evidence referred to. The appeal, so far as it relates to this aspect of the charge, succeeds.

This is one instance where the trial judge had to assess the credibility of the taxpayer and in this instance he did not believe the taxpayer’s evidence. Possibly if an expert in tax law had been called the expert would have supported the Appellant’s conduct. This is a fine point in tax law and it involves as well the question of the taxpayer’s entitlement to deducting a reserve in computing income. The Appellant did not “hide” the money. He put it into a G.I.C. which in turn produced income and a TS reporting slip identifying the existence and location of the amount. The Appellant eventually brought the amounts into income in 1990, well after the assessor’s first visit. In my view, the evidence leaves too many unanswered questions. Had this been the only issue I had to consider I might well have decided it was not my function to interfere with the Judge’s finding of credibility but I am of the view that the trial judge might well have proceeded on an erroneous premise based on his apparent misunderstanding of the statements of Bergeron J. in the Redpath Industries Ltd. case.

As noted earlier, the conviction as registered and possibly the calculation of the fine needs to be amended to reflect the court’s findings as evidenced by the document in Appeal Book Vol. IV page 730. That can be sorted out in the new trial.

Lastly, the court convicted the Appellant on all counts. The court said, “Kenneth Coffen is guilty on all charges ...”. That finding of guilt included count no. I, the offence of evading the payments of tax for the taxation years 1985, 1986 and 1987. This is an offence unknown to tax law. (See R. v. Fogazzi (1992), 92 D.T.C. 6421 (Ont. Gen. Div.) reversed on appeal [reported (1993), 93 D.T.C. 5183 (Ont. C.A.)] on the issue as to the taxability on the amount received but with no comment on this issue of charging multiple taxation years in one count.) The issue was not raised in the Notice of Appeal although it was touched upon in argument. In my view, if as a matter of law the count is a nullity the point need not be addressed. In any event, it can be addressed at the new trial. Counsel for the Respondent’s argument that a count in an information is not objectionable by reason that it is double or multifarious citing s.590(l)(b) of the Criminal Code points up my point that the substantive law to be applied is the tax law not the criminal law. The procedural provisions of the Code are incorporated by the Interpretation Act, as pointed out earlier. Whether or not an offence has been committed and the nature of the offence is a matter for the tax law. The tax law looks at taxation, year by year by year; not two, three or four years together. Section 2 of the Income Tax Act (cited above) states “... for each taxation year...”. As has often been said, income tax looks at a tax payer’s taxation year as a separate water-tight compartment. This is basic tax law. Many provisions of the Income Tax Act reflect this basic principle as I discussed in Fogazzi(cited above). For a charge under the Code, counsel’s point is well taken. But this is not a charge under the Code; it is a charge under the Income Tax Act.

The conviction and sentence are set aside and a new trial is ordered.

I should like to make one further remark reflecting a view which I have held for many years based on personal experience. Section 239 charges should be heard by the Tax Court of Canada, a court composed of judges well versed in tax law. This is not meant as any criticism of the Provincial Division or of the s.96 courts in Ontario. Rather, it is my opinion that the interests of all concerned would be better served by having tax-experienced judges deciding these issues which would result in a higher level of consistency in the law and a clear direction to Revenue Canada as to what kind of case ought to be the subject of a s.239 charge. For example, where the nature of a receipt is not clearly settled in law as an income receipt, is it properly the subject of a charge under s.239? To answer that question, tax law needs to be applied and it is a complex area of law best reserved to those familiar with it. The present procedure has been with us for so long that the reason for its existence is probably long forgotten. Probably it was included in the early era of the income tax law when the law was much simpler than it is today and the tax courts had not reached the very high level of expertise that they have achieved today. Maybe it is time to look at it again for the benefit of all concerned; including the interests of justice.

Appeal allowed; new trial ordered.