Citation: 2006TCC254
Date: 20060505
Docket: 2004-257(IT)G
BETWEEN:
PATRICK MACADAM,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Flanigan, D.J.
[1] The Appellant's Notice of Appeal with respect to his tax liability for 1989, 1990 and 1991 taxation years is the issue before the Court. The facts are not really in dispute with respect to the items in question save and except the character of the payment received which will be referred to later in the amount of $250,000.
[2] The Appellant failed to file a T1 income tax return for the 1989, 1990 and 1991 taxation years and when required by subsection 150(1) of the Income Tax Act, (the "Act") R.S.C. 1985 chapter I, 5th suppl. as amended, nor in response to a demand to file made by the Minister of National Revenue (the "Minister") in accordance with subsection 150(2) of the Act. By concurrent Notices of Assessment dated March 8, 1994, the Minister assessed the Appellant's tax liability for the years 1989, 1990 and 1991 taxation years pursuant to subsection 152(7) of the Act. In assessing the Appellant's tax liability for the periods 1989, 1990 and 1991 taxation years, the Minister factually determined that the Appellant failed to report income in the amount of $133,506, $77,961 and $169,451 respectively. The total unreported income as assessed by the Minister is detailed as follows:
Description 1989 1990 1991
GCI Inc. - s.15(1) appropriation $46,667 $79,999 $ 79,999
Ottawa Sun - s.15(1) appropriation $ 0 $ 2,500 $ 22,000
Pierre Bourque & Sons Ltd. - s.15(1) appropriation $ 0 $ 0 $250,000
Less : Balance in Birkenhead Account on Dec. 31st $ 0 ($6,444) ($183,330)
Less: Travel Expenses ($7,164) $ 0 $ 0
Total s.15(1) Shareholder Appropriations $39,503 $76,056 $168,670
T4 and T4A Income $ 92,319 $ 0 $ 0
T5 Income $ 1,684 $ 1,905 $ 781
Total Unreported Income $133,506 $ 77,961 $169,451
[3] By Notices of Objection filed effective November 17, 1994, the Appellant objected to the assessment of his tax liability for the 1989, 1990 and 1991 taxation years and reassigned for review on February 17, 2003. The review of the Appellant's objection was held in abeyance for eight years pending the resolution of the Appellant's related criminal charges. By Notice of Confirmation dated May 30, 2003, the Minister confirmed the assessments for the years 1989, 1990 and 1991.
[4] The Minister in confirming his assessments for the years 1989, 1990 and 1991 made several assumptions which are set out in pages 2, 3 and 4 of the Reply to the Notice of Appeal. For the most part these have been accepted by the Appellant and in summary indicate the following:
1. In 1989, 1990 and 1991 taxation years (the material times) the Appellant was a director and officer and controlling shareholder of the Birkenhead Group Inc. ("Birkenhead"), a private corporation incorporated under the laws of the Province of Ontarioin December 1988.
2. The Appellant held a personal bank account with the Bank of Nova Scotia being account number 9758720-0701 and in the years 1990 and 1991 Birkenhead held a corporate bank account with the Bank of Nova Scotia being account number 3622-12. Birkenhead was controlled by the Appellant and it carried on a consulting business in Ottawa, Ontario, providing services which included lobbying the Government of Canada on behalf of private clients. In addition, in 1990 and 1991 taxation years, Birkenhead was also engaged in the business of providing freelance journalist services through the Appellant. In addition, at all material times, Birkenheadprovided consulting services to the Government Consulting International Inc. (GCI) and in 1991 taxation year also provided such services to Pierre Bourque and Sons Ltd. In 1989 and 1990 Birkenhead also provided journalistic services to the Ottawa Sun newspaper through the Appellant. At all material times both the Appellant and Birkenhead failed to file income tax returns with the Minister. A list of the funds received by Birkenheadfor the years 1989, 1990 and 1991 is set out under paragraph 5 of the Reply to the Notice of Appeal; no dispute is raised with respect to these sums. In 1989 the Appellant incurred travel expenses in the amount of $7,164 to gain or produce income for Birkenhead none of which was reimbursed to the Appellant by Birkenhead.
[5] With respect to the 1991 taxation year the Appellant denies that he was paid by Pierre Bourque and Sons Ltd. through Birkenhead in respect of lobbying services to encourage the Government of Canada to extend the lease on the St. Laurent Building, located in Hull, Québec and owned by Pierre Bourque and Sons Ltd. In other words we come to the issue in this matter the Appellant denies that any part of the $250,000 received by Birkenheadwas for services rendered but rather was a gift. On April 17, 1997, Birkenhead and the Appellant were convicted of two counts of wilfully evading the payment of taxes under the Act and the Excise Tax Act including failure to declare a taxable income in the amount of $250,000 with respect of service provided to Pierre Bourque and Sons Ltd. and thereby evading the goods and services tax thereon. This criminal proceeding is only relevant insofar as it relates to the allegation by the Minister that the plea of issue estoppel is applicable to this case. It should be pointed out that the criminal proceedings were held in the Provincial Courtand the first appeal was to the Superior Court of Ontario and then to the Ontario Court of Appeal all of which resulted in the conviction being upheld and an application for leave to appeal to the Supreme Court of Canada was denied. The issues to be decided are whether or not the Appellant is barred by the doctrine of issue estoppel from challenging before this Court his tax liability for the 1989, 1990 and 1991 taxation years and whether the Appellant qua shareholder appropriated the amounts of $39,503, $76,056 and $168,670 for the material taxation years respectively and were these amounts properly included in his income as shareholder benefits pursuant to subsection 15(1) of the Act. The Appellant, in his evidence, such as it is, alleges that the $250,000 payment to Birkenhead, which was eventually funnelled to a large extent to his account, is taxable as earned income or is a gift. A short reference to the Notice of Appeal is appropriate here. Mr. MacAdam for the past fifteen years approximately has been carrying on his battle with Revenue Canada to determine the character of the $250,000 sum paid by Pierre Bourque and Sons Ltd. to Birkenheadas set out in the appeal book A-1, tabs 11 and 12.
[6] Mr. MacAdam, throughout his allegations, has given evidence that he was a friend of former Prime Minister Brian Mulroney and had a long standing employment record with him both with the Iron Ore company and after Mr. Mulroney came to Ottawa. He gives evidence that he was promised an appointment to the senate and as soon as this was leaked (his term) by someone in Revenue Canada, he failed to get the appointment and this investigation started. He also emphasizes in his evidence that he was completely transparent in relation to his treatment of the funds from his various accounts and he made no attempt to hide this figure; he simply reiterates over and over again that this was a gift. He also indicates in his Notice of Appeal that he would introduce evidence that before he accepted the money he sought legal advice as to the tax ramifications of an ex gratia payment. He was advised, he says in 1991, by a lawyer, now Federal Tax Court Justice Cameron McArthur, that a person could accept any amount tax free so long as the donor paid the relevant taxes and GST. I fully reject this testimony. At no time did Cameron McArthur advise him other than to say that, yes, gifts were tax free in Canada. This came over a cup of coffee and had no indication or semblance of anyone seeking legal advice as to the particular payment in question. It was a random question which Justice McArthur quickly forgot. In no way could a reasonable person anticipate that he was giving legal advice over a cup of coffee to a matter that he had no inkling of prior to that chance meeting. The Appellant has had a long association with Pierre Bourque, the principal owner of Pierre Bourque and Sons Ltd.. Mr. MacAdam, the Appellant, indicates that he was appointed as public relations or press secretary to the British High Commission in Londonbut found it very stressful. He and the High Commissioner were the only persons who were not public servants and he found that he was cut out of any inner circle. He had a four-year appointment, but returned to Canadafor health reasons, gave up his appointment after a year and a half and was unemployed for about six months. He was contacted or contacted Pierre Bourque and was offered a job with a retainer of $8,000 a month. He said he did not take that retainer because he did not want to be in the position of calling on his former friends in government to grant concessions to Bourque. As the evidence progressed, it became evident that that is exactly what he did at a later date and at no time did Mr. Bourque indicate that it was anything but a business expense that he was paying to the Appellant by this $250,000 sum. The Appellant had many allegations of improprieties and breach of charter rights and so on but nothing was produced in evidence to convince the Court that anything of that nature occurred. If his rights were jeopardized, it would have been in the criminal court proceedings and there is no evidence in that behalf as to any finding of charter breach. In fact the evidence of Robert Cranford was to the contrary, that as soon as he and MacAdam agreed to give a statement that he was warned with his charter of rights complications. The Appellant relied on his correspondence with the department on the support of one William Moore the chartered accountant in this city. Mr. Moore's evidence is that he had very little recollection of this transaction but his work with the Appellant and his family was mostly with respect to personal income tax services. He conceded that about ten or twelve years ago he assisted Ken Radinoff, who was then acting for the Appellant, with a meeting with Revenue Canada. He recalled meeting with Mr. Regnier of the Stikeman Elliot firm in Montreal. He recalled a meeting with Revenue Canadaand the Appellant and his wife were both sick at that time and his approach was to the department to see why the Minister would proceed because there is no money available and still the department refused any offer of settlement. This was later followed up by Mr. Cranmore who said there was no settlement available. All Mr. Moore could recall was that the money was not hidden and he could not recall anything further. He had no knowledge of whether Birkenhead had paid the GST or filed the input tax return and he does not know why Pierre Bourque and Sons Ltd. claimed it as an expense. In other words he had really nothing of substance to offer and really nothing factual that could be accepted as evidence. Mr. Peter Wallace, who is now in client relations on International Affairs with the Canadian Coast Guards; in the period 1990 to 1993, he was Press Secretary to the Minister of National Revenue and his evidence is that he was aware of the problems that the Appellant was facing that he had no particulars knowledge of the same. His recollection is that he spoke with the Appellant and informed him of the fairness doctrine that was being put forth by the government of the day in which persons were allowed a form of amnesty if they came forward and restated their tax returns and this was to give an element of fairness to taxpayers in difficulty in paying taxes. He advised the Appellant to seek information about this and his evidence is that the Appellant was turned away or that it did not apply. The evidence of Mr. Cranmore is that the Appellant came in and asked some questions about it but never made a formal application. Mr. Bourque's evidence is that he had been a family friend of the Appellant's family for a number of years. Mr. MacAdam's evidence is he never sent him a bill for favours he did for Bourque or any other work that he may have done for him. His evidence is that he never took part in the public works meetings involving the St. Laurentbuilding in Hullbut that Bourque had a lobbyist of his own by the name of Hugh Riopel. He repeats again that he never wanted to be a lobbyist, that he gave advice within his firm. He acknowledges that Bourque did tell him that he would do something for him. The Appellant says in his evidence that Bourque gave the money to him and he banked it with no attempt to hide it. He then goes on to give testimony that Bourque tried to claim it as a business expense and Revenue Canadaaccepted it as an expense. He has some fuzzy allegations about Revenue Canadagiving back $12,000 which Bourque had never paid in the first place and that stretches the Court's credulity. Again in his testimony he refers vaguely to asking McArthur re gift tax but he offers no explanation of anything further that may have taken place at that meeting. As I have said earlier I have no problem in accepting that the events as described by the Appellant never took place other than to say there was no gift tax in Canada. Bourque owned a 1/3 interest in BCI and was attempting, according to the Appellant, to buy him out and at that time he felt he would get some equity shares. There is no evidence whatsoever to support this. Also in his evidence he admits to drawing money out of Birkenhead but insists that he was never a lobbyist. This assertion runs through almost every line of his testimony. The Respondent called Pierre Bourque who described himself as a consultant and in 1980 to 1990 he was President of Pierre Bourque and Sons Ltd. and in fact was the owner of many parcels of real estate in the city. The Department of National Defence had property on a ten-year lease with Pierre Bourque and Sons Ltd. Mr. Bourque had lost a lucrative contract with the government at considerable expense to himself. His evidence is, and is supported by the Appellant that the government wanted to make it right. MacAdam says he was never to be paid for the lobbying to change the lease on the St. Laurentbuilding. Bourque says that he treated it as a business expense and paid the GST. He does not recall any conversations with MacAdam that it was a gift and no one gave evidence that they stated at the material time that it was a gift. I should say at this point that Mr. Bourque was not a very cooperative witness and had more objections to the manner in which the Minister's counsel was proceeding than in the substance of the evidence which he was delivering. Nevertheless it was quite clear that he was not supporting Mr. MacAdam's position that it was a gift.
[7] The next witness was Robert Cranford from Revenue Canadaand he works for the Director today, mainly in money laundering and tax evasion. In 1993, he was the investigator in this matter. The GST investigations and the tax evasion investigations were under two separate heads at that time and there was a question with respect to Birkenheadand the payment of GST. No tax returns had been filed for 1989, 1990 and 1991 and they also had an investigation of tax evasion and so the GST investigators and Revenue Canadapursued a joint investigation. This investigation resulted in charges against the Appellant and Birkenhead and the Birkenhead Group. Tab 17 of exhibit A-1 shows an information he worked on in 1995 with respect to the tax evasion of the Appellant and Birkenhead; this also included the year 1992. Mr. Cranmore filed returns for Messrs. MacAdam and Birkenhead under subsection 152(2) and no challenge was made to the arithmetic in those filings. Shortly after the search warrants were issued and according to Mr. MacAdam, there were thirty odd people involved in six different locations; in any event, there is no allegation of anything improper in their enforcement. Mr. MacAdam set up a meeting for April 1993 and Mr. Cranmore was there along with Madam Charbonneau and Bruce Findlay; also Mr. Cranmore's boss, Gaétan Charette, was present. Mr. Cranmore says the meeting started with an exposé of bad health of the Appellant and his wife and that all the money went for lawyers and it rendered him penniless. There were several questions put to Mr. Cranmore by the Appellant which were really in the form of reminiscences and ramblings rather than questions with respect to the issue at hand. Mr. Cranmore referred to the Exhibit A-1 and in particular tabs 8 to 12 which gives a detailed account of the work that the Appellant did for Pierre Bourque and Sons Ltd. with respect to the Louis St. Laurent House in Hull. One will recall that this is the house that Bourque was trying to get an extension and enlisted Mr. MacAdam's help in doing so and in fact it resulted in a new lease being granted extended to the year 2005. Exhibit A-1, tab 10 shows an undertaking to pay $500,000 commencing on or about October 1, 1991 and in fact the cheques pertaining to this transaction were issued in November 1991. Mr. MacAdam in his cross-examination of Mr. Cranmore dealt minimally with the question before this Court and was more concerned about dealing back with matters pertaining to the criminal trial which had long been settled with leave being refused in the Supreme Court of Canada. The Appellant made several references to his charter of rights being infringed but offered no evidence or asked no questions of the various witnesses pertaining to the issue at hand. The only evidence that I can recall is a general denial that he received the $250,000 for services rendered rather than it was an ex gratia gift and he relied heavily on his assertions although he produced no evidence that Revenue Canada had no invoices upon which to make their findings of fact. This, notwithstanding that he had agreed to most of the assumptions and following the evidence, clearly all the assumptions have been proven. The onus is on the Appellant to show by a preponderance of evidence that the Minister is wrong in his assessments and in my view he has not even come close to achieving this onus. Because of this complete lack of evidence the appeal must be dismissed.
[8] In addition, the Crown pleads issue estoppel in this matter. In view of my findings of fact that there is no evidence whatsoever to support the Appellant's claim, I do not find it necessary to deal with issue estoppel. In passing I must say that I think Mr. MacAdam was dealt with fairly and given every opportunity to adduce evidence over the past 14 or 15 years but has failed to do so.
[9] In the course of the hearing, it was agreed that there was no dispute as to the arithmetic in this case. It was purely a question of whether the $250,000 was a gift or income. I do not therefore find it necessary to deal with the arithmetic but if a difficulty should arise I may be spoken to.
[10] The Crown has not asked for costs in this matter and there will be no order as to costs.
Signed at Ottawa, Canada, this 5th day of May 2006.
Keith Flanigan
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