Gordon – Federal Court notes that in theory a genuine belief that records falsification was a legitimate accounting practice might be a defence to charges under s. 239(1)(c)
A company (“JAD”) that promoted itself as an SR&ED specialist firm, created backdated records in support of R&D claims that it and its principals (Deacur and Gordon) made on behalf of numerous clients. Deacur and Gordon were committed to stand trial, but the prosecution ended when Crown counsel entered a stay of proceedings. Deacur and Gordon, and JAD, brought an action for damages for inter alia malicious prosecution. CRA had failed to understand that backdating records was an acceptable accounting practice, and that the prosecution had no chance of success.
Before dismissing their actions, Barnes J stated:
Messrs. Deacur and Gordon are perhaps fortunate that the Crown elected to stay their prosecution. The actus reus of a fraud was clearly present. Based on JAD’s widespread use of misleading backdated records and an untenable taxation theory, an inference of a guilty intent could also have been reasonably drawn. … [T]he only argument potentially available to them was one that was successfully employed in R v Patry, 2018 BCSC 1524 [which stated]:
... [D]espite my conclusion that Mr. Patry's tax strategy was flawed, I conclude that it is at least possible that Mr. Patry believed he had formulated a viable tax strategy. He cannot be convicted for being wrong, only for knowingly being wrong. ...
The fact that mens rea might have been negated in the prosecution of Messrs. Deacur and Gordon based on a wholly untenable but mistaken belief that their methods were sound does not, however, lead to a conclusion that the prosecution was legally unsound. … [T]he investigation was thorough, fair, objective and competently carried out.