Her Majesty the Queen v. Whissell-McLeod Ventures Limited and George Whissell, [1994] 1 CTC 141

1. Introduction

The appellants have been convicted under subsection 238(1) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") of six counts each of failure to provide income tax returns for each of six taxation years following the provision of notice to do so pursuant to the provisions of paragraph 231.2(1 )(a) of the Income Tax Act.

The appellant, Whissell-McLeod Ventures Ltd., was convicted as a principal offender and the appellant, George Whissell, was convicted as a party to the offence by application of section 242 of the Income Tax Act.

2. Facts

The appellant, Whissell-McLeod Ventures Ltd., is one corporation in a group of corporations controlled and managed by the appellant, George Whissell. The group numbers in excess of 40 corporations.

The evidence indicates that during the early 1980s these corporations carried on active business which generated annual gross revenues in excess of $75 million. The corporations then experienced a significant downturn and by 1985 were generating gross revenues in a range of less than $10 million annually.

Administrative staff for the group was reduced from 25 people to three people. This resulted in a breakdown of accounting for the group and the failure of the appellant, Whissell-McLeod Ventures Ltd., to file its income tax returns.

In November of 1989, notices under paragraph 231.2(1)(a) of the Income Tax Act were served on a number of corporations in the group and on the appellant George Whissell.

The appellants retained a tax lawyer and accountants to deal with the preparation of the returns. Meetings ensued with personnel from the Department of National Revenue and it was determined that because of the interwoven nature of the group, 20 of the corporations would have to prepare income tax returns and would have to do so concurrently as the return of each affected the return of others within that grouping of 20 corporations.

The accounting records of the group were in disarray. In addition, the appellants encountered difficulty with financing of the task of preparing income tax returns respecting several years for the 20 corporations.

The evidence disclosed that the appellant, Whissell-McLeod Ventures Ltd., expended approximately $100,000 for professional assistance and incurred a staff cost of approximately $50,000 in attempting to comply with the demands.

The demands were not met and each of the appellants were charged and later convicted of the charges which are now before me by way of summary conviction appeal.

3, Issues

The appellants have each advanced the following grounds of appeal:

1. That the demands for income tax returns were made under the wrong section of the Income Tax Act. They were made under paragraph 231.2(1 )(a) of the Income Tax Act and the appellants submit that the demands should have been made under subsection 150(2) of that Act.

2. That the demands did not provide sufficient and reasonable time to permit compliance with the same.

With respect to the appellant, George Whissell, the following additional grounds were advanced:

1. Section 242 of the Income Tax Act was not something addressed by counsel, there was no argument in relation to it, no evidence specifically directed to it and it was first advanced by the learned Provincial Court judge in his decision. It is suggested that this created an unfairness equivalent to a denial of justice and that at least a new trial should be ordered.

2. That in any event the learned provincial court judge misconstrued the elements of section 242 of the Income Tax Act and that the convictions resulting should be quashed on a proper construction of those elements.

4, Legal analysis

The provisions of the Income Tax Act which are relevant to this matter include the following sections which provide:

150 (2) Whether or not he is liable to pay tax under this part for a taxation year and whether or not a return has been filed under subsection (1) or (3), every person shall, on demand from the Minister, served personally or by registered letter, file within such reasonable time as may be stipulated herein, with the Minister in proscribed form and containing proscribed information a return of income for the taxation year designated therein.

231.2 (1) Notwithstanding any other provision of this Act, the Minister may, subject to subsection (2), for any purpose related to the administration or enforcement of this Act, by notice served personally or by registered or certified mail, require that any person provide, within such reasonable time as is stipulated in the notice,

(a) any information or additional information, including a return of income or a supplementary return; or

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.

Section 238.1 of the Income Tax Act merely makes failure to comply with various sections of the Act an offence under the Act.

The appellants’ first ground of appeal is that the demand for the returns should have been made pursuant to subsection 150(2) of the Income Tax Act and not under paragraph 231.2(1 )(a) of the Act. It is my decision that this ground cannot succeed. Paragraph 231.2(1)(a) specifically authorizes the Minister to demand "a return of income or a supplementary return". It was submitted that this section should be confined to situations where existing documentation is requested and should exclude situations where the creation of documents is required. I cannot agree with this submission. I note that demands for supplementary returns must contemplate the creation of such returns. It seems unlikely that a taxpayer would ever have supplementary returns lying about in wait for a Ministerial demand.

In addition, this very question has been dealt with by the Alberta Court of Appeal in R. v. Slupek wherein the Court of Appeal in an unreported decision adopted the reasoning of Wilson, J. of this Court on the initial summary conviction appeal, which decision is also unreported. Wilson, J. held that it is open for the Minister to make his demand under either section 150 or paragraph 231.2(1)(a). He specifically refers to the opening words of paragraph 231.2(1)(a) as authority for his decision.

The second ground advanced to me is with respect to the timing of the demand and specifically to the effect that 75 days, in the circumstances, is not reasonable, as it is simply not enough time to allow the appellants to comply.

The argument advanced is that the Minister cannot manufacture an offence by making a demand which is impossible for the taxpayer to meet.

The appellant also argues that the failure of the appellant corporation to maintain adequate records should not be considered as an element of fault in determining guilt but should be considered as something which explains the inability of the taxpayer to meet the Minister’s demands.

Again, this issue was before the Alberta Court of Appeal in Slupek, supra, wherein they adopted the reasoning of Wilson, J. who at page 4 of his decision states:

As to the reasonableness of the time allowed to the Appellant to respond to the notice, it appears to be something in the order of eighty days. It is less time that the ordinary citizen has from the end of the calendar year to file a tax return. However, in the light of the Appellant's evidence that he knew he had other problems with the department and that he knew his records were in a mess, and had apparently known it for some time, I do not feel that the time chosen by the Minister in the circumstances was so unreasonable that it should be altered on an appeal. In my opinion as well, this is not a proper ground of appeal under section 830 of the Criminal Code. This ground of appeal ails.

On the basis of the Alberta Court of Appeal's adoption of this decision, I am not prepared to accede to the appellant’s argument on this ground. In addi- tion, I agree with the decision of Wilson, J. and agree that in the circumstances before me on the basis of an appeal I am not prepared to alter the decision of the learned Provincial Court judge with respect to the reasonableness of time.

As these are the only two grounds advanced by the appellant, Whissell- McLeod Ventures Ltd., and as both have failed the appeal of Whissell-McLeod Ventures Ltd. is accordingly dismissed.

The appellant George Whissell, advanced additional arguments which pertain to him only. These arguments relate to section 242 of the Income Tax Act which makes an officer of a corporation who "directed, authorized, assented to, acquiesced in, or participated in” an offence a party to that offence.

The appellant takes the position that as this section was not specifically raised in the charge or dealt with during the course of the trial until the decision of the learned provincial court judge the appellant has been unfairly treated and that a new trial should be ordered.

The section is similar to section 21 of the Criminal Code which deals with parties to offences under that enactment. Cases relating to that provision indicate that there is no requirement that a charge be framed differently when someone is being charged as a party to an offence. In R. v. Harder, [1956] S.C.R 489, 4 D.L.R.

(2d) 150, Fautaux, J. held that there is no difference between a person who actually commits an offence and one who assists in the commission. Both are equally treated in law as principals and both may be charged, convicted, and sentenced as such. It is my view that section 242 of the Income Tax Act and section 21 of the Criminal Code should be treated the same with respect to laying charges for the breach of the relevant statute. Stripped to its essentials, section 242 of the Income Tax Act does no more than delineate circumstances when corporate officers, directors, or agents may be parties to the offence of a principal. If they are parties in the fashion described in the section, then they may be charged as principals and should not be surprised when they are convicted as such.

The appellant, George Whissell, also argued that the evidence does not support a conviction under this section. It is my decision that this appellant cannot succeed under this ground either. The appellant, Whissell-McLeod Ventures Ltd., has already been properly convicted of an offence under section 238 of the Income Tax Act. It is therefore not open to reargue the merits of that conviction and the Crown need only establish the direction, authorization, assenting to, acquiescing in, or participation in the presumed offence by the appellant, George Whissell.

The evidence shows ample basis for coming to a reasonable conclusion that the appellant, George Whissell, directed, authorized, assented to, and participated in that presumed offence.

5. Conclusion

It is my decision that none of the arguments of the appellant are meritorious and I, therefore, dismiss the appeal with respect to each of the counts before me. In the circumstances, I am not convinced that the sentence imposed by the learned Provincial Court judge are excessive and the appeal with respect to sentence is also dismissed.

Appeal dismissed.