Her Majesty the Queen v. Alex Dean Olson, [1993] 1 CTC 393

Nemirsky, J.:—Alex Dean Olson is charged with 19 counts under the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") and amendments thereto. At the trial, Crown counsel advised that the Crown was not seeking conviction on counts 17, 18 and 19, and I accordingly treat those counts as having been withdrawn.

Of the remaining 16 counts in the information, some charge the accused, in respect of taxation years between 1985 and 1988 inclusive, with having unlawfully made, participated in, assented to or acquiesced in the making of a false statement in his own return of income, or in the T4 reports of income of his family members Flicka Marlayne Olson and Scott Gregory Olson, by falsely reporting that income tax had been deducted when in fact it had not been deducted, contrary to paragraph 239(1)(a) of the Act. The remaining counts charge that the accused, also in contravention of that same section of the Act and within the same time period, on various of the same individuals’ returns or T4 reports as applicable did unlawfully make, participate in, assent to or acquiesce in the making of a false statement by failing to report income.

In all 16 counts the income giving rise to the charges involved moneys paid to the individuals by three family companies: Wainwright Concrete Construction Ltd., Sord Transport Ltd., and Sord Transport Inc. As to the latter two companies, corporate registry records showed that the accused was at all relevant times a director of each. With respect to Wainwright Concrete Construction Ltd., the records showed that when that company was struck in 1984 the accused was a director. There was no evidence as to who the directors were upon its restoration in 1988. The testimony at the trial of Brenda Solo (the Revenue Canada employee primarily involved in the investigation) was that the accused was also a shareholder of all three companies, and, in her belief, he was president of all three.

At the close of the Crown's case application was made by counsel for the accused for a nonsuit, which application I dismissed. The accused did not testify, nor were any other witnesses called by the defence.

Evidence at the trial showed that personal returns of income were filed for the accused, Flicka Maralyne Olson and Scott Gregory Olson for each of taxation years 1985, 1986, 1987 and 1988. T4 reports of income from the companies were included with each return of income filed, with the exception of several instances where in lieu of T4s an information statement prepared by the then companies' accountant, Mr. Donald McKinnon, was filed. McKinnon testified that from the financial records of the companies, as provided to him by the accused, he prepared financial statements for the companies. He as well utilized the records so provided to him to in some cases prepare the T4s himself. McKinnon also prepared, without audit, the 12 returns of income for the companies. He did not have anything to do with preparation of the T4 summaries required to be filed by each of the companies.

In her testimony Ms. Solo stated that Revenue Canada's records showed that while the T4 summaries filed by the companies’ included the T4s issued to all of the other employees (and showed their earnings and deductions properly calculated), they did not include any of the T4s issued to the Olsons. Although the companies' synoptic journals did record the deduction for income tax in respect of the Olsons as payables to Revenue Canada, no amended T4 summaries were filed to correct the misinformation due to the Olsons' T4 particulars being deleted until after a requirement in that regard was served on the accused in 1990. Ms. Solo stated that until the amended materials were filed, Revenue Canada had received no advice as to the companies having internally provided for such payables. The net result was that Revenue Canada's records did not, and could not, reflect them.

All 16 counts charge the accused with having contravened paragraph 239(1)(a) of the Act, which provides:

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, certificate, statement or answer filed or made as required by or under this Act or a regulation,

is guilty of an offence. . . .

The subsection goes on to deal with punishment upon conviction, as does subsection (2) of section 239.

Four categories of offence are alleged in the information:

1. That the accused did unlawfully make, participate in, assent to or acquiesce in the making of a false statement in his return of income by falsely reporting that income tax had been deducted when in fact it had not been deducted. (counts 1, 2, 4 and 5);

2. That the accused did unlawfully make, participate in, assent to or acquiesce in the making of a false statement on the T4 report of income of (Flicka Maralyne Olson or Scott Gregory Olson) by reporting that income tax had been deducted when in fact it had not been deducted, (counts 7, 8, 10, 11, 12, 13, 15 and 16);

3. That the accused did unlawfully make, participate in, assent to or acquiesce in the making of a false statement in his return of income by reason of his failure to report additional income. (counts 3 and 6); and

4. That the accused did unlawfully make, participate in, assent to or acquiesce in the making of a false statement on the T4 report of income of (Flicka Maralyne Olson or Scott Gregory Olson) by failing to report income, (counts 9 and 14).

It was agreed by counsel during argument that in order that the accused be convicted of a charge under paragraph 239(1)(a), the Crown must prove beyond a reasonable doubt that he possessed the requisite mens rea to commit the offence. Put in another way, this section of the Act is not an absolute liability section. I agree that unless intent is proven, the accused must be acquitted, especially since conviction under this section carries with it the possibility of penal consequence. The decided cases as well seem to leave no doubt that a prerequisite to conviction is that mens rea be present: R. v. Medina Construction Ltd. (1984), 49 Nfld. & P.E.I.R. 108, 145 A.P.R. 108 (Nfld. Dist. Ct.); R. v. Hummel, [1971] C.T.C. 803, 76 D.T.C. 6114 (B.C. Prov. Ct.), to name but a few.

Dealing firstly with the counts included in categories 3 and 4 (that is counts 3, 6, 9 and 14), these involve allegations that income from the companies was received in some cases by the accused himself (counts 3 and 6) and in some cases by Flicka Maralyne Olson or Scott Gregory Olson (counts 9 and 14), and was not reported. However the evidence clearly showed that although their existence was not disclosed to Revenue Canada, shareholder's loan accounts had in fact been set up in the records of the three companies for almost the identical amounts alleged in the counts to be unreported income. McKinnon testified that over the course of the taxation years in question, he would be provided by the accused with company records (including in at least one instance a detailed listing of assets transferred by a shareholder to a company) showing the creation of the shareholder loans. As I understand McKinnon's testimony he would then, using the records, prepare the company financial statements reflecting the shareholder loan accounts. When asked in cross examination whether all the payments to shareholders in excess of the amounts shown in the respective T4s were debited to shareholder loan accounts for the year in question, he replied that they were so debited. In light of McKinnon's testimony in this regard, which I accept as being reliable and credible and given to the best of his recollection, there were no false statements as alleged in counts 3, 6, 9 and 14, as shareholder loans had indeed been made and, provided they were repaid by the permitted time, the amounts received by the Olsons by way of those loans did not constitute income for tax purposes. Hence no offences as charged were committed, and the charges in the four said counts are dismissed.

That leaves for consideration the counts in categories 1 and 2, that is, the counts involving the Crown's allegations of income tax having been shown to be deducted when, according to the Crown, it had not been deducted.

It is argued on behalf of the accused that by the companies providing in their records for accounts payable to Revenue Canada in the amounts shown in the" Income Tax Deducted" box in each of the Olsons' T4 reports of income, income tax had been "deducted" within the meaning of that word as it is used in the applicable counts of the Information before me. Counsel for the accused rationalizes that if this is so, there is no offence committed under the relevant counts. Crown counsel disagrees with this purported meaning being ascribed to the term "Income Tax Deducted”. He argues that since there is no definition provided in the Income Tax Act itself, the term must be given its plain meaning. I agree. The Shorter Oxford Dictionary, 3rd ed. defines the word "deduct" as follows:

To take away or subtract from a sum or amount. To reduce.

There was no evidence suggesting that any moneys were set aside, isolated Or in any way kept separate by the companies to cover the amounts said to have been deducted. Nor did the companies do anything to indicate that they did "take away from" or “subtract from” or “reduce” their funds by these amounts. Nor, indeed, was Revenue Canada even advised that the companies had established payables in its favour in their own records. There was no “taking away”. Nothing was "subtracted" or" reduced”. In short, I am satisfied that what was here done did not result in income tax having been deducted.

With respect to the 12 counts in question, the evidence showed that while the moneys paid to the other employees of the companies had deductions properly made from them (including income tax), the moneys paid to the Olsons were gross earnings with no deductions made therefrom. T4s were prepared upon the accused providing financial information for the companies to McKinnon. McKinnon would in some cases prepare the T4s and in others would provide the accused with the figures (based on the financial information the accused provided to him) to enable the accused to himself prepare the T4s. The resultant T4s for the Olsons incorrectly showed, in the 12 counts set out in the information, Income Tax Deducted" amounts. The T4 summaries for the companies, which were not prepared by the accountant, had included with them all of the T4s for the other employees, but none of the ones for the Olsons. The accused was a director ana a shareholder of, and in all probability the President of, all three companies. It was clear from McKinnon's testimony that it was the accused and only the accused who, as the principal of the companies, provided McKinnon with financial information when the need arose.

It was argued by counsel for the accused that since the T4s were either prepared by McKinnon, or the calculation to enable their preparation was done by McKinnon, and not by the accused, the accused should oe subject to prosecution in that he should be entitled to rely on McKinnon having done things properly. While I might have had considerable sympathy for that argument were there different factual circumstances before me, I am unable to accede to the plea of innocence made on the accused's behalf in the case at hand. This was not a case of an unsophisticated taxpayer dumping a boxful of receipts and cheques on his accountant's desk a few days before income tax filing deadline. From the uncontradicted testimony at trial, especially that of McKinnon, I took the accused to be a hands-on manager very much in control of the three companies. McKinnon calculated the entries for the Olsons' T4s from information provided to him by the accused. The accused admitted on Ms Solo's questioning of him during the investigation that he had prepared and signed the T4 summaries for the companies. It is not insignificant that those T4 summaries included all of the other employees' T4s, but not any of the Olsons'.

Based on the evidence here presented, which pointed to the intensive involvement of the accused in managing the affairs of the companies, and to his being solely responsible for selecting and providing to McKinnon the records and information McKinnon needed to enable the preparation of financial statements, T4s and similar documentation, together with all of the facts here existing, I can come to no conclusion other than that the accused was fully aware of what was taking place and that he intended the clearly false statements in the materials provided to Revenue Canada. I am satisfied the Crown has proven beyond a reasonable doubt the existence of the requisite mens rea on the part of the accused. As well, I am satisfied beyond any reasonable doubt that of those of the 12 counts that allege offences in respect of his income, the accused either "made" or at very least “ participated in, assented to or acquiesced in the making of" a false statement in his returns of income filed as required for the years in question, by falsely reporting that income tax had been deducted in the amount set out in each count when in fact it had not been deducted. I would conclude similarly with respect to each of the counts dealing with the incomes of Flicka Maralyne Olson and Scott Gregory Olson, except that in these counts the false statements so attributable to the accused were contained in the T4 reports of income for those persons, which T4 reports were, as the evidence showed, prepared by or with the close assistance of the accused, and which T4 reports of income I am satisfied fall within the meaning of "certificate" or "statement" as those words are used in paragraph 239(1 )(a) of the Act.

I accordingly find the accused guilty as charged in each of counts 1, 2, 4, 5, 7, 8, 10, 11, 12, 13, 15 and 16.

Accused convicted.