R. v. Myers, 77 DTC 5278, [1977] CTC 507 (Alta. Dist. Ct.)

Holmes, DCJ:—This matter is concerned with two counts. In the first count, Charles Vernon Myers and Interpublishing Company Ltd, otherwise known as Inter Publishing Co Ltd were charged that they:

. did between the 31st day of December, AD 1968, and on the 1st day of November, AD 1975, at or near the City of Calgary, unlawfully and wilfully evade payment of taxes imposed by the Income Tax Act RSC 1952, Ch 148, with respect to income received by the said Interpublishing Company Ltd, otherwise known as Inter Publishing Co Ltd, in the amount of $878,602.67 during the taxation years 1969, 1970, 1971, 1972, 1973 and 1974 from the operation of publications known as Myers Finance Review, Myers Finance & Energy, Myers Finance and Petroleum and other publications and from dealings in gold and silver bullion and coin, and from financial counselling and did thereby commit an offence contrary to Paragraph 239(1)(d) of the said Act.

The second count, against Charles Vernon Myers only, charged that he:

. . . did between the 31st day of December, AD 1968 and the 1st day of November, AD 1975 at or near the City of Calgary, unlawfully and wilfully evade payment of taxes imposed by the Income Tax Act, RSC 1952, Chapter 148, with respect to income received by him during the taxation years 1969, 1970, 1971, 1972, 1973 and 1974 in the amount of $1,400,000.00 from the operation of publications know as Myers Finance Review, Myers Finance and Energy, Myers Finance and Petroleum and other publications, from dividends and interest, from financial Counselling and from dealings in gold and silver bullion and coin, and did thereby commit an offence contrary to Paragraph 239(1 )(d) of the said Act.

At the conclusion of proceedings in Provincial Court, His Honour Judge D M McDonald dismissed the charges against Charles Vernon Myers but found the corporate defendant guilty and assessed a fine of $250,000.

The Crown appealed the dismissal of the charges against Mr Myers and the corporate defendant appealed its conviction and sentence. The matter came before me by way of trial de novo.

Prior to October 1963, Charles Vernon Myers (hereinafter referred to as Myers) was the editor of a publication called, “Myers Oilweek’’. This publication was sold to Maclean-Hunter Publications Ltd under date of September 30, 1963. As a result of this sale, according to the testimony of Myers’ income tax accountant, approximately $400,000 was realized by Myers. It is worthwhile to note that in the agreement of sale, the purchase price was allocated to the various assets and a restrictive covenant was given to the purchaser by Myers.

After the sale of “Oilweek”, Myers started a new business. He commenced to publish a newsletter which he called, “Myers Finance Review’’. It was concerned with economic issues and offered investment advice. Myers was the editor and main contributor of the newsletter which reflected his own personal views. He appears to have been known as somewhat of a maverick in investment counselling circles for his outspoken advice to his clients against investing in stocks and bonds. Rather, for the most part, he advocated that his clients should invest in gold and silver bullion, gold and silver coins and gold and silver mining stocks. In spite of a substantial subscription rate charged for the newsletter (from $50 per year in 1967 increasing through to $135 in 1974), Myers attracted an increased following. From 1968 through to and including 1974, the price of gold and silver increased Substantially and those who followed Myers’ advice in that period made Substantial profits. He himself became a millionaire.

The name of the newsletter was changed during that same period to “Myers Finance and Energy’’ and again to “Myers Finance and Petroleum’'.

Most of the subscribers to the newsletter were residents of the United States of America and the publication was directed mainly for American investors. At a time when it was illegal for Americans to hold gold, Myers openly encouraged them to do so anyway. A December 1967 issue of the newsletter contained the following recommendation:

If you are an American citizen it is a criminal offence to own gold anywhere in the world although your Government has announced its determination to supply gold to other world citizens at $35.00 per ounce. But, if you wish to buy gold telephone the Bank of Nova Scotia . . . in Toronto or go there with your money or phone Swiss banks . . .

It was Myers’ counselling of Americans to defy United States law that brought him into conflict with the United States Security Exchange Commission. On May 29, 1968 that agency obtained an injunction ordering Myers to stop sending his newsletter into the United States of America. He disregarded the injunction which was made by an American court at a hearing he refused to attend. However, there is no doubt the injunction proceedings motivated him to transfer ownership of his publication from himself to a private Alberta company incorporated as Bar CV Ranch Ltd. All issued shares of that company were beneficially owned at all times material by Myers.

The Crown produced evidence to show that near the end of November and in early December 1968 Myers had consulted a chartered accountant and a lawyer concerning the feasibility of forming a Swiss company with the view of transferring the assets of Bar CV Ranch Ltd to the new company. Evidence confirmed that Myers’ accountant anticipated tax problems in such a proposal. A memo (Exhibit 114-A) dated November 29, 1968, made by the accountant for his own file said in part:

In Myers case, aS a Canadian resident he would have control of the Company’s operations. All business operations would be centered in Canada. Therefore, in my opinion, the incorporation of a company in another company [sic] has no advantage insofar as determining the residency for Canadian income tax purposes. As long as Myers is a Canadian resident any company controlled and directed by him that is carrying on business in Canada will be considered as a Canadian resident.

From uncontradicted documentary evidence adduced by the Crown, it is obvious that Myers was aware of the fact any company incorporated by him outside of Canada for the purpose of publishing his newsletter in Canada would be subject to Canadian income tax. Nevertheless, Myers had a company incorporated in Switzerland on March 31, 1969 under the name of “Interpublishing Company Ltd” (hereinafter called “Inter”). He also registered an anstalt in Liechtenstein on April 30, 1969 under the name of “Euro-American Publishing Establishment” (hereinafter called “Euro”).

The records of Bar CV Ranch Ltd (Exhibit 118-A) show that effective January 1, 1969 that company purported to sell all the assets and publishing rights with respect to the newsletter to one Dr Adrian Hinder- ling, a Swiss lawyer, acting for undisclosed principals.

The July 2, 1969 issue of “Myers Finance Review” contained a notice that Euro had acquired ownership of the publication and that Inter would be responsible for distribution. By a contract. (Exhibit 100-D) dated April 30, 1969 between Euro and Inter, Euro purported to transfer all its copyrights and distribution rights in respect to the newsletter to Inter for a 15-year period. It may be of some significance that this purported agreement provides no guarantee that Myers would continue to edit the newsletter, nor was there any allocation of the purchase price with respect to the various assets of the sale.

It is clear from the evidence that from its inception and into September 1974 the newsletter was mainly, if not entirely, the work of Myers. He appears to have been the sole editor and main contributor to the content of the publication. All this time he resided near Calgary, in the Province of Alberta, and maintained a business office in Calgary where office assistance was employed and the operations of the business were centred. The newsletter was printed in Calgary and mailed to the subscribers from Calgary. Following the announcement of the change of ownership, the only significant change in the operation of the business was that Inter opened an office in Zurich, Switzerland, in which it employed a single secretary, a Miss Heidi Bosshard. This office was located in the same building and adjacent to the office of Dr Adrian Hinderling. The only reason for this office appears to have been for the purpose of keeping up a “front” to give the business the guise of a Swiss business operation. At first, income receipts were deposited to the credit of Inter in Calgary but subsequently these receipts were sent directly to a Swiss bank. Expenses of the business were paid from the Swiss office, upon instructions and approval from the Calgary office. Subscription invoices were mailed from Switzerland but accounting records and all other normal business operations were conducted at Calgary.

At this point it should be noted that the official Swiss records show that, from the date of incorporation through to October 5, 1976, Inter’s entire share capital was issued by means of bearer shares. Thus the actual ownership of the company is not evident from the records. However, the Court was left in no doubt that Myers was the beneficial owner of all these shares by reason of the fact he stated so in a will he drafted under date of March 19, 1974. The public record does show that except for a Dr Jorg Isliker who held office from March 3, 1969 to December 8, 1969, the only officers and directors of the company were Heidi Bosshard and Dr Adrian Hinderling, with Dr Hinderling having resigned on August 10, 1967, leaving Heidi Bosshard as the president and only director and sole signing authority for the company.

With respect to Euro, the official records of the Principality of Liechtenstein show that the “founder” of that legal entity was one Milly Sele-Vogt of Vaduz, Liechtenstein. Subsequent to its registration on April 30, 1969, other members of the board of directors were Dr Adrian Hinderling and Heidi Bosshard, both of Zurich, Switzerland. While the Crown admitted that Inter was a corporation similar to the type we find organized under Canadian laws, it did not so recognize Euro. The evidence established that Euro was an anstalt.

Dr Hermine Herta Meyer was allowed to testify as an expert with respect to the laws of Liechtenstein and Switzerland. It was her evidence that an anstalt is a legal entity peculiar to Liechtenstein. An anstalt has no share capital. The so-called “founder” (or the founder’s successor) has virtually complete control. He or she has power to appoint and dismiss directors and wind up the anstalt at any time. Dr Meyer testified Euro’s directors could delegate any of their powers. She also said that Liechtenstein law requires that a member of the board of any anstalt must be a resident of that Principality. Dr Meyer gave evidence that under Liechtenstein law an anstalt set up and registered under the laws of that Principality is only subject to a nominal annual tax based upon its paid-up capital, if no business activities of the anstalt are carried on in Liechtenstein. In the case of Euro, throughout the entire trial there was no suggestion that it carried on any business activities in Liechtenstein. It was also clear from the evidence that it is not necessary to register notice of any successor to the founder of an anstalt. It appears that the official records only require the identification of the founder and the directors of an anstalt. Thus one could own an anstalt completely with anonymity.

This was the case with Myers and Euro. His secretary’s notebook contained a draft of a will he had dictated under date of March 19, 1974, in which he stated he owned all the assets of Euro. Meyers’ complete beneficial ownership of Euro may also be inferred from a contract dated November 30, 1972, in which he purported to acquire a 60% interest in Euro and notes made by his secretary from his dictation on or about August 1, 1974 in respect to a letter to Hinderling the effect of which disclosed that the other 40% of Euro’s stock was held in the name of two other Swiss companies in trust for Myers.

The Crown established beyond any reasonable doubt that Myers was at all times material the sole owner of both Inter and Euro. The only reasonable inference to make from this situation is that by conducting its business activities under contract through Inter (a Swiss company), Euro would pay only a nominal tax in Liechtenstein, while Inter would be subject to a minimal Swiss income tax since it received only 71/2% to 8% of the business profits. In the result 92% to 9214% of the profits of the business, in the hands of Euro, would be subject to no income tax.

Under date of January 1, 1970, Inter and Euro each executed a power of attorney under the signatures of Heidi Bosshard and Dr Adrian Hinderling giving Myers the authority to act as sole representative of each entity in all matters. Indeed, it is clear beyond any doubt that Myers exercised complete control of the operations of both Euro and Inter. He was solely responsible for the publication and editorial content of the newsletter. He was referred to by Heidi Bosshard as her “boss” and she sought and was given instructions from him.

Myers gave instructions to Dr Hinderling as well. In particular, on one occasion he asked Hinderling to formalize documents in the name of Euro after Myers had arranged for the purchase of residential property in California for his own personal use. There was no suggestion that Myers had consulted or obtained permission to acquire this property from any director or official of Euro before he made the deal. Later, he instructed Hinderling to execute an assignment of the title deed to that property into Myers’ name without any real consideration. It is also of interest to note that although the title deed of the property was originally registered in Euro’s name, Myers gave his personal guarantee of $145,000 to facilitate the purchase. There was evidence of other decisions of importance made by Myers, on behalf of Euro and Inter, where after the event he instructed Hinderling to formalize his decisions by executing the necessary documents. There was no evidence of anyone ever questioning Myers’ judgment or right to act in such manner. Also of significance is the fact that Myers had control of the bank accounts of Euro and Inter in Switzerland. He authorized the investment and movement of funds through these accounts as if they were his own.

An important part of the newsletter’s business became that of a dealer in gold and silver bullion and gold coins. At a time when it was an offence for United States citizens to own gold, Myers, through Inter, would buy gold bullion and coins for subscribers to the newsletter and store it for them in safety deposit boxes rented under Inter’s name at a Calgary bank. Naturally, Inter charged a commission [on] all purchases made for its subscribers, as well as on sales if subscribers asked Inter to dispose of gold for them. In addition, a storage fee was also charged for gold left in safekeeping with Inter. Inter also bought and sold silver to subscribers; however, it was never illegal for Americans to hold silver and most customers took delivery of the silver rather than have it stored for them. A commission was charged on all silver transactions as well.

Myers also obtained income from fees for private financial consultations. These fees varied but at one material time he charged a rate of $200 per half hour.

There was evidence that from time to time Myers organized seminars in major United States cities. These seminars were advertised in the newsletters and registration fees were charged to participants.

The Crown established that Inter, Euro and Myers had accounts in Swiss banks from which substantial interest accrued. There was also evidence of profits from some of Euro’s funds being invested for a time in a Dutch bank.

The Crown also established that Myers had substantial holdings of gold and silver bullion in his name in Switzerland during 1969 through to and into 1974. He also held large holdings of shares, mainly South African gold stocks, from which he derived dividends from time to time.

Myers filed personal income tax returns for the years 1968 to 1974 inclusive. However, Inter did not file any income tax returns. A demand for a return by Inter was served on Myers in 1972. Myers personally promptly replied under date of November 2, 1972 to the Department of Revenue, as follows:

Your request for income tax returns for Inter Publishing Co Ltd for the years 1969, 1970, and 1971 have been forwarded to the company, 8001 Zurich, Gottfried-Keller-Strasse.

Next, the Department of National Revenue received a letter under the Signature of Dr A Hinderling (Exhibit 88), dated at Zurich, November 14, 1972, which reads:

Dear Sir:

I am in receipt of your request for income tax returns for the Inter Publishing Co Ltd of Zurich for the years 1969, 1970 and 1971. I understand the concern of the Taxation Department with respect to the company’s operation, and I would like to advise you of certain facts regarding the operation.

(1) Inter Publishing Co Ltd, being incorporated under Swiss law, is required to file income tax returns, and pay annual taxes to the Swiss Government—which it has done.

(2) Inter Publishing Co Ltd is a corporation with the purpose to sell publications around the world. MFE is such a publication, and its circulation is global, with subscribers in many parts of Europe, the United States and a relative few subscribers in Canada. Its income is solely from publications, and all of its income is received from subscribers by mail in Switzerland.

(3) The only reason the publication MFE is mailed from Canada is that the writer, printer and editor happens to live in Canada. Inter Publishing Co Ltd pays him for this, and also pays postage and other incidentals.

(4) Inter Publishing Co Ltd has no income in Canada.

(5) Because of these facts Inter Publishing Co Ltd does not believe it is liable for taxes in other countries, although certain subscriptions may emanate from those countries.

Yours very truly,

It appears that no further action was taken by the Department of National Revenue until September 19, 1974, when all the records of Myers, Inter and Euro at Calgary and Myers’ residence near Calgary were seized by the Minister. These records served as the basis for the Crown’s case in respect to the charges which were laid against Myers and Inter.

In the personal income tax returns filed by Myers, he reported taxable income as follows:

He reported receiving a “salary” in each of those years as part of his income but no T4 slips were ever included with his returns. Other than the “salary”, apparently from Inter, the only other income reported by Myers in his income tax returns was income which could be traced to Canadian sources. He reported no income from Euro or his overseas investments. It is evident that during the years 1969 to 1974 inclusive, Myers used funds from a Swiss bank account in Euro’s name to purchase land for himself, to pay for a horse-riding arena on his property, to make advances to his children, to purchase two motor homes, to pay for a mobile home, to make mortgage payments on his farm lands, to make payments on his personal bank loans and to pay his brokers’ account, to name a few of what would appear to have been personal benefits, none of which were reported as income.

Section 2 of the Income Tax Act, RSC 1952, c 148 [am 1970-71-72, c 63] provides:

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

(2) The taxable income of a taxpayer for a taxation year is his income for the year minus the deductions permitted . . .

(3) Where a person who is not taxable under subsection (1) for a taxation year

(a) was employed in Canada,

(b) carried on business in Canada, or

(c) disposed of taxable Canadian property,

at any time in the year or a previous year, an income tax shall be paid as hereinafter required upon his taxable income earned in Canada for the year determined . . .

and subsection 248(1) of the said Act defines “person” as follows:

“person”, or any word or expression descriptive of a person, includes any

body corporate and politic, and the heirs, executors, administrators or other legal representatives of such person, according to the law of that part of Canada to which the context extends;

The Act also provides:

150. (1) A return of the income for each taxation year in the case of a corporation and for each taxation year for which tax is payable in the case of an individual shall, without notice or demand therefor, be filed with the Minister in prescribed form and containing prescribed information,

151. Every person required by section 150 to file a return shall in the return estimate the amount of tax payable.

The Crown urged the Court to find that Euro and Inter were merely instruments used by Myers to disguise his true business activities and designed to evade Canadian income tax. The evidence is conclusive beyond any reasonable doubt that substantial profits accrued to Euro and Inter, well over $1,000,000 in the 1969-1974 years.

Indeed, the courts no longer hesitate to pierce the corporate veil to look at the true nature of transactions. In Dominion Taxicab Association v MNR, [1954] SCR 82 at 85; [1954] CTC 34 at 37-8; 54 DTC 1020 at 1021, Cartwright, J said:

It is well settled that in considering whether a particular transaction brings a party within the terms of the Income Tax Act its substance rather than its form is to be regarded.

In the case of Dominion Bridge Co Ltd v The Queen, [1975] CTC 263; 75 DTC 5150, the corporate taxpayer formed a subsidiary in the Bahamas through which it purported to import steel from abroad which it had formerly imported direct. By doing so, profits could accrue in the Bahamas which could be repatriated tax free by way of dividend, while at the same time the taxpayer acquired the steel at less than the cost of domestic steel. Décary, J of the Federal Court found that the purported operations of the subsidiary in fact remained those of the taxpayer and ruled that the arrangement was a “sham”, thereby confirming the Minister’s assessment in which the profits of a subsidiary were treated as those of the taxpayer. At pages 269-70 [5154] the learned judge said:

The issue appears to me as one solely of fact: are the operations under scrutiny those of the appellant or of Span? Such an issue is not per se a fiscal one, but its consequences are.

To incorporate a subsidiary company wherever it might be, in a tax or tax-free country is, in my view, immaterial. The intent prompting such an incorporation, the way the object is implemented and the uses to which the subsidiary is put are pivotal for deciding if the subsidiary acted on its own or if the appellant used that stratagem to camouflage and hide its own operations.

The means resorted to by the appellant for the operations of the business of Span and the manner in which Span was controlled and managed by the appellant preclude my being able to find that the business of Span was its own and not that of the appellant. I believe that the appellant has camouflaged, disguised the operations of Span to make them appear as independent of the appellant’s whereas, in fact, the evidence, documentary and oral, is pervaded with the control, management and presence of the appellant, its sole client.

In causing Span to be incorporated the appellant was in fact going to put aside part of its profits in the hands of Span for safe-keeping in a tax-free country and the appellant could always repatriate these profits to Canada tax-free by virtue of section 28 of the Act.

In Snook v London & West Riding Investments Ltd, [1967] 1 All ER 518 at 528, Diplock, LJ defined “sham”:

As regards the contention of the plaintiff that the transactions between himself, Auto-Finance, Ltd and the defendants were a “sham”, it is, I think, necessary to consider what, if any, legal concept is involved in the use of this popular and pejorative word. I apprehend that, if it has any meaning in law, it means acts done or documents executed by the parties to the “sham” which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create.

No reasons for not extending the propositions in the above-mentioned cases to criminal proceedings under subsection 239(1) were made known to the Court.

There can be no doubt as to the intention of Myers in forming Euro and Inter. He never registered Inter in Alberta or, for that matter, in Canada although it was clearly carrying on business in Alberta. He had the shares of Inter issued in bearer form, leaving the public record of ownership of the company anonymous. Similarly, with Euro, he never registered his ownership of that anstalt so that he remained anonymous on the public records. When served with a demand to file income tax returns for Inter, his response gave the pretence that such reply should come from Switzerland. The ultimate reply from Dr Hinder- ling, which no doubt had the sanction of Myers, contained outright falsehoods. The secrecy with which Myers kept the true ownership and state of affairs of Inter and Euro disguised can surely lead to no other conclusion but that he intended those entities to be used as a facade for his own business operations for the purpose of diverting his own business profits into them to avoid Canadian income tax. Nothing really changed in Myers’ business dealings after Euro and Inter were set up. He conducted his business operations much the same as before except for the cover of the names of those entities. He continued to edit the newsletter, the newsletter kept the same format, the business operations continued to be centred in Calgary. I find that Euro and Inter were “shams” for Myers.

Section 239 of the Income Tax Act 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,

(b) to evade payment of a tax imposed by this Act, destroyed, altered, mutilated, secreted or otherwise disposed of the records or books of account of a taxpayer,

(c) made, or assented to or acquiesced in the making of, false or deceptive entries, or omitted, or assented to or acquiesced in the omission, to enter a material particular, in records or books of account of a taxpayer,

(d) wilfully, in any manner, evaded or attempted to evade, compliance with this Act or payment of taxes imposed by this Act, or

(e) conspired with any person to commit an offence described by paragraphs (a) to (d),

is guilty of an offence and, in addition to any penalty otherwise provided, is liable on Summary conviction to

(f) a fine of not less than 25% and not more than double the amount of the tax that was sought to be evaded, or

(g) both the fine described in paragraph (f) and imprisonment for a term not exceeding 2 years.

It is important not to confuse the provisions of section 239 of the Act, which makes tax evasion a criminal offence, with those “civil” penalties which may be imposed administratively by the Minister under section 163. Subsection 239(3) sets out that a person is not subject to penalties under section 163 if he has been convicted of an offence under subsection 239(1) unless the penalty under section 163 was assessed before the information or complaint giving rise to the conviction was laid or made.

It is my view that in this case the Crown must prove wilful evasion, including mens rea on the part of the accused. See Acme Slide Fastener Co Ltd v The Queen, [1962] CTC 320; R v Hummel, [1971] CTC 803 [reversed 6 CCC (2d) 420; 18 CRNS 144; [1972] 2 WWR 695: affirmed 9 CCC (2d) 380; 23 CRNS 69; [1973] 1 WWR 663]; and R v Baker (1973), 16 CCC (2d) 126; 45 DLR (3d) 247; 26 CRNS 285.

Information Circular 73-10R issued by the Department of National Revenue on November 18, 1974 defines tax evasion under section 8 as:

Tax evasion is the commission or omission of an act knowingly with the intent to deceive so that the tax reported by the taxpayer is less than the tax payable under the law, or a conspiracy to commit such an offence. This may be accomplished by the deliberate omission of revenue, the fraudulent claiming of expenses or allowances, and the deliberate misrepresentation, concealment or withholding of material facts.

While such definition is not binding on the courts, this meaning attributed by the Department to “evade” was approved in R v Baker (supra) and applied by the Saskatchewan Court of Appeal in R v Paveley, [1976] CTC 477; 76 DTC 6415; 30 CCC (2d) 483; 70 DLR (3d) 237.

In this case the Crown has alluded to Myers’ use of Euro and Inter as evidence of his knowingly intending to deceive so that the income reported by him would attract less tax than was payable under the Act. An example of the extent to which Myers went to mislead is demonstrated by Exhibit 78-A. That document, dated November 30, 1972, purported to record the purchase of a 60% interest in Euro by Myers for $129,612.32. Dr A Hinderling signed the document on behalf of Euro although the record shows he only became a signing officer on January 18, 1973. While the very document was a sham, the Crown adduced uncontradicted evidence that it was actually drawn up on October 23, 1973. Had the October 23, 1972 market value of the stocks referred to in the document been used instead of the November 30, 1972 values, the stocks which Myers purported to transfer thereby would have had an increased value of $218,370. I am satisfied that this purported transaction was a deliberate misrepresentation on the part of Myers. The evidence is also clear that Myers used funds from Inter and Euro at will for personal benefits which he did not report in his own income tax returns.

If any other evidence of Myers’ intentions were needed, one might consider his newsletter of February 28, 1969 (Exhibit 45), wherein he advised his subscribers:

It remains true that the only sure way out of this dilemma is to deposit your money in a foreign country, preferably one of the Big Three Swiss banks in the form of Swiss francs. Now once this money is so deposited anonymously there is no way in the world that anyone can pry information from the Swiss banks. At this point the owner of this money, be he a Canadian, an American, or Sudanese, can direct the Swiss bank to do whatever he wishes with the money. He can direct them to buy gold, silver, General Motors, or South African gold stocks without the equalization tax—

It is 100% legal for you to send money to Switzerland in any amount you desire. If it is in large denominations at one time there will be a record that you sent it to Switzerland. Later they might ask you what you did with it after it got to Switzerland.

What you do with it, and what you tell them, is not my business.

He was a consistent advocate of the use of Swiss banks. In his newsletter of July 31, 1970 (Exhibit 44) he stated:

The ruling clique wants the people to think that the Swiss have changed their laws about secrecy in banking. If they can get you to think that the Swiss will betray you, of course you will declare your foreign bank account. But the Swiss will not betray you unless it can be established that you have committed a crime.

Mark this: The Swiss do not consider your having a foreign bank account a crime, and US tax evasion is not a Swiss “crime”. In order to expose you, you must have committed a crime under the Cantonal Criminal Code in Switzerland.

One would expect Myers’ own views were similar to those he expressed to his subscribers. In this regard his newsletter of June 25, 1971 he stated

If I were an American citizen, I would do this:

I would own gold abroad, and to protect myself I would not let the bureaucrats and the authoritarians know anything about it. This is quite plausible and practical.

How you obtain it, or own gold, or in what form, legal or illegal, is your business. I will not advise you in detail. But we have a service for MFR subscribers and we will stick by that as long as the international monetary powers have not taken over the authority in Canada. We will sell gold to anyone who lays the money on our desk.

And his comment in his July 6, 1971 newsletter is also of some interest:

If the buyer of the South African gold stocks does not wish to have the worrisome burden of what to do with the dividends, he can simply let them accrue without receiving the cheque. If he has a street certificate, he can then at some future date put in an appearance at the transfer office in London, or have an agent put in an appearance with the street certificate and collect the dividends.

In a nutshell, it is possible for you to buy South African gold stocks on the London Exchange, get a receipt for ownership, and never have another communication until you decided at some future date to go over there or send an agent over there to pick up your dividends.

As further evidence of Myers’ motives I would refer to the fact that he, on or about March 19, 1974, drafted two wills for himself. One will he called his North American “Last Will and Testament’’, and the other he called his European “Last Will and Testament’’. In discussing his European will in a letter to Dr Hinderling, Myers said that he would never have that will probated in Canada or allow any inkling of the contents referring to his holding revealed in Canada. He stated that he simply wanted his European assets transferred to his beneficiaries as per his instructions. He also stated that when he made his first deposit in 1966 with the Swiss Credit Bank, the bank had requested that he write out a last will which would be executed in the event of his death, as he understood, without reference to either the Swiss Government or the Canadian Government, or as far as he knew, an official probate.

Clearly, there was a good deal more in the actions of Myers than mere “avoidance” of income tax. In my view the evidence establishes beyond any reasonable doubt that Myers wilfully and deliberately followed a course of conduct to conceal his true income and to deceive the income tax authorities with respect thereto.

Counsel for Myers and Inter argued that for the prosecution to succeed under paragraph 239(1)(d) the Crown must, first, prove that the Minister assessed or reassessed the taxpayer for the taxation years in question. Section 152 [since amended 1976-77, c 4 section 61] of the Income Tax Act provides:

152. (1) The Minister shall, with all due dispatch, examine each return of income and assess the tax for the taxation year and the interest and penalties, if any, payable.

(2) After examination of a return, the Minister shall send a notice of assessment to the person by whom the return was filed.

(3) Liability for the tax under this Part is not affected by an incorrect or incomplete assessment or by the fact that no assessment has been made.

(4) The Minister may at any time assess tax, interest or penalties under this Part or notify in writing any person by whom a return of income for a taxation year has been filed that no tax is payable for the taxation year, and may

(a) at any time, if the taxpayer or person filing the return

(i) has made any misrepresentation that is attributable to neglect, carelessness or wilful default or has committed any fraud in filing the return or in supplying any information under this Act, or

(ii) has filed with the Minister a waiver in prescribed form within 4 years from the day of mailing of a notice of an original assessment or of a notification that no tax is payable for a taxation year, and

(b) within 4 years from the day referred to in subparagraph (a)(ii), in any other case,

reassess or make additional assessments, or assess tax, interest or penalties under this Part, as the circumstances require.

The evidence before the Court is that Inter was assessed, on September 24, 1974, for the years 1969 to and including 1972. There was no evidence of any assessment having been levied against Myers. The defence referred the Court to subsection 248(2) of the Income Tax Act, which reads:

248. (2) In this Act, the tax payable by a taxpayer under any Part of this Act by or under which provision is made for the assessment of tax means the tax payable by him as fixed by assessment or reassessment subject to variation on objection or on appeal, if any, in accordance with the provisions of that Part.

The defence argued that until there has been an assessment or reassessment pursuant to section 152 there is no liability or obligation to pay any income tax and therefore any charge under paragraph 239(1)(d) is premature.

As authority for this argument the Court was referred to R v Garsh- man, [1976] CTC 197; 76 DTC 6103. In that case, in what I regard as obiter, Tavender, DCJ expressed the opinion that taxes were not due under the Income Tax Act until assessed by the Minister pursuant to section 152 and consequently the charge of evading payment therefore appeared to be premature. In making this observation the learned judge followed the decisions in two Tax Appeal Board cases, Légaré Foundry Ltd v MNR, 36 Tax ABC 351; 64 DTC 696, and /sherwood v MNR, 36 Tax ABC 420; 64 DTC 728. Each of these decisions held that there was no basis for the imposition of civil penalties under section 56 (now section 163) for evasion of tax until after assessment or reassessment. But these decisions were disagreed with by Jackett, P (as he then was) of the Exchequer Court in Elchuk v MNR, [1970] Ex CR 492; [1970] CTC 326; 70 DTC 6235. In giving judgment on a crossappeal by the Minister, who sought to impose certain penalties under then section 56 (now section 163 of the Act), the learned judge said, at page 329 [6237] :

I cannot agree with the view expressed in this passage that the penalty provision only applies to action taken to evade collection of tax. In my view, one can evade payment of income tax by concealing the existence of the income just as effectively as by concealing one’s assets so that the tax cannot be collected.

The view of the effect of Section 56(1) adopted in the Légaré case is also supported (page 382) by reference to the definition of “tax payable” contained in Section 139(1)(ba). I cannot agree that this provision makes Section 56(1) inapplicable in respect of what has happened before the assessment.

Noel, ACJ of the Federal Court of Canada, dealing with a reassessment defence in R v Simard-Beaudry Inc et al, [1971] FC 396; 71 DTC 5511 at 5515, said as follows:

As to his second argument, namely that the debt arising from re-assessment of the taxpayer dates only from the time that the taxpayer is assessed, and that it did not, accordingly, exist at the time the agreement was made, it seems to me that the answer to this is that the general scheme of the Income Tax Act indicates that the taxpayer’s debt is created by his taxable income, not by an assessment or re-assessment. In fact, the taxpayer’s liability results from the Act and not from the assessment. In principle, the debt comes into existence the moment the income is earned, and even if the assessment is made one or more years after the taxable income is earned, the debt is supposed to originate at that point. Here the re-assess- ments issued on August 14, 1969, for income earned in previous years seem to me to be at most a confirmation or acknowledgement of the amounts owing for these earlier years. Indeed, in my opinion, the assessment does not create the debt, but is at most a confirmation of its existence.

And the Federal Court of Canada took the same position again in Haw- rish v MNR, [1975] CTC 446 at 458; 75 DTC 5314 at 5323, where Heald, J states:

I turn now to defendant’s counterclaim in which the defendant claims penalties on the basis that the plaintiff wilfully evaded payment of a part of his tax on his income under subsection 56(1). The Tax Appeal Board held that subsection 56(1) only applies to action taken to evade collection of tax, following previous decisions of that Board and thus refused to impose penalties in the circumstances of this case.

However, these decisions of the Tax Appeal Board were overruled by the Exchequer Court in the case of Elchuk v MNR, [1970] CTC 326; 70 DTC 6235.

This issue also appears to be parallel to that in the case of Re Cumming (1959), 31 CR 174; 29 WWR 16 (Sask QB), and 125 CCC 259 (sub nom Re Zentner); 31 CR 402; 29 WWR 679 (Sask CA). In that case, the Crown prosecuted for an alleged false statement in a tax return. The information contained a statement of the tax alleged to be evaded but the Magistrate declined to hear the charge on the ground that no assessment or reassessment of tax had been made, and he was not the person with authority to do so. The matter then went before a Justice of the Court of Queen’s Bench in Chambers on an application by the Crown for an order of mandamus to direct the Magistrate to hear the charge. The application was refused. The case then went to the Saskatchewan Court of Appeal and the decision of the learned Chambers Judge was reversed by a majority of the Court and an order of mandamus was granted.

The same reasoning was adopted by the Supreme Court of Canada in R v Machacek, [1961] CTC 1; 61 DTC 1022; [1961] SCR 163, in a case involving charges for making false statements in income tax returns. Martland, J said at pages 6-7 [1024]:

It was contended that in summary conviction proceedings for income tax offences an assessment made under the Income Tax Act is binding on the court of criminal jurisdiction which deals with the matter. In the present case no re-assessment had been made of the income tax payable by the respondent for the years in question and it was, therefore, urged that the magistrate who tried the charges was bound by the assessment which had been made. There does not appear to be any substance in this contention. The charges were laid, under Section 132(1)(a) of the Income Tax Act, for unlawfully making false statements in the returns filed by the respondent. It seems to me that the assessment of tax made by the Minister on the basis of those returns had no bearing whatever in relation to these charges and certainly did not preclude the magistrate from trying them.

It appears that neither Re Cumming nor R v Machacek was argued before Tavender, DCJ, nor for that matter was he asked to consider R v Simard-Beaudry Inc et al or the Hawrish case. Had those authorities been argued before my brother Tavender, I am sure he would have found, as I do, that he was bound by Machacek. Such being the case, I do not feel I have transgressed the rules of judicial comity in refusing to follow the Garshman decision (which is under appeal).* [1]

The Crown argued that subsection 248(2) as currently worded merely reduces the verbage found in paragraph 139(1)(ba) before the 1970 amendments to the Act. The old paragraph 139(1)(ba) read:

(ba) the tax payable by a taxpayer under Part I, II, IIA, IIB, IIC or IID means the tax payable by him as fixed by assessment or re-assessment subject to variation on objection or on appeal, if any, in accordance with the provisions of Part I, Il, IIA, IIB, IIC or IID, as the case may be;

What is now section 239 was then section 132, in Part V, which was not listed in paragraph 139(1)(ba). Hence, it seems clear enough that before the 1970 amendments the present argument would not have arisen. Upon careful consideration of subsection 248(2), I have concluded that subsection is really a definition of the expression “tax payable by a taxpayer’’, or simply ‘tax payable’’, which is clearly qualified in application by that part of the subsection which reads

. .. under any Part of this Act by or under which provision is made for the assessment of tax . . Accordingly, it applies only to those provisions of the Act which relate to the specific term ‘tax payable by a taxpayer’’, or to ‘tax payable’’, in connection with the assessment of income tax. Nowhere in subsection 239(1) is reference made to the term “tax payable’’. Subsection 239(1) is found in Part XV of the Act which relates to administration and enforcement. The only references in Part XV to “tax payable’’ are in sections 222, 228, 230 and 231. In each case the context clearly indicates that it relates to matters of assessment. Section 239 refers to the broader term of ‘‘taxes imposed” by the Act. Note the wording of subsection (3) of section 239:

239. (3) Where a person has been convicted under this section of wilfully, in any manner, evading or attempting to evade payment of taxes imposed by Part I, he is not liable to pay a penalty imposed under section 163 for the same evasion or attempt unless he was assessed for that penalty before the information or complaint giving rise to the conviction was laid or made.f [2]

The above subsection provides for assessment either before or after commencement of proceedings. If assessed subsequent to the commencement of proceedings, the penalty cannot be applied on assessment. It follows then that the definition in subsection 248(2) applies in such matters as are referred to in Part I, Division [I], but not to prosecutions for offences under section 239.

In my view, a tax is imposed whether or not an assessment is made.

The charges in this case relate to evading tax imposed by the Act and the question of assessment is not relevant.

Under count two of the information, Myers is charged with evading taxes imposed by the Income Tax Act on unreported income of $1,400,000 during the years 1969 to 1974 inclusive. The case for the Crown rests largely on a number of records which were seized from the defendants and which were tendered in evidence as exhibits. These records were by no means complete. In fact, it was established that Myers had given instructions to his secretary in March 1974 to send all 1972 and 1973 bank deposit book files to Switzerland and correspondence seized indicates that some important records were sent for placement in a safety deposit box in a Swiss bank. Under the circumstances, the Crown’s investigators had to estimate the defendants’ income and expenses for the years in question from what records and correspondence were available to them from the seizure or was obtained from suppliers, banks and Myers’ stockbroker. No business records, other than the records seized by the Crown, were tendered in evidence by the defence.

Exhibit 192 (a copy of which is attached hereto [post, p 525]) was entered in these proceedings. This exhibit is a schedule, prepared by the auditors and investigators of the Department of National Revenue to summarize their calculations of the unreported income totalling $1,400,000 from all sources which forms the basis of the count laid against Myers. In addition to the testimony of the prosecution’s witness, numerous documents were entered through Crown witnesses to support the Crown’s calculations of all the income items as well as Myers’ expenses to arrive at net income figures for the years in question. Copies of the income tax returns actually filed by Myers for the Same years were, of course, also entered as exhibits.

It is my view, from all the evidence, that the Crown was more than fair in its projections of the defendants’ income and expenses. For instance, in 1969 there was documentary evidence (Exhibit 117) of silver purchases of over $58,000. Myers’ regular mark-up on silver sales was a healthy 80% and if this silver was sold, as advertised in his publication, there should have resulted a profit of approximately $46,400. However, as the Department found no documentary records of silver sales in 1969, no estimated profit was included in the Crown’s charge for that year. Again in 1971, the Department’s calculation allowed $1,797.92 as postage expense in connection with silver sales but included no income from the sale of silver in that year for lack of any other evidence thereof. There were no records of income from the newsletter for about six months in 1969 (income for 1968 from this source was substantial) nor for three months of 1974. No income was projected or included in the charge for the months of the missing records.

Merlin S Kacsmar, an auditor with the Department of National Revenue, was an impressive witness. He was responsible for calculating Myers’ unreported income for the years 1969, 1971, 1972, 1973 and part of 1974 from cancelled cheques and whatever other records were obtainable by his Department. From his testimony it is clear that, if there was a doubt at all in preparing his analysis of Myers’ income and expenses, such doubt was resolved in favour of the taxpayer.

Of course, the Crown has not proven a precise or specific amount in respect to the alleged understatement of income. The defence argued that the Crown must prove a "specific amount” of income on which there was a liability for the payment of taxes in order to sustain a conviction. No authorities were cited by the defence. In my view it is not necessary for the Crown to prove tne offence in the specific amount in the information: see the cases of R v Scott (1920), 34 CCC 180; R v Castle (1937), 68 CCC 78; [1937] OWN 245: and Campbell v Jaques, [1959] CTC 437; 60 DTC 1039.

The defence claimed that the Crown should have allowed Myers a business expense in relation to operating some internationally famous jumping horses. There was evidence that Myers conducted this activity under the name of his newsletter. It was also evident that he may have derived some advertising benefit from the enterprise. It is more likely, however, in my view that Myers’ main reason for the operation was his own personal satisfaction.

The defence also claimed that certain other expenses related to Myers’ business activities should have been set off against the Crown’s estimate of his true income, particularly the evidence showed he would have incurred interest on loans from Swiss banks used to speculate in gold, silver and stocks. However, in the absence of any evidence by the defence as to what interest was involved, there could be no finding in this regard. Indeed, on the basis of all the evidence before the Court, the Crown has satisfied me beyond any reasonable doubt that Myers understated his income for the years in question in excess of $1,400,000 being the amount alleged in the information even if the expense items in dispute had been allowed.

In the result then, I find Charles Vernon Myers did unlawfully and wilfully evade payment of taxes imposed by the Income Tax Act with respect to income received by him during the taxation years 1969, 1970, 1971, 1972, 1973 and 1974 in the amount of $1,400,000 from the operation of publications known as "Myers Finance Review”, "Myers Finance and Energy”, "Myers Finance and Petroleum” and other publications, from dividends and interest, from financial counselling and from dealings in gold and silver bullion and coins, contrary to paragraph 239(1)(d) of the Income Tax Act.

Interpublishing Company Ltd, although merely an instrument used by Myers, nevertheless is a separate legal entity, was therefore a party to the offence and is also convicted.

Interpublishing Company Ltd’s appeal from conviction under count one is dismissed and the Crown’s appeal of the acquittal of Charles Vernon Myers under count two is successful.