R. v. Merkle, 80 DTC 6027, [1979] CTC 519 (Alta. C.A.)

Morrow, J:—The present appeal is by way of a stated case from provincial court Judge M Horrocks who heard three charges against the respondent under subsection 150(2) of the Income Tax Act, RSC 1952 as amended, and who dismissed all three.

Charge No 1 was to the effect that the respondent:

... did, on the 17th day of May, AD 1978 unlawfully fail to file a 1974 T1 Income Tax Return after demand dated the 7th day of April, AD 1978, under subsection 150(2) of the Income Tax Act, contrary to subsection 238(1) of the Income Tax Act',

The remaining two charges are similar except they refer to May 18 and 19 respectively.

We are asked to consider two questions submitted by the learned provincial judge. They are:

1. Did I err in law in holding that a charge under subsection 238(1) of the Income Tax Act, RSC 1952, as amended, is a strict liability offence as that phrase is defined in R v City of Sault Ste Marie, 40 CCC (2d) 353?

2. Did I err in law in holding that passing the ‘demand’ made on the taxpayer pursuant to subsection 150(2) of the Income Tax Act to an accountant constitutes a defence to a charge under subsection 238(1) of the Income Tax Act?

At the hearing before this court the respondent did not appear nor was he represented by counsel.

The facts are quite simple.

On April 7, 1978 a demand pursuant to subsection 150(2) of the Income Tax Act (supra) was sent by registered letter to the accused. The demand required a T1 income tax return for the taxation year of 1974 to be filed within 30 days of the date of the demand. No return was made or filed by or on behalf of the respondent up to and including May 19,1978. On April 25,1978 the respondent took the materials and information necessary to complete the T1 return to an accountant and gave this person instructions to complete the return and file it on his behalf. The accountant filed the return but shortly after May 19, a date after the time limit imposed by the demand.

The learned provincial judge in a written judgment found that the offence was neither one of absolute liability nor one requiring mens rea but rather one of strict liability where a defence of due diligence is available. He further found that the respondent had exercised due diligence. The appellant accepts this finding in the event this issue should be resolved against the Crown on the issue of strict liability.

Turning then to the issue of strict liability. Our jurisprudence has down over the years struggled with what are commonly referred to as absolute or strict liability offences from the pronouncement of Wright, J in Sherras v De Rutzen, [1895] 1 QB 918, where at 921 he says:

There is a presumption that mens rea, an evil intention, or a knowledge of the wrongfulness of the act, is an essential ingredient in every offence; but that presumption is liable to be displaced either by the words of the statute creating the offence or by the subject-matter with which it deals, and both must be considered.

The same general proposition was accepted by the Supreme Court of Canada in fl v Pierce Fisheries Ltd, [1971] SCR 5; 12 CRNS 272; 5 CCC 193; (1970), 12 DLR (3d) 591. The struggle to modify what I choose to describe as the two extremes to be reached in the mens rea versus Strict liability seems to have developed more rapidly in Australia where two cases in particular appeared to suggest a third category: vizThomasv R, 59 CLR 279; [1938] ALR 37; 11 ALJ 343; 1938 ULR 32; and Proudman v Doyman, [1944] ALR 64; 67 CLR 036; 15 ALJ 192. Reference should also be made to the English decision of fl v Tolson (1889), 23 QBD 168 and more recently Warner v Metro Police Commn, [1969] AC 256; [1968] 2 All ER 356; 52 CR APP R 373.

In Canada the Supreme Court of Canada in Beaver v fl, [1957] SCR 531; 26 CR 193; 118 CCC 129, where a person having possession of a package containing a narcotic honestly believed it had a harmless substance held there could be no conviction.

It would appear, however, that the first real attempt at enunciating a third category in Canadian jurisprudence came from the decision of Estey, CUHC (as he then was) in fl v Hickey (1976), 12 OR (2d) 578; 29 CCC (2d) 23; 68 DLR

(3d) 88, wherein the decisions from the Australian cases already referred to were favourably considered. While this judgment was not interfered with on appeal to the Ontario Court of Appeal it is to be noted that that Court assumed without deciding that his classification was correct.

The Alberta Court of Appeal has had occasion to consider the same issues in three recent cases: fl v Cardinal, [1977] 3 Alta LR (2d) 108; 36 CCC

(2d) 369; 4 AR 1; fl v Service Ltd, [1977] 2 Alta LR (2d) 388, and fl v Lam- brinoudis (1978), 5 Alta LR (2d) 180.

It would seem to me, however, that the issue as a general principle of law has been finally examined and resolved in Canada by two recent decisions in the Supreme Court of Canada. The first of these is fl v Sault Ste Marie (1978), 3 CR (3d) 30; 40 CCC (2d) 353; 85 DLR (3d) 161; 21 NR 295 and the second is fl v Chapin (1979), 7 Cr (3d) 225. I quote from the latter where Dickson, J at pp 231-232 of the judgment states:

In Sault Ste Marie at p 53-54, this court recognized three categories of offences, according to the mental elements requisite for conviction, rather than the traditional two:

(1) Mens rea offences, in which some positive state of mind such as intent, knowledge or recklessness must be proved by the prosecution either as an inference from the nature of the act committed or by additional evidence;

(2) Strict liability offences, in which there is no necessity for the prosecution to prove the existence of mens rea', the doing of the prohibited act prima facie imports the offence, leaving it open to the accused to avoid liability by proving that he took all reasonable care. This involves consideration of what a reasonable man would have done in the circumstances. The defence will be available if the accused reasonably believed in a mistaken set of facts which, if true, would render the act or omission innocent, or if he took all reasonable steps to avoid the particular event;

(3) Absolute liability offences, where it is not open to the accused to exculpate himself by showing that he was free from fault.

Continuing on in his judgment, Dickson, J goes on to quote from p 54 of the same case as follows:

Offences which are criminal in the true sense fall in the first category. Public welfare offences would prima facie be in the second category. They are not subject to the presumption of full mens rea. An offence of this type would fall in the first category only if such words as ‘wilfully’, ‘with intent’, ‘knowingly’ or ‘intentionally’ are contained in the statutory provision creating the offence. On the other hand, the principle that punishment should in general not be inflicted on those without fault applies. Offences of absolute liability would be those in respect of which the legislature had made it clear that guilt would follow proof merely of the proscribed act. The overall regulatory pattern adopted by the legislature, the subject matter of the legislation, the importance of the penalty and the precision of the language used will be primary considerations in determining whether the offence falls into the third category.

We must now look at the case in hand and the language of the sections of the Income Tax Act which are under consideration here.

Subsection 238(1), the subsection under which the present charges have been laid, makes any person “who has failed to file a return as and when required by or under this Act . . . guilty of an offence.’’ It goes on to provide for a fine, in addition to any other penalty provided of “$25 for each day of default” upon summary convictions. It will be seen that there is a per diem fine. In the present appeal we are concerned with three successive days of fine if the full effect is to be given to the provision.

Subsection 150(2) is to the effect:

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 subsections (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 therein, with the Minister in prescribed form and containing prescribed information a return of the income for the taxation year designated therein.

In support of the appellant’s claim that the offences charged constitute an absolute liability offence within the classifications approved as above, counsel refers to the use of the word “shall”, which is “imperative” and to the absence of such language as “knowingly” or “wilfully”. He also argues that other sections of the Act use such words which are suggestive that no explanation or excuse can avoid conviction.

Some reliance was made on the Tax Appeal Board decision in Alcide Vaillant v MNR, [1969] Tax ABC 62; 69 DTC 60, where the sudden illness of the accountant usually used prevented a second accountant called in a few days before the date a return was to be filed under section 44 from getting a return filed. The Appeal Board dismissed the appeal taking the position that once the time-limit had expired there was no discretion to permit an extension of time for filing. I am unable to see how this case can be of any real help in the present appeal as the board’s attention does not appear to have been directed to the issue in the present appeal.

Reference was made as well to The Queen v Saltron Television Ltd, 70 DTC 6116. In that decision the Ontario High Court of Justice reversed a trial judge’s dismissal of a charge under the Income Tax Act, RSC 1952, where there had been a failure to file a return following demand. The failure was associated with the failure of the company accountant to file the return as requested although instructed so to do. This was not accepted as a defence. Close examination of the judgment discloses that while advice had borne from the accountant to one officer of the company that a return would be filed the company had in fact contacted its accountant. The reasoning of the Court of Appeal would indicate that factually the excuse given did not constitute a defence. I cannot read the judgment as going any further than that.

Some reliance was made on the language of subsection 220(3) of the Act where the Minister may at any time extend the time for making a return. I am unable to see how this can be of any assistance in construing the sections under consideration.

Looking at the wording of subsection 150(2) it is clear to me that for a person such as the present respondent to come forward with such an excuse as “I have no tax to pay” would be not acceptable as an excuse as to avoid prosecution. Indeed, it might be reasoned that the very use of the language “whether or not he is liable” is an indication by the Legislature that it did not intend to rule out “all” defences, only that one. And then it seems to me that the insertion of “within such reasonable time as may be stipulated therein” is certainly hardly the type of language one would expect if it was intended that the offence was of the absolute class.

There is no attempt in the legislation to define what “reasonable” is. In the present appeal “30 days” is the time put forward as “reasonable time”. It may be that 30 days in the case of a notice served on the same day as issued and by personal service would be called reasonable. But would it be the same if the service was proposed to be by registered mail, as was the case here, but to a person on a lighthouse in Georgia Strait or a hunter at Grise Fiord. Without commenting on the reliability of mail service in these days, the best of service would not reasonably anticipate the addressee receiving such notice at either of the above parts of Canada within the 30 days if service is counted from the date of posting. If, and it is not clear from the Act, the service is only upon receipt where sent by registered mail, then can it be taken as a reasonable excuse if one day after receipt the addressee had suffered a stroke which prevented any instructions being given to comply for several months. If the appellant’s position is to be acceded to then such a person could conceivably emerge from hospital to find himself or herself subject to payment of a fine representing the total of $25 multiplied by the number of days of hospitalization.

One of the governing tests for absolute liability laid down in the Sault Ste Marie and Chapin cases (supra) is that the Legislature has made it that “guilt would follow proof merely of the prescribed act.”

It seems to me that the insertion of the word “reasonable” by the Legislature has by the use of such a term by itself suggested that some elasticity in application or interpretation has been left open. In my opinion this brings the offences charged more readily within the second class where in the words of the Sault Ste Marie case would constitute a defence “if he took all reasonable steps to avoid the particular event.”

An examination of the proliferation of forms and regulations forming part of the Income Tax Act suggests to me, certainly, that it is becoming increasingly difficult for a taxpayer lacking sophisticated training to avoid employing accountants or other persons with expertise in the preparation of returns which in itself suggests that it would be unreasonable to accede to the position taken by the Crown.

In the result, I would hold that the learned provincial court judge did not err. The answer to the stated cases is “No”.

As the appellant conceded that the excuse put forward was not disputed I would dismiss the appeal and affirm the acquittal.