Citation: 2008TCC289
Date: 20080508
Docket: 2005-3602(IT)I
BETWEEN:
JOAN COOMBS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent;
AND BETWEEN:
Docket: 2005-3606(IT)I
BOB WYSOCKI,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent;
AND BETWEEN:
Docket: 2005-3609(IT)I
SABRINA RIGUTTO,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent;
AND BETWEEN:
Dockets: 2005-3621(IT)I
2005-4189(IT)I
ANNE M. VOLOCHKOV,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent;
AND BETWEEN:
Docket: 2005-3622(IT)I
LORNA MOSSOP,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent;
AND BETWEEN:
Dockets: 2005-3623(IT)I
2005-4191(IT)I
PERCY G. MOSSOP,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent;
AND BETWEEN:
Docket: 2005-4091(IT)I
CARL COOMBS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent;
AND BETWEEN:
Docket: 2005-4142(IT)I
KAREN A. MUNSHAW,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent;
AND BETWEEN:
Docket: 2005-4143(IT)I
DANIEL MUNSHAW,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent;
AND BETWEEN:
Docket: 2005-4190(IT)I
JEFF RUSSELL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
(Delivered orally from the Bench on May 6, 2008)
Woods J.
[1] Before I begin this oral
decision, I would note that these reasons are relatively lengthy and therefore
I propose to include a copy of them with the formal judgments that will be
signed within a few days.
[2] The decision relates to a number of appeals that were
brought by ten individuals, all involving charitable donations allegedly made
to a registered charity by the name of Rocky Ridge Ranch Inc.
[3] The purported
donations were made pursuant to a scheme orchestrated by an accountant by the
name of Harold Coombs. The scheme also had the assistance of the charity which
issued donation receipts for all of the amounts claimed.
[4] The appellants
were reassessed to disallow the charitable tax credits claimed, and in some of
the assessments penalties were also levied. The taxation years at issue are
different for each of the appellants but they all cover the period from 1996 to
2001.
[5] Mr. Coombs
represented all of the appellants at the hearing, which was heard on common
evidence over several days during a three week period. All the hearings were
governed by the informal procedure although I would note that some of the
appellants elected that procedure a few days before the hearing.
[6] Before delving
into the substantive issues, it may be useful to note that these appeals were
the subject of a fairly involved pre-trial process managed by Justice Bowie.
That undoubtably was very helpful since none of the appellants had legal
counsel.
[7] There were
several witnesses at the hearing. All of the appellants testified on their own
behalf except one, and they also called three other witnesses, Harold Coombs,
Oleg Volochkov, who is the husband of one of the appellants, and John Rosenbaum,
who at one time had a related appeal.
[8] The Crown called
four witnesses, all of whom testified under subpoena except for the CRA
auditor, Henry Brunsveld. The subpoenaed witnesses were Bruce Chapman, who was,
and still is, in charge of the operations at Rocky Ridge Ranch, Kirsten
Chapman, who is Mr. Chapman’s daughter-in-law and who worked in the office at
the charity, and a chartered accountant by the name of Gordon Ahier, who
replaced Harold Coombs as the charity’s accountant in 2002.
[9] It might be
helpful at this point to give a bit of background. The donation scheme did not
last for just a short time. The assessment period before me is six years. What
is surprising is that it did last so long. The purported donations for the
period from 1996 to 1998 were reassessed in 2000 and yet the scheme continued
on for a few years after that.
[10] The whole affair
came to a crashing halt in the fall of 2002 when Mr. Chapman contacted the
charity’s lawyer. This led to a very expeditious disclosure of the entire
arrangement to the CRA. The charity, with the assistance of Mr. Ahier, reviewed
the charity’s bank statements for 1999, 2000 and 2001 and concluded that none of
the amounts that are at issue here for those years were valid donations.
[11] At the CRA’s
suggestion, the charity issued amended donation receipts for the 1999 to 2001
taxation years which showed gifts of nil. The CRA then issued reassessments for
the 1999 to 2001 taxation years, and penalties were also imposed for those
years.
[12] The two issues
before me are first, whether charitable donations were actually made, and
second, whether penalties are appropriate. I will deal with these two issues
separately, starting with whether there were any charitable donations.
[13] The relevant
provision in the Income Tax Act is s. 118.1(3) which allows a tax credit
for gifts made to a registered charity. The provision requires that the charity
fill out a receipt and that the receipt be included with the tax return. The
receipt requirement was satisfied in this case. Mrs. Kirsten Chapman, under the
direction of Harold Coombs and with the general knowledge of Bruce Chapman,
prepared the receipts which had a pre-printed signature. The only issue, then,
is whether there were actually any gifts to the charity.
[14] The meaning of
the word “gift” has been discussed in several judicial decisions and its
meaning is fairly well understood. I will quote a succinct definition from one
of the leading decisions, the Federal Court of Appeal decision in Friedberg
v. The Queen. In that case, Linden J. A. states:
[…] A gift is a voluntary transfer
of property owned by a donor to a donee, in return for which no benefit or consideration
flows to the donor.
[15] It is relevant
here to make note of certain elements in this definition. First, it is
necessary that the gifted property be owned by the donor, second that the
transfer to the charity be voluntary, third that no consideration flow to the
donor in return for the gift, and fourth that the subject of the gift be
property, which distinguishes it from providing services to the charity. These
elements reflect the general notion that a taxpayer must have a donative intent
in regards to the transfer of property to the charity.
[16] As a preliminary
matter, I would note that in several instances where cheques were made out to
the charity, the cheques were written by the appellants’ spouses and not the
appellants themselves. There may be a question in these instances as to whether
the appellants transferred property at all but the Crown has not challenged the
gifts on this ground. I will therefore assume that this is not a basis to
disallow any part of the appeals.
[17] The only question
regarding these purported gifts is whether there was any donative intent.
[18] The first comment
that I would make is that the true facts here remain a mystery. The Crown was
not able to provide evidence showing exactly how the scheme worked in every
case. Sometimes cheques were written by the appellants in favour of the charity
and were deposited. Not all of these funds could be traced back to the
appellants but they were all traced out of the charity’s hands.
[19] The explanations
for all of this provided by Harold Coombs made no sense. Several of the
appellants testified that they either did not understand the arrangements or
that they did not recall the details. To the extent that the appellants agreed
with Mr. Coombs’ explanations, their testimony totally lacked any ring of
truth.
[20] Notwithstanding
that the detailed mechanics of the scheme remain a mystery in some respects,
certain things are clear. In essence, the scheme involved the issuance of false
donation receipts in circumstances where there was never any intent to benefit
the charity.
[21] I turn now to the
specific facts. Rocky Ridge Ranch Inc. is a non-profit organization that
operates a ranch, primarily as a children’s day camp. It has registered
charitable status for purposes of the Income Tax Act.
[22] Before its
current ownership, the ranch was operated by a church with one of the church
members, Bruce Chapman, being the ranch manager. Mr. Chapman later took over
the operation completely and during the relevant period the ranch was run by
Mr. Chapman and his family with the assistance of volunteers. Also at this
time, the real estate on which the ranch was situated was owned by the Chapmans
personally and was leased to the charity.
[23] During the
relevant period, the accounting and tax affairs of the charity were managed by
Harold Coombs. Mr. Coombs represented at the hearing that he is a certified
general accountant but some question about that status was mentioned by Mr.
Ahier during his testimony. In any case, Mr. Coombs acted as an accountant and
financial adviser to the charity and the Chapman family.
[24] Mr. Chapman ran
the ranch under the supervision of a board of directors, which included a
lawyer among its members. Although Mr. Chapman was in charge of all aspects of
running the ranch, he largely delegated the accounting function to Harold
Coombs, who trained Kirsten Chapman to prepare the books.
[25] Bruce Chapman
permitted Mr. Coombs a pretty free rein in terms of instructing Kirsten Chapman
concerning the issuance of donation receipts and papering the transactions,
sometimes on a retroactive basis.
[26] During his
testimony, Mr. Chapman tried to give the impression that he really had no
understanding of what was going on and that he simply entrusted everything to
Mr. Coombs and signed papers when necessary. It is not clear to me what Mr.
Chapman really understood, and what the Chapman family stood to gain from this
except that it appears that some of the family appeared to participate in the
donation scheme as well.
[27] The extent to
which Mr. Chapman was actively involved in the scheme does not affect the
outcome of these appeals, and I make no finding on it. It is sufficient to say
that Mr. Chapman allowed this to go on for over six years, even after the
initial audit and the first set of assessments.
[28] I would also note
that the board of directors of the charity took no action to stop the false
receipts from being issued. It may be that they had no idea of what was going
on until the fall of 2002 when Mr. Chapman notified one of the board members
who was a lawyer of the problem. I would also note that the charity took very
swift corrective action after that, and managed to not to have the charitable
status of Rocky Ridge Ranch revoked.
[29] I do not know the
total of the donation receipts falsely issued by Rocky Ridge Ranch at Mr.
Coombs instigation, but during the period from 1999 to the middle of 2002 when
the charity called a halt to the affair, the charity determined that it had
falsely issued receipts for over $500,000.
[30] I would first
make a number of general observations about the transactions that occurred.
[31] First, there is
no evidence that the charity earned one nickel from these schemes. The
transactions seemed to involve either no transfer of property to the charity at
all, or a transfer of money into the charity’s bank account followed by a
transfer out on or around the same day. The transfers out did not go directly
to the purported donors, however. Instead they went to people with whom Harold
Coombs had a close connection.
[32] The tracing of
the money in and out of the charity’s bank account was done by Kirsten Chapman
under the instruction of Gordon Ahier and it was used as the basis for the
charity issuing replacement receipts showing donations of nil. There was no
real need for the CRA auditor to do an independent audit of this and it appears
that he did not do so. I accept that the work done by Kirsten Chapman that was
entered into evidence as Ex. R-44 is generally representative of what actually
transpired.
[33] It is not
possible to tell from the evidence exactly what happened to the funds once they
were paid out of the charity and received by persons associated with Harold
Coombs. Bruce Chapman indicated that he handed funds he received over to Harold
Coombs and I accept this testimony. On some occasions the payments can be
linked to an equivalent amount of money deposited to the purported donor’s bank
account but that is not always the case.
[34] What is clear,
though, from the evidence as a whole, is that none of the appellants actually
intended to contribute anything to the charity. None of them had a donative
intent. Their sole intent was to achieve a tax saving.
[35] All of the
appellants were fiercely supportive of Mr. Coombs at the hearing. I have no
doubt that they all received what they bargained for. Perhaps the appellants
paid Mr. Coombs a fee for the tax saved, but beyond that any money paid out
must have been paid back to them or to someone else at their direction. One
thing is clear. It did not go towards charitable purposes.
[36] I will now go
into a little more detail regarding the scheme.
[37] During argument,
counsel for the respondent provided a chart which divided the donations into
five different types. I will briefly discuss each one.
[38] The first scheme
may be described as a gifting arrangement and these transactions allegedly took
place from 1994 to 1998. I say allegedly because there is no credible evidence
that any transactions of any sort took place except for the issuance of false
donation receipts.
[39] The plan was not
sophisticated. It was described as a paper transaction in which Bruce Chapman
purported to make a gift to the donors, and which the donors then instructed
Mr. Chapman to contribute his gift to the charity on their behalf. No actual
transfers of funds took place.
[40] The paperwork for
this transaction was shoddy to say the least. Nothing was signed by the alleged
donors. Mr. Chapman did sign papers documenting the scheme but Mr. Chapman’s
daughter-in-law, Kirsten Chapman, testified that she prepared this paperwork on
the instructions of Mr. Coombs on a retroactive basis while the audit was going
on. In general I found Kirsten Chapman’s evidence to be credible and I accept
her detailed evidence on this point.
[41] My conclusion
from all of this was that there were no gifts by Bruce Chapman to the so-called
donors and no gifts by the donors. The documentation created after the fact was
pure fiction.
[42] These transactions
were all discovered by Mr. Brunsveld of the CRA in 1999 during an audit of an
associated corporation which used the charity’s bank account. Assessments were
issued early in 2000 to all the appellants who claimed charitable donations
during the years 1996 through 1998.
[43] Following these
reassessments, one would expect these shenanigans to be halted but that did not
happen. Mr. Coombs changed the mechanics of the scheme, and varied it, but the
scheme continued on with gusto.
[44] One technique that
was used subsequently was another gifting arrangement. Unlike the prior gifting
arrangement, in this case actual funds flowed to the charity and out again.
This was used where the donors were relatives of Harold Coombs, namely his
daughter, Karen Munshaw, and his nephew, Carl Coombs. In this case, purported
gifts were made from family members to the donor, and the donor would then
transfer the funds to the charity which immediately paid the funds out again.
[45] Another technique
involved cheques being written on the donors’ bank accounts to the charity.
Often in these cases, the evidence does not trace a reimbursement of these
funds back to the donors. Examples of this are transfers from Jeff Russell, who
is a businessman who has dealt with Mr. Coombs for many years, and Percy
Mossop, who is Mr. Coombs’ brother-in-law.
[46] It appears that
in all circumstances where funds were actually deposited in the charity’s bank
account, the funds were paid out again from the charity. There was the odd
thousand dollars that Kirsten Chapman could not trace but her review of the
bank account pretty clearly shows that the scheme involved taking out
everything that was put in.
[47] I would note that
several techniques were used to take money out of the charity’s bank account
but none of these appeared to be bona fide transactions.
[48] One technique was
to use the charity’s funds to allegedly pay for a redemption of shares of an
associated corporation that shared the charity’s bank account.
[49] Another technique
that was developed in 2001 was to have the funds paid out in payment of the
purchase price of shares. The shares were allegedly purchased from Joan Coombs
for $225,000 and constituted shares of a travel agency that the Coombs’ owned
and operated. That corporation went insolvent after the charity called a halt
to the whole thing and the travel business continued on in another form. In all
likelihood the value of these shares was close to nil when they were purportedly
purchased by the charity and an associated company. In fact, the appellants
introduced a tax planning memo written by Harold Coombs suggesting that it was
planned that Bruce Chapman’s wife would claim a loss with respect to these
shares on her tax return after the two year waiting period required by the Income
Tax Act.
[50] There were many
other share transactions as well. It is not necessary to go into details in
these reasons but I would note that in one instance Kirsten Chapman testified
that she prepared an alleged agreement for the sale of shares in 1999, which
agreement was backdated to 1993. Again I find Mrs. Chapman’s evidence credible
in this regard.
[51] When the entire
circumstances are looked at, it is pretty clear that there was a pattern of
entering into share transactions which were designed not for any commercial
purpose but to further the tax schemes orchestrated by Mr. Coombs, including
the donation scheme that is at issue here. There is absolutely no evidence
before me that would lead me to believe that any of these transactions were bona
fide.
[52] I would also note
that in none of the cases does it make any sense that the purported donors
intended to make a sizable gift to Rocky Ridge Ranch. They all had very little
connection with the charity, and were not so wealthy that a gift of this nature
would be expected. Also, the fact that the appellants have staunchly stuck by
Mr. Coombs, when many of the funds were paid out of the charity to Mr. Coombs’
wife, suggests that the appellants were not victims. I find that they were participants
in the scheme and that none of them had any intention of making a gift to Rocky
Ridge Ranch.
[53] This deals with
the schemes in which money was actually transferred to the charity. In other
cases it appears that nothing was in fact transferred to the charity. This
conclusion is based on Kirsten Chapman’s analysis of the charity’s bank account
which was reviewed by Mr. Ahier which indicates several instances where nothing
was deposited in the charity’s bank account. In these cases, the appellants
typically said they donated funds but they had very little recollection of the
circumstances and they did not introduce any evidence such as cancelled cheques
to prove that funds were transferred to the charity. The appellants involved in
this type of arrangement are: Karen Munshaw, the daughter of Harold Coombs,
Anne Volochkov, the wife of Oleg Volochkov who was intimately involved in
the scheme, and Sabrina Rigutto a travel agent who works in the same office as
the Coombs and Oleg Volochkov. In these cases, the evidence supports a finding
that no transfers of property were made to the charity.
[54] Another situation
is an isolated incident in which a gift was purportedly made by Joan Coombs,
the wife of Harold Coombs, by a donation of accounting fees invoiced by Mr.
Coombs. The problem that I have with this is that there is no credible evidence
that this invoice is genuine. In my view, the purported invoice was likely a
device to enable gifts to be documented so that tax credits could be claimed.
Mr. Coombs suggested that he issued the invoice because of the extra accounting
work that he did during the audit. Mr. Coombs was not a credible witness, and I
reject his testimony regarding the invoice.
[55] The evidence
shows that the appellants used several techniques to make it look like
charitable donations were made, and in some cases it appears they did nothing
at all. But in none of the instances do I find that any of the appellants or
their spouses made a gift to the charity.
[56] I now turn to the
issue of penalties.
[57] The question here
is whether the Minister was correct to assess penalties under s. 163(2) of the Act.
[58] In general,
subsection 163(2) imposes a penalty for making a false statement in a tax
return equal to 50 percent of the tax that has been avoided. In order for the
penalty to be imposed, the Crown must establish that the taxpayer made a false
statement and that the false statement was made either knowingly, or under
circumstances amounting to gross negligence.
[59] In this case, the
Minister imposed penalties for the second series of assessments covering the
taxation years 1999, 2000 and 2001. Eight of the ten appellants were assessed
penalties. The two that were not were Lorna Mossop and Bob Wysocki.
[60] I have already determined
that false statements were made in the tax returns of the appellants who were
assessed penalties. The only remaining question is whether the Crown has
established that the appellants made the statements knowing that they were
false, or whether they were grossly negligent in doing so. For the reasons that
follow, I have concluded that all of the penalties assessed were appropriate in
the circumstances.
[61] Before discussing
the circumstances of each appellant, I would first comment that the CRA
auditor, Mr. Brunsveld, indicated that the penalties were imposed for the 1999
to 2001 taxation years partly because these were in essence second offences
because assessments had been issued for earlier periods. For four of the
appellants, there is no indication in the evidence before me that they were
assessed earlier. Mr. Brunsveld’s testimony on this point was very brief and
he was not cross examined on it. Before accepting that all the penalties
involve second offence type situations, I think the evidence should be more
detailed. Accordingly, I do not find that the Crown has established that this
was a so-called second offence for the appellants who have only appealed for
the 1999, 2000 or 2001 taxation years.
[62] I now turn to the
circumstances of each of the appellants, which will be done in the order in
which they testified at the trial.
[63] The first is Carl
Coombs, who is the nephew of Harold and Joan Coombs. According to Carl Coombs’
tax return he was born in 1958 which would put him in his early 40s during the
taxation year at issue, which is 2001.
[64] Carl Coombs
claimed a tax credit in respect purported donations to Rocky Ridge Ranch in the
amount of $12,000 in the 2001 taxation year. This claim brought his federal tax
down to less than $1,000.
[65] In this case
there were two cheques from Carl Coombs deposited in the charity’s bank account
late in 2001. The source of these funds was cheques from Mr. Coombs’ father and
his uncle, Harold Coombs. Carl Coombs testified that these amounts were gifts
to him. Harold Coombs’ alleged gift was $7,000 and the father’s was $5,000.
[66] Carl Coombs
testified that there were no strings attached to these gifts and that he wanted
to donate the funds to the charity, with which he had little connection.
[67] Carl Coombs
testimony makes no sense whatsoever and I do not accept it. There was no
reasonable explanation for why his father and uncle would give him $12,000 and
also no reasonable explanation for why Carl Coombs would donate a large sum of
money to a charity.
[68] In the
circumstances of these alleged donations, I conclude that Carl Coombs knew that
the tax claims were false. A taxpayer who reduces his tax burden by significant
amount by claiming a large charitable donation without any real outlay of funds
knows that the claims are bogus. Carl Coombs made the situation even worse by
falsely testifying that there were no strings to the alleged gifts from his
father and uncle. The penalty is justified in this case.
[69] The next
appellant who was assessed penalties is Jeff Russell, who was a long time
client of Mr. Coombs.
[70] Mr. Russell
claimed charitable tax credits for each of the 1999, 2000 and 2001 taxation
years. The aggregate amount of the purported donations by Mr. Russell is
$80,000.
[71] Mr. Russell had
no, or very little, connection with the charity and gave no credible
explanation for these very large donations. For some of these amounts, there is
no credible evidence that any funds were transferred at all to the charity. In
other instances, cheques were written by Mr. Russell to the charity, and in
accordance with the usual pattern the amounts were paid out of the charity in
short order to persons connected to Harold Coombs. In these cases, it is not
clear what happened to the funds after that. There is no evidence tracing it
back to Mr. Russell. That does not matter in the circumstances. Clearly
Mr. Russell did not intend to make large donations to Rocky Ridge Ranch. He was
not a victim here but a very active participant. The only reasonable conclusion
to take from the evidence is that Mr. Russell knew these claims to be false.
[72] I would also note
that Mr. Russell’s tax returns indicate that he also took large tax deductions
for business losses supposedly incurred in respect of sales of shares of
companies connected in some way to Harold Coombs. These losses are part of a
pattern of share transactions orchestrated by Mr. Coombs and they reinforce the
conclusion that Mr. Russell was fully aware of the falsity of the donation scheme,
although no such reinforcement is necessary. The penalties against Mr. Russell
are thoroughly justified.
[73] I now turn to
Karen and Daniel Munshaw, who are the daughter and son‑in‑law of
Harold Coombs.
[74] These two
appellants will be considered together because Daniel Munshaw did not
personally make any donations. The tax credits that he claimed were in respect
of donations purportedly made by his wife.
[75] Mr. and Mrs.
Munshaw claimed tax credits for the 1999, 2000 and 2001 taxation years in respect
of purported donations to Rocky Ridge Ranch in the aggregate amount of almost
$70,000.
[76] Mrs. Munshaw
testified that some of these amounts were sourced from gifts from her parents
and at least one was sourced from proceeds of a sale of shares to her mother.
[77] Mrs. Munshaw was
not a credible witness. As an example, her testimony as to whether there were
strings attached to her parents’ gifts changed over time. She started out
saying that there were no strings attached but she backed down from that on
cross-examination.
[78] Also Mrs. Munshaw
could not tell me why she had certified some of the cheques that were issued to
the charity.
[79] Mrs. Munshaw’s
testimony as a whole lacked a ring of truth. I find it totally unrealistic that
she was not aware that she and her husband made false claims for charitable
donations. Her husband in 2001 claimed federal tax credits of over $13,000 and
reduced his federal tax to just over $100. I am satisfied that Mrs. Munshaw was completely aware of the falsity of the
claims. The penalties imposed against her are totally justified.
[80] As for her
husband, Mr. Munshaw claimed not to be directly involved in the donations but
he stated that he did discuss them with his wife. For such a large amount of
tax saving that Mr. Munshaw obtained by claiming these tax credits, I believe
that he was fully aware of the falsity of the scheme. Penalties levied against
Mr. Munshaw are similarly justified.
[81] I turn now to
Anne Volochkov. She is married to Oleg Volochkov, who owns a travel business
located in the same office space as that used by Harold and Joan Coombs. Mr.
Volochkov was intimately involved in these transactions, including being the
recipient of large sums of money paid out of the charity’s bank account.
[82] According to the
Crown’s replies in respect of Mrs. Volochkov’s appeal, she claimed tax credits
in respect of purported donations aggregating over $75,000 during the period
from 1996 to 2001.
[83] Mrs. Volochkov
did not appear to be an active participant in the scheme but she did not emerge
from the witness box unscathed. On cross-examination, she was asked whether she
knew Joan Coombs. She gave the impression that she only knew her slightly as
the wife of Harold Coombs and someone that her husband worked with. Crown
counsel then confronted her with her tax returns in which a large loss was
claimed by her in relation to a herbal business purportedly operated by Mrs. Volochkov
and Joan Coombs. Now either Mrs. Volochkov was not forthright when she testified
as to her limited dealings with Mrs. Coombs, or she had totally falsified her
tax return in respect of the herbal business. Either explanation is damning.
[84] I find that Mrs.
Volochkov knowingly made false donation claims in the 1999 and 2001 taxation
years. The large amounts claimed strongly suggest that she knew full well that
the entire scheme was bogus. I also note that by the time these tax returns
were filed, she had already received reassessments for donations for earlier
years. She brazenly plowed on, however, and increased the amount of the false
claims for the later years in which penalties were assessed.
[85] I would also note
that it is not necessary that a taxpayer have actual knowledge to support the
imposition of penalties. Gross negligence is sufficient. This Court has said
that penalties should not lightly be upheld. However, I have no hesitation in
concluding that Mrs. Volochkov likely knew about the falsity of the donations. Even
if she was totally blind to the situation, this would not assist her because
she certainly was willfully blind and grossly negligent in that case.
[86] Before leaving
the circumstances of Mrs. Volochkov, I would comment that the Crown could not
trace an outflow of $2,000 transferred to the charity by Mr. and Mrs.
Volochkov. It is possible that they intended to make this as a donation to the
charity. However, I find it much more likely based on all the evidence that
these funds were not intended to stay in the charity. I see no evidence of any
donative intent on the part of Mr. or Mrs. Volochkov.
[87] I now turn to
Joan Coombs, who is the wife of Harold Coombs. Mrs. Coombs had her own
travel business and worked out the same office as her husband and Oleg
Volochkov.
[88] Mrs. Coombs
claimed tax credits in respect of charitable donations aggregating $10,500 over
the period from 1996 to 1999.
[89] This whole sorry
affair was masterminded by Mrs. Coombs’ husband. He was driving the bus but I
would note that Mrs. Coombs was sitting in the front seat at least in the
latter period. Mrs. Coombs was involved in the mechanics of getting the funds
out of the charity, and for this purpose she signed an agreement purporting to
sell shares of her travel business to Rocky Ridge entities for a purchase price
of over $200,000. She was also involved in writing large cheques to her
daughter which were then transferred to the charity.
[90] The only year in
which penalties were assessed against Mrs. Coombs was for 1999, and her
involvement with the share transactions happened after that. However, in
general I found Mrs. Coombs not to be a credible witness. For example, she
testified that large sums of money received from the charity’s bank account in
2001 were used by her to pay bills of the travel business. I find this
extremely unlikely. I would also note that Mrs. Coombs had received an
assessment for an earlier period and so was, as Mr. Brunsveld described, a
second offender. In circumstances where Mrs. Coombs’ testimony was generally
not credible, and where false claims were made for an earlier year, I find that
Mrs. Coombs either knowingly made false claims in her 1999 tax return or
she was grossly negligent by being willfully blind. This conclusion is
reinforced by her active participation in the scheme in later years.
[91] I also wish to
mention, however, that Mrs. Coombs’ alleged donation in 1999 did not fit the
same mould as the others. It did not involve cash but was an alleged transfer
of funds owed to Harold Coombs for accounting services rendered. The amount of
the invoice was just over $10,000 and Mrs. Coombs’ alleged donation was $5,300
of this amount. If this was an isolated transaction, I would have no hesitation
in saying that penalties would not be justified. But given the history and the
continued involvement of Mrs. Coombs after this, I think that the penalty is
appropriate.
[92] I now turn to
Percy Mossop, who is the brother-in-law of Harold Coombs.
[93] Mr. Mossop and
his wife claimed to have made donations in the aggregate amount of over $95,000
from the period from 1996 to 2001. As such Mr. and Mrs. Mossop are large
participants in this scheme, going back to 1996 when they claimed to have made
donations of over $20,000 sourced from gifts from Bruce Chapman. When they
were reassessed for the earlier years, this certainly should have raised alarm
bells about the propriety of the transactions but it did not have that effect
on Mr. Mossop. Alleged donations of a similar amount were claimed for each of
1999, 2000, and 2001.
[94] In the case of Mr.
Mossop, the large amount claimed suggests that he knowingly made false
statements in his tax return. He testified that he personally used his own
funds to make a number of these donations. I find that this defies common sense
and is beyond belief.
[95] I find that Mr.
Mossop knowingly filed false donation claims for the 1999, 2000 and 2001
taxation years and that the penalties imposed are justified.
[96] Lastly, I come to
Sabrina Rigutto. Ms. Rigutto worked as a travel agent for Mr. Volochkov and was
a participant in this scheme in 1998 and 2001. The aggregate donations that she
claimed were about $6,000 and there is no evidence of any transfer of these
funds to the charity.
[97] Ms. Rigutto
claims to have no knowledge of the details of these transactions.
[98] I find Ms.
Rigutto’s testimony to be unbelievable but, even if it is true, Ms. Rigutto
was grossly negligent if she thought she could claim such large tax credits on
her tax returns without laying out any funds of her own. I find that she either
knowingly, or under circumstances amounting to gross negligence, made the
donation claim in her 2001 tax return. I would also note that she also had been
reassessed for an earlier year and yet she continued to be involved in 2001
which is the year in which the penalty was imposed.
[99] I think this
deals with all of the penalty situations.
[100] In the result, I
find that none of the donations claimed were real gifts and that all of the
penalties assessed were justified.
[101] Before concluding
these reasons, I wish to make a comment about a procedural issue raised by Mr.
Coombs in argument.
[102] The procedural
issue has to do with a seizure of records in the course of a criminal
investigation against a number of individuals, including Harold Coombs, in
September of 2006. Mr. Coombs argues that the seizure has caused prejudice to
the appellants in reference to these appeals because they have not had the
necessary documents to properly prepare their cases.
[103] I do not think that
the appellants can complain of unfairness in this regard. I would note that
this issue was raised in a case management hearing before Justice Bowie on July
30, 2007.
[104] During that
hearing, the judge indicated that there are court procedures available for the
production of documents that would be available for the appellants who had
appeals then under the general procedure. It was also mentioned by counsel for
the Crown that procedures are in place under the Criminal Code to obtain the
documents. The appellants had ample time to deal with this issue prior to the
trial and they chose not to.
[105] Mr. Coombs argued
that these steps would not have been fruitful because it appeared that some of
the documents are no longer in the Crown’s possession. Mr. Coombs’ theory
is that they were likely taken by a CRA official who, according to Mr. Coombs,
illegally participated in the search and seizure. First, I note that this is an
unproven allegation on which there is not a sufficient evidentiary basis to
support it. I reject any notion that an official from the CRA is hiding
documents in this case.
[106] I am also not
satisfied that the seizure was illegal even if someone not named in the warrant
was invited to participate by the officer in charge. In this regard, I note the
decision of the Supreme Court of Canada in R. v. Strachan, [1988] 2 S.C.R.
980 and the decision of the Nova Scotia Court of Appeal in R. v. B.,
52 C.C.C. (3d) 224.
[107] In my view, none of
the appellants have shown any grounds to complain of unfairness. It may be that
the appellants were at a disadvantage in dealing with the seized documents
because they did not have a lawyer representing them. However, that was their
choice and they cannot complain of unfairness because of it. I would also note
that Justice Bowie mentioned in the case management hearing that it was
sometimes difficult for appellants to use the pre-trial procedures without a
lawyer. The appellants had ample opportunity to hire a lawyer if they so chose.
[108] The appellants also
argued that there were deficiencies in the way that the audit was conducted.
Even if that were the case, that would not be a valid basis on which to allow
the appeals.
[109] For all these
reasons, the appeals will be dismissed, without costs.
Signed at Toronto, Ontario this 8th day of May, 2008.
“J. Woods”
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