REASONS
FOR JUDGMENT
Sommerfeldt J.
I. INTRODUCTION
[1]
These Reasons pertain to an Appeal brought by
Glenn F. Ploughman against an assessment under section 163.2 of the Income
Tax Act
(the “ITA”). That section is colloquially
referred to as the third-party penalty provision. In 2001 and 2002, Mr.
Ploughman had a connection to a charitable donation program (the “Donation Program”). The nature and extent of his
connection to the Donation Program were significant issues in this Appeal.
[2]
The Donation Program was the same charitable
donation program in respect of which Julie Guindon, a lawyer in Ottawa, issued
a legal opinion on September 19, 2001. The Canada Revenue Agency (the “CRA”) assessed Ms. Guindon under section 163.2
of the ITA and her appeal from that assessment was ultimately decided in
favour of the Crown by the Supreme Court of Canada. Mr. Ploughman maintained
that his connection to the Donation Program was significantly different from,
and substantially less than, that of Ms. Guindon and certain other individuals
who could be described as the promoters or developers of the Donation Program.
The CRA considered Mr. Ploughman to be one of the promoters or creators of the Donation
Program, and assessed him accordingly.
[3]
In his reasons, the trial judge who heard Ms.
Guindon’s appeal set out an agreed statement of facts, in which
reference is made to Mr. Ploughman. It should be noted that
Mr. Ploughman was not a party to that appeal, nor was he a party to the
agreement that resulted in that agreed statement of facts. Accordingly, I have
not made reference to, or relied on, that agreed statement of facts insofar as
it refers to Mr. Ploughman.
II. ISSUE
[4]
The issue in this Appeal is whether Mr.
Ploughman participated in, assented to or acquiesced in the making of,
statements by 135 of the participants in the Donation Program that Mr.
Ploughman knew, or would reasonably be expected to have known but for
circumstances amounting to culpable conduct, were false statements that could
be used by or on behalf of those participants for a purpose of the ITA. In
part, this requires a determination of whether Mr. Ploughman was merely a
canvasser or a marketer for the Donation Program (as he alleges), whether he
participated in the creation, or was a promoter, of the Donation Program (as
the Crown has assumed), or whether he may have had some other connection to the
Donation Program or to the false statements.
III. FACTUAL
BACKGROUND
[5]
In 2001, Lee Goudie, a land developer, was
endeavouring to develop a hotel and casino resort to be known as “Hawkes Nest Plantation Golf Resort and Casino” (“Hawkes Nest”) in the Turks and Caicos Islands (“TCI”). Mr. Goudie and Mr. Ploughman first met in
the mid-1990s.
They reconnected in 2001, at which time Mr. Ploughman indicated that he
was interested in Hawkes Nest, which led to a business connection with Mr.
Goudie for the purpose of furthering the Hawkes Nest development project (the “Development Project”). As Mr. Ploughman was a
financial advisor in 2001, his role (according to Mr. Goudie) was to
assist in raising the financing to fund the Development Project. While there
was relatively little evidence concerning the early financing arrangements for
the Development Project, it appears that, in the spring and summer of 2001, a
number of initial investors (the “Founding Members”)
had loaned money to TDL to provide partial funding for the project.
[6]
The development of Hawkes Nest was to be carried
out through a corporation. For this purpose, arrangements were made for the
incorporation of Tropical Development Ltd. (“TDL”). TDL was incorporated in the
TCI, apparently under the auspices of a TCI law firm known as Misick &
Stanbrook. Although none of TDL’s constating or organizational documents were
produced in evidence, it appears that initially Mr. Goudie was the sole
shareholder of TDL. Mr. Goudie testified that, during the course of developing
Hawkes Nest, TDL issued sufficient shares to Mr. Ploughman to result in
him becoming a 50% shareholder, but that, when Mr. Ploughman
subsequently became embroiled in a lawsuit with Datile Securities Inc. (“DSI”), Mr. Ploughman requested that Mr. Goudie
arrange for all but one of his shares to be transferred to Mr. Goudie. Mr. Ploughman testified
that he did not, at any time, become a shareholder of TDL.
[7]
Due to a slowdown in the tourism business in the
wake of the 911 catastrophe, and the resultant reticence on the part of investors
to invest in tourist-based properties at that time, in the fall of 2001 TDL
realized that it faced a funding shortfall. Mr. Goudie testified that, in the
face of this realization, Mr. Ploughman suggested that TDL could raise
additional funds by promoting a charitable donation program (defined above as
the “Donation Program”) based on the creation or
acquisition of a timeshare property and the donation of vacation ownership
weeks to registered charities. Mr. Goudie indicated that
Mr. Ploughman had knowledge and experience pertaining to the
implementation of charitable donation programs.
[8]
To implement the Donation Program, certain steps
were identified and assignments were made. Mr. Goudie testified that he or TDL
were responsible for the preparation or provision of the following documents:
a) the promotional material for the Global Trust of Canada (the “Global Trust”);
b) the Sale Agreement, pursuant to which TDL was to sell certain timeshare
vacation ownership weeks to the settlor (the “Settlor”)
of the Global Trust;
c) the Deed of Gift of Vacation Ownership Weeks, pursuant to which the
Settlor was to settle the above-mentioned vacation ownership weeks on the trustee
(the “Trustee”) of the Global Trust;
d) the rules and regulations of Hawkes Nest;
e) an independent evaluation of the vacation ownership weeks, to be
prepared on behalf of the registered charities to which the vacation ownership
weeks would eventually be given;
f) the Marketing and Sales Agreement with TDL; and
g) the conveyance of the various vacation ownership weeks from the Trustee
to the charitable donors (the “Donors”) (i.e.,
the participants in the Donation Program), who were the Class A Beneficiaries of the Global Trust.
[9]
Mr. Goudie testified that Mr. Ploughman was to
provide the remaining documents that were required to implement the Donation Program.
According to Mr. Goudie, those documents were:
a) the Deed of Trust;
b) the document creating a charge against the vacation ownership weeks;
c) the applications pursuant to which the prospective participants in
the Donation Program would apply to become Class A Beneficiaries
of the Global Trust;
d) an opinion of legal counsel in TCI concerning the legal title to the
vacation ownership weeks;
e) a resolution of the trustee of the Global Trust distributing the
vacation ownership weeks to the Class A Beneficiaries
of that trust; and
f) the Deeds of Gift of vacation ownership weeks by the Class A Beneficiaries (i.e., the Donors) to a
registered charity.
Mr. Ploughman
testified vehemently that he was not expected to, and did not, prepare or
provide any of the documents listed above.
[10]
Mr. Goudie understood that a legal opinion would
be required in respect of the Donation Program. Accordingly, in mid-2001 Mr.
Goudie made arrangements to retain Ms. Guindon. On July 10, 2001, Ms. Guindon
sent a letter to TDL to the attention of Mr. Goudie, confirming the nature of
her engagement. That letter also contained the following statement:
I also wish to
confirm that I indicated to you that the opinion does not fall within my field
of expertise. Therefore, I recommended that you have it reviewed by other
professionals such as a tax lawyer and an accountant to ensure the accuracy of
the opinion. I am aware that this may result in additional fees, however, I
believe that this is not unreasonable in light of the block fee that I am
charging you. You also confirmed your request that the opinion letter should be
addressed to KGR Tax Services Ltd since they are the trustees of Global Trust
of Canada, the trust designated for the Charitable Donation Program.
There was no
evidence that Mr. Ploughman saw the above-mentioned letter in 2001.
[11]
As noted by Ms. Guindon in her letter, KGR Tax
Services Ltd. (“KGR”) had agreed to be the
trustee of the Global Trust. KGR was owned equally by Mr. Ploughman, Richard
St.-Denis and Keith Benson (both of whom were business associates of Mr. Ploughman).
It carried on a tax preparation business. Mr. Ploughman indicated that it
was in the summer of 2001 when KGR agreed to be the trustee of the Global
Trust, and that he and his fellow shareholders (whom he described as partners)
agreed to having KGR act as the trustee, as the trustee fees would generate
some cash flow for KGR.
Mr. Ploughman was the president of KGR.
[12]
In her testimony, Ms. Guindon stated that she
met Mr. Ploughman through Mr. St.-Denis, who was her cousin and who had
been her financial advisor for many years. Ms. Guindon was introduced to the Donation
Program on May 15, 2001, when she met with Mr. St.-Denis and Mr. Goudie. Ms. Guindon stated that she subsequently
had several meetings in respect of the Donation Program over the summer and
fall of 2011, as follows:
a) On May 30, 2001, Ms. Guindon met with Mr. St.-Denis, Mr. Goudie and
Mr. Ploughman at 331 Somerset Street West, Ottawa. Ms. Guindon indicated that
the meeting was either at the office of DSI (which was the entity with which
Mr. Ploughman was then affiliated) or the office of TDL. The purpose of the
meeting was to explain to Ms. Guindon the Donation Program, which was to be
based on a charitable donation program which involved the Athletic Trust of
Canada (the “Athletic Trust”) in respect of which
Mr. Ploughman and Mr. St.-Denis had been canvassers in 2000. According to
Ms. Guindon, Mr. Ploughman took the lead in explaining the Athletic Trust
program.
b) On July 3, 2001, there was a follow-up meeting. Mr. Goudie attended
that meeting with Ms. Guindon, but she cannot remember whether Mr. Ploughman
or Mr. St.-Denis also attended.
c) On August 23, 2001, Ms. Guindon attended a meeting with Mr. Goudie
at 331 Somerset Street West. Mr. Ploughman participated in the meeting by
telephone.
[13]
In his testimony, Mr. Ploughman acknowledged
that he met with Ms. Guindon, apparently on more than one date, although
he has forgotten the precise dates. He stated that the purpose of meeting with
Ms. Guindon was to explain to her how the Athletic Trust program worked. He
also stated that, when he was meeting with Ms. Guindon, he did not know that
Mr. Goudie was planning a charitable donation program of his own, although he
suspected that such might be the case.
[14]
As mentioned, the Donation Program was modelled
on the Athletic Trust charitable donation program, with which
Mr. Ploughman and Mr. St.-Denis had been involved as canvassers in 2000.
In essence, it was anticipated that, in 2001, under the Donation Program, a
trust would be established to acquire timeshare units (i.e., vacation ownership
weeks) in respect of a property in TCI. Subsequently, the trust would
distribute those timeshare units to its beneficiaries, who would be
individuals (in these Reasons, sometimes called the “Donors”
or the “Class A Beneficiaries”) found by
Mr. Ploughman, Mr. St.-Denis and other canvassers, and the Donors would
subsequently donate their timeshare units to a registered charity, whereupon
they would each receive from the charity an official receipt showing the amount of the
donation as being an amount equal to the fair market value of the donated
units. As the timeshare units would be encumbered by a lien relating to the
initial acquisition and financing of the timeshare units, and as the charity apparently
(or purportedly) could not accept properties subject to an encumbrance, the
Donors were expected to make a payment to the lienholder to remove the lien
before the donation of the timeshare units to the charity was completed. A
timeshare marketing agent was to be engaged by the charity to sell the donated
timeshare units to the public. For each timeshare unit sold, an amount
representing profit and stipulated to be at least $500 per unit was to be paid
to the charity.
[15]
Thus, the Donation Program was dependent on
having available timeshare units. In this regard, TDL made arrangements to
purchase a sixteen-room hotel, which was known as the Arawak Inn and which was
located in TCI on land adjacent to the site of the proposed Hawkes Nest development.
[16]
After TDL acquired the Arawak Inn, TDL undertook
renovations to upgrade the property in conjunction with its conversion from a
hotel to a timeshare facility. To facilitate the renovations, TDL engaged the
services of Iva Dianne Customs Design, which was a partnership formed by
Mr. Ploughman and his wife, Iva Dianne Ploughman, and which carried on the
business of providing design and furnishing services.
[17]
Over the summer of 2001, Ms. Guindon prepared
multiple drafts of her proposed opinion letter. She kept those letters in her
file, but discussed the details of the Donation Program from time to time with
Mr. Goudie, Mr. St.-Denis and (according to her) Mr. Ploughman, and made
revisions to the proposed opinion letter as she obtained additional
information.
[18]
On the second page of her opinion letter, she listed
the various documents that she ostensibly had reviewed in formulating her
opinion. While some of those documents were finalized before Ms. Guindon issued
her opinion on September 19, 2001, other documents existed only in draft
form in 2001, and some documents were never completed. Some of the draft
documents that were reviewed by Ms. Guindon were actually only photocopies of the
Athletic Trust documents that had been marked up or annotated by hand to show
the proposed revisions that would be needed to convert such documents into those
that could be used in the Donation Program. When Ms. Guindon prepared her
opinion, those annotated photocopies had not yet been retyped or reformatted to
insert the handwritten revisions.
[19]
Ms. Guindon stated that she was relying on Mr.
Goudie and Mr. Ploughman to provide her with the documents listed on page
2 of her opinion letter. She also stated that she assumed, as time passed and she
had heard nothing further, that the documents must have been obtained and that
everything was in order. Mr. Ploughman testified that, since
Ms. Guindon stated in her opinion letter that she had reviewed the documents,
he assumed that such documents had been finalized and provided to her. It seems
that each was relying on the other and hoping for the best. It also seems that
neither was inclined to ask the hard questions about the status of the
documents. As it ultimately turned out, the documents never were finalized, and
the Global Trust and the timeshare units never were created.
[20]
Ms. Guindon coincidentally happened to be the
president of a registered charity, Les Guides franco-canadiennes (District
d’Ottawa) (“Les Guides”). Mr. St.-Denis and
(according to Ms. Guindon) Mr. Ploughman asked her in October 2001 if Les
Guides would be interested in becoming involved in the Donation Program. Ms. Guindon subsequently
presented the proposal to the board of directors of Les Guides, which approved
the participation of Les Guides in the Donation Program.
[21]
Mr. Ploughman testified that, in 2001, his sister-in-law
was working in his office in Ottawa. She had previously worked for the 4-H
Provincial Council of Newfoundland (“4-H”) and, upon
seeing the promotional package for the Donation Program, she suggested to Mr.
Ploughman that it would make sense for 4-H to be one of the charities
in that program. Subsequently, she approached 4-H, which apparently agreed to
participate. However, in early January 2002 there was a wholesale change
in the board of directors and executive committee of 4-H, and the new directors
felt that there was insufficient time to analyse the Donation Program and to
prepare the official receipts. Accordingly, they caused 4-H to withdraw from
participation.
[22]
The structure for the Donation Program
contemplated the creation of an entity that would be an intermediary between
the Donors and the registered charities and that would also provide certain
services to the charities. In this regard, Mr. St.-Denis arranged for the
incorporation, under the Canada Business Corporations Act, of Suntopic International
Advisors Ltd. (“SIA”) on September 18, 2001.
[23]
Ms. Guindon had further communication with Mr.
St.-Denis and Mr. Ploughman in early 2002, when it became necessary to
prepare the official receipts to be issued by Les Guides to the 140 individuals
who had purportedly donated timeshare units to Les Guides. Ms. Guindon
stated that Les Guides did not have sufficient staff to prepare 140 receipts;
therefore, according to her, Mr. St.-Denis and Mr. Ploughman offered
to have to the receipts prepared in their office. On Saturday, February 9,
2002, Ms. Guindon and another individual, who was the treasurer of Les Guides,
attended at the offices of Mr. St.-Denis and Mr. Ploughman, where Ms.
Guindon and the treasurer reviewed and signed the official receipts, which were
subsequently sent to the 140 Donors, 135 of whom included those receipts with
their respective income tax returns and claimed a charitable donation tax credit. Each of those receipts stated
that the particular Donor had made an in-kind donation of a specified number of
“Biennial Weeks Vacation Ownership at Arawak Inn &
Beach Resort.” As those vacation ownership weeks (or timeshare units)
were never created, and thus were never donated by the Donors to Les Guides,
each receipt contained a false statement.
[24]
The statements that triggered the CRA’s application
of section 163.2 of the ITA were the official receipts issued by Les Guides
to the 135 Donors who included those receipts with their respective tax
returns. As the receipts were signed by Ms. Guindon or the treasurer of Les
Guides, the Crown has not alleged that Mr. Ploughman made the statements.
Rather, it is the position of the Crown that Mr. Ploughman participated
in, assented to or acquiesced in the making of the false statements which are
embodied in the official receipts.
IV. WITNESS
RELIABILITY
[25]
As the Crown bears the burden of proof in
respect of an assessment under section 163.2 of the ITA, the Crown presented its case
first.
Counsel for the Crown called three witnesses: Mr. Goudie, Ms. Guindon and Todd
Collins, who is an official of the CRA. Mr. Ploughman testified on his own
behalf. He did not call any other witnesses.
[26]
Mr. Collins gave evidence concerning the
calculation of the amount of the assessed penalty. I found his testimony to be
credible and reliable. As well, Mr. Ploughman stated that he has no
quarrel as to the amount of the penalty, although he vigorously maintained that
he is not liable for the penalty.
[27]
I found the evidence presented by Mr. Ploughman,
on the one hand, and by Mr. Goudie and Ms. Guindon, on the other hand, to be a
classic “he said, they said” situation. As
indicated above, Mr. Goudie and Ms. Guindon stated that Mr. Ploughman was an
active participant in the planning and creation of the Donation Program. In
fact, they described him as the one who knew how the Donation Program was
supposed to be implemented and the one who took the lead in directing that
implementation. On the other hand, Mr. Ploughman adamantly insisted that he was
not involved whatsoever in the planning or implementation of the Donation
Program or the preparation of the official receipts issued by Les Guides.
[28]
Each of those three witnesses appeared to fall
victim to the typical human response of endeavouring to show his or her actions
in the best possible light. As I listened to the testimony of Mr. Ploughman,
Ms. Guindon and Mr. Goudie, my sense was that each of them seemed to
believe that he or she was being forthright and truthful. However, as the
events which were the subject of the hearing occurred 14 to 15 years ago, it
was evident that memories had faded and the respective recollections of some of
the details of the Donation Program and the involvement of various individuals
in respect of the Donation Program had waned to some extent. As well, I had the
impression that there was, whether consciously or unconsciously, an element of
finger pointing on the part of those three witnesses. It seemed that their memories
may have been coloured by an inclination to shift blame to someone else, to
portray his or her involvement in respect of the Donation Program in the best
possible light, or to suppress the memory of one’s own questionable conduct.
[29]
There are circumstances that raise questions
concerning the credibility and reliability of each of those three witnesses. As
readers of the Guindon case are aware, Ms. Guindon signed a tax opinion
letter in which she stated that she had reviewed various documents, when, in
fact, many of those documents had not even been prepared or finalized when she
signed the letter. This raises concerns about her credibility. As well, based
on the decision in her own appeal, it appears that, on June 12, 2003, at a time
when Ms. Guindon knew that the CRA would not accept the charitable donations
associated with the Donation Program, she made representations to the CRA
regarding her own claim in respect of her donation in 2001 of vacation
ownership weeks to Les Guides. In commenting on that conduct, Bédard J
stated that Ms. Guindon lied to the authorities and that such conduct
reflected negatively on her character.
[30]
During the hearing of this Appeal, it became
apparent that on February 27, 2012, Mr. Goudie sent a letter to Lewis Martin of
DSI, which had sued Mr. Ploughman, and in
the letter Mr. Goudie told Mr. Martin that Mr. Ploughman did not own any
shares in TDL. According to Mr. Goudie (but not Mr. Ploughman), this was an
incorrect statement. Although Mr. Goudie testified that Mr. Ploughman had
pressured him into sending the letter, the fact remains that Mr. Goudie sent what
he acknowledges was a misleading and incorrect letter, which raises concerns
about his credibility.
[31]
I found Mr. Ploughman’s testimony during
cross-examination to be evasive, defiant and self-serving. An example of Mr.
Ploughman’s evasiveness pertains to his answers during cross-examination in
respect of the ownership of the Arawak Inn. When asked whether that property
had been purchased through TDL, Mr. Ploughman replied:
I wasn’t sure and I’m still not sure which company actually bought
the - again, he had three separate names to companies. He had Tropical
Development. He had Tropical Development International. He had Tropical
Amusements. So even today, I’m not sure which entity bought the Arawak Inn.
As explained in
footnote 5 above, all three of the terms used by Mr. Ploughman in this answer
actually referred to the corporation that I have designated as TDL in these
Reasons. I am not concerned that Mr. Ploughman, in giving this answer, used
three different names to refer to TDL, because all three of those names, and
others, were used by Mr. Goudie, Mr. St.-Denis and Mr. Ploughman in 2001 and
2002 to refer to TDL. What concerns me is his assertion that he was not sure which
entity bought the Arawak Inn, as that assertion appeared to be an evasive
statement.
[32]
The evasiveness becomes apparent when one reads a
letter that Mr. Ploughman sent to the Class A Beneficiaries on April 5,
2002, in which he referred to “Gordon Kerr, legal
counsel to Tropical Development Ltd (owner of the Arawak Inn and Beach
Resort).”
Similarly, a report prepared by Mr. Ploughman on February 20, 2004
suggests that he was aware then that TDL was the purchaser of the Arawak
Inn.
The evasiveness is also evident when one reviews certain Minutes of
Settlement that Mr. Ploughman entered into with the Crown in 2011, to
settle a tax dispute in respect of the business carried
on by Iva Dianne Customs Design, which, as indicated above,
was a partnership formed by Mr. Ploughman and his wife. In those Minutes, which
Mr. Ploughman, as the appellant in that appeal, signed on November 14, 2011,
the following statement was made:
The Appellant’s
[i.e., Mr. Ploughman’s] business, Iva Dianne Customs Design (“Iva Dianne”), of which the Appellant is a 50%
partner, invoiced Tropical Development Ltd. (“Tropical)
in 2001 and 2002 in the amounts of $168,906 and $145,937 respectively….
On or about November
17, 2011, Mr. Ploughman sent to the CRA a Request for Taxpayer Relief, with an
accompanying letter, containing the following statement:
During taxation
year 2001 Iva Dianne Design undertook a contract of work to renovate a small
Hotel and Bar complex, located on Grand Turk Island – one of the Turks and
Caicos Islands – owned by a TCI-registered company Tropical Development Ltd
(Tropical).
Thus, contrary to
what Mr. Ploughman said during his cross-examination (to the effect that, in
2001, as well as in 2016, he did not know which entity had purchased the Arawak
Inn), the above documents indicate that in 2002, 2004 and 2011 he seemed quite
certain that it was TDL that had purchased the Arawak Inn.
[33]
Apart from the evasiveness described in the
preceding paragraph, I have other serious concerns about Mr. Ploughman’s
credibility, for several reasons, including the following inconsistencies or
contradictions in his evidence:
a) During his cross-examination, Mr. Ploughman testified that, when the
renovations to the Arawak Inn began, he was not aware that the objective was to
convert that building into a timeshare facility. He also testified that it was
his recollection that his wife’s job was to increase the value of the Arawak
Inn as a one-star (or lower) hotel to a three-star hotel. However, on February 20,
2004, Mr. Ploughman wrote a report on the Development Project and the Donation
Program, in which he stated:
The sole purpose
of purchasing the Arawak Inn property was to convert the property from a hotel
to a “time-share” in order to establish a “real property” that could be utilized by The
Global Trust of Canada as a Charitable Donation vehicle. Knowing that the
Arawak Inn had gone into bankruptcy being operated as a hotel property, there
was never any intention to operate the Arawak Inn as a hotel and repeat that
scenario.
[Italics in original.]
b) During his testimony, Mr. Ploughman stated that he was not involved
in the creation or incorporation of SIA, and that he only became involved with
SIA in 2004 when it was necessary to sign an annual return, which he did as the secretary
of SIA. In that same capacity, he signed the 2002 and 2003 corporate income tax
returns of SIA, which he had prepared, which showed that he was the secretary
of SIA and which stated that he owned 50% of the issued common shares of SIA in
2002 and 2003.
In addition, the 2002 tax return implied that Mr. Ploughman was a 50% shareholder
of SIA in 2001, which was the year in which SIA was incorporated. Hence, it seems that Mr.
Ploughman was involved with SIA well before 2004.
c)
During his cross-examination, Mr. Ploughman went
so far as to state that before March 2004 he did not even know about the
existence of SIA. I find this statement difficult to accept, given that the
full name of SIA appears at least nine times in Ms. Guindon’s opinion letter of
September 19, 2001. More specifically, it appears four times in paragraph 2(l),
twice in paragraph 2(n) and three times in section 3 of that letter.
Furthermore, the Deeds of Gift by the various Donors were addressed to SIA.
Mr. Ploughman signed at least four of those Deeds of Gift as the witness
of the signature of the particular Donor.
d) In his Answer, which was filed with the Court on October 24, 2014,
Mr. Ploughman stated that, to the best of his knowledge, KGR never
purported to act as the trustee of the Global Trust. That statement is
contradicted by several documents, including:
i.
the Beneficiary Applications, which were
addressed to KGR, as the trustee of the Global Trust, and at least two of which
showed Mr. Ploughman as the canvasser for the particular applicant;
ii.
the Certificates issued by KGR, as the trustee
of the Global Trust, to the various participants in the Donation Program
(although Mr. Ploughman has stated that those Certificates were issued
without his knowledge);
iii.
a document entitled Official Certification of
Fair Market Value of Charitable Donation, which was dated December 31, 2001, was
issued on the letterhead of the Global Trust, and showed KGR as the trustee of
that trust;
iv.
the letter to the Donors that was dated March
18, 2002, the first paragraph of which began with the phrase “As Trustee of the Global Trust of Canada and as the
President of the charity involved,” which was written on KGR letterhead,
and which was signed by Ms. Guindon, in her capacity as the president of
Les Guides, and by Mr. Ploughman, who, below his signature, was described as “President KGR Tax Services Ltd Trustee of Global Trust of
Canada;”
and
v.
the letter dated April 5, 2002, which was
written on KGR letterhead, which was addressed to the beneficiaries of the
Global Trust, which was signed by Mr. Ploughman and which, below his signature
and name, stated “for the Trustees [sic] of Global
Trust of Canada.”
While Mr. Ploughman has
stated that the Certificates described in clause ii above were prepared by
someone other than himself, and while the authorship of the documents described
in clauses i and iii above is unclear, the two letters described in clauses iv
and v above were signed by Mr. Ploughman, in his capacity as the president
of KGR, which was purporting to act as the trustee of the Global Trust.
e) During his evidence in chief, Mr. Ploughman stated that Mr. Goudie “very generously took advantage of information that I had
available in my office, which was the Athletic Trust Program.” This assertion had, in
essence, also been made on September 20, 2006, when Mr. Ploughman’s then
solicitor sent a letter to the CRA, in response to the CRA’s proposal letter of
June 12, 2006, which indicated that the CRA proposed to assess Mr. Ploughman
under section 163.2 of the ITA. Mr. Ploughman confirmed that he
gave to his solicitor the information on which the solicitor’s letter was
based.
During his cross-examination, Mr. Ploughman acknowledged that he saw and
approved the letter before it was sent to the CRA. On page 7 of that letter,
Mr. Ploughman’s solicitor stated:
Mr. Ploughman and
his company, as indicated, had acted as canvassers in the Ottawa area for the
2000 product [i.e., the Athletic Trust donation program]. When those activities
were completed, some explanatory and promotional materials from that campaign
were left over, and were available for review in Ploughman’s Ottawa office.
They were seen there by Goudie, who obtained a complete set of them some time
during the summer of 2001.
During his
cross-examination, Mr. Ploughman initially stated that “the
only place that he [Mr. Goudie] could have gotten them [the Athletic Trust
materials] was from my office.”
As the cross-examination continued, Mr. Ploughman acknowledged that he had
distributed at least 50 to 100 copies of the Athletic Trust materials to
individuals whom he had canvassed in 2000, such that Mr. Goudie could have
obtained those materials from some place other than Mr. Ploughman’s office. He
further acknowledged that he was not sure that Mr. Goudie saw those materials in
his (Mr. Ploughman’s) office. He also conceded that he had told his
solicitor something that he was not able to affirm as being the truth. Thus, Mr. Ploughman
acknowledged that he was not convinced of the veracity of all of the
information that he gave to his solicitor for inclusion in the letter of
September 20, 2006.
f) In the letter of September 20, 2006, from Mr. Ploughman’s solicitor
to the CRA, the following statement appears:
It is important
to understand, as well, that the compensation arrangements between Goudie and
Ploughman did not involve any direct monetary compensation to the latter for
his marketing efforts, whether to investors generally or to charitable trust
investors in particular.
However, on February 17,
2002, Mr. Ploughman had sent a fax to Mr. Goudie, which began with the
statement, “We have a very serious financial situation
that only you can fix.” Mr. Ploughman went on to explain that he and his colleagues
had raised US$394,500 in cash from the Donation Program, as well as arranging
for some of the Founding Members to convert their promissory notes into
charitable donations. Mr. Ploughman then stated, “The problem is … we have
not been paid the $75,990 USD commissions owed and it must be done
immediately!” [Boldface emphasis and ellipses in original.] Thus, contrary to
what Mr. Ploughman instructed his solicitor to say in the letter of
September 20, 2006, it seems that there was an arrangement, at least in Mr.
Ploughman’s mind, for the payment of direct monetary compensation for his
marketing efforts in respect of the Donation Program.
For the reasons
set out above, particularly the inconsistencies or contradictions between Mr. Ploughman’s
testimony and various documents,
I have found that Mr. Ploughman was not a credible witness. I am not
certain whether the above inconsistencies or contradictions arose from a desire
to mislead or from a faulty memory, but, either way, Mr. Ploughman’s testimony
is unreliable.
[34]
Given my concerns about the credibility and
reliability of the three main witnesses, I have endeavoured to base my decision
on the available documentary evidence, much of which was created
contemporaneously with, or shortly after, the events in question.
V. ANALYSIS
A. Statutory Provisions
[35]
Section 163.2 of the ITA was announced in
conjunction with the federal budget of 1999 and subsequently added to the ITA,
with effect for statements made after June 29, 2000. The Supreme Court of
Canada has held that the section imposes an administrative penalty, and not a
criminal fine.
In this Appeal, Mr. Ploughman did not argue that section 163.2 of the ITA
was penal in nature or that he was entitled to the procedural safeguards in
section 11 of the Canadian Charter of Rights and Freedoms. Rather, he
argued that he did not participate in the creation, planning or preparation of
the Donation Program and that he had no involvement in the creation, signing or
distribution of the official receipts issued by Les Guides.
[36]
The Crown assessed Mr. Ploughman on the basis
that subsections 163.2(2) and (4) were both applicable. Those subsections read
as follows:
(2) Every
person who makes or furnishes, participates in the making of or causes another
person to make or furnish a statement that the person knows, or would
reasonably be expected to know but for circumstances amounting to culpable
conduct, is a false statement that could be used by another person (in
subsections (6) and (15) referred to as the “other person”) for a purpose of
this Act is liable to a penalty in respect of the false statement.
(4) Every
person who makes, or participates in, assents to or acquiesces in the making
of, a statement to, or by or on behalf of, another person (in this subsection,
subsections (5) and (6), paragraph (12)(c) and subsection (15) referred to as
the “other person”) that the person knows, or would reasonably be expected to
know but for circumstances amounting to culpable conduct, is a false statement
that could be used by or on behalf of the other person for a purpose of this
Act is liable to a penalty in respect of the false statement.
B. Review of Documents
[37]
As indicated above, I have endeavoured to base
my decision on the documentation that was prepared, primarily in 2001 and 2002,
in respect of the Donation Program. The documents that indicate that Mr.
Ploughman may have had a connection to the Donation Program, and my comments (which
are italicized) in respect of those documents, are summarized below.
a) In a memo dated August 15, 2001, on TDL letterhead, sent by Mr.
St.-Denis to the Founding Members, Mr. St.-Denis
indicated that:
(i) at
7:30 p.m. on August 8, 2001, Mr. Goudie and Mr. Ploughman attended a dinner
meeting on Grand Turk Island, during which Gordon Kerr, TDL’s lawyer in TCI,
introduced Mr. Goudie and Mr. Ploughman to a local contractor who could resolve
the problem of shifting sand in the waters off the Arawak Inn, and
ii) at
9:00 a.m. on August 9, 2001, on Grand Turk Island, Mr. Goudie and
Mr. Ploughman “met with the lawyers to sign the
final documents for the purchase of the Arawak Inn” and to change “the name from Tropical Amusement Inc to Tropical Development
International.”
Comment: During his cross-examination, Mr. Ploughman stated that he
attended the dinner meeting on August 8, 2001, as well as a question and answer
session at 2:30 p.m. on the same day. However, he was adamant that he did not
attend the meeting with the lawyers on August 9, 2001.
As Mr. St.-Denis’ memo
is hearsay and as its author was not called as a witness, I have not given any
weight to it.
b) The Annual Return (Form 22) filed by SIA
with Industry Canada for 2002 and 2003 shows that Mr. Ploughman was the
secretary of that corporation.
Comment: As indicated
above, when discussing Mr. Ploughman’s credibility, it is my view that Mr.
Ploughman became involved with SIA in 2001 or 2002, and that his involvement
with SIA was greater than he acknowledged during his testimony.
c) Two Beneficiary Applications, dated December 8 and 14, 2001,
respectively, show that Mr. Ploughman was the canvasser for two individuals who
applied to be considered as Class A Beneficiaries
of the Global Trust. The Applications were addressed to KGR, which was
described as the trustee.
Comment: While the two
Applications make it clear that KGR was intended to be the trustee of the Global
Trust, it is not certain that Mr. Ploughman actually saw those documents in
December 2001. Although his name appears on the documents, it was hand-printed,
rather than signed. Furthermore, the handwriting used to print his name on each
of the two documents appears to be different. Hence, it is possible that other
persons printed Mr. Ploughman’s name on those documents.
d) Two Promissory Notes, each showing a due date of December 14, 2001,
but dated by the particular makers as of December 13 and 14, 2001 respectively,
made by the two individuals referred to in the preceding subparagraph, and
delivered to TDL in respect of the encumbrance attaching to certain vacation ownership
weeks, were signed at the bottom, on December 13 and 14, 2001 respectively, by
Mr. Ploughman, who was described as an Authorized Canvasser.
Comment: Those two
documents are consistent with Mr. Ploughman’s assertion that his only
connection in 2001 to the Donation Program was as a canvasser.
e) Four Deeds of Gift, made by four individuals (including one of the
individuals referred to in subparagraphs c) and d) above), and made on various
days in December 2001, were witnessed by Mr. Ploughman. Each Deed was addressed
to SIA and showed the name and address of the Global Trust.
Comment: Although 140
individuals participated as donors in the Donation Program, only 11 of the
Deeds of Gift were entered into evidence. Those 11 Deeds designated Les Guides
as the charity to receive the gift of vacation ownership weeks. It is my
understanding that some of the other Deeds showed 4-H as the designated
charity. As Mr. Ploughman signed at least four of the Deeds as a witness of the
particular Donor’s signature, it appears that Mr. Ploughman likely knew
that SIA (of which he was a 50% shareholder and the secretary) was involved in
the Donation Program.
f) A letter dated December 4, 2001, sent by Lewis Martin, president of DSI, to various unnamed clients, refers to
Mr. Ploughman, Mr. Benson and Mr. St.-Denis, who had been
representatives of DSI and who had previously sent their own letter to the same
clients. The DSI letter contained the following statement:
Much to our
surprise, we recently discovered that over the past several months, the three
individuals [i.e., Mr. Ploughman, Mr. Benson and Mr. St.-Denis] had been
working on another timeshare programme, located in the Turks and Caicos
Islands, without informing head office.
Comment: As this
letter is hearsay and as its author, Mr. Martin, was not called as a
witness, I have not given any weight to it.
g) The Certificates issued by KGR, as the trustee of the Global Trust,
to various individuals on December 29, 2001, show that those individuals were Class
A Beneficiaries of the Global Trust and were entitled to receive a capital
distribution of biennial vacation ownership weeks at the Arawak Inn, which
was described as a division of Hawkes Nest.
Comment: Those
Certificates indicate that KGR was the trustee of the Global Trust. However,
they were not signed by anyone, including Mr. Ploughman, and there is nothing
to suggest that, in December 2001, Mr. Ploughman was aware that the
Certificates had been issued.
h) On February 17, 2002, Mr. Ploughman faxed a memo to Mr. Goudie, in
which Mr. Ploughman stated that, since the middle of November 2001, Mr.
St.-Denis, Mr. Benson, Suresh Kendalwal and he (i.e., Mr. Ploughman) had
raised US$394,500 in cash from the Donation Program, which had entitled those
four individuals collectively to US$75,990 in commissions, which TDL had not
yet paid and which Mr. Ploughman was requesting. Mr. Ploughman then
went on to discuss the money that TDL owed to the charities, as follows:
As well, the
Charities involved (Girl Guides and 4-H) have entered into this program so that
they would receive $500 Cdn (CASH) UP FRONT since they used their Charitable
Donation status to allow us to pursue this program. We completed
361 Charitable Donation transactions which means that the Charities are owed a
total of $180,500 Cdn. That must be done as soon as possible.
In good faith, I
got all of these people involved in this program….
Unless you get
this matter settled immediately, my personal credibility with all of
these people will be lost forever.
[The boldface emphasis was in the original. The underlined italicized
emphasis has been added by me.]
Comment: While it is
not clear, it seems that the phrase “all of these
people”, which was used twice in the above memo, may have been intended
to refer not only to the other three canvassers but also to the two charities.
If so, this suggests that Mr. Ploughman may have been instrumental in persuading
Les Guides and 4-H to participate in the Donation Program. As well, Mr.
Ploughman’s statement in the above memo to the effect that the charities used
their status “to allow us to pursue this program”
implies that Mr. Ploughman was involved in the pursuit of the Donation Program.
i)
In early March 2002, Mr. Ploughman wrote an
undated letter to Mr. Kerr (who subsequently acknowledged that the letter
had been faxed to him on March 4, 2002). In that letter, Mr. Ploughman
stated:
You will recall,
when you and I last spoke in your office in late fall of 2001, that I
briefed you on the Charitable Donation program that was being offered
to Canadian taxpayers based on the Arawak Inn being legally offered as a “Vacation Ownership” (ie Time Share) property. There
were several crucial issues involved in this program, all of which Lee Goudie
assured me were being dealt with through your offices. [Underlined italicized emphasis
added.]
Mr. Ploughman went on to
discuss those crucial issues, the third of which was the settlement of the
Global Trust, which, as understood by Mr. Ploughman, was created by Mr.
Goudie and settled by Mr. Kerr. Mr. Ploughman then stated:
The total amount
of the Charitable Donation receipts issued, which will be claimed by Canadian
taxpayers in filing their 2001 tax returns, is $2,541,000 USD. If these
taxpayer claims prove to be fraudulent in any manner, Canada Customs and
Revenue Agency (CCRA) will pursue all legal means at their disposal to recover
the assets and penalize those involved. Obviously, Lee Goudie, as the
creator of the Global Trust of Canada will be first in line but the named “settlor” may not be far behind.
Comment: The fact that
Mr. Ploughman, in his letter to Mr. Kerr, stated “I
briefed you” suggests that he (Mr. Ploughman) was involved in the
Donation Program. Mr. Ploughman’s statement to Mr. Kerr, about the Canada
Customs and Revenue Agency (the “CCRA”) (as it
was then known) pursuing taxpayers if their claims to charitable donation tax
credits were to prove to be fraudulent, indicates that Mr. Ploughman was aware
that, in structuring the Donation Program, the stakes were high.
j) On March 14, 2002, Mr. Kerr replied to the letter that had been
faxed to him by Mr. Ploughman on March 4. Mr. Kerr stated that he had discussed
Mr. Ploughman’s letter with Mr. Goudie and that his reply was based on those
discussions. Mr. Kerr’s reply included the following statements:
3. As we understand the position[,] your nominee was issued
a share in Tropical Development Limited in consideration of your ability to
prepare, organise and promote a charitable donation programme. We understand
that you have become party to litigation in Canada as a result of your alleged
unauthorised use of a structure that was originally prepared by your former
employer. It therefore appears that you are unable to deliver the programme
which, as indicated, was the consideration for the share issued to your nominee
by the company. In that regard you have failed to provide the consideration and
accordingly the share should be surrendered to the company forthwith….
5. You will also be aware that there is no document in
existence which has been signed by the writer or any other party as settlor of
any trust connected to Tropical Development. The lack of substantive documentation
was brought to your attention (as you admit) by the writer in late 2001. At
that meeting you explained for the first time the proposed trust structure and
how it work[s]. The writer cautioned you that there was nothing in existence to
be sold to the prospective participants in the scheme because strata title to
the property had not been issued and accordingly no time share units existed.
Comment: As Mr. Kerr’s
letter of March 14, 2002 is hearsay and as Mr. Kerr was not called as a
witness, I have not put any weight on paragraph 3 of that letter. However, I
have considered the statements in paragraph 5 of Mr. Kerr’s letter, as they are
corroborated by Mr. Ploughman in the document discussed in subparagraph k)
immediately below.
k) On March 18, 2002, using KGR letterhead, Mr. Ploughman (in his
capacity as the president of KGR, which was described as the trustee of the
Global Trust) and Ms. Guindon (in her capacity as the president of Les Guides)
sent a letter, which they both signed and which was marked “***URGENT***”, to all Donors in the Donation
Program. Among other things, the letter stated:
As Trustee of the
Global Trust of Canada and as the President of the charity involved, it
is our responsibility to ensure that all assets acquired by the Trust are properly
structured prior to distribution to beneficiaries of the Trust.
This past
weekend, it has been brought to our attention by legal counsel in the Turks and
Caicos Islands that the legal “deeded” title has
not yet been finalized for the vacation-ownership units at the Arawak Inn and
Beach Resort on Grand Turk. This is the property that was utilized by the Trust
as the basis of the Charitable Donation program.
We, therefore,
recommend that you do not submit, at this time, the charitable donation receipt
issued by “Les Guides Franco-Canadiennes (District
d’Ottawa)”. It is very likely, at this point in time, that CCRA
(formerly Revenue Canada) would disallow such a claim.
We are working
vigorously with all of the parties involved to resolve the outstanding “title” issue. We anticipate having the issue resolved
prior to April 30th, the final day for filing 2001 Tax Returns.
If you have
already filed your 2001 Tax Return, we recommend that you submit a
T1-Adjustment form (copy attached) to eliminate the charitable donation receipt
issued by “Les Guides Franco-Canadiennes (District
d’Ottawa)”….
On the other
hand, if you have not yet submitted your 2001 Tax Return, we recommend that you
delay filing until the “title” issue is
resolved.
[Boldface emphasis and italics in original.]
Comment: This letter
clearly indicates that in March 2002 Mr. Ploughman was aware that KGR was
purportedly the trustee of the Global Trust and that he was aware that the Trustee
had certain responsibilities. The letter also confirms that he was aware that
not all of the transactions on which the Donation Program was based had yet
been implemented. In addition, he was aware that potential adverse tax
consequences could arise if the official receipts issued by Les Guides were to
be used at that time.
The fourth and sixth
paragraphs of the above letter suggest that the title difficulties could be
resolved between March 18, 2002 and April 30, 2002, in such a manner as to
enable the Donors to submit their official receipts with their 2001 income tax
returns. The letter did not provide any explanation as to how a “fix” implemented in March or April 2002 could
retroactively cure a purported gift that was to have been made in 2001.
l) On March 20, 2002, Mr. Benson received an email from a client, expressing
a concern about his gift under the Donation Program and his investment in the
Development Project. The client requested a refund of his money. Mr. Benson
faxed a copy of that email to Mr. Goudie,
who replied to Mr. Benson in a letter dated March 20, 2002, on TDL letterhead.
Mr. Goudie’s reply included the following statement:
I apologize if
any misunderstanding has occurred but in my defence Mr. Ploughman when [sic]
ahead and did this offer without Tropical Developments [sic]
authorization. I was aware of the issues discuss [sic] in you [sic]
fax and Mr. Ploughman assured me that it would not be a problem if the issues
where [sic] dealt with In [sic] the year 2002. Mr. Ploughman is
the Tax expert not me.
Comment: The
statement quoted above is consistent with the testimony given by Mr. Goudie, to
the effect that the tax aspects of the Donation Program were dealt with by Mr.
Ploughman.
When Mr. Ploughman cross-examined Mr. Goudie, Mr. Goudie adhered to his
prior testimony. As stated above, during Mr. Ploughman’s testimony, he denied
having any involvement whatsoever in developing the Donation Program.
m) In a
letter dated April 5, 2002, on KGR letterhead, to the beneficiaries of the
Global Trust (i.e., the Donors), Mr. Ploughman advised that he had met with Mr.
Kerr on March 26, 2002, and had received a status update. The letter described
the steps that had been completed and the steps that were in progress but not
yet completed (several of those steps required approvals by TCI government
officials). Mr. Ploughman then stated:
Mr. Kerr
categorically assured the undersigned that he fully understood the urgency of
the situation and that he would, personally, ensure that all of the steps above
will be completed prior to 30 April 2002.
We can now
state that the issues are in the process of being resolved and we are
comfortable enough with the progress made that we can recommend that you go
ahead and submit the Charitable Donation receipt to CCRA. [Italicized emphasis in original.]
Comment: In my view,
the recommendation set out in this letter is a significant factor in deciding
this Appeal. As Mr. Ploughman was aware that the completion of some of the
outstanding steps required approvals from government officials over which Mr.
Kerr had no control, I question whether Mr. Ploughman was on solid ground in
recommending to the Donors that they submit their official receipts to the CCRA
(as it then was). In fact, as each of those receipts contained a false
statement, by making this recommendation, it seems to me that Mr. Ploughman was
participating in the making of, or causing the Donors to make, or assenting to or
acquiescing in the making of, the false statement. The question then becomes
one of determining whether Mr. Ploughman knew, or would reasonably have been expected
to know but for circumstances amounting to culpable conduct, that each of the
official receipts contained the false statement.
n) On July 30, 2002, Mr. Ploughman sent a letter, on the stationery of Glenn
F. Ploughman Consulting Ltd. (“GFP Consulting”),
to Dennis Drummond of Global Marketing Ltd. in Kingston, Massachusetts, to
request an appraisal of the timeshare units. The following statements (among
others) were contained in that letter:
You may recall
that, during the fall of last year, a “Charitable
Donation” program was launched here in Canada whereby Canadian taxpayers
were able to take advantage of a tax credit by receiving a “gift” of a timeshare unit from a Canadian Trust and,
subsequently, donating the “gift” to a charity.
This program was
completed by December 31st, 2001 and about 400 Canadian taxpayers
took advantage of the tax breaks. Now, the Canadian Revenue Department has
requested the submission of an “Appraisal” by an
independent agency in order to substantiate the value of the timeshare weeks.
The submission has to be in the hands of the Revenue Dept by next Monday. I know
that we had spoken about this some time ago and, at that time, you had
no problem in providing such an “Appraisal”.
Dennis, I have taken the liberty of preparing a letter of “Appraisal”
for your signature. Would you be kind enough to sign it and fax it directly
back to me….
In the meantime, please call so that I can update you on progress
(or lack thereof?) of the development. Lee is meeting today with the Chief
Minister and other members of cabinet to try to get full approval of the
project, including registration of the Arawak Inn as a timeshare. [Underlined italicized emphasis added.]
Comment: It is curious that Mr. Ploughman took steps to obtain an
appraisal from Mr. Drummond. Mr. Ploughman’s involvement in obtaining the
appraisal is not consistent with his assertion that he had nothing to do in the
planning or preparation of the Program.
o) On August 12, 2002,
Mr. Ploughman, using the letterhead of GFP Consulting, sent a letter to Mr.
Goudie, who was in TCI, where he had spoken by telephone with the Attorney
General of TCI. The following are excerpts from that letter:
It certainly
appears that you are having your problems with government officials trying to
get this resolved. As you know, it is no less frustrating on our end trying to
explain, as best we can, that governments, in general, are slow. Then you throw
in the fact that we are dealing with a Caribbean country and the speed gets
slower still….
Now, let me describe
what I see as the steps we must take to move ahead (and commence
raising additional cash):
1. The
Arawak Inn must be approved, and registered, by the TCI government as a “timeshare”;
2. The
TCI government must approve, and register, the Arawak Inn as a “deeded” property…. [O]nce the 2001 CCRA requirements are
satisfied, and we have additional units “deeded”, we can immediately
commence a new Charitable Donation program for 2002 to raise new cash. There
is definitely lots of interest for 2002 if we can ever get 2001 cleaned up;
3. All of the questions raised by CCRA must be fully
answered and submitted within the deadlines imposed;
4. Once approved and registered as a “timeshare”, the Arawak
Inn must be affiliated with a timeshare exchange company…. This will allow
Dennis Drummond at Global Marketing Ltd. to commence immediate sales of
timeshare units and start raising cash….
5. The corporate structure of Tropical Development Ltd. must
be revised to reflect the proper allocation of interests….
6. Additional Banking signatories, as per our verbal
agreement, have to [be] finalized;
7. As additional cash is raised, a specific amount of each
raise has to be allocated to expenses that have already been incurred but have
not yet been paid….
These are very basic steps that have to be taken before we
can proceed further. [Underlined italicized emphasis added.]
Comment: The language and tone of the above letter suggest that
Mr. Ploughman was more than simply a canvasser in respect of the Donation Program,
and imply that he had some involvement in its planning and preparation. It is
particularly noteworthy that, even though many of the issues in respect of the
2001 Donation Program were unresolved, Mr. Ploughman was already looking forward
to a new charitable donation program for 2002. This too implies that Mr. Ploughman’s
involvement in 2001 was greater than he has acknowledged.
During his cross-examination, when Mr. Ploughman was asked about the
proposal in the letter of August 12, 2002, to resolve the issues surrounding
the 2001 Donation Program and then commence a new charitable donation program
for 2002, he stated, “It was a concerted effort between myself and Lee Goudie. If 2001
would work, there’s no reason the same structure couldn’t be used in future
years.”
p) On August 20, 2002, Mr. Ploughman sent a letter to Mr. Kerr, in
which Mr. Ploughman referenced the meeting that the two of them had had in Mr.
Kerr’s office on March 26, 2002, at which time they had discussed the things
that needed to be done to finalize the implementation of the Donation Program.
Mr. Ploughman then stated:
During our
conversation we were categorically assured that all of these issues would be
completed prior to April 30th, 2002 – the deadline for Canadian
Taxpayers to file their annual tax returns. Based on these assurances, Canadian
taxpayers who participated in the 2001 Global Trust of Canada Charitable
Donation program submitted the applicable Charitable Donation receipt together
with their 2001 tax returns….
Is the TCI
government fully aware of the intricacies of the Charitable Donation program
and the fact that this is one of the ways that Tropical Development Ltd planned
to raise capital to fund the Hawkes Nest Plantation project? If the Charitable
Donation program fails, and it will if CCRA cannot be satisfied in the given
timeframe, financing for the entire Hawke’s [sic] Nest project will,
quite likely, be jeopardized.
I have undertaken
to write this letter on behalf of the 135 Canadian taxpayers who participated
in the 2001 Global Trust of Canada Charitable Donation program and who
face a serious reassessment of their tax returns, with inherent financial
penalties and fines, if they cannot respond appropriately to CCRA.
Comment: The last
paragraph quoted above is consistent with Mr. Ploughman’s assertion during
his testimony that his only involvement with the Donation Program, other than
as a canvasser, occurred in 2002, when he learned that not all of the
transactions relating to the Donation Program had been implemented and when he
began to take steps to salvage the situation. However, it is also possible to
read that paragraph as suggesting that Mr. Ploughman’s involvement with the
Donation Program was greater than that of a canvasser. Furthermore, the second
paragraph quoted above shows the connection between the Donation Program and
the Development Project, with which Mr. Ploughman has admitted to being
involved. It is difficult to understand how Mr. Ploughman could have been
involved with the Development Project, without being aware in 2001 of the Donation
Program other than as a canvasser.
q) On August 21, 2002, the day after Mr. Ploughman had sent the above
letter, Mr. Kerr faxed a letter to Mr. Ploughman. In his letter, Mr. Kerr
explained the unanticipated difficulties and delays that he had encountered in
dealing with various governmental officials in TCI. He then stated:
Whilst I recall
that I told you that I would make every effort to have these matters attended
to by April 30, 2002, I certainly did not give a categorical assurance or
grantee [sic] of same. I have dealt for too long with government
departments to risk my reputation on their ability. I carried out my obligation
to you which was to make every effort to have these items secured by April 30,
2002. In the event I was frustrated by matters which were entirely outside my
control. I trust you understand and accept this position.
I now wish to
turn to a point in which I [have a] vested personal interest in [sic].
The extract of the opinion which you provided from Brennan & Guindon
indicates that the trust had been settled in Ontario by myself. I wish to make
it absolutely clear that I have not settled any trust nor [have] I agreed at
any time to act as settlor with respect to this matter. I confirm that I was
asked by Lee Goudie whether I would act as settlor but at no time did I ever
consent to this because I was unaware of the structure which would be put
in place at the time he requested that I do so. Now that I am aware of the
structure and of the manner in which this has been handled to date you will
appreciate that I have grave reservations as to whether I would consent to act
as settlor of the trust….
I must make it
clear that neither myself nor this firm accepts any responsibility for the
charitable donation programme nor for any losses or difficulties with which any
participant or advisor with respect to that programme may now face. At our
meeting in March of this year (when the programme was first explained to me) I
was at pains to point out to you that the whole implementation of this
programme appeared to be premature. Had any of the details of the programme
been discussed with me on a previous occasion I would have rendered the same
advice.
Comment: If Mr.
Kerr’s letter can be taken at face value, it would appear that in March 2002
(before Mr. Ploughman recommended that the Donors submit their official
receipts to the CCRA), Mr. Ploughman should have been aware that there
were difficulties with the Donation Program. However, as the letter is hearsay,
as it is clear from the language of the letter that Mr. Kerr was trying to
protect his own interests, and as he was not called as a witness, I have
not placed any weight on this letter.
As I am not putting
any weight on Mr. Kerr’s letter, and as I have concerns about Mr. Ploughman’s
credibility, I make no finding as to whether Mr. Kerr did, or did not, give a
categorical assurance to Mr. Ploughman that he (Mr. Kerr) would personally
ensure that all of the title-perfection steps would be completed before April
30, 2002.
r) On August 22, 2002, Mr. St.-Denis and Mr. Ploughman sent a
memorandum to the Founding Members, concerning
the Development Project. An excerpt from this memorandum reads as follows:
During late
summer of 2001, the principals of Tropical Development Ltd. devised a strategy
whereby select Canadian taxpayers could become beneficiaries of a trust and
receive a “gift” of a Time-Share unit which they, in
turn could donate to a Canadian charity. … This “Charitable Donation” program
required a “real property”, such as an existing Time-Share property or a hotel
that could be converted to a Time-Share property. The Arawak Inn, immediately
adjacent to the project site on Grand Turk, had been in receivership and was
purchased by Tropical Development Ltd. for the purpose of providing an asset
that could be utilized for the Charitable Donation program. Major renovations
were completed during the fall of 2001 and the property was brought up to a
level acceptable to the Time-Share industry. Subsequently, a Charitable
Donation program was established for tax year 2001.
… Once all of the government approvals are in place, another
Charitable Donation program for tax year 2002 can be implemented and the
professional Time-Share marketing company that has been under contract since August
2001 can commence selling “Time-Share” units which would produce cash flow for
repayment of the original Promissory Notes and for moving the overall project
forward.
It appears that the only way to secure full TCI government approval
for the various components of the project is for a representative of the
original Promissory Note holders (“Founding Members”) and the taxpayers who
participated in the 2001 Charitable Donation program to arrange a meeting with
TCI government officials….
In order to officially
represent the group of founding members, it is suggested that one individual be
authorized to intercede with TCI government. Glenn F. Ploughman has volunteered
to act on behalf of the group. Attached is a Letter Of Authorization appointing
Glenn F. Ploughman to act on your behalf in an attempt to resolve the
outstanding issues. If you are in agreement with this process, please sign and
return the attached Letter of Authorization immediately. [Underlining in original.]
Comment: The use of
the phrase “principals of Tropical Development Ltd.”
(to describe those who devised the strategy on which the Donation Program was
based) is curious, as it is not clear whether the word “principals”
referred to shareholders, directors, officers, employees or someone else.
Although Mr. Ploughman was adamant that he was not at any time a
shareholder of TDL, there are suggestions in the evidence that at one time he
may have held 50% of the issued shares of TDL and that he subsequently
transferred all but one of those shares to Mr. Goudie. As it is unclear whether
Mr. Ploughman was a shareholder of TDL, or whether Mr. Goudie was the only
person who was ever a shareholder of TDL, and as the word “principals” might possibly refer to persons other
than shareholders, I have not drawn any conclusions from the use of that word
in the above memorandum.
As indicated in the above
excerpt, Mr. St.-Denis and Mr. Ploughman stated that, “Once all of the government approvals are in place, another
Charitable Donation program for tax year 2002 can be implemented….” This
statement, to me, suggests that both authors of the memorandum, i.e., Mr.
St.-Denis and Mr. Ploughman, may have been involved in the Donation Program
in 2001 and were looking forward to another similar program in 2002. In addition,
the fact that Mr. Ploughman volunteered to represent the investors and the
Donors in a meeting with TCI government officials suggests that
Mr. Ploughman’s connection to the Donation Program was greater than he has
acknowledged.
s) On September 1, 2002, Mr. Goudie sent a memo to “All Founding Members, Promissory Note Holders, and
Participants,” in which he provided an update on the status of the Development
Project, including the various fundraising activities, such as the Donation Program.
In that memorandum, Mr. Goudie stated:
I know that many
of you have serious concerns about the charitable donations program,
particularly those of you who have received notices from CCRA.
You should be
aware that, since Tropical Development Ltd is not directly responsible for the
implementation of this program, but is simply the vehicle used to generate the
charitable donations, any and all questions you may have regarding your
participation in this program should be directed to Glenn Ploughman and/or
Richard St. Denis.
Comment: As indicated
above, during their respective testimonies, Mr. Goudie maintained his position
that Mr. Ploughman had been involved in planning the Donation Program, while
Mr. Ploughman vehemently denied such an assertion.
t) On September 2, 2002, an individual, who appears to have been one of
the Founding Members, sent an email to Mr. Ploughman, raising various
concerns and complaints, one of which appears to have been Mr. Ploughman’s
request for a Letter of Authorization to represent the Founding Members. On
September 9, 2002, Mr. Ploughman sent a memo to that individual. In Mr.
Ploughman’s memo, he stated (among other things) the following:
Let me explain to
you some of the details of the Charitable Donation program and who did what.
During the fall of 2000 a similar Charitable Donation program was launched by
an organization from Toronto using the Athletic Trust of Canada as a vehicle to
raise money for Charities. The program was quite successful and raised a
substantial amount of cash. Lee [Goudie] was made aware of the concept of the
Athletic Trust of Canada and discussions were held as to whether or not this
concept could benefit the Hawkes Nest Plantation development. The answer
appeared to be “Yes”, providing certain critical items
were put in place. The very first requirement was to have a “real property”
that could be transferred into a Trust and, subsequently, donated by taxpayers
to a Charity. In July 2001, a decision was made to purchase the Arawak Inn to
be used as the “real property” for the program. That was the sole purpose
to purchasing the Arawak Inn! However, before the program could be
implemented, several other items had to be put in place. A Trust had to be
established … [sic] so Lee created the Global Trust of Canada. I have
played NO PART in the creation of the Trust! Using the documentation from the
Athletic Trust of Canada program, Lee created all of the applicable
documentation for the Global Trust of Canada Charitable Donation program. In
order to establish a Trust, you need a Trustee. Since I am part of a small tax
preparation company, called KGR Tax Services Ltd., after consulting with my
partners, we agreed to act as the Trustee for Global Trust of Canada. It could
be a reasonable way for us to generate some cash flow in the form of “Trustee
Fees”. To make sure that all of the legalities that had to be completed were,
indeed, in place, a legal opinion was provided to KGR Tax Services Ltd and
received on September 23, 2001….
Let me turn to the issue of Gordon Kerr’s involvement. I did not
make the initial approach to Gordon Kerr. That was done by Lee at the same
timeframe that the Trust was being created! Once Gordon tentatively agreed to
become the “settlor” of Global Trust of Canada, I explained the details
of the concept to him and, at that time (Fall 2001), he had no
disagreement with acting as “settlor”. Why else would his name have been in the
legal opinion letter? By March 2002, I was made aware that not all of the
legalities were completed (ie strata plan not registered, Arawak Inn not
converted to Time-Share) so, since I could not get satisfactory responses
from Lee, I took a personal trip to TCI to meet with Gordon in an attempt to
determine what steps were still outstanding and when would they be completed.
Gordon provided me with assurances that the outstanding issues should be
completed by April 30th and that, all things being equal, he was
still prepared to act as “settlor” of the Trust. To date, I have not been
informed otherwise but, with all of the crap going on right now, I would
certainly understand his reluctance to go anywhere near this.
Let me be very clear on this matter. The Global Trust of Canada
Charitable Donation program was created by Tropical Development Ltd. and was
implemented by Tropical Development Ltd. and the money raised was forwarded to
Tropical Development Ltd….
My request for a “Letter of Authorization” from Founding Members was
based solely on the fact that, if progress is not made soon, someone has to
make things happen!... If you, or any other member of the Group, knows the
intimate history of this project and can speak to the details of [sic] Charitable
Donation program, I am quite prepared to recommend to the “Founding Members”
that you act as their representative. I have no ax to grind in this … [sic]
I just want the damn thing to work, and that includes the 2001 Charitable
Donation Program – which can still be rescued if all the parties will
cooperate…. [Underlined boldface emphasis in original;
underlined italicized emphasis added by me.]
Comment: Given that Mr. Ploughman has acknowledged that the sole
purpose for purchasing the Arawak Inn was to facilitate the Donation Program,
and given that he and his wife (operating as Iva Dianne Customs Design) were hired by TDL to design the renovations to, and
to refurbish, the Arawak Inn, it is difficult to believe Mr. Ploughman’s
assertion that in mid-2001 he was not aware of the Donation Program.
When Mr. Ploughman stated that Mr. Kerr had provided assurances that
the outstanding issues would be completed by April 30, 2002, and that Mr. Kerr
was still prepared to act as the settlor of the Global Trust, it would appear
that Mr. Ploughman had disregarded the statements made by Mr. Kerr in his
letter of August 21, 2002, in which he indicated that he had grave reservations
about being the settlor of the Global Trust and in which he reminded Mr.
Ploughman that in March 2002 he (Mr. Kerr) had pointed out that the
implementation of the Donation Program appeared to be premature.
Mr. Ploughman’s indication that he was willing to recommend that the
individual to whom he was writing be the authorized representative of the
Founding Members, if that individual knew the intimate history of the Development
Project and could speak to the details of the Donation Program, suggests that
Mr. Ploughman may have been implying that he himself had such knowledge of the
intimate history of the Development Project and could speak to the details of
the Donation Program.
u) On February 20, 2004, Mr. Ploughman, on behalf of KGR, wrote a
report in respect of the Development Project and the disallowance by the CCRA
of the Donation Program. The language and tone of this report suggest that its
author was involved in planning both the Development Project and the Donation
Program. The following statements were included in that report:
… The sole
purpose of purchasing the Arawak Inn property was to convert the property from
a hotel to a “time-share” in order to establish
a “real property” that could be utilized by The
Global Trust of Canada as a Charitable Donation vehicle. Knowing that the
Arawak Inn had gone into bankruptcy being operated as a hotel property, there
was never any intention to operate the Arawak Inn as a hotel and repeat that
scenario.…
Notwithstanding the fact that the Canadian legal opinion assured all
participants in the program that all matters were finalized and that The
Global Trust of Canada Charitable Donation program met all legal
requirements, in February 2002 it was discovered that the “hotel to
time-share” conversion of the Arawak Inn had not yet been completed. Without
this conversion having been completed, there was no “real property” to donate
to a Canadian Charity and, therefore, no possibility of being able to go ahead
with the Global Trust of Canada Charitable Donation program. A
representative of KGR Tax Services Ltd., acting on behalf of The Global
Trust of Canada “beneficiaries” group, made a personal trip to meet with
Gordon Kerr at his office in the Turks and Caicos Islands. During that visit
the representative was verbally assured that the conversion process was “in
hand” and would be completed prior to April 30th, 2002, the date for
filing Canadian Tax returns, and that there would not be any problem with the Global
Trust of Canada Charitable Donation program going ahead. With these
encouraging words, all of the participating Canadian taxpayers were advised to
go ahead and file the applicable Charitable Donation tax receipt with their
2001 Canadian tax returns. [Italicized name of the Global Trust in the
original.]
Comment: By speaking of the sole purpose of purchasing the Arawak
Inn and by disclaiming any intention to operate the Arawak Inn as a hotel, Mr.
Ploughman has given the impression that he had some involvement in the making
of the decisions pertaining to the Arawak Inn.
Turning to Mr. Ploughman’s summary of his meeting with Mr. Kerr,
it seems that Mr. Ploughman left that meeting with a more optimistic outlook
than that of Mr. Kerr, about the speed at which the conversion of the Arawak
Inn to a timeshare property would be completed. It is noteworthy that merely on
the strength of Mr. Kerr’s “encouraging words,” without any follow-up by Mr. Ploughman in late April 2002, he
advised the Donors to file the official receipt from Les Guides with their 2001
income tax returns.
[38]
Having reviewed
the documents referenced above, particularly those described in subparagraph
39.c) below, I am of the view that Mr. Ploughman’s involvement in respect of
the Donation Program was greater than he has acknowledged.
C. Creator or Promoter
[39]
It is the position of the Crown that Mr.
Ploughman was a creator or promoter of the Donation Program. Mr. Ploughman
vigorously denied having any such role. Although, the evidence concerning the question
of whether Mr. Ploughman was a creator or promoter of the Donation Program
is conflicting and not necessarily conclusive, I am inclined to concur with the
Crown’s position for the following reasons:
a) As explained above, I did not find Mr. Ploughman’s testimony to be
credible or reliable.
b) Mr. Ploughman was a significant shareholder and an officer of KGR
and SIA, both of which played important roles in the Donation Program.
c) Several documents written by Mr. Ploughman suggest that he was
involved in creating or promoting the Donation Program. Those documents
include:
i.
the memo dated February 17, 2002, from
Mr. Ploughman to Mr. Goudie, in which Mr. Ploughman stated that Les Guides
and 4-H “used their Charitable Donation status to allow
us to pursue this program”, also stated that “I
got all of these people [presumably referring to the other canvassers and the
charities] involved in this program” and further stated that, unless the
canvassers and the charities were paid the amounts owed to them immediately,
his “personal credibility with all of these people will
be lost forever”;
ii.
the undated
letter written by Mr. Ploughman in early March 2002 to Mr. Kerr, in which Mr.
Ploughman stated that he briefed Mr. Kerr in respect of the Donation Program in
the late fall of 2001;
iii.
the letter dated
March 20, 2002, from Mr. Goudie to Mr. Benson, in which Mr. Goudie stated, “Mr. Ploughman is the Tax expert not me”;
iv.
the letter dated
July 30, 2002, which Mr. Ploughman wrote to Dennis Drummond of Global
Marketing Ltd., in which Mr. Ploughman requested the
appraisal about which he had spoken to Mr. Drummond “some time ago,” which
seems peculiar given that Mr. Ploughman testified that Mr. Goudie was
responsible for obtaining the appraisal; it is also peculiar that Mr. Ploughman
drafted the appraisal, such that Mr. Drummond needed to do nothing more than to
sign it and return it;
v.
the letter dated
August 12 (or perhaps 15), 2002, from Mr. Ploughman to Mr. Goudie, in
which Mr. Ploughman said, “let me describe what I see as the steps we must take
to move ahead (and commence raising additional cash)”, and observed that “once
the 2001 CCRA requirements are satisfied, and we have additional units ‘deeded’,
we can immediately commence a new Charitable Donation program for 2002 to raise
new cash”; and
vi.
the memorandum
dated August 22, 2002, from Mr. St.-Denis and Mr. Ploughman to the
Founding Members, in which the authors indicated that Mr. Ploughman had
volunteered to act on behalf of the Founding Members and the Donors to
intercede with the TCI government.
d)
In discussing the
letter of August 12 (or perhaps 15), 2002, from Mr. Ploughman to Mr.
Goudie (i.e., item v above), Mr. Ploughman, during his cross-examination,
stated that the resolution of the issues pertaining to the 2001 Donation
Program and the structuring of a 2002 charitable donation program “was a concerted effort between myself and
Lee Goudie.” If Mr.
Ploughman was working in concert with Mr. Goudie to remedy the 2001
Donation Program and to plan a 2002 program, it is likely that he was similarly
involved in structuring the 2001 Donation Program.
[40]
However, if I am wrong in finding that Mr.
Ploughman was a creator or promoter of the Donation Program, my decision also
rests on Mr. Ploughman’s correspondence in March and April 2002, particularly
the letters of March 18, 2002 and April 5, 2002 that he (together with
Ms. Guindon, in the case of the letter of March 18, 2002) sent to the
Donors.
D. False Statements
[41]
Each of the official receipts filed by the 135
Donors contained a statement to the effect that the particular Donor had made an
in-kind donation, with a stated value, to Les Guides. As the timeshare
units that were purportedly the subject of those donations were never
created, and thus were not given by the Donors to Les Guides, those
statement were, for the purposes of subsections 163.2(2) and (4) of the
ITA, false statements. Mr. Ploughman did not make the false statements
contained in the official receipts filed by the 135 Donors with their 2001
income tax returns. However, the Crown has alleged that Mr. Ploughman participated
in, assented to or acquiesced in the making of those false statements, or he
caused the Donors to make those false statements. In my view, when Mr.
Ploughman sent his letter of April 5, 2002 to the Donors and, in that letter,
recommended that they submit their official receipts to the CCRA, for the
purposes of subsection 163.2(2), he participated in the making of, or
caused the Donors to make or furnish, a false statement, and, for the purposes
of subsection 163.2(4), he participated in, assented to or acquiesced in the
making of, a false statement by the Donors.
E. Culpable Conduct
[42]
The question for determination is whether
Mr. Ploughman knew, or would reasonably be expected to have known but for
circumstances amounting to culpable conduct, that the official receipts
contained a false statement. In other words, did Mr. Ploughman know, or would
he reasonably be expected to have known but for circumstances amounting to
culpable conduct, that the purported gifts which were the subject of the
official receipts had not actually been made?
[43]
Subsection 163.2(1) of the ITA defines “culpable conduct” as follows:
“culpable conduct” means conduct, whether an act or a failure to
act, that
(a) is tantamount to intentional conduct;
(b) shows an indifference as to whether this Act is complied
with; or
(c) shows a wilful, reckless or wanton disregard for
the law.
[44]
In Guindon, the Supreme Court of Canada
stated that the statutory definition of “culpable
conduct” clearly sets a high standard and evinces a clear intention that
“culpable conduct” be a more exacting standard
than simple negligence. The Supreme Court also stated that the phrase “shows an indifference as to whether this Act is complied
with” originated in the jurisprudence pertaining to the gross negligence
element of subsection 163(2) of the ITA. Referencing Venne and Sidhu, the Supreme Court noted that:
… “an indifference as to whether the law is complied with”
is more than simple carelessness or negligence; it involves “a high degree of negligence tantamount to intentional acting”
…. It is akin to burying one’s head in the sand….
… The burden is to prove on a balance
of probability such an indifference to appropriate and reasonable diligence in
a self-assessing system as belies or offends common sense.
The Supreme Court
concluded its discussion of culpable conduct by stating:
… while there has
been debate as to the scope of “culpable conduct”
…, the standard must be at least as high as gross negligence under s. 163(2) of
the ITA. The third party penalties are meant to capture serious conduct,
not ordinary negligence or simple mistakes on the part of a tax preparer or
planner.
[45]
For reasons that will be explained below, I am
of the view that Mr. Ploughman’s conduct was sufficiently serious so as to
come within paragraph (b) of the definition of “culpable
conduct” in subsection 163.2(1) of the ITA, i.e., his conduct
showed an indifference as to whether the ITA was complied with.
(1) Indifference
Concerning the Global Trust
[46]
The Global Trust was to have been an essential
component of the structure on which the Donation Program was based. Without
that trust, there was no vehicle through which the Donors could receive the
timeshare units that they purportedly donated to Les Guides. In addition, KGR,
as the trustee of the Global Trust, was to have played a significant role in
facilitating the transfers of the timeshare units. As the president of KGR,
Mr. Ploughman too would have had a key role to play in the structure.
[47]
According to paragraph 2(c) of Ms. Guindon’s
opinion letter, which was addressed to KGR, to the attention of Mr. Ploughman,
and which was reproduced in the promotional materials used by Mr. Ploughman in
canvassing for the Donation Program, the Global Trust was to be established,
pursuant to a Deed of Trust, upon the Settlor transferring $100 to the Trustee
(i.e., KGR). As Mr. Ploughman was a principal shareholder and the president of
KGR, he should have known that KGR had neither executed the Deed of Trust nor
received $100 from the Settlor. If he did not have that knowledge, it was
indicative of indifference as to whether the ITA was complied with,
particularly when Mr. Kerr had made it clear to Mr. Ploughman on March 26,
2002 that Mr. Kerr had not settled the Global Trust. If, by the end of March
2002, Mr. Ploughman did not know that the Global Trust had not been
created, such lack of knowledge was, in my view, due to having “buried his head in the sand.” Thus, before Mr. Ploughman
sent his letter of April 5, 2002 to the Donors, if he did not know that
the Global Trust did not exist, it showed an indifference as to whether the ITA
was complied with.
[48]
Notwithstanding the significance of the Global
Trust and KGR in facilitating the Donation Program, Mr. Ploughman seems to have
been relatively unconcerned about the role and duties of KGR as the trustee of
the Global Trust. For instance, during his cross-examination, Mr. Ploughman
made the following statements:
Q. But may
I remind you, Mr. Ploughman, that not only were you – did you agree to be a
canvasser of the program, but you also agreed to be a trustee of the program.
So as trustee of the program, why you did not ask to receive the deed of gift
that is claimed to be in existence in the legal opinion?
A. As I
said before, I had never act[ed] as a trustee for anything before or after. So,
I don’t have a response for that. I don’t know what the responsibilities of a
trustee were. We were supposed to be a bare trustee, whatever that means.
Q. When
did you find out what responsibilities or what duties as a trustee you had?
A. I still
don’t know.
Q. You
still don’t know?
A. No. No.
Q. You
still don’t know?
A. No….
A. … at
that point in time, I didn’t know what a trustee was supposed to do. I still
don’t….
Q. You’re
saying that you don’t know what a trust does. You don’t know what a trustee
do[es]. You said you know nothing about [a] trust; you’ve never been a trustee
before. Yet you’ve been involved in three donation programs, either at the
development stage or as a canvasser, trying to convince people to embark into a
donation program involving a trust but you would not know what the role of the
trustee or the trust would be in the program? Is that –
A. That’s what I’m saying.
Given that the
Global Trust and KGR, as its trustee, played such a significant role in the
Donation Program, one would have expected that Mr. Ploughman would have
shown greater concern in ensuring that KGR knew and fulfilled its duties as
trustee.
[49]
Mr. Ploughman’s assertion that he did not, and
does not, know the responsibilities of a trustee is perhaps at odds with the
opening paragraph of the letter dated March 18, 2002, by Mr. Ploughman and Ms.
Guindon to the Donors, in which they stated, “As
Trustee of the Global Trust of Canada and as the President of the charity
involved, it is our responsibility to ensure that all assets acquired by the
Trust are properly structured prior to distribution to beneficiaries of the
Trust.”
Thus, Mr. Ploughman seems to have been aware of at least one responsibility of
the Trustee, i.e., to ensure that, before making a distribution, the Global Trust
actually held property that could be distributed. Not only did he fail to cause
KGR to fulfill that responsibility, but he also failed to cause KGR to ensure
that the Global Trust actually existed before it purported to make a distribution.
(2) Indifference
Concerning Timeshare Units
[50]
In the letter dated March 18, 2002, by Mr.
Ploughman and Ms. Guindon to the Donors, Mr. Ploughman and Ms. Guindon
stated that they were working vigorously with the involved parties to resolve
the outstanding issue concerning the timeshare titles and that they anticipated
having the issue resolved before April 30, 2002. They also recommended that the
Donors not file their 2001 income tax returns until the title issue had been
resolved. That statement and recommendation implied that the title issue could
be resolved and that the official receipts for the gifts purportedly made in
2001 could then be submitted by the Donors, with their 2001 income tax returns,
to the CCRA.
[51]
It appears that in March and April 2002, Mr.
Ploughman was proceeding on the premise that the timeshare units could be
created with retroactive effect to December 2001. In paragraph c)7 of his
Notice of Appeal he stated:
In March 2002 I
made a personal trip to the Turks and Caicos Islands to meet with the owner of
Tropical Development, Lee Goudie, and the company’s legal counsel, Gordon Kerr,
in an effort to determine what issues were still unresolved and what, if
anything, could be done to salvage this program. During that meeting I was
assured by Tropical Development’s TCI legal counsel that, although the
timeshare weeks were not yet properly registered at the applicable TCI
government offices, it was simply a matter of administrative time and that, in
the TCI lawyer’s opinion, all outstanding issues would be resolved prior to
April 30, 2002 and that, under TCI laws, registration of the timeshare weeks
could be made effective as of December 2001 which would allow all Canadian
participating taxpayers the ability to use their Charitable Donation receipts
for their 2001 Income Tax returns. Consequently, upon my return to Ottawa, I
issued a second letter advising all participating taxpayers that they could go
ahead and utilize the Charitable Donation receipts for 2001 as originally
planned.
[52]
During Mr. Ploughman’s cross-examination, in
describing the meeting that Mr. Ploughman had with Mr. Kerr on March 26,
2002, the following exchange took place:
Q. [Counsel
for the Crown referred Mr. Ploughman to the letter dated March 18, 2002, which
was sent by Mr. Ploughman and Ms. Guindon to the Donors, and then asked the
following questions.] …You’re basically telling your clients or the donors of
the program that once the issue is resolved there will be a distribution in
2002 and you’ll be able to use your 2001 tax receipt, and how in the world, I’m
asking you, can this be? Can you make a gift in … 2002, but yet apply for a
claim, a donation claim, as if the transaction took place in 2001?
A. According
to the information that Gordon Kerr gave me during my meeting with him, he
assured me that all of the issues could be dealt with. This was an assurance
that all of the issues could be dealt with and that under Turks and Caicos law
– this was his terminology – because all of the title deeding and everything had
been applied for in 2001, that it could be shown as a 2001 deed.
Q. And
what does Mr. Kerr know about Canadian law?
A. I have
no idea.
Q. You
have no idea?
A. No.
[53]
It is noteworthy that, although Mr. Ploughman
flew more than 2,500 kilometres from Ottawa to Providenciales to meet with a
TCI lawyer, who advised him that, under TCI law, the creation of the timeshare units
could be retroactive to December 2001, Mr. Ploughman did not drive or walk a
few blocks in downtown Ottawa to meet with a Canadian tax lawyer or tax
accountant to determine whether any such retroactivity under TCI law would be
recognized under Canadian law, for the purposes of the ITA. The failure
to determine whether any retroactive creation in TCI of the timeshare units
would have been recognized in Canada for the purposes of the ITA showed
an indifference as to whether the ITA was complied with.
(3) Indifference
Concerning Other Steps
[54]
Apart from the issues concerning the existence
of the Global Trust and the creation of the timeshare units, there were
problems with other steps, including the sale of the timeshare units by TDL to
the Settlor, the transfer of the timeshare units by the Settlor to the Global
Trust, the distribution of the timeshare units by the Global Trust to the
Donors, and the gift of the timeshare units by the Donors to Les Guides. During
Mr. Ploughman’s cross-examination, in discussing the letter of March 18, 2002, which
he and Ms. Guindon sent to the Donors, he stated that, by that date, he
knew that there was a major problem and that the Donors should not use their
official receipts.
In particular, he knew at that time that the timeshare units were not
structured properly.
He also knew that there was nothing in the Global Trust and that there had not
been a distribution from that trust because there were no assets to distribute. In addition, the following
exchanges during cross-examination are significant:
Q. So as
trustee, all you did during the period of November 17 to December 31
[2001] was to give an entitlement to the beneficiaries and at no time did
you distribute any assets to them?
A. Of
course not. There were no assets to distribute.
Q. … So
tell me, if there’s no distribution of assets being done during that period,
how can the beneficiary of the trust be able to give in return during that
period, assets they don’t have?
A. You got
me. They couldn’t.
Q. So you
knew that the charity had received no assets yet as of December 31st,
2001[?]
A. No, I
didn’t. No, I did not know. I said in February of that year, I knew that there
were major structural problems. That’s when I knew….
Q. … Now
in your March 18, 2002 [letter], you clearly state that there was no
distribution that took place, correct? Are we to read this first paragraph as
an admission by you that the trust had yet to distribute any assets to the
beneficiaries as of March 18, 2002?
A. That’s
correct.
Q. … And
how in the world could a distribution take place after March 18, 2002 and
become a gift that took place in 2001?
A. It
couldn’t.
Q. It
couldn’t?
A. No.
Q. … As a
tax preparer involved in the preparation of tax returns, how you got the
principle that one can make a gift transaction in 2002 and yet be able to claim
it in 2001 in filing their tax return?
A. I can’t
answer that. I don’t know….
Q. Is it
fair to say that this is a wrong proposition to inform donors that although the
distribution of the asset did not take place in 2001, they would still be able
to use their tax receipts in 2001?
A. Yes,
that’s fair.
Q. … And
you have no explanation why you would mislead your clients that way or the
donors of this charitable campaign that way?
A. I
certainly didn’t realize at that point in time that I was misleading anybody.
Q. How did
you come up with the understanding that this is wrong now today?
A. Because
you’ve told me….
A. I
understand the concept now that you can’t file something from a year when it
didn’t take place. I understand that….
Q. And as
a tax preparer, you did not know back then that basic principle?
A. I never
encountered it before.
Q. So –
A. I
wasn’t a tax expert. I was simply a preparer. If somebody brought in a
charitable donation receipt, I put it in their tax return.
Q. Did you
make an inquiry with a tax specialist?
A. No, I
didn’t.
Q. Another
tax specialist than yourself?
A. No, I
didn’t.
Q. Before
advising your charitable donors of this possibility?
A. No.
Q. You did
not. Why? You didn’t feel that it was important enough?
A. I don’t
recollect why I wouldn’t, but I certainly had no reason to, I didn’t
think.
[55]
Thus, even if the timeshare units could have
been created retroactively, Mr. Ploughman appears not to have given any serious
thought as to whether the other steps of the structure underlying the Donation
Program could have been implemented with retroactive effect to 2001. In other
words, in order for the Donation Program to have worked, not only was it
necessary for the timeshare units to have been created in 2001 (or at least
with retroactive effect under Canadian law to 2001, assuming that this was
possible), but it was also necessary, with effect in 2001, to transfer the
retroactively created timeshare units from TDL to the Settlor (although by
March 26, 2002 Mr. Ploughman knew that Mr. Kerr had not yet agreed to
be the Settlor), then from the Settlor to the Global Trust (although by March
26, 2002 Mr. Ploughman knew, or should have known, that the Global Trust was
not yet created), then from the Global Trust to the Donors, and then from the
Donors to Les Guides. I accept that, when Mr. Ploughman sent the letter of
March 18, 2002 to the Donors, he did not realize that he was misleading them.
However, given that Mr. Ploughman knew by February 2002 that there were serious
problems with the transactions underlying the Donation Program, his failure, before
sending the letters of March 18, 2002 and April 5, 2002, to consider
whether all of those transactions could have been implemented in 2002, with
retroactive effect to 2001, showed an indifference as to whether the ITA
was complied with.
(4) Indifference
Considering Recommendation
[56]
Upon returning to Canada, after his meeting with
Mr. Kerr on March 26, 2002, Mr. Ploughman drafted the letter that he sent to
the Class A Beneficiaries (i.e., the Donors) on April 5, 2002. He opened the letter by
reminding the Donors that, in his letter of March 18, 2002, he had advised them
to delay submitting the official receipts to the CCRA until the title issue had
been satisfactorily resolved. He then summarized the steps that still needed to
be completed to resolve the title issue, and gave a status report as to the
progress in respect of those steps. He also stated that Mr. Kerr had
categorically assured him that he (Mr. Kerr) understood the urgency of the
situation and that he would personally ensure that all of the steps would be
completed before April 30, 2002.
Nowhere in the letter did Mr. Ploughman comment on any of the other
transactions (such as the creation of the Global Trust, the sale of the
timeshare units by TDL to the Settlor, the transfer of the timeshare units by
the Settlor to the Global Trust, the distribution of the timeshare units by the
Global Trust to the Donors, and the gift of the timeshare units by the Donors
to Les Guides) that were necessary to implement the Donation Program. Mr.
Ploughman concluded the letter by stating that the issues were in the process
of being resolved and that he was “comfortable enough
with the progress made” that he could recommend that the Donors submit
their official receipts to the CCRA.
[57]
After sending the letter of April 5, 2002 to the
Donors, there is no indication that Mr. Ploughman took any further steps that
month to ascertain whether Mr. Kerr had completed the items to which he had
said that he would attend by the end of April, nor is there any indication that
Mr. Ploughman addressed the other transactions that had not yet been
implemented (i.e., the creation of the Global Trust, the sale of the timeshare
units by TDL to the Settlor, the transfer of the timeshare units by the Settlor
to the Global Trust, the distribution of the timeshare units by the Global Trust
to the Donors, and the gift of the timeshare units by the Donors to Les
Guides). Mr. Ploughman did not send any further communication to the
Donors in April 2002. Thus, he left them with the impression set out in his
letter of April 5, 2002, that it would be acceptable for them to file the
official receipts with the CCRA.
[58]
By recommending to the Donors that they file
their official receipts with their 2001 income tax returns, without first
confirming that all the problems with the Donation Program had been
satisfactorily resolved, Mr. Ploughman displayed an indifference as to whether
the ITA was complied with.
(5) Culpable
Conduct Conclusion
[59]
During the cross-examination of Mr. Ploughman,
the letter of April 5, 2002 and the related circumstances were discussed as
follows:
Q. … on
April 5th, 2002, there were still outstanding issues regarding the title of the
assets, correct?
A. Yes.
Q. The
assets were still undistributed to the beneficiary, correct?
A. That’s
correct.
Q. Yet,
you tell Canadian taxpayers to go ahead and submit their receipts although
there are still issues regarding the structure of the donation scheme, correct?
A. Yes.
Q. Why?
Why would you do that?
A. Because
I was assured by Gordon Kerr that it could be done by the 30th of April.
Q. Why not
tell people “look, we’re trying to do our best to have everything resolved by
April 30th. Get your tax returns ready for filing. We’ll tell you as soon as it
is resolved to go ahead. It may be on the last day. But if on the last day it
has not been resolved, we’ll let you know and therefore you should not use your
tax receipts”? Why was that not done in this –
A. In
hindsight, that would have been the proper thing to do. I didn’t do that. I had
assurances from a lawyer that it was going to happen properly and as a
consequence, I sent out this letter. The reason that Julie Guindon did not
co-sign it at that time, she was out of town, because I recall calling her
office and saying “let’s send out another letter” but she wasn’t there, so I
sent it myself. Again, in hindsight, total mistake.
Q. … So on
April 30th, 2002, you must have known that the whole structure was not in
place.
A. I must
have.
Q. Did you
feel like sending a letter to the donors?
A. In
hindsight, of course I would have. I should have sent a letter….
[60]
In the above exchange, Mr. Ploughman indicated several
times that, in hindsight, he would have done things differently. I do not think
that hindsight should be taken into consideration when determining whether an
individual’s actions or behaviour constituted culpable conduct for the purposes
of section 163.2 of the ITA. I think that those actions or
behaviour should be examined in the light of the circumstances existing at the
particular time in question.
[61]
However, given the serious problems that plagued
the Donation Program in late 2001 and early 2002 and that were known to Mr.
Ploughman in February 2002, even without the benefit of hindsight, common sense
cried out for the exercise of reasonable diligence to determine whether those
problems could be remedied, and, if so, whether the remedy would be retroactive
to 2001 for the purposes of the ITA. Hindsight is not required to
determine that more was required of Mr. Ploughman, before sending his letter of
April 5, 2002, than simply relying on the verbal assurances of Mr. Kerr that he would personally
ensure the completion of steps to be taken by TCI government officials over
whom he had no control. Common sense also dictated that, after sending his
letter of April 5, 2002, Mr. Ploughman should have communicated with Mr. Kerr
in mid- or late April to ascertain whether the timeshare title issue had been
resolved. Furthermore, it was contrary to common sense for Mr. Ploughman
to think that only the timeshare title issue needed to be resolved, without
addressing the other problems of which he was also aware, namely, the
non-existence of the Global Trust and the failure to transfer the timeshare
units from TDL to the Settlor, from the Settlor to the Global Trust, from the
Global Trust to the Donors, and from the Donors to Les Guides.
[62]
In summary, by February 2002, Mr. Ploughman was
aware that there were serious problems with the transactions underlying the
Donation Program. He focused his attention on the timeshare title issue, but
only to the extent of seeking verbal assurances from Mr. Kerr that the issue
would be resolved by April 30, 2002, without realistically considering whether
Mr. Kerr could control the speed at which the TCI government officials might
give their approvals, and without engaging in any follow-up with Mr. Kerr to
confirm that the timeshare title issue had actually been resolved by the end of
April. Mr. Ploughman seemed to ignore the other essential transactions,
particularly the creation of the Global Trust and the successive transfers of the
timeshare units from TDL to the Settlor, to the Global Trust, to the Donors,
and to Les Guides. In a sense, Mr. Ploughman buried his head in the sand
insofar as those other transactions were concerned. In my view, Mr. Ploughman
displayed an indifference as to whether the ITA was complied with, such
that, for the purposes of section 163.2 of the ITA, his conduct may be
described as culpable conduct.
F. Reliance on Lawyers
[63]
Mr. Ploughman stated repeatedly that he relied
in good faith on the opinion letter signed by Ms. Guindon, to the effect,
according to Mr. Ploughman, that the legal steps pertaining to the
Donation Program had been completed satisfactorily, that no outstanding issues
remained to be finalized, and that the Donation Program was legally constituted.
Mr. Ploughman also stated repeatedly that he relied on the verbal assurances of
Mr. Kerr to the effect that the TCI government approvals would be issued and
the timeshare conversion would be completed before April 30, 2002. Mr.
Ploughman submitted that, by reason of subsection 163.2(6) of the ITA,
as explained in Information Circular 01-1, Third Party Civil Penalties,
he cannot be considered to have acted in circumstances amounting to culpable
conduct.
(1) Statutory
Criteria
[64]
Subsection 163.2(6) of the ITA reads as
follows:
For the purposes
of subsections (2) and (4), a person (in this subsection and in subsection (7)
referred to as the “advisor”) who acts on behalf
of the other person is not considered to have acted in circumstances amounting
to culpable conduct in respect of the false statement referred to in subsection
(2) or (4) solely because the advisor relied, in good faith, on information
provided to the advisor by or on behalf of the other person or, because of such
reliance, failed to verify, investigate or correct the information.
It is important
to note that, to come within subsection 163.2(6), an advisor may not rely on
information provided by any person in general. Rather, the information on which
the advisor relies must be provided by the person who ultimately makes the
false statement or by someone acting on behalf of that person. As the
false statements were made when the 135 Donors filed their official receipts
with the CCRA, for Mr. Ploughman to come within subsection 163.2(6),
he would have had to rely on information provided to him by or on behalf of
those Donors. Ms. Guindon and Mr. Kerr were acting on behalf of TDL and Mr.
Goudie (and perhaps others who were involved in planning the Donation Program).
I did not see any evidence to suggest that either Ms. Guindon or Mr. Kerr
was acting on behalf of any of the Donors, either collectively or individually.
Thus, subsection 163.2(6) does not apply to Mr. Ploughman’s reliance on
information provided to him by Ms. Guindon or by Mr. Kerr.
[65]
Subsection 163.2(7) of the ITA states
that subsection (6) does not apply in respect of a statement that an advisor
makes (or participates in, assents to or acquiesces in the making of) in the
course of an excluded activity, which is defined in subsection 163.2(1) of the ITA
to include the activity of promoting or selling an arrangement, an entity, a
plan, a property or a scheme (referred to as the “arrangement”)
where it can reasonably be considered that one of the main purposes for a
person’s participation in the arrangement was to obtain a tax benefit, or the
activity of accepting consideration in respect of the promotion or sale of an
arrangement. It may be arguable that the statements made by Mr. Ploughman
in his letters of March 18, 2002 and April 5, 2002 were made in the course of
an excluded activity. However, as there was insufficient evidence concerning the
manner in which the Donation Program was marketed by Mr. Ploughman and his
colleagues, and as this issue was not addressed by Mr. Ploughman or
counsel for the Crown in their pleadings or submissions, I am unable to
determine whether subsection (7) precluded Mr. Ploughman from coming within
subsection (6).
(2) Good
Faith
[66]
As my interpretation of subsections 163.2(6) and
(7) of the ITA, as set above, may be incorrect, I will also consider
whether Mr. Ploughman was acting in good faith when he relied on the opinion or
advice given to him by Ms. Guindon and Mr. Kerr. Subsection 163.2(6)
requires that an advisor’s reliance must be in good faith. The phrase “good faith” has historically received two different
meanings, as explained in Siano v Helvering, as follows:
[The words “good faith”] are capable of and have received at
least two divergent meanings. What one might call the broad or subjective view
defines them as describing an actual state of mind irrespective of its
producing causes. An extreme example of this point of view is found in the case
of State v. West Branch Lumber Co., 64 W.Va. 673, 63 S.E.372, 380, where
the court said: “Good faith, … is used in its popular
sense as the actual, existing state of the mind, whether so from ignorance,
skepticism, sophistry, delusion, fanaticism, or imbecility, and without regard
to what it should be from given legal standards of law or reason.” …On the other hand, many courts have construed the words
narrowly and objectively and have introduced criteria. We quote from three
pertinent cases: … [The quotations from the first two cases are omitted.]
“Good faith is defined to be honesty of intention, and freedom from
knowledge of circumstances which ought to put the holder upon inquiry” Cochran
v. Fox Chase Bank, 209 Pa. 34, 58 A. 117, 118, 103 Am.St.Rep. 976.
[67]
In Siano, which was a case involving an
alcohol tax permit, the court applied the narrow objective test (which the court
called the “diligence or reasonable inquiry
interpretation”), rather than the broad subjective test (which the court
call the “state of mind theory”). I am of the
view that, in construing section 163.2 of the ITA, which is designed to
encourage greater care on the part of third parties, such as “tax preparers,
advisors, shelter promoters and valuators,”
it is appropriate to apply the narrow objective meaning of “good faith” so as to encourage diligence and
reasonable inquiry on the part of those third parties.
[68]
The extract from the Cochran case quoted
in Siano appears to have been included in the revised 4th edition of Black’s
Law Dictionary. In any event, in MacAlpine v T.H., the British
Columbia Court of Appeal gave the following as one of the meanings of “good faith”:
Good faith:
Honesty of intention, and freedom from knowledge of circumstances which ought
to put the holder on inquiry.
The Court of
Appeal attributed the above definition to page 822 of the revised 4th edition
of Black’s Law Dictionary.
The CRA has also adopted the definition of “good faith”
set out in MacAlpine.
[69]
As explained below, I am of the view that in
2001 and 2002 there were circumstances that should have put Mr. Ploughman on
inquiry about the existence (or non-existence) of the Global Trust and the
implementation (or not) in 2001 of the transactions on which the Donation
Program was based.
(3) Existence
of Trust
[70]
One of the key elements of the Donation Program
was the existence of the Global Trust. As explained above, the original plan
was that TDL would sell the timeshare units to Mr. Kerr, who, as the Settlor,
would settle the timeshare units on the Global Trust, which in turn would
distribute them to the Donors, who would then give them to Les Guides. Thus,
without the existence of the Global Trust there would have been no mechanism
for the Donors to acquire the property which they purportedly donated to Les
Guides.
[71]
Mr. Ploughman testified that on March 20,
2002, he telephoned Ms. Guindon to enquire about the creation of the
Global Trust and she told him that it had been created on August 22, 2001. After describing the
telephone conversation that he had with Ms. Guindon on March 20, 2002, Mr.
Ploughman stated, “Since the lawyer who wrote the legal
opinion gave me that information as late as March 20th, 2002, I had
no reason to question the validity whether a trust was created or not.”
[72]
I am not convinced that Mr. Ploughman was acting
in good faith when he took the position that he had no reason to question
whether the Global Trust had been created or not. According to Ms. Guindon’s
opinion letter, the Global Trust was to be created pursuant to a Deed of Trust,
with Mr. Kerr as the settlor and KGR as the trustee. Paragraph 2(c) of the opinion
letter stated that the Global Trust was to be settled by the payment of $100 by
the Settlor to the Trustee. As a result of Mr. Ploughman’s receipt of Mr.
Kerr’s letter dated March 14, 2002 and Mr. Ploughman’s meeting with Mr.
Kerr on March 26, 2002, in late March 2002 Mr. Ploughman knew that Mr. Kerr
had not become the settlor of the Global Trust. As well, as the president
and one of three equal shareholders of KGR, Mr. Ploughman knew, or should have
known, that KGR had not executed the Deed of Trust or received the $100. If he did not actually know
in 2001 that KGR had not yet executed the Deed of Trust, received the $100 or
become the trustee of the Global Trust, such lack of knowledge must have been
because he made no inquiries or he turned a blind eye.
[73]
Thus, I question whether Mr. Ploughman was
acting in good faith, as he says, when he relied on Ms. Guindon’s opinion and
assurance that the Global Trust had been created. My doubt is reinforced by a
telling admission that Mr. Ploughman made during his testimony in chief.
In discussing the Class A Beneficiary certificates that were purportedly issued
by the Global Trust on December 29, 2001,
he stated:
Tab 21 of the
Respondent’s Documents, your honour, where it shows a certificate of a Class A
beneficiary, it does not state that this was a distribution. It states that the
beneficiary is entitled to receive a capital distribution. That’s significantly
different than a distribution from a trust. There was no trust,
I readily admit that, and I knew it at that time. [Underlined italicized
emphasis added.]
Taking Mr. Ploughman’s statement at face value, it would seem that in
late 2001 he was aware that the Global Trust did not exist. However, when
Mr. Ploughman was cross-examined, in the following exchange, he sought to
clarify the above statement:
Q. But
yesterday when you – and I want to be precise in what I’m going to say because
I heard you in your testimony in chief yesterday saying that – you said there
was no trust after you pointed out the wording. You said “there was no trust
and I readily admit that.” Those are your words. “I knew at that time there
were [sic] no trust”. So on December 29, 2001, you knew that there was
no trust?
A. No. No,
incorrect.
Q. So
you –
A. That’s
not what I said.
Q. Okay. So what did
you say?
A. I
said that by February of 2002, I knew there was no trust. That was when I inquired
about all of the issues that were in the legal opinion. Where was the trust?
Where was everything?
Q. You
found out in February of 2002 that there were no trust?
A. I
found out that I thought there was no trust and then in March -- you may recall
my Tab 14, in March, I inquired from Julie Guindon “when did you create the
trust?” and she gave me the date. So at that point –
Q. Yes,
may I ask you – may I ask you, if you find out – if you find – I’m having a
difficult time because I want to use the same terminology that you’re using,
but it seems that you’re saying that in February you thought that – or it – you
thought that the trust did not exist?
A. No, I didn’t know if it existed or not at
that point, and I verified in March with a phone call to Julie Guindon to
confirm when it was created.
[74]
As noted above, the telephone conversation with
Ms. Guindon, to which Mr. Ploughman referred, occurred on March 20, 2002. If
she told him during that conversation that the Global Trust was created on
August 22, 2001, such a comment would have been peculiar because the Deed of
Trust had not yet been drafted, let alone signed by either the Settlor or
the Trustee. Nor had the $100 been paid by the Settlor to the Trustee to
settle the Global Trust. In any event, when Mr. Ploughman met six days
later, on March 26, 2002, with Mr. Kerr, Mr. Kerr confirmed that the
Global Trust had not yet been settled. If Mr. Ploughman continued to
believe after March 26, 2002, that the Global Trust was in existence, in my
view he was turning a blind eye to the many factors that indicated that there
was no trust. If, when Mr. Ploughman sent his letter of April 5, 2002 to
the Donors, he was relying on Ms. Guindon’s statement on March 20, 2002, to the
effect that the Global Trust had been created on August 22, 2001, there
were several circumstances that ought to have put him on inquiry, such that
I do not think that he was acting in good faith.
(4) Opinion
Letter
[75]
Mr. Ploughman stated that he relied on the
opinion letter signed by Ms. Guindon on September 19, 2001, and that, by
reason of her opinion, he understood that everything was in order and that the
Donation Program had been properly structured and implemented before the
opinion letter was signed and delivered. For instance, Mr. Ploughman made the
following statement in the Notice of Objection that he sent to the Chief of
Appeals on July 9, 2007:
Since I was
provided with a legal opinion stating that all facets of the program were in
order, I had absolutely no reason to suspect otherwise.
[76]
Similarly, Mr. Ploughman stated the following in
his Notice of Appeal, which he filed on July 30, 2014:
In the fall of
2001 I was provided with a complete marketing package which included a Legal
Opinion prepared by a local Ottawa lawyer indicating that this program was
legally constituted and that all relevant legal issues had been reviewed by the
lawyer involved and that no outstanding issues remained to be finalized. I
relied in good faith on information provided to me by this professional
Ottawa-based lawyer. In short, it was my understanding that this was a valid
and legal package that could be marketed in good faith….
… I relied IN
GOOD FAITH on the Legal Opinion provided by a professional lawyer. I had
absolutely no reason to question the validity of the Legal Opinion. [Underlined emphasis in the
original.]
[77]
As part of the pleadings, on October 24, 2014
Mr. Ploughman filed an Answer, which contained the following statements:
5. In accordance with the Legal Opinion, dated September 19,
2001, signed by Julie Guindon, a fully-licensed professional lawyer practicing
in Ottawa, there were no outstanding issues to be completed prior to marketing
the donation program. There was absolutely no reason for the Appellant [i.e.,
Mr. Ploughman] to suspect that the donation program was not legally constituted
during the marketing campaign which commenced on November 17th, 2001
and concluded on December 31, 2001….
7. … the Appellant has never stated that a trust was ever
settled. In fact, it was only discovered after a personal visit to the Turks
and Caicos Islands in the spring of 2002 that there were legal issues
surrounding the complete package, including a delay in the conversion of the
Arawak Inn to a time-share. Without the time-share units being available for
distribution to the public, there was no possibility of a trust being settled.
In fact, it never was and, as a consequence, KGR Tax Services Inc. could never
have served as Trustee. Nor, to the best of my knowledge, was it ever purported
to have done so….
17.j. Contrary to the statements issued in the legal opinion, it
is agreed that the Trust never existed and that the time-share units never
existed. However, there was no reason for the Appellant to suspect that the
legal opinion was not valid….
Paragraphs 7 and 17.j
of Mr. Ploughman’s Answer, as set out above, are perplexing, since, if the
Global Trust and the timeshare units never existed, as Mr. Ploughman
acknowledges, it is difficult to see how the legal opinion could be valid, as
it was premised on the existence of the Global Trust and the timeshare units.
[78]
Turning to an analysis of the opinion letter
itself, its very first line indicated that its writer was opining in respect of
the Canadian federal income tax consequences pertaining to the Donation
Program. In other words, Ms. Guindon’s letter was a tax opinion; it was
not an opinion as to whether the Donation Program had been completely and
properly implemented. In fact, her opinion was based on her understanding that
such was the case.
[79]
Mr. Ploughman acknowledged that Ms.
Guindon’s opinion letter was addressed to KGR, to his attention, although he
expressed surprise that it had been so addressed since he had understood that
the letter would be addressed to some other entity. Nevertheless,
Mr. Ploughman stated that he read the opinion letter and that he
understood the letter’s writer to opine that the documents listed on
page 2 of the letter had all been put in place. However, the last sentence
at the bottom of page 1 of the opinion letter sets out an assumption, as
follows:
It is assumed
that all the transactions described in our letter will be implemented using the
same documents you provided to us and that they are the same as those listed
below.
Ms. Guindon
stated at the top of page 2 of her letter that, in providing her opinion, she
had reviewed various documents, which she then listed. The first document in
the list was the Deed of Trust.
As explained above, Mr. Ploughman knew, or should have known, that KGR had
not entered into such a deed. Therefore, he knew, or should have known, that
Ms. Guindon could not have reviewed all of the documents in the list and that
the assumption at the bottom of page 1 of her letter could not be sound, which
should have prompted him to realize that he could not reasonably rely on her
letter.
[80]
At some point before March 14, 2002, Mr. Kerr
was provided with a copy of Ms. Guindon’s opinion letter of September 19, 2001.
When Mr. Kerr wrote to Mr. Ploughman on March 14, 2002, Mr. Kerr made the
following comments about some of the documents listed on page 2 of the opinion
letter:
4. It is interesting to note that an opinion letter of of
Brennan and [sic] Guindon dated September 19th, 2001
regarding the proposed charitable donation program refers to various items
[documents] none of which were in existence at the date of execution of the
letter. In particular there was no executed sale agreement as referred to in
Clause 1(d), nor are we aware of any rules and regulations of the Hawkes Nest
Plantation Resort being promulgated. There was no legal opinion provided by
this firm or so far as we are aware any other local Counsel with respect to
title to vacation ownership weeks. Many of the other items are things which we
have never seen and can therefore pass no comment on. However, it would appear
that the opinion which, you will note was issued to KGR Tax Services Limited
and not to Tropical Development Limited is substantially flawed. Your comments
on this would be welcome.
In commenting on
Mr. Kerr’s letter of March 14, 2002 above,
I noted that the letter is hearsay and that Mr. Kerr was not called as a
witness, such that I did not put any weight on paragraph 3 of that letter. Notwithstanding
that some of the statements made by Mr. Kerr in paragraph 4 of his letter of
March 14, 2002 are also hearsay, and even if those statements are false, the
very fact that Mr. Kerr advised Mr. Ploughman that three of the documents
listed in Ms. Guindon’s opinion letter did not exist and that the opinion
letter was substantially flawed (even if Mr. Kerr’s advice was mistaken) should
have put Mr. Ploughman on inquiry and should have prompted him to question
whether he could, in good faith, rely on that letter, without first
investigating the matter further.
[81]
Paragraph 2(c) of Ms. Guindon’s opinion letter
indicated that the Global Trust would be settled by the transfer of $100, as an
irrevocable gift, by the Settlor to the Trustee. The first sentence of
paragraph 2(h) of the opinion letter stated, “During
the year 2001, the Settlor will gift the vacation ownership weeks [i.e., the
timeshare units] to the Trustee.” Thus, Mr. Ploughman knew, or should
have known, that Ms. Guindon’s opinion was based on the premises that $100
would be settled by the Settlor on the Trustee and that the gift of timeshare
units by Mr. Kerr to KGR would occur in 2001. By the end of
Mr. Ploughman’s meeting with Mr. Kerr on March 26, 2002 (if not sooner),
Mr. Ploughman knew that the timeshare units had not yet been created and
that Mr. Kerr had not yet become the settlor of the Global Trust. Therefore,
Mr. Ploughman knew, or should have known, that Mr. Kerr had not paid $100
to KGR and had not gifted the timeshare units to KGR in 2001. Consequently,
Mr. Ploughman knew, or should have known, that two of the factual premises
on which Ms. Guindon’s opinion letter was based were not true, with the result
that, when he wrote his letter of April 5, 2002, it was unreasonable for him to
rely on the opinion letter.
[82]
Paragraphs 2(i) and (j) of Ms. Guindon’s opinion
letter contemplated that the Trustee would distribute the timeshare units from
the Global Trust to the Class A Beneficiaries (i.e., the Donors), who would
likely gift those units to a charitable organization. As explained above, Mr. Ploughman
knew, or should have known, that Mr. Kerr (as the intended settlor) and KGR (as
the intended trustee) had not done anything in 2001 to create the Global Trust
or to implement the various sequential transfers of the timeshare units. Hence,
Mr. Ploughman knew, or should have known, that no timeshare units had been
distributed by the Global Trust to the Donors before the end of 2001, with the
result that the Donors did not have any timeshare units which they could have
donated to Les Guides in 2001. In fact, the second paragraph of the letter
dated March 18, 2002, sent by Mr. Ploughman and Ms. Guindon to the Donors, makes it clear that such was
the case. As Ms. Guindon’s opinion was premised on the implementation of the
above transactions and as Mr. Ploughman knew that those transactions had not
been implemented, when he sent his letter of April 5, 2002 to the Donors, his
claimed reliance on the opinion letter was not done in good faith.
(5) Verbal
Assurances
[83]
Mr. Ploughman stated that he relied on the
verbal assurances that Mr. Kerr gave to him during their meeting on March 26,
2002, to the effect that Mr. Kerr would personally ensure that all of the steps
necessary to resolve the timeshare title issue were completed before April 30,
2002.
[84]
Subsection 163.2(6) of the ITA provides a
safe harbour for an advisor who relies, in good faith, on information provided
by or on behalf of a person who makes a false statement. I question, without
deciding, whether the word “information,” as
used in that subsection, extends to a statement of one’s intended future
conduct. The Canadian Oxford Dictionary defines “information”
as “something told; knowledge…. items of knowledge;
news….”
The Shorter Oxford English Dictionary defines “information”
as “training, instruction; communication of instructive
knowledge…. That of which one is apprised or told; intelligence, news.” Quaere
whether those definitions are sufficiently broad as to suggest that the
word “information,” as used in subsection
163.2(6), is intended to include, not only knowledge of something that exists
or has occurred, but also a forecast or assurance of what will occur? As the meaning
of the word “information” was not argued before
me at the hearing, I will, for the purposes of the ensuing discussion, give Mr.
Ploughman the benefit of the doubt and assume that Mr. Kerr’s verbal
assurances constituted information.
[85]
Mr. Ploughman began his letter of April 5, 2002
by reminding the recipients that in his letter of March 18, 2002 he had advised
them to delay submitting their official receipts to the CCRA until such time as
the timeshare title issue had been resolved satisfactorily. He then went on to
summarize the steps that had to be taken, which included obtaining a strata
plan survey of the Arawak Inn, creating 52 deeds (i.e., one deed for each week
of the year) for each of the rooms in the Arawak Inn, subdividing each of the
52 deeds for each room into two separate entities (which is the term used by
Mr. Ploughman) known as biennial weeks, and then registering all of those
entities with the TCI government as “titled biennial
vacation-ownership weeks.” In the letter, Mr. Ploughman then went on to
state:
Gordon Kerr,
legal counsel to Tropical Development Ltd. (owner of the Arawak Inn and
Beach Resort) advised that:
a.
the “strata plan”
survey has been completed;
b.
the “strata plan”
has been submitted from his office to the Planning Department of the TCI
government;
c.
once the Planning
Department completes their administrative work, it is passed (internally) to
the Land Registry Department for ‘rubber-stamping’. This finalizes the process.
Mr. Kerr categorically assured the undersigned that he fully
understood the urgency of the situation and that he would, personally, ensure
that all of the steps above will be completed prior to 30 April 2002. [Italics in original.]
[86]
Item c above indicated that two actions remained
to be performed:
a)
the TCI Planning Department needed to complete
its administrative work; and
b) the TCI Land Registry Department needed to rubber-stamp something,
presumably the strata plan survey, the overall process or possibly something
else.
The outstanding actions were to be performed by government
officials, and not by employees who worked in Mr. Kerr’s office. Thus, Mr.
Ploughman should have been well aware that Mr. Kerr had no control over the
individuals who would be completing the administrative work and doing the
rubber-stamping.
[87]
According to a report prepared on February 20,
2004 by Mr. Ploughman on behalf of KGR, the acquisition by TDL of the Arawak Inn
was finalized on September 4, 2001 and the process of converting it from a
hotel to a timeshare property was to begin immediately thereafter. In February
2002, Mr. Ploughman learned that the conversion had not yet been
completed.
When Mr. Ploughman met with Mr. Kerr on March 26, 2002, the conversion was
still incomplete. As the conversion had been in process for more than six
months when Mr. Ploughman met with Mr. Kerr, it should have been apparent
to Mr. Ploughman that the process was slow and drawn out.
[88]
As noted above, on August 12 (or 15), 2002 Mr.
Ploughman sent to Mr. Goudie a letter that began with the following
comment:
I just received
your most recent Email regarding your telephone call with the [TCI] Attorney
General. It certainly appears that you are having your problems with government
officials trying to get this resolved. As you know, it is no less frustrating
on our end trying to explain, as best we can, that governments, in general, are
slow. Then you throw in the fact that we are dealing with a Caribbean country and
the speed gets slower still.
Thus, by
mid-August 2002, Mr. Ploughman was well aware that the TCI government was
moving slowly. This may not have been a new revelation for Mr. Ploughman. As
well, the above comment indicates that Mr. Ploughman was aware “that governments, in general, are slow.” Accordingly,
it may be reasonable to assume that in early April 2002 he was similarly aware
that the TCI government would not necessarily work rapidly.
[89]
As indicated above, one of the characteristics
of good faith is a freedom from knowledge of circumstances which ought to put
the holder on inquiry. It was, or should have been, apparent to Mr. Ploughman
that the resolution of the timeshare title issue required steps to be taken by
TCI government officials who were not under the control of Mr. Kerr. As Mr.
Ploughman knew that the timeshare conversion process depended on government
approval, and not merely on steps to be taken personally by Mr. Kerr, after
sending his letter of April 5, 2002, Mr. Ploughman should have been aware
of the need to inquire of Mr. Kerr before the end of April 2002 to ascertain
whether the government approval had actually been given. Mr. Ploughman
made no such inquiry. Thus, I do not think that he acted in good faith when
relying on the verbal assurances of Mr. Kerr.
CONCLUSION
[90]
In summary, I have made the following findings:
a) Mr. Ploughman was a creator or promoter of the Donation Program.
b) Each of the 135 official receipts filed by the Donors with their
2001 income tax returns contained a false statement.
c) When Mr. Ploughman sent his letter of April 5, 2002 to the Donors,
recommending that they submit their official receipts to the CCRA, he
participated in the making of, or caused the Donors to make or furnish, or
assented to or acquiesced in the making of, the false statements.
d) When Mr. Ploughman sent his letter of April 5, 2002 to the Donors,
he knew, or would reasonably be expected to have known but for circumstances
amounting to culpable conduct, that each of the official receipts contained a
false statement.
e) When Mr. Ploughman sent his letter of April 5, 2002 to the Donors,
his indifference concerning the non-existence of the Global Trust, the
non-existence of the timeshare units, the failure to implement in 2001 (or even
in 2002) the other transactional steps on which the Donation Program was based,
and his indifference as to whether his recommendation in that letter was well
founded, showed an indifference as to whether the ITA was complied with and
thus constituted culpable conduct.
f) Mr. Ploughman’s reliance on the opinion letter of Ms. Guindon and
the verbal assurances of Mr. Kerr did not satisfy the statutory criteria of
subsection 163.2(6) of the ITA, and in any event, was not done in good
faith.
[91]
For the reasons set out above, this Appeal is
dismissed, with costs in favour of the Respondent, to be calculated in
accordance with Tariff B of Schedule II to the Tax Court of Canada Rules
(General Procedure).
Signed at Ottawa, Canada, this 25th day of April, 2017.
“Don R. Sommerfeldt”
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