Dwyer v. Minister of National Revenue, (2003) 309 N.R. 163 (FCA)

• Judge: Strayer, Nadon and Evans, JJ.A.
• Court: Federal Court of Appeal (Canada)
• Case Date: August 26, 2003
• Jurisdiction: Canada (Federal)
• Citations: (2003), 309 N.R. 163 (FCA);2003 FCA 322

Dwyer v. MNR (2003), 309 N.R. 163 (FCA)

MLB headnote and full text

[French language version follows English language version]

[La version française vient à la suite de la version anglaise]

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Temp. Cite: [2003] N.R. TBEd. SE.016

Arthur C. Dwyer (appellant) v. Her Majesty The Queen (respondent)

(A-424-01; 2003 FCA 322; 2003 CAF 322)

Indexed As: Dwyer v. Minister of National Revenue

Federal Court of Appeal

Strayer, Nadon and Evans, JJ.A.

August 26, 2003.

Summary:

A taxpayer earned income from making mortgage loans. He did not report the income. Revenue Canada, after conducting an investigation, reassessed the taxpayer for the tax years 1987 to 1990 by including mortgage interest income, interest and pen­alties. His 1991 tax return was reassessed by including mortgage interest income only. In 1993, the taxpayer was criminally charged with wilfully evading taxes and making false statements on his returns. He was acquitted in 1996. The taxpayer appealed the re­assessments.

The Tax Court of Canada dismissed the appeal. The taxpayer appealed, submitting that Tax Court judge (1) failed to provide sufficient reasons for judgment; (2) failed to find that the issue of the taxpayer's mental state necessary to impose penalties was res judicata by reason of the criminal acquittal; (3) failed to place the burden of proving the assessment on the Minister; (4) failed to find that the manner of conducting the audit/in­vestigation constituted an abuse of process; and (5) erred in failing to find that the man­ner in which evidence was obtained violated the taxpayer's ss. 7 and 8 Charter rights and should have been excluded from evidence under s. 24(2).

The Federal Court of Appeal dismissed the appeal.

Administrative Law - Topic 24

General - Abuse of process - What consti­tutes - A taxpayer was audited and crimi­nally investigated for failure to report substantial interest income - Revenue Canada issued Requirements to produce documents (Income Tax Act, s. 231.2(1)) and obtained search warrants under the Criminal Code - The taxpayer was crimi­nally charged, but was acquitted - A Rev­enue Canada official whose involvement was limited to executing a search warrant had sought to obtain a loan from the taxpayer and the taxpayer alleged the official was guilty of extortion - The taxpayer alleged that the official's "extor­tion" and the manner in which the audit/in­vestigation was conducted, consti­tuted an abuse of process - The Federal Court of Appeal held that there was no abuse of process - The official's reprehen­sible con­duct did not taint the evidence seized, nor did it result in any unfairness to the taxpayer - The mere fact of a criminal investigation co-existing at the same time as an audit for purposes of reassessment did not constitute an abuse of process - This was not one of those clearest of cases where the damage to the public interest in the fairness of the administrative process required that the process be halted - See paragraphs 48 to 57.

Civil Rights - Topic 1539

Property - Personal property - Bank records - The Federal Court of Appeal affirmed that a Requirement to produce documents served on the taxpayer's bank under s. 231.2(1) of the Income Tax Act did not constitute an unreasonable search and seizure - Although the taxpayer was later criminally charged (and acquitted), as well as audited for reassessment purposes, when the Requirement was served the ad­versarial relationship between the state and the taxpayer had not been engaged - The Minister was not using the provisions of the Act for the ulterior motive of gath­ering information for a criminal prosecu­tion - The predominant purpose of the inquiry was not the determination of penal liability - See paragraphs 58 to 65.

Civil Rights - Topic 1646

Property - Search and seizure - Unreason­able search and seizure defined - [See Civil Rights - Topic 1539 ].

Civil Rights - Topic 8368

Canadian Charter of Rights and Freedoms - Denial of rights - Remedies - Exclusion of evidence - [See Income Tax - Topic 9284 ].

Courts - Topic 583

Judges - Duties - Re reasons for decisions - A taxpayer appealed the Tax Court of Canada's dismissal of his appeal from a income tax reassessment on the ground that the judge failed to provide sufficient rea­sons for his decision, submitting that the reasons were "not sufficiently intelligible to permit appellate review of the correct­ness of the decision" - The taxpayer sub­mitted that the judge failed to address a number of issues - The Federal Court of Appeal held that the reasons were suffi­cient to permit the court to properly review the correctness of the decision - The judge reviewed the evidence, made key fact findings to support his conclusions and set out the legal test relevant to his analysis - See paragraphs 18 to 36.

Estoppel - Topic 381

Estoppel by record (res judicata) - Res judicata as a bar to subsequent proceedings - In civil proceedings - [See Estoppel - Topic 393 ].

Estoppel - Topic 393

Estoppel by record (res judicata) - Res judicata as a bar to subsequent proceedings - In tax assessment cases - A taxpayer who failed to disclose substantial interest income was reassessed and penalties were imposed - The taxpayer was criminally charged with wilfully evading taxes and making false statements on his returns, but was acquitted - The Federal Court of Appeal rejected the submission that the issue of whether the taxpayer had the requisite mental state to warrant the impo­sition of penalties was not res judicata by reason of his acquittal - The court stated that "there can be no doubt that an acquit­tal can occur in a criminal trial where, on a balance of probabilities, the offence would have been made out. Thus, such an acquittal does not render the issue of mens rea with respect to penalties res judicata, even if the requirement mental elements are identical" - See paragraphs 37 to 40.

Income Tax - Topic 7859

Returns, assessments, payment and appeals - Assess­ments and reassessments - Evi­dence and burden of proof - A taxpayer was reassessed for failing to report sub­stantial interest earned on mortgage loans -The taxpayer appealed the dismissal of the Tax Court of Canada's dismissal of his appeal, submitting that the judge failed to place the burden of proving the assessment on the Minister - The Federal Court of Appeal held that the judge applied the correct burden of proof - The Minister provided extensive documentary and viva voce evidence to support the reassessment - In the face of cogent evidence of sub­stantial unreported interest income, the taxpayer called no evidence in rebuttal - In fact, the taxpayer did not even contest the unre­ported income - The Minister met the burden of establishing unreported income on a balance of probabilities - See para­graphs 41 to 47.

Income Tax - Topic 9284

Enforcement - Lawyer-client privilege from disclosure - Waiver - Revenue Canada obtained search warrants under s. 487 of the Criminal Code to search the taxpayer's residence and his lawyer's office - The basis of the warrants was reasonable and probable grounds to believe the taxpayer committed an offence (fraud) by failing to report substantial mortgage interest income as taxable income - The Federal Court of Appeal held that the search warrants were validly issued and carried out in a manner that did not violate s. 8 of the Charter - As to the search of the lawyer's office, assuming that the taxpayer did not validly waive his solici­tor-client privilege in the documents seized and assuming an unreasonable search and seizure, the Tax Court judge did not err in refusing to exclude the evidence obtained under s. 24(2) of the Charter - The evi­dence was not conscriptive and it was obtained in good faith in the genuine belief that solicitor-client privilege had been waived - Trial fairness was not affected - Further, the court restated that "where a person's liberty was 'not threatened' and where the issue was the 'duty to pay taxes' courts should exercise their discretion to exclude evidence with even greater re­straint" - See paragraphs 66 to 92.

Income Tax - Topic 9302

Enforcement - Search and seizure - Search warrants - [See Income Tax - Topic 9284 ].

Cases Noticed:

R. v. Sheppard (C.), [2002] 1 S.C.R. 869; 284 N.R. 342; 211 Nfld. & P.E.I.R. 50; 633 A.P.R. 50, refd to. [para. 18].

Minister of National Revenue v. Jurchison (2001), 274 N.R. 346 (F.C.A.), refd to. [para. 26].

Donovan v. Minister of National Revenue, [2000] D.T.C. 6339; 257 N.R. 185 (F.C.A.), refd to. [para. 26].

Hirex Holdings Ltd. v. Minister of Nation­al Revenue, [1997] 1 C.T.C. 103; 120 F.T.R. 103 (T.D.), refd to. [para. 31].

Venne v. Canada (1984), 84 D.T.C. 6247 (F.C.T.D.), refd to. [para. 31].

Colangelo Estate v. Minister of National Revenue, [1998] 2 C.T.C. 2923, refd to. [para. 32].

R. v. Sheppard (C.) (1999), 178 Nfld. & P.E.I.R. 1; 544 A.P.R. 1; 138 C.C.C.(3d) 254 (Nfld. C.A.), refd to. [para. 34].

Van Rooy v. Minister of National Rev­enue, [1989] 1 F.C. 489; 87 N.R. 13 (F.C.A.), refd to. [para. 38].

Hunter v. Chief Constable of West Mid­lands Police, [1982] A.C. 529 (H.L.), refd to. [para. 38].

Québec (Communauté urbaine) v. Corpor­ation Notre-Dame de Bon-Secours, [1994] 3 S.C.R. 3; 171 N.R. 161; 63 Q.A.C. 161, refd to. [para. 41].

Hickman Motors Ltd. v. Minister of Na­tional Revenue, [1997] 2 S.C.R. 336; 213 N.R. 81, refd to. [para. 41].

Island Telecom Inc. v. Island Regulatory Appeals Commission (P.E.I.) (1999), 178 Nfld. & P.E.I.R. 228; 544 A.P.R. 228; 176 D.L.R.(4th) 356 (P.E.I.C.A.), refd to. [para. 41].

Blencoe v. Human Rights Commission (B.C.) et al., [2000] 2 S.C.R. 307; 260 N.R. 1; 141 B.C.A.C. 161; 231 W.A.C. 161, refd to. [para. 54].

R. v. Power (E.), [1994] 1 S.C.R. 601; 165 N.R. 241; 117 Nfld. & P.E.I.R. 269; 365 A.P.R. 269, refd to. [para. 54].

R. v. McKinlay Transport Ltd. and C.T. Transport Inc., [1990] 1 S.C.R. 627; 106 N.R. 385; 39 O.A.C. 385, refd to. [para. 60].

Bisaillon et al. v. Ministre du Revenu National et al. (1999), 264 N.R. 21 (F.C.A.), refd to. [para. 60].

R. v. Jarvis (W.J.) (2002), 295 N.R. 201; 317 A.R. 1; 284 W.A.C. 1 (S.C.C.), refd to. [para. 61].

R. v. Ling (C.K.) (2002), 295 N.R. 373; 173 B.C.A.C. 161; 283 W.A.C. 161 (S.C.C.), refd to. [para. 61].

Del Zotto v. Minister of National Revenue, [1997] 3 F.C. 40; 215 N.R. 184 (F.C.A.), refd to. [para. 67].

Lavallée, Rackel & Heintz et al. v. Canada (Attorney General) (2002), 292 N.R. 296; 312 A.R. 201; 281 W.A.C. 201; 164 O.A.C. 280; 217 Nfld. & P.E.I.R. 183; 651 A.P.R. 183 (S.C.C.), refd to. [para. 69].

R. v. Collins, [1987] 1 S.C.R. 265; 74 N.R. 276, refd to. [para. 75].

R. v. Stillman (W.W.D.), [1997] 1 S.C.R. 607; 209 N.R. 81; 185 N.B.R.(2d) 1; 471 A.P.R. 1, refd to. [para. 75].

R. v. Therens, [1985] 1 S.C.R. 613; 59 N.R. 122; 40 Sask.R. 122, refd to. [para. 82].

R. v. 2821109 Canada Inc. et al. (2002), 281 N.R. 267; 245 N.B.R.(2d) 270; 636 A.P.R. 270 (S.C.C.), refd to. [para. 84].

R. v. Law et al. - see R. v. 2821109 Canada Inc. et al.

Donovan v. Minister of National Revenue, [2000] 4 F.C. 373; 257 N.R. 185 (F.C.A.), refd to. [para. 86].

Baron et al. v. Minister of National Rev­enue, [1993] 1 S.C.R. 416; 146 N.R. 270, refd to. [para. 88].

Statutes Noticed:

Canadian Charter of Rights and Freedoms, 1982, sect. 7, sect. 8, sect. 24 [para. 17].

Criminal Code, R.S.C. 1985, c. C-46, sect. 487(1), sect. 488.1(2) [para. 16].

Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1, sect. 163(2), sect. 231.2(1) [para. 15].

Authors and Works Noticed:

Brown, Donald M., and Evans, John M., Judicial Review of Administrative Action in Canada (1998 Looseleaf Ed.), p. 9-68 [para. 54].

Counsel:

Rocco Galati, for the appellant/applicant;

Marie-Thérèse Boris and Nimanthika Ka­neira, for the respondent.

Solicitors of Record:

Calati, Rodiriques, Azevedo & Associates, for the appellant/applicant;

Morris A. Rosenberg, Deputy Attorney General of Canada, Ottawa, Ontario, for the respondent.

This appeal was heard on March 18, 2003, at Toronto, Ontario, before Strayer, Nadon and Evans, JJ.A., of the Federal Court of Appeal.

On August 26, 2003, Nadon, J.A., delivered the following judgment for the Court of Appeal.