R. v. Amell (D.P.) et al., (2010) 361 Sask.R. 61 (PC)

• Judge: Kovatch, P.C.J.
• Court: Provincial Court of Saskatchewan (Canada)
• Case Date: July 21, 2010
• Jurisdiction: Saskatchewan
• Citations: (2010), 361 Sask.R. 61 (PC);2010 SKPC 107

R. v. Amell (D.P.) (2010), 361 Sask.R. 61 (PC)

MLB headnote and full text

Temp. Cite: [2010] Sask.R. TBEd. AU.022

Her Majesty the Queen v. Douglas Preston Amell, Heidi Lynne Keyzer and Robert Lawrence Amell

(2010 SKPC 107)

Indexed As: R. v. Amell (D.P.) et al.

Saskatchewan Provincial Court

Kovatch, P.C.J.

July 21, 2010.

Summary:

Amell, a naturopathic practitioner, incorporated a clinic and carried on his practice under the company. He was the sole shareholder and director. His common law spouse, and his father, were employed by the company. On September 29, 2003, each of the three executed a "contract for hire, independent agent agreement" with the company. The company ceased making all at source deductions and remittances, and all payments to the three were recorded as business expenses. For the taxation years 2003 to 2006, inclusive, each of the three filed personal income tax returns in which they declared very little income. They declared no income from the clinic. The three were charged with offences under the Income Tax Act, including filing false returns in 2003 to 2006, inclusive, and obtaining tax credits/benefits to which they were not entitled. They argued that the funds they received from the company after September 29, 2003, were compensatory in nature, and not taxable income.

The Saskatchewan Provincial Court found each of the accused guilty as charged.

Civil Rights - Topic 8005

Canadian or provincial Bill of Rights - Principles of operation and interpretation - Due process, right to life, liberty, security and enjoyment of property - In the context of charges under the Income Tax Act, the accused argued that the Canadian Bill of Rights guaranteed him the right to enjoyment of property, that the Act could not contravene the Bill of Rights, and that the Act deprived him of his right to property - The Saskatchewan Provincial Court held that the Act did not breach or infringe the Bill of Rights - "The Income Tax Act is valid federal legislation ... That legislation establishes what is to be taxed, the rate of taxation, the process for collection, and processes for appeals. In short, it establishes an entire legal process for the assessment and collection of taxes. The result is that to the extent that taxation deprives an individual of his property, the individual is so deprived by due process of law" - See paragraphs 156 and 157.

Income Tax - Topic 201

Persons liable - General - The three accused stood charged with offences under the Income Tax Act, including filing false returns and obtaining tax credits/benefits to which they were not entitled - Each of the accused claimed to be "natural persons", that the income of natural persons was not caught by the Act, and that natural persons were not taxable - The Saskatchewan Provincial Court stated that "If there ever was a natural persons exemption from income tax, that exemption has long since been abolished by Parliament, and any such exemption is now dead" - See paragraphs 152 to 155.

Income Tax - Topic 522

Income from office or employment - Income from employment - What constitutes employment contract - At issue was whether the accused ceased to be employees of a corporation at the time they executed agreements entitled "contract for hire - independent agent agreement" with the corporation - The Saskatchewan Provincial Court concluded that the contract for hire did not have the legal effect of changing the employment relationship between the accused and the corporation - The accused did not provide their own equipment, did not hire their own helpers, did not have an investment or financial risk in the corporation, were not responsible for investment and management, and did not profit from the overall performance of the corporation - Nor did the agreement attempt to change their duties or functions within the corporation from immediately prior to the execution of the contract - "In short, these agreements are a sham or window dressing, executed solely for the purpose of achieving a change from the employment status to achieve an income tax benefit" - See paragraphs 123 to 138.

Income Tax - Topic 526

Income from office or employment - Income from employment - What constitutes - [See Income Tax - Topic 1051.1 ].

Income Tax - Topic 1051.1

Income from a business or property - Income from business - What constitutes - A naturopathic practitioner incorporated a clinic and carried on his practice under the company - His common law spouse and his father were employed by the company - After each of the three executed a "contract for hire, independent agent agreement" with the company, they declared no income from the clinic - The three were charged with offences under the Income Tax Act - They argued that funds paid to them did not come from a source of income, but from a personal endeavour; that they had no intent to profit; and, as a result, the funds were not income - The Saskatchewan Provincial Court employed a two-stage approach to determine whether the accused's activities constituted a source of business income, and concluded that their activities were in pursuit of profit - There was no hobby element to the activities - The corporation and the business were established to make a profit - The source of income was the business and the accused provided services so that the business might profit and they might profit from the fruits of their labour - See paragraphs 158 and 159.

Income Tax - Topic 1102

Income from a business or property - Income - General - Profit - What constitutes - [See Income Tax - Topic 1051.1 ].

Income Tax - Topic 1113

Income from a business or property - Income - General - Amounts received for services rendered - [See Income Tax - Topic 1051.1 ].

Income Tax - Topic 1113

Income from a business or property - Income - General - Amounts received for services rendered - A naturopathic practitioner (Amell) incorporated a naturopathic clinic and carried on his practice under the company - He was the sole shareholder and director - Amell was charged with offences under the Income Tax Act, including filing false returns - He argued that there was no one all-encompassing definition of income, and that he had designated funds he received as "compensation" - The Saskatchewan Provincial Court stated that the designation of the funds as "compensation" was irrelevant, on the basis of ss. 2(1), 3, and 5(1) of the Income Tax Act - Nothing in those sections indicated that funds were only "income" or "taxable" if received in a particular capacity - The funds were a form of remuneration received during the taxation year, and hence met the definition of income - The issue of income was even more specifically and conclusively dealt with in s. 15(1) of the Act; i.e., a benefit to a shareholder was very broadly defined - "It is any payment to, or on behalf of, a shareholder. Any type of benefit, regardless of the name attached to it, must be included in the income under this section" - See paragraphs 144 to 148.

Income Tax - Topic 3910

Interpretation - General - Intention of taxpayer - [See first Income Tax - Topic 9512 ].

Income Tax - Topic 9512

Tax evasion and tax avoidance - General principles - Requirement of intent or wilfulness - The Saskatchewan Provincial Court concluded that the three accused each received the income attributed to them for the specific taxation years, and filed false tax returns, declaring that they received no income from a business run by a corporation; and further, that they did not pay income tax on their true income - They argued that there was no intention to evade the payment of income tax, and as a result they could not be convicted of tax evasion - The court held that the necessary intent as set out in the case law had been established by the Crown - The accused knowing and wilfully filed tax returns declaring that they had no income - This was a false and inaccurate statement which resulted in the evasion of income taxes - See paragraphs 160 to 164.

Income Tax - Topic 9512

Tax evasion and tax avoidance - General principles - Requirement of intent or wilfulness - Each of the accused argued that they were under the mistaken belief that funds they received were not income, which negatived the requisite intent to evade the payment of income tax - The Saskatchewan Provincial Court held that, even if they held that view, it was a mistake of law and not a mistake of fact that would negative the requisite intent - The accused filed income tax returns, not declaring income because they believed that the relevant sections of the Income Tax Act were inapplicable to them - That was a mistake of law, and could provide no defence - See paragraphs 165 and 166.

Income Tax - Topic 9512

Tax evasion and tax avoidance - General principles - Requirement of intent or wilfulness - The three accused filed income tax returns, not declaring income because they believed that the relevant sections of the Income Tax Act were inapplicable to them - The Saskatchewan Provincial Court held that the mistake of law provided no defence - An important reason for not allowing the accused to rely on the mistake of law, was that they had been provided with forms to make application for an advance tax ruling - They refused to make any such application - "Where, as is the case at bar, the accused refuses to utilize the advance tax ruling mechanism, I would not allow him to justify his actions by saying that he was under some mistaken belief" - See paragraph 167.

Income Tax - Topic 9512

Tax evasion and tax avoidance - General principles - Requirement of intent or wilfulness - The Saskatchewan Provincial Court, when dealing with the question of intent, "[l]astly, but perhaps most importantly", concluded that the accused were wilfully blind - "The Court has repeatedly held that a finding of wilful blindness is the equivalent of a determination of knowledge and intent ... I am mindful of the warnings expressed by the Court [Supreme Court of Canada] in R. v. Sansregret ... of the dangers of using wilful blindness and how it ought to be applied in a narrow set of circumstances. In my view however, the facts are appropriate here and require determination of wilful blindness ... [T]he accused had no interest in receiving legitimate legal and financial or accounting advice ... They chose to follow an ill-advised, uninformed opinion because it accorded with their view of the world. They were legally blind" - See paragraphs 168 to 171.

Income Tax - Topic 9518

Tax evasion and tax avoidance - General principles - Benefit conferred on a taxpayer - Amell incorporated a naturopathic clinic and carried on his practice under the company - He was the sole shareholder and director - The corporation ran the clinic and generated a significant profit - Amell executed a "contract for hire, independent agent agreement" with the company - After execution of the contract, Amell declared no income from the clinic, although "very significant payments or benefits" were made payable to him by the company - He was charged with offences under the Income Tax Act, including filing false returns - The Saskatchewan Provincial Court held that, under the clear and ordinary meaning of s. 15 of the Income Tax Act, the amounts of the payments were income in Amell's hands - It was of no consequence that the payments were made to him under the contract for hire - The payments made to him, as a director of the corporation, or under the contract of hire, were benefits conferred upon him by the corporation, and he was a shareholder and a director - As a result, the benefits were income and were taxable - See paragraph 149.

Income Tax - Topic 9518

Tax evasion and tax avoidance - General principles - Benefit conferred on a taxpayer - The Saskatchewan Provincial Court stated that, under s. 6(1) of the Income Tax Act, an employee had to include in his income the value of all benefits - In the case at bar, the court held that the respective accused had to include in income the value of benefits paid to them by the corporation under a contract of hire - As a result, the value of all those payments were properly designated income - The fact that the accused believed that they received "compensation" under the contract of hire was of no consequence - In the end result, the court determined that all of the funds attributed to the accused were correctly attributed as income - The accused earned the incomes attributed to them and had to pay tax upon those sums - See paragraphs 150 and 151.

Income Tax - Topic 9545

Tax evasion and tax avoidance - Artificial transactions - Sham - Defined - [See Income Tax - Topic 522 ].

Master and Servant - Topic 303

Nature of relationship - What constitutes an employer-employee relationship - [See Income Tax - Topic 522 ].

Master and Servant - Topic 1002

Contract of hiring (employment contract) - What constitutes - [See Income Tax - Topic 522 ].

Mistake - Topic 241

Mistake of law - Unilateral mistake - General - [See second Income Tax - Topic 9512 ].

Statutes - Topic 522

Interpretation - General principles - Taxing statutes - The Saskatchewan Provincial Court stated that "Traditionally and most often, the courts have utilized the plain, clear, and ordinary interpretation of the tax provision ... More recently ... the [Supreme Court of Canada] adopted 'the modern approach' to interpretation of taxation statutes. It looked at the purpose of the statute and the entire context of the passage to determine the intent of Parliament. This caused some confusion ... [T]he Court again revisited these interpretative rules ... [T]he Court attempted to resolve the conflict and put these two interpretive approaches together as follows: 'The interpretive approach (the modern approach) is thus informed by the level of precision and clarity with which a taxing provision is drafted. Where such a provision admits of no ambiguity in its meaning or in its application to the facts, it must simply be applied'" - See paragraphs 141 and 142.

Statutes - Topic 1201

Interpretation - Construction where meaning is plain - General principles - [See Statutes - Topic 522 ].

Statutes - Topic 2263

Interpretation - Presumptions and rules in aid - Against interference with vested rights (incl. pending litigation) - In the context of charges under the Income Tax Act, the Saskatchewan Provincial Court addressed the accused's argument on statutory interpretation - "Firstly, the Income Tax Act is clearly an Act established by Parliament to impose a tax upon income received by individuals. As such, its intention is clearly to divest the individual of a portion of the income that he has a vested right to receive. The presumption against Parliament or the Legislature affecting vested rights is simply that, a presumption. It is a presumption in effect unless Parliament or the Legislature has clearly expressed an intention to the contrary. By the very enactment of the Income Tax Act, Parliament has expressed its intention to the contrary. Thus, the statement of this presumption adds very little to assist in the interpretation of the relevant legislative provisions" - See paragraph 140.

Statutes - Topic 2603

Interpretation - Interpretation of words and phrases - Modern rule (incl. interpretation by context) - Intention from whole of section or statute - [See Statutes - Topic 522 ].

Cases Noticed:

R. v. Steemson (W.E.), [2002] B.C.T.C. 307; 2002 BCSC 307, refd to. [para. 36].

R. v. Stewart - see Stewart v. Minister of National Revenue.

Stewart v. Minister of National Revenue, [2002] 2 S.C.R. 645; 288 N.R. 297, refd to. [para. 120]; consd. [para. 158].

Wiebe Door Services Ltd. v. Minister of National Revenue, [1986] 3 F.C. 553; 70 N.R. 214 (F.C.A.), refd to. [para. 134].

671122 Ontario Ltd. v. Sagaz Industries Canada Inc. et al., [2001] 2 S.C.R. 983; 274 N.R. 366; 150 O.A.C. 12; 2001 SCC 59, refd to. [para. 134].

Royal Winnipeg Ballet v. Minister of National Revenue (2006), 346 N.R. 276; 2006 FCA 87, consd. [para. 134].

Stubart Investments Ltd. v. Minister of National Revenue, [1984] 1 S.C.R. 536; 53 N.R. 241, refd to. [para. 142].

Placer Dome Canada Ltd. v. Ontario (Minister of Finance), [2006] 1 S.C.R. 715; 348 N.R. 148; 210 O.A.C. 342, consd. [para. 142].

Kennedy v. Canada Customs and Revenue Agency, [2000] 4 C.T.C. 186 (Ont. Sup. Ct.), refd to. [para. 153].

R. v. Dick, 2003 BCPC 13, refd to. [para. 153].

R. v. Sargent, [2004] O.J. No. 5389 (C.J.), refd to. [para. 153].

R. v. Nagora, [2004] O.J. No. 6039 (C.J.), refd to. [para. 153].

R. v. Sydel (E.N.M.), 2006 BCPC 346, appld. [para. 171]; refd to. [para. 153].

R. v. Turnir (C.), 2006 BCPC 460, appld. [para. 171]; refd to. [para. 153].

Minister of National Revenue v. Camplin, [2007] F.T.R. Uned. 94; 2007 D.T.C. 5165 (F.C.), refd to. [para. 153].

Hovey Ventures Inc. v. Canada, 2007 D.T.C. 617 (Tax C.C.), refd to. [para. 153].

R. v. Lindsay, 2008 BCPC 203, refd to. [para. 153].

R. v. Loosdrecht, 2008 BCPC 400, appld. [para. 171]; refd to. [para. 153].

Minister of National Revenue v. Stanchfield (2009), 350 F.T.R. 6; 2009 FC 72, refd to. [para. 153].

Minister of National Revenue v. Stanchfield (2009), 340 F.T.R. 150; 2009 FC 99, refd to. [para. 153].

Kion v. Canada, 2009 D.T.C. 1304, refd to. [para. 153].

R. v. Lemieux (G.) et al., [2007] Sask.R. Uned. 124; 2007 SKPC 135, refd to. [para. 154].

R. v. Klundert (J.) (2004), 190 O.A.C. 36 (C.A.), consd. [para. 162]; refd to. [para. 155].

R. v. Klundert (J.) (2008), 244 O.A.C. 377 (C.A.), leave to appeal refused (2009), 396 N.R. 390; 260 O.A.C. 398 (S.C.C.), refd to. [para. 155].

R. v. Paveley (1976), 30 C.C.C.(2d) 483 (Sask. C.A.), consd. [para. 161].

R. v. Kennedy (R.V.M.) (2004), 207 B.C.A.C. 102; 341 W.A.C. 102; 2004 BCCA 638, refd to. [para. 162].

R. v. Harding (M.) (2001), 152 O.A.C. 230; 160 C.C.C.(3d) 225 (C.A.), refd to. [para. 168].

R. v. Sansregret, [1985] 1 S.C.R. 570; 58 N.R. 123; 35 Man.R.(2d) 1, refd to. [para. 168].

Counsel:

Horst H. Dahlem, Q.C., for the Crown;

Douglas Amell, for all the accused.

This matter was heard at Moose Jaw, Saskatchewan, before Kovatch, P.C.J., of the Saskatchewan Provincial Court, who delivered the following judgment, dated July 21, 2010.