You’re annoyed at the federal government for its handling of the Canadian Wheat Board issue and want to protest. It’s tax season and you decide what better way to protest than by withholding your taxes.
Canadian courts, however, have been clear that tax protests, no matter what the cause, are not a defence against charges of tax evasion, failure to file a return or to disclose income.
In the 2004 Klundert case, an optometrist refused to pay taxes and left his form blank, claiming the government did not have the constitutional authority to collect taxes. A jury convicted him of making a false statement but acquitted him on a charge of tax evasion. On appeal, the court ordered a new trial since it could not overrule a jury acquittal. It said in this case there was no misinterpretation or honest mistake but rather a deliberate decision to withhold tax.
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The only defence that the courts have recognized is one of due diligence.
In the Khalil case, a recent Afghan immigrant to Canada was assessed a penalty for not fully disclosing her income. She operated a small business and worked for a temporary placement agency. Then she obtained full-time employment. She received a T4 but did not report the income. She assumed that her employer would report her earnings and remit her tax. She did her own returns.
In the tax court judge’s words, “she always intended to pay income tax on all of her earnings … she simply did not understand how the system works. As luck would have it, 1998 and 1999 (the years she did her own returns) were the first two years after her arrival in Canada when she had full-time employment, source deductions, and a T4 slip.” The judge allowed the appeal.
A similar result occurred in the Carlisi case. Carlisi worked with a large law firm and relied on the firm’s accountant to complete his return. The firm then changed accountants. Carlisi asked the new accountants to prepare his returns, but they were late. The accountants alleged the delay was due to the volume and complexity of transactions.
The tax judge noted this was a case “close to the line” but that Carlisi had filed his returns in a timely manner for 20 years, that the firm had hired new accountants without whose expertise Carlisi could not determine his income, and that he had done everything possible to urge them to quickly complete the return. The appeal against the late filing penalty was allowed.
A different result occurred in the Saunders case. She was penalized for failing to report employment income. Her employment was terminated when her employer closed the plant where she worked. She was given a record of employment for Employment Insurance purposes, but not a T4. She was unsuccessful in tracking her employer and obtaining the T4. She gave her accountant the Record of Employment, but due to a misunderstanding, the earnings did not appear on her tax return. To add to her difficulties, her husband was disabled by an accident during this period.
In this case the tax judge found that due diligence defence had not been established. While she had been diligent in trying to obtain a T4, she did not carefully review her return before it was submitted nor follow up after she received a refund.
Don Purich is a former practising lawyer who is now involved in publishing, teaching and writing about legal issues. His columns are intended as general advice only. Individuals are encouraged to seek other opinions and/or personal counsel when dealing with legal matters.
