Taxation National

Samaroo shocker: CRA wins tax case appeal

BC Appeals Court reverses malicious prosecution case cheered by accountants

Author: Canadian Accountant

Toronto, April 11, 2019 – In a shocking reversal, the Canada Revenue Agency has won its appeal of a case of “malicious prosecution” that Canadian tax accountants and lawyers deemed evidence of CRA abuse and overreach. In a decision released Tuesday on behalf of a three-judge panel, Justice David Harris of the BC Court of Appeal said a trial judge was wrong to believe tax evasion cannot be proven unless the particular mechanics of how the tax was evaded is proven. The ruling has widespread implications for the Canadian accounting profession and tax professionals in particular. 

In 2018, B.C. Supreme Court Justice Robert Punnett ruled Tony and Helen Samaroo were the victims of an “egregious” prosecution and of “highly blameworthy” and “reprehensible” conduct by the Canada Revenue Agency. As reported by Canadian Accountant, the Samaroos owned and operated a restaurant and resort in Nanaimo, B.C. In 2008 they were charged with 21 counts of tax evasion for allegedly skimming $1.7 million from the business. The judge ruled the CRA’s conduct “must be denounced … it violated fundamental rights and was highly reprehensible.”

The Punnett decision was widely regarded as landmark and “groundbreaking.” Some tax accountants and lawyers were quick to jump on the decision as evidence of an “unfortunate culture” at the CRA. Conservative MPs cited the case during Question Period. Other professionals took a more balanced approach, saying “we can be certain that there are many CRA professionals of the highest quality who devote their careers to serving Canada.” 

The CRA claimed Justice Punnett interpreted the law the wrong way with regards to the material facts of the case and its reasonable cause for prosecution. On Tuesday, the BC Court of Appeal agreed with the CRA, saying the judge’s error was “sufficient to dispose of the appeal; it is unnecessary to examine whether the trial judge erred in concluding the Crown was motivated by malice.” 

A long legal battle

The case began in 2006 with a tip to the CRA that led to 21 criminal tax evasion charges in 2008. In 2011, the Samaroos were acquitted in a criminal trial, after a judge declared the Crown’s case was flawed and weak and the amount of tax evaded “highly uncertain.” 

The Samaroos took the CRA to court for malicious prosecution; seven years after the original ruling, the trial judge found the CRA liable for malicious prosecution and a section 7 Charter breach. He awarded the couple $1.7 million in damages. 

Justice Harris was “persuaded the trial judge erred in law.” He placed an “erroneous emphasis on the necessity of proof of the alleged mechanics of the scheme of the evasion, rather than focusing on the intentional underreporting of taxable income. He also erred in reversing the onus of proof by requiring the CRA to prove the existence of reasonable and probable cause, rather than requiring the Samaroos to prove its absence.” 

The Appeal Court’s decision centred on the leading precedent in malicious prosecution cases, the Supreme Court of Canada decision in Miazga v. Kvello Estate, 2009. Justice Harris agreed with the CRA that the Crown is not required to prove a particular scheme: 

Where the necessary intent to evade taxes is present, then the specific manner in which the intent is carried out is not a necessary element of proving the offence, even though proof is required to show the intent was in fact carried out. The accused must have voluntarily performed an act or engaged in a course of conduct to avoid or attempt to avoid paying tax, but that fact can be proven in many ways including by drawing inferences from circumstantial evidence. 

Justice Harris found that, not only did the CRA provide substantial evidence at the criminal trial, there was a “considerable body of circumstantial and other evidence from which an inference could be drawn that the Samaroos were suppressing the existence of taxable income by skimming cash out of the businesses. How compelling is that evidence is a different question.” 

Did the Samaroos make a fateful error in pursuing a malicious prosecution claim? The trial judge’s ruling was widely cheered and portrayed as a David versus Goliath victory. The BC Court of Appeals, however, found the CRA was justified in prosecuting the Samaroo case: 

The question, now, is whether, rather than directing a new trial, it is open to this Court to assess whether reasonable and probable cause existed. In my view, it is; the Samaroos failed to prove an absence of reasonable and probable cause to initiate and continue the prosecution

The Court allowed the appeal, set aside the order and dismissed the underlying action. Neither party has expressed an intention of further legal action at this time. 

By Canadian Accountant staff. Read the full ruling here. Image by rawpixel.com.

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