It is almost always the case that criminal charges for tax evasion are accompanied by a civil assessment or reassessment of taxes. Often, the fact situation is straightforward. The person earned more income than was declared. The failure to declare the income is the basis of the tax evasion charge and the Minister reassesses taxes based upon the undeclared income and imposes gross negligence penalties.
Several recent cases have illustrated the importance of being forward looking when providing advice on whether a client who is charged with tax evasion should plead guilty. For example, in Harvey v. The Queen, 2013 TCC 298, the Minister imposed gross negligence penalties for taxation years 2003 and 2004 and the appellant appealed. The appellant had previously pleaded guilty to a s.239(1)(a) ITA criminal offence in relation to 2003.
In finding that the respondent had proven that the appellant had been grossly negligent, the court noted that the appellant “does not dispute that the unreported revenue in respect of which he pled guilty is the same unreported revenue in respect of which the penalties have been applied.”
In Raposo v. The Queen, 2013 TCC 265, the court held that a “criminal conviction is admissible as prima facie evidence of the material facts underlying the conviction…Even greater weight may be accorded to a prior criminal conviction where there has been a full trial.”
Citing Raposo, the court in Harvey held that the appellant’s guilty plea constituted prima facie proof that the appellant had been grossly negligent in failing to fully report his 2003 revenue and, therefore, “[i]f Mr. Harvey wishes to avoid the penalties, he will have to introduce sufficient evidence to overcome that prima facie proof.”
Raposo was decided on 26 August 2013. Several weeks later, on 16 September 2013 in the case of Lee v. The Queen, 2013 TCC 289 the court once again considered the effect of a criminal conviction upon a reassessment that included gross negligence penalties. In Lee, Crown argued that the conviction was prima facie proof that income had been falsely reported. The court stated: “I am not clear why the Crown took this position because the authority that counsel relied on concluded that a criminal conviction may be dispositive and not merely prima facie proof.”
There are many reasons why a client might choose to plead guilty to a criminal offence. However, when advising a client who is charged with tax evasion, it is essential that the client understand that the consequences of a guilty plea might include that the plea stands as either prima facie or dispositive proof of facts relevant to a reassessment.
For this reason, it is also essential for counsel who is representing a person who is pleading guilty, or for an adviser assisting a person who has been reassessed, to understand that a guilty plea is “an admission of the essential elements of the offence” and the submissions that Crown and defence might make to a court during sentencing proceedings are related to but distinct from the “essential elements”.
At times, Crown and defence will have an agreement with respect to the relevant facts for sentencing. At other times, facts may be in dispute and party wishing to rely upon a disputed fact must prove it. For example, a person might agree that he or she evaded taxes in a particular year but disagree as to the amount. Needless to say, defence counsel in the criminal proceedings must exercise great care in determining what the facts that might be agreed to, and the adviser in the civil proceedings must carefully assess precisely what the guilty plea stands for and what it does not.
Published by Greg DelBigio, Thorsteinssons LLP, on October 15th, 2013
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