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
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
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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