Canada: Tax Evasion: Lengthy Investigations And/Or Delays Do Not Necessarily Prevent A Prosecution

For numerous reasons, prosecuting tax evasion cases in Canada is tricky business. However, taxpayers breaking the law should not think that lengthy investigations or delays can be derailed by resorting to the protection of rights guaranteed by the Charter of Rights and Freedoms¹(the "Charter"). A good case in point is R. v. Dolinski.²

The Applicants were charged with conspiracy to commit fraud and fraud over $5,000 contrary to sections 465(1)(c) and 380(1) (a) of the Criminal Code;³they were also charged with conspiring to claim a refund or credit, or obtaining or claiming a refund or credit by unlawfully making, participating in, or acquiescing in the making of false or deceptive statements in income tax returns from 1994 to 2004 and from obtaining a refund or credit by falsely claiming a refund or credit in the tax returns for the 1994 to 2004 taxation years, contrary to subsections 239(1.1)(f), 239(1.1)(a) and 239(1.1)(e) of the Income Tax Act⁴(the "ITA").

In this matter, the Applicants sought an Order pursuant to the common law and/or section 24 of the Charter for a Stay of Proceedings ("Stay") on the basis that the cumulative pre-charge delay of approximately seven years from when the matter was first assigned for investigation by the Canada Revenue Agency (the "CRA") to the laying of charges violated their rights as guaranteed by section 7 of the Charter.

Section 7 of the Charter provides that: "everyone has the right to life, liberty and security of the person and the right not to be deprived thereof except in accordance with the principles of fundamental justice".

In this case, the Applicants argued that the pre-charge delay of seven years was excessive. They maintained that the additional post-charge delay should also be considered. In total, the cumulative delay of more than nine years caused them serious prejudice and specifically, the prejudice of making full answer and defence. Thus, the Applicants submitted that the only remedy in these circumstances that was both just and appropriate was a Stay because of the violation of their rights to fundamental justice and to be tried within a reasonable time.

The Crown opposed the Application and submitted that the evidentiary record did not demonstrate any actual material prejudice. There was no support for the Applicants' allegations that missing documents, videos or lack of witness memory or missing witnesses would damage the Applicants' ability to mount a full answer and defence. The Crown argued it was all pure speculation as to the potential impact of these assertions by the Applicants. The Crown raised additional arguments, including a response to the Applicants' claim that the proceedings had become oppressive and vexatious; here, the Crown argued that the Applicants failed to establish any ulterior motive or mala fides on the part of the CRA or the Crown in instituting the criminal proceedings.

The Application was heard by the Honourable Justice Beaudoin of the Ontario Superior Court of Justice. In short, a Stay can only be granted in the clearest of cases and this was not such a case that either rendered the proceedings unfair or damaged the integrity of the judicial system. Thus, the Application was dismissed.

Why did the Applicants ultimately fail? There were some good reasons. As the Court so noted, "[case law has demonstrated] that there must be an air of reality that the missing evidence would in fact and in a material way assist the accused". Here, the evidence was simply speculative as to what "might" happen without certain evidence such as missing witnesses. The Applicants were vague and did not establish the actual prejudice of missing witnesses and/or documents. Moreover, the mere passage of time was not in and of itself a reason to grant a Stay. The Applicants could not demonstrate in a meaningful way what effect this delay would have upon the fairness of a trial. The Court also found that there was no evidence of bad faith or ulterior motive. As the Court noted, the lengthy delay could be explained and the file did not lay dormant for any length of time. This was a complex case involving serious offences.

As this case illustrates, seeking an Order to Stay is very, very, difficult. It further informs us that backing up the Applicants' assertions with evidence of a credible nature is crucial to the possible success of the application. This case finally tells us that tax prosecutions can take a very long time and as long as there are good facts to support the length of the investigation process, the pre-charge and post-charge delays, it will be the exception and not the rule for a Court to grant a Stay.

David W. Chodikoff is an Editor of Taxes & Wealth Management. David is also a Tax Partner specializing in Tax Litigation (Civil and Criminal) at Miller Thomson LLP.

Footnotes

1 Part I of the Constitution Act, 1982, being Schedule B of the Canada Act, 1982 (UK), 1982, c. 11.

2 2014 ONSC 681.

3 R.S.C. 1985, c. C-46.

4 R.S.C. 1985, c. 1 (5th Supp.).

Originally published by Taxes & Wealth Management, May 2015.

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