McCartie v. The King

McCartie v. The King
Court (s) Database
Tax Court of Canada Judgments
Date
2024-02-06
Neutral citation
2024 TCC 16
File numbers
2016-2716(IT)G, 2016-2717(GST)G
Judges and Taxing Officers
Patrick J. Boyle
Subjects
Income Tax Act
Part IX of the Excise Tax Act (GST)
Decision Content
Dockets: 2016-2716(IT)G
2016-2717(GST)G
BETWEEN:
COLIN MCCARTIE,
Appellant,
and
HIS MAJESTY THE KING,
Respondent.
Appeal heard on September 20, 21, 22, 23, 2021 and on October 13, 14, 15, 2021 at Vancouver, British Columbia
Before: The Honourable Justice Patrick Boyle
Appearances:
For the Appellant:
The Appellant himself
Counsel for the Respondent:
Eric Brown
Jamie Hansen
ORDER
In accordance with the attached written reasons, it is ordered that in this appeal:
The respondent cannot introduce or rely on any evidence that was first collected from the search and seizure at the McCarties’ home to establish the amount of tax owing. Further, the respondent’s assumptions set out in its reply do not enjoy any presumption of being correct nor impose any initial burden on Mr. McCartie to demolish them.
The respondent cannot introduce or rely on any evidence that was first collected from the search and seizure at the McCarties’ home to justify reassessing after the normal assessment period had expired; and
The respondent cannot introduce or rely on any evidence collected from the second audit of the McCarties, or first collected from the search and seizure at the McCarties’ home, to support the penalties assessed.
The Appellant is entitled to costs on this hearing
Signed at Ottawa, Canada, this 6th day of February 2024.
“Patrick Boyle”
Boyle J.
Citation: 2024 TCC 16
Date: 20240206
Dockets: 2016-2716(IT)G
2016-2717(GST)G
BETWEEN:
COLIN MCCARTIE,
Appellant,
and
HIS MAJESTY THE KING,
Respondent.
REASONS FOR ORDER
Boyle J.
TABLE OF CONTENTS
I. Précis 2
II. The Relevant Charter Provisions 4
III. Preliminary Matters 6
(i) The subpoena of CRA’s Ms. Sundberg. 6
(ii) Scope of voir dire evidence. 7
(iii) Crown concession re 2009 ITA gross-negligence penalty. 8
IV. The Charter Breaches 8
(i) McCartie 2013 BCPC 221 (“McCartie 2013-1”) (3-day voir dire hearing) 9
(ii) McCartie 2013 BCPC 289 (“McCartie 2013-2”) (3-day voir dire hearing) 11
(iii) McCartie 2014 BCPC 128 (“McCartie 2014”) (19-day voir dire hearing) 13
(iv) McCartie 2015 BCPC 066 (“McCartie 2015-1”) (2-day voir dire hearing) 22
(v) McCartie 2015 BCPC 69 (“McCartie 2015-2”) 25
(vi) McCartie 2015 BCPC 233 (“McCartie 2015-3”) 34
(vii) McCartie 2015 BCPC 254 (“McCartie 2015-4”) 39
V. Summary of the BC Court’s Charter breach findings and remedies 50
VI. This Voir Dire Proceeding 51
(i) Mr. McCartie’s evidence 52
(ii) Annette Coles’ evidence 54
(iii) David McLachlan’s evidence 55
(iv) Angelina Loo’s evidence 56
(v) Alan Jones’ evidence 57
VII. Law and analysis 59
VIII. The Grant Analysis and Conclusions 60
I. Précis [1] These are my reasons on a voir dire to determine whether a remedy is available, and if so what remedy is appropriate, in this proceeding in respect of multiple violations of Mr. McCartie’s Charter rights in his related criminal proceedings arising out of CRA’s audit of him and his wife[1].
[2] In the underlying reassessments in issue, Mr. McCartie is presumed by the Crown to have claimed natural person, sovereign citizen type deductions or non‑inclusions to not include, or to significantly reduce, the amount of revenue he reported as taxable and subject to GST/HST. He was reassessed by Canada Revenue Agency (“CRA”) to deny those deductions and to impose gross negligence penalties.
[3] Mr. McCartie was also charged criminally with false reporting and evasion under the Income Tax Act (“ITA”) and with evasion under the Excise Tax Act (“ETA”) in respect of these claimed deductions or failures to include in income. His wife was also charged under the ITA with evading taxes. Their criminal cases proceeded together in the British Columbia courts. In a lengthy series of rulings, the BC Provincial Court clearly found that the McCarties’ Charter rights had been violated in multiple respects and on multiple occasions. This included their rights under both section 7 and section 8 of the Charter. The BC Court imposed section 24 Charter remedies in respect of these breaches at several stages of the criminal proceedings. Both CRA Criminal Investigations Division and RCMP police were involved in the events giving rise to the breaches of the McCarties’ Charter rights. In the end, the BC Court stayed the criminal charges because it concluded that, in the circumstances, if there were to be a trial, it would not be possible for the McCarties to receive a fair trial as guaranteed by section 11(d) of the Charter.
[4] The Charter violations found by the BC Court included breaches of sections 7 and 8 in respect of the search of their home and CRA’s unacceptably negligent loss of its notes and records. The BC Court described the breaches as significant and cumulatively very serious.
[5] The Charter violations found by the BC Court are not being relitigated in this proceeding, and this Court has not been asked to decide if there were events giving rise to other Charter violations. The only Charter issues in this voir dire are whether a section 24 remedy can be imposed by this Court in respect of Mr. McCartie’s tax appeal for the Charter breaches found by the BC Court in respect of which remedies were already granted in that court and, if so what remedy is appropriate in this Court. This includes possible remedies for breaches of section 8 Charter rights that only exist with respect to criminal proceedings.
[6] For the reasons that follow, I have decided that section 24 of the Charter permits this Court to impose remedies if appropriate in respect of Charter breaches determined by another court in which a remedy is already being, or has been, imposed in respect of that court’s proceedings. I have concluded this could extend, if appropriate, to breaches of Mr. McCartie’s section 7 and section 11 Charter rights which can only be breached in the context of criminal proceedings.
[7] I have concluded that, in Mr. McCartie’s particular circumstances, certain evidence will not be able to be used by the respondent in this proceeding for certain purposes, whether by way of tendering it in evidence, using it to impeach credibility, referring to it in any manner that is even implicitly suggestive that an adverse inference might be drawn, or otherwise. The excluded evidence is set out below, and includes evidence subsequently obtained by the respondent as a result of having obtained evidence in breach of Mr. McCartie’s Charter rights. Nor can the respondent use the transcript in this voir dire or these reasons except, as permitted below, with respect to the evidence of the respondent’s witnesses on the substantive issues alone.
[8] I do not and cannot address at this voir dire stage whether Mr. McCartie’s alleged under-reporting of his income and revenue in the years in question, was done “knowingly or under circumstances amounting to gross negligence” permitting the assessment of penalties, or whether it was a misrepresentation permitting reassessments beyond the normal reassessment period. Those issues have to be left until the hearing resumes on the substantive merits.
II. The Relevant Charter Provisions
Legal Rights
Life, liberty and security of person
7 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.
Search or seizure
8 Everyone has the right to be secure against unreasonable search or seizure.
Proceedings in criminal and penal matters
11 Any person charged with an offence has the right
…
(c) not to be compelled to be a witness in proceedings against that person in respect of the offence;
(d) to be presumed innocent until proven guilty according to law in a fair and public hearing by an independent and impartial tribunal;
Enforcement
Enforcement of guaranteed rights and freedoms
24 (1) Anyone whose rights or freedoms, as guaranteed by this Charter, have been infringed or denied may apply to a court of competent jurisdiction to obtain such remedy as the court considers appropriate and just in the circumstances.
Exclusion of evidence bringing administration of justice into disrepute
(2) Where, in proceedings under subsection (1), a court concludes that evidence was obtained in a manner that infringed or denied any rights or freedoms guaranteed by this Charter, the evidence shall be excluded if it is established that, having regard to all the circumstances, the admission of it in the proceedings would bring the administration of justice into disrepute.
Garanties juridiques
Vie, liberté et sécurité
7 Chacun a droit à la vie, à la liberté et à la sécurité de sa personne; il ne peut être porté atteinte à ce droit qu’en conformité avec les principes de justice fondamentale.
Fouilles, perquisitions ou saisies
8 Chacun a droit à la protection contre les fouilles, les perquisitions ou les saisies abusives.
Affaires criminelles et pénales
11 Tout inculpé a le droit :
…
c) de ne pas être contraint de témoigner contre lui-même dans toute poursuite intentée contre lui pour l’infraction qu’on lui reproche;
d) d’être présumé innocent tant qu’il n’est pas déclaré coupable, conformément à la loi, par un tribunal indépendant et impartial à l’issue d’un procès public et équitable;
Recours
Recours en cas d’atteinte aux droits et libertés
24 (1) Toute personne, victime de violation ou de négation des droits ou libertés qui lui sont garantis par la présente charte, peut s’adresser à un tribunal compétent pour obtenir la réparation que le tribunal estime convenable et juste eu égard aux circonstances.
Irrecevabilité d’éléments de preuve qui risqueraient de déconsidérer l’administration de la justice
(2) Lorsque, dans une instance visée au paragraphe (1), le tribunal a conclu que des éléments de preuve ont été obtenus dans des conditions qui portent atteinte aux droits ou libertés garantis par la présente charte, ces éléments de preuve sont écartés s’il est établi, eu égard aux circonstances, que leur utilisation est susceptible de déconsidérer l’administration de la justice.
III. Preliminary Matters
(i) The subpoena of CRA’s Ms. Sundberg. [9] Prior to the hearing, the appellant sought to issue a subpoena for the lead CRA investigator of the McCarties in the years in question, Kathy Sundberg, who testified against them in the BC Court proceedings. Ms. Sundberg had since retired from CRA and the respondent did not want to disclose her address to the appellant. Following a trial management hearing, the respondent agreed it would subpoena Ms. Sundberg and call her as a witness. Attempts to serve Ms. Sundberg were not successful. Based on the multiple process servers’ reports, I concluded prior to the trial date that Ms. Sundberg was very clearly evading service of the Crown’s subpoena. Accordingly, the Court had arrangements in place for the first day of hearing to promptly and effectively address Ms. Sundberg’s failure to accept service of the subpoena and to attend Court.
[10] Prior to the first day of the hearing, the parties reached an agreement that Mr. McCartie would not require Ms. Sundberg to testify if certain agreements and concessions were made with respect to her testimony and evidence before the BC Court and that Alan Jones would testify. Mr. Jones was the Team Leader of the CRA Criminal Investigations unit in Vancouver at the relevant times.[2]
[11] In these circumstances, and for purposes of this proceeding, I will regard Ms. Sundberg’s evidence in the BC Court, and what that court wrote about it, as the most favourable version of events from the respondent’s point of view and Ms. Sundberg’s, as it has not been the subject of further testimony from her or subject to cross-examination in this Court. I will similarly regard what her team leader Mr. Jones testified to in this proceeding regarding Ms. Sundberg as matters Ms. Sundberg would not disagree with as she has herself chose not to testify. Finally, any of Ms. Sundberg’s evidence from the BC Court proceedings can be challenged by Mr. McCartie in this proceeding as is specified in the parties’ agreement, subject of course to issue estoppel, abuse of process and/or similar constraints.
(ii) Scope of voir dire evidence. [12] This voir dire is to address the issue of what remedy, if any, should be imposed under section 24 of the Charter in respect of the events and concerns giving rise to several breaches by the respondent of Mr. McCartie’s Charter rights.
[13] Mr. McCartie is a self-represented litigant. In this appeal the onus/burden of proof is on the respondent with respect to both the statute-barred years and gross negligence penalty issues.
[14] In the interest of efficiency of the appeal process as a whole, the parties were agreeable to the Crown witnesses on this voir dire also giving their evidence on the merits and substantive issues in these appeals. In this decision on the voir dire addressing the issue of remedies, and having decided the remedy will include restrictions on evidence the Crown may submit on the substantive merits regarding these issues, I also need to identify what portion, if any, of their testimony in the voir dire can be used in the hearing on the merits. On this basis, all of the Crown witnesses in this proceeding have given evidence in chief, been cross-examined, and have answered my questions regarding their evidence. Any further Crown evidence in this proceeding will require leave.
[15] In the circumstances of this case, I would not allow Mr. McCartie to testify in this voir dire to the merits and substantive issues in his appeals. His evidence was limited to the Charter issues and evidence. It did not appear wise to allow an unrepresented appellant testify on a voir dire and submit to cross-examination on the substantive aspects of his appeal. The efficiency of the trial process should not be allowed to override the interests of justice and fairness. When his hearing resumes on the merits, Mr. McCartie and his other witnesses will testify, be cross-examined and answer the Court’s questions at that time, once Mr. McCartie knows what Crown evidence is excluded.
[16] I did allow Mr. McCartie to testify on a limited basis to facts pertaining to the substantive merits sufficient to provide me with the context he thought I needed to have before hearing the Crown witnesses.
[17] This hearing lasted [7] days over a 3 month period. Written submissions from the parties were scheduled and received thereafter. The respondent later made written submissions in respect of the subsequent January 2023 decision of juge Lafleur of this Court in Bellevue Félix, 2023 CCI 5, to which the appellant was also given the opportunity to respond after being provided by the Court with the official English translation of juge Lafleur’s decision.
(iii) Crown concession re 2009 ITA gross-negligence penalty. [18] At the outset of the hearing, the respondent conceded the issue of the assessment of a gross negligence penalty under the ITA for the year 2009. The appeal in respect of that 2009 ITA penalty is allowed.
IV. The Charter Breaches [19] There are a number of decisions of the BC Court in the years 2013 to 2015 involving the related tax evasion charges against the McCarties. That court found several breaches of the McCarties’ Charter rights under sections 7 and 8. In the end, the BC Court judge stayed the charges against both McCarties in 2015 on the basis that, if he allowed the trial to continue without access to evidence relating to the date that CRA’s predominant purpose became an investigation of a potential crime, both because of CRA having lost most of the notes taken by the auditor who made notes of almost everything, and the failure of other auditors and/or investigators to make and/or keep notes, and because of the McCarties’ lack of access to the tax lead that may have given rise to the involvement of CRA Criminal Investigations because its contents and/or date might disclose the identity of the informer, would be to deny them to a fair trial and fundamental justice contrary to sections 8 and 11 of the Charter.[3]
[20] The following BC Court decisions and reasons are relevant to this voir dire in Mr. McCartie’s tax appeal. All of these are decisions of Judge Gouge, and the McCarties were self represented at each of these hearings. There were at least four earlier decisions of the BC Court in the McCarties’ proceedings dealing with, among other things, the McCarties’ disclosure request for CRA’s notes and records, the McCarties’ asserting of their rights to fairness in their trial, and the issue of informer privilege.
(i) McCartie 2013 BCPC 221 (“McCartie 2013-1”) (3-day voir dire hearing)
[21] In the immediately preceding McCarties decision by another judge, the BC Court determined that informer privilege applied to “Any information which might give rise to a risk of disclosure of the identity of an informer in this case” and “the Crown aknowledges that the informer, while confidential, was not anonymous, and the Crown is aware of his or her identity”.
[22] Before the BC Court, at this hearing after the trial had commenced, was the issue of whether certain evidence gathered by CRA using its audit power should be admissible since it was asserted by the McCarties that it was obtained by compelled disclosure at a time that the predominant purpose of CRA’s inquiries was to gather evidence for a criminal prosecution which is contrary to R. v. Jarvis [2002] 3 SCR 757. Central to this issue was the foundational need for the McCarties to establish the date on which the predominant purpose of CRA’s inquiries changed from audit to potential criminal prosecution which that court referred to, and as defined as, the Key Date.
[23] The evidence regarding the Key Date depended primarily on oral evidence of CRA employees. The Crown asserted that “much of the evidence that would shed light on the Key Date would, if disclosed to Mr. and Ms. McCartie, give rise to a risk of disclosure of the identity of the informer”. The Crown asked Judge Gouge that hear that evidence in camera.
[24] Judge Gouge’s summary of the evidence in the trial prior to the commencement of the voir dire he was then deciding included the following.
[25] Jason Brown audited both McCarties’ 2002 and 2003 years in 2004. Mr. Brown submitted his audit report to his supervisor in March 2005. Reassessments of both years were issued to both taxpayers. Both McCarties appealed the reassessments and were “substantially successful” resulting in “significant reduction” to their reassessed taxes and the cancellation of penalties assessed. Prior to March 2005 Mr. Brown had no communication with CRA Criminal Investigations relating to the McCarties.
[26] In March 2005 Mr. Brown prepared the Penalty Recommendation Report. The penalty report stated that Mr. McCartie knowingly claimed specific business expenses that he knew were false having: i) deducted a single expense twice; ii) deducted expenses incurred in Canada while he was not in the country; and iii) deducted amounts that were not even incurred.
[27] Judge Gouge noted that, read grammatically, each of these three assertions is an allegation of criminal fraud by Mr. McCartie. Mr. Brown, however, denied that he intended to make such allegations. That penalty report was sent, as a matter of routine, to Criminal Investigations. Per Judge Gouge “That is because, in most cases, the circumstances which will justify the imposition of the penalty under section 163(2) of the ITA raised at least the possibility of criminal misconduct”
[28] In the next two months (prior to June 2005) the Assistant-Director of Criminal Investigations and one of her Investigators summoned Mr. Brown to a meeting with them to discuss whether there should be a criminal investigation of the McCarties. It was decided that they did not warrant a criminal investigation due to the amounts involved and the available evidence. Mr. Brown flagged the McCarties’ audit files for follow-up in future years.
[29] Mr. Brown transferred to Criminal Investigations for a period of six to seven months in 2007 and worked as an Investigator throughout that time. He could not recall if he took the McCarties’ audit files with him to Criminal Investigations, whether he could access them electronically, or whether Criminal Investigations could access audit files electronically.
[30] At the end of his seven months in Criminal Investigations, Mr. Brown returned to his duties in Audit. His reminder system brought the McCarties’ audit files forward for review. He noted Mr. McCartie had made an assignment in bankruptcy and that his annual personal expenses reported to the trustee in bankruptcy could not have been funded from his income reported to CRA.
[31] Mr. Brown’s supervisor and Team Leader in Audit also testified. His team conducted a series of audits of the McCarties during the periods 2002 to 2007. His audit team prepared and printed on February 11, 2008 documents, a portion of which had been rubberstamped after printing with the words “ADDITIONAL INFORMATION - SEE INVESTIGATIONS - DO NOT PLACE SCREEN 1 IN TAXPAYER’S FILE”. That rubberstamp is kept in the office of Criminal Investigations and used by Criminal Investigations. Judge Gouge wrote that “it appears at least likely that the stamp was applied after the Key Date”. When the judge asked his own question of the witness about when such a stamp would be applied to documents generally by Criminal Investigations, the Crown objected on the basis an answer might reveal the date of the informer tip and assist the McCarties to identify the informer. When Judge Gouge did not allow the objection, the Crown asked for an in camera hearing to determine which questions the McCarties or the judge could put to CRA witnesses in relation to the Key Date.
[32] In his analysis, Judge Gouge described as “well settled” that the right to make full answer and defense is an aspect of the right to fundamental justice guaranteed by section 7 of the Charter. He continued that one cannot make a full answer to evidence which one has not heard. He noted that this may be limited by other pressing juridical objectives and that the Supreme Court of Canada has held that the need to protect informer confidentiality outweighs the right to fundamental justice. Judge Gouge concluded that an in camera hearing should be held to determine the Key Date, but that another judge of the BC court should preside at the in camera hearing. Judge Gouge also noted that, while the onus to prove a Charter breach on a balance of probabilities normally falls on the party alleging the breach, in this case the Crown may carry that onus as the facts pertaining to the Key Date are within the exclusive knowledge of the Crown.
(ii) McCartie 2013 BCPC 289 (“McCartie 2013-2”) (3-day voir dire hearing)
[33] A judge of the Supreme Court of British Columbia had held that Judge Gouge had erred in deciding that another BC Provincial Court judge should preside at an in camera hearing and determine the Key Date. The matter was sent back to Judge Gouge.
[34] Judge Gouge wrote in his background paragraphs that the McCarties explained that they were unable to afford counsel and had been refused legal aid. He continued “they are intelligent, articulate, well educated people, but have no legal training. As a result, the complex procedural issues now under discussion are difficult for them to understand”.
[35] In deciding what procedure would best accommodate to the greatest extent the McCarties’ right to a fair trial and give them a fair opportunity to present their case for exclusion of alleged evidence compelled after the Key Date, given the state’s interest in protecting the identity of a confidential informer, Judge Gouge concluded:
An adversarial hearing in which all of the evidence is presented by the Crown, and in which no one is entitled to cross-examine the Crown witnesses, is not a fair hearing;
An adversarial hearing in which one party, who may bear the onus of proof, is excluded while the other party presents all of the material evidence would be an “extremely unfair hearing”.
That, if Judge Gouge were to ask questions of the Crown witnesses on behalf of the McCarties, but without any ability to get instructions from them or to review all of the Crown disclosure to them, that process would be “grossly unfair”.[4]
There should be no in camera hearing to determine the Key Date in the course of the trial, unless and until the Crown identifies that information relevant to the confidential informer identity is about to be, or may be revealed. At that time, the hearing of the trial would proceed in camera until the judge decides the risk has passed.
While the trial is heard in camera, the judge would ask questions of counsel and witnesses as he thinks appropriate which may include a “searching cross‑examination” of a witness, and
While excluded from any witness’ testimony, the McCarties could offer suggestions to the judge, in the presence of the Crown but not the witness, as to areas of evidence he ought to explore with each witness and suggestions for cross-examination by the judge when the in camera testimony of the Court continued.
[36] Judge Gouge noted that he was not confident his procedure would result in a fair trial and that he could only assess that later in the trial. If he were to conclude the trial was not fair, it would then be necessary for him to decide whether it should be allowed to proceed, despite the unfairness, or whether a stay of proceedings should be ordered by him.
[37] He further noted that, as the standard of proof in proving the Key Date was a balance of probabilities, and given that determinations to such a standard rarely depend on who bears the onus, it might never be necessary to decide where the onus lies in this case.
(iii) McCartie 2014 BCPC 128 (“McCartie 2014”) (19-day voir dire hearing)
[38] Judge Gouge begins by noting that, at this stage, he is at 19 days of a voir dire hearing since resuming the trial after McCartie 2013-2 had started and that the voir dire is incomplete. He suspended this voir dire after he asked the parties if it should be suspended to allow him to hear and decide an application by the McCarties for a stay of judicial proceeding filed months earlier after McCartie 2013-2. The grounds advanced for the stay were that the McCarties had been denied a fair opportunity to prove their case on the voir dire as a result of CRA’s loss of the notes prepared by Annette Coles, a CRA auditor, during the CRA audit of the McCarties for 2005 to 2007. The parties all agreed that the stay application should be heard at that time. However, after Mr. McCartie made their submissions, and just before the Crown was to make its submissions, the McCarties said that they had reconsidered, that they wanted to finish calling their witnesses in the Jarvis voir dire and defer further consideration of the stay application until that had been completed. Judge Gouge decided that it was not appropriate to continue hearing a stay application until either:
1)All of the evidence on the Jarvis voir dire had been heard; or
2)All of the parties agreed that enough evidence had been heard on the Jarvis voir dire to return to hear and decide the stay application.
[39] Further evidence/facts in this decision: Judge Gouge’s summary of the evidence heard to that date was as follows.
[40] CRA has separate departments for civil audits and for Criminal Investigations that have separate offices, separate staff and separate files. When an auditor suspects that a criminal offence has been committed, they are required to report their suspicions to their team leader. If the team leader considers it appropriate, the team leader reports the facts to Criminal Investigations, which then decides whether to launch a criminal investigation. If it decides to launch a criminal investigation, Audit hands over its file to Criminal Investigations and ceases to have any role with the case.
[41] The evidence of CRA’s note-taking policies was from two auditors involved with the McCarties’ audits—Ms. Coles mentioned above, and David McLachlin, who took over the audits from Ms. Coles (and who also testified in the voir dire I am now deciding). The evidence of these two auditors diverged on this topic. Judge Gouge summarized Ms. Coles’ evidence; it included:
[12] Two CRA auditors, Ms. Coles and Mr. McLachlan, gave divergent evidence about CRA’s note-taking and note retention policies. Ms. Coles said that:
a. She took handwritten notes during all meetings of significance, whether with the taxpayer, with other CRA employees or with external sources of information.
b. Upon her return to her office, she would transpose those notes onto CRA Form T-2020.
c. In many cases, her notes on Form T-2020 were more extensive than her handwritten notes because she would supplement her handwritten notes with her memory of the meeting.
d. Form #T-2020 is used to record notes of: (i) substantive information received; (ii) significant oral communications; and (iii) decisions relevant to the audit, which are not otherwise recorded in writing. So, for example, all oral communications with the individuals who are the subject of the audit are recorded on Form #T-2020, but correspondence with those individuals is not because hard copies of the correspondence are maintained in the correspondence file.
e. As she understood CRA’s policies, she was required to make notes on Form T-2020 whenever she discussed an audit with her team leader or with any employee of the Investigations Department. Those notes would include summaries of the matters discussed, of any decisions taken and of the reasons for the decisions.
f. Form T-2020 notes were stored on CRA’s computer system.
[13] Mr. McLachlan said that he would make a note on Form T-2020 whenever he met with his team leader, but that the note would not necessarily record what was said at the meeting - it might simply record that a meeting occurred. Similarly, if he met with staff of the Investigations Department, and the Investigations Department decided not to launch a criminal investigation, he would note the existence, but not necessarily the substance, of the discussion, on Form T-2020. He said that, if the Investigations Department decided to launch a criminal investigation, he would hand over his files (paper and electronic) to the Investigations Department, and would not thereafter have access to the file, with the result that he could not make any further notes on Form T-2020.
[14] The evidence includes some examples of Mr. McLachlan’s T-2020 notes on the McCartie file. They are consistent with his oral evidence of his note-taking practice; i.e. they provide few or no details of the matters discussed on the occasions which are the subject of the notes.
[42] Judge Gouge’s summary of Mr. Brown’s evidence included:
[18] Shortly after issuing his notice of reassessment [for the earlier years 2002-2003 in 2005], Mr. Brown was approached by Ms. Karen Etches and Mr. Greg Chan. Ms. Etches was then the Assistant Director of the Investigations Department and Mr. Chan was an investigator who worked under her supervision. Mr. Brown, Ms. Etches and Mr. Chan met. Mr. Brown described the meeting in the following terms:
… they were asking me questions about possibly conducting an investigation, and I told them that this is mostly just personal expenses, and I don’t think that this would warrant a … full-on investigation. I just felt that it was just a --- that they [Ms. & Mr. McCartie] were just negligent.
Mr. Brown said that, at the conclusion of the meeting, Ms. Etches and Mr. Chan expressed a lack of interest in pursuing a criminal investigation of Mr. & Ms. McCartie.
[19] Mr. Preshaw [respondent counsel] informed me that Ms. Etches and Mr. Chan have no notes of the meeting, and profess to have no recollection of it.
[20] Mr. Brown denied that he suspected Mr. or Ms. McCartie of fraud or tax evasion. However, three passages in his report to his team leader, Mr. Gordon Lidster, cast some doubt on the assertion.
a. In his report, Mr. Brown said:
The taxpayers’ records were inadequate for income tax purposes. Furthermore, some of the expense receipts were not even incurred by the taxpayer.
In his oral evidence, Mr. Brown characterized that statement as an assumption, rather than an assertion. The document does not support that characterization.
b. In his report, Mr. Brown said:
Along with the egregious amounts of personal expenses being deducted, there were many other problems with the records. Some of the cash expenses were already recorded.
In answer to Mr. McCartie’s question during cross-examination, Mr. Brown confirmed that this passage was intended to convey Mr. Brown’s suspicion that Mr. & Ms. McCartie had double-reported, or claimed twice, certain expenses.
c. In his report, Mr. Brown said:
Also, the taxpayer deducted two receipts from the same restaurant bill.
In his oral evidence on the Jarvis voir dire, Mr. Brown denied that he intended any of those assertions to be an allegation of criminal fraud.
[21] Mr. Brown was transferred from the Audit Department to the Investigations Department for a period of about 6 months in mid-2007.
[22] In November, 2007, Mr. Brown completed and submitted a document, on CRA Form T-133, entitled “Tax Lead or Project Information”, the purpose of which was to recommend a further audit of Ms. & Mr. McCartie, in relation to their tax returns for the years 2005 - 2006. In that document, Mr. Brown said:
Geodiscovery Interactive Inc is owned by Annie McCartie although day-to-day operations are performed by Annie’s spouse, Colin.
Annie and Colin reported a total income of $28,035 from April 1005 to December 31, 2006. However, according to income and expense statements provided to trustee, they have personal expenditures of between $4000 and $5000 per month, or between $84,000 and $105,000 from April, 2005 to December 31, 2006.
The only known source of revenue is Annie’s company, Geodiscovery Interactive Inc in 2006. Geodiscovery reported $145,000 in subcontracts on gross sales of $165,000, and no T4A’s issued. Was this $145,000 paid to Colin? Between Colin and Annie, they only reported gross income of $1635 in 2006.
Colin and Annie were previously audited and reassessed for a large amount of expenses that were deducted.[5] In 2004, Colin declared bankruptcy and was absolved of his tax debt.
In June, 2007 (outside audit period) the McCarties sold their house for $365,000 and purchased a new house for $540,000. Where’s all this money coming from?
Possible net worth.
[23] At the conclusion of Mr. Brown’s evidence, I was left in some doubt about the reliability of his evidence. I found it difficult to reconcile his assertion that he did not suspect Mr. & Ms. McCartie of tax evasion with the documents quoted in paragraphs 20 and 22. That, in turn, led me to doubt his assertion that Ms. Etches and Mr. Chan disclaimed any interest in a criminal investigation.
[24] Mr. Brown was asked no questions about notes, note-taking or Form T-2020. Mr. & Ms. McCartie say that they asked no questions on that subject because Mr. Brown’s T-2020 notes were not disclosed to them until after Mr. Brown had given his evidence and been excused. I asked him no questions about note-taking because I first learned about Form T-2020 from Ms. Coles, who gave evidence after Mr. Brown. If Ms. Coles’ evidence of CRA’s note-taking policies is correct, Mr. Brown ought to have made detailed notes, in Form T-2020, of his meeting with Ms. Etches and Mr. Chan. Some of his T-2020 notes have since been disclosed by the Crown and tendered in evidence. However, the notes disclosed do not include notes from the period after he issued his notice of re-assessment, and so do not span the period in which he met with Ms. Etches and Mr. Chan, and later with Ms. Coles. No notes of those meetings have been disclosed.
(Emphasis added)
[43] Mr. Brown’s T-133 Tax Lead was first assigned to auditor Ian Chabot. After making a request to the McCarties for documents related to 2005 to 2007, Mr. Chabot fell ill which is when Ms. Coles became the auditor for the McCarties. Judge Gouge’s summary of Ms. Coles evidence included:
[26] Mr. Chabot fell ill later that summer, and Ms. Annette Coles, another CRA auditor, was assigned to replace him on August 14, 2008. Ms. Coles does not recall whether she met with Mr. Chabot when she assumed conduct of the file. She agrees that, in the normal course, she would meet with the preceding auditor on assuming conduct of an audit, so as to be briefed about what had been done and what remained to be done to complete the audit assignment. However, she believes that she may not have done so in this case because Mr. Chabot was unwell. She is simply uncertain about whether the meeting occurred or not.
[27] Ms. Coles said that, if she had met with Mr. Chabot, she would have entered her notes of the meeting on Form T-2020.
[28] Ms. Coles met with Mr. Brown at an early stage of her audit of the McCartie file. She said that she would have made detailed notes of that meeting on Form T-2020.
[29] At some point in the chronology, CRA received an informer tip in relation to Mr. & Ms. McCartie.[6] Such tips are routed to the Investigations Department. Sometimes, such tips are referred by the Investigations Department to the Audit Department. That was done in relation to Ms. & Mr. McCartie. When first assigned to the file, Ms. Coles attended at the office of the Investigations Department and reviewed the informer tip. She said that she did not discuss the tip with anyone in the Investigations Department, and that she had no other communication with the Investigations Department (in relation to Ms. or Mr. McCartie) until after the McCartie file had been formally referred to the Investigations Department by Mr. McLachlan (see paragraph 43, below).
[30] On August 25, 2008, Mr. McCartie sent a letter, entitled “Notice of Facts”, to Ms. Coles. Although the document is confusing, it would be reasonable for the reader to infer from it that Mr. McCartie espoused the theory that “natural persons” (however defined) are not liable to pay income tax. That theory is promoted by a number of people to whom CRA employees commonly refer as “tax protesters”. Ms. Coles said that: (i) after she read the letter, she probably reviewed it with her team leader, Mr. Lidster, at a meeting; and (ii) they both probably concluded that Mr. & Ms. McCartie were tax protesters. If the meeting occurred, she would have recorded the fact of the meeting, the substance of the discussion, and the conclusion reached in a T-2020 note. However, she does not recall the meeting.
[31] I pause for a necessary digression. The “natural person” theory is complete nonsense. It has no basis in law. It is not even remotely arguable. It is important to make that clear because some people have been persuaded by it that they are not liable to pay tax, and have suffered as a result.
[32] Ms. Coles, accompanied by another CRA auditor, Mr. Lecznar, met with Mr. & Ms. McCartie in November, 2008. At the meeting, Mr. & Ms. McCartie provided copies of some of the documents which Ms. Coles wanted to see. Among those were some cancelled cheques with the names of the payees blanked out. Mr. & Ms. McCartie declined to provide the names of the payees or unredacted copies of the cheques. Mr. Lecznar and Ms. Coles each took handwritten notes at the meeting. After the meeting, Mr. Lecznar gave his notes to Ms. Coles and Ms. Coles used them, along with her own, to prepare her T-2020 notes of the meeting. She put the handwritten notes in the file.
[33] In December, 2008, Ms. Coles met with Mr. Lidster. They decid