The McCarties - Poriskyites and "Operation Fable"

[Burnaby49]

The case is a criminal tax evasion charge against a married couple here in British Columbia. Details as to the nature of their proposed offense and their defense not yet available because the two cases to date have been pre-trial skirmishes. The latest court hearing was the usual complaint that the nasty Canada Revenue Agency had trampled all over the defendant's constitutional rights. Since the court concluded that the constitutional rights they claimed were violated did not actually exist that argument went nowhere.

Of interest is the Crown's contention that the defendants are adherents of Porisky's "natural person" argument, a claim they vehemently contest. Whether they are, or are not, natural person believers is a question to be determined at trial. However since every last Poriskyite that has been tried for tax evasion has lost it's just common sense (admittedly not something the natural person crowd has demonstrated in the past) to deny any connection to his theories.

One point brought up in the latest decision that I wasn't aware of is the claim by the defendants that the CRA has a specific program, called "Operation Fable" to smoke out Porisky followers wherever they may be. To quote:

[8] Mr. and Ms. McCartie seek production of the following classes of documents:

a. notes and diaries prepared and maintained by CRA auditors and investigators;
b. CRA policy manuals and memoranda, setting out investigative standards and procedures to be followed by CRA auditors and investigators;
c. CRA files pertaining to “Operation Fable”, a CRA investigation into the conduct of a group of individuals who espouse the view that the tax laws of Canada do not apply to “natural persons”.

Obviously once the first Poriskyite was found guilty of criminal tax evasion it made sense to go after the others in an organized fashion so a program of some kind might well exist. It's just that in my 30+ years with the CRA I can't recall any taxpayer identification program given such a fanciful name. Anyhow I'll post the results when this finally goes to trial.

http://www.provincialcourt.bc.ca/judgme ... pc150.html

http://www.courts.gov.bc.ca/jdb-txt/SC/ ... SC0928.htm

[webhick]

Operation Fable. What a lame name.

We're going to have to change it to Operation Gerbil Balls.

[Burnaby49]

Operation Fable. What a lame name.

We're going to have to change it to Operation Gerbil Balls.

Hey, it's a start. You don't go from Taxpayer Compliance Program 37B/44 to Operation Rolling Thunder in one leap! At least not if you are Canadian, we tend to understate. Given your now AWOL avatar I'd suggest Operation Fugitive Ferret as an alternative.

[notorial dissent]

I like webhick's idea, but I suspect it is too avaunt garde for the CRA, more's the pity, can you see your tax whacks asking for info on something like that? The amusement value alone would be worth it. But then originality, and actual thought, isn't exactly a hallmark of the IRS either, as they keep proving, and proving.

Actually, I would imagine that someone in that august group would eventually have the sense to put together a listing of common traits and claims of groups like the Poriskyites just to cut down on the paperwork. Even the IRS eventually got wise to the 1099 scam, after several years of it.

[Hilfskreuzer Möwe]

The McCartie's are continuing their quest to reveal conspiracy! A new decision reports their unsuccessful attempt to force the CRA disclose who was the tipster who fingered them as tax evaders:

• R. v. McCartie, 2013 BCPC 174: http://canlii.ca/t/fzlld

Nothing too special or interesting in the decision, other than the tip was from a known rather than anonymous source: para. 11.

The trial proper is now underway, with hearings scheduled for July 31-August 1, September 3-6, and October 1-4.

I had a peek at the McCartie's British Columbia court records, which disclosed that Colin has a healthy collection of traffic offences to his credit, but Annie is otherwise new to the system.

Interestingly, Colin appears to have in 2012 sued the CRA in the British Columbia Supreme Court! The file is civil action 66978, but I can't see its details without purchasing access. Annie took a different approach and launched a judicial review that was struck out by the Federal Court of Appeal last year: McCartie v. Canada (National Revenue), 2012 FCA 304 (http://canlii.ca/t/ftz2l). No idea what that was about, as no other decisions in the chain appear to be reported.

SMS Möwe

[Burnaby49]

This is a much bigger post than I'd planned but it just seemed to grow as I went through the ramifications of the recent decision considered below. Long story short the McCarties are putting up a very impressive pro se defense on their tax evasion charges. Unusually for self-represented litigants they are forwarding an entirely valid defense and might very well get off.

The McCarties continue their fight against the Crown's attempts to get them to court on tax evasion charges. Backstory: The McCarties have been charged with tax evasion and, from the evidence given in prior decisions on the issue, it is my opinion when this eventually goes to trial they will lose. However they are making a determined effort, as pro se litigants, to stop proceedings before an actual trial on the issue or to at least have damning evidence excluded. As the court said;

[2] This case has an extensive procedural history: R vs McCartie 2012 BCSC 928 (CanLII), 2012 BCSC 928; R vs McCartie 2012 BCPC 510 (CanLII), 2012 BCPC 510; R vs McCartie 2013 BCPC 150 (CanLII), 2013 BCPC 150; R vs McCartie 2013 BCPC 174 (CanLII), 2013 BCPC 174; R vs McCartie 2013 BCPC 221 (CanLII), 2013 BCPC 221; R vs McCartie 2013 BCSC 1805; R vs McCartie 2013 BCPC 289 (CanLII), 2013 BCPC 289.

The latest decision in this epic is;

http://www.provincialcourt.bc.ca/judgme ... pc128.html

The Provincial Court of British Columbia explains the issues involved at this latest hearing as;

3] Relying on R vs Jarvis 2002 SCC 73 (CanLII), [2002] 3 SCR 757, Mr. & Ms. McCartie seek to exclude certain evidence which the Crown proposes to tender, on the ground that the evidence was obtained from them by compelled disclosure under the statutory audit powers of the Canada Revenue Agency (“CRA”) at a time when the predominant purpose of CRA’s enquiries was to obtain evidence for use in a criminal prosecution. In order to rule on that issue, it would be necessary for me to determine the date upon which the predominant purpose of CRA’s enquiries changed from a civil audit to a criminal investigation (“the Key Date”). I commenced a voir dire on that issue on July 31, 2013. After 19 days of hearing (some of which were part-days), the “Jarvis voir dire” (as we have come to call it) is incomplete. Mr. Preshaw, Crown counsel, informs me that I have heard all of the evidence which the Crown considers to be necessary or appropriate on the Jarvis voir dire. Mr. & Ms. McCartie ask me to direct that further Crown witnesses be called. They have not yet said whether there will be defence evidence on the Jarvis voir dire.

[4] In September, 2013, Mr. & Ms. McCartie filed an application for a judicial stay of these proceedings, on the ground that they have been materially prejudiced in presenting their defence by the loss of certain notes prepared by Ms. Coles, an auditor employed by CRA, during CRA’s audit of Mr. & Ms. McCartie’s tax returns. If they had not been lost, those notes might have assisted in the determination of the Key Date. I will refer to that application as “the Stay Application”.

A bit of background explanation. The Canada Revenue Agency (CRA) has two categories of audit, civil and criminal. The normal audit section (where I spent 30+ years) handles the civil. Criminal is the responsibility of Special Investigations (SI). Almost all criminal investigations (including the McCarties) start as a regular everyday civil audit. The auditor finds something suspicious, gets what he can to back it up, then refers it to SI. If SI accepts it SI takes over and the regular auditor is out of the picture. Back in the good old days SI would have audit do the legwork for them in the guise of continuing the normal civil audit. If the taxpayer wasn't notified that a criminal investigation was underway it was much easier to get information and less chance the taxpayer would destroy incriminating evidence. That ended with the Charter of rights and Freedom. Now the CRA cannot use information acquired during the standard audit as evidence in a criminal trial if it, at the time it was acquired, the auditor knew a criminal investigation was underway or, more subjectively, if the auditor had a reasonable basis to conclude there was fraud. The second part can be very subjective and is the basis of most tax evasion defenses. That is the basis of paragraph 3 in the recent decision quoted above.

So why is that of any interest to Quatloos? Start with Paragraph 30 of the decision where the judge was outlined the series of events leading to SI accepting the case. While the defendant's are now denying they ever adhered to Russ Porisky's natural person argument it is pretty clear they tried to use them to stop the audit. I assume they abandoned that defense after the string of Porisky defense losses already recorded in Quatloos.

[30] On August 25, 2008, Mr. McCartie sent a letter, entitled “Notice of Facts”, to Ms. Coles (the CRA auditor). 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.

This played a part in the SI referral

[43] Once a Penalty Recommendation Report is approved, a copy is sent to the Investigations Department as a matter of routine. That was done in this case. On March 4, 2010, Ms. Biggar signed a document entitled “Referral to Enforcement Division”, in which the following allegation was made (bold print in the original document):

The taxpayers have failed to report over $525,000.00 in Income Tax revenue and almost $30,000 in GST. Colin McCartie has been claiming that he is a Natural Person and has failed to report any of the income he received from 2005 to 2007.

This has become part of the McCarties' defense, not that they are continuing to argue that they are Poriskyite tax protesters but that the CRA singled them out on the assumption that they were;

[45] Mr. & Ms. McCartie wish to explore the hypothesis that CRA targeted them for audit and prosecution because CRA believed them to be tax protesters. They allege that CRA initiated and pursued a Canada-wide program of such targeted prosecutions, entitled “Project Fable”. They say that records and witnesses from Project Fable are necessary to determine whether, and when, CRA targeted them. They ask that I direct the Crown to call two other CRA employees on the Jarvis voir dire, being Ms. Cheryl Boggs, whom they allege to be the director of Project Fable, and another CRA employee, unknown to them, who was the Vancouver Island liaison with Project Fable

[46] A second hypothesis is that Ms. Etches and Mr. Chan decided:
a. to target Mr. & Ms. McCartie for prosecution because of the information which led Mr. Brown to issue his notice of re-assessment, because CRA believed Mr. & Ms McCartie to be tax protesters, or both;
b. to allow the second audit (recommended by Mr. Brown and ultimately carried out by Ms. Coles and Mr. McLachlan) to take its course before initiating a prosecution, in the hope of obtaining from the second audit evidence for use in the prosecution.

This has now become a cornerstone of their defense. The McCarties are arguing that, as a result of their stupid natural person claims, the CRA must have known, right from the beginning of the civil audit, that they were potential tax evaders and should not have continued gathering information. Therfore almost all of the evidence gathered in the civil audit is tainted and should be excluded. The judge seems to be siding with the McCarties on that one;

[54] Mr. Lidster was the team leader for both Mr. Brown (when he worked in the Audit Department) and Ms. Coles. If the hypothesis mentioned is correct, he may or may not have known of the scheme. He may also be able to give useful evidence on either or both of two additional points:

a. During her cross-examination of Ms. Coles, Ms. McCartie sought to make the point that it must have been obvious to Ms. Coles at an early stage of the audit that Mr. & Ms. McCartie had evaded payment of tax, because (i) Mr. McCartie had written to Ms. Coles, asserting that, as a “natural person”, he was exempt from taxation; and (ii) the redacted cheques were highly suspicious. Ms. Coles resisted that line of cross-examination, saying that she was able to conclude only that Mr. & Ms. McCartie had underreported gross revenue, and was unable to draw any conclusion about net taxable income. I have my doubts about that evidence. It would take an extraordinary degree of self-control to refrain from drawing the obvious inference from the information provided to Ms. Coles during the first three months of her audit. Mr. Lidster discussed the file with Ms. Coles several times during that period. I have in mind that the Jarvis test is not whether CRA suspected criminal activity, but whether CRA’s predominant purpose at the relevant time was to gather evidence for a criminal prosecution, but Mr. Lidster’s evidence may be of assistance on that point.

So the best defense in this criminal tax evasion case is the argument that the defendants were so obviously trying to evade tax! A novel approach indeed.

The judge was also skeptical about one of the auditor's assertion that he had put no thought to tax evasion issues while auditing the McCarties;

[51] As noted in paragraph 23, there is reason to be skeptical of Mr. Brown’s evidence. If he has notes of his meeting with Ms. Etches and Mr. Chan or of his meeting with Ms. Coles, those notes might be of significant use to the cross-examiner. Mr. Preshaw objects on grounds of relevance. He says that the documents which are the subject of the Jarvis voir dire were procured during the course of the audit conducted by Ms. Coles and Mr. McLachlan, not during the earlier audit conducted by Mr. Brown, and that Mr. Brown’s intentions and motives are irrelevant. I disagree. The audit conducted by Ms. Coles and Mr. Brown was initiated on Mr. Brown’s recommendation. Mr. & Ms. McCartie are entitled to test the hypothesis that, during his audit, Mr. Brown came to suspect them of criminal misconduct, that he reported his suspicion to Ms. Etches, and that he and Ms. Etches decided to initiate a second audit to obtain evidence to confirm that suspicion. On that hypothesis, Ms. Cole’s and Mr. McLachlan’s denial that they were concerned with a criminal investigation might be perfectly true. They might have been the unwitting tools chosen by Ms. Etches and Mr. Brown. This hypothesis demonstrates the flaw in the assertion by Mr. Gibson and Ms. Down that the only relevant state of mind is that of the auditor who compelled disclosure of the documents in question.

The judge was also very skeptical that some notes, made by an auditor and possibly critical to the issues, were innocently lost as claimed by the CRA.

[60] Whether or not Mr. Gibson’s letter is admissible in evidence, it is insufficient, standing alone, to support a conclusion, one way or another, on the question whether Ms. Coles notes were deliberately destroyed, lost through unacceptable negligence, lost through acceptable negligence or lost by innocent inadvertence. The logical starting point for that enquiry would be a cross-examination of Mr. Gibson to identify his sources of information and to determine exactly what information he was given.

[61] Mr. Preshaw submits that it would be inappropriate to require Crown counsel to submit to cross-examination. It has been recognized in many cases that difficulties arise when counsel are asked to give evidence. If counsel give evidence, care must be taken to ensure that counsel are not compelled to disclose privileged information. In this case, it would be necessary to consider whether CRA has waived any privilege which might otherwise exist by the disclosure made in Mr. Gibson’s letter. Difficulties sometimes arise when counsel propose to continue to conduct the case, as counsel, after giving evidence. That may leave counsel in the embarrassing position of arguing, as counsel, in support of their own credibility, as witnesses. For that reason, it has often been said that it is unseemly for counsel to continue to act as counsel after giving evidence: New West Construction Co Ltd vs Canada [1981] 1 FC 583. However: (i) that issue does not arise here - Mr. Gibson has withdrawn as Crown counsel and been replaced by Mr. Preshaw; (ii) in any event, that concern is subordinate to, and must yield to, the right of a party to compel the evidence of any witness who has relevant evidence to give: Phoenix vs Metcalfe reflex, [1974] 5 WWR 661; 48 DLR (3d) 631.

[62] It is apparent that Mr. Gibson’s evidence would only be the starting point in a protracted enquiry to determine how and when Ms. Coles’ notes were lost. It would be prudent to avoid that enquiry if that is possible. If I am correct on the issue discussed in paragraph 58, an absence of evidence on the question would mandate a conclusion that the loss of the notes was an infringement of Mr. & Ms. McCartie's. rights under section 7 of the Charter. If that is right, they don’t need the evidence of Mr. Gibson. However, if I am wrong, and Mr. Preshaw is right, on that issue, then the enquiry which would begin with Mr. Gibson’s evidence is necessary. So, I should decide the issue discussed in paragraph 58 before I decide whether to compel Mr. Gibson to give evidence. The parties should be prepared to argue that issue as the first order of business when the case reconvenes.

The end result of this decision is that the judge is digging deeper into the issue of the lost notes and he may well conclude that the defendant's Charter rights have been infringed and, as a result, ban the disputed evidence. If so the prosecution will probably collapse.

[JamesVincent]

So let me get this straight. It may very well be illegal to catch someone being a TP/TD if you do not immediately and forthwith send it to someone else? I've heard of some serious chain of evidence issues before but still.

[Hilfskreuzer Möwe]

Welcome to our wonderful world of the Charter of Rights and Freedoms.

[insert terrified gibbering here.]

I'd love to say something like "I didn't consent to that!" or "The Magna Carta demands justice!", but in reality this is simply another illustration of Canada's appellate courts very 'enthusiastic' practice of elevating procedural justice at every opportunity.

And oh boy, have they.

It hasn't worked out so well in my opinion - but in that sense my opinion is of no consequence. On the other hand, this focus has clogged up the criminal justice system to such a degree that I doubt Dean Clifford will have his drugs and firearms charges heard for ... mmm ... another year or so?

But I'm sure he'll be out on bail long before that point. Without question.

SMS Möwe

[Burnaby49]

So let me get this straight. It may very well be illegal to catch someone being a TP/TD if you do not immediately and forthwith send it to someone else? I've heard of some serious chain of evidence issues before but still.

It gets complicated but very basically the Supreme court of Canada has determined, in R. v Jarvis;

http://scc-csc.lexum.com/scc-csc/scc-cs ... 5/index.do

that information gathered in a civil audit cannot be used in a used in a criminal audit if the information was gathered after the criminal audit started (or, more problematically, after it should have started) because it violates a taxpayer's Constitutional rights regarding illegal search and seizures.

Jarvis involved evidence gathered under a search warrant while the taxpayer was still purportedly under civil investigation. As the crown stated in Jarvis notifying the taxpayer that there is a criminal investigation can be a big problem because;

82 In response to a question put to him during the appeal, counsel for the respondent submitted that the s. 231.3(1) warrant power was “residual”, in the sense that it was intended to provide protection against the eventuality that a taxpayer, informed of an audit against him or her, would destroy his or her records in order to be charged with non-compliance under s. 238 rather than evasion under s. 239 ; the theory advanced being that the warrant, because of its being issued ex parte, would allow the authorities to act before the taxpayer were even aware of the audit.

However the Supreme Court said "screw that", Charter rights trump the administration of the Income Tax Act;

83 We cannot accept that argument. First, we find it difficult to imagine why Parliament, if it truly desired to create such a safeguard for tax assessment purposes, would attach three such onerous pre-requisites to its issuance. The s. 231.3 warrant issues only in circumstances where the judge is satisfied that there are reasonable grounds to believe: that an ITA offence was committed (s. 231.3(3) (a)); that a document or thing affording evidence of the offence is likely to be found (s. 231.3(3) (b)); and that the place specified in the application for the warrant is likely to contain the document or thing (s. 231.3(3) (c)). Plainly, s. 231.3 is concerned with offences against the Act, and not with auditorial verifications. It follows that the s. 231.3 warrant covers generally the same ground as does the Criminal Code’s s. 487 warrant (see R. v. Multiform Manufacturing Co., [1990] 2 S.C.R. 624), which was in fact the route chosen by Revenue Canada to obtain evidence of the offences in the present case. According to one expert, it is now the CCRA’s standard practice to use s. 487 of the Criminal Code rather than s. 231.3 of the ITA: see Krishna, supra, at p. 810. Second, and perhaps more fundamentally, Parliament made it an offence under s. 239(1) (b) to destroy records or books of account; substituting a charge under one paragraph of s. 239(1) for another would be a Pyrrhic victory for the miscreant taxpayer.

Then the Supreme Court started the ball rolling on the current state of affairs (and the basis of the McCartie's challenge) by parsing the nuances of when a civil audit changed into a criminal one;

84 Although the taxpayer and the CCRA are in opposing positions during an audit, when the CCRA exercises its investigative function they are in a more traditional adversarial relationship because of the liberty interest that is at stake. In these reasons, we refer to the latter as the adversarial relationship. It follows that there must be some measure of separation between the audit and investigative functions within the CCRA. Of course, having determined this, it remains for us to determine the bounds between the ITA audit and investigation and then to discuss the legal consequences. To this, we now turn.

D. Delineating the Bounds Between Audit and Investigation: Nature of the Inquiry

85 We have been directed to a plethora of cases that have attempted to draw the line between audit and investigation for income tax purposes. There is a lack of consensus on the matter. Some courts have stated that the investigation begins at the time when there are reasonable and probable grounds to believe that an offence has occurred: see R. v. Bjellebo, [1999] O.J. No. 965 (QL) (Gen. Div.), at para. 171; R. v. Pheasant, [2001] G.S.T.C. 8 (Ont. C.J.), at para. 68; R. v. Chusid (2001), 57 O.R. (3d) 20 (S.C.J.), at para. 61.

86 Some cases have referred to “reasonable suspicions” of an offence as engaging the audit/investigation tripwire: R. v. Roberts, [1998] B.C.J. No. 3184 (QL) (Prov. Ct.), at paras. 39-40; R. v. Dial Drug Stores Ltd. (2001), 52 O.R. (3d) 367 (C.J.), at p. 387. Still other cases have held that the test is one of “predominant purpose”: see the lower court judgments in the case at bar; Samson v. Canada, [1995] 3 F.C. 306 (C.A.), leave to appeal refused, [1996] 1 S.C.R. ix (sub nom. Samson v. Addy); R. v. Yip (2000), 278 A.R. 124, 2000 ABQB 873, at para. 34; R. v. Anderson (2001), 209 Sask. R. 117, 2001 SKQB 334, at para. 36; R. v. Seaside Chevrolet Oldsmobile Ltd. (2002), 248 N.B.R. (2d) 132, 2002 NBPC 5, at para. 51. Another has purported to have applied the same test, only to find that the predominant purpose will always be investigatory when “matters are placed in the hands of” Special Investigations Section: see R. v. Warawa (1997), 208 A.R. 81 (Q.B.), at paras. 11-12 and 134.

87 In Norway Insulation, supra, LaForme J. held, at p. 437, that the regulatory nature of an inquiry “changed after Special Investigations became involved and directed the subsequent work”. He also agreed with the trial judge (reasons at [1995] 2 C.T.C. 451 (Ont. Ct. (Prov. Div.)) that it was when the first auditor developed the opinion, ultimately erroneous, that there was “sufficient evidence” of an offence, that the inquiry changed hue. Finally, in R. v. Coghlan, [1994] 1 C.T.C. 164 (Ont. Ct. (Prov. Div.)), at p. 172, Judge Ratushny opined that it was only when “Revenue Canada decides to lay criminal charges” that the criminal investigation begins. Otherwise, “the searches or seizures are for the bona fide purpose of determining compliance with the Income Tax Act , whether or not Revenue Canada suspects a criminal offence during that time” (ibid.). Coghlan was followed in Gorenko v. La Reine, [1997] R.J.Q. 2482 (Sup. Ct.), at p. 2500 (aff’d [1999] Q.J. No. 6268 (QL) (C.A.), leave to appeal to S.C.C. granted and appeal discontinued, [2000] 2 S.C.R. ix).

Which, in turn, lead to this ponderous procedural requirement now imposed on the CRA, a solomonic analysis, almost a philosophical discussion, of where in the process the nature of the audit changed. If, in the opinion of the court, the CRA gets it wrong regardless of their best effort, the evidence is thrown out.

88 In our view, where the predominant purpose of a particular inquiry is the determination of penal liability, CCRA officials must relinquish the authority to use the inspection and requirement powers under ss. 231.1(1) and 231.2(1) . In essence, officials “cross the Rubicon” when the inquiry in question engages the adversarial relationship between the taxpayer and the state. There is no clear formula that can answer whether or not this is the case. Rather, to determine whether the predominant purpose of the inquiry in question is the determination of penal liability, one must look to all factors that bear upon the nature of that inquiry.

89 To begin with, the mere existence of reasonable grounds that an offence may have occurred is by itself insufficient to support the conclusion that the predominant purpose of an inquiry is the determination of penal liability. Even where reasonable grounds to suspect an offence exist, it will not always be true that the predominant purpose of an inquiry is the determination of penal liability. In this regard, courts must guard against creating procedural shackles on regulatory officials; it would be undesirable to “force the regulatory hand” by removing the possibility of seeking the lesser administrative penalties on every occasion in which reasonable grounds existed of more culpable conduct. This point was clearly stated in McKinlay Transport, supra, at p. 648, where Wilson J. wrote: “The Minister must be capable of exercising these [broad supervisory] powers whether or not he has reasonable grounds for believing that a particular taxpayer has breached the Act.” While reasonable grounds indeed constitute a necessary condition for the issuance of a search warrant to further a criminal investigation (s. 231.3 of the ITA ; Criminal Code , s. 487 ), and might in certain cases serve to indicate that the audit powers were misused, their existence is not a sufficient indicator that the CCRA is conducting a de facto investigation. In most cases, if all ingredients of an offence are reasonably thought to have occurred, it is likely that the investigation function is triggered.

90 All the more, the test cannot be set at the level of mere suspicion that an offence has occurred. Auditors may, during the course of their inspections, suspect all manner of taxpayer wrongdoing, but it certainly cannot be the case that, from the moment such suspicion is formed, an investigation has begun. On what evidence could investigators ever obtain a search warrant if the whiff of suspicion were enough to freeze auditorial fact-finding? The state interest in prosecuting those who wilfully evade their taxes is of great importance, and we should be careful to avoid rendering nugatory the state’s ability to investigate and obtain evidence of these offences.

91 The other pole of the continuum is no more attractive. It would be a fiction to say that the adversarial relationship only comes into being when charges are laid. Logically, this will only happen once the investigators believe that they have obtained evidence that indicates wrongdoing. Because the s. 239 offences contain an element of mental culpability, the state will, one must presume, usually have some evidence that the accused satisfied the mens rea requirements before laying an information or preferring an indictment. The active collection of such evidence indicates that the adversarial relationship has been engaged, since it is irrelevant to the determination of tax liability. Moreover, although there are judicial controls on the unauthorized exercise of power (Roncarelli v. Duplessis, [1959] S.C.R. 121; Babcock v. Canada (Attorney General), [2002] 3 S.C.R. 3, 2002 SCC 57, at para. 25), we believe that allowing CCRA officials to employ ss. 231.1(1) and 231.2(1) until the point where charges are laid, might promote bad faith on the part of the prosecutors. Quite conceivably, situations may arise in which charges are delayed in order to compel the taxpayer to provide evidence against himself or herself for the purposes of a s. 239 prosecution. Although the respondent argued that such situations could be remedied by the courts, we view it as preferable that such situations be avoided rather than remedied. It is for this reason that the test is as set out above.

92 Whether a matter has been sent to the investigations section is another factor in determining whether the adversarial relationship exists. Again, though, this, by itself, is not determinative. An auditor’s recommendation that investigators look at a file might result in nothing in the way of a criminal investigation since there is always the possibility that the file will be sent back. Still, if, in an auditor’s judgment, a matter should be sent to the investigators, a court must examine the following behaviour very closely. If the file is sent back, does it appear that the investigators have actually declined to take up the case and have returned the matter so that the audit can be completed? Or, does it appear, rather, that they have sent the file back as a matter of expediency, so that the auditor may use ss. 231.1(1) and 231.2(1) to obtain evidence for a prosecution (as was found to be the case in Norway Insulation, supra)?

93 To reiterate, the determination of when the relationship between the state and the individual has reached the point where it is effectively adversarial is a contextual one, which takes account of all relevant factors. In our opinion, the following list of factors will assist in ascertaining whether the predominant purpose of an inquiry is the determination of penal liability. Apart from a clear decision to pursue a criminal investigation, no one factor is necessarily determinative in and of itself, but courts must assess the totality of the circumstances, and make a determination as to whether the inquiry or question in issue engages the adversarial relationship between the state and the individual.

94 In this connection, the trial judge will look at all factors, including but not limited to such questions as:

(a) Did the authorities have reasonable grounds to lay charges? Does it appear from the record that a decision to proceed with a criminal investigation could have been made?

(b) Was the general conduct of the authorities such that it was consistent with the pursuit of a criminal investigation?

(c) Had the auditor transferred his or her files and materials to the investigators?

(d) Was the conduct of the auditor such that he or she was effectively acting as an agent for the investigators?

(e) Does it appear that the investigators intended to use the auditor as their agent in the collection of evidence?

(f) Is the evidence sought relevant to taxpayer liability generally? Or, as is the case with evidence as to the taxpayer’s mens rea, is the evidence relevant only to the taxpayer’s penal liability?

(g) Are there any other circumstances or factors that can lead the trial judge to the conclusion that the compliance audit had in reality become a criminal investigation?

The CRA actually won Jarvis on the basis that the evidence in question was deemed by the Supreme Court to be admissable but we were stuck with the consequences of the Supreme Court's analysis of how it got to that conclusion. So, as with the McCarties, almost every criminal tax evasion prosecution starts with the defense demanding an evidence exclusion under Jarvis rules. Extremely time consuming and the CRA often loses.

An an example of the Supreme Court's obsession with Charter rights overrriding common sense and the practical difficulties of actually applying laws in the real world.

[Burnaby49]

A point to make regarding Mowe's comment. The Supreme Court's various decisions regarding defendant's charter rights, not just Jarvis but many other decisions also, has meant that the courts of Canada are clogged with this stuff. There is a crisis of delay in courts because trials take so long. Six months trials (half a year of court time on a single case!) are not uncommon even when the evidence is fairly simple. Everything gets bogged down in Charter rights. In tax evasion cases defense lawyers now demand every single document, meeting note, idle conversation, every scrap that occured during the course of an audit for a Jarvis analysis. The court then has to review all this to come to a conclusion.

Take the McCarties and their application of Jarvis as a fairly typical example of the problem. If you read the McCartie decision I just posted you'll see that documentary analysis and testimony by CRA employees was the entire basis for what turned into a 21 day hearing. An entire trial month of parsing documents for a relatively minor tax evasion case. This case has been going on for, literally, years without yet reaching an actual trial. And trial won't be anytime soon. The court's decision was to dig even deeper and get even more information. Totally disfunctional.

[Hilfskreuzer Möwe]

What's worse is that the tests applied are all too often highly subjective. For example, in Canada police have various authorities to detain and question, some based on motor vehicle and other legislation, others on common law principles. But it's all subjective. A police officer stops a car for speeding. That ok? Absolutely. But if the speeder is acting very odd when can the police officer go further and search the vehicle? That's subjective, and while one can make general predictions there are few hard and fast rules.

The result? It's worthwhile for an accused to fight every one of these possible illegal searches or detentions. What's there to lose? You might luck out.

What adds to this self-inflicted injury is how evidence is handled in the event of a Charter breach. Presumptively all evidence obtained in that manner is excluded, but Charter, s. 24(2) provides a backdoor where this evidence can still sneak back in if the Charter breach was innocent enough, if the information is not testimony from the accused but instead something 'tangible' like a bag of drugs, where the evidence is crucial to the case, and the offense is serious. The idea is that a murderer should not escape 'on a technicality'.

Ok, in theory that's not a bad mechanism - except that again it turns all evidence glitches into a subject that requires a judge to hear everything, think about it, and then render a decision. This means the Crown will proceed with iffy evidence because who knows? Perhaps it will miracled in via s. 24(2). Or not. What's there to lose?

And with our constitutional amendment procedure this is never going to change.

The result is a large number of our trials are now nothing more than fights on the admission or exclusion of evidence. Once that's over the Crown either drops the charges or the accused pleads guilty.

SMS Möwe

[Burnaby49]

The result is a large number of our trials are now nothing more than fights on the admission or exclusion of evidence. Once that's over the Crown either drops the charges or the accused pleads guilty.

SMS Möwe

This is exactly what is happening in the McCartie case. Years of delay and months of court time on the sole issue of admissibility of evidence under Charter rules. If the evidence is allowed and the case proceeds to trial I expect the McCarties to plead guilty since the evidence, as discussed in the various hearings, seems overwhelming. But, as Mowe says, "What's there to lose?" by fighting to keep the evidence out.

[grixit]

And yet, every year, determined TPs heroically push through these obstacles and get themselves convicted anyway.

[Burnaby49]

An update on the McCarties. The last time I discussed them (six months ago) they were caught up in interminable procedural wrangling with the Crown about how their constitutional rights had been violated because they weren't notified in a timely manner that they were being investigated for tax fraud. That seems to have been resolved and things are moving along, slowly, very slowly, but moving. The BC Courts Online record is very confusing in respect to their case, many, many appearances and arguments, but the trial seems to have been proceeding in fits and starts since summer and they have another hearing set for Jan 26-30, 2015 in Nanaimo, a town on Vancouver Island that Burnaby49 knows well. I was there pubbing last summer. Not enough craft beer opportunities there to induce me over for the trial however.

Back in the summer I wrote that the McCarties denied being tax protesters;

[3] Mr. and Ms. McCartie also raise issues arising from the manner in which the Canada Revenue Agency (“CRA”) conducted the investigation leading to these charges. More specifically, Mr. and Ms. McCartie allege that:

a. CRA staff failed to conduct a fair and unbiased investigation before proceeding with the charges against them, because CRA staff mistakenly believed that Mr. and Ms. McCartie were members of a group of tax protesters who espouse the absurd theory that Canada’s tax laws do not apply to “natural persons”. Mr. and Ms. McCartie deny that they belong to the group or adhere to the theory. Mr. and Ms. McCartie express the point in the following terms in their written submission on this application:

... exculpatory evidence provided by the defendants was ignored; their innocence was not investigated; and their audit was cut short and fast tracked to investigation, denying them procedural fairness. Because of a reasonable apprehension of bias on the part of CRA, the defendants have been selectively targeted for prosecution. The investigation and lead up to the prosecution has demonstrated an abuse of process, with evidence of fraud or constructive fraud, co-mingling of auditory and investigative powers and a conspiracy to injure the defendants ....

So, if they aren't tax protesters, why did they publish this in their local newspaper in 2011?

NOTICE OF DEFAULT To all whom these presents come and are known TAKE NOTICE that the Crown Counsel located in Nanaimo BC is in DEFAULT of the Jurisdictional Challenge of Colin-Gary: McCartie and Joshua-Stephen: McCartie and all actions of the Nanaimo Provincial Court and its officers against Colin-Gary: McCartie and Joshua-Stephen McCartie is ultra vires.

Apparent unilateral contracts and dash-colon names, the classic Freeman type tax protester indicators.

Joshua-Stephen is a new player, I'm assuming the McCartie's son. No doubt an upstanding citizen. Well, apart from this crime-stopper warning in the local paper;

http://issuu.com/nanaimobulletin/docs/t ... 8__2011/13

Joshua MCCARTIE
Is Wanted for Unsafe Storage of Firearm See Sec 86 CC

Weight: 200 lbs Height: 6;0”
DOB: Dec. 21, 1987

No information how that worked out. The newspaper notification that any actions against him were ultra vires might have been his response to this issue. BC Courts Online reports that on February 22, 2011 Joshua-Stephen was found guilty of the stereotypical traveling charges of refusing to provide his name and address to police while operating a motor vehicle (MVA s 73(2)) which earned him a $115 fine.

As far as the parents go Colin has loads of speeding tickets but otherwise no other issues with the law apart from his tax evasion charges.

[Burnaby49]

On with another chapter in the ongoing McCartie epic. To recap the McCarties (spouses) have been charged with tax evasion. They have not yet gone to trial because of an ongoing attempt on their part to stop proceedings before trial on the basis of their cruel treatment by the Crown and the CRA. CANLII lists eleven court decision in this saga to date, starting six years ago. Their two main arguments are;

1 - That their constitutional rights have been hopelessly breached because the CRA auditor in charge of their file lost notes of various meetings she held with other staff members. Their proposed remedy for this to have the charges dropped..

2 - Failing this they want a lot of the evidence excluded from trial. To quote myelf;

The McCarties continue their fight against the Crown's attempts to get them to court on tax evasion charges. Backstory: The McCarties have been charged with tax evasion and, from the evidence given in prior decisions on the issue, it is my opinion when this eventually goes to trial they will lose. However they are making a determined effort, as pro se litigants, to stop proceedings before an actual trial on the issue or to at least have damning evidence excluded.

A bit of background explanation. The Canada Revenue Agency (CRA) has two categories of audit, civil and criminal. The normal audit section (where I spent 30+ years) handles the civil. Criminal is the responsibility of Special Investigations (SI). Almost all criminal investigations (including the McCarties) start as a regular everyday civil audit. The auditor finds something suspicious, gets what he can to back it up, then refers it to SI. If SI accepts it SI takes over and the regular auditor is out of the picture. Back in the good old days SI would have audit do the legwork for them in the guise of continuing the normal civil audit. If the taxpayer wasn't notified that a criminal investigation was underway it was much easier to get information and less chance the taxpayer would destroy incriminating evidence. That ended with the Charter of rights and Freedom. Now the CRA cannot use information acquired during the standard audit as evidence in a criminal trial if it, at the time it was acquired, the auditor knew a criminal investigation was underway or, more subjectively, if the auditor had a reasonable basis to conclude there was fraud. The second part can be very subjective and is the basis of most tax evasion defenses.

There has been a new decision which hopefully ends all this pre-trial wrangling and might even result in an actual trial during my lifetime.

http://canlii.ca/t/gh1k2

I don't propose to go over the decision in detail; very dry technical stuff and I'm getting tired of the McCarties. So just the results.

There are two parts to the issue of the lost notes, the notes themselves and the claim, by the mcCarties, that their charter rights were violated by notes that were not lost because they had never been taken in the first place. The McCarties claimed that the CRA staff had a duty to note everything that they did on the file and record all conversations held between each other so that the McCarties could review all the reasons for the various decisions made by the CRA.

THE OMISSION TO MAKE NOTES

[49] Mr. & Ms. McCartie say that the omission by Mr. Brown, Mr. Lidster, Ms. Etches and Mr. Chan to make notes of their communications is a breach of Mr. & Ms. McCartie’s rights under sections 7 and 11 of the Charter. During argument, the parties characterized this issue as raising the question whether those individuals had a duty to make notes in the circumstances pertaining. Mr. & Ms. McCartie also complained of the failure of Mr. McLachlan to make notes. However, I consider that to be of no significance because the question is CRA’s motive or intention in December, 2008, when notices were delivered to compel disclosure of the bank documents, and Mr. McLachlan had no role in the case until the spring of 2009.

[50] Mr. & Ms. McCartie say that the duty to make notes arises from two sources:

a. They say that there is a legal duty, of general application, on police officers to make notes, and the same duty should apply to CRA investigators.

b. They refer to many entries in CRA policy manuals and training materials, which instruct CRA investigators to make and retain detailed notes.

[51] In support of the first proposition, they rely on Wood vs Schaeffer 2013 SCC 71 (CanLII), [2013] 3 SCR 1053. However, I note that Wood vs Schaeffer was concerned with the application of a particular Ontario regulation, having the force of statute, which expressly imposed specific obligations on Ontario police officers to make notes in specific circumstances. I was referred to no statute which imposes a similar obligation on CRA staff. In the absence of such a statute, I think that the legal position was correctly stated in Regina vs Davidoff 2013 ABQB 244 (CanLII); i.e. note-taking is a prudent and responsible police practice, but not a legal obligation.

[52] I do consider CRA’s policies and training manuals to be of significance. I discuss that issue in paragraphs 60 - 61, below. However, they do not create legal duties: Hewko vs British Columbia 2006 BCSC 1638 (CanLII); [2006] BCJ #2877 @ paragraphs 313 – 318.

[53] I conclude that the CRA staff were under no legal obligation to make notes.

So while it might be regrettable that the CRA didn't slavishly recorded every "good morning Harry" and "see you tomorrow George" while they worked on the file they had no duty, legally or constitutionally, to do so. However the McCarties had a win in respect to the notes actually made then claimed lost. Apparently, while the CRA had no duty to actually make notes, if notes were actually made they had a duty to retain them;

[66] The only alternative remedy suggested by Mr. McFadgen is the possibility that, when assessing the credibility of Mr. Brown, Ms. Etches and Mr. Chan, I should take into account the loss of Ms. Coles’ notes and the omission of the others to make notes. In my view, that remedy would be inadequate to address the prejudice to Mr. & Ms. McCartie. They carry the onus of proving CRA’s motive and intentions. That onus can be discharged only by affirmative evidence. An adverse inference may assist in corroborating or reinforcing affirmative evidence, but is not a substitute for affirmative evidence. For that reason, it has been held that “…an adverse inference will not be drawn where the effect of drawing such an inference is to reverse the onus of proof …”: McIlvenna vs Viebeg 2012 BCSC 218 (CanLII); [2012] BCJ #292 @ paragraph 70. At present, the only affirmative evidence of CRA’s motive and intentions consists of: (i) Mr. Brown’s notes, quoted in paragraphs 6, 10, above; and (ii) the notable circumstance that Mr. Brown proposed the second audit of Mr. & Ms. McCartie’s returns, in the course of which the bank documents were procured, within a month or so of his return to the Audit Department from the Investigations Department. Coupled with an adverse inference, that evidence might support a conclusion that the hypothesis advanced by Mr. & Ms. McCartie is correct, but it is not a strong case for the defence. By comparison, if Ms. Etches and Mr. Chan had kept notes, and if they had expressed themselves in a manner similar to Mr. Brown, the notes might have presented a compelling case for the McCartie hypothesis.

[67] However, I do not think that a judicial stay of the prosecution is necessary. The prejudice to Mr. & Ms. McCartie can be remedied by excluding from evidence all documents procured by CRA by the exercise of its statutory powers during the second audit. If the Crown can prove its case without those documents, it should do so.

I have no idea how critical the now excluded documents are to the Crown's case and I don't intend doing a review of all the past cases to try and determine their importance. I'll leave it for the trial decision to determine. If there ever is one.

There is one further McCartie court case of current interest. The McCarties recently went to the Federal Court of Canada to stop the CRA from trying to collect on part of the tax bill while the current evasion case was still open.

http://decisions.fct-cf.gc.ca/fc-cf/dec ... 3/index.do

A point of interest is that Mr. McCartie is a lot bigger on making promises than he is on keeping them. The court's review of the background to the hearing sets the stage;

Background

[3] There is a long history of events between these parties. The following, which includes the relevant events, can only provide a flavour of that history.

[4] In February of 2010, CRA activated a previously closed GST registration number of Mr. McCartie in order to raise a GST assessment against him. Mr. McCartie commenced a judicial review proceeding for this action on April 6, 2010. The account was closed on May 26, 2010, and CRA was granted a motion dismissing the application on July 12, 2010.

[5] On March 23, 2011, the GST account was reopened. Mr. McCartie again filed an application for judicial review but later withdrew the application.

[6] In May 2011, the applicant was employed by Pattison Outdoor Advertising LLP [Pattison]. The CRA issued a Requirement to Pay to Pattison [Pattison RTP] at a rate of 60% of the applicant’s salary.

[7] After some negotiations between the CRA and Mr. McCartie, the Pattison RTP was decreased to 30% on July 5, 2011, provided that Mr. McCartie made certain disclosures and a written statement that his only household income was his T4 earnings and his only active bank accounts are those shared with his spouse.

[8] It appears that Mr. McCartie failed to provide requested documents and the Pattison RTP was increased to 45% on September 13, 2011.

[9] On January 25, 2012, Mr. McCartie notified the CRA that he was looking for work and that he was living off of credit cards and charity of friends and family. He had also applied for Employment Insurance [EI].

[10] On June 27, 2012, the CRA issued Requests for Information [RFI] to CIBC, Bank of Montreal and TD Canada Trust. It was determined that the applicant was earning income on a monthly basis above and beyond his EI and failed to notify the CRA.

[11] On August 21, 2012, the CRA sent a Statutory Set Off [SSO] notice at 40% to the agency in charge of EI. It was subsequently withdrawn on September 27, 2012.

[12] On August 22, 2012, the CRA sent a RTP to TD Canada Trust.

[13] In August 2012, the CRA and Mr. McCartie reached some agreement with respect to his GST debt. In a letter dated September 20, 2012, Mr. McCartie described that agreement, as follows:

You have agreed to postpone further collection action against Annie and I in lieu of the post-dated payments in your possession [of $100 per month], until such time as the current criminal proceedings against my wife and I are concluded.

The CRA agreed on the condition that Mr. McCartie provided full and frank disclosure of his income and assets. The CRA states that they did not agree to refrain from continuing investigation into the applicant. It distinguishes between investigation and collection – Mr. McCartie does not.

[14] On September 20, 2013, Mr. McCartie swore an affidavit that he was not an employee but was working in a non-commercial activity with no intent to profit. He was paid about $3400 a month. The CRA obtained bank statements that it says show that he channelled funds through Pacesetter Trading Company Ltd. [Pacesetter] to his personal account and that Mr. McCartie did not disclose this information.

[15] The CRA also says that Mr. McCartie opened a new bank account under a numbered company with a corporate income tax account but no GST/HST account. It says that money was also channelled from Pacesetter to this numbered company.

[16] On May 5, 2014, the CRA sent Pacesetter a RFI pursuant to subsection 289(1) of the ETA [the Pacesetter RFI]. This was the event that caused Mr. McCartie to file this application.

[17] As noted earlier, Mr. McCartie has filed objections to the assessments in question and the objections are currently being held in abeyance pending the criminal proceeding for tax evasion.

Note this paragraph;

[14] On September 20, 2013, Mr. McCartie swore an affidavit that he was not an employee but was working in a non-commercial activity with no intent to profit. He was paid about $3400 a month. The CRA obtained bank statements that it says show that he channelled funds through Pacesetter Trading Company Ltd. [Pacesetter] to his personal account and that Mr. McCartie did not disclose this information.

Exactly the argument made by Master Gee;

viewtopic.php?f=48&t=10342

Things worked out as well for the McCarties as they did for Master Gee;

Analysis

A. What action(s) of the CRA can be judicially reviewed?

[24] Rule 302 of the Federal Court Rules, SOR/98-106 provides that “unless the Court orders otherwise, an application for judicial review shall be limited to a single order in respect of which relief is sought.” This application seeks judicial review of the Pacesetter RFI. This is a single decision and the application was filed within the 30-day period set out in subsection 18.1(2) of the FCA.

[25] Mr. McCartie submits that the Pacesetter RFI is part of a continuing course of conduct, all of which is reviewable. In Servier Canada Inc v Canada (Minister of Health), 2007 FC 196 (CanLII) at para 17, the court explained what a continuing course of conduct means:

This being said, the case law on the issue is clear, it is a contravention of Rule 302 for an applicant to challenge two decisions within one application, unless the Court orders otherwise or the applicant can show that the decisions at issue form part of a "continuous course of conduct" (Khadr v. Canada (Minister of Foreign Affairs), [2004] F.C.J. No. 1391, 2004 FC 1145 (CanLII); Truehope Nutritional Support Ltd. v. Canada (Attorney General), [2004] F.C.J. No. 806, 2004 FC 658 (CanLII)). In Khadr, above at paragraph 10, Justice von Finckenstein found that where "two sets of decisions were made at different times and involve a different focus they cannot be said to form part of a 'continuing course of conduct.'" Moreover, in Truehope Nutritional Support Ltd, above at paragraph 6, Justice Campbell found that:

Continuing acts or decisions may be reviewed under s.18.1 of the Federal Court Act without offending Rule 1602(4) [now Rule 302], however the acts in question must not involve two different factual situations, two different types of relief sought, and two different decision-making bodies...

[26] I am unable to accept Mr. McCartie’s submission that the numerous events he addressed in his memorandum and in his oral submissions are a continuing course of conduct as the term is used in the jurisprudence. While this ordeal deals with the same GST debt owed by him, the actions taken by the CRA were separate and distinct. The Pacesetter RFI is a different action than registering or re-activating his GST account. Moreover, Mr. McCartie himself has filed separate judicial reviews in this alleged continuing course of conduct in 2010 and 2011. The first application was dismissed and the second was withdrawn. In my view, it is not open to Mr. McCartie in this judicial review application to raise and attempt to review the actions of the CRA other than the Pacesetter RFI.

[27] I am further of the view that the one decision under review, the Pacesetter RFI, was reasonable. I am unable to agree with Mr. McCartie that it breached the terms of the agreement, which he himself described as an agreement that “further collection action” would be postponed in exchange for his monthly payments. I agree with the CRA that the Pacesetter RFI is not a collection action; rather, it is an investigation action. CRA is entitled to reasonably investigate whether Mr. McCartie has provided full and frank disclosure of his assets and income. If, as a result of its investigative action, it is ascertained that Mr. McCartie has breached their agreement, then it will be entitled to pursue further collection action.

[28] This finding is sufficient to dispose of this application.

B. Jurisdiction of the Federal Court

[29] This court has held that “[CRA] is empowered to assign a GST number and assess an individual, whether or not that individual has voluntarily applied for a GST number” and that any attack on that assignment is a collateral attack on the GST assessment which is exclusively within the jurisdiction of the Tax Court of Canada: Lewry v Canada (The Minister of National Revenue), Court File T-1430-11, Order dated December 23, 2011.
[30] Therefore, this court has no jurisdiction to address the issues Mr. McCartie has raised concerning the involuntary assigning of a GST number or the taking of his property without due process. All of those issues belong in the Tax Court of Canada.

C. Constitutional Question

[31] Because this application as it relates to the Pacesetter RFI is dismissed on the merits, and the court has no jurisdiction over the remaining issues, the constitutional question Mr. McCartie has raised does not arise and needs not be answered. The question relates to the earlier GST assessment made by CRA and is part and parcel of the challenge Mr. McCartie is making as to the validity of that assessment. I agree with CRA that that issue and the constitutional question are within the jurisdiction of the Tax Court of Canada.

[32] CRA seeks its costs of this application in the amount of $2,500.00, all in. The court finds that to be a reasonable sum.

And I'm done with the McCarties for tonight. There are a multitude of decisions regarding the McCarties that I haven't bothered to touch and don't propose to do so. If anyone is interested go at it!

[Burnaby49]

And the McCarties win! Well not actually "won" in the sense that they have been found not guilty of tax evasion but they are 90% of the way there with a pair of recent decisions. I said in an earlier post in this discussion;

The end result of this decision is that the judge is digging deeper into the issue of the lost notes and he may well conclude that the defendant's Charter rights have been infringed and, as a result, ban the disputed evidence. If so the prosecution will probably collapse.

As I explained in detail in prior posts they had a Jarvis hearing where the judge had to determined whether or not the CRA had been investigating the McCarties as possible tax evaders but not telling them. If this was the case then any evidence gathered in this period of ignorance by the McCarties would be barred from being used against them. If you want to know the details refer to the preceding posts. They won on the Jarvis issue and the judge excluded all evidence gathered from the point that he detemined that the CRA had started a criminal investigation to the date of the issuance of the search warrant. Now the McCarties wanted the evidence gathered from the search also excluded.

We'll start the update with this decision;

R. v McCartie
2015 BCPC 233
http://canlii.ca/t/gkx70

This was released last month and it hit the CRA from an angle which I had not considered here. Section 8 of the Canadian Charer of Rights and Freedoms which states;

"8. Everyone has the right to be secure against unreasonable search or seizure."

The McCarties were claiming that the search of their house was unreasonable under Section 8 because of the CRA's refusal to produce the search warrant for Mrs. McCartie's review. The facts relating to the search that the McCarties claimed constituted an unreasonable search were;

[2] The pertinent evidence was given by Ms. Sundberg (the CRA investigator in charge of the search), Mr. Stetchman (another CRA investigator who was assisting her) and Constable Reynolds of the RCMP. There were several small differences in their recollections of the sequence of events. Where their memories differ, I accept the evidence of Mr. Stetchman in preference to the others. Constable Reynolds frankly admitted that he was unable to recall a number of points of detail. Ms. Sundberg appeared to me to be confused and uncertain on several points. By contrast, Mr. Stetchman’s recollection was clear, consistent and logical.

[3] On August 3, 2010, Ms. Sundberg applied for and was granted a warrant to search Mr. & Ms. McCartie’s home in Nanaimo, British Columbia.

[4] Just before 9:00 a.m. on August 11, 2010, Ms. Sundberg attended at the McCartie home. She was accompanied by Mr. Stetchman, Constable Reynolds, eight other CRA investigators and one other RCMP officer.

[5] Ms. Sundberg, Mr. Stetchman and Constable Reynolds went to the front door. Constable Reynolds was wearing his police uniform. Ms. Sundberg had a copy of the warrant in her hand and the original warrant in a binder under her arm.

[6] Ms. Sundberg knocked loudly and rang the doorbell, but there was no response. She knocked and rang several times over the next 5 minutes, again without eliciting a response. Ms. Sundberg, Mr. Stetchman and Constable Reynolds discussed whether to call for a locksmith to open the door. The other RCMP officer went around to the side of the house, and reported that he could hear sounds of movement, indicating that someone was in the house.

[7] At 9:05 a.m., a woman opened the door to the extent permitted by the security latch on the inside. The woman was Ms. McCartie, but none of Ms. Sundberg, Mr. Stetchman or Constable Reynolds knew that at the time. Mr. Stetchman estimated the aperture at one inch. Ms. Sundberg’s estimate was 3 inches. Ms. Sundberg identified herself as a CRA investigator, informed Ms. McCartie that Ms. Sundberg had a warrant to search the house, and demanded that Ms. McCartie open the door. Ms. McCartie “asked for” the warrant. Although no attempt was made to quote her verbatim, I take this to mean that Ms. McCartie asked to be handed the warrant, and Mr. Stetchman agreed in cross-examination that such was the purport of her request. Ms. Sundberg replied by asserting that Ms. McCartie was obliged to open the door, and that, if she did so, Ms. Sundberg would enter the house and “go over” the warrant with her. Ms. Sundberg asked Ms. McCartie to state her name. Ms. Sundberg asserts that Ms. McCartie replied “I don’t know”, but that assertion is not corroborated by Mr. Stetchman. I am satisfied that Ms. McCartie was asked to state her name, and declined to do so, but am not satisfied that she said that she did not know her own name. Ms. McCartie said that she was going to call a lawyer, and closed the door.

[8] Ms. McCartie opened the door, again to the extent permitted by the security latch, about a minute later. Constable Reynolds told her that Ms. Sundberg had a warrant, and that Ms. McCartie was obliged to open the door. Ms. McCartie asked to see his business card and Constable Reynolds showed her his police badge. Constable Reynolds told Ms. McCartie that he had authority to break down the door, and that he would do so unless she opened it immediately. Ms. McCartie closed the door.

[9] A few minutes later, Ms. McCartie unlatched and opened the door. Accompanied by her daughter, she stepped out and asked, for the second time, “for the warrant”. Ms. Sundberg replied that, if Ms. McCartie would go into the house with Ms. Sundberg, Ms. Sundberg would “go over” the warrant with her. Ms. McCartie declined that invitation.

[10] At 9:12 a.m., Ms. McCartie and her daughter walked to their vehicle and drove off, leaving the front door open. The RCMP officers entered the house to satisfy themselves that there were no threats to the investigators’ safety in the house. After that was done, the CRA investigators entered and searched the house. During the search, they seized a number of documents which the Crown proposes to tender in evidence at this trial.

So how is this a violation of their Constitutional rights? Let the judge tell it;

[12] I asked Ms. Sundberg why she did not hand Ms. McCartie a copy of the warrant when Ms. McCartie asked for it. Ms. Sundberg gave three reasons:

a. She wanted Ms. McCartie to open the door, and was offering her the chance to “go over” the warrant, after she was inside the house, as an inducement to that end.

b. She did not know that the woman at the door was Ms. McCartie, and she wanted the woman to identify herself so that Ms. Sundberg would know who she was serving with the warrant.

c. It was her opinion that she was not obliged to produce the warrant (or a copy) until she had executed the warrant, and that she would not execute the warrant until she crossed the threshold, which she had not done at the time of Ms. McCartie’s request.

None of those reasons rendered it impracticable for Ms. Sundberg to have given Ms. McCartie a copy of the warrant when Ms. McCartie first asked for it. It would have been perfectly simple and easy for Ms. Sundberg to slide a copy of the warrant through the 1 - 3 inch aperture and into Ms. McCartie’s hand.

[13] Mr. McFadgen, for the Crown, says that Ms. Sundberg was not obliged to comply with Ms. McCartie’s request because:

a. Ms. Sundberg and Constable Reynolds were reasonably concerned about the safety of the investigators and about the risk that evidence was being destroyed while the investigators were waiting on the doorstep. He relies upon Constable Reynolds’ description of the situation as escalating and potentially dangerous.

b. Ms. McCartie asked to be handed a copy of the warrant. The statute obliges the searcher to “produce” the document. “Produce” does not mean “hand over a copy”.

c. Ms. Sundberg was correct in her assertion that she had not “executed” the warrant at the time of Ms. McCartie`s requests.

[14] In support of his first point, Mr. McFadgen refers to R vs Bohn [2000] BCJ No. 867; 2000 BCCA 239 (CanLII); 145 CCC (3d) 320, in which Justice Ryan said @ paragraph 34 (underlining added):

Failure to produce the warrant on request, without good reason, is in my view, a significant breach of s. 8 [of the Canadian Charter of Rights & Freedoms]

I observe that Justice Ryan was there discussing whether, and in what circumstances, a breach of section 29(1) of the Criminal Code may be a breach of section 8 of the Charter. I address that subject, in the context of this case, below. Justice Ryan was not discussing what circumstances would constitute a breach of section 29(1). Section 29(1) subjects the duty to produce a copy of the warrant to only one limiting condition - a copy must be produced on request unless it would not be “feasible” to do so. As noted, in the circumstances of this case, it would have been perfectly feasible for Ms. Sundberg to hand Ms. McCartie a copy of the warrant (which Ms. Sundberg was holding in her hand) at the moment that Ms. McCartie asked for it. Section 29(1) does not authorize the searcher to refuse to produce the warrant for any other reason.

[15] There is also a pragmatic answer to Mr. McFadgen’s first point. Neither the risk to the safety of the investigators nor the risk of destruction of evidence would have been in any way increased by handing Ms. McCartie a copy of the warrant when she asked for it, nor was either risk reduced in any way by withholding the document. There was simply no relationship between those risks, real or perceived, and the request for a copy of the warrant.

A this point the judge considered what "produce" means. He decided on the definition “bring forward for consideration, inspection or use”. This led to the conclusion;

[17] . . . . . . . In the circumstances of this case, production could easily have been effected by handing Ms. McCartie a copy. Ms. Sundberg did not do that because she wanted to use the document as a lever to induce Ms. McCartie, first, to open the door and allow Ms. Sundberg to enter, second, to identify herself, and, third, to engage in a discussion of the warrant with Ms. Sundberg. Unless and until shown a copy of the warrant, Ms. McCartie was under no obligation to open the door. The circumstances in which a citizen has an obligation to identify herself when asked to do so by a police officer were discussed in R vs LSL 1991 CanLII 7820 (SK QB), [1991] SJ No. 30; 89 Sask R 267. No such circumstances pertained in this case. Canadians are, generally, courteous and respectful people. Most of us willingly identify ourselves when asked by a police officer, as we should. However, to elevate a generally-accepted standard of courtesy to a legal obligation would create a grave threat to the civil liberties of Canadians. Ms. McCartie’s refusal to identify herself did not justify Ms. Sundberg’s refusal to comply with the obligation imposed upon her by section 29(1). Ms. McCartie was under no obligation to speak with Ms. Sundberg. Indeed, as a person under investigation, she was wise to decline that invitation.

[18] There was a simple, easy and harmless mode of production available to Ms. Sundberg which would not require Ms. McCartie to open her house to strangers. I conclude that such was the mode of production required by the statute in the circumstances.

[19] Mr. McFadgen cited no authority in support of his third point, and I have found none which discusses when a warrant may be said to have been “executed”. None of the dictionaries which I have consulted offer enlightenment.

[20] In Bohn at paragraph 31, Justice Ryan quoted the following passage with approval:
The reason for the requirement that an officer executing the warrant have it available for production, is to allow the occupant of the searched premises to know: (1) why the search is being carried out, so as to enable the occupant to properly assess his or her legal position; and (2) that there is, at least, a colour of authority for the search and that forcible resistance is improper. This last rationale also plays a role in the second procedural requirement for a valid search, that the peace officers announce themselves before entering the premises to be searched.

Those objectives would be rendered entirely moot if the occupant is not entitled to see the warrant before the searchers cross the threshold. Once the searchers enter the home, the violation of privacy has already occurred and the opportunity to resist an unauthorized intrusion has passed. The purpose of section 29(1) is to entitle the occupant of a house to satisfy herself as to the searcher’s legal authority to enter the house before the occupant is obliged to allow the searcher to enter. The section is perfectly clear. The occupant is not required to accept the searcher’s assertion that she has a warrant and a right to enter. The occupant is entitled to demand production of the warrant, as Ms. McCartie did.

[21] Section 29(1) imposes a production obligation on a class of persons; i.e. those who execute warrants. That, in itself, does not tell us when such persons must produce the warrant. The time is determined by the final phrase of section 29(1); i.e. “… when requested to do so”. Ms. Sundberg was plainly a person who executed a warrant. While she was in the course of doing so, Ms. McCartie asked her to produce the warrant. Applying the plain words of the section, Ms. Sundberg was obliged to do so when the request was made. I do not say that a person executing a warrant must always respond instantly to a request for production. Circumstances may render it impracticable to do so. However, the person must comply with the request as soon as it is practicable to do so. In this case, as noted above, it would have been perfectly practicable for Ms. Sundberg to do so immediately upon Ms. McCartie’s first request.

[22] I conclude that, in this case, Ms. Sundberg failed to comply with section 29(1) of the Criminal Code.

And, drumroll;

[24] Accordingly, I am bound to conclude that Ms. Sundberg’s failure to comply with section 29(1) of the Criminal Code infringed Ms. McCartie’s rights under section 8 of the Charter, unless the evidence discloses a “good reason” for that failure. In paragraph 12, above, I identified the reasons given by Ms. Sundberg. In paragraphs 13 - 21, I explained why those were not good reasons. I do not think that they justify her failure to comply with section 29(1).

[25] As no good reason has been established for Ms. Sundberg’s failure to comply with section 29(1) of the Criminal Code, it follows that her conduct infringed Ms. McCartie’s rights under section 8 of the Charter.

So where does this leave us? To this decision released earlier this month.

R. v. McCartie, 2015 BCPC 254
http://canlii.ca/t/gl9gv

[8] Two breaches of section 8 of the Canadian Charter of Rights & Freedoms have been established:

a. The consequence of my decision to quash the search warrant is that the search of the McCartie home was not authorized by law. A search which is not authorized by law is an unreasonable search: R vs Klimchuk 1991 CanLII 3958 (BC CA), [1991] BCJ No. 2872; 67 CCC (3d) 385.

b. The refusal of Ms. McCartie’s request for production of the search warrant before the investigators entered the house was, itself, a breach of section 8: R vs Bohn [2000] BCJ No. 867; 2000 BCCA 239 (CanLII); 145 CCC (3d) 320.

The question on the present application is whether the appropriate remedy for those breaches is to exclude from evidence the documents seized by CRA during the search.

I've somehow missed the part in one of the innumerable preceding decisions where the judge quashed the warrant because it was not properly authorized. I'll take the judge's word for it, I'm not going back to check. I'm guessing that it resulted from the prior review where I discussed that the CRA had gathered evidence before the search on a civil basis when the judge determined it should have been on a criminal basis with the McCarties advised that they were being investigated. As a result the judge excluded all of the evidence gathered while the Crown was auditing criminally but acting civil. Since this evidence was later used to procure the search warrant it was approved on the basis of invalid evidence and was therefore not legally authorized.

So the Court decided that the remedy for these two breaches of Section 8 was;

Conclusion on the Three Lines of Enquiry

[27] After careful reflection, I think that receipt of the evidence seized under the search warrant would pose a greater risk of injury to public confidence in the administration of justice and the fairness of the tax system than its exclusion. Applying Grant, I must therefore exclude the evidence.

[28] Ms. Sundberg, CRA’s lead investigator in this case, acknowledged that, without the documents procured during the audit process, she would have had no reasonable grounds upon which to apply for a search warrant, and would not have done so. If it were proven that CRA procured the audit documents in breach of the constraint imposed by Jarvis, it would be necessary to consider whether the principle of derivative use immunity would support exclusion of the documents seized under the search warrant: R vs RJS 1995 CanLII 121 (SCC), [1995] 1 SCR 451 @ paragraphs 160 - 204. Unless Mr. & Ms. McCartie can prove that CRA misused its audit powers, the question of derivative use immunity does not arise. The loss of CRA’s internal documents, and the omission to create others, is a material impediment to the presentation of Mr. & Ms. McCartie’s case on the issue of derivative use immunity

[29] By its unexplained and unjustified conduct in relation to its internal documents, CRA has materially impaired Mr. & Ms. McCartie’s ability to defend the charges made against them. The right to a fair trial is both guaranteed by section 11(d) the Charter and fundamental to the preservation of public confidence in the fairness of the justice system: R vs Collins 1987 CanLII 84 (SCC), [1987] 1 SCR 265 @ paragraph 36. A fair trial of tax evasion cases is also fundamental to the preservation of public confidence in the fairness of the tax system and its administration.

[30] Neither a judicial stay of the prosecution nor an order to exclude evidence should be granted if a lesser remedy would suffice to ensure a fair trial: R vs O’Connor [1995] 4 SCR 651 @ pages 465-466; R vs Bjelland 2009 SCC 38 (CanLII), [2009] 2 SCR 651 @ paragraph 19. In this case, a judicial stay of the prosecution is not necessary for that purpose, but an order for exclusion of the evidence seized under the authority of the search warrant is.

Disposition

[31] The documents seized under the authority of the search warrant will be excluded from evidence at this trial.

It looks to me like this might well mean that the Crown will have to abandon the case because they no longer have enough allowable evidence to prove criminal tax evasion. If so the McCarties aren't off the hook because they can still be assesses civilly on unreported income but they would face no criminal consequences.

The McCarties have been unrepresented through all of this carrying their defense themselves. I have to say, given the results, that they've done an excellent job.

[grixit]

Agreed. Whatever the other facts in the case are, the authorities were wrong in not handing over the warrant.

[The Observer]

As I explained in detail in prior posts they had a Jarvis hearing where the judge had to determined whether or not the CRA had been investigating the McCarties as possible tax evaders but not telling them.

A similar incident occurred which resulted in a ruling from the resulting suit of US vs. Tweel. A DOJ criminal investigation decided to request that the IRS open a civil audit from behind the scenes. The representative for the taxpayer asked if this was a criminal investigation (since the IRS had started and abandoned an earlier criminal investigation) and the civil auditor stated that it was not. Obviously there was some shock and consternation when criminal indictments and conviction happened based on the taxpayer's records that were secured as a result of the audit. This was an obvious violation of the taxpayer's 4th Amendment rights and the 5th Circuit Court of Appeals ordered that a new hearing be held to determine what evidence was tainted and not admissible and whether this would require a new trial for the taxpayer.