Another installment in the saga of our Fiscal Arbitrator Ian Brown. He appealed his loss at Tax Court to the Federal Court of Appeal reported as IAN E. BROWN v HER MAJESTY THE QUEEN 2014 FCA 301.
http://www.canlii.org/en/ca/tcc/doc/201 ... 3duAAAAAAE
To refresh memories Brown bought into the Fiscal Arbitrator scheme where the promoters made up totally fake business expenses and told the suckers (who did not have any business) who bought into the scheme that they could deduct them. I believe the underlying justification was that staying alive to earn money to pay taxes was, in itself, a business so personal expenses could be deducted. I can't recall if that is entirely correct but I'm not going to dredge through all the fiscal arbitrator files to check it out. Brown didn't help his case at Tax Court by arguing that his claimed business expense deductions of $181,167 were valid but refusing to tell the judge even what business he was in and refusing to provide any proof of any kind that the expenses even existed. He apparently argued that it was up to him, not the CRA to decide if he was in business and, if he so decided, the CRA had to accept whatever expenses he claimed. To quote;
[6] Respondent Counsel provided a transcript of the oral reasons of Justice Boyle in which Mr. Brown’s appeal was struck. Throughout that transcript, there were attempts at getting Mr. Brown to provide information on the type of business he operated. The ensuing exchange went in circles. Mr. Brown’s only comment concerning the transcript contents was that he, and I quote, “misspoke” when he responded to Justice Boyle’s questions concerning a business. He advised me that it was simply Justice Boyle’s opinion, that Mr. Brown had his own opinion and that opinions were equal before the law. Mr. Brown believes the section 248 portion of the Income Tax Act definition of “business”, that is, “undertaking of any kind” leaves it pretty much wide open for interpretation. It was also clear to me that Mr.Brown was not going to be cooperative in providing any more particulars to me concerning his operation of a business than he had been with Justice Boyle. Where Mr. Brown is an employee and yet is alleging that he has a business and that he has suffered business losses, it is incumbent upon him to include those facts in his pleadings. He refused to do so and was evasive in responding to my questions concerning an alleged business, which leaves him with pleadings that are deficient in material facts so that the Respondent cannot know how to properly respond. This is a fundamental rule of pleadings.
So he lost. But he won at Federal Court of Appeal. In a way.
First he tried to argue that the terms in the Income Tax Act are so darned vague that nobody can really understand them and so he should not be penalized by the court's understanding of words like taxpayer, expense, business etc. His proposed solution was to throw the entire Income Tax Act out as being unconstitutionally vague.
[7] Mr. Brown's argument that the Act is void is based mainly on the definitions of "business", "employee", "employment", "person" and "taxpayer" in subsection 248(1) of the Act. These terms are defined in subsection 248(1) of the Act as follows:
"business" includes a profession, calling, trade, manufacture or undertaking of any kind whatever and, except for the purposes of paragraph 18(2)(c), section 54.2, subsection 95(1) and paragraph 110.6(14)(f), an adventure or concern in the nature of trade but does not include an office or employment;
"employee" includes officer;
"employment" means the position of an individual in the service of some other person (including Her Majesty or a foreign state or sovereign) and "servant" or "employee" means a person holding such a position;
"person", or any word or expression descriptive of a person, includes any corporation, and any entity exempt, because of subsection 149(1), from tax under Part I on all or part of the entity's taxable income and the heirs, executors, liquidators of a succession, administrators or other legal representatives of such a person, according to the law of that part of Canada to which the context extends;
"taxpayer" includes any person whether or not liable to pay tax;
Court wasn't buying it;
[8] His argument is that the definitions provided for "business", "employee", "person" and "taxpayer" are not complete definitions because the Act only provides specific references to what is included in these terms. As a result, he submits that these expressions are vague.
[9] However, this is simply the choice of Parliament in determining what guidance will be provided in the interpretation of these terms by ensuring that these terms will include what is specifically referenced. Even if no guidance would have been provided by Parliament, each of these terms would have a meaning that could be determined by a court for the purposes of the Act. By providing that these terms "include" what is specifically identified in these definitions, it does not make these provisions void, nor does it make the entire Act void.
So his next shot was to claim the old Porisky natural person argument. He wasn't a "person" as defined in the Income Tax Act, he was a human being. Since there is nowhere in the Act that says that Human Beings pay tax he was exempt. Again, the court didn't buy it;
[13] For example, in this case, Mr. Brown raised the question of whether he was a person for the purposes of the Act since the definition of person only provides that it includes corporations, certain entities "and the heirs, executors, liquidators of a succession, administrators or other legal representatives of such a person". Human beings or individuals are not specifically included in the list.
[14] However, in Canada (Minister of National Revenue) v. Stanchfield, [2009] F.C.J. No. 133, 2009 FC 99, Gauthier J. (as she then was) stated:
23 When one uses simply the term "person", one necessarily includes the notion of the human being, as it is the very essence of the reality represented by this term. This explains why, in the Act, subsection 248(1) does not specifically mention the term "human being" in its definition of the term "person". This is not necessary given that, as explained by professors Duff, Alarie, Brooks and Philipps in Canadian Income Tax Law4, "this definition merely expands on the ordinary meaning of the word "person"" (emphasis added). This is entirely consistent with the approach of the British Columbia Court of Appeal in Lindsay (see above at para. 10). There is thus absolutely no doubt that a natural person is directly included within the definition of the word "person" at subsection 248(1) of the Act.
[15] Mr. Brown is a person and a taxpayer for the purposes of the Act.
He did get a bit of temporary relief. The Tax Court disallowed his claimed business expenses and maintained the gross negligence penalty the CRA had hit him with. The Tax Court did this just by striking his appeal in it's entirety rather than actually hearing the appeal on it's merits. The FCA said that this was incorrect and while he was properly disallowed the expenses he should have been allowed to argue that the gross negligence penalty was unjustified. So the FCA sent the case back to the Tax Court to have the appeal on the gross penalties heard.
