Time to get Balogh's tax evasion trial reported. I attended the trial but just didn't get time to write it up until I got back from my British Boozing trip and then got caught up in other things. My last posting was the May 19th voir dire hearing regarding evidence so I'll start here with May 25th, the first day of the actual trial.
First a technical problem with Quatloos that I ran into for the first time while trying to post this report as I'd originally written it. I was kicked out with this message;
Your message contains 67044 characters.
The maximum number of allowed characters is 60000.
Fortunately I've learned through unhappy experiences not to trust the underlying software at all so I backup everything I post before I hit the Submit button. Since Quatloos doesn't like my posting as presented I've broken it down into two part to meet the entirely arbitrary character limitation.
Given the time gap since I started this discussion a bit of basic background. Dr. Balogh was a dentist who fell for Russell Porisky's Paradigm tax evasion scheme (although it was never described that way, it was described as knowing your human rights however the only human right that Porisky seems to have explored and promoted through Paradigm was the right to evade taxes). Porisky's explanation of why you didn't have to pay tax was so convoluted that nobody ever really understood it, I certainly didn't. But it came down to saying that you were a natural person. Since in Porisky's dream world natural persons (a term not defined in the Income Tax act) didn't have to pay tax all that you had to do to stop paying taxes was declare yourself to be a natural person. So Dr. Balogh did.
He operated Balogh Inc. his dental practice. It was very successful. Before his conversion to Porisky's nonsense he'd employed an accounting firm to prepare the practice's financial statements, income tax return, and his family's income tax returns. After his conversion he continued to have the accountants prepare the corporate information as before but he stopped them from doing his personal income tax returns. Prior to this he'd been an employee of the company (I believe he was sole shareholder, his wife might have has some shareholding) and he took money out as wages. His scheme to stop paying income taxes wouldn't work if he remained an employee because companies are required by law to file annual T4 slips for each of their employees. This is a very detailed information slip with all of the employee's wage information for the year. You can see a copy here;
http://www.cra-arc.gc.ca/E/pbg/tf/t4/t4flat-14b.pdf
Two copies of this are made. One goes to the employee, the other to the Canada Revenue Agency. At the end of the year the CRA runs a computerized matching program to match up the T4 slips sent by the employers to those filed by the employees in their income tax returns. If there isn't a match for an employer submitted slip the CRA investigates to find out why. This makes it virtually impossible to evade paying tax if you are an employee of a company that meets its legal obligations to file T4 slips. Since Balogh Inc.'s books and records were prepared by an accounting firm there was no way around preparing the T4 slips. Porisky covered that little problem by telling his followers to change from being employees into independent contractors. Contractors don't get T4 slips, they just get whatever contracting fees they receive and they are expected to declare this. The payor only records the expense in the company financial statements but sends no specific information to the CRA. So all of the Poriskyites, including Balogh, declare themselves to be contractors and then didn't report the income they received. Not a particularly sophisticated scheme.
Since Balogh didn't want to pay any tax at all, at either the corporate or personal level, he instructed his accountants to pay him all of the company revenues in excess of expenses as contracting fees so that his very successful dental practice just broke even every year. It worked for a while until he was checked out by the CRA and he was charged with income tax evasion. The Crown had an extremely easy job determining exactly how much in contracting fees Balogh had not reported because the firm kept impeccable records and all the CRA had to do was use these as the evidence of Balogh's unreported income. So, to enter these into evidence, the Crown had a member of the accounting firm as its only witness.
Balogh initially represented himself using Poriskyite defenses but when this clearly became a disastrous course he retained legal counsel who apparently insisted that his defense be run along entirely conventional lines with none of Porisky's bullshit being used as part of his arguments in court.
May 25, 2016
Trial to be held in room 526, a new courtroom to me. It actually has real natural light coming through a room-length skylight and a second one over the judge. It was a sunny day so the courtroom was pleasantly bright. The court started without the defendant or his lawyer in attendance. Judge said that we'd stand down and wait for the defense lawyer. Judge said that he had to come from Abbotsford (a town about 43 miles up the Fraser Valley) so being late was understandable. This is the main road into Vancouver and is generally very clogged in the mornings. Lawyer showed up 20 minutes late. Accident on the freeway.
Crown said that it was ready with its opening statement. It would be quite brief. Sound was very poor so I probably missed significant bits. Peter Balogh has been charged with three counts of evasion and one count of false statements. The case for the Crown is mainly documents to prove actus rea. The testimony and documents will give mens rea. Crown spoke very quickly and I could barely follow, never mind write up.
A witness will take the court through the documents. These include Mr. Balogh's participation in a group called Paradigm. There is one other witness who should only take half a day. I think she said that the other witness was Balogh's accountant. We'll find out.
Something to do with admissions, jurisdiction and continuity. Continuity can be a big issue. This is proving that the documents taken during a search are the same document to be submitted as evidence. It often requires the long dreary process of having everybody in the document chain testify. The searcher tells where he found the documents and how he catalogued and transported them to a secure lockup. Then the actual physical transportation of the documents the courtroom is proven through witnesses. If continuity is broken defense can contest the evidence. Happily Balogh's lawyer admitted continuity and avoided al the tedium and court time. Crown had wheeled in three boxes of documents which turned out to be the document from the search of Balogh's house and business premises.
Crown said "I'd said earlier about Mr. Balogh's argument that his tax returns were private and cannot be used against him". Crown cited some statute that said specifically that filed tax returns could be admitted in court in an action against the individual who filed them. Then a list of affidavits from numerous CRA employees along with copies of bank statements. Then, at 10:30, the Crown's witness. Distinguished white haired older guy. Turned out to be Balogh's accountant.
What did you do for him? We prepared the financial statements for Balogh Inc., the dental practice and filed tax returns along with those pf Peter Balogh and his family.
How long did you do his personal tax returns? 2001 to 2004. for the corporation 2001 to 2010.
Describe the normal way you prepared the T1 (personal income tax return). It flowed from the corporate records. How much salary and dividends he got. We would do projections.
Did you do this in 2001-2004? Yes. What was Mr. Balogh's main source of income? Two types, salary and dividends. Did you file the returns? Yes. Did you do his 2005? No.
Why not? In September 2005 Dr. Balogh advised me that he would no longer file personal tax returns. We did it for the family, his wife and two children.
Were the T2 corporate returns still part of your business? Yes. How did you do it? We prepared the financial statements then used this to prepare the T2. Where did you get the information? From Dr. Balogh or his bookkeeper. Was this normal? Yes. Did you review the T2 with the client? No. What did you review? The financial statements and the personal tax returns. We reviewed the income statements and their personal tax return implications.
Regarding 2001 to 2010, did you file the corporate tax returns? Yes. The basis of the T2 is the corporate financial statements. All automatic and computerized.
Crown gave witness a two binder affidavit. Do you recognize this? Yes. It is an affidavit I made on January 17, 2014. Take us through the documents in volume 1. What is document tab 347? Part of our tax planning. A director's resolution by Balogh Inc. to pay bonuses to Mr. and Mrs. Balogh. The bonus is considered salary and is employment income on Dr. Balogh's personal return in 2005 or 2006.
Another document. Do you recognize this? Yes. It is a note of a meeting to discuss changing his (Balogh's) status from an employee to a contractor. He said that he was a natural person which would make him tax exempt. Did he tell you this? Yes. Next doc. Who is Tina? A chartered accountant who worked for me at that time. It was an email to the bank. Next document at tab 351. Do you recognize? Yes, this document is file queries we had after posting information. We would contact Mr. Balogh or the bookkeeper. Did a staff person do this? Yes. There was a revenue increase of $300,000, did it make sense? Dr. Balogh told us the reason for increase.
Next tab 352. What is this? A document prepared by (member of his staff) to reconcile $70,000 and $12,000 bonus to be treated as contract payment in the financial statements. Why were they treated as contract labour? "Paid to Dr. Balogh as a natural person" is noted on the bottom because Dr. Balogh said that any further payments were to him as a natural person.
On to some other documents showing payments recorded to a natural person. Also an internal control document prepared in response to a manager of the accounting firm calculating Peter Balogh's tax liability on the funds he received from the practice.
Then on to the November 22, 2005 engagement letter which set out the terms of the accounting firms engagement. At the end of the completion of the financial statements and corporate income tax return the company had $278,045 in taxable income. When we meet the client at the end of the year we prepared personal tax projections for the 2005 year. Was Balogh's income, including contract payments in it? Only one item, a taxable benefit of $4,700, a shareholder's benefit from a tax-free loan (note - I may have copied that incorrectly and it was an interest-free loan).
Next document discussed was a reconciliation of accounting income top actual cash income. Non-cash items like depreciation are added back. On that basis company made $477,000 in 2005. Balogh started buzzing with his lawyer over this.
Then a document prepared by the witness. Something to do with a housing loan benefit renamed from "shareholder's loan" to "private loan". Is "private loan" a normal accounting term? No. Who instructed you not call it a shareholder's loan? Dr. Balogh.
Then the company income tax return. Balogh told the accountants that the fees paid to him were to be included in the return as contract expenses. Is it normal for clients to tell you this, how to report it in the return? No.
Finally tab 361. What is this? The financial statements of Balogh Inc. as of July 31, 2005. Where are the expenses to Mr. Balogh shown here? Contractors fee (I think I wrote $82,00 but doesn't seem enough). You discussed this with Balogh? Yes. Crown said this finished 2005 and we would do the same with the other years after the break.
After break it was on to 2006. Accountant identified the firm's engagement letter for the year ending July 31, 2006. We are engaged to do Balogh Inc. The second to last sentence was "We will not audit or review financial statements nor confirm that they meet generally accepted accounting principles." The engagement letter also included the contractor fees. Is this standard? No, we bolded this to show that it is not standard. Also reference to his status as a natural person and contractor.
At this point I stopped obsessing about trying to keep up. 2006 was largely a repeat of 2005. When witness stated that a document said that all of the 2006 contract payments went to Dr. Balogh the defense lawyer made an objection on the basis that the witness was not qualified to interpret what a third party put on a document. However the third party was a member of the witness's firm so judge gave ok to interpret.
I think this was in respect to a document that asked "How are we handling $440,000 of Balogh Inc.'s contracting costs?" Witness said that they were instructed to adjust contract expenses to eliminate all corporate income. In the end it was recorded as sub-contracting.
One document noted a mistake. They'd gone too far in reducing income and the company had a $15,000 loss. So, on Balogh's instructions to make the company income neutral, the contracting fees were reversed by this amount to make the corporate income nil.
Another query from the accounting staff. Why are we reducing consulting fee when the $15,000 amount has actually been paid? Witness said that we always went back to Dr. Balogh's instructions to reduce corporate taxes to zero without creating a loss.
Tab 378 was a separate letter from the accounting firm to Balogh "outlining our concerns regarding your decision to be a natural person". They had him sign this one.
Tab 381 - What is this? Account handler note to Balogh re July 2007 year end. The point of this email was a preliminary calculation of corporate taxes of $21,000. Increase contractor fee by $118,000 through a management bonus. We can't pay this bonus to Mrs. Balogh because of reasonableness test (since she didn't work for the firm it wasn't reasonable to give her a management bonus). Because of your status as a natural person you may not want to pay more contractor's fees so you may instruct to pay some corporate taxes. Balogh chose to pay the bonus and bring corporate taxes down to nil.
Next some document to the bank where they showed the real income instead of zero by doing a cash flow before contractor's fees giving $573,000. Balogh's 2007 contractor's fees were $540,000. In 2008 revenue down by $161,000 and contractor's fees of $488,000. Fees were $452,000 in 2009. In 2010 Balogh took $442,500 in fees and these were the last statements prepared by the firm. Then lunch. I went off to the Ovaltine Cafe and had corned beef hash.
I came back to find that we had changed courtrooms. Our morning room had been overrun by the invasion of the tiny spiders! Apparently the judge spent the morning swatting them away. Defendant's wife did same and Crown counsel said they were underfoot. I didn't see anything. It was actually unclear what they were. I have ants in my notes but I remember people commenting on spiders. In any case we lost our sunlit courtroom.
Judge reminded the witness that he was still under oath and it was back to direct. Were you involved in any way with Balogh's activities apart from preparing financial statements? I only advised him about structuring a group practice. Did you ever advise about structuring payments and contracts? No.
Crown referred to a letter of January 2007 from the witness to Balogh. Letter confirmed that Balogh did not plan to report contract fees. Balogh had signed it. I was very incredulous when told in 2005. How did you respond? I told him that he couldn't get away with this. What is "this"? I could not believe that you could get away with not paying taxes. Did you prepare Mrs. Balogh's 2005 to 2010 tax returns? Yes. Were there any contract payments on them? No. To your knowledge the contract payments were not reported? Correct.
Why was 2010 the last year you did? I can't recall. There was no formal separation, we just stopped. That ended the examination in chief and time for the cross-examination. A novelty for me. In all of the Poriskyite cases that I've attended and written up I've never sat through a cross examination by an actual lawyer. Arthur Doerksen was the only other Poriskyite who had a lawyer and Doerksen died during the course of his trial.
Q - You've been an accountant for over 40 years?
A - Correct.
Q - It's quite normal to structure financial affairs to minimize tax?
A - Yes.
Q - You advise on how to minimize tax?
A - Yes.
Q - People have all kinds of views of taxes from people who want to pay tax to people who will do anything to avoid paying tax. Correct?
A - Yes.
Q - There are two things, avoidance and evasion. Avoidance is not criminal. Correct?
A - Yes.
Q - It is not unusual to have dentists paid by sub-contract. Correct?
A - No, it is not usual.
Q - It is, in my opinion, it is usual.
A - Not in my experience.
Lawyer mentioned how a doctor working for another doctor can be paid as a contractor. Witness answered yes. I believe that the College of Dental Surgeons does not allow one dentist to employ another. Judge asked for clarification. You are talking about independent dentists, not partners or shareholders? Yes.
Lawyer asked about the change from a shareholder's loan to a private loan.
Q - This is normal?
A - No, we always call it a loan to a shareholder.
Q - Do you have a meaning for a private loan?
A - A loan to a non-shareholder. (note - I was confused at this point whether they were talking about a loan from the company to the shareholder or a loan by the shareholder to the company, Not that it matters for the purpose of the questions).
Q - You said that he was pretty religious about the natural person scheme. He seemed to really believe in the Paradigm scheme?
A - Yes.
Q - He asked for your opinion on it.
A - No. He gave me information to read if you want to find out more and I have no evidence that I responded to him.
Q - When he mentioned natural persons you were incredulous?
A - Yes. There are avoidance schemes that result in no tax but this went much further. I started reading the literature but stopped reading early on. I couldn't understand it.
Q - He didn't seem as concerned about tax as he was with the role of individuals and government. Correct?
A - No, he talked about tax. He was fairly aggressive in his tax avoidance so we implemented some risky tax avoidance measures.
Q - You have a reputation of helping tax avoidance?
A - Yes.
Q - So high income earners go to you?
A - Yes.
Q - Risky schemes other than Paradigm, did they work out?
A - Yes.
Q - Natural person scheme, did you think it too risky?
A - I thought it was weird.
Q - Is it fair to say that you read it but couldn't tell if it was legitimate but odd?
A - I put it aside because it was incredulous.
Q - Did you talk to any other professionals about it?
A - No.
Q - Dr. Balogh told you that there was an accountant who said it was legitimate. Do you recall?
A - No.
Q - You met personally with him once a year?
A - Yes.
Q - In at least one meeting you talked about natural persons?
A - Yes, for the engagement letter.
Q - But he constantly brought it up?
A - No, just once.
Q - Did you have a conversation where you said that you admired him for standing up to his beliefs?
A - No.
Q - You don't remember that?
A - No.
Q - But you continued to do his returns including paying him as a contactor?
A - Correct. We felt that in any event Dr. Balogh needed an accountant to do returns subject to acknowledgement of natural persons.
Q - You made recommendations to him about fees to minimize corporate income?
A - Yes, based on instructions from Dr. Balogh to deduct fees sufficient to eliminate taxes.
Q - Dr. Balogh was quite transparent with his natural person theories?
A - Yes.
Q - He didn't ask you to hide anything, make sham companies?
A - Yes. (note, correct answer actually no to a negative question but it was understood that he agreed with question).
Q - He submitted invoices for fees?
A - Yes.
Q - As Dr. Balogh established contractor fee scenario you had to pay the fee? If Revenue Canada audited the books it would be abundantly clear that Dr. Balogh was taking this as contractor's fees?
A - Yes.
Q - No hiding money?
A - No.
Q - Your firm occasionally communicated between client and the bank.
A - Yes.
Q - Your firm confirmed to the bank that Dr. Balogh collected contractor's fees, correct?
A - Yes.
Lawyer brought up email between the firm and Scotia bank. It said specifically that Balogh took contractor's fees.
Q - There was never any attempt by Dr. Balogh to hide what he was drawing out of the company, correct?
A - Yes.
He then asked the witness a question that was just speculation, whether or not Balogh actually believed Porisky's theories. The witness's said "I don't know" before the Crown could object.
Then on to the documents. Tab 378. It was an engagement letter. My notes say "Point 2, CRA will deny contract fees to the company and will include in income and assess taxes and penalties". I have to assume, since I can't remember, that lawyer just had witness read this out.
Tab 379, bolded part. "We do not advise you regarding fees. If assessed they will result in double tax but impose tax on income you receive from the corporation".
Q - Explain that double tax to me? Can they do that?
A - Yes
Q - Is that legal?
Objection. Judge said that Crown just beat him to it. Then lawyer asked what CRA would do. Objection, irrelevant and speculative. Witness can't talk about CRA policies. Judge agreed. He said that this was not the appropriate forum to discuss CRA policies. Then time for afternoon break.
What I assume that the accountant meant was that it was possible that the CRA could have disallowed the fees as a deduction from company income but taxed them in Balogh's hands as income. I noted at the time that I thought that the lawyer was trying to show the unfairness of disallowing contractor's fees as a company expense while taxing Balogh. I agree with Crown that the lawyer was just speculation. In any case, if there was double taxation, he could have easily proven it as a fact rather than ask a third party witness. Balogh was eventually audited and charged. If the CRA had decided to disallow the fees as expenses they have presumably already done this. If the CRA has actually disallowed them, (which I doubt) the lawyer could have brought this into evidence. Since he has not I assume that the CRA allowed the fees as company deductions and just reassessed Balogh. This is what would have happened in the normal course of events had he reported the fees.
Break over Back to it at tab 374. I think a query about the issue of reducing Balogh's contact fees when he took too much. Lawyer asked;
Q - Why reduce contract fees, why not carry them back ?
A - I can't speak for the writer but it is my recollection that contract fees were too high causing a loss. Instead the advice is to suggest taking the loss back (to a prior year). The response in the document was that, per a telephone conversation "Peter wanted zero tax. This was the first time that this reviewer (who made the query) had seen the file. We followed Mr., Balogh's instructions to a "T" to bring income to zero.
Tab 389 - A document that said that the bonus/contract fees were split. I think the lawyer said that this was a clear suggestion of advise taken on tax planning. "I suggest to you that taxes weren't the important issue with Dr. Balogh, he really believed in his political philosophy" Objection. Judge - rephrase the question. "He really believed this natural person belief" Objection. Judge, break it up too long a question. Try again;
Q - In your discussion with Dr. Balogh do you believe taxes were not important for him?
A - I disagree. Reducing taxes was important.
Q - Did you think he believed in Paradigm?
A - I believed him.
Q - Do you remember a statement that you made to Lloyd Chow in 2011? (Lloyd was a CRA auditor working in Investigations).
A - No.
Q - Do you remember talking to Lloyd Chow.
A - I don't remember the individual.
Q - You had an interview with CRA staff and with a lawyer?
A - Yes.
Q - Did you answer them honestly? You told the CRA that taxes were not the important thing with Mr. Balogh?
A - Can I see the statement?
Q - Yes. Is that your signature?
A - Yes.
Q - Voluntary?
A - Yes. It was October 26, 2011. Let me read this (witness read statement). Peter talked about it like religion. He felt taxes not most important thing in making the point that the government had no right to tell him what to do.
(note - Lawyer seemed to be trying to get the witness to state that today in court he (witness) thought that Balogh did not consider taxes important but that he'd said in 2011 that he believed Balogh when he said that taxes were not important to him. If true this would show a contradiction between what he was saying under oath today with what he said five years ago to the CRA. But from what I picked up in court what the witness had said to Chow in 2011 was that Balogh had told him that taxes were not important. So he was just repeating a statement by Balogh. He was not giving his own opinion regarding Balogh's tax beliefs.)
Q - How long did your meetings with Balogh take?
A - Hour to an hour and a half. They covered issues when Balogh signed the engagement letter.
Q - The purpose of the letter was to protect your office from CA Institute?
A - Yes but also to protect our office from Dr. Balogh.
Q - They (CA Institute) review your office every three years and look for letters like this?
A - No, they check random files.
Q - But they might pull this one?
A - Yes.
Q - You stopped his T1's (personal return) in 2005. Correct?
A - No, last we did was in 2004. You have no knowledge of whether he completed any after that? I don't know.
Q - I have to ask the obvious question. You would not help Dr, Balogh commit criminal fraud?
A - No.
Then the witness made a comment that caused him a lot of grief in the rest of the cross-examination "I thought it was criminal!".
Q - You warned him about civil but not criminal?
A - Yes.
Q - But this also involved the company in the fraud?
Objection and witness excluded. Defense argued that he should answer. Judge said "you could ask him if what he thought what the company was doing was criminal.
Defense - You said that you believed that what Balogh was doing was criminal fraud?
A - Correct.
Q - You said that you would never advise criminal fraud?
A - Correct.
Q - Turn to tab 381. This paragraph is about reducing taxes by incurring contract fees. Isn't that abetting fraud?
A - Initially I didn't think it was fraud. Balogh was convinced about this natural persons business. He instructed us no corporate income. It was our job to record company income. I started to see big numbers,$500,000. I expected the CRA to object to the large amount of fees. When you aggressively evade taxes (notes I can't read) but when you avoid $200,000 taxes a year then it goes to far.
Q - Why didn't you warn him?
A - It was my thought.
Q - Your obligation is to your client and you did not bring that to his attention?
A - Back of my mind but I didn't recall you could go to jail for something so far out there.
Q - You advised him to take out more fees thinking that it was criminal?
A - No he asked, we didn't advise. But you thought it was criminal. No. I'm not a lawyer to advise that it was criminal.
Q - Did you advise him to see a lawyer?
A - No. I thought the scheme would be stopped earlier on but it wasn't. Dr. Balogh wouldn't listen to me
Defense returned to suggesting that the witness advising Balogh to pay out company earnings was part of the criminal offense. Objection. Judge said "We are losing the flow." Break up the questions". I think the judge commented that it was the lawyer's style to ask questions rapidly but he should leave time for an answer. At least I have that unattributed comment in my notes.
Back to email. Lawyer read out a quote I didn't catch which related to ways to reduce the company income to zero so it wouldn't pay tax. He asked witness if this was correct. Yes. Lawyer said "This is confusing to me, you gave evidence to me that you gave opinion that this is tax evasion but your company is advising him in evading tax."
Q - Are you suggesting that he commit tax evasion in the email?
A - I don't understand.
Q - If you believed that he is evading taxes you are advising him to evade tax. If you believe he is committing tax evasion why are you allowing him to file T2s (note - The T2 is the corporate income tax return)?
A - The corporation is not evading taxes.
Q - But you are helping him!
A - How?
Q - By suggesting more fees. You thought that this was an aggressive scheme that you didn't understand but thought that it might work.
A - No, it went past that. He had drunk the Kool-Aid and really believed it.
Q - Do you find yourself in a precarious position? Institute might go after you?
A - That's why we did the engagement letter.
Then the lawyer decided to bring me into the cross-examination! He said something about how the witness better be truthful because "Everything here is being recorded and there is a fellow in here, a retired CRA auditor, recording everything you say to post on a blog." The judge perked up.
Judge - Who is recording?
Defense - (Pointing at me) He is right here writing everything down. It wasn't hard to ID me since the only spectators throughout the trial had been me and Mrs. Balogh.
The judge looked at me then asked if I was recording anything. I said nothing but held up my notebook. But you are not recording anything, no electronic recording? I said no, only writing it down.
It seemed odd to me that the lawyer would make a point about truthful testimony and my reporting just as he was finishing cross-examination. We were now at quitting time and redirect. Judge said he wanted to finish this witness today. Witness excused because of a disagreement between counsel. Something about shareholder's loan vs. private loan that I wasn't listening to because I was trying to catch up. I'm not sure what they were squabbling about. Everybody was trying to remember what was discussed in examination in chief. Whatever the issue was Crown lost. Crown argued to get another question approved. That the way the money was recorded as a contractor fees hid the fact that a shareholder got the fees. No. so witness let back in and excused and that was it for the day.
A note here - Two points. First about the witness's comment "I thought it was criminal!". He seemed to just blurted it out without thought. I did a lot of testifying in Tax Court during my years in the CRA, both direct and cross. One ironclad rule was to answer only the question asked and then stop. If the lawyer wanted more he could ask but a witness should never answer more than required by the question. Never give a personal opinion on anything unless asked directly and, if that happened, wait to give Crown an opportunity to object before answering. This witness showed exactly why that's a good rule. Giving a personal opinion can't help your testimony but it has the potential, as demonstrated here, to give the witness a lot of grief. His comment was entirely irrelevant to the question asked, "You would not help Dr, Balogh commit criminal fraud?" but opened the door for some very aggressive questions about his actions.
The second point is about the argument that the defense tried to make as a result of the accountant's comment. The lawyer tried to minimize Balogh's culpability by implying that he acted on the advice of the accounting firm and that the firm was also involved in the evasion, if evasion in fact happened. This argument, in my opinion, was mixing apples and oranges by trying to transfer the issue of Dr. Balogh's personal income taxes, which his accountant's were not involved in, up to the company level where the accountant's were involved. The lawyer seemed to be trying to implicate the accountants in the claimed evasion by suggesting that they actively participated in the scheme by advising Balogh how much he had to strip out of the company in fees every year to eliminate any tax at the corporate level. By implication if Balogh was relying on his accountants then he wasn't guilty of evasion since he was basing his actions on professional advice. However this argument carried no weight with me for the following reasons;
1 - All of the accountant's involvement was at the company level and the company was not charged with any offenses. The company's books, prepared by the accounting firm, were prepared correctly and fully. It is a common practice in Canada for shareholders/owners of businesses to strip the business of it's annual earnings through fees and bonuses and leave it with no taxable income. I saw it all the time as a CRA auditor. This is entirely legitimate and the CRA generally doesn't care because, supposedly, the owner will pay tax on whatever is stripped out since it is taxable income to him. Balogh was personally charged with tax evasion because he did not report the money he stripped out of the company. This had nothing to do with the accountants since they did not advise him about his personal tax issues or help him prepare his returns. Also, while they may have assumed that he wasn't filing personal income tax returns, they had no actual knowledge of this. Balogh wanted them to prepare only the corporate accounts and, per his instructions, that is what they did. So they proposed no overall "scheme" and did not advise him how to avoid tax. The accountant's comment about the $115,000 that needed to be taken out of the business to bring it's income to nil was not the result of any suggestion the accountants made but was their response to Balogh's specific instructions to them to calculate how much he had to be paid in contracting fees to reduce the corporate income to zero. This was neither advice or a recommendation by the accountants, it was a simple calculation based on their client's clear instructions.
2 - Everything was driven by Balogh. The accountants did not propose any scheme to him or advise him to strip out all of the company income. He told the accountants that he wanted all of the company income paid out to him and he told them that while they were to prepare the company income tax returns they were no longer involved with his personal tax returns.
So there are no smoking guns implicating the accountants and, from the evidence I've heard, they had no responsibility for any tax evasion that Balogh might have been involved in. The accountant obviously suspected that Balogh was not reporting his income but he had no involvement in Balogh's personal tax returns so he had no responsibility for whatever Balogh did, or did not do, at the personal tax level. The accounting firm's only involvement was to prepare the corporate financial statements and corporate income tax returns and this was done entirely correctly.
