A judge has found a former Canada Revenue Agency auditing department employee and his wife not guilty of tax evasion, noting a big difference between being wrong and knowingly being wrong.
The Crown alleged Raymond Patry and his wife Tara Patry, who were charged in a six-count indictment under the Income Tax Act and the Excise Tax Act, evaded taxes by operating a tax-preparation business — Accounting Professionals — that caused numerous clients to claim false business losses.
Justice Murray Blok, who heard from more than 30 witnesses during a 12-day trial in B.C. Supreme Court in New Westminster, found Tara Patry not guilty on all counts, concluding that the Crown had “not met its burden of showing beyond a reasonable doubt that Ms. Patry was involved, either as a principal or as a party.”
The judge also stated in his reasons for decision that “despite my conclusion that Mr. Patry’s tax strategy was flawed, I conclude that it is at least possible that Mr. Patry believed he had formulated a viable tax strategy.
“He cannot be convicted for being wrong, only for knowingly being wrong. The Crown has therefore failed in its proof on this essential point,” Bloc decided.
“On my assessment of the whole of the evidence, I am left with a reasonable doubt on the matter of the necessary intent for these tax evasion offences.”
The court heard Raymond Patry, 52, who had worked full-time in the CRA’s audit department from November 1991 to April 2005, started his own business, Accounting Professionals, in 2005.
He had been charged with wilfully evading or attempting to evade income taxes of $36,873.31 by failing to report taxable income of $193,813.32 between Dec. 31, 2005 and Aug. 21, 2008 while she was charged with wilfully evading or attempting to evade income taxes of $32,845 by failing to report taxable income of $193,813.32, for that same period.
Tara Patry was also charged with obtaining or claiming $32,751 in refunds or credits under the ITA “to which she was not entitled, by making, participating in, or assenting to or acquiescing in the making of false or deceptive statements insofar as she failed to report taxable income of $193,813.32.
As well, the couple had been charged with wilfully evading or attempting to evade remittance of GST of $25,585.19 between Dec. 31, 2005 and April 1, 2008; wilfully evading or attempting to evade payment of income taxes of $427,760.47 by claiming false business losses of $2,113,080.08 on the income tax returns of 32 other taxpayers; and obtaining or claiming $59,554.85 in refunds or credits under the ITA “to which their clients were not entitled, by making, participating in, or assenting to or acquiescing in the making of false business losses on the income tax returns of 18 other taxpayers.”
Many of the witnesses who were clients — 31 of this type — were friends, neighbours, acquaintances, or referrals from these who engaged Accounting Professionals to do their taxes for one or more of the 2004 to 2007 taxation years.
“Typically, the clients met with the Patrys at the kitchen table of the Patry’s home,” Blok noted. “Both of the Patrys were present, but it was Mr. Patry who led the tax-related conversation.”
The judge noted Patry’s tax-compliance strategy “was based on the notion that a taxpayer can change the use of a principal residence, even retroactively, through a change in the taxpayer’s intention, such that it could be treated as business inventory instead of personal property.
“This re-characterization or re-designation of the property use was the basis on which Mr. Patry claimed significant additional expenses or losses on behalf of his clients.”
Patry told the court that his wife never had any income, that the CRA reassessed her on his business income, but she had never been involved in his business and it was not a partnership.
“Mr. Patry said he still believes that the losses he claimed on his clients’ income tax returns were legitimate deductions,” Blok noted.