Concurrent criminal investigations and civil tax audits are quite common where the Canada Revenue Agency believes that a taxpayer has knowingly failed to report income or remit taxes owing. Given the differing standards and onuses of proof in criminal versus civil proceedings, criminal acquittals typically have little, if any, impact on a subsequent civil proceeding. In the tax context, the CRA is therefore often successful in tax appeals before the Tax Court of Canada even after a taxpayer has been acquitted in a criminal prosecution based on the same fact pattern.
The decision in Samaroo v The Queen, 2016 TCC 290, is, however, an exception to the general rule. In this case the evidentiary findings of fact of the criminal court judge that acquitted the taxpayers of tax evasion were not only admitted, but the TCC judge placed extraordinary weight on them.
The Samaroos, a married couple, and their corporations were assessed for unreported income and unremitted GST/HST because the CRA believed that they had made cash deposits of unreported corporate income into their personal accounts. The Samaroos were also charged criminally with tax evasion but were acquitted by a trial judge who found the Crown’s case “weak” and supported by “unreliable” and “highly uncertain” evidence that contained “significant flaws” and “discrepancies.”
Following their acquittals on the charges of tax evasion, the Samaroos brought a preliminary motion before the TCC for an order admitting the criminal court trial judge’s findings of fact and precluding the Crown from presenting any evidence challenging or rebutting those findings.
The TCC declined to apply the doctrines of issue estoppel or abuse of process to exclude the Crown from adducing any additional evidence to contradict or challenge the findings of fact made in the tax evasion trial due to the differing standards of proof in the two matters. However, given that the TCC appeals and the criminal tax evasion trial were essentially in respect of the same factual issues, the TCC judge held that certain findings of fact from the tax evasion trial could be “admitted and with impact” in the TCC appeals. In fact, the TCC judge placed so much weight on the admitted facts that he held that the Samaroos had “preliminarily challenged and potentially demolished certain assumptions of facts of the Minister” and took the extraordinary step of altering the order of the proceedings, and requiring the Crown to present its case first at trial.
While the TCC judge did not go so far as to reverse the onus of proof onto the Crown in the tax appeals, he came very close to doing so by suggesting that the Crown needed to marshal evidence to rebut the criminal trial judge’s findings of fact.
It remains to be seen whether the decision in Samaroo will start a trend of similar decisions or whether it is simply a “one-off” inspired by the particular facts of this case. That said, the decision to admit findings of fact from tax evasion trials into TCC tax appeals is very much welcome in the context of civil and criminal tax disputes that involve the same fact patterns. In our view, a taxpayer should not have to waste time and resources establishing facts that have already been accepted by a criminal trial judge in a subsequent tax appeal based on the same fact pattern, particularly when dealing with the essentially limitless resources of the Crown.
Steven Raphael is a lawyer and Robert G. Kreklewetz is a partner with Millar Kreklewetz LLP