January 27, 2012

Regina v. Marcello Lombardo

2011 DTC 5065
Provincial Court of British Columbia
Date: February 21, 2011

Court File No. 662-1

Offences and penalties — Deceptive statements — Tax evasion — Whether evidence obtained by Minister using auditing procedures admissible in criminal proceedings — Income Tax Act, R.S.C. 1985, c.1 (5th Supp.), s. 231.1, 231.2, 231.5, 239(1)(a), 239(1)(c) — Excise Tax Act, R.S.C. 1985, c. E-15, s. 327(1)(a), 327(1)(c) — Canadian Charter of Rights and Freedoms, 1982, c. 11, s. 7, 8, 10(b), 24(1) — Criminal Code, R.S.C. 1985, c. C-46, s. 476.012, 476.013, 487.

Facts: The taxpayer operated a restaurant, which recorded sales using a computerized point of sale (“POS”) accounting system. In child support proceedings against the taxpayer, the Supreme Court of British Columbia found that the taxpayer had manipulated the POS system, diverted cash, and destroyed records in order to suppress information about his income. When the Canada Revenue Agency (the “CRA”) learned of these findings, it instituted audit proceedings, obtained various search warrants, and seized significant documentation and records from the taxpayer’s restaurant, residence, and accountant. Production orders were also served on various financial institutions in which the taxpayer held accounts. The taxpayer was subsequently charged under the Income Tax Act and Excise Tax Act with making deceptive statements and evading payment of tax, totalling about $1.5 million. During the criminal proceedings, the accused applied for an order declaring that: (a) all of the evidence being presented at trial was obtained during the criminal investigation, which began with the B.C. Supreme Court’s orders, in violation of the taxpayer’s section 7 and 8 Charter rights; and (b) that this evidence should be excluded at trial, because including it would bring the administration of justice into disrepute under subsection 24(2) of the Charter. The Crown argued that the CRA had only carried out a “routine tax audit,” triggered by the B.C. Supreme Court’s judgments.

Held: Following a voir dire, the taxpayer’s application was granted. The B.C. Supreme Court’s findings were made in civil proceedings on a balance of probabilities, not in criminal proceedings involving a standard of proof beyond a reasonable doubt. The CRA officers’ conduct from the outset involved flagrant breaches of the taxpayer’s Charter rights and of the principles set out by the Supreme Court of Canada in R. v. Jarvis (2002 DTC 7547). Accordingly, when the Crown indicated that without the excluded evidence it would not proceed, the taxpayer was acquitted on all charges.