A Quesnel man has been ordered to pay Canada Revenue Agency $200,000 for his role in an "RRSP stripping scheme" that saw investors attempt to use his company to withdraw contributions without paying any tax on them.
According to a decision issued by B.C. Supreme Court master Douglas Baker on an application to discharge Gregory William Rivers, 61, from personal bankruptcy, Rivers had invented a "rescue shuttle" - essentially a stretcher with an enclosed capsule to protect the patient.
To develop and promote in the invention, Rivers found Advanced Rescue Technologies Inc. in 2000 and in the process was put in touch with three "financial advisors" who helped him raise over $3.5 million in total from about 100 investors.
However, Rivers was told that when investors requested, 80 per cent of their funds would be returned to them and, of the remaining 20 per cent, 10 per cent went to the advisors as commission and 10 per cent would remain with the company.
When asked, Rivers "simply and routinely" wrote cheques on the company's accounts for return of the funds, which were characterized as loans to investors but there was no documentation confirming the loans, no terms of repayment and no security given.
"It was the return of this 80 per cent, and its characterization as loans that allowed the original investors to recoup at least 80 per cent of their original RRSP funds, all without any tax," Baker said in the ruling.
By Baker's calculation, Rivers retained at least $280,000, but most of the $3.5 million was attributed to his income and he was assessed nearly $1.3 million in tax and with penalties and interest, the total is now $2.2 million.
A CRA audit also attributed a variety of corporate expenses back to Rivers as personal income, including a cruise, Mexican vacation, a mattress set, a washer and dryer, repairs to his home, clothing, dry cleaning, golf fees, haircuts, dog grooming and "even psychic forecasts."
"I assume the latter were of little assistance but it might be said that they were at least as helpful as whatever accounting or financial advice Mr. Rivers was getting," Baker said. "And, possibly, the washer and dryer were useful for what...was very akin to a money laundering scheme."
Defence counsel had characterized Rivers as a "dupe" and that other than the personal expenses that had been attributed as business expenses, argued all of the benefits flowed back to the original investors.
But while Baker found that if Rivers did not intentionally help investors avoid taxes on their RRSP withdrawals, "then he was at least breathtakingly obtuse," and given he had incorporated businesses as early as 1990, "must have seen flags and warning signs."
Baker also noted that there was no evidence Rivers made any attempt to pay the tax debt and instead managed to transfer his one half interest in the family home to his wife. Rivers claimed it was part of a separation but he continues to live in the basement and when the B.C. Securities Commission ordered him to pay a $10,000 fine, the house was mortgaged to pay it.
Rivers declared personal bankruptcy but, with the exception of CRA, Baker found he seems to have paid all the other suppliers and creditors.
Baker also found that Rivers remains in good health and although he no longer works as a millwright, he's had a history of reasonable earnings, in the order of $75,000 per year. Rivers now works as a safety advisor on a contract basis.
And Baker noted that although Rivers sold the Canadian patent for his invention to one of the investors, he still holds the U.S. patent which may still have value.
As a result, in the decision reached Friday, Baker accepted the CRA's submission that his debt be discharged on payment of $200,000 into his estate within two years. Case law suggested Rivers should pay between $880,000 and $1.32 million but that was "clearly an impossibility and well beyond what the CRA is requesting in any event," Baker said.