A Burns Lake area couple's allegations of a conspiracy by the federal government's tax collector to unfairly target them out of jealousy and envy has been dismissed by a B.C. Supreme Court Justice following a lengthy trial at the Prince George provincial courthouse.
Since the early 1970s, Nathan and Elly Foote had been living on a ranch property in Southbank, located on the south side of Francois Lake, where they established a horse logging and horse ranching businesses and eventually a summer horse camp for girls.
All three businesses were under Nathan Foote's name and, in 2002 or 2003, they were transferred to the couple's three daughters as part of a plan to retire, but without payment in return.
In 2004, his income tax and goods and services tax returns were filed for the years 2000 to 2003.
Foote reported losses in each of those years and in 2006, the CRA launched an audit for 2000 and 2001. In the process, the auditor discovered Foote had reported losses for all but three years going back to 1987, and only small amounts of net income in the profitable years.
Further work by the auditor then led her to believe the couple had been deliberately understating their revenues and overstating their expenses to minimize their taxes and the matter was handed over to the CRA's criminal investigations branch.
In March 2007, and with a search warrant in hand, 11 CRA officers accompanied by a uniformed RCMP officer converged on the Footes' property and over a nine-hour period conducted a search for evidence.
Ultimately, the CRA referred the matter to the federal public prosecutor with a recommendation that criminal charges for tax-evasion related offences be laid.
Officials also issued claims for unpaid taxes, penalties and interest adding up to nearly $400,000, prompting Foote to declare bankruptcy.
In the end, however, no charges were laid against Foote and he was discharged from bankruptcy, releasing him from his debt to the CRA.
The Footes then took the CRA to court starting with a statement of claim filed in March 2010. Through a series of court challenges, the allegations were narrowed down and the matter culminated in a trial held over 18 days last spring and summer, with the Footes appearing on their own behalf without a lawyer.
Summarizing the Footes' allegations in a reasons for judgment issued Thursday, Justice Lisa Warren said the couple alleged CRA officials, "motivated by jealousy and envy, conjured up a scheme to inaccurately inflate Mr. Foote's net income so as to unjustifiably pursue criminal charges against him, and reassess him hundreds of thousands of dollars in tax arrears, penalties and interest."
They also alleged, said Warren, that CRA misrepresented information to get the search warrant, acted in an abusive fashion when they executed it, and then manipulated the information to convince the federal prosecutor to lay charges.
And once that failed, the Footes alleged the CRA issued the reassessment based on false information in an effort to distract attention from their own mistakes and misfeasance and to justify their wrongful pursuit of Nathan Foote.
But Warren concluded otherwise. In a 59-page decision outlining the events and allegations, Warren agreed officials did make mistakes in their analyses of the Footes' finances but asserted much of the problem was to do with the state in which the Footes kept their records.
Consequently, the mistakes and erroneous assumptions made by CRA officials "do not warrant the drawing of any inference of malice."
Moreover, Warren dismissed the Footes' allegations of conspiracy, noting in part, that there were many different CRA officials involved at different stages and there was no direct evidence to support an agreement among them to conjure up a scheme.
In June 2009, the CRA issued notices of assessment to the Footes' daughters assessing each of them nearly $46,500 in unpaid taxes arising from the transfer of the property at a time when their father was indebted to the CRA for unpaid taxes.
A provision in the Income Tax Act makes the party receiving a property from a non-arm's length source for less than fair market value liable for the taxes owing.
Each of the daughters filed notices of objection but, in January 2014, the CRA confirmed the assessments.
Their remaining recourse is an appeal to the Tax Court of Canada.
