A Prince George businessman was the maker of his own misfortune, the lawyer representing the federal government's tax collector argued during the opening statements Monday of a 10-day trial.
Irvin Leroux is claiming misfeasance and negligence by Canada Revenue Agency ruined him financially and is suing for compensation through a lawsuit he filed in 2006.
He says the CRA's actions included removing papers from his office without his consent during a 1996 audit, then losing or shredding them and then assessing him for almost $1 million in taxes, penalties and interest.
The tax prosecution was eventually resolved with the CRA owing Leroux a refund. However, as a result of the CRA's actions, Leroux says he lost his home, his business - a private campground near Valemount - and his life savings.
"At the end of the day, he owed nothing but in the time it took him to prove that this was all was wrong and he didn't owe anything, he'd lost everything, and thus we are here today," Leroux's lawyer Laurie Armstrong said at the end of his opening statement.
But CRA lawyer Elizabeth McDonald contended CRA auditors acted appropriately and the problem was with Leroux's failure to properly keep his books, a habit of making improper claims and filing an appeal of his tax assessment after the deadline had passed.
She labelled Leroux's allegations of lost documents as "wild and unfounded."
"The anticipated evidence will show that the auditors did not misplace or destroy his books and records," McDonald said. "Rather, the plaintiff provided the records he had in piecemeal fashion."
In recounting what his client is expected to testify, Armstrong presented a timeline dating back to 1993 when Leroux began clearing 160 acres he owned along Highway 5 near Valemount to establish an RV park and an 11-lot subdivision.
To sell the logs to a local sawmill from the land clearing, he had to obtain a GST registration number and received help from a CRA official, Randolph Hansen, with his 1993 and 1994 returns.
In 1996, the CRA launched an audit of his GST and income tax returns for 1993, 1994 and 1995 and the same Randolph Hansen was the lead auditor. Although Leroux had asked that they meet in his accountant's board room to review his documents, the auditors went to his home in Prince George.
Because he had business in Valemount, Leroux left while the auditors remained behind. Before leaving, Leroux permitted them to take two boxes of documents but when he returned he found they had also taken some additional documents he had not given them permission to take.
When he asked for them to be returned, Leroux is expected to say Hansen told him they had been lost and possibly shredded.
Leroux is also expected to testify that in December 1998, when the GST assessment was in place but not the income tax assessment, Hansen said he could "make the whole tax problem go away" for a $25,000 cash payment, an offer Leroux rejected.
In response, McDonald said Leroux told no one at CRA about Hansen's alleged extortion attempt until 11 years after it was supposed to have happened. She also noted that Hansen was already dead by the time Leroux claimed the offer was made.
Throughout 1997 and 1998, Leroux had trouble opening the park and getting the subdivision developed, due in part to several financial challenges. But he was able to borrow $650,000 from the Business Development Bank of Canada (BDC) and a further $100,000 from friends and opened the park in time for the 1999 tourist season.
In September 1999, Leroux filed notices of objection to orders that he pay $618,000 in income tax and $98,300 in GST but due to penalties and daily compound interest the debt grew to $861,000 for the income tax and $125,000 for the GST for a total of $986,000 over the following years.
Both the debts were registered on the land's title and consequently, Leroux was unable to sell the land. While the matter was taken to the Tax Court of Canada, BDC sold the land for $825,000, which covered off the debt, although an appraiser assessed its true value at $2 million.
"So he lost his equity if the court accepts the valuation of $2 million," Armstrong said.
Additionally, Leroux lost his home to a foreclosure proceeding related to a loan from a private-sector bank.
By the time it was all settled in 2005, Leroux came out with a small refund but by then had lost his business and his home. Armstrong will contend CRA has a "private law" duty of care to taxpayers that it failed to meet.
In response, McDonald disputed Armstrong's claim and further contended that even if there is a basis for a private law duty of care, CRA has met that standard. She said the evidence will also show Leroux "failed to take reasonable steps to ensure that he could dispute his income tax without having to pay or deal with collection of unpaid taxes" by filing his appeal late.
"Had he taken that step on time, any collection of the income tax debt would have been stayed," McDonald said.
Leroux's financial problems were many and began long before he was reassessed for taxes, McDonald said.
The trial before B.C. Supreme Court Justice Mary Humphries continues today at the Prince George courthouse.
