A B.C. Supreme Court Justice has ruled in favour of the federal government's tax collector in a lawsuit brought by Prince George businessman Irvin Leroux, who claimed the Canada Revenue Agency's actions ruined him financially and sued for compensation.
Although she found CRA breached the expected standard of care in its assessment of penalties for alleged income tax violations, Justice Mary Humphries found Leroux failed to show a link between the negligence and the loss of his business and home.
Leroux had been seeking about $1 million in damages.
Humphries' 413-paragraph ruling was issued Wednesday, roughly six months after a multi-week trial was concluded at the Prince George courthouse and details a tax battle that dates back two decades.
In 1999, the Minister of National Revenue advised Leroux that he owed over $600,000 in taxes, interest and penalties. Leroux appealed the outcome to the Tax Court of Canada and, in 2005, it reduced the penalty to $57,000.
And after some payments and a "fairness application," all interest and penalties were canceled and Leroux was issued a refund of about $25,000.
But in the meantime, Leroux said he "lost everything."
Leroux had been trying to establish an RV park and an 11-lot subdivision on 160 acres of land along Highway 5 near Valemount.
While he tried to obtain financing from all the banks in Prince George, only Business Development Canada, with its mandate to assist small businesses, would advance money to him.
Leroux ran into problems making payments to BDC and had intended to sell the subdivision lots to cover those costs and contended that once the CRA judgments were registered against the property, he could not do so.
However, Humphries noted that BDC had advised Mr. Leroux of difficulties with his mortgage in October 2000 and had sent a demand letter in November 2000.
"Thus the problems with BDC over the mortgage on the RV park were well underway before the income tax judgment was registered in July of 2001," Armstrong said.
"Even if there were a link, and the filing of the income tax judgment did lead BDC to foreclose, there was no loss caused by the filing of the judgment that could not have been completely prevented by Mr. Leroux filing an appeal on his income tax assessment," Humphries said.
"Filing an appeal would have prevented any collections actions, including the filing of the judgment, but Mr. Leroux did not file his appeal for eighteen months, until February of 2002."
Humphries also found that while the CRA breached its duty of care on its assessment of Leroux's income taxes it did not do so in its assessment of his goods and services tax payments.
Humphries went on to say Leroux "did not concentrate in a meaningful way on the issues in the assessments for years."
Leroux also claimed a CRA auditor told him he would "make the whole thing go away" for $25,000. Humphries said she was not persuaded the auditor had tried to extort him but rather Leroux may have misunderstood or misconstrued a conversation they had.
Cariboo-Prince George MP Dick Harris testified at the trial, saying that in 2006, after the Tax Court settlement, he met with the Minister of National Revenue's assistant and asked if CRA could “make it right," Humphries said in her account in the decision of the evidence given.
Harris said he was told the CRA had no mechanism to compensate wronged taxpayers, but Leroux could sue. Harris said he replied that Leroux had no money for a lawyer, and in return was told that should Leroux start a lawsuit, CRA would not fight it very hard.
They went to see a local lawyer and a writ was filed in November 2006. As it turned out, CRA filed several motions trying to throw the case out and it took seven years to reach the trial stage.
Leroux could not be reached for comment but the Canadian Constitution Foundation, which covered about half his legal costs, issued a response in which it stressed Humphries' finding that CRA breached a standard of care in relation to Leroux, "even though courts in previous cases have been reluctant to impose this legal obligation on the tax department."
“We agree heartily with the court that holding CRA personnel to a standard of care that might make them more careful of taxpayers’ rights is a good thing," CCF litigation director Karen Selick said in the statement. "This was one of the results the CCF hoped to achieve by supporting Irvin through this lawsuit.
“Unfortunately, despite the invaluable service that Irvin has rendered to other taxpayers, the court was unable to award him any damages. The evidence did not meet the high standard necessary to prove that the CRA caused his financial downfall.”
CRA limited its response to saying it "respects the decision of the court and is currently reviewing it."
Harris did not return a request for comment.
