http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/145657/index.do
Pirart v. The Queen (June 21, 2016 – 2016 TCC 160, Lyons J.).
Précis: Mr. Pirart was assessed unreported income in the amounts of $1,050,000 for 2005, $1,200,000 for 2006, $1,350,000 for 2007, and $1,500,000 for 2008, mostly from an alleged cocaine business; in addition he was assessed for gross negligence penalties on the unreported income. The Tax Court accepted his evidence that the cocaine was the property of his former partner, Wendy Anderson (since deceased), and allowed the appeal with respect to that income. It dismissed the appeal with respect to his income in the amount of $32,400 from a marihuana business in 2007 and 2008 and sustained the penalties on that unreported income. There was no order as to costs since success was mixed.
Decision: Mr. Pirart was assessed unreported income in the amounts of $1,050,000 for 2005, $1,200,000 for 2006, $1,350,000 for 2007, and $1,500,000 for 2008, mostly from an alleged cocaine business; in addition he was assessed for gross negligence penalties on the unreported income. As is not uncommon in tax cases arising after criminal prosecutions the facts and issues here were convoluted:
[2] The issues are:
a) Whether the 2005 and 2006 taxation years are statute-barred?
b) Whether the alleged unreported income was properly included in the appellant’s income in the relevant years?
c) Whether gross negligence penalties under subsection 163(2) of the Act were properly levied against the appellant relating to unreported income for the relevant years?
[3] Mr. Pirart testified on his own behalf and Albert King, Kelsey Anderson, Chevy Pirart, Dennis Readings and Christine Pirart testified on behalf of Mr. Pirart. Nils Erzinger, a Canada Revenue Agency special enforcement auditor, and Corporal Christopher Boucher, an RCMP officer, testified on behalf of the respondent. An expert evaluation report, prepared by Sergeant Janos J. Korbely of the RCMP, was tendered on behalf of the respondent.
II. FACTS
[4] In September 2005, Mr. Pirart purchased land and buildings on Schoolhouse Road, south of Nanaimo, British Columbia, where he operated his auto-salvage business, Eco Tire and Auto Parts Ltd. (“Eco”), selling scrap vehicles and parts. He had been in the auto-salvage business since the mid‑1990s. Equity of $110,000, from his Hemer Road house in Cedar, was used as a down payment (“Cedar house”). During the relevant years, he reported net income of $4,325 in 2005, $2,073 in 2006, $35,487 in 2007 and $37,442 for 2008 from the operation of Eco. He admitted that the net income from Eco in 2005 and 2006 seemed low and that there was unreported income.
[5] On April 8, 2009, the RCMP searched 12 building/outbuildings on a large rural property on McLean Road, in Nanaimo, British Columbia (“Property”). These included Mr. Pirart’s residence (“residence”) and structures controlled and used by him and other areas on the Property. Cash seized from the search totalled approximately $765,700 (“Cash seized”) contained in several duffle bags and packaged in bundles of denominations of $20, $50 and $100 bills. Of the Cash seized, $139,000 was found in the residence, $500,020 was located in a workshop next to his residence (“shop”) and amounts of $100,000 U.S. and $25,000 were found in an abandoned trailer at the far end of the Property. There was no evidence that Mr. Pirart had any association with the cash in the trailer.
[6] Mr. Pirart testified that of the Cash seized, only $9,800 found in the residence belonged to him, the $500,020 in the duffle bag belonged to Mark and Glenn Bolt (the “Bolt brothers”) and the remaining cash belonged to Wendy Anderson including the $55,000 and $5,000 U.S. in the gun safe and $75,000 in containers in the attic.
[7] Six firearms, 1½ ounces of cocaine in his business bag on the kitchen chair and 408 grams of cocaine located in an ammunition box in his ensuite bathroom vanity were seized from his residence. Mr. Pirart stated that the cocaine, the ammunition box and money counter belonged to Wendy Anderson who sold cocaine, not him. She had wanted him to drop off the 1½ ounces of cocaine at her store and he agreed to that because she did not want to carry it around because her home had been raided the previous year and she was charged with possession for purposes of trafficking (“PPT”) in cocaine and was released on bail. He allowed her to store it, without payment, in his residence out of love. When asked why he let her sell drugs without protection, he responded by saying that he was unable to stop her. Wendy Anderson died on July 26, 2009 from heart failure.
[8] No female was arrested with respect to Mr. Pirart’s residence and Corporal Boucher said that although he was aware of Wendy Anderson, there was no evidence to suggest that she needed to be investigated relating to the seized items at Mr. Pirart’s residence nor was evidence found to charge anyone else with respect to the cocaine operation on the Property. Corporal Boucher, a credible witness, stated that the RCMP had not observed a cocaine transaction “or something like that”. Consequently, charges for trafficking were not recommended such that Mr. Pirart was charged only with PPT in cocaine. He also said that a “large number” of firearms, ammunitions, and explosives were seized from the shop.
[9] Despite the large quantity of guns found at his residence, Mr. Pirart denies having a “gun business,” had sold some guns and admitted that the ammunition was his. He claims that some guns belonged to Dennis Paugh who owned and also lived on another part of the Property with his family and was an arborist and hunting and fishing guide. Mr. Pirart lived rent free at the residence because when Mr. Paugh was not around, he was comforted that Mr. Pirart lived on the Property. Mr. Pirart said that whilst he worked in the shop, it remained unlocked and the Bolts, his son and two others had access to the shop.
[10] Albert King testified he had represented Wendy Anderson in 2008. Her home had been searched and she was charged with PPT in marihuana, under three kilograms, and PPT in cocaine. She pled guilty, was released on bail in September 2008 but the charges were abated because of her death in 2009. He refreshed his memory of the events including a search of the Court Registry for the nature of the charges on the indictment sheet tendered as Exhibit A-2. Mr. King also represented Mr. Pirart when he was charged in 2009 and produced at the tax appeal photographs taken by the RCMP during the search of the Property which were given to him as part of the Crown disclosure and were tendered at the Tax Court hearing.
[11] Kelsey Anderson, Wendy Anderson’s daughter, testified that she was 18 and living at her mother’s home when it was searched, Kelsey Anderson was charged but said she had never sold cocaine and the charges were withdrawn against her. After the search at her mother’s home, her mother spent five to six days per week at Mr. Pirart’s residence and corroborated that Mr. Pirart was a good friend of her mother’s for 40 years and one year before she passed away, they started dating.
[12] Chevy Pirart, Mr. Pirart’s son, indicated that he knew Wendy Anderson for 24 years; she had been a long-term friend of his father’s before becoming his partner.
[13] Between 2005 and up to August 2008, Mr. Pirart lived with his former spouse, a housekeeper in the hotel industry, and their two youngest children until separation in 2008. They did not live a lavish lifestyle as corroborated by his bank statements and credit card statements. In cross-examination, he disagreed that his outlay of funds greatly exceeded his reported net income for the relevant years. He claims that other than Eco and the marihuana business, he had no other businesses and denied he sold cocaine.
[Footnotes omitted]
The Crown argued that Mr. Pirart could not contend that the cocaine business was not his since he had pled guilty to possession for purposes of trafficking in cocaine. The court rejected this abuse of process argument:
[30] The respondent relies on a decision of this Court in which the conviction was admissible as prima facie evidence of the facts underlying the conviction after a full trial. Unlike the case relied on by the respondent, Mr. Pirart is not seeking to challenge the facts relating to his criminal conviction nor suggest that he was wrongfully convicted. Based on his lawyer’s advice at the criminal trial, he accepts that he intended to transport cocaine for Wendy Anderson. The evidence adduced by Mr. Pirart and his witnesses that he did not sell cocaine nor was involved in a cocaine operation, his intent to transport to Wendy Anderson and her history plus the advice from his lawyer is supplemental and different from the sparse facts that surfaced at the criminal proceedings and surrounding the conviction. As to whether Mr. Pirart is to be believed depends on credibility as discussed below. I am of the view that Mr. Pirart was not re‑litigating his conviction and find that there is no abuse of process based on his position at the tax appeal.
[Footnotes omitted]
The Court accepted the evidence of Mr. Pirart and his witnesses that the cocaine business was in fact operated by the late Ms. Anderson:
[57] On balance, that evidence coupled with the nature of Mr. Pirart’s relationship with Wendy Anderson and the fact that in 2008 she was charged with drugs offences, and I note a loaded, prohibited firearm, is compelling and tends to corroborate Mr. Pirart’s testimony making it possible that the cocaine operation was not his, he did not sell cocaine thus did not profit from it. Apart from that, the Court rulings from the criminal proceedings do not indicate he was selling cocaine, that was not observed by the police, fingerprints on three of the bundles of cash were not his, others had access to the unlocked shop and the findings in the SCBC Order. In my opinion, these factors tend to support his evidence and position that the cocaine operation was not his and he was merely “transporting” the smaller quantity to and for Wendy Anderson and allowing her to store the rest.
[58] Consequently, I find that Mr. Pirart demolished the Minister’s assumptions relating to the cocaine operation and sales for the relevant years. Because the calculations under the projection method affected the 2005 and 2006 statute‑barred years, I also find that the Minister did not discharge her onus relating to the 2005 and 2006 taxation years. I conclude that Mr. Pirart did not have income from cocaine sales during the relevant years.
However the Court concluded that he had income in the amount of $32,400 from a marihuana business in 2007 and 2008 and sustained the penalties on that unreported income.
There was no order as to costs since success was mixed.