http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/98405/index.do 
Mason v. The Queen (October 3, 2014 – 2014 TCC 297) was a decision on both income tax and GST appeals involving an accountant who had claimed to have sheltered his professional income through a structure involving trusts and corporations:
[6] Mr. Mason testified that 20 years ago Mr. Mark Wright provided him the necessary office furniture to establish his accountancy practice, and for that Mr. Wright was to share in his profits. It appears Mr. Wright had an interest in a company known as Investacap Inc. which in turn owned a holding company, 401422 Alberta Ltd. (“401 Co”). 401 Co registered a trade name, Mason and Associates, as well as Mason and Associates Management, back in 1993. In 2006, 903654 Alberta Ltd. (“903 Co”) appears to have taken over the holding company role, also having registered Mason and Associates as a trade name. There were also several subsidiaries of 401 Co and subsequently 903 Co, which Mr. Mason called, at one point, beneficiaries. He never made clear to me exactly of what trust they were beneficiaries. His accounting records, however, suggest that certain other companies (S&K Holdings Ltd., 1089222 Alberta Ltd., 734970 Alberta Ltd. and 988741 Alberta Ltd.) represented four different functions of the business, each never earning, according to Mr Mason, more than $30,000 per year. Mr. Mason acknowledged it was set up this way to keep each entity under the $30,000 limit for Goods and Services Tax (“GST”) purposes. He indicated he relied on the old maxim of the Duke of Westminster case that he can arrange his affairs to minimize the tax burden.
[7] Mr. Mason testified that these companies were owned by Mason and Associates, again in trust, and he referred to the companies themselves as trusts.
[8] Mr. Mason’s summary records suggested these four companies performed the following four functions: financial statement preparation, tax returns, bookkeeping and corporate. These companies never had financial statements and the only reference to them is in Mr. Mason’s synoptics or summaries of the business activities.
As an initial matter the court rejected the concept that he had effectively eliminated most of his professional income through this plan:
[16] There are several possibilities: first, as the Government contends, it could be Mr. Mason’s, or, at the other end of the spectrum, it could be Mr. Wright’s, or perhaps a trust for Mr. Wright: there is also the possibility it was 401 Co from 2003 to 2006 and 903 Co in 2006 and 2007 being the companies that held the Mason and Associates trade name, or finally it could be the four companies to whom Mr. Mason allocated income expenses as some sort of beneficiaries.
[17] Let me deal with the latter three options. I do not accept there are any proven trust arrangements. The fact Mr. Wright may have allowed the use of some office equipment 20 years ago on some vague basis of sharing the profits of some business on some best efforts basis in no fashion meets the criteria for establishing a trust. As counsel for the Respondent, Mr. Heseltine, points out, three certainties are required to constitute a trust. There is no certainty of intention. Mr. Wright did not testify although it was he who, according to Mr. Mason, allegedly established a trust. There is no certainty of subject matter: perhaps the office furniture may be certain, but that does not account for bank trust accounts – are they trust property? Are profits trust property? There is simply no clarity on how or when they were determined other than totally at Mr. Mason’s discretion. With respect to certainty of object or beneficiary, Mr. Mason would have me believe Mr. Wright alone was the beneficiary, yet Mr. Mason himself seemed to think the companies were also beneficiaries. No, the explanation of the arrangement with no corroborating evidence, documentary or otherwise, falls well short of proving a trust.
[18] So the revenue, if any, is not Mr. Wright’s, nor a trust for Mr. Wright. Trusts simply did not exist.
[19] What about the four companies to which Mr. Mason allocated income and expenses? These, I suggest, were fictitious – they had no life, no accounts, no characteristic of an operating corporation: they were shells used conveniently by Mr. Mason to fictitiously divvy up income. The only place they reared their head was in Mr. Mason’s synoptics. They never contracted with anyone, paid anyone or indeed did anything at all. No, they received no income: they were not effectively implemented to achieve Mr. Mason’s purpose of keeping income under $30,000 for GST purposes.
[20] So then what about the two companies that registered the trade name, Mason and Associates: 401 Co and later 903 Co. Here, I believe, I need to balance the probability of these companies carrying on the business versus Mr. Mason himself carrying on the business. The main factor that evidences the companies carrying on the business is the fact that the companies registered the trade name – Mason and Associates. 903 Co has the added factor of having the operating bank account in its name, along with Mason and Associates. Further there was a lease in 401 Co’s name. Finally, the synoptics prepared by Mr. Mason, recreated from non-produced original journals, are titled Synoptic journal – 401 or Synoptic journal – 903. No other original journals or books were produced, nor were any financial statements, nor were any tax returns of the two companies. These company names appeared on no cheques, invoices or signs, only on Mr. Mason’s self-prepared summaries.
[21] Mason and Associates was just a name: there were no associates as such, as the bookkeepers who worked for Mr. Mason were hired as subcontractors. I was certainly left with the impression that Mr. Mason was the moving force in the business. He and he alone made all business decisions.
Nevertheless the court concluded that the Minister had failed to recognize the expenses incurred by Mr. Mason in earning this business income:
[24] It is also clear, however, that assessing Mr. Mason with taxable income based solely on deposits without taking account of business expenses is unrealistic and incorrect. The accountancy business had legitimate business expenses. Regrettably, Mr. Mason has not been forthcoming with the CRA to this point to determine what those business expenses are. Mr. Mason, the time has come to do so. Mr. Mason and Mr. Heseltine suggested that if I determined a review of expenses was necessary they were prepared to adjourn the hearing for the purpose of sitting down this morning to settle the expense issue. Mr. Heseltine suggested that I assist in this settlement conference. My concern was that if I do so, and the Parties are unable to reach a resolution, and the trial has to continue to address expenses, I would no longer be able to serve as trial judge and another judge may have to start all over.
[25] I therefore suggested the Parties meet together without me to try and hammer out their differences. A room has been set aside for that purpose. If you believe you are close and need some final assistance to seal the deal, as it were, only then would I consider helping out on the understanding that the Parties are intent on settling and not proceeding to trial.
The court however placed very little credence in Mr. Mason’s evidence:
[39] Additional factors that have caused me to place little weight on Mr. Mason’s testimony are:
– No corroborating evidence of other witnesses;
– Confusion between testimony at trial and examination for discovery regarding where he was living during the relevant period;
– Failure to recall the name of a friend with whom he purportedly lived
– A claim for all his car expenses despite his testimony he did mainly volunteer work and accountancy was more a sideline business;
– Arbitrary allocation of expenses and his acknowledgment that many had been misallocated;
– In addressing expenses, the very first expense (of 100s) that I took him to he acknowledged was probably personal;
– Heavy reliance on synoptic documents rather than original source documents;
– Restaurant receipts presented at trial with “meeting” marked on them: most had not been so marked at discovery.
[40] I found Mr. Mason’s testimony confused, bordering on evasive. He has wound himself up in a complex structure without properly documenting it. He has run his business in as loose a manner as possible and has made it difficult, if not impossible, to figure out the business’ true income and expenses. Overall, I did not find his testimony reliable and I accept little of it as proof of his position.
In the end the court permitted Mr. Mason deductions and GST input tax credits for a relatively limited amount of business expenses.
It then turned to the issue of the penalties assessed against him. Although Mr. Mason was not a credible witness, the court concluded that the Crown had not met the evidentiary onus associated with the levying of penalties:
[61] The question of whether or not Mr. Mason knowingly or with gross negligence made false statements does not hinge on the numbers – his calculation of revenue and expenses, but on whether he honestly believed his attempt at organizing his affairs to pay the least amount of tax was bona fides. As I have already concluded, the elaborate structure of what Mr. Mason called trusts created a smokescreen more than resulting in effective tax planning. But the Respondent has not proven on balance that a smokescreen was the intent. I find that Mr. Mason intended to implement effective tax planning. With respect, he simply did not do it particularly well. It is not sufficient to say he should have known better (for example, see the cases of Leroux v Canada Revenue Agency and Fourney v Her Majesty the Queen). So, while I have expressed concern regarding the reliability of his testimony, it does not extend to a view that he was intentionally deceitful, or grossly negligent. His actions, I suggest, are misguided, even to the point of being considered negligent. But to find gross negligence requires elevating his behaviour beyond that threshold. The Respondent has not proven this higher level of negligence.
[Footnotes omitted]
In the result Mr. Mason’s income tax and GST appeals were allowed. His unreported income was included in his taxable income, but he was allowed limited business deductions and GST input tax credits and the penalties were vacated. The court gave the Crown a month to make submissions on costs and Mr. Mason a month to make responding submissions.