Law Times

Law Times • November 8, 2010 Ford's win shakes up Queen's Park R ob Ford — or RoFo as he's been nicknamed in some quarters — is about to become To- ronto's mayor, the rip- ple effects of which are already causing tremors a few blocks west at Queen's Park. Ford, in fact, has already claimed a cabinet minister's head: Glenn Murray, the minister of research and in- novation. He was forced to apologize after he tweeted, "If u vote Ford u r voting for bigotry." It wasn't smart as it almost cost him his job in cabinet. In fact, some people think Premier Dad should have banished Murray to his room with no TV. The comment was also short-sighted be- cause what Murray and his ilk clearly missed is the voter anger and division in To- ronto that saw the downtown core with its so-called elites swamped by the suburbs. "There hasn't been the scoffing at Queen's Park we might have expected with Rob Ford getting elected," notes Graham Murray, the publisher of Inside Queen's Park who has no relation to the minister. "And Ford may well prove adroit at getting things done." Sure, Ford's win could be blamed on the age-old war be- tween the core and the 'burbs that's been going on for years. But politically, it smacks of something else: Mike Harris' Common Sense Revolution. Think about it. The political atmosphere today is similar to that of the early 1990s. We have a disgruntled popu- lace tired of tax hikes and a bloated bureaucracy biting back, both factors that helped make Harris Ontario's pre- mier in 1995. Whether you love him or hate him, Harris was in many ways the anti-politician. He promised to cut taxes and government spending while paring down what was then a record $11-billion deficit. He did just that. Imagine a politician keeping his election promises. His regime lasted until 2002, when Ernie Eves took over before ultimately falling to Dalton McGuinty and the Liberals a year later. So here we are today with a massive $23-billion deficit and a tax-and-spend govern- ment that can't keep its nose out of personal liberties. Of course, McGuinty isn't quite as unpopular as Harris in his last days but he's got to be close. All of that brings us back to mayor-elect Ford. He, too, is the anti-politician who's ungainly and prone to gaffes and whom critics chide for having more bluster than Inside Queen's Park By Ian Harvey substance. Ford hardly seemed like a real candidate at the outset. Even his campaign team had doubts over whether it could put him over the top. Ford, however, has a good ear for the people. He felt the anger and saw, either directly or instinctively, how the sub- urbs felt alienated from the downtown core. He fed into that and reaped the rewards. His simple message about stopping the gravy train, which he didn't really define but that appealed to suburban voters with promises of cut- ting spending, reducing the size of council, and eliminat- ing taxes, clearly resonated. As the erudite Murray points out, if the Grits are hoping Ford self-destructs in the first year and gives vot- ers pause about the need for change, they're banking on a long shot. The other lesson is that the notion of the 416 as a Liberal bastion has also withered after the suburbs overwhelmingly shifted to the right. "I haven't done the ward votes against the ridings yet but I'm about to," says Mur- ray. I'll bet the Liberals have already done some of that analysis and the news isn't good. In the middle of the longest provincial campaign ever — remember that while this election isn't until next October, the fight started in earnest in June — the Liber- als have to face an electorate in Toronto that has flexed its muscles and tasted victory. If the Liberals fail to main- tain most of Toronto due to voter anger, they'll lose the election since the Conserva- tives are strong in the 905 belt and beyond. In the mean- time, the polls clearly show the electorate is in the mood for change at the provincial level, too, a fact that doesn't bode well for the future. Thus far, Conservative Leader Tim Hudak has taken great pains to distance him- self from both Harris and the Common Sense Revolution. But given voters' appetite for change, he could probably afford to take a harder, more focused stance. It worked for Ford. LT Ian Harvey has been a journal- ist for 32 years writing about a diverse range of issues including legal and political affairs. His e-mail address is ianharvey@ rogers.com. COMMENT Move quickly on voluntary tax disclosure BY STEVAN NOVOSELAC AND JOHN SORENSEN For Law Times ing coming forward to make a voluntary disclosure that time is of the essence. In brief, once a taxpayer or, in certain circum- T stances, a related person, is contacted by a revenue author- ity for any reason related to non-compliance, it's too late to seek protection under the vol- untary disclosure program. Timing will be especially crucial for Canadian taxpayers with undeclared income currently held in offshore banks in light of recent disclosures of secret offshore banking records to the CRA and its clear intent to pursue non-compliant taxpayers. The federal government's commitment to pursu- ing non-compliant taxpayers was further confirmed by the short article in the Oct. 9, 2010, edition of The National Post by Keith Ashfield, Canada's cur- rent minister of national revenue, in which he stated that "we are cracking down harder than ever on Canadians who are not paying their taxes. We are working with our partners in the OECD and other international bodies on co-ordinated approaches to detecting and prosecuting tax evaders. Canadians who have not paid their taxes are worried that they may be next; so they are coming forward to declare their assets in numbers never seen before." As a result, there's no time like the present to declare unreported foreign income pursuant to the voluntary disclosure program. In Livaditis, the issue for the court to decide was whether the CRA's decision to refuse to grant Peter Livaditis relief under the program was un- reasonable. It had denied him such relief on the basis that his disclosure wasn't voluntary. In the end, the court concluded the CRA's decision was reasonable and therefore dismissed Livaditis' application. The first paragraph of the court's judgment summarizes the critical facts that led the CRA to reject Livaditis' disclosure: "The applicant received a telephone call from a [CRA] official concerning records related to first purchasers of units in a condominium. Shortly thereafter, he disclosed to the CRA that he had failed to report capital gains on the sale of his condo unit in 2006." The facts of the transactions conducted by Liva- ditis and members of his family are straightforward. Livaditis was the president of LaCaille Fifth Avenue Inc., which was developing, among other things, a condominium building in Calgary called Five West. In 2003, Livaditis and four family members ac- quired units in Five West prior to construction and resold them in 2006 at a gain. Their gains on the condominium units weren't reported, however. The nature of the phone call Livaditis received from a CRA official was in dispute. His affidavit stated that the discussion was brief and generally concerned with buyers of condominium units. However, the CRA's deponent swore that Liva- ditis was informed that the agency had obtained an "unnamed person requirement" that it would serve on LaCaille to obtain the names of people who may have purchased and sold condominium units without declaring any gain. Three days after the phone call from the CRA, Livaditis and his family members initiated voluntary disclosures. Four days later, the court order requiring produc- tion of information and documents concerning the unnamed persons who had acquired units at Five West was served on LaCaille. The CRA rejected the disclosures filed by Li- vaditis and his family. Its sole reason for rejecting the disclosures was that they didn't make them voluntarily. Livaditis and his family members then applied to the Federal Court for judicial review of the CRA's decision. www.lawtimesnews.com he Federal Court of Canada's recent judg- ment in Livaditis v. Canada Revenue Agency is a strong warning to taxpayers contemplat- According to the court's review of the CRA's vol- Speaker's Corner untary disclosure policy, a disclosure "may not qualify as a voluntary disclosure under the above policy if it is found to have been made with the knowledge of an audit, investigation or other enforcement action that has been initiated by the [CRA] or other authorities or administrations with which the [CRA] has in- formation exchange agreements." The court stat- ed that in determining whether an enforcement action has occurred, the CRA must consider the following: • Whether there was any direct contact with the taxpayer by a CRA em- ployee or other authority or administration for any reason related to non- compliance or the taxpayer was likely to have been aware of the enforcement action. • Whether any enforcement action had been ini- tiated against a person associated with or related to the taxpayer or a third party and that enforce- ment action is sufficiently related to the disclo- sure in issue and is likely to have uncovered the information being disclosed. The court stated that a negative response to either of these points would mean the disclosure would qualify as voluntary. With respect, the court may have meant to state that a negative response to both of these questions is required for the CRA to accept that the voluntariness criterion has been met. With respect to the first point — whether there was any direct contact with the taxpayer for any rea- son related to non-compliance or whether the tax- payer would likely have been aware of the enforce- ment action — the court was critical of the CRA. For example, it criticized the federal agency for plac- ing significant weight on the CRA official's version of events while discounting Livaditis' side of the story. In the absence of any genuine reason to favour one version over another, the court concluded that the CRA's decision was unfair and not deserving of its deference. Had the only issue been whether the CRA's conduct was reasonable in this regard, the court would have held in Livaditis' favour. However, with respect to the second point, the court sided with the CRA. It stated that this ground for rejecting a voluntary disclosure doesn't involve or require taxpayer awareness of any en- forcement action. Thus, once the CRA had begun enforcement against LaCaille, Livaditis was disen- titled to protection under the program in relation to any issue connected to the enforcement action. The CRA's move predated the disclosures and would have uncovered the same information they revealed. Consequently, the court held that the CRA's action wasn't unreasonable, thus upholding its decision to reject the disclosures. The court's interpretation of the CRA's policy isn't strained, although some reasonable criticisms may be made. By holding that a disclosure isn't voluntary where an enforcement action has been commenced against a related party, the court estab- lished the CRA's policy as a guiding legal principle. However, with the greatest of respect to the court, the CRA's policy is merely policy and not law. Con- sequently, the court need not apply it strictly. We submit that a taxpayer may make a truly voluntary disclosure while coincidentally being unaware that an enforcement action has been or is about to be initiated against a related party. Thus, by applying the CRA's interpretation, the court has allowed for potentially anomalous out- comes in the future where a taxpayer's disclosure may be ruled not voluntary because of some unknown pending enforcement action against someone else. As a result, Livaditis highlights why taxpayers with undisclosed tax obligations need to move forward promptly before the CRA commences any kind of enforcement action that may pre- clude obtaining protection under the voluntary disclosure program. LT Stevan Novoselac and John Sorensen both practise tax law at Gowling Lafleur Henderson LLP. PAGE 7

• Cover
• Revising Retainers
• Victim Impacts
• Focus On Family Law