Law Times

PAGE 6 COMMENT Law Times Group Publisher ....... Karen Lorimer Editorial Director ....... Gail J. Cohen Editor ........... Gretchen Drummie Associate Editor ......... Robert Todd Staff Writer ............. Glenn Kauth Copy Editor ............. Neal Adams CaseLaw Editor ...... Jennifer Wright Art Director .......... Alicia Adamson Production Co-ordinator .. Catherine Giles Electronic Production Specialist ............. Derek Welford Advertising Sales .... Kimberlee Pascoe . . . . . . . . . . . . . . . . . . . . . . . . . . Kathy Liotta Sales Co-ordinator ......... Sandy Shutt ©Law Times Inc. 2009 All rights reserved. No part of this publication may be reprinted or stored in a retrieval system without written permission. The opinions expressed in articles are not necessarily those of the publisher. Information presented is compiled from sources believed to be accurate, however, the publisher assumes no responsibility for errors or omissions. Law Times Inc. disclaims any warranty as to the accuracy, completeness or currency of the contents of this publication and disclaims all liability in respect of the results of any action taken or not taken in reliance upon information in this publication. Editorial Obiter Garbage in, evidence out sure." Or in this case, one drug dealer's garbage put out for collection is fair game for the cops to give it a good rummage. The ruling arises from R. v. Patrick, a case that explores the question: When does household rubbish stop being pri- vate? In a 7-0 decision the top court said that when we put our garbage out to the curb for pickup, any expecta- tion of privacy with respect to what's inside, is scrapped. Thus, Russell Stephen Patrick, a for- mer national swim team member, re- mains convicted of running an ecstasy lab out of his home. The court found the police weren't wrong to sift, without a warrant, through the waste he left at the edge of his property in Calgary. According T to the judgment, po- lice suspected Patrick was operating an he Supreme Court of Canada has embraced the old adage, "One man's trash is another man's trea- ecstasy lab in his home and on several oc- casions they seized bags of garbage that he put out for collection at the back of his place, adjacent to a public alley. The court notes the officers didn't have to step onto the property but they did have to reach through "airspace" over the line. The police then used evidence of criminal activity gathered from the con- tents of the garbage to obtain a warrant to search Patrick's house and garage where more evidence was seized. At his trial Patrick asserted that the taking of the garbage bags was a Char- ter breach of his right to be free from unreasonable search and seizure. But the trial judge found he didn't have a reasonable expectation of privacy and therefore the warrant and search were lawful. The Alberta Court of Appeal upheld the lower court's decision. "He abandoned his privacy inter- est when he placed his garbage for collection at the rear of his property where it was accessible to any passing member of the public," wrote Justice Ian Binnie. "The bags were unprotected and within easy reach of anyone walk- ing by in the public alleyway, including street people, bottle pickers, urban for- agers, nosy neighbours, and mischie- vous children, not to mention dogs and assorted wildlife, as well as the garbage collectors and the police." But Justice Rosalie Abella, while con- curring with the decision, went further disagreeing with the characterization of the privacy issues at stake: "Personal information emanating from the home that has been transformed into house- hold waste is entitled to protection from indiscriminate state intrusion. House- hold waste left for garbage disposal is 'abandoned' for a specific purpose — so that garbage will reach the waste disposal system. What has not been abandoned is the homeowner's privacy interest attach- ing to personal information. Individu- als do not intend that this information, such as medical or financial information will be generally accessible to public scrutiny, let alone to the state." She said the "fact that what is at is- sue is waste left out for collection, how- ever, argues for a diminished expecta- tion of privacy. But the state should have at least a reasonable suspicion that a criminal offence has been or is likely to be committed before conducting a search. In this case, the evidence amply supported such a decision." Abella's right. But will the raccoons let us know if searches are conducted when there isn't such suspicion? — Gretchen Drummie Go to www.lawtimesnews.com for an audio version. in the right court. This can be an important issue in tax cases, where there are two distinct ven- ues, federal and provincial. Fail- ure to litigate in the right forum can be expensive — in fees and in costs — and allow limitation periods to expire. For most purposes, the In- T come Tax Act (Canada) is a complete code with its own pro- cedures for resolving disputes between the taxpayer and the federal government. Thus, dis- putes between the taxpayer and the federal government initially proceed in the Tax Court of Canada. Launching a federal tax dispute in a provincial superior court is futile and expensive. In Sentinel Hill, for example, the taxpayer plaintiffs — a num- ber of Ontario limited partner- ships — that had engaged in tax sheltered investments in film and television productions, sought to recover withholding taxes from the Canada Revenue Agency. The Choosing the right forum to litigate tax cases Financial he cardinal rule of litiga- tion is that the plaintiff should initiate his action taxpayers had entered into agreements with non-resident studios and paid certain fees, which they believed to be de- ductible for tax purposes. The taxpayers withheld taxes from the payments, believing that they were required to do so under the federal act. The withholding tax obliga- tion is actually the liability of the non-resident. The Canadian resident payer merely acts as a fiduciary agent on behalf of the federal government to collect the tax from the non-resident. As part of the agreement with the non-resident studios, the taxpayers "grossed up" the pay- ments to the non-residents by an amount sufficient to offset the Canadian withholding tax. Thus, the non-residents received the amount that they had bar- gained for in their agreements with no deduction for Canadian taxes. The effect of the gross-up clause was that the taxpayers effectively absorbed the non- residents' liability for Canadian withholding tax. Matters By Vern Krishna A non-resident is liable for withholding taxes only if it re- ceives certain payments from a "person resident in Canada." The act deems a partnership to be a person resident in Canada if it makes payments to a non- resident that are deductible for tax purposes. For example, there would be withholding taxes from rental payments on a com- mercial property if the resident paid the rent to a non-resident person. There is no withhold- ing tax on a payment that is not deductible for Canadian income tax purposes. Unfortunately, the taxpay- ers discovered belatedly that the payments to the non-resident studios were not deductible for income tax purposes. When they sought to recover the mistaken www.lawtimesnews.com payments, however, the CRA rebuffed them. The taxpay- ers sued for recovery of the mistakenly paid withholding taxes in the Ontario Superior Court of Justice. According to the statutory rules in the act and Tax Court of Canada Rules, actions against the federal government under the act must commence in the Tax Court of Canada. Since the payments to the non-resi- dent studios were not deductible for tax purposes, there should have been no withholding tax on the payments. Unfortunately, the taxpayers had already paid the non-resident "grossed-up" values according to the terms of the agreement. Clearly, the non-residents did not suffer any financial loss because they received the full amount of their payments accord- ing to the terms of their contract. The non-residents did not apply for a refund because they had not suffered any financial loss. The taxpayers suffered a finan- cial loss to the extent that they April 20, 2009 • lAw Times Law Times Inc. 240 Edward Street, Aurora, ON • L4G 3S9 Tel: 905-841-6481 • Fax: 905-727-0017 www.lawtimesnews.com President: Stuart J. Morrison Publications Mail Agreement Number 40762529 • ISSN 0847-5083 Law Times is published 40 times a year by Law Times Inc. 240 Edward St., Aurora, Ont. L4G 3S9 • 905-841-6481. lawtimes@clbmedia.ca CIRCULATIONS & SUBSCRIPTIONS $141.75 per year in Canada (GST incl., GST Reg. #R121351134) and US$266.25 for foreign addresses. Single copies are $3.55 Circulation inquiries, postal returns and address changes should include a copy of the mailing label(s) and should be sent to Law Times Inc. 240 Edward St., Aurora, Ont. L4G 3S9. Return postage guaranteed. Contact Kristen Schulz-Lacey at: kschulz-lacey@clbmedia.ca or Tel: 905-713-4355 • Toll free: 1-888-743-3551 or Fax: 905-841-4357. ADVERTISING Advertising inquiries and materials should be directed to Sales, Law Times, 240 Edward St., Aurora, Ont. L4G 3S9 or call Karen Lorimer at 905-713-4339 klorimer@clbme- dia.ca, Kimberlee Pascoe at 905-713-4342 kpascoe@clbmedia.ca, or Kathy Liotta at 905- 713- 4340 kliotta@clbmedia.ca or Sandy Shutt at 905-713-4337 sshutt@clbmedia.ca Law Times is printed on newsprint containing 25-30 per cent post-consumer recycled materials. Please recycle this newspaper. remitted money to the federal government that they were not required to pay. The taxpayers sought a refund of the improp- erly remitted withholding tax. It is the non-resident, however, who is liable for the withholding tax, not with the Canadian resi- dent. Hence, the taxpayers were not the proper party to seek the refund. In the result, the Superior Court dismissed the taxpayers with no remedy to recover their improperly remitted withhold- ing tax. The Court of Appeal for Ontario upheld the decision of the Superior Court and award- ed costs of $10,000 against the plaintiffs. Overall, an expensive foray in civil litigation because of the improper choice of fo- rum. LT Vern Krishna, QC, FCGA, is tax counsel with Borden Ladner Ger- vais LLP, and executive director of the CGA Tax Research Centre, University of Ottawa. He can be reached at vkrishna@blgcanada. com.

• Cover
• Fight Over Fees
• Financial Matters
• Focus On ADR/Mediation