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Canadian Constitution Foundation  Irvin Leroux v. CRAProtecting Canadian taxpayers from CRA malfeasance«Related Publications» «Press Releases» «Related Audio» «Related Video» «Court Documents»
In 1996, at the age of 52, Irvin Leroux thought he had carved out a niche for himself in the world, with two small businesses that he expected to provide a reasonable living for the remainder of his working days and a secure retirement in his old age. Today, approaching 66, he is virtually destitute and has nightmares about scavenging for food in garbage bins. Why? Canada Revenue Agency fouled up big time, and Irvin Leroux was the innocent bystander who got chewed up and spat out. In the late 1980s, Leroux bought land in a beautiful valley in Valemount, B.C., about 3 hours southeast of Prince George. He logged it, cleared it, and built a recreational vehicle park and campground on the property. He also developed an 11-lot residential subdivision. The RV park and campground opened in 1998 and became successful, eventually hosting as many as 10,000 visitors per season. By 2003, iRVin’s Park & Campground had won the SuperHost Customer Service Award conferred annually by Tourism British Columbia.
Meanwhile, Leroux went through all the standard paperwork with Canada Revenue Agency (CRA). He opened a GST account and went to the CRA’s Prince George office quarterly to file his returns. From 1993 to 1995, he was assisted by CRA employee Randy Hansen (now deceased), who filled out the forms for him and gave him the working copies for his records. Hansen also gave Leroux advice on how to report logging revenues on his Income Tax return, telling him that they could be declared as capital gains rather than ordinary income.
In 1996, Hansen informed Leroux that he would be audited for both GST and Income Tax purposes for 1993 to 1995—the very years for which Hansen himself had assisted Leroux in preparing and filing the GST returns.
Hansen and another auditor came to Leroux’s home. Leroux had already segregated the documents they would need to look at: original bank statements, cancelled cheques and receipts for the taxation years in question. He gave them permission to take those documents away and photocopy them, so long as they agreed to return them the same day.
The auditors then asked about the contents of some other filing cabinets they saw in Leroux’s home. One cabinet contained business records relating to other years not being audited, while the second cabinet contained personal papers unrelated to his business—documents such as his birth certificate and his will. He told them not to remove any of those documents, since they were originals for which no copies existed. Leroux then left for work, trusting the auditors to abide by his instructions and respect his privacy.
When he returned home, the auditors were gone—and so were virtually all of his original documents, including both the business and personal documents from the two filing cabinets. He went to the CRA office that same day, demanding the return of his documents, but Hansen said he needed them and would let Leroux know when he could have them back.
About 6 weeks later, Hansen phoned Leroux and invited him down to the CRA office because he had some “bad news” to give him. When Leroux arrived, Hansen told him that all of his original documents—both business and personal—were missing, and might have been inadvertently placed on a pile that ended up in the shredder. Nevertheless, CRA took the position that Leroux was still responsible for proving his deductions and tax credits, and it was “not our problem” if he could not supply copies of the documents the CRA had lost.
Leroux attempted to obtain replacement documents. He also authorized his bank to release copies of statements directly to the CRA. Eventually, he managed to deliver some replacements he had obtained, only to be told by Hansen that they were of little use because CRA would accept only originals. When Leroux later demanded his copies back—surprise! The copies, too, had gone missing, Hansen told him.
In September, 1997, almost a year after the audit, Hansen told Leroux orally that because he was unable to prove his GST input credits, he was probably going to be assessed for about $48,000 in GST. But it took CRA another 14 months to get around to issuing the formal notice of reassessment. By this time, they had upped the figure to roughly $86,000 including penalties and interest. Meanwhile, even before issuing the notice of reassessment, CRA had slapped a “refund hold” on Leroux’s GST account, triggering a cash flow shortage that would eventually snowball into disaster for Leroux.
Leroux filed an objection to the GST reassessment. More than 97 percent of CRA’s claim was attributable to disallowed input credits—credits that would have been proven by the very documents CRA had lost or destroyed.
Meanwhile, Hansen had dropped a few hints that there were other troubles brewing. At a meeting in 1997, he told Leroux that some unspecified employee of CRA was “out to get” him (Leroux).
Then, at another meeting just before Christmas, 1998, Hansen hinted for the first time that Leroux might be reassessed for a large amount of income tax in addition to the GST reassessment issued only six weeks earlier. Hansen then suggested that he could make the “tax problem” go away if Leroux would pay him personally the sum of $25,000 cash. Outraged, Leroux rebuffed this extortion attempt. Hansen’s parting advice was that he should reconsider, or else he would encounter significant, costly problems with the CRA.
But Leroux stood firm, refusing to pay the bribe. Sure enough, in September 1999 the CRA issued an income tax reassessment for the years 1993 to 1995, claiming some $618,000 in taxes owed. Much of this claim was attributable to the CRA’s position that Leroux’s logging revenues (which Hansen had advised him to report as capital gains) should instead have been treated as fully taxable ordinary income.
Leroux appealed the income tax reassessment, too. By this time, including both kinds of taxes plus penalties and interest, the CRA was claiming he owed them almost $1 million.
While the appeals were pending, two subsequent audits for the same taxation years (1993—1995) were conducted by other CRA auditors. Both concluded that Leroux had filed his returns correctly in the first place, and owed nothing. But still the CRA pushed ahead, confirming the reassessments already issued, seeking almost $1 million from Leroux.
The two sides battled it out in tax court for several more years. In 2003, the CRA said it would slash his GST reassessment by some 76 percent. With legal fees mounting, Leroux decided that it would be cheaper to pay the remaining $20,000 in tax than to continue fighting it in court.
Finally, in 2005, CRA conceded that Leroux did not owe them any income tax. In fact, they owed him a refund of some $24,000. When the GST and income tax accounts were netted out, the CRA owed money to Leroux.
While that may sound as though there should have been a happy ending in store for Leroux, other problems had intervened to turn victory into defeat. Even while its reassessments were under appeal, CRA had moved ahead like a rogue robot whose programming could not be changed, seeking to enforce payment of the alleged tax debts. The “refund hold” that had been placed on his GST account was just the beginning. At one point, CRA was holding back $38,000 of his money. They registered judgments against his house and other lands, and issued a Writ of Seizure and Sale against all his assets. They notified a bank (who held mortgages on his properties to secure his business loans) that he owed taxes to CRA.
Meanwhile, Leroux was forced to spend money on accountants and lawyers to vindicate himself. Ultimately, these outlays totaled about $200,000. This extra drain on his resources, coupled with the CRA’s withholding of his refunds, choked off his cash flow to the point where he couldn’t meet his mortgage payments. His credit rating was in tatters due to CRA’s unauthorized disclosure of his tax problems, and lenders were spooked.
The banks started foreclosing against his house and some of the business lots. Leroux nevertheless managed to arrange new financing to pay off not only the mortgages, but also all of the taxes CRA was claiming from him, if only CRA would agree to remove its judgments. No dice. CRA refused two written offers of 100 percent cash-in-hand security for its claims, stymieing his efforts to refinance, even though they knew it would likely result in his losing his land.
Eventually, Leroux’s other creditors foreclosed and his properties were sold off at fire-sale prices. Land that had been independently appraised at $3.4 million was sold off for less than $1.3 million. The mortgagees got paid, but there was no equity left for him. He was ruined financially. He had lost his home, his business, his land, his savings and his future. He estimates that he still owes about $300,000 to friends and family members who lent him money while he fought desperately to rescue his businesses and his life. He wakes up frequently at night in a hot sweat, and has developed a hiatus hernia from the stress and anxiety.
Leroux sought help commencing in 1999 from his member of parliament, Dick Harris, the Conservative member for Cariboo-Prince George. Appalled at the treatment his constituent had received from CRA, Harris took the matter up in 2006 with the then revenue minister in the Harper government, Carol Skelton. Harris had two meetings with Skelton on the subject, and then continued communicating with her assistant. Harris later confirmed by letter to Ms. Skelton his understanding of what he had been told: that the CRA does not have a “mechanism to proactively pay damages”, but that they could “settle out of court” if Leroux sued them.
Based on that suggestion, Leroux commenced his claim in the Supreme Court of British Columbia in late 2006. But the settlement negotiations he expected never materialized. Instead, Canada Revenue Agency filed a statement of defence denying “…that it or any of its employees committed the tort of public misfeasance, the tort of abuse of power, or the tort of abuse of authority…or that the Plaintiff suffered any damages or injury therefrom.”
CRA has maintained its defensive posture for three years, never offering Leroux a penny of compensation for his ordeal, nor any apology. In fact, in the spring of 2009, the CRA brought a motion before the court to toss Leroux’s claim out of court entirely. It was this final insult that brought Leroux into the limelight, with widespread coverage by the media.
After fighting with the CRA for some 12 years, Leroux could not afford further protracted court battles, and the CRA must have realized that. But the sudden publicity touched off a groundswell of public support. Sympathetic taxpayers—many of whom regaled Leroux with horror stories of their own regarding dealings with the CRA—contributed money to keep his legal challenge afloat. A Calgary lawyer stepped into the breach and handled the case on Leroux’s behalf for several months, uncertain whether he would ever get paid in full for his services.
Leroux now has the support of the Canadian Constitution Foundation (CCF), which has agreed to assist Leroux in retaining the legal services of Vancouver lawyer Paul Jaffe to continue the lawsuit for damages.
On March 22, 2010 the CRA and its lawyers will be back in court, trying again to have Leroux’s claim thrown out. The essence of its argument is that the 2006 settlement in tax court resolved all outstanding matters between Leroux and CRA once and for all, so that permitting Leroux’s claim for damages now would be tantamount to re-opening an established order that both sides had consented to. The CRA’s motion also alleges that Leroux’s action is frivolous and an “abuse of process”.
However, Leroux and the CCF see it differently. The Statement of Claim includes claims for tortious conduct on the part of CRA—something that was never within the tax court’s jurisdiction to adjudicate. The claim has also been expanded to raise claims on account of several egregious breaches of individual rights under the Canadian Charter of Rights and Freedoms, including the right to security of the person and the right to be free of unreasonable search and seizure.
Perhaps the greatest irony is that the former revenue minister, Carol Skelton, had told her colleague Dick Harris that she intended to use Leroux’s case as an example of the evils she was trying to correct through the adoption of a taxpayers’ bill of rights. And indeed, a document entitled Taxpayer Bill of Rights was unveiled by the Harper government in May, 2007 while Irvin Leroux’s case languished unresolved in the courts.
Among the rights it purports to guarantee to taxpayers are these:
Irvin Leroux hopes that by taking his case to court and holding CRA accountable for the ordeal they put him through, the Taxpayer Bill of Rights will become more than just a piece of paper bearing empty promises.
(The foregoing is a summary of the claim being made by Irvin Leroux. None of the allegations contained in it have yet been accepted as factual by a court.)
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