Loophole on Trial

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“This case is about rule of law.”With that statement, lawyer Norm Cuddy opened the first moment of the long awaited Loophole Trial in Monday, September 24 in Winnipeg.

George Harris and Project Loophole launched the trial nearly five years ago. Its purpose: to have the federal government collect hundreds of millions of dollars in taxes that it did not collect when it allowed a wealthy family to shift its assets to a U.S.-based trust.

Harris launched his court case after reading the 1996 Auditor General’s report, which outlined how, in 1991, the family received an advance tax ruling from Revenue Canada that allowed it to move $1-billion out of the country without paying capital gains taxes.

Former auditor general Denis Desautels got the case off to a strong start when he testified that he had serious questions about the soundness of Revenue Canada’s ruling. Furthermore, Desautels told federal court on September 24 that the process leading up to the decision appeared to be flawed. “The end result was to allow the assets to escape Canadian taxation.”

Desautels’s concern deals both with the actual decision and the fact that, up until the last minute, the Revenue Canada officials dealing with the file had been recommending against granting the ruling. Desautels said, “We have difficulty in accepting the arguments that were used to justify this decision. A section of the Income Tax Act that had little to do with the matter was used to justify a decision.”

He was also critical of the fact that there were no notes or minutes for meetings where the Revenue Canada position was reversed.

When the government lawyers asked Desautels to explain what sort of documentation should have existed about the December 23, 1996 decision, he said, “When you look at the documentation in this file it is excellent up until December 23. They knew how to keep records. And then all of a sudden the department’s documentation standards are not followed.”

He went on to say that, during the decade that he served as auditor general, he concluded “the government may make dumb decisions, but the documentation is usually pretty good.” But, in this case, there was no way to logically figure out how Revenue Canada officials went from a position of opposing the ruling to one supporting it.

Harris — a Winnipeg social activist and office worker — pursued this case on behalf of all taxpayers. At the time, tax-law experts predicted it would never make it to court. However, Harris and a committee of supporters persevered and, thanks to very capable legal representatives, have won new public-interest legal rights.

The case continues for the next two weeks.

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