A panel of appeal court judges has tossed out a tax evasion case against the owners of a North Vancouver sushi restaurant, saying the actions of tax officials violated their charter rights.
In making the decision, B.C. Court of Appeal Justice Christopher Hinkson wrote the officials had abused their powers and misled the restaurant owners to get information in the case, which alleged the owners had used an electronic "zapper" to delete $1.6 million in sales revenue over several years.
The appeal court upheld decisions of both a provincial court judge and a supreme court justice who concluded tax officials had illegally seized CDs from the restaurant without proper authority. Those actions violated the owner's right to be free of unreasonable search and seizure, the appeal court agreed.
Owners of the Sushi Man Japanese restaurant at 1307 Marine Drive were charged with tax evasion in 2008 after tax officials alleged they were using specially-programmed cash registers and point-of-sale devices to erase sales and lower their reported income. Revenue Canada estimated the lost revenue added up to more than $288,000 in income tax and more than $118,000 in GST payments between 2002 and 2006.
But provincial court Judge Valmond Romilly ruled in March 2010 that Revenue Canada agents seriously overstepped their authority to get information from restaurant owner Bo Ping He. The judge said tax officials essentially misrepresented the purpose of their visit to the restaurant, telling the owner they wanted to do a review that was "not an audit, but rather a limited review of your current recordkeeping practices."
Romilly called that letter "misleading and deceptive."
The judge noted that unbeknownst to the owner, prior to the official visit, two tax agents also went to eat in the restaurant and got a bill showing them the restaurant was using a system called Profitek, which had previously been linked to the use of a zapper.
The judge noted at least two other restaurants using the Profitek system had been 'coincidentally' visited by one of the same tax agents for lunch before they were charged for using a zapper.
Romilly also rejected the taxman's assertion that the revenue agency was entitled to "borrow" discs containing financial information for copying. That action amounted to an illegal seizure, he ruled.
"I consider the actions of the CRA officials to be very serious charter-infringing state conduct which should not be condoned," the judge ruled. He refused to admit the evidence in the case.
Tax officials appealed. On March 25, 2011, B.C. Supreme Court Justice Gregory Bowden upheld the lower court's decision. The taxman appealed again. But on July 25, the appeal court dismissed the case, agreeing with the two previous judges that tax officials had no authority for their actions.
The owner of a second North Vancouver sushi restaurant, Honjin Sushi - who was caught in the same investigation - was handed a conditional sentence and fined almost $143,000 in 2010 after pleading guilty to tax evasion by using a zapper at two restaurants.
Earlier this month, the Richmond-based InfoSpec Systems, which produced and sold the zapper, was ordered to pay $100,000 after being found guilty of fraud.
