CRA sued for $32-million over ‘threats, intimidation’

This just out – good news – best wishes.

It would be good to get a hold of the Statement of Claim to learn about structure and case law referenced includes constitutional complaints.

video on the original post –

When one of Canada’s largest homebuilders received a $219-million tax bill, Cardel sent the Canada Revenue Agency a bill of its own.

They are suing their tax collectors for $32-million plus interest and legal fees. According to a Jan 27th statement of claim filed with the Court of Queen’s Bench of Alberta, Calgary-based Cardel Construction and two of its five shareholders Ryan Ockey (the CEO) and his brother Damon “suffered mental anguish and stress” as a result of multiple CRA audits that “threatened to impose unreasonable and punitive levels of… income tax, both corporate and personal, for the sole purpose of intimidating” a settlement on Ottawa’s preferred terms.

Audits of Cardel’s books and the personal finances of Ryan and Damon Ockey have been ongoing since 2010 and their claim says the $219-million tax bill equates to a rate of roughly 150% on the actual corporate and personal income earned during the period in question, or about $146-million. Their law firm, Bennett Jones LLP, claims to have repeatedly sought a legal justification from CRA for such a dramatic figure “but no credible legal basis has been provided” and that roughly $36-million is the most Cardel should have to pay in any potential back taxes.

As a result, the lawyers claim CRA’s treatment of Cardel and the Ockey family that owns it represents cruel and unusual punishment, which violates the Ockey’s constitutional rights under Section 12 of Canada’s Charter of Rights and Freedoms.

“Threatening to impose [a $219-million tax bill] that was known to be without any credible basis in law is cruel, or at a minimum, unusual treatment,” the statement of claim says.

The CRA’s actions have also damaged Cardel’s business, the claim alleges. Cardel builds thousands of new homes every year in Calgary, Ottawa and Tampa, Florida and has been owned by the Ockey family for more than four decades.

“Cardel has been unable to fully invest in properties and other business ventures due to the large tax liability… and the manner in which the audit process has been conducted.”

To right these alleged wrongs, Cardel and the Ockeys are seeking $30-million in damages, plus another $1-million in punitive damages and a further $1-million for the Charter violation for a total of $32-million before legal fees and interest. In addition to the CRA, Canada’s Minister of National Revenue and Alberta’s Finance Minister are also listed as defendants.

The conflict stems from a 2006 reorganization of the Cardel Group that was intended to help the company with succession planning, since the first generation of leadership was in the process of transitioning power to the second. Ryan and Damon Ockley used their RRSPs to invest in a private mutual fund trust, which then invested in the newly formed Cardel Homes Limited Partnership.

Ottawa ended publicly traded income trusts in 2006, but private trusts were not affected. In 2011, however, the rules changed again, this time barring RRSPs from being unitholders in private mutual fund trusts. There were of course transitional rules put in place, which the Ockleys lawyers claim their clients have complied with in full. Yet the audits were already in full swing, with the Cardel group targeted in late 2010 and by March 2012 Ryan and Damon had both received letters warning the CRA was also looking to “reassess them for additional income tax.” By October of 2014, the CRA was officially looking to “reassess their RRSP trusts for penalty taxes and income taxes.”

“In the proposed reassessments, CRA was effectively objecting to the private mutual fund trust structure that saw monies paid into Ryan and Damon Ockley’s RRSPs,” the statement of claim says, “the overall effect… would be to impose tax amounting to over 150% of the actual income earned.”

The Canada Revenue Agency and a spokesperson for Minister of National Revenue Kerry-Lynne Findlay did not immediately respond to a request for comment from BNN.

UPDATE 12:35 PM ET: A spokesperson for the Canada Revenue Agency responded to BNN to say “CRA does not comment and is actually not permitted to comment on specific cases due to the confidentiality provision of the Income Tax Act.”