Since 1996, Winnipegger George Harris has been in court, trying to force the Canadian government to collect an estimated $750 million in taxes that are owed to the government by one of Canada’s wealthiest families. Harris and Project Loophole have forced the courts to acknowledge that the government has acted as if a citizen had no choice but to “pay his taxes and be quiet.”
Harris,
who works for a Winnipeg AIDS services agency started the case because he was
appalled the government would let
billionaires get away with not paying their taxes at the same time that it was
cutting funding to the poor, the sick and the young.
“I
am not opposed to taxes,” said
Harris, “they pay for the services that hold a society together. But
the wealthiest members of society ought to pay their fair share.” With the support of CHOICES, a Winnipeg social justice
coalition, Harris has created Project Loophole to keep Canadians informed about
the progress of the case.
Despite government opposition, progress is good. In 2000 the Federal Court of Canada ruled Harris does have a right to take the government to court on his issue. Another Federal court judge has ruled the government must provide Harris’s lawyers with all documents that apply to the case. The case must be heard in 2001, if there is any hope of collecting the money owed by the family.
These are
important victories that are forcing the government to be more open and
accountable.
Operating on a
shoestring, Project Loophole has boldly gone where no Canadians have ever gone
before. They have won the right for
members of the public to go to court and make sure the federal tax laws are
applied fairly to everyone.
Court after court
has ruled they are right; that there is a public interest in seeing that Revenue
Canada is not above the law. This.
may sound like common sense, but in fact it is the first time we know of
that any court anywhere has recognized there is a public interest right in the
context of income tax law.
By granting
George Harris legal standing, the courts are
saying a citizen has the right to take legal action to enforce the Income
Tax Act.
Those Canadian
taxpayers who pay their taxes and don’t make special behind closed doors deals
with government officials, have nothing to fear from our victories. “This case
does not put law-abiding taxpayers privacy at risk,” said Harris. “To start
this case we needed evidence that the law had been misapplied.
That evidence came in the 1996 Auditor General’s report.”
That report stated the federal government had misapplied the income law, allowing a wealthy family to avoid paying hundreds of millions of dollars in taxes.
How Project
Loophole took shape
In the fall of 1996, after reading the auditor general’s report, members of the Winnipeg-based social justice coalition CHOICES wrote to the federal government asking it to enforce its tax laws and collect the taxes it was owed.
When the
government refused to do this, George
Harris, a member of CHOICES, started a court case against the federal
government on behalf of himself and all other Canadian taxpayers to force the
government to enforce its own laws.
Harris was represented in court by lawyers from the Manitoba Public Interest Law
Centre and supported by members of the public.
From the start
the federal government’s position has been that the way it treats this wealthy
family is none of Harris’s—or anyone else’s business. In effect, the
government was saying, “We may have misapplied the law but there is nothing
anyone can do to make us apply the law properly.
The government
was arguing that George Harris had no legal right (or standing) to launch this
case. But in December 1998 a federal court judge ruled in Harris’s favour.
Justice Frank Muldoon stated that the government was treating its
citizens, “like good little serfs [who] must shut up and raise no complaints
against their betters.” This, Muldoon wrote, was unacceptable and he granted
Harris legal standing.
When the federal
government appealed this decision, it lost again.
The courts have recognized that if the case is not heard this year there is no hope of collecting the taxes. Justice Elizabeth Heneghan has been appointed to ensure the case is handled in a prompt manner. In December 2000, Project Loophole won another victory when Heneghan ruled that since the case deals with allegations concerning the administration of the Income Tax Act, the government had to make all pertinent information available to Harris’s lawyers, who must maintain confidentiality.
What is so
stinky about this case?
Lawyers call it
the smell test. They use it to see
if power has been abused or the rules have been bent. Federal Court Judge Frank
Muldoon said in court, “It reeks. It
really doesn’t seem to be transparent government.”
The case started
with one very wealthy Canadian family. It
is not important to know the name of the family, but it is important to know
this family is wealthy enough to be able to set aside a family trust worth $2
billion. Not your typical college fund nestegg.
This trust was established in Canada under Canadian law, to take advantage of Canadian tax rules. In 1991, for its own reasons, the family decided to transfer the assets in the trust to a trust in the United States that it would control.
Normally when
this happens the family would be required to pay taxes on the increase in the
value of the fund since it was established.
It is estimated these taxes could have amounted to $750 million.
On November 7,
1991, the family asked the federal government for a tax ruling that would allow
it to move the money to the U.S. without paying the taxes
Scratch and
sniff
The
following chronology sets out what happened after that. Read it for yourself and
apply your own smell test.
December
3. 1991: Officials from Revenue Canada
inform Finance Department officials that they intend to reject the family’s
proposal.
December
6, 1991: Officials from
Revenue Canada and the Finance Department meet to discuss the
family’s proposal.
December12,
1991: Revenue Canada’s
Rulings Review Committee concludes
that the request should be rejected.
December
16, 1991: The family is
informed that its request has
been rejected. The family makes a new proposal,
which would also allow it to avoid paying the tax when it moved the
money out of the country.
December
18, 1991: Revenue Canada
rejects the family’s
proposal. In response the family
makes a third
proposal that
would also allow
it
to avoid paying the
tax.
December
19, 1991: The decision to reject the family’s
proposals is
supported by
a draft
legal opinion from the Justice
Department.
December
23. 1991: On this day senior government officials
from Finance
and Revenue Canada hold four
different meetings to discuss the family’s proposal.
While it is government policy
to keep minutes of these meetings, no minutes or records
were kept. At the end of the last
meeting a decision was
made to grant the family’s request.
December
24. 1991: The family was informed of the
decision in its favour.
This
decision was made behind closed doors. It appears to have bent the law to favour
the powerful. It was not until 1996
that the public was even told the ruling had been made.
Project
Loophole lifts the lid off of the way the rich and powerful can manipulate
government and the tax system for their own benefit.
Whatever the results of this case are, it is to be hoped that because of this case, people in government are going to be less willing to make behind closed doors deals. If they do, members of the public are going to have an easier time dragging these deals into the clear light of day where they belong. #
Material taken from Loophole News, Winter 2001