Canadian Government Forced To Write Off $1.3 bn In Landmark Ruling

by Mike Godfrey, Tax-News.com, Washington

11 March 2003

The Canada Customs and Revenue Agency was defeated by a Supreme Court ruling last week that means a potential $1.3 billion in unpaid taxes will have to be written off.

The judgement was the result of an action brought by the federal government against Joe Markevich, a Vancouver stock seller, who defaulted on his tax payments back in the early 1980s. The defendant had accrued a debt of $236,136.04 when the tax collectors originally pursued him. However, Markevich hit serious financial trouble and his debt was apparently written off. That is until the tax collectors inexplicably revived the claim in 1998, and landed him with a demand for $770,583.42 - the original amount plus interest.

However, the 9-0 unanimous court verdict decided to apply the six year limitation period under the Crown Protection and Liabilities Act, which previously was only applied to more conventional creditor/debtor disputes. This means that once six years have elapsed, and no attempt has been made to recover the debt, the debtor could reasonably assume that he was released from his debt and would face no charges.

In a written verdict on behalf of the panel of judges, Justice Jack Major wrote "In light of the significant effect that collection of tax debts has upon the financial security of Canadian citizens, it is contrary to the public interest for the department to sleep on its rights in enforcing collection," The judgement continued: "If the minister makes no effort to collect a tax debt for an extended period, at a certain point a taxpayer may reasonably come to expect that he or she will not be called to account for the liability and may conduct his or her affairs in reliance on that expectation,"

According to a report in the Ottawa Citizen, some have said that it is the most significant and far reaching decision of its type for a number of years, and could have very costly ramifications for the Canadian Customs and Revenue Agency. It is thought the ruling could affect 52,666 cases of a similar type (in the six provinces where statistics were available), depriving the government of some $1.3 billion in unpaid taxes. As an affidavit filed by the Customs and Revenue Agency pointed out, a ruling in favour of Markevich "would have a significant national impact on the collection of debts" leading to potentially "several thousand taxpayers" slipping the net.

Ian Worland, who successfully argued Markevich's case in the trial said in an interview afterwards that the ruling also has widespread implications for the rest of the tax collection system, and could apply to other kinds of taxes such as GST and excise, as well as royalties, fines and fees and other debts that are owed to the government, the Globe and Mail reported.

"The government cannot wait forever and then suddenly come back to say you owe money," said Edwin G. Kroft, another lawyer who worked on the case. "This is a very big story for Canadians, many of whom may not have paid their taxes. The Supreme Court has shown that the government is just like any other creditor: If you don't collect, you are barred from collection," concluded Kroft.

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