ONTARIO COURT OF JUSTICE
COURT FILE No. 18-00399
BETWEEN:
HER MAJESTY THE QUEEN
— AND —
WILLIAM WALLEN
Before Justice F. Javed
Sentencing submissions heard on January 21, 2021 by videoconference
Sentence imposed by videoconference on February 1, 20211
E. Carley ........................................................................................................... Crown counsel
B. Pearson counsel for Mr. Wallen
F. JAVED J.:
A. Introduction
1On January 10, 2020, William Wallen (“Mr. Wallen”) was found guilty of eight counts of improperly claiming or obtaining refunds, under s.239(1.1)(a) and (e) of the Income Tax Act, R.S.C. (1985), C.1 (5th Supp.) as amended, (“ITA”).
2The findings of guilt were registered after a lengthy trial which commenced on July 15, 2019. Mr. Wallen represented himself during the trial. The Crown proceeded by summary conviction on all counts.
3During the trial proceedings, the court dismissed several applications launched by Mr. Wallen under the Charter of Rights and Freedoms, (“Charter”) challenging the jurisdiction of the court to try him for the offences as well as a Charter challenge to a search warrant which lead to the seizure of evidence from his computer and home, namely tax records and correspondence with the Canada Revenue Agency (“CRA”). The Crown took the position Mr. Wallen’s Charter arguments were without merit because Mr. Wallen is a tax protester and his position is premised on his self-proclaimed immunity from tax obligations – an argument which has been debunked by courts in Canada. The court agreed with the Crown’s position and as a result, all the Charter applications were dismissed, and all the evidence tendered by the Crown was admissible. The Crown also took the position Mr. Wallen bore the hallmarks of an Organized Pseudo-Legal Commercial Argument (OPCA) litigant or sometimes referred to as a “Freemen of the Land” litigant, who rejects the jurisdiction of a court over a natural person. While I agreed Mr. Wallen’s tax filing tactics bore some of these hallmarks, I didn’t have to make this finding because the evidence otherwise established his guilt beyond a reasonable doubt.
i. History of Proceedings
4On January 10, 2020, I rendered my written judgment explaining why I found Mr. Wallen guilty of all the offences.2 The trial ruling addressed Mr. Wallen’s failed Charter arguments and addressed several evidentiary rulings I made during the course of the trial challenging the admissibility of tax records, other business records and the opinion evidence of a handwriting analyst. At the conclusion of the trial, the Crown advised their intention to seek a custodial sentence which prompted the court to order a pre-sentence report (“PSR”) pursuant to s.721(4) of the Criminal Code to assist with sentencing. This was made over the objections of Mr. Wallen who did not want to participate in the PSR. Accordingly, I tailored the PSR to background information and made an Order that Mr. Wallen did not have to discuss the court’s findings of fact and verdict. I adjourned the matter to permit Mr. Wallen to review the courts ruling and set a date for sentencing with a schedule to exchange submissions.
5In March 2020, the courthouse in Oshawa shuttered due to the COVID-19 pandemic and the court began to communicate with the parties by email correspondence to reschedule the sentencing hearing.3 A tentative date was scheduled for June 2, 2020. Mr. Wallen appeared remotely, and a new date was targeted. On September 28, 2020 Mr. Wallen was served with a summons to attend court and he failed to appear.
6On October 15, 2020, Mr. Wallen was arrested for failing to appear in court and was held in custody at the Central East Correctional Centre (“CECC”). He appeared before me in custody and waived his right to a bail hearing and insisted on proceeding with the sentencing hearing. The Crown had filed a comprehensive sentencing brief (Exhibit 1) and after learning the Crown’s position on sentence, he decided he wanted to retain counsel and sought an adjournment. Mr. Wallen ultimately retained Mr. Pearson who ably assisted him on the sentencing hearing.
7On January 18, 2021, all parties including Mr. Wallen, appeared by videoconference. The parties consented to this procedure in light of the government’s stay at home order as well as some medical issues identified by Mr. Wallen. I granted the order permitting all parties to participate by videoconference using the Zoom platform. I was satisfied all participants were able to see and hear each other without difficulty. After hearing submissions, I advised the parties I would briefly reserve to consider my sentence. Mr. Wallen insisted he wanted to return by videoconference to have sentence imposed. While this is not ideal, mindful of the current climate, I was satisfied and indicated to the parties I would release my sentencing ruling electronically in advance of the return date and share it with counsel, so the court could maximize the time allotted by CECC for a videoconference appearance. Mr. Pearson assured me he would review the ruling in advance.
8The Crown invited the court to conditionally stay counts 1-5 and count 7 pursuant to the principle in R. v. Kienapple.4 I agree with this submission. These reasons will therefore address the sentence to be imposed for counts 6 and 8. However, the circumstances involving the findings in counts 1-5 and 7 remain available to the court to consider as aggravating facts on sentence.
ii. Overview of Positions of the Parties
9The Crown submits a fit sentence for counts 6 and 8 is a term of imprisonment of 22 to 24 months, consecutive to each count, less pre-sentence custody (“PSC”) for a total custodial sentence of 44 to 48 months less consideration of the totality principle. The parties agree as of February 1, 2021, Mr. Wallen has been in custody for 110 days5. The Crown says the court should award enhanced credit using the formula in R. v. Summers6 and enhance the 110 days to 165 days (or approximately 5.5 months). The Crown took no position on whether PSC should be enhanced any further due to any hardship caused by the incarceration during the COVID-19 pandemic but otherwise said there’s no evidence the pandemic or Mr. Wallen’s personal circumstances should cause the court to reduce the sentence. Further, the Crown submits the court should impose a fine of $366,439 on count 6, which is 150% of the amount of the unwarranted amounts claimed. With respect to count 8, the court should impose a 22 to 24 month term of imprisonment and a fine equivalent to 100% of the amount of the unwarranted tax refund sought to be claimed: $633,399. The Crown left the sentence for the fail to appear count in the court’s discretion.
10Mr. Pearson argues the court should consider various sentencing options mindful of Mr. Wallen’s PSC which he submits should be treated as the equivalent of 7 months7. He submits the enhanced credit should reflect time spent in custody at CECC during the COVID-19 pandemic which included 42 days of lockdowns. In light of the PSC calculation, he proposes the following sentencing options: First, the court should note the PSC of 7 months and impose a conditional sentence order (“CSO”) under s.742.1 of the Criminal Code for a period of 12-18 months. This would reflect a global custodial sentence of approximately 19-25 months (CSO plus PSC). Second, if a CSO is not appropriate, the court should impose a global 12-month custodial sentence less PSC of 7 months leaving 5 months imprisonment. Third, if both options on their own are not palatable, the court should impose a blended sentence which would combine a period of custody with a CSO. In other words, the court could note the PSC and impose a CSO on one count and a custodial sentence on another in crafting a sentence under two-years imprisonment, relying on the principles in R. v. Ploumis8. He reminds me that while probation is not a statutory option on the ITA offences, it is available on the fail to appear offence and since this offence is intertwined with the substantive ITA offences, a probation order could be imposed on the fail to appear count to indirectly address some sentencing objectives relevant to the ITA offences. With respect to the fines as advocated by the Crown, he agrees the ITA requires fines to be imposed but submits the court should impose the minimum amounts as Mr. Wallen is retired and has little ability. In other words, the court should impose 50% of the fines in respect of both counts 6 and 8.
iii. The Issues
11In view of the positions of the parties, there is common ground the court should impose a custodial sentence but there is disagreement on its length and format. Accordingly, these reasons will address the following contested issues:
(i) What is an appropriate custodial sentence for the ITA offences?
(ii) Is a CSO either on its own or as part of a blended sentence an appropriate sentence in this case?
(iii) If a CSO is inappropriate, what is an appropriate custodial sentence mindful of the totality principle? Further, should a custodial sentence on counts 6 and 8 run concurrently to each other or on a consecutive basis?
(iv) How much credit should be enhanced for PSC? Is Mr. Wallen entitled to enhanced extra credit for his PSC on account of hardship suffered due to lockdowns and for time spent due to the COVID-19 pandemic? Further, should the COVID-19 pandemic mitigate any custodial sentence going forward? and
(v) What are appropriate fines in this case?
B. Circumstances of the Offences
12The circumstances of the offences are set out in extensive detail in my written reasons published on January 10, 2020. I made several findings of fact in relation to all counts. My reasons for sentence should be read together with those reasons.
13Mr. Wallen’s offences involved offences under the ITA. Canada’s income tax system is based on self-reporting by the taxpayer. It is expected the taxpayer will honestly and accurately self-report their income to the Canada Revenue Agency (“CRA”) on both their personal T1 tax returns (“T1 Returns”) and if the taxpayer operates a business, their T2 corporate returns (“T2 Returns”). Based on the self-reported information, the CRA determines if taxes are owing or if a refund should be issued mindful of the ITA rules. The government would not ordinarily know if a person is being dishonest or inaccurate in complying with their self-reporting obligations unless the taxpayer or business is audited. Audits are often done on a random basis because the system would collapse under its weight if every taxpayer had to be audited. Honesty is the touchstone of the tax system. Taxpayers who operate businesses are expected to include all income earned in the year of the business and may deduct expenses incurred in carrying on that business. Non-resident corporations who carry on business in Canada must also report any taxable income earned on a T2 tax return.
i. Count 6
14Count 6 related to wilfully claiming or obtaining a refund under the ITA, totalling $244,293 in T2 Returns for 7665083 Canada Inc. for the 2010, 2011, 2012, 2013 and 2014 taxation years. Mr. Wallen was a director of 7665083 Canada Inc. which was incorporated on October 1, 2010. He prepared and filed T2 Returns for this business for the 2010-2014 taxation years. The evidence established beyond a reasonable doubt the T2 Returns contained false claims which Mr. Wallen knowingly included for the purpose of fraudulently obtaining refunds.
15In convicting Mr. Wallen of this offence, I made various findings, chief among them:
(i) Mr. Wallen knew the T2 Returns for 7665083 Canada Inc. were false because the T4 slips for the purported business expenses were based on his own personal income and that of his family members, including his spouse and adult daughter. This is an obvious illegal tax method. Further, the taxes purportedly withheld at source from the company were taxes that had been withheld at source for the personal income.
(ii) Mr. Wallen consciously created false statements in an effort to increase the amount of tax withheld at source on his personal income tax return. He also created and submitted T5 slips that purported to support his claim that taxes had been withheld at source. The CRA disputed the method used by Mr. Wallen but he persisted with the activity suggesting he intended to create and submit tax slips that increased the amount of taxes withheld at source from income in order to generate tax refunds. In other words, he was given an opportunity to cease and desist his conduct but ignored the clarion calls and persisted with his illegal scheme.
(iii) Mr. Wallen created trusts and other property related instruments in order to further his illegal ideology that a human being is two entities: a person and a fictional strawman created by the government, with a view to escape tax liability. Mr. Wallen used these illegitimate property instruments to support his false claims on his T2 Returns. The Crown successfully admitted emails seized from Mr. Wallen’s computer that supported his illegal scheme. To fully appreciate the complexity of Mr. Wallen’s offences, I will reproduce some of his email communication below. He wrote:
"I setup an international business corporation with a foreign trust attached as a flow through entity. I only file as a non-resident now. Using this method one can easily receive their income tax back. As for the capitol losses this is the only way you can claim as a creditor as you can in no way be associated with the corporate part of the government of Canada the ITA only deals with corporate entities either sole proprietorship, partnership or registered company you must operate as a foreign entity this changes you from a debtor to a creditor and you change the government benefits back to obligations. This is where they get us we operate as a sole proprietorship but as a government officer. all you have to do is quit like any other company but you have to tender you resignation correctly. You must use the ITA to transfer debt obligations and wages and capitol gains back to the registered company but they have to go through the foreign office as a trust the trust can not retain any capitol as section 94 1 c describes. It is all passed through to the registered corporation as the beneficiary.
The register company operates just like any other business with deductions etc. As per the ITA a capitol loss has to occur before a business loss can be claimed. You claim the capitol losses through the trust via T1141 and T1142. You then file a T2 return for the trust for the financial statement. The corporation is the debtor and the trust is the creditor.
very simple.
You file a memorandum of wishes and a trust deed with an addendum each year showing debts and obligations owed back to the trust.
Now your T4 earnings become a capitol loss for you and all borrowings as well.
Bill"
16Further, Mr. Wallen celebrated his illegal tax filing method which is a relevant consideration to his moral blameworthiness. He wrote:
"Ya just got home today been at the cottage look what was in the mail yahooo. Hi boys got this assessment seems I get a refund of $ 50669.00. They check the account then issue a cheque. The capitol losses are too be claimed as a capitol gain refund. That will be done on next springs returns were off to the races. The credit is for income taxes paid only as a over payment.
Shit this is fun. Bill"
17Mr. Wallen’s tax protesting scheme was sophisticated. In one email communication, he wrote:
"As for the CRA the process works. It took 2 years of fighting but they are leaving me alone now. I sent you a copy of the latest assessment a refund has been issued on the 16 oct this is the second refund. There are 4 people I have setup this way they have tax credits and are to receive refunds as well. I have told them I will do their books and filling for them as it is easier to do than explain.
The government is a parent company and the strawman is a franchise all the trust does is remove the government control and you control the strawman now."
"i have been doing this for others. average time with consultation is about 100 hours minimum fee is $5000.00 and up depending on client I refuse to work for free. Minimum percentage is 10 % of tax refunds. I have one client that paid $15,000 for two letters from a lawyer that did nothing I will go anywhere in the country as long as my travel is covered and the $5000.00. I spend about $1000.00 on registration alone per trust. As soon as I started charging people started to believe what you tell them"
18The court found the evidence established the total amount of unlawful income tax refunds claimed on the 7665083 Canada Inc. T2 Returns filed for the 2010-2014 taxation years amounted to $244,293 which is the total amount of tax revenues that were put at risk. Of this amount, the CRA issued refunds to Mr. Wallen in the amounts of $50,669 for the 2011 taxation year, and $56,502 for the 2013 taxation year. In total, Mr. Wallen personally profited $107,171 from his illegal tax filing method and the exposure to the CRA was $244,293.
ii. Count 8
19Mr. Wallen’s illegal activities extended to others, including a business owner, John Corbo. Mr. Wallen filed a T2 Return in relation to the 2014 taxation year on behalf of Mr. Corbo who incorporated a company 8820309 Canada Inc. and hired Mr. Wallen believing the tax filing method was legitimate. In short, he was duped by the sophistication of the fraud which Mr. Wallen assured had a proven track record. Mr. Wallen illegally claimed a refund under the ITA of $633,399. I was satisfied Mr. Wallen was aware the amounts inputted in the returns were false and knew there were no losses incurred and no taxes withheld at source from Mr. Corbo’s company. I accepted Mr. Corbo’s evidence that he was an unsophisticated taxpayer and was duped by Mr. Wallen who insisted he sign a non-disclosure agreement to keep the method confidential, which he did. Mr. Corbo paid Mr. Wallen a sum in cash and agreed to gift 12% of any refund received for his “experience and knowledge”. Mr. Wallen used his strawman theory and wilfully sought a refund he knew Mr. Corbo’s company was not entitled to. The CRA did not issue a refund on this count.
C. Circumstances of the Offender
20Mr. Wallen’s personal circumstances can be gleaned from the PSR which is Exhibit 1. It is only of limited assistance because the PSR author was not able to speak with any collateral sources. Mr. Wallen refused to permit the PSR author to speak with his spouse who he said was “aware of the offences”. Accordingly, most of the information is based on self-report and records from the Ministry of Solicitor General. Mr. Pearson was able to flush out some of the background information in submissions including Mr. Wallen’s experiences in CECC. Ms. Carley did not insist on testing these submissions and I will rely on some of them as the factual foundation for my findings.
21Mr. Wallen is 61 years. He does not a have a criminal record. He is married and has two adult children. Mr. Pearson indicated the parties have since separated but Mrs. Wallen remains supportive and will permit Mr. Wallen to live with her upon his release from custody. Mr. Wallen has an elderly mother in a long-term care home. He holds a Power of Attorney over his mother which has become a lingering concern in light of the COVID-19 pandemic.
22Mr. Wallen completed high school and obtained his Millwright diploma. He is currently retired and has been for the past seven years. He reported always being employed, first with Ontario Power Generation for 13 years and a car dealership before this.
23Mr. Pearson filed Mr. Wallen’s medical records as Exhibit 4(a) and 4(b). He fairly submitted this isn’t a full picture of his medical history but rather a representative sample which supports his argument that time spent in custody has been challenging and the court should consider Mr. Wallen’s medical circumstances as a mitigating factor in crafting a fit and individualized sentence. In 2007, Mr. Wallen was diagnosed with stomach cancer and had a rare form of surgery. The cancer surgery was successful but resulted in “significant derangement” to his digestive system. In 2012, his family physician, Dr. David Shrives authored a letter indicating was Mr. Wallen was diagnosed as having acute coronary syndrome and bouts of Irritable Bowel Syndrome (IBS). After the surgery, he began to suffer from Gastrointestinal Disorder but remained cancer free. In particular, he was diagnosed with having Gastroparesis which is a condition where the stomach does not empty properly. It is treated with medication but results in great discomfort. In 2013, Dr. Shrives opined he could not work due to his stomach issues which resulted in an early and forced retirement. Mr. Pearson draws a connection between this time and the offences noting Mr. Wallen began to experience financial hardship and turned to his illegal tax filing means as a way to fill this financial gap.
24Mr. Wallen’s stomach issues have persisted as he continues to battle with complications related to his digestive system which includes acid reflux. He also has arthritis and other ailments associated with old age. At the present time, he has been prescribed four types of medication which is flushed out in Exhibit 4(b) as (i) Acetaminophen, (ii) Pantoprazole, (iii) Ramipril and (iv) ASA. Mr. Pearson submitted CECC has been providing Mr. Wallen with his prescribed medication and is doing their best to meet his special diet but time spent in custody has by no means been “easy sailing”. Instead, the time spent at CECC has been difficult for Mr. Wallen who hasn’t been able to have all his needs met and has had trouble sleeping. The time as Mr. Pearson said has been both “inconvenient” and “uncomfortable”.
25Finally, with respect to his current financial picture, the Crown submitted Exhibits 5 and 6 as Mr. Wallen’s and his ex-spouses’ most up to date tax records. This material is relevant to a consideration of Mr. Wallen’s ability to pay the fines that I must consider and reveal that Mr. Wallen has a balance owing of $480,112 to the CRA. Mr. Pearson says any fine will be a symbolic gesture to his client because Mr. Wallen is near destitute. His only sources of income are his meagre pension of about $15,000 per year and his income through his RRIF income which is no more than $10,000.
26With respect to PSC, it is agreed Mr. Wallen has been in custody since the date of his arrest on the fail to appear charge: October 15, 2020. This represents a total of 110 days as agreed by the parties.
D. Victim Input
27The Crown did not advance any specific victim input, including any material from Mr. Corbo.
E. The Sentencing Principles
28Sections 718, 718.1 and 718.2 of the Criminal Code set out the purpose and principles of sentencing. While the two main offences were committed under the ITA, (excluding the fail to appear offence), the sentencing principles under the Criminal Code apply to offences under the ITA except as the ITA otherwise prescribes9. Section 718.1 of the Criminal Code provides that a sentence must be proportionate to the gravity of the offence and the degree of responsibility of the offender. In assessing the gravity of the offences, I must take into account the penalties prescribed by Parliament for the ITA offences and the circumstances relating to Mr. Wallen’s commission of the offences, with a focus on any features that either increase or decrease the harm, or the risk of harm, to the victim(s) or to the community.
29The assessment of an offender's degree of responsibility refers to the extent of Mr. Wallen’s culpability. I must consider Mr. Wallen’s actions, mindset and motivation in committing the offences. This is informed by taking into account his background and other circumstances surrounding the offences. In R. v. Ipeelee10, Justice Lebel observed that the fundamental duty of a sentencing judge is to engage in an individualized assessment of all of the relevant factors and circumstances, including the status and life experiences of the person standing before them.
30Section 718.2 of the Criminal Code codifies the principles that a sentence should be increased or decreased to account for any aggravating and mitigating circumstances, the combined duration of consecutive sentences not be unduly long, that an offender not be deprived of liberty if less restrictive sanctions may be appropriate, and that all available sanctions other than imprisonment that are reasonable in the circumstances be considered. In R. v. Nasogaluak11, the Supreme Court said: “[The] relative importance of any mitigating or aggravating factors will then push the sentence up or down the scale of appropriate sentences for similar offences.” It is by giving due regard to these factors that I can ensure the sentence imposed is proportionate.
The ITA Penalties
31Section 239(1.1)(a) of the ITA sets out the penalty provisions. In this case, the Crown proceeded by summary conviction which provides:
(g) a fine of not less than 50% and not more than 200% of the amount by which the amount of the refund or credit obtained or claimed exceeds the amount, if any, of the refund or credit to which the person or other person, as the case may be, is entitled, or
(h) both the fine described in paragraph 239(1.1)(g) and imprisonment for a term not exceeding 2 years.
32While a CSO is not listed as a specific sentencing option, it remains available provided the statutory criteria in s.742.1 of the Criminal Code are met. In this case, the two criteria that are disputed are the length of the custodial sentence and whether a CSO would be consistent with the purpose and principles of sentencing. If a fit sentence exceeds 2 years or is inconsistent with the s.742.1 provisions, a CSO would be unavailable. The Crown submits Mr. Wallen’s conduct mirrors a large-scale fraud under the Criminal Code and therefore a CSO of any length would be incompatible with the statutory criteria. Mr. Pearson disagrees arguing a lengthy CSO with punitive terms can accomplish the goals of sentencing. The CSO issue hinges on another issue which is the overall length of the custodial sentence mindful of the totality principle. If I accept the Crown’s submissions, and impose consecutive sentences which exceed 2 years, it may make a CSO moot. However, if I determine the appropriate length of the sentence is under 2 years after considering the totality principle, I will have to consider whether a CSO is otherwise consistent with the purpose and principles of sentencing. A take-away in discussing the prescribed penalties is the important point that a substantial fine must be imposed in this case and forms part of Mr. Wallen’s overall punishment12. I will discuss this further when I consider Mr. Wallen’s ability to pay the fines.
Gravity of the Offence and Degree of Responsibility
33The Crown submits Mr. Wallen committed an extremely serious and sophisticated tax fraud which amounts to a “large-scale tax evasion”.13 Ms. Carley argues the offences under the ITA therefore share the same qualities as a large-scale fraud under the Criminal Code which should be the lens by which the court should sentence Mr. Wallen. I agree with this submission.
34The offence of tax evasion is one that affects all taxpayers and therefore specific and general deterrence should be the dominating sentencing principles14. The Crown is correct that a fraud on the tax system reduces public confidence in a system that is premised on self-reporting. The obligation to pay taxes is part of our social fabric as Canadian citizens. This obligation imposes duties on taxpayers to be honest and accurate in their reporting. If they are dishonest, it represents a breach of this collective trust. In R. v. Knox Contracting Ltd.15, the Supreme Court described the context in which tax offences are understood:
18 It is fitting and appropriate that the s. 239 offences be considered as criminal law. The Income Tax Act is a major source of funds for the federal government. Its provisions are applicable to most adult Canadians. The vast majority pay their income tax by way of payroll deduction with little or no opportunity for evasion or misstatement. Those who do evade the payment of income tax not only cheat the State of what is owing to it, but inevitably increase the burden placed upon the honest taxpayers. It is ironic that those who evade payment of taxes think nothing of availing themselves of the innumerable services which the State provides by means of taxes collected from others.
19 The entire system of levying and collecting income tax is dependent upon the integrity of the taxpayer in reporting and assessing income. If the system is to work, the returns must be honestly completed. All taxpayers have the right to know that it is a criminal violation to commit any of the offences described in s. 239. The Act imposes a public duty. A breach of that fundamentally important public duty should constitute a criminal offence.
35Mr. Wallen made a deliberate and conscious decision to protest the government’s duty to collect taxes for the benefit of the public. His ideology went beyond simply attempting to legitimately minimize the taxes he lawfully owed, to devising an illegal scheme to evade taxes and gain monies he did not deserve. In short, his conduct was tantamount to a fraud on the public and I agree with the Crown that it should be treated by the court as a large-scale fraud. Mr. Wallen made false statements on returns he prepared and filed which was the impetus of putting the government at risk of issuing unwarranted tax refunds. I agree with the Crown that even though the claimed refund was not realized by Mr. Corbo’s corporation in count 8 there was a real risk of doing so absent the CRA’s intervention. Mr. Wallen stood to personally profit at the rate of 12% of any potential refund which is a significant amount of money. The fact that he didn’t receive these funds is of no moment and does not dilute the moral blameworthiness of his offence. Cases have held that those who evade taxes and don’t gain financially stand in the same position as those who have gained financially.16 Mr. Wallen dealt directly with Mr. Corbo, induced him to keep their arrangement confidential because he knew it was illegal and stood to profit handsomely. If he was successful in the fraud, he stood to gain up to $76,007 from the illegal scheme if the 12% profit was realized.
36Similarly, with respect to count 6, the offences were sophisticated and involved an incredible level of deceit and planning. They required a complicated web of creating false instruments of property all designed to shirk the CRA rules and trigger false refunds. The conduct was well outside the boundaries of permitted tax avoidance strategies because Mr. Wallen knew it was illegal. He knew it because he believed he shouldn’t have to pay taxes based on a debunked strawman theory. Mr. Wallen’s bravado in succeeding in his deceit is clear in his emails. And, unlike count 8, he did receive two sizeable refunds for T2 Returns filed on behalf of his corporation for the 2011 and 2013 years in the amounts of $50,669 and $56,502, thus just over $100,000. In light of these amounts, count 6 on its own would amount to a large-scale fraud. Mr. Wallen played a key role in the execution of his sophisticated scheme and then decided he would share his fraud with others.
37Mr. Wallen’s tax protesting strategy is a significant factor that separates the seriousness of these offences from those tax offenders who believe in the government’s ability to collect taxes but walk the proverbial line to avoid and minimize liability. Mr. Wallen’s mindset was the government had no right to collect taxes in the first place and he was not subject to the rules that bind all taxpayers. I agree with the Crown that Mr. Wallen’s moral blameworthiness is high because it did not arise from poor judgment or a momentary lapse. Mr. Wallen persisted in a course of conduct over 5 years and had plenty of opportunities to stop and chose not to. This is important because the CRA gave him an out which perhaps which could have avoided a criminal prosecution, but Mr. Wallen thumbed his nose at the CRA. But for the intervention of the CRA audit system, his illegal activities could have continued undetected and undeterred.
38While deterrence remains the most important principle, I also agree with Mr. Pearson that I cannot completely ignore the principles of restraint and rehabilitation as Mr. Wallen is a first and mature offender who presents with health challenges. It would be an error to focus almost exclusively on general deterrence and fail to consider individual deterrence and rehabilitation, especially when sentencing a first offender.17 While these principles must be considered, in my view, they take a backseat to general deterrence and denunciation which must drive the analysis.
Aggravating and Mitigating Factors
39Ms. Carley identified six aggravating factors which Mr. Pearson did not dispute. I agree with the Crown’s characterization of these factors. They include:
(i) Mr. Wallen’s offences involved a large-scale tax evasion. The tax revenue put at risk through the fraudulent tax filing scheme was $244,293 in count 6 and $633,399 in count 8;
(ii) Mr. Wallen abused a position of trust in relation to the CRA by preparing tax returns on behalf of corporations claiming unwarranted refunds based on statements he knew were false. A breach of trust is an aggravating factor pursuant to section 718.2 of the Criminal Code and applies in this case. The Ontario Court of Appeal has held that tax preparers commit a breach of trust in these circumstances and it is an aggravating factor on sentencing for fraud-related offences;18
(iii) Mr. Wallen’s fraud resulted in victimizing the public which resulted in the expenditure of public monies to audit the refunds that were claimed, obtained and assessed. I agree that if Mr. Wallen had honestly self-reported, or even stopped early in his scheme, it would have reduced the public expense;
(iv) Mr. Wallen’s offences were ongoing and persisted for approximately five years;
(v) Mr. Wallen’s tax filing scheme was elaborate and significant. Corporations were used along with numerous trusts and trust instruments and various tax slips and filings were made; and
(vi) Mr. Wallen’s motive for the crime was greed as borne out by his emails and desire to dupe unsophisticated parties such as Mr. Corbo.
40In mitigation, Mr. Pearson argues Mr. Wallen’s old age and poor health should mitigate the sentence. Ms. Carley submits absent evidence of significant health problems, age and health should not be a mitigating factor. The Court of Appeal has instructed that age, particularly past 60 years, is a serious factor to be considered in mitigation especially where it is combined with evidence of good character. 19 Further, where there is evidence of poor health where the person is not expected to survive a custodial sentence, this too could mitigate the sentence. 20 However, it is not uncommon for offenders convicted of tax evasion and fraud type offences to have good character and therefore this factor has less weight in sentencing tax offenders.21
41In my view, Mr. Wallen’s personal circumstances including his age and health mitigate the sentence but only to a certain degree given the nature of the offences and the absence of evidence that a custodial facility cannot manage his health concerns. Most significantly, I disagree with the defence submission that this should tilt the balance and justify imposing a CSO. Instead, I find these mitigating factors have more bearing on determining the length of a custodial sentence in an institution. Mr. Wallen is a retired, 61 year-old first offender who does not have a criminal record. His family is fractured but he continues to have some support of his spouse which will be an important factor as he ages. With respect to his health concerns, the evidence establishes Mr. Wallen is not terminally ill and has digestive concerns but these needs are being met with medication at the CECC. Mr. Wallen has access to his prescription medication, his dietary needs are being managed, and there is no evidence before me that he is more susceptible to contracting the COVID-19 virus because of his unique health challenges. A compelling reason to impose a CSO would be to make sure one’s health challenges are met because they can’t be met behind bars. That’s not the case here. That said, it would not be a stretch to conclude his old age alone would put him in a different category vis a vis youthful offenders when assessing the impact of contracting the virus. However, without any evidence, I cannot make any firm findings of fact that Mr. Wallen’s health requires the court to consider options outside of an institution. In my view, Mr. Wallen’s age and health challenges tempers the overall length of the sentence but does not justify a community-based disposition.
Neutral Factors and Collateral Consequences
42In terms of the neutral factors, Ms. Carley submits there is no evidence of remorse which suggests Mr. Wallen has no insight into his illegal activities. I agree this would be a relevant consideration in determining if Mr. Wallen posed a risk to reoffend, but I do not think he will reoffend. Mr. Wallen did not plead guilty and vigorously challenged the legitimacy of the prosecution and the jurisdiction of the court, but I’m not prepared to use this factor as an aggravating factor on sentence.22 It would be wrong to do so. Mr. Wallen was entitled by law to have a trial. He did not advance any meaningful defence except challenging the jurisdiction of the court and the admissibility of the evidence. His philosophical position was misguided but he learned a valuable lesson that the rule of law has prevailed. The conduct of Crown counsel throughout the trial was exemplary as she and the court provided reasonable assistance to him in mounting his defence and any whiff of intolerance and intemperance towards the rule of law slowly dissolved as the trial progressed. I did not have to address the Freemen of the-Land argument which some courts have held counsel are duty bound not to advance because it is a proven to be a waste of court resources and time.23 I am reminded that Mr. Wallen chose to represent himself and while I permitted him to use court resources to advance any arguments that might possibly have a chance of success, not much extra time was spent dealing with his specious arguments. I get the impression that Mr. Wallen was motivated by outside forces in pursuing his illegitimate tax protesting strategies and has now realized the magnitude of his mindset by finding himself in custody. His resistance to the authority of the court waned when he was convicted. Indeed, as his specious arguments continued to fail in the courtroom, his contingent of supporters also faded and common sense took over, albeit reluctantly. He participated in the sentencing hearing and permitted Mr. Pearson to make focused submissions on his behalf. I am guarded as to whether he poses a future risk to reoffend and conclude he probably isn’t. 24
43A proportionate sentence may require an examination of the collateral consequences that may arise from the commission of the offence, the conviction for the offence, or the sentence imposed.25 A collateral consequence is not necessarily aggravating or mitigating within the meaning of s.718.2(a) of the Criminal Code as these consequences are not related to the gravity of the offence or the level of responsibility of the offender. Collateral consequences are integrally connected to the goal of an individualized and proportionate sentence because the focus shifts to concerns about whether the impact of the sentence would have a more significant impact on the offender because of the offender’s circumstances.26 These consequences “cannot be used to reduce a sentence to a point where the sentence becomes disproportionate to the gravity of the offence or the moral blameworthiness of the offender”.27
44In my view, there are two collateral consequences that require some consideration in crafting a fit and individualized sentence. First, I have considered the effect of a custodial sentence on parties who might be impacted by Mr. Wallen’s absence from the community. These include Mr. Wallen’s family and also Mr. Wallen’s elderly mother who has given Power of Attorney to Mr. Wallen to take care of her legal needs. The latter issue wasn’t flushed out in detail, but I realize living in a long-term care home during a public health crisis is stressful and I expect his mother depends on him for some care and comfort which will be missing depending on the length of his absence. Further, Mrs. Wallen appears to remain supportive, even though the parties are separated. Indeed, it would appear she was kept in the dark about Mr. Wallen’s illegal activities and her marriage and world crashed when Mr. Wallen was arrested. I realize she too is aging and despite their failed union, they are bound through children and parents who will be indirectly impacted by Mr. Wallen’s absence. In my view, this factor carries some weight in deciding the fitness of a sentence.
45The second collateral consequence flows from the COVID-19 pandemic. Courts in Ontario have taken judicial notice of the pandemic and the effect it has on the public and communities in general.28 It is well known a public health emergency was declared by the government in March 2020 and remains in effect as of the date of sentence. Mr. Wallen has spent all of his time in PSC during the COVID-19 pandemic. Ms. Carley submits while the court should take into account the pandemic, the Court of Appeal provides that absent any evidence of the particular circumstances of Mr. Wallen’s incarceration that might make him more vulnerable to the virus, the sentence should not be reduced on a go-forward basis. 29 Further, she argues in this case there is no such evidence to justify a sentence adjustment.
46Mr. Pearson argues the court should draw a reasonable inference that in light of Mr. Wallen’s old age and poor health, he is more susceptible to the virus and the conditions in the institutions have been getting worse not better and there is nothing to suggest this will improve with time. Further, he says while Mr. Wallen’s digestive problems are being treated in custody, they will be better managed out of custody which justifies the court to impose a CSO or reduce the overall sentence to 12 months imprisonment less PSC.
47The reality is Mr. Wallen is being sentenced during a public health emergency which has had an extraordinary impact on all facets of society. It would be wrong to simply ignore this reality. In R. v. Hearns30, Justice Pomerance explained:
16 COVID-19 affects our conception of the fitness of sentence. Fitness is similar to proportionality, but not co-extensive with it. Proportionality dictates that the sentence should be no more than is necessary to reflect the gravity of the crime and the moral blameworthiness of the offender. Fitness looks at a broader host of factors. A sentence may be fit even if it is not perfectly proportionate. Fitness looks, not only at the length of a sentence, but the conditions under which it is served. As a result of the current health crisis, jails have become harsher environments, either because of the risk of infection or, because of restrictive lock down conditions aimed at preventing infection. Punishment is increased, not only by the physical risk of contracting the virus, but by the psychological effects of being in a high-risk environment with little ability to control exposure.
Pomerance J. made the point that a sentencing judge should consider the “special circumstances of each case” and offered two caveats to this analysis, the second of which has direct application to this case. First, she said courts should be wary of assigning more statutory credit to PSC because of the pandemic and second, the “consequences of a penalty – be they direct or collateral – cannot justify a sentence that is disproportionately lenient, or drastically outside of the sentencing range. It cannot turn an inappropriate sentence into an appropriate one or justify dispositions that would place the public at risk”.31
48In my view, the delicate balance in this case arises from the record which shows there is no specific evidence that Mr. Wallen is more susceptible to the virus because of pre-existing health issues. For example, he does not have respiratory issues or an auto-immune deficiency or if he does, this evidence wasn’t put before me. His issues are related to his digestive system which is being managed by the CECC. That said, it would be naïve to ignore Mr. Wallen’s age which most public health experts have said would place him in a different category vis a vis younger people. Age and health often go hand in hand but not always. In some cases, one’s health concerns have justified an exceptional sentence. In R. v. Hannaford,32 Justice Skarica developed a framework to assess a specific risk to an offender posed by the COVID-19 virus. Given some of the gaps in the record, this may be a useful way to give a fair and full consideration to this factor. Skarica J. identified the following five factors which he imported from a bail context to be considered by a sentencing court. I am persuaded this approach makes sense. The factors are:
Recent reliable data regarding the general risk, to the Canadian/Ontario/local population, of being infected by COVID-19 and related risk of serious illness/death.
The specific risk of an accused due to his/her age and underlying medical conditions.
The specific risk of an accused in a particular institution.
Any medical evidence particular to an accused’s physical and/or mental health.
Any history of violating court orders
49Applying the above factors to this case, the Crown filed Exhibit 3 which is the Response to COVID-19 Information Note, authored by the Ministry of the Solicitor General dated January 20, 2021. It is the most up to date information which has been updated from previous Notices and in particular Exhibit 1. The relevant findings that impact Mr. Wallen are as follows: (i) healthcare policies and procedures in relation to COVID-19 have been implemented in all adult correctional settings, which includes CECC, (ii) there is one positive COVID-19 case at CECC as of January 17, 2021, (iii) the specific policies require a positive inmate to be placed in medical isolation under droplet and contact precautions and contact tracing is conducted, (iv) there is an active screening process for all inmates and staff and (v) other measures have been taken to reduce capacity and limit spread of the virus in congregate settings. The medical records filed by Mr. Pearson reveal Mr. Wallen suffers from digestive issues which must be uncomfortable in a congregate setting but there is nothing to suggest this condition would make him more vulnerable to the virus. For example, there is no evidence that the health problems are linked to an auto-immune condition where the virus would quickly complicate the digestive issues. Moreover, it appears the digestive issues are being managed with prescription medication and with the measures taken by CECC to limit the virus in congregate settings, the risk of infection is minimized. Indeed, I asked Mr. Wallen about his experience and he advised he has been held in general population which I know means he is milling with other inmates. He is not being held in medical isolation or some other unit which might lead me to infer CECC deemed it necessary to separate him from other inmates. This is some evidence to suggest his risk of exposure isn’t deemed by CECC to be high relative to others. His diet is being accommodated although not as well as it could be according to Mr. Wallen. Of course, this may simply be a consequence of being in custody and not being able to choose to eat the food one desires. The final factor of having a history of breaching court orders is less important in the sentencing context although Mr. Wallen must also be sentenced for failing to appear in court. On balance, I agree with the Crown there is no specific evidence on a balance of probabilities which justifies a significant adjustment of the sentence because of the COVID-19 factor. But, at the same time, it would be naïve to think Mr. Wallen’s age and digestive issues don’t put him at a higher risk of acquiring other health complications, which I can reasonably infer would make him more vulnerable to the virus.33 This is simply a matter of common sense because as one ages, ones’ health is impacted differently than it would if one is young and healthy. If Mr. Wallen contracted the virus at his age and given his background, it makes sense he would be more at risk than an inmate who was younger and healthier. In this way, this factor is a relevant collateral consequence which cannot be ignored and must be balanced with the other factors.
50Apart from any specific health concerns, I must still consider the overall context of the COVID-19 factor but in my view, the submission that it should drive a community-based sentence or a global sentence of 12 months flies in the face of comments in Hearns and Lariviere. I will explain why I have concluded that this factor either on its own or in combination with other sentencing principles does not support the defence submission because the circumstances of this case and Mr. Wallen demand a custodial sentence which is proportionate to his conduct. While the pandemic may justify a sentence that is outside the usual range, it cannot justify one that is drastically outside the range. I will explain why both a CSO and a global 12 month sentence less PSC would do just that.
Issue 1: What is an appropriate custodial sentence for the ITA offences?
51Ms. Carley submits the court should impose consecutive jail sentences of 22 to 24 months imprisonment on each count. She argues this is near the upper end of the available penalties prescribed by the ITA and takes into account general deterrence and denunciation and is proportionate to the seriousness of the offences and Mr. Wallen’s role in them. Ms. Carley argues against the imposition of a CSO and points me to several similar cases in which offenders received prison sentences. Mr. Pearson argues the Crown’s cases are relevant but in his words: they are “all over the map” and the court should return to first principles and impose a CSO or a shorter custodial sentence. He says a punitive CSO can be crafted which would make Mr. Wallen a prisoner in his home and/or the court can craft a blended sentence with both a custodial and community component.
52A fit and proportionate sentence is informed by s.718.2(b) of the Criminal Code which requires courts to consider the principle of parity. In R. v. Friesen34, Justice Wagner writing on behalf of the Supreme Court explained: “parity and proportionality do not exist in tension; rather, parity is an expression of proportionality. A consistent application of proportionality will lead to parity. Conversely, an approach that assigns the same sentence to unlike cases can achieve neither parity nor proportionality. At para. 33, Justice Wagner added: “A proportionate sentence for a given offender and offence cannot be deduced from first principles; instead, judges calibrate the demands of proportionality by reference to the sentences imposed in other cases. Sentencing precedents reflect the range of factual situations in the world and the plurality of judicial perspectives. Precedents embody the collective experience and wisdom of the judiciary. They are the practical expression of both parity and proportionality.” Of course, the parity principle must be read in context of the current public health climate as explained by Pomerance J. in Hearns.
53Case precedents are intended to provide guidance as opposed to dominating the sentencing process.35 I have carefully reviewed the Crown’s cases which included sentences imposed for both large-scale frauds and large-scale tax evasion. While the defence didn’t rely on any specific cases, I’ve reviewed some on my own. It is my view that the cases involving tax-offences are more instructive because the offences are more similarly situated and more helpful in situating Mr. Wallen’s offences along the continuum of penalties prescribed by Parliament for his conduct. This is not to say his offences are dissimilar to large-scale frauds, but rather more similar to large-scale tax frauds and the mischief that these provisions are designed to guard against. As a result, I find the following cases to be most helpful:
In R. v. Mathur,36 the offender was an accountant and tax preparer who filed false returns using the social insurance numbers of his real estate clients without their consent. He received $25,321 in unwarranted refunds and attempted to receive $343,840. The court upheld a 12 month jail sentence.
In R. v. Mahmood,37 the offender was convicted after trial for tax evasion offences over 4 years which resulted in $358,588 income tax evaded and $116,412 GST evaded. He was sentenced to 12 months imprisonment and a fine of 150% of the taxes evaded. The Court of Appeal upheld the prison sentence as a “close call” after dismissing the Crown’s submission to substitute a penitentiary sentence.
In R. v. Mori, 38 the offender was convicted after trial and sentenced to 12 months imprisonment and a fine of 75% of taxes evaded. The tax evasion spanned three years resulting in total losses of $223,313. The offender cooperated with the tax audit and ran a focused trial.
In R. v. Witen, 39 the offender was an accountant and tax preparer who like Mr. Wallen filed false returns for clients over 9 years, resulting in an evasion of $1.13 million. He profited in the amount of $448,000. The court imposed a 3 year prison sentence.
In R. v. Alexander Street Lofts,40 the offender was sentenced to 30 months imprisonment for his role in fraudulent GST rebates totaling $671,279 received and more attempted. The court also imposed a fine of 100%.
In R. v. DiPalma,41 the offender was convicted of two counts of tax evasion in an elaborate scheme involving mining exploration ventures in South America. He declared false business losses generating income tax refunds of $756,272. He was sentenced to 40 months imprisonment plus a fine of 150% of the taxes sought to be evaded totaling $1,134,309. The sentence was upheld on appeal.
In R. v. Terracina,42 the offender pled guilty to preparing tax returns containing false claims for clients. The total tax evasion was $246,000. He was sentenced to 3 years imprisonment which was upheld on appeal.
54Ms. Carley, fairly in view, also provided cases in which courts in Ontario have not imposed prison sentences but instead sentenced the offender to a CSO. The most relevant cases for my purposes include:
In R. v. Sharma,43 the offender pled guilty and was sentenced to a CSO of 2 years less one day, which the Court of Appeal upheld on appeal. It is noteworthy this case involved a large-scale tax fraud prosecuted under the Criminal Code, not the ITA.
In R. v. Klundert, 44 the offender was sentenced to a 12 month CSO and a fine of 150% of the taxes evaded for an evasion worth $1.4 million dollars over 5 years. The Court of Appeal stressed at para. 33 the case was “unique” in which there was a low level of deceit or fraud. In addition, the litigation was protracted with three trials with two prior acquittals and two judgments of the Court of Appeal.
In R. v. Kueviakoe,45 the offender pled guilty to making false claims in 45 tax returns filed on behalf of more than 20 clients over a 5 year period. The false claims cost the government in approximately $70,365.55 in unpaid taxes. The court imposed a CSO of 12 months and a fine.
In R. v. Grimberg,46 the offender pled guilty and received a 12 month CSO and 100% fine for failing to remit $617,940 in GST. The trial judge said the offence warranted a penitentiary sentence but imposed a CSO with house arrest as the offender was 80 years old.
55In view of the above cases, I find that an appropriate range of sentence for Mr. Wallen’s offences appears to be 1-3 years imprisonment with a CSO being an available option in the right circumstances. Of course, in the ITA context, the maximum sentence I can impose for counts 6 and 8 is 2 years but if the acts are considered in the fraud context, a higher sentence has been imposed. It is also relevant that the Crown chose to proceed by summary conviction which would have changed the ceilings if the matter proceeded by indictment. In R. v. Lacasse,47 the Supreme Court reminded that ranges are not meant to be set in stone, but they provide a useful yardstick to measure a proportionate sentence. In view of this conclusion, a CSO remains available because of the quantum of sentence and I will now consider whether it’s unavailable because it’s inconsistent with the purpose and principles of sentence.
Issue 2: Is a CSO either on its own or as part of a blended sentence an appropriate sentence in this case?
56Section 742.1 of the Criminal Code provides that a CSO must be consistent with the fundamental purpose and principles of sentencing. In R. v. Proulx, 2000 SCC 5, [2000] 1 S.C.R. 61, the Supreme Court held that a punitive CSO with terms such as house arrest can have a deterrent effect on an offender. However, it is my view that a CSO in this case would dilute the denunciatory message that needs to be sent to people who make a conscious decision to protest the tax system by devising sophisticated schemes to commit a fraud on the public. As noted, Mr. Wallen thumbed his nose to the CRA and by implication, the public. Further, Mr. Wallen is retired which means it’s unlikely he will return to the workforce where I could craft a punitive sentence with a substantial fine which would allow the CRA to recoup the lost monies. That is something that motivated the court in Sharma but is not available here. I have considered cases in which CSO’s were imposed and in my view, they can all be distinguished. For example, in Sharma, the offender pled guilty which is a significant mitigating factor which is not present in this case. Mr. Sharma spared 37 taxpayers from testifying and agreed to pay back the defrauded monies as part of his CSO. A guilty plea was a significant factor in other cases as well which makes sense in the ITA context because it’s a strong acknowledgment of making a mistake which the CRA can remedy by recouping lost monies through penalties and the like. The law is clear that a guilty plea saves valuable court resources and, for pragmatic reasons, ought to reduce a sentence.48 In this case, Mr. Wallen doesn’t benefit from this significant factor but also isn’t penalized for its absence. I agree with the Crown that the sentence in Klundert appears to be an anomaly as a sentencing guide because of the unique history and background of the case which involved a number of trials. A CSO was also imposed in cases where the quantum of the fraud was on the lower end and the role of the offender was not as sophisticated, which is not the case here.49 A CSO was also considered in cases where the offender made up-front restitution, which also isn’t the case here.50 Given Mr. Wallen’s offences and his role in committing them, a CSO would be inconsistent with the purpose and principles of sentencing.51 It would not be adequate to deter Mr. Wallen or like-minded tax protesters from committing similar offences in the future. Similarly, the pandemic does not justify a CSO because it’s inconsistent with deterrence and denunciation. As a result, I conclude a CSO of any variety either on its own or as part of a blended sentence would be inconsistent with criteria in s.742.1 of the Criminal Code.
Issue 3: What is an appropriate custodial sentence mindful of the totality principle? In particular, should a custodial sentence on counts 6 and 8 run concurrently to each other or on a consecutive basis?
57Section 725(1)(a) of the Criminal Code requires me to determine the sentence to be imposed for each count and then consider the totality principle. The general rule is that different offences that arise out of the same behavior normally receive concurrent sentences. Consecutive sentences on the other hand, are normally imposed where there is some separation among the offences in time or they constitute different legally protected interests.52 Ms. Carley submits the offences demand consecutive sentences because counts 6 and 8 were committed in different circumstances. Mr. Pearson disagrees arguing the illegal tax filing scheme was essentially the same behavior. Respectfully, I disagree with the defence submission. In my view, while the illegal scheme was similar, the offences were different because the corporations and trusts that were created were different. Count 6 was limited to Mr. Wallen’s personal and business tax records whereas count 8 expanded the fraud to include a third party in Mr. Corbo. Mr. Wallen developed an in-house fraud and chose to offer his fraudulent product for profit and induced others to hire him for this purpose. In my view, the offences targeted different interests even though both were motivated by greed. In one case, Mr. Wallen’s business interests were put at risk while in count 8, the interests of Mr. Corbo were put at risk. Mr. Wallen diverted attention from his own interests to a third party. A scheme of this magnitude is better hidden amongst someone with complicated business interests in comparison to an individual taxpayer. Further, the deceit is more vulnerable because even if the CRA was able to ‘catch’ Mr. Wallen, they would have no way of knowing if he perpetrated his fraud on others. Mr. Wallen induced Mr. Corbo to keep his fraud quiet. While an informed member of the public might reasonably think the scheme was problematic, a less informed taxpayer would have little reason to question the scheme because it was proven to work which one might take as a legitimate tax avoidance strategy which of course, it was not. Tax laws are cumbersome and often require a trained eye to navigate. It is not surprising Mr. Corbo hired who he thought was an expert only to learn he was duped. In the ITA context, I have no hesitation in concluding the offences must be consecutive, not concurrent. If I was sentencing Mr. Wallen for counts 1-6, I would have considered imposing a concurrent sentence, but he was also convicted of the counts involving a third party in Mr. Corbo.
58Notwithstanding that I must impose consecutive sentences for counts 6 and 8, the totality principle requires mitigation of the sentence that would otherwise be appropriate on individual counts. 53 In R. v. Hannora,54 the Court of Appeal explained that the totality principle is properly applied to the total sentence imposed on an offender. Its purpose is to ensure that the total sentence is proportionate to the culpability of the offender. In R. v. M. (C.A.),55 Justice Lamer (as he then was) said:
The totality principle, in short, requires a sentencing judge who orders an offender to serve consecutive sentences for multiple offences to ensure that the cumulative sentence rendered does not exceed the overall culpability of the offender.
Further, the Court of Appeal in Hanora also addressed the totality principle in context of rehabilitation by adopting the comments of Watt J.A. in R. v. Angelis: 56 “Totality is a principle of sentence the purpose of which is to ensure that the total sentence imposed does not extinguish the rehabilitative potential of the offender”. While rehabilitation is less important in this case, it remains to be considered as Mr. Wallen is a mature first offender.
59Having considered and balanced all the factors in this case, I have determined that a fit and proportionate sentence for count 6 and count 8 is 15 months imprisonment, which in total represents a sentence of 30 months. This takes into account the success of the fraud in count 6 but the magnitude of the unrealized fraud in count 8. Both stand on equal footing. I have considered the Crown’s submission of 22-24 months on each count but given Mr. Wallen’s age, health and the fact that he will be serving his sentence in custody during a pandemic, I have settled on 15 months as being a fit and proportionate sentence. This represents a modest increase from the lower end of the range of 12 months that courts have imposed for similar conduct but takes into account the many aggravating factors while not ignoring the reality of having to serve a prison sentence during the throes of COVID-19. It is the least restrictive sentence that is proportionate to the gravity of Mr. Wallen’s offences and the degree of his responsibility in committing them. The length takes into account the principle of restraint as a jail sentence of last resort.57 In my view, imposing a global 12 month jail sentence as advocated by Mr. Pearson would dilute the sentencing principles and be an error in law. I have also considered the fact that I must impose fines in this case which also forms part of the overall sentence and Mr. Wallen’s overall culpability. I will discuss this below.
60The next step in the analysis is consideration of the totality principle. Ms. Carley submitted the Crown’s position was subject to consideration of totality which means an acknowledgment that if consecutive sentences are imposed, the overall sentence must be adjusted to reflect the overall culpability of Mr. Wallen. Having done so, I have determined I will reduce the overall sentence by six (6) months to reflect a global jail sentence of 24 months. I do so for two reasons. First, this represents the very bottom of an acceptable range of sentence for this kind of offence at 12 months imprisonment when considered together, is still consistent with Mr. Wallen’s overall culpability. Second and more important, it still sends the important denunciatory message that people with the mindset of Mr. Wallen who believe they can simply thumb their noses to the CRA and choose to believe they are immune from paying tax and devise schemes to further this belief, will face a 2 year sentence which for all purposes is a penitentiary sentence. It may be that this sentence, which takes into account penalties for two counts, is at the lower end of an acceptable range but any future cases considering this sentence will be reminded that I sentenced Mr. Wallen during a public health crisis. I agree with the Crown that the National Parole Board will be best suited to make sure Mr. Wallen’s specific needs are being met while in custody.
Issue 4: How much credit should be enhanced for PSC? In particular, is Mr. Wallen entitled to enhanced extra credit for his PSC on account of hardship suffered due to lockdowns and for time spent due to the COVID-19 pandemic?
61Section 719(3.1) of the Criminal Code permits sentencing judges to award credit for time spent in pre-sentence custody. The parties agree that at a minimum, the court should award enhanced credit at the rate of 1.5 days for each day spent in PSC as mandated by the Supreme Court in R. v. Summers.58 As of the date of sentence, Mr. Wallen would have spent 110 days in PSC.
62In R. v. Duncan,59 the Court of Appeal held that in the appropriate circumstances, particularly harsh presentence incarceration conditions can provide mitigation beyond the 1.5 credit. The court held: “to attract enhanced credit on this ground, the court will consider both the conditions of the presentence incarceration and the impact of those conditions on the accused”. Duncan credit does not mandate a second level of credit for PSC. Rather, it confirms there is no cap on the 1.5 days of credit that can be given for PSC. In R. v. Rajmoolie,60 Justice Lauwers observed that in Ontario, some sentencing judges require proof of the conditions of incarceration that justify the credit and the impact of those conditions on the accused whereas other judges do not require rigorous proof and rely on counsel’s submissions.
63Mr. Pearson submitted Mr. Wallen spent 42 days “locked down” at CECC which was due in part to the COVID-19 pandemic. Ms. Carley chose not to test this submission which was a fair response. I accept Mr. Pearson’s submissions which was supported by the comments of Mr. Wallen. In R. v. Kandhai,61 Justice Harris sitting in the Superior Court of Justice observed that additional hardship in serving a jail sentence during the time of a pandemic is obvious, “at least up to a certain degree”. He remarked that the situation of the pandemic has led to drastic measures in society and is bound to increase day to day hardship in prison and the general risk to the welfare of prison inmates. The sentencing principles mandated him to consider the circumstances of the offender’s lockdowns in crafting a fit sentence. I agree with this analysis and find the 42 days merit extra credit above and beyond the Summers rate of 1.5:1.
64As a result, I will exercise my discretion and enhance 42 of the 110 days on an enhanced basis to reflect the harshness experienced by the lockdowns during the pandemic. I will credit the 42 days as the equivalent of 108 days for two reasons. First, I was not asked to take a formulaic approach in enhancing the credit as some courts in Ontario have. Second, the amount of credit meets with the defence submission to consider the overall PSC as the equivalent of 7 months. Therefore, I will accept Mr. Pearson’s submissions and enhance Mr. Wallen’s PSC of 110 days as the equivalent of 210 days or 7 months. To be clear, 68 days will be enhanced as 102 days as Summers credit while 42 days will be enhanced as 108 days as Duncan credit. Therefore, I will deduct 7 months from the overall sentence of 24 months, leaving a remnant of 17 months.62
Issue 5: What are appropriate fines in this case?
65The ITA mandates separate fines in respect of both counts 6 and 8. Ms. Carley submits an appropriate fine for count 6 is 150% of the unwarranted tax refund obtained or sought which is $366,439 and a 100% fine on count 8 which is $633,399 which is a total of $999,838 or just shy of $1 million. Mr. Pearson submits I should impose the minimum amounts prescribed on both counts which is 50% which would be $122,146 for count 6 and $316,699 which is a total fine of $438,845. Mr. Pearson argues this represents a substantial fine for Mr. Wallen who is elderly, retired and financially impecunious as he also owes a significant sum to the CRA in arrears and penalties.
66The parties didn’t devote much time to this issue but in my view, it is a significant component of the sentencing. The mandatory fine provisions in the ITA must be read harmoniously with the fines and forfeiture provisions in s.734 of the Criminal Code. These statutory provisions were discussed by the Supreme Court in R. v. Topp. In R. v. Canlas,63 at paras. 81-120, Justice Spies provided a helpful analysis of the Topp decision in a case where she was met with a submission as to whether she should impose a fine because the offender committed tax offences but was sentenced for fraud under the Criminal Code. In other words, there was no mandatory fine component as is the case under the ITA. I find her analysis of the fine provisions and all the attendant consequences for somebody who does not (or cannot) pay a fine persuasive. She adopted the reasoning of the Supreme Court that Parliament has rejected the notion that a fine should be set without regard to an offender's ability to pay. A means inquiry is now a condition precedent to the imposition of a fine except where otherwise provided by law. Here, this would mean I am to assume Mr. Wallen has the means to pay the minimum fines, even if the evidence isn’t clear on the issue, which is set at 50% because Parliament has deemed as much. Spies J. held s. 734(2) imposes a burden on the party seeking the fine to satisfy the court that the offender is able to pay the amount sought. To discharge that burden, the proponent of the fine may rely on all the relevant material before the court on sentencing - including evidence or information provided by any other party, or otherwise properly elicited by the judge pursuant, for example, to s. 723(3) of the Criminal Code. The party opposing the fine remains free to argue that the evidence relied on by the proponent of the fine should not satisfy the court that the offender is able to pay.64
67In this case, the Crown seeks fines that are triple the minimum fine amount in count 6 and double the minimum fine amount in count 8. Mr. Pearson candidly took the position anything above the minimum amount is symbolic. In support of discharging their onus, the Crown filed updated tax records and information slips which represent case files notes of the CRA of Mr. and Mrs. Wallen from the 2017-2019 taxation years. Ms. Carley submitted the CRA is aware of taxes owing in the amount of $480,112. Further, while the matrimonial home in Bowmanville is sold, Mr. Wallen jointly owns a cottage in Peterborough with three family members: Exhibit 8. The Crown says this is evidence of a further asset but fairly concedes it’s hard to ascertain its specific value as of February 1st. Mr. Pearson says it’s speculative at best to know the extent of Mr. Wallen’s interest in the property. Exhibit 8 reveals neighboring properties were valued anywhere from $600-$878,000 which leaves me with a reasonable inference that the Wallen cottage would at least be worth around $600,000 if not more. I am not able to arrive at a firm finding of fact in respect of Mr. Wallen’s exact ownership interest but surmise it would be at least $150,000 as a quarter owner. There’s certainly nothing to suggest otherwise. Finally, according to Mr. Pearson, Mr. Wallen is collecting a pension from the Canada Pension Plan (CPP) which is about $870/month or $15,000 per year and has some income registered as an RRIF for about $10,000 per year. He submitted his employment income is being garnished by the authorities, leaving him with very little.
68According to the jurisprudence, one purpose of a fine as part of a sentence for an economic crime is to ensure that the offender does not retain the proceeds from the crime once the sentence is served. Further, a fine must be significant enough that it constitutes more than an effective licence fee or part of the cost of doing business. Here, Mr. Wallen personally profited about $100,000 in respect of the offences related to his tax interests in counts 1-6 and but did not profit financially from the offences in counts 7-8, although was hoping to. This is subject to the nominal amount he acquired for contracting his illegal services. There is no dispute Mr. Wallen is retired, in the legal sense, which means his future employability and collecting a salary, is slim even though the age of 61 leaves him with some years of possible employment provided he remains in good health. A lack of salary is not the end all as he could pursue other legitimate employment as well. However, in light of his existing personal circumstances including his health, it is unlikely any future employment will be remunerative enough to fill the void left by the significant amount owed to CRA which is $480,112 and will likely increase with arrears and penalties. I can reasonably infer Mr. Wallen will spend the rest of his life repaying monies that he already owes and will likely never be able to pay it all back based on his current financial picture. Unlike other cases where offenders had the means and wherewithal to repay monies, Mr. Wallen is not in that position. It may be the CRA will pursue other civil remedies against his real estate interests, but I don’t have a full picture of how much his home is worth and what his legal interest is in that property. There is nothing to suggest there is a windfall to be gained. I have considered that some years have passed since the offences and the nature of the evasion spanned about 4 years, not longer, which might have attracted larger fines because there would be an inference he benefited from his fraud for a longer period of time. It is also significant that Mr. Wallen will be spending time in custody which will reduce his employability in a post-pandemic economy and the amounts he evaded are significant on their own, so any calculation will pose a substantial burden on him. In contrast, if the evaded amounts were less, I would have less hesitation in accepting the Crown’s submissions.
69For these reasons, I am not satisfied the Crown has proven Mr. Wallen can probably pay fines nearing $1million dollars, which would be triple the minimum amount for count 6 and double the minimum amount for count 8. I find Mr. Wallen probably does not have the present or future ability to pay the fines as advocated by the Crown and any significant departure from the minimum fines would be contrary to the decision in Topp. It is also significant that I must impose consecutive fines and cannot have them run concurrently which represents two criminal fines, not one. In light of the fact that Mr. Wallen profited from his offences in count 6, with no explanation to account for where that money went, this justifies some departure from the minimum amount which I conclude should be 75% in count 6. I disagree with Mr. Pearson’s submissions that the minimum should be imposed on count 6 as the personal profit suggests he acquired $100,000 and would have some means to repay these funds. With respect to count 8, the amount of the evasion is significantly more and there is no evidence to justify departing from the minimum amount of 50%. These are not paltry sums by any means and don’t dilute his overall culpability but must be consistent with the spirit of an individualized sentence. While I can appreciate the reasoning behind the Crown’s submission for a significant and blunt financial penalty, in my view, the amounts requested would be crushing in this case. I note that the cases that levied 100% fines involved those offenders who profited handsomely (i.e. Witen, supra and Alexander Street Lofts, supra). Where lower amounts were determined, those cases involved smaller amounts of tax evaded (i.e. Mori, supra, R. v. Sydel,65 infra).
70The fine provisions in the Criminal Code are complicated and provide additional enforcement means to the government (and CRA), which means they are not purely a symbolic gesture. Mr. Wallen’s liberty interests are very much at risk should he choose to thumb his nose to the fine order like he did to his tax obligations. The fines will have more meaning to him when I craft the fine order dealing with the manner in which the fine is to be paid. It would be foolhardy for Mr. Wallen to think the fine order could be ignored or will simply go away on its own because I very much doubt it will. I should add that the amounts in this case have little precedential value to future offenders in Mr. Wallen’s shoes because his circumstances and the record placed before me are unique. Accordingly, the fine on count 6 will be $183,219 and the fine on count 8 will be $316,700. The total fines will therefore be $499,919. Along with the existing monies owed to CRA, this will likely encumber Mr. Wallen’s financial interests for the rest of his life. Any equity Mr. Wallen spent his life legitimately earning is likely lost, because of his illegitimate ideology and actions.
71As for time to pay and a payment schedule pursuant to s.734.1 of the Criminal Code, after considering the positions of the parties, I disagree with Mr. Pearson that $50.00 per month for 10 years is sufficient. Ms. Carley notes 10 years was deemed by the Court of Appeal to be unreasonable and antithetical to the purposes of s.734.1 in Mahmood.66 Mr. Wallen’s means to pay is different from the offender in Mahmood, therefore I will make the fine payable in 5 years which is subject to the courts discretion to extend the time to pay. At a minimum, it is my view Mr. Wallen will be required to pay $2000 per month for 5 years which represents $124,000 which is slightly more than the amount Mr. Wallen personally profited from his crimes. Of course, he can pay the full fine prior to the 5 years if he chooses to do so. In so far as s.734.7 of the Criminal Code provides, the Crown invites me to set a period of time when and if Mr. Wallen refuses to pay and would have deemed to default for purposes of s. 734.7(b)(ii) of the Criminal Code. I will set two years, which commences upon release from custody, subject to a bona fide application to extend the time to pay. This represents a reasonable amount of time to show bona fide efforts on his part mindful that it will take some time for Mr. Wallen to get back on his feet and follow through with his legal obligations.67
72Finally, with respect to the fail to appear offence, I will impose a 30 day jail sentence which can be served concurrently to the jail sentences on counts 6 and 8. I realize this is separate conduct but given the totality principle, it need not be served consecutively because it arose in respect of the same conduct. A jail sentence sends a message that court proceedings are to be respected and one cannot thumb their nose at the court just like Mr. Wallen thumbed his nose at the CRA. That said, this message can be realized with the overall sentence and any further jail will be unnecessary to achieve this objective.
73I have considered Mr. Pearson’s submission for a probation order as part of a package of sentencing options and while creative, there is no rehabilitative objective to be gained from a probation order. There is no evidence these offences were motivated by addiction, abuse or mental health issues. Instead, they appeared to be motivated by an attitude of misguided defiance and greed.
F. Conclusion
74In summary, the final sentence of the court to be noted on the information will be as follows:
Count 6: 12 months imprisonment less PSC of 110 days credited as 210 days (7 months) leaving a jail sentence of 5 months and a fine set at 75% equaling $183,219.
Count 8: 12 months imprisonment consecutive to count 6 and fine set at 50% equaling $316,700.
Fail to Appear: 30 days imprisonment concurrent with counts 6 and 8.
The total term of imprisonment to be served (on top of PSC) as of February 1, 2021 is 17 months. The total fines will be $499,919 subject to my order under s.734.1 of the Criminal Code. I will direct the clerk to include Appendix A to the standard fine E-order.
75I will also ask the clerk of the court to attach these reasons to the information to complete the court record and send a copy to the institution to assist with classification and in particular, my reference at paragraph 24 of these reasons to Mr. Wallen’s prescription medication.
76I would like to thank counsel for their materials which were of great assistance to the court. In particular, I would like to commend the conduct of Crown counsel for providing helpful assistance to all parties in this challenging case.
Released: February 1, 2021
Signed: Mr. Justice F. Javed
Footnotes
- The court heard further sentencing submissions on February 1, 2021. The Crown tendered new material on consent (Exhibit 8). Mr. Wallen was able to review this privately with Mr. Pearson. The court didn’t read into the record the full reasons for sentence and instead provided a brief summary of the reasons, which represents the complete reasons for sentence. I directed the clerk to attach copy of the written reasons to the information and to send a copy to all parties.
- R. v. Wallen, 2020 ONCJ 652.
- On March 18, 2020 the court communicated with the parties by letter advising the parties that the May 4th appearance was likely not going to proceed given the pandemic.
- 1974 CanLII 14 (SCC), [1975] 1 S.C.R. 729 (SCC)
- Mr. Wallen stepped into custody on October 15, 2020 and will be sentenced on February 1, 2021 which the parties agree should be calculated as 110 days (109 rounded up to 110 on consent of counsel).
- 2014 SCC 26, [2014] 1 S.C.R. 575
- Mr. Wallen told the court he spent 42 days in lockdowns which was part of Mr. Pearson’s overall calculation of PSC.
- 2000 CanLII 17033 (ON CA), [2000] O.J. No. 4731 (Ont. C.A.) leave to appeal to the SCC refused, [2001] S.C.C.A. No. 69.
- Interpretation Act, RSC 1985 c.I-21, s.34(2)
- 2012 SCC 13
- 2010 SCC 6, 2010 1 S.C.R. 206 at para. 43
- R. v. Topp, 2011 SCC 43, [2011] 3 S.C.R. 119
- R. v. Mathur, 2017 ONCA 403 at para. 14; R. v. Cunsolo, 2012 ONSC 114 at para. 37
- R. v. Klundert, 2011 ONCA 646 at para. 34, leave to appeal to the SCC refused, [2011] S.C.C.A. No. 512
- 1990 CanLII 71 (SCC), [1990] 2 S.C.R. 338
- R. v. Mahmood, 2016 ONCA 75, [2016] O.J. No. 3259 (C.A.) at paras. 19-20
- R. v. Dubinsky, [2005] O.J. No. 862 (C.A.), 2005 CanLII 5668, at para. 1
- R. v. Mathur, supra, at para. 13; R. v. Kazman, supra at para. 111
- R. v. McNamara et al. (No. 2), 1981 CanLII 3389 (ON CA), [1981] OJ. No. 3260, 56 CCC (2d) 516 at p.520 (Ont. C.A.); R. v. Grimberg, 2002 CanLII 10640 (ON CA), [2002] OJ No. 526 (Ont. C.A.)
- R. v. W. (A.G.) 2000 CanLII 5641 (Ont. C.A.) at para. 6; R. v. L.W. 2018 ONCJ 399 at para. 33.
- R. v. Bertram, [1990] O.J. No. 2013 (C.A.); see also Klundert, supra, at para. 29
- R. v. Valentini (1999), 1999 CanLII 1885 (ON CA), 43 O.R. (3d) 178 (C.A.), at paras. 80-85.
- R. v. Ciciarelli, 2019 ONSC 6719
- R. v. Hawley 2016 ONCA 143
- R. v. Suter 2018 SCC 34, at para. 47
- Suter, supra at para. 48.
- Suter, supra at para. 56.
- R. v. Morgan, 2020 ONCA 279.
- R. v. Lariviere, 2020 ONCA 324 at para. 16-17; R. v. Yusuf and Ahmed, 2020 ONSC 5524 (Ont. Sup. Ct.) at para. 92.
- 2020 ONSC 2365
- Hearns, supra at paras. 22-23
- 2020 ONSC 3665 at para. 39, citing R. v. Baidwan, 2020 ONSC 2349, at para. 161.
- For example, Heeney J. came to the same conclusion based on an offender’s age of 65 in R. v. Tasevski, 2020 ONSC 3724.
- 2020 SCC 9, [2019] S.C.J. No. 100, citing R. v. L.M., 2008 SCC 31, [2008] 2 S.C.R. 163, at paras. 36-37; R. v. Ipeelee, supra at paras. 78-79.
- R. v. Rawn, 2012 ONCA 487, [2012] O.J. No. 3096 at paras. 29 and 30.
- Mathur, supra
- 2016 ONCA 75
- [2016] O.J. No. 2350, affirmed: 2017 ONSC 1551
- 2012 ONSC 4151, affirmed: 2014 ONCA 694, leave to appeal to the SCC refused: [2015] SCCA No. 287
- 2007 ONCA 309, leave to appeal to the SCC refused: [2007] SCCA No. 378
- 2002 CanLII 53217 (ON CA), [2002] OJ No. 2684 (CA) affirmed: [2001] O.J. No. 3586 (SCJ)
- [1999] O.J. No. 5405 (Ont. Gen. Div.)
- 2019 ONCA 724
- 2011 ONCA 646
- 2015 ONCJ 681
- 2002 CanLII 10640 (ONCA)
- [2015] S.C.J. No. No. 64
- R. v. Johnston and Tremayne, 1970 CanLII 281 (ON CA), [1970] 2 O.R. 780, [1970] 4 C.C.C. 64, [1970] O.J. No. 1489 (C.A.) at para. 9; R. v. de Haan, [1967] 3 All E.R. 618.
- For example, in R. v. Finch, 2001 ABCA 223, the offender evaded approximately $300,000 which was reduced on appeal to a 12 month CSO.
- For example, see R. v. Amery, [2005] A.J. No. 1947 (C.A.)
- See also R. v. Wilm, supra at para. 18 per Kenkel J. who came to the same conclusion
- R. v. Houle, 2008 ONCA 287, [2008] O.J. No. 1412 (C.A.); R. v. Gummer (Ont. C.A.), 1983 CanLII 5286 (ON CA), [1983] O.J. No. 181 at para. 13.
- R. v. Jewell (1995), 1995 CanLII 1897 (ON CA), 100 C.C.C. (3d) 270, at p. 279 (Ont. C.A.) and R. v. Ahmed, 2017 ONCA 76, 346 C.C.C. (3d) 504.
- 2020 ONCA 33
- 1996 CanLII 230 (SCC), [1996] 1 S.C.R. 500, at p. 531
- 2016 ONCA 675, 133 O.R. (3d) 575 (C.A.), at para. 51
- R. v. Hamilton (2004), 2004 CanLII 5549 (ON CA), 72 O.R. (3d) 1, at para. 96
- Summers, supra note 2.
- 2016 ONCA 754
- 2020 ONCA 791
- 2020 ONSC 1611 at paras. 7-8
- For clarity, the court’s intention was to accept the defence submission and credit overall PSC as the equivalent of 7 months. The parties agreed on the calculations which involved crediting 42 days without using a formula, along with the remaining time as Summers credit arrived at a total of 210 days.
- 2020 O.J. No. 4335
- Canlas, supra at paras. 86 (quoting Topp, supra)
- 2007 BCPC 486 (leave refused, [2011] S.C.C.A. No. 191). In this case, the total amount evaded was $253,089. A jail term of 18 months was imposed with a 75% fine.
- Mahmood, supra at para. 24. The offender was given two years to pay the fines on appeal.
- The court reviewed the fine provisions of the sentence with Mr. Wallen, inviting comments and questions, of which there were none except who the fine was payable to.