DATE: 20040830

DOCKET: C38037-C38044

COURT OF APPEAL FOR ONTARIO

DOHERTY, GOUDGE JJ.A. and CAVARZAN J. (AD HOC)

B E T W E E N:

HER MAJESTY THE QUEEN

Marie Comiskey and

Chris De Sa

Respondent on Cross-Appeal (C38037)/

Appellant (C38044)

for the appellant

• and -

Douglas Christie

JACK KLUNDERT

for the respondent

Appellant (C38087)/

Respondent on Cross-Appeal (C38044)

Heard: February 18, 2004

On appeal from the judgment of Justice S. Rogin of the Superior Court of Justice, sitting with a jury, dated March 14, 2002.

DOHERTY J.A.:

I

Overview

[1] Dr. Klundert, an optometrist, carried on business for many years in Windsor, Ontario. Prior to 1993, with the help of an accounting service, he prepared and filed his tax returns as required under the Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1 (the “Act”). By 1993, however, Dr. Klundert had formed the opinion that the federal government did not have the legislative power to impose or collect income tax. He stopped completing his returns and paying taxes owed under the Act.

[2] Not surprisingly, Dr. Klundert’s position brought him into conflict with the Canada Customs Revenue Agency (the “CCRA”). Eventually, Dr. Klundert was charged with making a false statement in his 1993 tax return contrary to s. 239(1)(a) of the Act, and tax evasion between December 31, 1992 and June 13, 1998, contrary to s. 239(1)(d) of the Act. The Crown proceeded by indictment and Dr. Klundert elected trial by jury.

[3] Dr. Klundert acknowledged that he did not report his income or pay the taxes owing under the Act during the relevant years. He contended that his refusal to pay the taxes did not constitute an evasion but was instead an honest protest against what he believed to be unlawful governmental action.

[4] The jury convicted Dr. Klundert of making a false statement (count 1) and acquitted him on tax evasion (count 2). On count 1, the trial judge imposed a fine of $80,541.00 and placed Dr. Klundert on probation for two years.

[5] Dr. Klundert appeals his conviction and sentence on count 1. The Crown appeals the acquittal on count 2.

[6] I would allow the Crown’s appeal from the acquittal on count 2. The trial judge erred in law in instructing the jury that an honest belief that the Act was beyond the legislative power of the federal government was relevant to culpability on a charge of tax evasion. I would also allow Dr. Klundert’s appeal from his conviction on count 1. The verdicts returned by the jury were, in the light of the instructions given by the trial judge, irreconcilably inconsistent. Since there must be a new trial on count 2 and the two charges are closely interrelated, I think it best to order a new trial on count 1 as well.

II

Facts

[7] Many of the relevant facts were agreed upon at trial. It was acknowledged that Dr. Klundert had substantial income in the years 1993 to 1998, that he owed tax under the Act, that he chose not to declare any of that income in his tax returns and that he did not pay his income taxes.

[8] Dr. Klundert partly completely his 1993 return. He completed the personal information component (step one) and the goods and services tax credit application (step two). He left the calculation of total income, the calculation of taxable income, and the calculation of total non-refundable tax credits, blank (steps three, four and five). Dr. Klundert left step six, the calculation of tax owing or refund claimed, blank, except he showed a “0” balance owing. He signed and dated (April 27, 1994) the return immediately below the printed words:

I certify that the information given on this return and in any document attached is correct, complete and fully discloses my income from all sources.

[9] Above his signature, Dr. Klundert wrote:

Collecting income tax by the government is against the Constitution of Canada!

[10] Dr. Klundert’s 1994 tax return was basically blank, except for some personal information such as Dr. Klundert’s address and social insurance number. The return was not signed. In two places on the return, Dr. Klundert wrote:

It is against the Constitution of Canada to charge federal income tax!

[11] Dr. Klundert does not appear to have filed returns for 1995 and 1996, although he testified that he believed those returns were submitted along with many others by a tax protest organization known as Shareholders of Canada. Dr. Klundert acknowledged that his 1995 and 1996 returns, like his 1993 and 1994 returns, did not disclose any of his income, did not show any tax owing and raised the same objection to paying income tax as was raised in 1993 and 1994.

[12] Dr. Klundert’s 1997 tax return also did not disclose any income or declare any tax owing. He filled in virtually every blank in the form with the entry “N/A” meaning “not applicable”. The form was also stamped with the words:

Without prejudice, ‘natural person’ all rights reserved: B.N.A. s. 94 Charter of Rights and Freedoms s. 52(1) and s. 26.

[13] Dr. Klundert did not sign the return but did write on the form indicating that the federal government had no constitutional power to impose a “direct” tax. He also claimed a refund of “all tax ever paid plus interest”.

[14] It was agreed that Dr. Klundert’s total unreported income for the years 1993 through 1997 was $1,474,389.00. The federal tax owing on that amount was $348,231.00.

[15] Dr. Klundert testified that he knew that the CCRA would take steps to try to recover the tax owing under the Act and that it had broad powers to assist in that endeavour. He anticipated that the CCRA would pursue him aggressively. Dr. Klundert told OHIP, one of the main sources of his income, to forward his payments to an account in his wife’s name in an effort to keep the funds out of the hands of the CCRA. He set up Canadian off-shore bank accounts in the Cayman Islands and Switzerland, for the same purpose.

[16] Dr. Klundert did not challenge the constitutionality of the Act at trial. He did, however, testify that by 1993 he had come to believe that the Constitution did not give the federal government the power to impose direct taxes and that the Act was unconstitutional. He maintained that belief at the time of trial, but said he could not afford the costs of a constitutional challenge. Dr. Klundert also testified that he believed he could not receive an impartial hearing on the issue before a judge who was paid by the federal government.

[17] It is unnecessary to detail the basis upon which Dr. Klundert came to his opinion as to the constitutionality of the Act. I accept for the purposes of the appeal that it was open to the jury to find that between 1993 and 1997 Dr. Klundert honestly believed that the Act was beyond the legislative power of the federal government.

III

The Crown Appeal

[18] The Crown contends that the trial judge misdirected the jury as to the essential elements of the crime of tax evasion. The Crown argues that the trial judge erred in telling the jury that:

• tax evasion required proof of an intention to deceive and proof of an artifice scheme or strategy; and

• a refusal to pay tax in protest based on an honest belief that the federal government did not have the power to impose the tax negated an intention to evade the payment of taxes and entitled Dr. Klundert to an acquittal.

[19] Section 239(1)(d) of the Act provides:

Every person who has …

(d) wilfully, in any manner, evaded or attempted to evade compliance with this Act or payment of taxes imposed by this Act …

is guilty of an offence…

[20] As particularized in count 2 of the indictment, the Crown alleged that Dr. Klundert had wilfully evaded or attempted to evade payment of taxes owing under the Act between 1993 and 1998.

[21] In his initial charge, the trial judge instructed the jury:

In order to convict him of count 2 [tax evasion] you have to come to a conclusion beyond a reasonable doubt that he did so wilfully and wilfully in this case, among other things, means with a specific intention to evade payment of taxes as part of a craft, an artifice or a strategy. Well, we all know what craft, artifice, strategy is [emphasis added].

[22] The trial judge told the jury that an intention to protest the payment of taxes was inconsistent with an intention to evade the payment of taxes:

[F]ailure to either file tax returns or filing incomplete tax returns and not paying taxes for a number of years in succession might suggest to you an attempt to evade, but if it does suggest to you an attempt to evade you may nevertheless not find him guilty on this count [count 2] unless you conclude beyond a reasonable doubt that that was the purpose that he did it for, to evade taxes as opposed to protest. You do not have to choose one or the other. You must, in order to convict, be sure that the Crown has satisfied you beyond a reasonable doubt of his guilt, including his specific intent [emphasis added].

[23] In summarizing Dr. Klundert’s “protestor” defence, the trial judge again drew a distinction between an intention to evade income tax and an intention to protest the legality of the Act. He said:

Mr. Christie, as I have said, submits to you that there must be a specific intent to deceive as opposed to a specific intent to protest. I have already discussed that with you. He is absolutely right in that, that if you find beyond a reasonable doubt that his intent was to deceive then you can convict. Mr. Christie says if he had an honest intention to protest that is not knowingly making a false statement since it is only an opinion and he is entitled to be wrong and mistaken as long as he is honest in that belief. That is probably correct, if you do not take into account recklessness or wilful blindness [emphasis added].

We give scope to people who protest …

[24] After several hours of deliberation, the jury asked:

Can defence use tax protester as a defence?

[25] The trial judge responded:

[B]eing a tax protester in and of itself is not a defence to either charge. However, if you are not satisfied beyond a reasonable doubt that the accused had the specific intention to evade income tax and he only did what he did to protest and not to evade or have a reasonable doubt on that issue then the Crown has not satisfied you beyond a reasonable doubt of his guilt as far as the mental element required [emphasis added].

[26] About two and a half hours later, the jury returned with three more questions about the mental element of the crime of tax evasion. The trial judge responded:

(1) Please explain the mental elements about the evasion of taxes.

The word evade implies something of an underhanded or deceitful nature. In other words, a deliberate attempt to escape the requirement of paying tax on income that had been earned.

(2) Please explain the relevance of being a tax protester.

There is no relevance as long as his belief is honest. You can’t just get up and say I’m a tax protester, therefore I’m innocent. What the Crown has to prove is that his tax protest is a deceitful method of evading taxes and the Crown has to prove that beyond a reasonable doubt. You have heard Dr. Klundert. He said, I didn’t intend to evade taxes, I just intended to protest.

(3) If we find that he was honest in his beliefs, do we therefore find him innocent?

Well remember what I told you, if you believe what he said, if you believe his evidence, the Crown has not proved that he had the specific intent to evade taxes beyond a reasonable doubt. If you feel that he is honest, or if you have a reasonable doubt about it, in other words, I think he is honest, then the Crown has not proved that he had the intention to evade taxes beyond a reasonable doubt [emphasis added].

[27] After a brief discussion with counsel, the jury was recalled. The trial judge told the jury that he misspoke in his recharge when he was explaining the relevance of being a tax protester. The trial judge corrected his previous instruction in these terms:

As to the answer to question two, please explain the relevance of being a tax protester in this case. You can be a tax protester in this case. You can be a tax protester but if the Crown proves beyond a reasonable doubt that your protest was for the purpose of evading taxes then you may find him guilty. If he is reckless about it and is honest then you would have a reasonable doubt that he did it for the purpose of evading tax. If he is dishonest about it then you may find that the Crown has proved his intent to evade tax beyond a reasonable doubt.

[28] The net effect of the trial judge’s instructions was to tell the jury that a person who refused to pay his or her taxes as a protest could not be convicted of evading the payment of taxes if that protest was made “honestly”. Applied to Dr. Klundert’s evidence the instruction became a direction that a refusal to comply with the Act based on an honest belief that the Act was beyond the powers of the federal government was a defence to a charge of wilfully evading taxes. The jury was told that Dr. Klundert should be acquitted of that charge unless the Crown could prove beyond a reasonable doubt that he did not have that honest belief.

IV

Analysis

[29] Counsel for Dr. Klundert does not challenge the constitutionality of the Act. The power of the federal government to impose and collect an income tax cannot be in any doubt.[^1]

[30] The Crown appeal raises two questions:

• Can a person be said to evade the payment of income tax when that person makes no attempt to deceive or trick the tax collector, but instead makes a straightforward refusal to pay?

• Is an honest belief that the Act is unconstitutional relevant in determining whether an accused has the requisite culpable mental state?

[31] Both questions require analysis of the constituent elements of the offence of tax evasion.

[32] The Act contains several enforcement provisions ranging from those imposing civil penalties (ss. 162-163), to regulatory offences (s. 238), to criminal offences. The offences created by s. 239(1), including tax evasion, are true criminal offences: see R. v. Knox Contracting Ltd., 1990 71 (SCC), [1990] 2 S.C.R. 338 at 346-348. Tax evasion is a species of fraud and is the statutory offspring of the common law offence of cheating the public revenue: see R. v. Cardoso (1999), 1999 13250 (QC CA), 139 C.C.C. (3d) 430 at 436-437 (Que. C.A.), leave to appeal refused, [1999] S.C.C.A. No. 467. A determination of the constituent elements of the offence of tax evasion must be informed by the criminal law nature of that offence. For analytical purposes, the constituent elements of a crime are divided into the elements which describe the prohibited conduct (actus reus) and those which describe the requisite fault (mens rea). For most true crimes, the fault component consists of a culpable state of mind which must accompany the prohibited conduct and relate to some if not all of the elements of the prohibited conduct: see R. v. Sault Ste. Marie (1978), 1978 11 (SCC), 40 C.C.C. (2d) 353 at 362 (S.C.C.).

[33] An analysis of the constituent elements of an offence must begin with the statutory language used to create the offence. For convenience, I will repeat that language:

Every person who has …

(d) wilfully, in any manner, evaded or attempted to evade compliance with this Act or payment of taxes imposed by this Act …

is guilty of an offence …

(i) The Actus Reus

[34] The components of the conduct requirement of the crime of tax evasion are captured by the words:

… in any manner evaded or attempted to evade … payment of taxes imposed by the Act.

[35] The offence requires proof of an act or course of conduct which has the effect of evading or attempting to evade payment of taxes actually owed under the Act. In normal parlance, the word evade can refer to the act of deliberately avoiding something, or it can carry a sinister connotation meaning an underhanded or devious way of avoiding something.

[36] Some courts, relying on the criminal nature of the offence of tax evasion and the need to distinguish between legitimate tax planning and the crime of tax evasion, have opted for the more sinister definition of evasion: see Quebec (Deputy Minister of Revenue) v. Service Acier Inoxydable Couture Inc. (1999), 1999 13436 (QC CA), 141 C.C.C. (3d) 573 at 575 (Que. C.A.). For example, in R. v. Baker (1973), 1973 1158 (NS SC), 16 C.C.C. (2d) 126 at 131 (N.S. Cty. Ct.), the court said:

[W]here the evasion referred to is in a penal statute or is between citizen and Government, it is intended to include something like underhanded dealing, or to use her words [the trial judge] it is intended to include some “element of artifice, craft or strategy”.

[37] Support for the more benign definition of evasion is found in R. v. Paveley (1976), 1976 969 (SK CA), 30 C.C.C. (2d) 483 (Sask. C.A.). In Paveley the taxpayer had not filed tax returns for a number of years. He was acquitted partly because the trial judge concluded that the mere failure to file returns did not constitute a scheme or artifice and did not, therefore, amount to evasion under the Act.

[38] The appeal from the acquittal was unanimously dismissed, however, the court took varying views of the meaning of evasion under the Act. Woods J.A., at p. 486, supported the position taken by the trial judge. Brownridge J.A., at pp. 487-488, held that evasion did not necessarily require a craft, artifice or stratagem, but did require a wilful evasion. In his view, if a taxpayer refused to file tax returns with the intention of evading tax, the taxpayer was guilty of tax evasion regardless of whether his conduct amounted to an artifice or scheme.

[39] Bayda J.A. provided a helpful analysis of the elements of the offence of tax evasion. He first examined the meaning of the word “wilful” in arriving at the mens rea requirement. I will return to that analysis later. He then turned to the conduct component. He said at pp. 494-495:

I am not prepared to go so far as to say that only in those cases where there is an artifice or scheme can there be a conviction for evasion under this subsection. The presence of an artifice or scheme would tend to make it easier to draw the necessary inference of intent to evade payment of taxes, but in my respectful view it cannot be said that the existence of an artifice or scheme is a necessary element of the offence created by this subsection. Where the necessary intent is present, then the “manner” in which the intent is carried out is not important. The plain words of the subsection specify it may be done “in any manner” [emphasis added].

[40] I agree with the above interpretation of Bayda J.A. Section 239(1)(d), unlike other parts of s. 239, is not limited to specified conduct, but speaks in broad terms: see R. v. Kidd (1974), 1974 469 (ON SC), 6 O.R. (2d) 769 at 772 (H.C.). The conduct component of the crime of evading tax contrary to s. 239(1)(d) is made out if the Crown proves that the accused voluntarily[^2] performed an act or engaged in a course of conduct that avoided or attempted to avoid payment of tax owing under the Act.

[41] The authorities that require that the evasion be deceitful or underhanded confuse the conduct component of the crime of tax evasion with the fault component of that crime. Fault rests in the state of mind that accompanies the doing of the prohibited conduct. It is the culpable state of mind that distinguishes the legitimate tax planner from the dishonest tax evader. Both may engage in the same course of conduct that can aptly be described as a deliberate attempt to avoid payment of tax. The difference lies in their respective states of mind. Unlike the tax evader, the tax planner does not intend to avoid the payment of a tax that he or she knows is owed under the Act, but rather intends to avoid owing tax under the Act .

[42] The conduct component of the crime of tax evasion, as I would describe it, was not in issue in this case. Dr. Klundert did not declare his income or pay his income taxes owing under the Act for a number of years. He owed tax under the Act. The functioning of the Act depends on accurate self-assessment of tax owing through timely reporting of income and calculation of tax owing. Where tax is owed under the Act, a failure to report income and properly calculate the tax owing on that income has the inevitable effect of avoiding, at least for a time, the payment of tax required under the Act. As observed by the trial judge in the course of his instructions to the jury, Dr. Klundert’s liability turned on his state of mind.

(ii) The Mens Rea

[43] The fault component of the crime of tax evasion as set out in s. 239(1)(d) is found in the word “wilfully”. In R. v. Docherty (1989), 1989 45 (SCC), 51 C.C.C. (3rd) 1 and 7 (S.C.C.), the Court described the word “wilfully” when used in a crime creating statutory provision as,

perhaps the archetypal word to denote a mens rea requirement. It stresses intention in relation to the achievement of a purpose. It can be contrasted with lesser forms of guilty knowledge such as “negligently” or even “recklessly”. In short, the use of the word “wilfully” denotes a legislative concern for a relatively high level of mens rea … [emphasis added].

[44] While the word “wilfully” refers to a culpable mental state, the exact meaning of the word will depend on the context in which it is used: see R. v. Buzzanga and Durocher (1979), 1979 1927 (ON CA), 49 C.C.C. (2d) 369 at 379-85 (Ont. C.A.); R. v. Keegstra (1990), 1990 24 (SCC), 61 C.C.C. (3d) 1, per Dickson J. at p. 57-58, McLachlin J. at 118 (S.C.C.); Ratzlaf v. U.S. 114 S. Ct. 655 at 659 (1994).

[45] In Docherty, supra, the court indicated that wilfully “stresses intention in relation to the achievement of a purpose.” Bayda J.A., in Paveley at p. 492, took a similar approach to the meaning of the word wilfully in s. 239(1)(d):

The word “wilfully” as used in the subsection under consideration, carries a distinct connotation of deliberate purpose and ulterior motive. To ascribe to the word a meaning which negates or overlooks that purpose or motive is to dilute the meaning of the word to a point where its use is rendered completely unnecessary. … It follows then that for a conviction to take place under s. 239(1)(d) of the Act, there must be proof of the actus reus, the “manner” to use the word of the statute, in which the alleged offence was committed, and, also proof of a specific intent, that is to say, proof that the act which constitutes the “manner” was done with a particular purpose – the purpose of evading the payment of tax [emphasis added].[^3]

[46] Although I would avoid the use of the phrase “ulterior motive”, I agree with Bayda J.A. that the word “wilfully” in s. 239(1)(d) signals that culpability will follow only where the accused engages in conduct intended to avoid the payment of tax owing under the Act. More precisely, I think the fault component in s. 239(1)(d) is twofold. First, the accused must know that tax is owing under the Act and second, the accused must intend to avoid or intend to attempt to avoid payment of that tax. An accused intends to avoid, or intends to attempt to avoid, payment of taxes owing under the Act where that is his purpose, or where he knows that his course of conduct is virtually certain to result in the avoiding of tax owing under the Act: see Buzzanga, supra, at 383-385.

[47] In most cases of tax evasion, the trial judge will adequately describe the elements of the offence by instructing the jury that they must be satisfied beyond a reasonable doubt that the accused:

• did something or engaged in a course of conduct that avoided or attempted to avoid the payment of tax imposed by the Act;

• knew there was tax imposed by the Act;[^4] and

• engaged in the conduct for the purpose of avoiding or attempting to avoid payment of tax imposed by the Act or knowing that avoiding payment of tax imposed by the Act was a virtual certain consequence of his actions.

[48] The requirements of knowledge and purpose which together make up the fault component of the offence are closely related. A person who does not know that there is a tax imposed by the Act cannot do something for the purpose of evading payment of that tax. That same person may, however, know there is a tax imposed under the Act, and do something that has the effect of evading the payment of that tax without necessary having done so for the purpose of evading the payment of the tax.

[49] The requisite knowledge or purpose may be negated by a mistaken belief. A tax payer may through arithmetic error misstate the amount of tax owing, or she may be unaware of the statutory definition of income, or she may have come to a mistaken conclusion as to the application of that definition to her affairs. The first of these errors is factual, the second, legal, and the third is a mixture of both.

[50] Factual errors can negate the fault requirement of an offence requiring knowledge and purpose. Purely legal errors raise a more difficult problem. A mistake of law does not excuse the commission of a criminal offence: Criminal Code, R.S.C. 1985, c. C-46, s. 19. The fault element of a crime may, however, be defined so as to make various kinds of errors, including purely legal errors relevant to the existence of the required culpable mental state: A. Mewett and M. Manning, Criminal Law, 3rd ed. (Toronto: Butterworths, 1994) at pp. 389-391; H. Stuart, “Mistake of Law Under the Charter”, (1998) 40 Crim. L.Q. 476 at 486-494. For example, where an offence requires that the Crown prove that an accused acted without “colour of right”. Mistakes as to the applicable civil law can provide the basis for a “colour of right”: R. v. Demarco (1973), 1973 1542 (ON CA), 13 C.C.C. (2d) 369 at 372 (Ont. C.A.). In those cases the mistake of law is not advanced as an excuse for committing the crime but rather negates the existence of the required culpable state of mind: R. v. Howson, 1966 285 (ON CA), [1966] 3 C.C.C. 348 at 356 (Ont. C.A.). Similarly, where an offence requires proof that the accused intended to violate a court order, a mistake as to the legal effect of that court order can negate the required culpable state of mind: R. v. Ilczyszyn (1988), 1988 7063 (ON CA), 45 C.C.C. (3d) 91 at 95-96 (Ont. C.A.).

[51] In Docherty, supra, the accused was charged with wilfully breaching the term of his probation that required him to keep the peace and be of good behaviour. The charge arose out of his conviction on a charge of being in care and control of a motor vehicle while impaired. The accused, while impaired, was sitting behind the wheel of an automobile. He had no intention of driving the automobile. He testified that he thought the automobile was not in operating condition and for that reason, he believed that he was doing nothing wrong sitting behind the steering wheel. Under the relevant provisions of the Criminal Code, his conduct amounted to the crime of “care and control”.

[52] Wilson J., in accepting that the accused’s honest belief that he was not committing a criminal offence was relevant to the fault component of the offence said at page 13:

[P]roof of the mens rea would therefore require that the respondent intended to commit the criminal offence under s. 236 [care and control] when he sat behind the wheel in an intoxicated condition. …

In my view, where the actus reus of s. 666(1) [breach of probation] consist of the commission of a criminal offence, an honest belief on the part of the accused that he is not committing that offence means that the accused cannot be said to have willfully failed or refuse to comply with the probation order.

[53] As I read Docherty, the court held that the accused’s conduct breached the term of his probation requiring him to keep the peace only because it was a criminal offence, otherwise there was nothing in the conduct which amounted to a failure to keep the peace. Consequently, in these circumstances, he could only be said to have wilfully violated his probation order if he knew his conduct amounted to a criminal offence.

[54] As the above cases demonstrate, ignorance, or mistake of law can negate the requisite culpable state of mind. Nothing said above should, however, be taken as suggesting that ignorance, or mistake of law will routinely negative the fault element in criminal offences. Most crimes do not require knowledge of the illegality, or certainly the criminality, of the conduct in issue to establish the requisite fault: see R. v. Molis, 1980 40 (SCC), [1980] 2 S.C.R. 355; R. v. Théroux (1993), 1993 134 (SCC), 79 C.C.C. (3d) 449 at 459 (S.C.C.). The extent to which any mistake, including a legal mistake, can negate the fault requirement turns on an interpretation of the language of the statute in the legislative context in which it is used.

[55] Section 239(1)(d) is part of an Act which is necessarily and notoriously complex. It is subject to ongoing revision. No lay person is expected to know all the complexities of the tax laws. It is accepted that people will act on the advice of professionals and that the advice will often turn on the meanings to be given to provisions in the Act that are open to various interpretations. Furthermore, it is accepted that one may legitimately structure one’s affairs so as to minimize tax liability. Considered in this legislative context, I have no difficulty in holding that a mistake or ignorance as to one’s liability to pay tax under the Act may negate the fault requirement in the provision, regardless of whether it is a factual mistake, a legal mistake, or a combination of both.

[56] Crown counsel accepts that an error in law may lead to a reasonable doubt as to whether an individual wilfully evaded tax. That concession is consistent with authority from this court, R. v. Sihler (1976), 1976 1448 (ON CA), 31 C.C.C. (2d) 73 at 79 (Ont. C.A.), and authority from other jurisdictions: see Donnelly v. Commissioner of Inland Revenue, [1960] N.Z.L.R. 469 at 472 (S.C.); Hefler, supra.

[57] A strong line of American authority is also consistent with the concession made by the Crown. That authority defines “wilfully” in the provision creating the crime of tax evasion as meaning: “a voluntary intentional violation of a known legal duty”: U.S. v. Bishop, 93 S. Ct. 2008 at 2017 (1973); U.S. v. Pomponio, 97 S. Ct. 22 at 23 (1976); U.S. v. Cheek, 111 S. Ct. 604 at 610-611 (1991). In Cheek, White J., at pp. 610-611, described the relevance of legal error to the required mental state in this way:

But carrying this burden requires negating a defendant’s claim of ignorance of the law or a claim that because of a misunderstanding of the law he had a good faith belief that he was not violating any of the provisions of the tax laws. This is so because one cannot be aware that the law imposes a duty upon him and yet be ignorant of it, misunderstand the law, or believe that the duty does not exist. In the end, the issue is whether based on all the evidence, the Government has proved that the defendant was aware of the duty at issue, which cannot be true if the jury credits a good-faith misunderstanding and belief submission, whether or not the claimed belief or misunderstanding is objectively reasonable [emphasis added].

[58] Can Dr. Klundert’s belief that the Act is beyond the powers of the federal government and, therefore invalid, constitute a mistake of law negating the fault component of the crime of tax evasion? The answer must be “no”. Section 239(1)(d) refers to the “payment of tax imposed by the Act”. Dr. Klundert knew full well that he owed tax imposed by the Act. His mistake did not go to knowledge of his obligation to pay taxes owing under the Act but rather to the government’s right to impose that obligation on him. He did not assert that he was doing his best to comply with the law but, through ignorance or mistake, failed to do so. To the contrary, he acknowledged the obligation to pay under the Act and made a considered decision to refuse to pay because of a belief that the law requiring him to pay was invalid.

[59] A person’s mistaken belief that a statute is invalid or is otherwise not applicable to that person’s conduct is a mistake of law. It is, however, a mistake of law that is irrelevant to the existence of the fault requirement in s. 229(1)(d). Nor can that kind of mistake of law provide a freestanding excuse for the commission of a crime: Criminal Code, s. 19; R. v. Jones (1991), 1991 31 (SCC), 66 C.C.C. (3d) 512 at 516-517 (S.C.C.); R. v. Watson (1999), 1999 13906 (NL CA), 137 C.C.C. (3d) 422 at 431-33 (Nfld. C.A.).

[60] There are solid policy reasons for drawing a distinction between an accused who mistakenly believes that he or she is complying with the Act and an accused who knowingly violates the Act, but mistakenly believes that the Act is invalid. The former is trying to comply with the law. Particularly where the law is complex, a mistake concerning the applicable law can logically negate the blameworthiness of the person’s conduct. The latter is not trying to obey the law, but is instead deciding which laws should be obeyed. An acquittal based on a mistaken belief as to the validity of a law would undermine the rule of law.

[61] There can be no suggestion that a person who honestly believes that the Act is invalid has no option but to evade the payment of taxes and then defend a charge of tax evasion on the basis of a belief that the Act is invalid. As Dr. Klundert acknowledged, there were mechanisms in place whereby he could have challenged the validity of the Act without evading payment of taxes owed under the Act. He chose not to pursue any of those avenues. Indeed, even in this case, he did not defend the charge, as he clearly could have, by asking the judge to declare s. 239(1)(d) invalid.

[62] My conclusion that Dr. Klundert’s belief that the Act was invalid is irrelevant to his liability under s. 239(1)(d) is consistent with the conclusion in Cheek, supra, a case involving a tax protestor who refused to pay his income tax claiming that the Act was unconstitutional. In holding that the accused’s belief as to the validity of the Act was irrelevant on the charge of wilfully evading income tax, White J. said, at 612-613:

Claims that some of the provisions of the tax code are unconstitutional are submissions of a different order. They do not arise from innocent mistakes caused by the complexity of the Internal Revenue Code. Rather, they reveal full knowledge of the provisions at issue and a studied conclusion, however wrong, that those provisions are invalid and unenforceable. …

We do not believe that Congress contemplated that such a taxpayer, without risking criminal prosecution, could ignore the duties imposed upon him by the Internal Revenue Code and refuse to utilize the mechanisms provided by Congress to present his claims of invalidity to the courts and to abide by their decisions. …

We thus hold that in a case like this, a defendant’s views about the validity of the tax statutes are irrelevant to the issue of willfulness and need not be heard by the jury, and, if they are, an instruction to disregard them would be proper. For this purpose, it makes no difference whether the claims of invalidity are frivolous or have substance [emphasis added].

[63] Dr. Klundert’s evidence as to his beliefs concerning the validity of the Act were irrelevant to his liability under s. 239(1)(d). The jury should not have heard that evidence. Having heard it, the trial judge should have told the jury that it was irrelevant to Dr. Klundert’s culpability.

[64] It was also submitted that apart entirely from a defence based upon an honest belief as to the invalidity of the Act, Dr. Klundert’s evidence that he did not declare his income, and refused to pay tax owing under the Act in protest, was relevant to whether he acted for the purpose of evading tax owing under the Act. As I understand this submission, a straightforward refusal to pay tax owing under the Act, as a protest, is inconsistent with a finding that the refusal to pay was made for the purpose of evading tax owing under the Act. This submission confuses motive and purpose. On Dr. Klundert’s own evidence, he made a considered decision not to pay tax that he knew was owing under the Act. In furtherance of that decision, he did not report income, did not calculate the tax owing under the Act and did not pay the tax. He also took steps to put his assets beyond the reach of the CCRA. On his own evidence, he clearly intended not to pay tax that he knew was owing under the Act. The fact that he made no attempt to conceal this intention or purpose made him a somewhat unusual tax evader, but did not detract from his own evidence as to his purpose. His evidence that he acted in protest is evidence as to his motive; it is his explanation for why he decided to avoid paying taxes that he knew he owed under the Act. Dr. Klundert’s motive, that is to protest the validity of the Act, was, in fact, cogent evidence that he had the requisite culpable state of mind. He knew full well his obligations under the Act and set out to avoid those obligations to protest the government’s power to impose those obligations.

V

The Appropriate Order

[65] The instructions to the jury reveal error in law. That error went to the heart of the only issue in dispute on the tax evasion charge. The acquittal cannot stand.

[66] The acquittal was entered by a court composed of a judge and jury. Having concluded that the Crown appeal must be allowed, this court’s only option is to order a new trial: Criminal Code, s. 686(4)(b)(ii).

[67] At the new trial, Dr. Klundert will not be allowed to advance the “protestor” defence as I have held it is not a defence in law to the charge. That was the only defence advanced at his first trial. On the retrial, however, Dr. Klundert can advance any defence that is legally available to him.

VI

Dr. Klundert’s Appeal

[68] Dr. Klundert was convicted of making a false statement in his 1993 tax return contrary to s. 239(1)(a) of the Criminal Code. The relevant part of that section reads:

Every person who has … (a) made … false or deceptive statements in a return … is guilty of an offence …

[69] Where the Crown proceeds by indictment, s. 239(2) provides that the accused is subject to a fine calculated by reference to the amount of tax evaded and imprisonment for a term not exceeding five years.

[70] I have described the contents of Dr. Klundert’s 1993 tax return above (paras. 8, 9). He did not declare his income, showed a “0” balance owing, and signed the return.

[71] The trial judge, over the objection of Crown counsel at trial, instructed the jury that they could convict on count one only if the Crown proved that Dr. Klundert intended to evade the payment of tax by making a false statement. He told the jury:

You must find in order to convict him of count one, that he did it specifically for the purpose of evading income tax.

[72] On the trial judge’s instructions, the same intention to evade the payment of tax was required to convict Dr. Klundert on counts one and two. The “protestor” defence was equally open on both, in the light of the trial judge’s instructions. In fact, the trial judge told the jury that:

The elements of count two are literally the same as the elements of count one.

[73] He also told the jury:

If you believe Dr. Klundert’s evidence that he only did this to protest with no intention to evade then you must acquit him on both counts. Even if you don’t believe Dr. Klundert’s evidence, if it might reasonably be true, if it leaves you with a reasonable doubt about his guilt or about an essential element of the offence, either offence, you must find him not guilty.

[74] I confess considerable difficulty understanding why an intention to evade the payment of tax is an essential element of a charge under s. 239(1)(a): see W.I. Innes, Tax Evasion, supra, at pp. 1-13, 4-45 to 4-51; Hefler, supra, at p. 288.[^5] On appeal, the Crown did not take issue with the correctness of this instruction. In any event, for the purposes of considering Dr. Klundert’s argument that the verdicts are irreconcilably inconsistent, the correctness of the instruction is not important. I need not determine whether the instruction was correct.

[75] Inconsistent verdicts cannot stand where the appellant demonstrates that the verdicts are so at odds that no reasonable jury who understood the evidence and followed the legal instructions could have arrived at those verdicts: R. v. McShannock (1980), 1980 2973 (ON CA), 55 C.C.C. (2d) 53 at 55-56 (Ont. C.A.); R. v. Varga (2001), 2001 8610 (ON CA), 159 C.C.C. (3d) 502 at 526-27 (Ont. C.A.).

[76] The appellant has met that onus here. The “protestor” defence advanced by Dr. Klundert was exactly the same on count one and count two. It was the only defence advanced on count two. The jury’s acquittal on that count indicates that the “protestor” defence gave rise at least to a reasonable doubt as to Dr. Klundert’s guilt. The conviction on count one, however, indicates that the jury rejected exactly the same defence on count one. The verdicts smack of a compromise, which while perhaps understandable, is legally unacceptable.

[77] It is arguable that despite the irreconcilable inconsistencies in the verdict, the conviction on count one should stand. On this argument, the “protestor” defence should not have been left on either count and the inconsistency flowing from the uneven application of that defence to the two counts results in no substantial wrong or miscarriage of justice. This argument is not without merit, however, since there must be a new trial on count two, and the charges are closely interrelated, I think the administration of justice is best served by quashing the conviction on count one and ordering a new trial on that count, as well.

[78] Although it is not necessary for the purposes of determining the outcome of the appeal, I will address one other argument made on behalf of Dr. Klundert as it may arise if there is a new trial. Counsel argued that the trial judge should have put the defence described in s. 39(1) of the Criminal Code, to the jury. That provision provides:

Everyone who is in peaceable possession of personal property under a claim of right, and everyone acting under his authority, is protected from criminal responsibility for defending that possession, even against a person entitled by law to possession of it, if he uses no more force than is necessary [emphasis added].

[79] Section 39(1) by its terms plainly speaks to the use of force to protect property by a person in peaceable possession of personal property under a claim of right. It has no application here. To the extent that a person charged under s. 239(1) can advance a “claim of right” defence, that claim is a denial of the requisite culpable state of mind. I have addressed the scope of the fault requirement in my reasons dealing with the Crown’s appeal.

VII

Conclusion

[80] I would allow the Crown’s appeal from the acquittal on count two, set aside the acquittal and order a new trial. I would allow Dr. Klundert’s appeal from the conviction on count one, set aside the conviction and order a new trial.

RELEASED: “DD” “AUG. 30 2004”

“Doherty J.A.”

“I agree S.T. Goudge J.A.”

“I agree Cavarzan J. per Doherty J.A.”

[^1]: Section 91(3) of the Constitution Act, 1867, assigns to the federal government the power of “the raising of money by any mode or system of taxation”. In Re Anti-Inflation Act 1976 16 (SCC), [1976] 2 S.C.R. 373 at 390, Chief Justice Laskin referred to the federal taxing power as “apparently limitless”. See also P. Hogg, Constitutional Law of Canada, 4th ed. (looseleaf) (Thomson Canada Ltd.: Toronto, 1997) at pp. 30-2; V. MacDonald, “Taxation Power in Canada” (1941) 19 C.B.R. 75 at 76-77.

[^2]: I use voluntary as meaning a conscious and willed act. See D. Stuart Canadian Criminal Law: A Treatise, 4th ed. (Carswell Toronto: 2001) at pp. 103-107.

[^3]: The interpretation of Bayda C.J. has gained support in other judicial and academic quarters: see R. v. de Wolf (1982), 1982 347 (BC CA), 67 C.C.C. (2d) 43 at 45, 48 (B.C.C.A.); R. v. Pongrantz, 1982 5175 (FCA), [1982] CTC 259 at 261(FCA); R. v. Hefler (1980), 1980 4371 (NS SC), 42 N.S. R. (2d) 276 at 288-290 (N. S. Ct. Cty.); W.I. Innis, Tax Evasion (Toronto: Carswell, 1995) at p. 4-10 to 4-15.

[^4]: Wilful blindness is the legal equivalent of knowledge: see R. v. Harding (2001), 2001 21272 (ON CA), 160 C.C.C. (3d) 225 at 240-243 (Ont. C..A.). Wilful blindness was not an issue in this case.

[^5]: The fact that an accused who files a false return is subject to a fine calculated by reference to the amount of tax evaded would not appear to make an intention to evade tax an element of the offence created by s. 239(1)(a). Even if there is no tax evaded, a person convicted under s. 239(1) would still be liable to imprisonment.