COURT FILE NO.: CR-20-90000045-OOAP
DATE: 20210705
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
HER MAJESTY THE QUEEN
– and –
MARIANI METAL FABRICATORS LTD. and VINCENT MARIANI
Appellants
Lisa Csele, for the Respondent
Mark J. Sandler and Wayne A. Cunningham, for the Appellants
HEARD: May 17, 2021
Justice s. nakatsuru
[1] A wedding is not a business expense for income tax purposes. This was the conclusion of the trial judge. She convicted Vincent Mariani and the company he owned, Mariani Metal Fabricators Ltd. (“MMFL”), of making a false statement and tax evasion under the Income Tax Act, R.S.C., 1985, c. 1 (5th Supp.) (“the ITA”) in relation to both personal and corporate income tax returns.
[2] Mr. Mariani and his company appeal the convictions. They argue several grounds of appeal. It is only necessary to deal with one.
[3] For the following reasons, the appeal is allowed.
A. FACTUAL BACKGROUND
[4] Most of this lengthy trial had to do with costs associated with the building of Mr. Mariani’s residence which was written off as a business expense. In extensive and thoughtful reasons, the trial judge acquitted the appellants of all counts relating to these building expenses. A second and more minor part of the trial had to do with costs associated with the wedding of Mr. Mariani’s son, Francesco Mariani, in Montreal. Francesco Mariani is also an employee of MMFL.
[5] MMFL is a closely held, family-run corporation that manufactures and sells custom industrial metal pieces. The company employed two bookkeepers and hired a certified accountant, Mr. Ivan Petricca, to oversee their work. Several employees were also members of the Mariani family.
[6] On June 4, 2011, Francesco Mariani got married at a hotel in Montreal, Quebec. Nearly 400 guests attended. Uncontested was the fact that MMFL paid and claimed tax deductions for a significant amount of the wedding costs as a business expense. MMFL paid thousands of dollars of invoices for the reception held at the Embassy Plaza, wedding-related bus transportation from Toronto to Montreal, and accommodations and breakfasts for wedding participants and guests. Francesco Mariani also paid a portion of the wedding expenses. No evidence was led as to exactly how much he paid.
[7] There was scant evidence from witnesses regarding exactly who attended the wedding. Mr. Petricca, the accountant, attended the wedding. He provided some evidence about whether business associates of MMFL attended. In examination-in-chief, he was asked whether business partners attended. Mr. Petricca testified that he did not know the guests at the wedding, but he was “led to believe that there were many business associates” in attendance. When asked who mentioned this to him, he answered: “…Vince Mariani had mentioned it and I believe Lloyd Mogul had also sort of conferred (sic) that.”Mr. Petricca couldn’t answer whether there were any meetings or discussions before or after the wedding about business because he drove there on his own and did not avail himself of the bus transportation to the wedding. In cross-examination, he reiterated that he knew the employees of MMFL who attended, but he didn’t know the suppliers. He was just told that there were a bunch of suppliers there. Mr. Petricca did not see the invite list.
[8] Mr. Christian LeBel, the CRA investigator, provided some evidence about the business associates who attended. He testified that he had interviewed two persons who attended the wedding and asked what their purpose was for attending and whether there was any talk of business at the event. The two told him it was just to attend the wedding. Mr. LeBel admitted nothing else was done to investigate this issue. He testified that he understood that customers of MMFL had been invited. He could not pin down how many had shown up or what business was conducted at the wedding to make it a business event. Mr. LeBel admitted that it was impossible to determine what was personal and what was business. However, during his investigation, he determined that none of what MMFL paid for the wedding was tax deductible. In re-examination, the only other thing Mr. LeBel could point to in concluding the wedding deductions were inappropriate was that one wedding invoice had “Mariani wedding” blacked out.
B. THE TRIAL JUDGMENT
[9] The trial judge found that MMFL paid for what appeared to be most, if not all, of the wedding expenses. She rejected the defence argument that it was a legitimate business expense. She found that the wedding-related expenses were personal expenses illegally claimed by the appellants as business expenses. The trial judge concluded that Mr. Mariani made the claim knowing them to be personal expenses.
[10] In summarizing the evidence led regarding the wedding expenses, the trial judge made the following finding about whether any business associates, customers, or suppliers (henceforth referred to as “business associates”) attended the wedding:
Mr. Mariani’s son was married in Quebec in 2012. Over 300 guests attended the wedding and MMFL paid well over $60,000 for the wedding. According to Mr. Petricca many members of MMFL staff attended the wedding, it is unknown however how many of the guests were in fact staff of MMFL. Counsel for Mr. Mariani argued that in addition to staff, many business associates of MMFL were also invited. Respectfully, I disagree. At its highest, Mr. Petricca testified that he was “led to believe that there were many business associates” at the wedding. He was unsure of the source of this information, but it may have been from Mr. Mariani. This, in my view, is not evidence that business associates were in fact invited. In my view, there was also no actual evidence that any customers, or potential clients were invited to the wedding. Nonetheless, the vast majority of the costs of the wedding were billed to and paid by MMFL. [Emphasis added.]
[11] The trial judge acknowledged that allowable business deductions was a broad category that permitted businesses to deduct social events and entertaining, even wedding receptions, provided that the expenses were reasonable and done for the purpose of obtaining or producing income for the business. However, the law did not allow personal expenses to be claimed as business expenses.
[12] The trial judge cited Grunbaum v. R., 1994 CanLII 19088 (TCC), [1994] 1 C.T.C. 2687, which held that a portion of the cost of a wedding was a legitimate business expense. However, she distinguished the appellants’ case from Grunbaum in several ways. She queried whether $60,000 paid as a wedding cost was a “reasonable expense”. She also held that:
Secondly, there is no evidence that any clients or potential clients that could bring in work or income to MMFL were invited to the wedding. Mr. Petricca testified that staff were present and invited. In my view, inviting staff when the company is a small family run business, is very different from inviting clients and potential clients. [Emphasis added.]
[13] The trial judge emphasized that the onus was on the Crown to prove its case. However, there had to be an air of reality to the assertion that the wedding was a business-related event before the burden was placed on the Crown to disprove this assertion. She concluded there was not and stated:
Here, the only evidence is that some staff were invited and present. Mr. Petricca’s evidence that he was “led to believe” that some business associates were invited is not evidence that anyone other than staff was invited to the wedding” [Emphasis added.]
The trial judge stated that inviting staff to a wedding could not promote or garner business. Thus, she concluded that the expense was personal.
[14] With respect to proving the mens rea for the offences, first the trial judge held that she could not find that the blacking out of one invoice showed any intention on the appellants’ part to alter wedding invoices to deceive the CRA. However, she concluded that Mr. Mariani, as an experienced businessman, knew he was overstepping when he claimed this amount of the wedding expenses as a business expense. She found that the Crown had proven this essential element beyond a reasonable doubt.
C. ARGUMENTS ON APPEAL
[15] The appellants submit that the trial judge found that there was no evidence that business associates attended the wedding. This finding figured prominently in her assessment that the charges had been proven. The appellants submit that this was a serious misapprehension of or a failure to appreciate the evidence. Mr. Petricca’s evidence, led by the prosecution, was that Mr. Mariani told him that many business associates attended the wedding. Moreover, Mr. LeBel also gave evidence on this point. His evidence was not referred to by the trial judge. The appellants argue that the prosecution did not invite the trial judge to find that no business associates attended the wedding. The prosecution relied on, amongst other things, the absence of evidence that people conducted or talked about business at the wedding. This misapprehension of the evidence tainted the trial judge’s reasoning process. She further concluded that Mr. Mariani must have known that he was in violation of the law in a large part because there was no evidence that any business associates attended.
[16] The appellants further submit the guilty verdicts are unreasonable. In the alternative, they submit that a new trial is warranted given that the misapprehension of evidence amounted to a miscarriage of justice.
[17] The respondent submits that the attendance of business associates cannot turn the uniquely personal nature of a wedding into a business expense without facts showing that the expenses were incurred for the purpose of earning income. In addition, there was no misapprehension on the part of the trial judge about the attendance of business associates. The trial judge’s finding that there was a lack of evidence that business associates had attended the wedding was correct. At its highest, the testimony of the accountant was only evidence that Mr. Mariani made a statement to him. It was not evidence that the statement was true. The trial judge did not mistake the substance of the evidence on this point.
[18] Furthermore, the trial judge’s key finding was that there was no evidence that any business associates who could bring in work or income to MMFL were invited. Even if business associates attended the wedding, that fact in and of itself would not be enough to support the claims the appellants made on their tax returns.
D. ANALYSIS
1. The Statutory Framework
[19] The following are the relevant provisions of the ITA. Section18 deals with business deductions. The starting position is that no deductions are to be made from the income of a taxpayer from a business or property for the determination of taxable income. In order to claim any expense, the taxpayer must be able to substantiate that it comes within an exception to the “no deductions” general rule. By virtue of subsection 18(1)(a), expenses may be deducted, but only to the extent that they were incurred for the purposes of producing income. Subsection 18(1)(h) specifically prohibits the deduction of personal expenses.
[20] Section 67 of the ITA provides that the amount of a deductible expense must be reasonable. Further, a deduction is only valid to the extent that the expenditure was reasonable in the circumstances.
[21] Section 67.1 deals with food, beverage and entertainment expenses. If these types of expenses are incurred for the purpose of earning income and are reasonable, they may be claimed at 50%.
2. The Elements of Tax Evasion
[22] The case of R. v. Klundert (2004), 2004 CanLII 21268 (ON CA), 242 D.L.R. (4th) 644 (Ont. C.A.), at para. 47 holds that the essential elements of the offence of tax evasion to be:
• That the defendant did something or engaged in a course of conduct that avoided or attempted to avoid the payment of tax;
• That the defendant knew that there was tax imposed by the ITA; and
• That they did so with the purpose of avoiding or attempting to avoid the payment of tax.
3. The Legal Principles on Misapprehension of Evidence
[23] A misapprehension of evidence includes a failure to consider relevant evidence, a mistake about the substance of evidence and a failure to give proper effect to evidence: R. v. Morrissey (1995), 1995 CanLII 3498 (ON CA), 22 O.R. (3d) 514 (C.A.), at para. 83. Not every misapprehension of evidence will vitiate a finding of guilt. It is a stringent standard. The misapprehension must go to the substance rather than to the detail, must be material rather than peripheral to the trial judge’s reasoning, and the errors must play an essential part in the reasoning process resulting in a conviction: R. v. Lohrer, 2004 SCC 80, [2004] S.C.R. 732, at para. 2. The nature and extent of the alleged misapprehension and its significance to the verdict rendered requires consideration in light of the fundamental principle that a verdict be based exclusively on the evidence adduced at trial: Morrissey, at para. 93.
[24] When an appellant alleges a misapprehension of evidence, my first task is to consider the reasonableness of the verdict. An appellant who establishes an unreasonable verdict is entitled to an acquittal. Absent an unreasonable verdict, my task is to decide whether the misapprehension of evidence occasioned a miscarriage of justice. An appellant who shows that a misapprehension of evidence resulted in a miscarriage of justice is usually entitled to have their conviction quashed and a new trial ordered. If an appellant fails to demonstrate that any misapprehension resulted in an unreasonable verdict or produced a miscarriage of justice, they are then left to persuade the appellate court that the misapprehension amounted to an error of law. If the court is convinced of such an error, the Crown then bears the burden of showing that there was no miscarriage of justice under s. 686(1)(b)(iii): Morrissey, at para. 88.
4. Discussion
[25] Respectfully, the learned trial judge misapprehended the evidence in two ways.
[26] First, she misapprehended the substance of Mr. Petricca’s testimony. The trial judge found that Mr. Petricca was “led to believe” that many business associates attended the wedding. She found that Mr. Petricca was uncertain about the source, but it “may” have been the appellant, Mr. Mariani. This was wrong. Mr. Petricca was not uncertain. He testified that one of the sources was - not “may” have been - Mr. Mariani. This testimony was not impeached or contradicted in any way.
[27] Moreover, I observe that the Crown did not challenge this point in its closing submissions. The Crown challenged the reasonableness of the expenses but did not argue that there were no business associates at the wedding.
[28] I note that during oral submissions by the defence, the trial judge asked about Mr. Petricca’s evidence on this point. She stated that as she understood the evidence, and she conceded she may be misinterpreting it, they did not know how many, “if any”, wedding attendees were there for business purposes. In answer to the trial judge’s question, the defence pointed to Mr. Petricca’s evidence that there were many business associates in attendance and referenced his cross-examination.
[29] Despite this exchange, the trial judge erred by misapprehending the substance of Mr. Petricca’s evidence.
[30] Secondly, it is true that Mr. Petricca’s evidence was admittedly thin on this issue.[^1] But, even if the trial judge had properly understood the substance of his evidence, she misapprehended the evidence by not giving proper effect to Mr. Petricca’s testimony. The trial judge did not conclude that there was little probative evidence on the point or make a factual finding that few or no business associates were invited to or attended the wedding. Rather, she repeatedly found that there was “no” evidence of this. Little evidence is not “no” evidence.
[31] Mr. Petricca’s evidence on this issue was led by the prosecution in its examination-in-chief. The prosecution asked its witness to explain how he obtained the knowledge that business associates had been invited to the wedding. No objection was taken to the admission of the evidence either at the time it was received or when making final submissions. On the circumstances of this case, the statement made by Mr. Mariani to Mr. Petricca was receivable into evidence as a statement against interest: R. v. Rojas, 2008 SCC 56, [2008] 3 S.C.R. 111, at paras. 27–31; R. v. T. (S.G.), 2010 SCC 20, [2010] 1 S.C.R. 688, at para. 29. Certainly, both prosecution and defence treated it as admissible evidence. Introduced by the prosecution, it was evidence both for and against the defendant: R. v. Humphrey (2003), 2003 CanLII 6855 (ON CA), 172 C.C.C. (3d) 332 (Ont. C.A.), at para. 19.
[32] It is true that the trial judge said nothing plainly erroneous about the admissibility of Mr. Petricca’s evidence. However, by repeatedly characterizing his evidence as being “no” evidence, I am driven to the conclusion that the trial judge misapprehended the fact that Mr. Petricca’s testimony about what the appellant had told him was properly admissible for its truth. Thus, she did not give due effect to that evidence.
[33] The two errors made by the trial judge were likely intertwined. Since she misapprehended Mr. Petricca’s certainty about the source of the information, she may have given no consideration to it. If she had properly understood that the evidence had indeed come from Mr. Mariani, then she erred by failing to give it the proper effect and consideration that it deserved.
[34] This was not a matter of the trial judge weighing the evidence and concluding that no business associates attended; something a trier of fact is entitled to do. As the passages in her judgment reveal, the trial judge repeatedly found there to be “no” evidence of business associates being invited or attending. When the references to “no” evidence are viewed in their proper context, this does not amount to loose language used by a trial judge that should not be given over-exacting scrutiny. In my opinion, the trial judge was of the view that there was no admissible evidence supporting the defence argument that business associates were invited to or attended the wedding. This was a result of a serious misapprehension of the evidence.
[35] The respondent submits that the trial judge did not misapprehend the evidence because there was indeed no evidence of any business associates who “could bring in work or income to MMFL (being) invited to the wedding” as stated by the trial judge. Said differently, the respondent argues that the trial judge did not mean that there was no evidence of business associates being invited to or attending the wedding; rather there was no evidence that the business associates were invited to the wedding for the purpose of earning income, as required by the ITA.
[36] I reject that interpretation. When the whole of the reasons is looked at, the trial judge was not making this distinction. Clearly, when she found there was no evidence of business associates invited to or attending the wedding, she meant no evidence of any of them being there at the wedding. She was not determining that the attendance of the business associates at the wedding was only for personal and not business reasons. Indeed, even within the passage of her judgment pointed to by the respondent, the trial judge highlights this by comparing it to the evidence of the attendance of the MMFL staff.
[37] It is true that regardless of the error, there remains a reasonable basis to find the appellants guilty. On the other hand, there are countervailing arguments.
[38] For example, a large amount of costs for shuttling and sheltering MMFL staff was written off as a business expense. However, it is reasonably arguable that these expenses in having MMFL staff present at the wedding, could at least partially have been incurred for the purpose of obtaining or procuring income for the business. MMFL staff present at the wedding who had familiarity or relationships with business associates could have at least in part been engaged in maintaining or soliciting new business while at the wedding. Mr. LeBel interviewed only two out of hundreds of wedding guests who said they were there only for personal reasons. These statements by the guests are not admissible for its truth. Moreover, interviewing only two guests does not amount to a thorough investigation.
[39] Another example. The amount written off as a business expense must be reasonable. Writing off some $87,000 of wedding expenses as a business expense seems unreasonable. However, the trial judge declined to specifically make a finding that the significant expenses deducted was unreasonable. Also, it is not clear what proportion of the total wedding costs were paid by MMFL as the appellant’s son had paid for some of it.
[40] Finally, the Crown had to prove the mens rea component. The trial judge’s finding that an experienced businessman like the appellant knew that the wedding was a personal and not a business expense was tainted by the misapprehension that no business associates were invited to or attended the wedding. Without the business associates at the wedding, the conclusion that Mr. Mariani knew the costs could not be legitimately claimed was easy to make. While the allocation of the expenses may still have been unreasonable, the fact that some business associates did attend the wedding coupled with the fact the appellants openly made the claim for the deductions may have led to a reasonable doubt on the mens rea component of the charges.
[41] In its written and oral submissions at trial, the defence relied upon Mr. Petricca’s evidence that many business associates of MMFL attended the wedding. The Crown did not challenge this evidence or defence assertion. It made other submissions as to why the appellants were guilty. Reasonably, the defence may have relied on Mr. Petricca’s testimony and may have chosen not to call other evidence on this point.
[42] In conclusion, in the process of convicting the appellants, the trial judge misapprehended Mr. Petricca’s evidence. She misapprehended the substance of his testimony, did not give proper effect to it, or perhaps both. This was a central part of her reasoning in finding that the wedding expenses were personal and not business expenses. It was not a peripheral or non-consequential error. In my view, the trial judge erred in her appreciation of the evidence in a manner that played an essential role in the outcome. Thus, this misapprehension of evidence led to an unfair trial.
5. Disposition
[43] Based upon this misapprehension of evidence, the appellants submit that the verdicts should be quashed as unreasonable and acquittals entered. Alternatively, the appellants submit that a new trial should be ordered.
[44] I find that the verdicts are not unreasonable. While a misapprehension of the evidence was significant in this case, as I have already observed, when the whole of the evidence is considered, a properly instructed jury acting judicially could reasonably have rendered the guilty verdicts. The following evidence reasonably supports the finding of guilt. A substantial portion of the wedding expenses, regardless of the exact dollar figure, was written off as a business expense. Also, regardless of the attendance of business associates and MMFL’s employees, very little was done to separate the invoices and expenses to ensure a proper calculation was made for the purpose of making an appropriate tax claim. Finally, a wedding by its very nature is an intensely personal affair. While one cannot be absolute about it, a wedding does not usually lend itself to be characterized either in whole or in part as a business expense.
[45] While the verdict cannot be said to be unreasonable, the misapprehension of evidence led to a miscarriage of justice. Though the evidence could support a finding of guilt, I am satisfied that the misapprehension of the evidence played an essential part in the reasoning process resulting in the convictions. From the mistaken finding that no business associates were invited to or attended the wedding, the leap to the finding of guilt was not far and was easily made. No business expenses could rightfully be claimed if no one that did business with the appellants was invited to or attended the wedding. The conviction based upon this misapprehension of the evidence was not a true verdict based exclusively on the evidence. The appellants did not receive a fair trial and were the victims of a miscarriage of justice. Thus, a new trial is warranted.
Justice S. Nakatsuru
Released: July 5, 2021
COURT FILE NO.: CR-20-90000045-OOAP
DATE: 20210705
ONTARIO
SUPERIOR COURT OF JUSTICE
HER MAJESTY THE QUEEN
– and –
MARIANI METAL FABRICATORS LTD. and VINCENT MARIANI
Appellants
REASONS FOR JUDGMENT
NAKATSURU J.
Released: July 5, 2021
[^1]: Mr. LeBel’s understanding that customers of MMFL had been invited was likely based upon hearsay and was not admissible for the truth of its assertion. The fact that the trial judge did not refer to his testimony on this point does not amount to any error.