Taxman troubles

Ron Phillips beat the Canada Customs and Revenue Agency (CCRA, formerly Revenue Canada) in court, but he says the matter is far from concluded.

As reported last month in Windspeaker Business Quarterly magazine, the Winnipeg businessman was ordered to pay close to $100,000 in back taxes, interest and penalties because he did not collect GST for the educational training sessions he provided to First Nation administrators. Tax Court of Canada Justice Brent Paris ruled that the knowledge gained at these sessions became the property of the First Nation and was exempt from taxation by virtue of Section 74 of the Indian Act.

When the March 3 deadline for the government to appeal that decision came and went with no appeal filed, Phillips thought his troubles were over. He contacted CCRA's office in Winnipeg and asked that a lien placed against his home be lifted and that money garnisheed by the government be returned.

"They told me that they could still go after me or challenge me for the GST for the years 2001 to 2003," he told Windspeaker. "I said, 'What?' They said that court decision was only for the years from 1997 to 2001 and they said that they could still go after me. I said, 'You've got to be kidding.' And he said, 'No, we've decided not to but we could.'" That just made Phillips mad.

"I said, 'In the words of George Bush, bring it on.' This is insane," he said.

Phillips preferred not to name the official who made the threat.

"In actual fact he's not a bad guy and I don't want to get him into too much trouble. He was just saying what the government could do," Phillips explained. "We were talking sort of off-the-record."

Weeks after that conversation, matters have not been resolved.

"I still have not seen any money. They have taken the liens off my house, though," he said on March 19. "They asked me to take the liens off. They sent me the forms. So I asked them what all these forms are for and they told me that I was supposed to take them down to the land titles office and get the lien off my house. I said, 'No. Why should I?' They said, 'Well, it's your house, your lien.' I said, 'That's right but why should I do your job? You put it on, you take it off.'"

He was told, "That's not the way we do things."

But later, CCRA agreed to remove the lien.

As for the cash and the damage done to his reputation, the government does not seem to be in any hurry to take care of those matters.

"They seized approximately $35,000 from me in the last 16 months, half my salary plus my income tax refunds for the last two years or so," he said. "They don't seem to appreciate that a judge has made this decision that I was providing property. I was providing property from 1997 to 2001 and I'm still providing property. I told them that if they want to go to court, let's go to court now."

People all over the country are watching this case with interest, if not concern. The most basic fact, one that could affect any business that deals with First Nations, is that the government has a policy that is contrary to the laws of the land.

"The policy, which was revised in October 2005, still says that First Nations can purchase services for band management off reserve without paying the GST. That has no basis in law. Revenue Canada said in court three separate times that it was their position that all services to First Nations are taxable, on and off reserve. That was their position because there is no legislation that says services off reserve are tax-free," Phillips said. "The judge asked their lawyer three times: Are you telling me that all services are taxable? 'Yes, on and off reserve.' According to a strict reading of the Indian Act, [the CCRA lawyer] said, there is no exemption for services. The exemption is for property of an Indian band. There's no mention of services. That's the law. The judge had to find a legal basis to allow me to win and he used the Indian Act."

Others may not get such a favorable ruling.

"These particular services that I am providing are property. They still go after other people that are providing services and say, 'You owe for the GST because services are not exempt in any law. It's only policy.' And people have to realize this: When you go to court, you can't argue policy, you can only argue law," Phillips said.

"Until there is a law that says First Nations can purchase services off reserve tax-free, there's always a possibility that some young guy trying to make a name for himself at Revenue Canada will go after somebody else. They tried me. It didn't work. Doesn't stop them from going after anybody else that's following their policies."

Phillips represented himself in court and had to do a lot of research to be ready when he went before the judge. He says the situation is not considered entrapment, although he agreed that requiring businesses to follow a government policy that is directly opposite to the law and then arbitrarily deciding to take enforcement measures based on the law rather than the policy make it look like entrapment. The government can get away with that legally and may decide to try it again at any time, he warned.
"They can just override it and say we're not going to follow our policy," he said. "And they don't suffer. You suffer. The people that went after me, they weren't fired. They wasted a great deal of time and money, caused me a lot of aggravation, but nobody there got fired."

He has been harmed but he doesn't think he'd have much of a chance filing a civil action against the government for compensation.

"The banks have a record of me having a lien against my property, a garnishment against my wages and I've done nothing wrong. I have a judgement that says what I was doing was correct," he said.

He asked Windspeaker to get some answers from Minister of National Revenue Carol Skelton.

"Ask why they have a policy that they know is wrong in law. And if they can't answer that, ask them why," he said. "They know it's wrong in law because if you check those transcripts you'll see they said it three times."An e-mail message asking those questions and others was sent directly to the minister, well before our publication deadline. CCRA departmental spokesperson Jacqueline Couture responded four days after the e-mail was sent.

"We will implement the decision in the Phillips case in any situations that would have similar facts. The decision applies only to the taxation of intangible personal property and it would have no effect on the CRA's administrative policy on services acquired for band management activities," she said.

But she would not comment on questions regarding why the department chose not to appeal the decision.

"The decision [not to appeal] is based on legal advice from Justice Canada and legal advice is privileged under the law so it's not something I can comment on," she said. "In this instance it's client/lawyer privilege so there's nothing we can do."

The complex question of the alleged contradiction between the policy and the legislation was beyond the scope of knowledge of the communications person and will be responded to by a person with more technical knowledge. But that person was not able to respond before deadline.