Amway of Canada, Ltd. v. Canada
A-109-95
Strayer J.A.
20/2/96
17 pp.
Appeal, cross-appeal from Tax Court judgment-In late 1960s, early 1970s Amway defrauding Canadian revenue by falsifying value of goods imported into Canada-Undervalued, for duty and excise tax purposes, goods imported to amount of $84.3 million, thereby avoiding payment of $28.8 million in customs duties, excise taxes-Customs Act, s. 192 requiring person defrauding revenue by avoiding payment of duty to forfeit value of goods-"Value" defined as duty-paid value including customs duties, excise tax payable had proper value been declared-Revenue Canada serving notices of seizure in total amount of $155.9 million, representing $118 million in value of goods imported and $37 million in duties, taxes payable, total being duty-paid value-As Amway provided no deposits in respect of forfeited sums, Crown commencing four actions in Federal Court in 1980 requesting amount of duty-paid value "by way of forfeiture"-In 1984 commencing action for payment of "customs, duties and sales taxes shortpaid" in amount of $7.9 million-Minister remitting portion of forfeiture, leaving $105 million owing-1989 settlement requiring Amway to pay $45 million, Crown to discontinue five actions-Minister accepting $7.9 million in respect of payment of duties, taxes because settled 1984 action for recovery of duties, taxes, but assessing balance as made in respect of penalties-Tax Court apportioning $37.1 million by formula based on assumption represented part payment of penal amounts of forfeitures arising under ss. 180, 192 as well as part payment of duties, taxes enforceable as debt under s. 102-Concluding (1) 1980 actions for recovery of penalty and duties, taxes; (2) because release relieved Amway of future liability for duties, taxes, settlement amount partially attributable to claim for duties, taxes-Whether portion, and if so how much, of $37.1 million attributable to payment of duties, taxes-Whether portion paid as penalty deductible as business expense-Appeal dismissed; cross-appeal allowed-None of 37.1 million representing payment of duties, taxes-1980 actions for recovery of penalty, based on statements of claim, F.C.A. decisions on two appeals in interlocutory matters-While release absolving Amway from further claims arising out of importations up to 1980, terms of settlement agreement referring only to five existing actions-Release subsequently signed by its general language also precluding any further action by Crown under s. 102 to collect duties, taxes for period covered by 1980 actions, but nothing indicating further s. 102 actions in anyone's contemplation at time signed-In holding $105 million including $20.9 million in duties, taxes Tax Court misconceiving nature of forfeiture under s. 192(1)-Forfeiture of sum because of false declaration of value of imported goods is of "value", meaning duty-paid value, including duty, taxes payable had goods been declared at proper value-That total penalty measured in part by reference to amount of unpaid duties, taxes should have been paid not converting that part of penalty into duties, taxes-Sums claimed in four penal actions not including duties, taxes per se-Whether amounts expended on fines, penalties as business expense depending on (1) whether expense incurred for purpose of earning income; (2) whether contrary to public policy to allow taxpayer to reduce net income, thus saving taxes, by virtue of paying fine for wrongdoing-Avoidability of offences one test of whether fines deductible as business expense-Question whether taxpayer could reasonably have been expected to run business in consistent conformity with this kind of law-Impossible to conclude deliberate, fraudulent scheme to avoid payment of higher duties, taxes to revenue of Canada unavoidable incident in operation of Amway's business of importing, selling goods in Canada-As to public policy, fine or penalty not incurred for purpose of producing income unless in all circumstances incurring of penalty unavoidable incident of carrying on business-Contrary to public policy to allow deduction of penalty as business expense where penalty imposed by law for purpose of punishing, deterring those who either intentionally or through lack of care violate laws-Penalties herein fixed by statute-Frustrating purposes of penalties imposed by Parliament if after paying penalties exigible by law, taxpayer able to share cost with other taxpayers-Sentencing courts should not be required to anticipate value of income tax deduction to penalized party-Deductibility of penalties set by courts exercising discretion should be subject to same rules as penalty set by statute-$37.1 million payment of penalty, not deductible from gross income as expense incurred to earn income-Income Tax Act, S.C. 1970-71-72, c. 63, ss. 18(1)(a)-Customs Act, R.S.C. 1970, c. C-40, ss. 2, 18, 102, 160, 161, 163, 180(2), 192(1)(b),(c), 249(1).