Attempting Tax Fraud by Forging Fake Business Records to Unlawfully Claim GST/HST Rebates: A Canadian Tax Lawyer Explains R. v. Scholtz

Three counts of breaking Excise Tax Act Sections 327(1)(a), 327(1)(c), and 327(1)(d) were brought against Michael Scholz, the defendant in this case. These provisions describe offenses under the Excise Tax Act linked to making false claims, presenting fake papers, attempting tax evasion, or requesting unauthorized tax refunds. These behaviors are illegal, and if the allegations are proven to be true, they may result in a summary conviction.

In addition, Scholz was facing two counts of fabricating papers under Section 368(1) of the Criminal Code. In order to obtain a GST/HST rebate that was not legally owed to him, it is alleged that he produced and submitted fraudulent documents to the Canada Revenue Agency. This is the basis for the accusations brought against him.

The beginning of this lawsuit may be dated to August 2009, when Michael Scholz and his spouse started to realize their goal of building their dream house on an undeveloped lot at 1071 Groveland Road in West Vancouver, British Columbia. Curiously, the business that held the property’s legal title also had complete beneficial ownership of the land, which belonged to Scholz’s wife. This unusual arrangement resulted from Scholz’s worries that possible creditors may seize the property in the event of financial troubles.

Scholz and his wife began the project with the intention of restoring the land into a magnificent home to serve as their primary residence. However, it is important to clarify that Scholz did not qualify for a GST/HST refund under the terms of the Excise Tax Act because this benefit was only available to individuals who were building homes for sale, not for their own use. Despite this, Scholz started submitting requests for GST/HST refunds as soon as work got going.

The expected cost of the renovation increased over time, from the initial $3 million to an astounding $6.1 million. Scholz claims that because of his financial situation at the time, he was considering selling the home. But it’s important to note that Scholz did not inform his spouse, the project’s architects, the builders, or any real estate agents about this possibility. He also made no attempt to speak with realtors or research prospective selling prices. Surprisingly, he decided against lowering building costs due to worries that doing so may lower the property’s worth as a luxury home. Scholz’s choice not to obtain a mortgage for the building project was motivated by a previous occasion in which his mortgage was foreclosed by a bank.

Then, in December 2012, Scholz and his wife moved into the property and remained there until their divorce in 2017.

Scholz’s interactions with the Canada Revenue Agency (CRA)

Regarding Scholz’s claims of receiving a GST/HST rebate, the Canada Revenue Agency opened an investigation in November 2011. By 2013, the CRA had rejected Scholz’s requests for GST/HST refunds and assigned a $6.8 million assessment value to his property. The CRA used this value to decide how much GST/HST Scholz owed in relation to the building of his residence.

A copy of a Bare Trust and an Agency Agreement was subsequently sent to the CRA by Scholz. These papers claimed to be from the company that owned the property at 1071 Groveland. Scholz claimed to be the only beneficiary of the property in these documents, which was necessary for him to be qualified to receive the GST/HST rebate. Notably, these records were made after the Canada Revenue Agency asked for more proof to support Scholz’s eligibility for the GST/HST refund and to prove that he was the property’s legal owner.

The British Columbia Provincial Court’s judgment

The British Columbia Provincial Court found that Scholz had fabricated the papers only to satisfy the requirements set out by the Canada Revenue Agency for the GST/HST reimbursement during the trial. Due to the contradictions between Scholz’s conduct and his claimed intents, the presiding judge in the Provincial Court of British Columbia further disregarded a number of areas of his testimony and allegations. Scholz said, for example, that he intended to sell the land, but he made no real progress in that regard.

In the end, the Provincial Court of British Columbia decided that Scholz had forged documents specifically to pass them off as genuine. Scholz was aware that he was sending fake documents to the Canada Revenue Agency, and the judge in the Provincial Court of British Columbia came to the conclusion that he thought the CRA might accept them as genuine. As a result, Scholz was found guilty of two crimes under the Criminal Code and three counts under the Excise Tax Act.

Pro Tax Tips: Document Forgery and Tax Fraud

Forging documents with the intent to commit tax fraud is a serious offense that carries penalties under both the Criminal Code and the Excise Tax Act. Penalties for these crimes might be harsh, including high fines and perhaps jail time.

The only scenario in which you are eligible to get a GST/HST rebate while building a home is if you are a builder planning to sell the house once it is completed. Otherwise, the right to a GST/HST rebate is often not applicable. Tax fraud would result if such a claim for a tax rebate was made improperly.

Retaining a skilled Canadian tax lawyer is essential if the Canada Revenue Agency accuses you of committing tax fraud. This is so that you can defend yourself against the charges. Legal practitioners knowledgeable in tax law and experienced in dealing with issues involving the Canada Revenue Agency are required to successfully navigate tax fraud proceedings. Our top tax lawyers in Toronto are prepared to represent you in court against the Canada Revenue Agency and provide educated advice on how to handle your unique situation.

Disclaimer

This article’s general information is based on the facts that were known at the time it was published. Because there hasn’t been an update, some of the data may no longer be correct or applicable. It is not meant to be a replacement for legal advice, and choices shouldn’t be made in reliance on it. Tax circumstances might differ significantly from other scenarios and from those in this article depending on unique facts. If you have unique legal concerns regarding taxes, it is vital that you obtain advice from a qualified Canadian tax lawyer who can provide you with specific legal advice that is appropriate to your situation.