Aug 20, 2009 05:14 PM
THE CANADIAN PRESS
MONTREAL – In a legal showdown against a tax-wary former stripper, it’s the Canada Revenue Agency that’s been caught with its pants down.
The legal saga over $2 million in undeclared revenue began in storybook fashion at Chez Paree – a pricey Montreal strip club patronized over the years by scores of wealthy executives and visiting athletes, including some very prominent hockey Hall of Famers.
Martine Landry was a dancer at the Montreal institution and was particularly popular with one rich, elderly customer who struck up a relationship with her.
He showered her with gifts over the years worth about $2 million: a Corvette, money to buy a BMW, eight fur coats, jewels, a vacation, cash to buy a big downtown bar and get out of the dancing business, and $168,000 in $1,000 bills for a down payment on a house.
According to a judgment rendered by the Tax Court of Canada, the mystery benefactor, named in court documents as Mr. X, paid Landry largely to keep him company, not to dance.
Landry in turn recounted that she was attracted to his vast knowledge of all things and, over time, the publishing-industry magnate, now 80, began to introduce her to a world she knew nothing of.
What blossomed was an 11-year relationship that quickly took on – according to Landry’s court testimony – a "father-daughter" dynamic.
Landry would often accompany her benefactor to the Montreal casino, where he would give her the winnings to deposit in her account.
But eventually her low income statements and sky-high living expenses raised alarm bells at the federal revenue agency.
By this time, Landry had long quit dancing and was the owner of the popular Montreal watering hole Mr. X had helped her acquire.
A net-worth audit showed a major discrepancy between revenues evaluated against assets and outgoing expenses, the difference being subject to taxes unless she could prove where the money came from.
And like many Canadians, Landry had a difference of opinion with the federal taxman about how much money she actually owed.
The feds demanded $602,617 in taxes and penalties for the years 1998 to 2002.
But the Tax Court of Canada sided with Landry in a recent judgment. Judge Robert Hogan ruled the gifts could not be taxed.
In Canada, gifts, inheritances, and windfall gains from lotteries or other gambling are not considered taxable.
But tax experts say it’s very common for people who frequently receive gifts – exotic dancers being a notable example – to be caught in such a legal quagmire.
Hogan ruled that a more thorough investigation by the CRA would have provided the answers they sought without having to drag the matter to court.
When the CRA began to raise doubts about her lifestyle, Landry sought to protect the name of her wealthy friend and Mr. X, for his part, was less than forthcoming in his chats with the taxman.
"After hearing the evidence in its entirety and having heard the testimony of Mr. X, I have to observe that the CRA failed in its obligation to lead a reasonable investigation on the validity of the statements made by the appellant on the subject of Mr. X," Hogan said.
"If the CRA had pushed further in the investigation with Mr. X., they would have easily been able to find the truth and the existence of gifts."
Landry’s lawyer, Yves Ouellette, said in a radio interview he was pleased with the decision.
"In the end, it’s a case that’s strictly a fiscal case,“ Ouellette said.
"We tried to explain these differences by the gifts she had received and the money was won at the casino."
But the story’s not over. Revenue Quebec still wants $643,000 in taxes and penalties and that case is playing out in a Quebec court. Ouellette hopes the favourable decision will help in the Quebec case.
There’s one final order of business in this affair: Landry is now considering a lawsuit against the Canada Revenue Agency.