He was a titan of Bay Street and a former senator. But J. Trevor Eyton died owing the government millions

0
52
He was a titan of Bay Street and a former senator. But J. Trevor Eyton died owing the government millions


The government clings to Canadians like an unshakable shadow, business titan J. Trevor Eyton told the crowd at the Empire Club in Toronto in 1982.

This shadow smothers productivity and efficiency, he said. It walks beside us, “whether the sun shines or not,” and “does do incredible damage to all things Canadian — the economy, business, even our individual characters.

“Dear Mr. Government,” Eyton pleaded, “Love me, but leave me … alone!”

Eyton, who went on to serve 18 years as a Conservative-appointed senator after his 12-year stint as president and CEO of conglomerate Brascan during its 1980s heyday, spent the last two decades of his life trying to outrun that shadow.

For seven years while he sat in the upper house collecting a publicly funded salary, and then in retirement while collecting a publicly funded pension, he was not filing his taxes.

When he died this year, obituaries and tributes heralded the “consummate dealmaker” for his financial acumen and public service.

He was actually in debt to the federal government, owing $2.5 million in taxes, penalties and interest. He was also in bankruptcy court, where the Royal Bank of Canada was trying to force Eyton to make good on at least some of the substantial personal loans he had never repaid, despite two judges’ orders that he do so; penalties and interest had swollen those debts to more than $1 million.

Shortly before Eyton’s death on Feb. 24, he offered his creditors $1.5 million, far short of the nearly $4 million he owed.

Unless those currently investigating his estate find additional money — and a lawyer is looking — the Canada Revenue Agency will have to write off a large part of that $2.5-million debt. Money that was supposed to go toward infrastructure, military, maternity leave benefits and old age security, will never be paid.

The remainder of Eyton’s tax debt will be added to a growing problem: Since 2009, the Canada Revenue Agency has written off nearly $4 billion in tax debts owed by individuals and businesses that declared insolvency, a Star/La Presse investigation has found.

In Quebec, where taxpayers remit to the CRA and Revenue Quebec, the province has written off close to $2 billion in the last five years alone.

It is not known how much of that $6 billion total can be attributed to consumer bankruptcies.

Time and again, bankruptcy judges, known as registrars, have reminded debtors to pay their fair share of taxes.

If a taxpayer does not, the burden of that failure falls on others in the community, said registrar Nathalie Champagne in 2017 when faced with Charles Rotenberg, a former Ottawa tax lawyer. Rotenberg, who surrendered his licence after the law society found he misappropriated a client’s funds, was on his third bankruptcy, this latest leading the CRA to write off $313,000. “The Bankrupt before me has enjoyed a good income and he has not paid his fair share of taxes which is unfair to the rest of the taxpaying public.” She refused his discharge.

Rotenberg said he assumed substantial liabilities from a business partner who had been managing the books which, coupled with serious health problems, left Rotenberg unable to work and continue to pay creditors. This led to his third bankruptcy. The money the law society found he misappropriated had been paid back, he said.

Not only do taxes fund the infrastructure of society, they also pay the salaries of members of Parliaments, senators and judges. And, the bankruptcy courts where debtors seek protection are also paid for by taxes.

Toronto bankruptcy registrar Scott Nettie called the nonpayment of taxes stealing from the Crown in 2011, when he refused a former tax accountant a discharge, which releases debtors from the legal obligation to pay back most kinds of debt. Nettie found the debtor schemed to spend tax money on himself and then, unrehabilitated and unrepentant, used bankruptcy to rinse and repeat.

Discharge refusals are not common in a system that views most debtors as honest but unfortunate and in need of a fresh start. Wiping the slate clean means distributing to creditors whatever money exists in the bankrupt’s estate — often only pennies on the dollar — and then granting the discharge, sometimes with conditions. A conditional discharge might, for example, require the debtor to pay a portion of a tax debt before the discharge is granted.

In Toronto bankruptcy court last month, an accountant, who participated in a tax avoidance scheme that had been disallowed by the CRA said he could only afford to pay $40,000 of the $800,000 in taxes and interest owed. The accountant also told the court he gets $9,100 a month in net income from his consultancy and that his monthly expenses include $500 for dining out and entertainment, $150 for dry cleaning, $150 for toiletries and $400 for clothing. He and his wife live in a semi-detached house in Yorkville that she owns. The court approved his discharge, conditional on his proposed payment to the CRA.

Discharges are also routinely given to repeat bankrupts, including those with four and five bankruptcies.

In a review of more than 100 case files nationwide, the Star found repeat bankrupts who repeatedly cited tax debt as a main cause of their insolvencies.

A Brantford restaurant manager’s third bankruptcy included $260,000 in tax debt. When he was discharged in 2018, the CRA got $4,500. His second bankruptcy resulted in the CRA getting just $163 of the $163,000 it was owed.

One trustee, whose job is to administer the bankruptcy, told the Star: “If you make enough to owe taxes, you make enough to pay taxes.” Toronto drywaller Joseph Cloutier agrees. His problem is that he can never hold on to his earnings long enough to pay his taxes at the end of the year.

Joseph Cloutier is a 48-year-old drywaller in Toronto who, at his peak, could bring in $4,000 a week. But he never put money aside for taxes. Tax debt drove all three of his bankruptcies.

Cloutier said he is uncontrollably bad at managing his money. He spends on marijuana, sports gambling and once a week buys rounds at the bar like “Santa Claus.” The 48-year-old man has been drywalling for 30 years, and days drilling 10,000 screws a week has left his shoulder in constant pain. But his main stress, he said, is the CRA. Tax debts have led him to file three bankruptcies in eight years, and the debts owed have increased with each insolvency.

In his latest bankruptcy, he owed the CRA $124,000.

“It’s a grave that you can never climb out,” said Cloutier, who is originally from New Brunswick. “Digging deeper. Every week. You don’t see light. I can’t manage money. The more I have, the more I spend. When I make $4,000 in a week, by next Thursday I’m broke. If I make $1,800, by next Thursday I’m broke.”

When he presided over a Toronto bankruptcy courtroom from 2005 to 2012, Scott Nettie had often seen this “temptation” in debtors “to spend Ottawa’s share of the profits.”

“People don’t properly think of the CRA as their unseen, silent partner in their business venture,” the former registrar said. “They should be putting their partner’s estimated share of the profit aside every period, so when it comes time for your annual reckoning — called your tax return — it’s there.”

In the Toronto courtroom last month, Cloutier told the judge he wants to switch to working “on the books” and getting paycheques with built-in deductions, but he can’t because the CRA will immediately start garnishing his wages, leaving him without enough to pay his bills. For this to work, he needs another fresh start and the CRA once again off his back.

“Since you filed this bankruptcy, you continued not to pay your taxes. … Why should this court believe that you have been rehabilitated by this process?” asked registrar May Jean.

“I’m going to make an effort,” Cloutier said.

Jean granted a suspended discharge with conditions, including that Cloutier first pay the tens of thousands of dollars in CRA debt that he has accrued since filing his latest bankruptcy.

Unlike credit card companies and others, who can choose not to lend to the repeat bankrupt, the CRA — and by extension, the general public — is an involuntary creditor. “CRA does not get to assess creditworthiness and refuse to extend credit,” Nettie said in the case of the former tax accountant whose discharge he refused.

Yet the CRA does not always attend hearings to oppose discharges. In Cloutier’s case, no one from the tax agency appeared.

Creditors must file a proof of claim to receive a share of the assets. Yet the CRA, say trustees interviewed by the Star, sometimes doesn’t.

The CRA assesses each case to determine if the administrative costs of pursuing a claim outweigh what the government will potentially recover, said Charly Norris, director of the tax agency’s collections enforcement division.

“If there is any potential to recover any money, we will file that proof of claim,” Norris said.

The collections division has more than 5,000 employees, roughly 300 of whom focus exclusively on debtors who have filed for insolvency.

Norris said the CRA, with the Department of Justice, will oppose the discharge of any bankrupt whose insolvency is determined to be “tax-driven” — when the debtor has $200,000 or more in income tax debt, including interest and penalties, and whose tax debt represents 75 per cent or more of the total debt owed to creditors.

Get more stories like this one in your inbox

Take your time with the Star’s biggest and best features with our Weekend Long Reads email newsletter.

Sign Up Now

For other cases, the government will review factors including whether the debtor is a repeat bankrupt and how much money can be recouped.

Unpaid taxes written off through bankruptcies constitute a fraction of the $563 billion the CRA collected in tax and other revenue last year, Norris said.

“The CRA uses every measure available to collect outstanding debts before deeming them uncollectable,” Norris said. “We don’t want to leave any money on the table.”

J. Trevor Eyton with his son, Adam, in September 1990 following the elder Eyton's appointment to the senate.

****

In his long corporate career, Trevor Eyton sat on the boards of Coca-Cola, General Motors, Nestle Canada, Barrick Gold and Magna International. He also worked as a consultant. He championed charitable causes, was involved with the Canadian Olympic Foundation, Sunnybrook Hospital and the Arthritis Society and chaired Canada’s Sports Hall of Fame. In 1985, Eyton was named an officer of the Order of Canada.

At the height of his fame, Eyton helmed Brascan, the powerful conglomerate that was controlled by the Bronfman family. During the late 1980s, Brascan derived more than 50 per cent of its revenue from holdings in natural resources companies such as Noranda Inc., Westmin Resources Ltd., and Norcen Energy Resources. The rest of the revenue was drawn from financial services holdings such as London Life and a consumer products group that included John Labatt Ltd.

The bankruptcy court file, and the Eyton family, are mostly silent on what exactly led to Eyton’s tax debt, except for one exchange between the lawyer for RBC, which is leading the search for assets, and one of Eyton’s accountants, Frank Penny.

Eyton did not file tax returns from 2001 until about 2015 or 2016, Penny said in his deposition. “He was in default of filing tax returns for many, many years … He simply didn’t do any, and Revenue Canada came after him. He came to me to help him prepare those.”

In 2005, Trevor Eyton sold his 6,000-square-foot house in Boca Raton, Florida for $1.85 million USD, according to the Palm Beach County property appraiser's office.

Nor do the court documents shed any light on the proceeds from several Eyton property sales made since 2001.

In 2005, Eyton sold a 6,000-square-foot home in Boca Raton, Fla., for $1.85 million (U.S.) according to the Palm Beach County property appraiser’s office.

Five years later, Michael Wekerle — the “bad boy” of Bay Street — bought a sprawling property in Caledon from the Eyton family for $3 million. The selling price was four times what Eyton’s wife, Jane, paid for it in 2000, property records show.

The retired senator loved living in Caledon. He called it “God’s country.” His obituary said he and Jane moved there in 1974 and “that was his principal residence for the rest of his life … it was respite from the demands of his busy career and myriad other commitments.” He enjoyed floating in the pool there while listening to Blue Jays games on the radio.

Eyton next lived in a luxury estate on Lyonsview Lane in Caledon. The house with a grand foyer, professionally landscaped grounds, butternut maple kitchen cabinets, a six-piece en suite bathroom, solarium and wine cellar sold for $1.29 million in October.

Eyton was last living at a luxury estate on Lyonsview Lane in Caledon. The house with a grand foyer, professionally landscaped grounds, butternut maple kitchen cabinets, a six-piece ensuite bathroom, solarium and wine cellar sold for $1.29 million in October. Property records show the house was in the name of Eyton's wife until October 2014 and then in the name of their son.

Property records show the Caledon house was owned by Eyton’s wife until October 2014, a month before she died, when the ownership was transferred to Eyton’s son, Adam.

Penny told RBC lawyer Rachel Moses that he was unaware of Eyton owning any property at the time of his death. His two vehicles, including a Cadillac SUV, were leased.

Richard Howell, a bankruptcy lawyer representing the Eyton family, said it is common practice for corporate executives and board members like Eyton to put property in the names of family members to protect assets from hypothetical threats, such as lawsuits targeting the companies.

Howell said the Eyton family also rented an apartment at the Manulife Centre in downtown Toronto, but said he did not know the monthly rent.

The Caledon property transfer from mother to son was made less than a year after a court official, for the second time, made a default judgment ordering Eyton to pay back two loans from RBC. It is not clear from court documents when the loans totalling $725,219 were initially made, but by 2002 the bank was trying to get its money back.

Between 2002 and 2006, Eyton signed and then broke two settlement agreements to make payments; one agreement required him to put up a $1-million life insurance policy as collateral, RBC alleged in court. On Sept. 6, 2006, the first default judgment was issued. Notices of garnishment were drawn up to be sent to the Senate and Sports Hall of Fame, as well as companies Eyton was involved with including Brookfield Asset Management (formerly Brascan). That process stopped when negotiations between Eyton and RBC resumed.

In 2010, saying he wanted to pursue a professional opportunity and have writs of seizure and sale of his property lifted, Eyton signed a third agreement with RBC. However, he broke that agreement, RBC alleged, leading to the second default judgment.

J. Trevor Eyton, third from left, and his wife, Jane, second from right at a fundraising event in 1987.

The bank is still trying to determine where Eyton kept and spent his money in the years before his death.

With pension payments and fees for sitting on corporate boards, Eyton reported net income of nearly $400,000 in 2016. In 2017, his net income hit $2.5 million. That year, he stepped down from the board of directors of Magna International Inc., and sold his shares in the company, leading to $2.1 million in income from Magna. About half of that was paid in income tax, and Eyton paid another $305,000 to the CRA toward his tax arrears; after another $146,000 transaction, he took home $800,000. He told the bankruptcy court he used the money for “living expenses.”

During his examination by RBC lawyer Moses, Adam Eyton said he did not know where that money went. Howell, the bankruptcy lawyer representing the Eyton family, told the Star that some of the money was used to cover mortgage payments, taxes and rent on the Toronto apartment.

The $146,000 transaction was a “shareholder loan repayment” from Eyton to a numbered company 160609 Canada Ltd.

Another of Eyton’s accountants, David Smith, told the Star that Eyton “had debts to the (160609) company, too,” adding that he did not know anything about the CRA and RBC debts.

The numbered company is directed by Adam Eyton, who is a majority shareholder, while Trevor Eyton had a 10 per cent stake, according to Adam Eyton’s deposition. He said the company provided consulting services.

Moses is not finished her investigation. Both accountant Penny and Adam Eyton must provide information that they did not have on-hand during their initial examinations.

After the bankruptcy trustee gets his administrative fee, whatever is left of the Eyton estate will be divided among his creditors. The CRA holds more than 60 per cent of the debt. If all that is available is the $1.22 million currently in Eyton’s estate, then the government will only end up getting about 30 per cent of what it was owed.

This investigation was done in partnership with Katia Gagnon and Marie-Eve Fournier of La Presse. Data analysis by Andrew Bailey.

David Bruser
Jesse McLean





Source link