Ottawa dentist faces financial ruin for taking part in tax-evasion scheme

Clark and Mary Margaret Webster were followers of Chilliwack, B.C., anti-tax crusader Russell Porisky.I doubt most of us really like paying taxes, even if we think they're necessary, and we're happy to use every deduction we're entitled to claim.

But would you buy into the idea that the entire tax system is a legal illusion concocted by the government to bleed you dry, and you're entirely within your rights to refuse payment?

Meet Clark and Mary Margaret Webster, who swallowed just such a theory. The Ottawa dentist and his wife are now serving house arrest and facing financial ruin for failing to pay more than $300,000 in tax after pleading guilty this week to tax evasion, the National Post reports.

Webster, 63, stopped declaring income from his dental practice in 2004, and his wife stopped declaring the money she earned as his office manager, after literally buying into the teachings of anti-tax advocate Russ Porisky. The Chilliwack, B.C., man ran something called the Paradigm Education Group, which claimed that income taxes were unconstitutional and that taxing a person's labour is confiscation of property, the Post said.

[ Related: CRA warns Canadians about tax protest schemes ]

Porisky's followers paid thousands of dollars to learn how to evade taxes by declaring themselves "natural persons," as distinct from "legal persons" who are subject to taxation. The Post likened the system of legal persons to The Matrix, the movie trilogy about humans who live unknowingly in a virtual reality until they're awakened to their true nature and rebel.

Porisky spread his theory via books, pamphlets, CDs, seminars and the Internet, the Post said. Paradigm's videos are still to be found on YouTube.

The Websters paid Paradigm "educator" Lee Williams more than $31,000 to learn how to work the scheme, court was told. A percentage of the money was passed on to Porisky.

Sadly for the foolish couple, it was Porisky who was living in an illusory world.

While the concept of legal versus natural persons exists, court decisions have determined it has no standing when it comes to taxation. Canada Revenue Agency has warnings on its web site cautioning Canadians not to fall for the theories of tax protesters such as Porisky.

Tax-protest movements have a long history, Prof. Ted Lindsay of the University of Victoria's School of Public Administration wrote in a Globe and Mail column last May. But convoluted constitutional arguments against the government's power of direct taxation have been rejected consistently by Canadian courts, he wrote.

"The fundamental flaw of this argument is that section 91(3) of the Constitution Act allows the federal government to raise money by any 'mode or system of taxation.' The mode includes both direct and indirect taxes," Lindsay wrote.

The second argument focused on legal versus natural persons has also been declared "a distinction without a difference" by the courts for tax purposes, he wrote.

Porisky was convicted of tax evasion last January and sentenced in May to 4 1/2 years in prison for failing to pay almost $1.2 million in income tax on the earnings from his teachings, CBC News reported. The judge found Porisky's argument "lacks logic, coherence and consistency," Lindsay noted.

Another of Porisky's adherents, Doris Kau Chun Jung of Vancouver, also paid heavily for buying into his scheme. The Vancouver Sun reported in 2011 that Jung was given 14 months probation and 40 hours of community service for evading more than $27,000 in income taxes. She abandoned the natural-person argument and fought the case on more conventional tax grounds but still lost, the Sun said.

Williams, who schooled Webster in Porisky's theory, is serving four years in prison while his wife, Ottawa-area dentist Tanya Kovaluk was given 2 1/2 years for evading almost a million dollars in taxes and aiding her husband, the Post said.

The Websters, meanwhile, have liens on their suburban home for twice its value and are facing court-ordered eviction, said their lawyer, Leonard Shore.

[ Related: B.C. tax evader sentenced to 4 ½ years in prison ]

The Websters' decision to plead guilty and express remorse for participating in the scheme led the judge to hand down house arrest sentences and minimum fines equal to the tax they tried to evade, totalling about $350,000.

“Why intelligent, educated folks would fall prey to this kind of a plan or scheme is baffling,” Shore told the Post.

“There is a perfect Yiddish word for this — farkakte (roughly translated as all crapped up). It’s a hare-brain scheme, ill-advised with no possibility of success. That is exactly what this is."