N.S. marijuana activist accused of not reporting $2.5M in sales, faces huge tax penalties

In his years of medical marijuana activism, Chris Enns has been arrested, faced multiple police raids, argued the finer points of constitutional law in court, and championed for the rolling back of laws that restrict who can sell cannabis.

But out of the public view a battle of another kind has been brewing. The Canada Revenue Agency is claiming the 39-year-old Halifax-area man and his company didn’t report more than $2.5 million worth of sales at his illegal dispensaries a decade ago, according to court records.

It’s a number that, if upheld by a judge, will likely lead to a huge tax bill. It could also cast Enns’s operations, long portrayed as altruistic, in a different light, one of highly profitable ventures.

Enns, who was at the forefront of the medical marijuana movement in Halifax, said in an email he believes he is being unfairly targeted by the CRA. He said the sales numbers put forward by the agency are not accurate, and he has no unreported income. 

The case, which dates to the years 2012-2014, is moving through the Tax Court of Canada at a time when the CRA has dialed in its focus on illegal income from drug dealers to fraudsters. This spring, it quietly set up a full-time “illicit income” program that includes 80 auditors across the country.

From April to the end of August, the agency said specialized teams have completed 90 audits, identified $74 million in unreported income and $24 million in tax owing, and issued $7 million in penalties.

There is no evidence in Tax Court records that Enns, an advocate for medical marijuana who has maintained his interest lies in helping patients with debilitating diseases, is in the same camp as organized criminals or cocaine dealers living lavish lifestyles.

The CRA acknowledges in court records his circumstances were “unique,” as he held no assets and had no bank accounts.

But in court records the federal government does level significant allegations against Enns, arguing that he “deliberately structures his finances so that the government cannot determine the taxable income of his businesses and himself,” an allegation he denies.

A decade ago, Chris Enns was behind a number of illegal dispensaries that opened up in the Halifax area. But now he’s facing a challenge of a different kind — and it comes from the Canada Revenue Agency.

Two years ago, Enns and a numbered company he controls filed appeals after the minister of national revenue confirmed tax reassessments that found more than $2.5 million in unreported revenue over a three-year period.

The reassessments also disallowed tens of thousands of dollars of expenses, and issued more than $654,000 in “gross negligence” penalties to Enns and the company. No date for the appeal has been set.

It appears from the court records that the CRA’s interest in Enns is closely connected to his arrests on trafficking charges and police raids of his dispensaries in 2013 and 2014. In building its tax case, the agency relied in part on information in a forensic accounting analysis prepared by police.

The CRA declined to comment on the case. But audits of illegal income are commonly prompted by tips from law enforcement, according to Eric Ferron, the director general of the agency’s illicit income audit program.

Specialist auditors use “indirect verification methods” to try to determine income, such as combing through bank and credit card records and examining assets such as luxury vehicles in an effort to quantify profits from criminal activities. 

The CRA can garnish future wages, seize assets like boats and homes, or ask the Department of Justice to seek “jeopardy orders” through the courts to put liens on property.

“It is difficult, but it is the right thing to do,” Ferron said. “At the end of the day, we want to promote tax fairness, and we also want to disrupt illicit financial flows. People shouldn’t profit from illegal activity, and people should pay their fair share of taxes.”

While the CRA’s efforts to tax illegal income may surprise many Canadians, the agency has been doing so for years, and court rulings dating back a century have affirmed authorities have such power.

In 1926, for instance, Canada’s highest court of appeal at the time, the Judicial Committee of the Privy Council in the United Kingdom, ruled an Ontario garage owner who had been “trafficking” in liquor contrary to temperance laws was obligated to pay income tax on his illegal profits.

Previous charges

Over the last decade, Enns has been charged multiple times with marijuana-related offences, but has managed to beat back most prosecutions. In some cases, charges have been dropped. In another, he successfully argued there was insufficient information in a search warrant, violating his Charter rights.

He is tentatively set to go on trial next year on trafficking charges related to a 2017 traffic stop where police said they seized nearly three kilograms of marijuana from a vehicle.

But the CRA case is new territory for Enns, delving not into whether his business is legal, but whether he has accurately reported income from marijuana sales and the resulting benefits he received as a company shareholder.

It involves both Enns and a numbered company, 3259147 Nova Scotia Ltd., which operates as the Grow Shop in the Burnside industrial park of Dartmouth, N.S. Enns was a 50 per cent shareholder at the time.

Enns and the company dispute the CRA’s sales numbers, saying they don’t take into account the cost of the goods. The CRA acknowledges that its sales figures are “projections” in two of the three years, but said sales “grew exponentially” during the period.

In court records, Enns argues the Grow Shop sold gardening and hydroponic supplies, and that marijuana products were provided through a separate business, the not-for-profit Halifax Compassionate Club, and later the Farm Assists Cannabis Resource Centre.

The federal government counters that the Halifax Compassionate Club never filed a tax return, and didn’t keep records required of a not-for-profit. All of Enns’s business, the government argues, was in fact conducted through the numbered company, whose books and records are “unreliable.”

“Enns attempted to structure his business affairs so that expenses are claimed, but revenue sources are either not reported or under-reported,” according to the government’s reply to the appeal notices.

In an email, Enns said the “many criminal proceedings” against him have made bookkeeping difficult, and he is trying to bring his records up to date. He said his only asset is a 2010 Honda Civic.

“The CRA is basing its assertions on documents that were developed in the process of a criminal prosecution that was withdrawn by the Crown,” he said. “Not only were the numbers in the document artificially generated, but the document itself is being used improperly by the CRA.”

Dana Larsen, a marijuana dispensary operator and prominent activist in Vancouver for the legalization of psychedelic drugs, said he encourages storefront owners intent on challenging drug legislation to ensure their businesses comply with other laws.

His dispensaries have been raided by police a number of times over the years, including three locations last month that sell magic mushrooms. Larsen himself has been arrested.

But what he said hasn’t happened in his years of activism is a CRA audit. He said he keeps detailed payroll and business records, submits sales tax and files tax returns. 

“My goal is not to challenge the laws around paying GST or income tax. Our goal is only to challenge the laws around cannabis and psychedelic access,” he said. “You’ve got to be very targeted in what laws you’re breaking, and why, and how you’re breaking them.”