Section 230

The trial judge had committed an error of law when he concluded that failure of the taxpayers to keep proper records of wages paid by them to employees was fatal to their claim for a corresponding deduction from income. Although the requirement of s. 230(1) was absolute, the consequence of not complying was conviction for an offence under s. 238(2), rather than a necessary conclusion that the transactions which ought to have been recorded did not occur.

Sections 230(1) and 230(3) are necessarily incidental to the federal powers of taxation exercised under the Act, and accordingly are not ultra vires. The Minister could require the taxpayer to keep its books and records at a place of business in Canada, rather than on a computer system in Michigan.

It was stated, obiter, that s. 230(1) permits "the temporary transfer of records from time to time away from the place of business or residence provided that, generally, they are 'kept' there."

The appellant ("Prescient") and several other registered charities were intermediaries in a series of transactions (the "Farm Sale Transactions"), such that charitable receipts were generated on what was essentially a private sale of business assets. It also donated $500,000 to a non-qualified donee ("DATA"), a registered US non-profit organization whose principal mission was to alleviate property and disease in Africa. Mainville JA found that the donation to DATA was not grounds for revoking Prescient's charitable registration, but the Farm Sale Transactions were.

Mainville JA also agreed with the Minister's alternative argument that Prescient's charitable registration could be revoked because Prescient failed to maintain adequate records. In particular, the question was whether the Minister had acted reasonably given that charitable foundations are generally issued a warning regarding record-keeping lapses before their registrations are revoked. Mainville JA stated (at para. 56):

Though Prescient was remiss in maintaining proper records of the Farm Sale Transactions, the CRA auditor was nevertheless supplied with a considerable amount of information concerning these transactions which allwed her to understand both their scope and their nature. In my view, it would not have been reasonable for the Minister to revoke Prescient's registration on that basis alone. On the other hand, Prescient's failure to maintain adequate records and books of account showing that its contribution to DATA was made to an American charity, coupled with its failure to voluntarily and promptly disclose this fact to the auditor, constitutes a very serious matter.

Taking both failures together, Mainville JA concluded that the Minister's decision had been reasonable.

In finding that a lawyer's list of client names were not automatically protected by solicitor-client privilege, Trudel JA also disagreed with the taxpayer's arguments that client names are not part of a lawyer's accounting record, and that client names are as privileged as statements of account. She stated (at para. 57):

Statements of account are not the same as a lawyer's accounting records. The latter consist essentially of statements of fact such as the name of the client, the amount billed for the professional services, the payments received and the amounts still owed. Statements of account, by contrast, may reveal a history of the file. They may contain information including the nature of the consultation, a summary of communications between solicitor and client, and so on, which may be covered by solicitor-client privilege.

Books and records were not inadequate by virtue only of the fact that they were kept at the Michigan premises of an American holding company.