Section 231.1

Campbell J allowed the Minister's s. 231.7 application to enforce her demand for unredacted copies of its tax accrual working papers (containing descriptions of issues for which it had exposure). The papers were compellable because they were "an important tax record in BP Canada's possession" (para. 25). Whatever policy ramifications flow from compelling the production of such papers are within the Minister's purview to manage, not the courts' (para. 29).

Neither did Campbell J see why there should be an exercise of Court discretion to quash the demand. The Minister's position had always been that such papers were compellable, and the restraint with which it typically applied that policy was not binding (paras. 11, 13).

Arguments that the taxpayer effectively was being "conscripted" to audit itself were unpersuasive, as the working papers had already been prepared for other (accounting) reasons (para. 24). Although the papers had been prepared for what now were statute-barred years, their content remained relevant to subsequent years (para. 32).

Finally, as to whether the demand was unfair, Campbell J adopted (at para. 47) a statement of the Minister that:

...If the CRA does not uncover the tax positions in time, the shareholders of BP win, and the taxpayers of Canada lose. If the tax position is discovered and challenged by the CRA, the matter can ultimately be resolved by the Tax Court of Canada as to the propriety.

The taxpayer had been convicted of over 30 GST-related offences. In the course of appealing the related reassessments, she moved, on Charter grounds, to exclude from evidence any information the Minister obtained from Requests for Information, arguing that the RFIs were made in the course of a criminal investigation.

The trial judge dismissed the taxpayer's motion, finding that the situation involved a concurrent criminal investigation and audit. Trudel JA further added (at para. 9):

The Judge's legal finding accords with Jarvis and with the self-assessment and the self-reporting nature of the income tax regime. Whether the CRA could properly use such documents to prosecute the appellant for criminal offences under the ETA is irrelevant to the current civil proceedings.

In any event, even if the taxpayer were correct that her rights were breached, it was "at best a technical breach" which did not call for a remedy under s. 24(2) of the Charter (para. 9).

The accused applied to exclude evidence collected from an audit on the basis that the audit had a criminal investigation purpose. Applying the predominant purpose test in Jarvis to dismiss the taxpayer's application, Marchand J noted that the mere fact that the auditor did not pass along the audit file to the Enforcement Division at the very earliest reasonable time (7 September 2010) did not mean that the Audit Division's primary purpose had changed to a criminal purpose before the file was passed along (16 December 2010).

The Court affirmed the trial judge's decision to exclude evidence obtained by CRA in the course of a pilot project to evaluate the adequacy and reliability of the point-of-sale systems of various business including that of the accused, including the warrantless seizure of accounting diskettes. The project was a randomly sampled study intended for policy research, and was not meant to investigate tax liabilities. CRA officials misrepresented their authority under the project in order to seize the diskettes. The Court found that this amounted to a warrantless seizure in violation of the taxpayer's Charter rights.

Hinkson J.A. also remarked (at para. 54) that the Supreme Court of Canada's requirement in Richardson, that the Minister exercise power under s. 231.2 only if the taxpayer's liability is a "subject of genuine and serious inquiry," also applies to s. 231.1.

After the CRA served the appellant with a requirement under s. 230(3) asking that it maintain "transmittal forms" showing the identities of (parent) donors to the appellant and the names of students (typically children of the parents) who received funding for their attendance at a university that was affiliated with the appellant, CRA requested donor lists from the appellant. As the Minister led unchallenged evidence that the information it sought identifying donors was necessary for determining whether the appellant was issuing receipts otherwise than in accordance with the Act (so that there would be grounds to revoke its registration), the Minister was entitled to the requested information due to the combined effect of ss.230(2)(a) and 231.1, without seeking judicial authorization under s. 231.2(2). This interpretation did not render s. 231.2 redundant, as s. 231.2 responded to the need for the Minister to seek information relating to unnamed persons from a third party record holder outside the context of a formal audit.

After applying a range of factors Noël J. concluded that the predominant purpose of letters and questionnaires was to further a criminal investigation and were not within the parameters of the audit functions contained in s. 231.1(1). The letters and questionnaires were quashed, and the Minister prohibited from taking any proceedings for the applicants' failure to respond.

An investigation by CCRA of the taxpayer was not transmuted into a criminal investigation until the auditor met with Special Investigations and referred the file to them for their consideration. Reilly J. noted (at p. 5219) that:

"The mere fact that the audit was provoked as a result of suspicion of non-compliance does not turn it into an investigation to determine penal liability."

He also noted (at p. 5220) that:

"Questions related to mens rea do not fall within the scope of s. 231.1(1)(d)."

CCRA was conducting an audit and not an investigation of the taxpayer up until the time of a three-hour meeting in which the taxpayer was questioned extensively about unidentified deposits and unreported income. Accordingly, evidence gathered prior to and during that meeting was properly obtained as part of the audit process and could be shared with Special Investigations, whereas evidence gathered subsequent to that meeting and prior to warning him that he was the subject of an investigation for the purposes of furthering an s. 239(1) prosecution, violated the taxpayer's Charter rights and would have to be reconsidered in light of s. 24(2) of the Charter at a new trial.

Where the predominant purpose of a particular inquiry is the determination of a penal liability (e.g., under s. 239 of the Act), CCRA officials may not have recourse to the inspection and requirement tools in ss.231.1(1) and 231.2(1). In this regard, "enforcement" in s. 231.1(1) and 231.2(1) did not include prosecution of an s. 239 criminal offence. Here, the predominant purpose of an investigation by an auditor was not the determination of penal liability for the taxpayer, with the result that information obtained in the investigation was admissible for the purpose of an application for a search warrant. Accordingly, the warrant was validly issued.

The photocopying by a Revenue Canada auditor of notes made by an accountant in his interview with the taxpayer which the auditor obtained from an empty office at the time the accountant was out of town was not authorized by s. 231.1(1). Sharlow J.A. stated (at p. 5114) that "one might question whether an auditor can be said to have exercised his powers of investigation at a 'reasonable time' if he takes a document from an accountant's private office when he knows the accountant is out of town". Furthermore, because the taxpayer had a reasonable expectation of privacy (notwithstanding that "a taxpayer's expectation of privacy in an accountant's notes recording personal information are at the low end of the scale"), there was a breach of the taxpayer's rights under s. 8 of the Charter.

The use of s. 231.1 to obtain bank records and records of a solicitor who had acted for the accused breached the reasonable expectations of privacy of the accused. Bagnall J. found that the use of the evidence so obtained without judicial authorization was not permitted under s. 24(2) of the Charter.

After the taxpayer's file was referred to Special Investigations based on the initial auditor's suspicion that the taxpayer had not reported income, Special Investigations sent the file back to audit for further investigation, with the result that further information was obtained pursuant to s. 231.1(1). On the basis of the information so obtained, search warrants were obtained and executed.

Before finding that the evidence so obtained under s. 231.1(1) should be excluded under s. 24(2) of the Charter and that the search warrants (having been obtained as a consequence of the excluded evidence) had been correctly quashed by the judge below, LaForme J. stated (at p. 5330):

"Section 231.1(1) is designed as a regular audit tool to ensure compliance with the Act. It is not designed to gather evidence for the purpose of a criminal prosecution."

A Revenue Canada officer was authorized to examine and make copies of documents which the OPP had seized and detained pursuant to s. 446 of the Criminal Code, subject to Revenue Canada either obtaining the consent of the taxpayers or obtaining a proper search warrant under s. 231.3 of the Act.

An order was granted restraining the Department from taking further steps in the investigation of the affairs of the taxpayer and specifically from asking him questions. A S.231(4) authorization to enter and search had previously been quashed. To permit the Department to require answers to questions posed pursuant to S.231(1)(c) would have the effect of stultifying the quashing of the authorization - both the S.231(4) search and the S.231(1)(c) questions would seek the same information.

The accused argued that it was inappropriate for CRA to obtain a search warrant under s. 487 of the Criminal Code in respect of suspected offences under the Income Tax Act and Excise Tax Act, as both Acts have their own provisions for obtaining search warrants that (the accused argued) place more stringent requirements on obtaining a search warrant (ITA s. 231.3(1) and ETA s. 290). He argued that the specific procedures set out in those provisions "should not be ignored" in favour of more general procedures dealing with the same matter, and that CRA's policy of obtaining warrants under the Criminal Code instead of the ITA and ETA is a pervasive abuse of process.

Barrow J found no merit in the accused's submissions. The overriding of a general provision by a specific one occurs where the two provisions cannot "stand together," whereas here the provisions merely authorized warrants "somewhat differently" (para. 49).

As for the abuse of process argument, CRA's choice to invoke the Criminal Code procedure was appropriate. Barrow J stated (at para. 54):

[I]n this case the revenue authorities would have had to obtain two warrants, had they attempted one under the Income Tax Act and one under the Excise Tax Act, as opposed to a single warrant granted under the Criminal Code. Second, there is no basis to conclude that because the Income Tax Act and Excise Tax Act warrants can only be issued by a superior court judge, that the level of review applied by the issuing judicial officer is any different, never mind more rigorous, than the review carried out by any other judicial officer.

The seizure of 48 boxes of documents pursuant to s. 231(1)(d) was permissible given the complexity of the taxpayer's affairs. To insist that in all cases the determination of relevance be based upon the examination of the documents at the time of the search would be impractical.

S.231(1)(d) is ultra vires by virtue of s. 8 of the Charter because it permits seizure in advance of any judicial authorization. "The argument advanced by the appellant that immediate seizure may be necessary to prevent loss or destruction of potential evidence, is in my view without merit on the issue of the constitutionality of the section although it may conceivably, at least, justify warrantless seizures in special circumstances."

The procedure contemplated by S.231(1)(d) should not be regarded as interfering with the types of privacy interests protected by S.8 of the Charter, given the public interest in a reasonably efficient system of collecting taxes.

S.231(1)(d) (as opposed to S.231(4)) does not authorize an auditor to seize if he had formulated a belief of probable guilt prior to coming upon the incriminating records.

It was indicated, obiter, that S.231(1)(d) "embraces all the documents required to be retained by a taxpayer under S.230", rather than being limited to the seizure of documents relating to the taxation year in which there appears to have been a violation.

It was stated, obiter, that it is immaterial that there is a time lag between the noting of the violation and the seizure.