Section 231.2

The taxpayer appealed a conviction under s. 238(1) for failing to comply in a timely manner with a demand under s. 231.2(1) to provide CRA with signed and completed returns. Melnick J. dismissed the taxpayer's argument that the s. 231.2(1) request was invalid in that there was not a "genuine and serious inquiry" into the taxpayer's tax liability. He stated (at paras. 21-22):

While a demand that an individual submit returns under section 231.2 may not be conclusive proof that there was a genuine and serious inquiry into a taxpayer's liability where there is evidence suggesting the contrary, it does amount to prima facie evidence of a genuine and serious inquiry and will satisfy the Crown's burden in situations where there is no evidence to the contrary.

In the present case, there was no evidence that the Minister was motivated by some ulterior purpose.

The taxpayer assisted its clients in acquiring minority shares in "Tech Wreck" corporations that had become insolvent, with a view to their accessing the substantial pool of losses from the old businesses. Mactavish J. granted the Minister's ex parte application to require the taxpayer to disclose its client list. The purpose of the requirement was demonstrably to verify an ascertainable group's compliance with the Act, given that the taxpayer would clearly know which of its clients participated in the scheme and given provisions of the Act which targeted loss trading. Mactavish J. noted that the Minister "no longer needs to show that the Requirement Order relates to a 'genuine and serious inquiry' into the tax liability of a specific person or persons,'" and that it was enough to show a good faith attempt to verify compliance (para. 50).

There was no merit to the taxpayer's submission that the Minister's application had failed to disclose that the information sought could have been obtained by mining its own databases or through the System for Electronic Document Analysis and Retrieval (SEDAR). Neither of these systems would enable the Minister to identify which loss companies were being used, and neither system would reveal the identities of the clients (because their ownership percentages were too low).

The Respondent was unsuccessful in a submission that a notice given under s. 231.2(1) was not valid because the information requested related to a corporation that had been dissolved. Strayer D.J. noted (at para. 8) that "the information requested relates to the identification of assets which had belonged to a defunct company that owed unpaid taxes and might be revived in the future for purposes of collection".

Requirements issued to the taxpayer following the laying of charges against him in California in connection with various offences involving an illicit drug importation and distribution operation and the laundering of the proceeds were found to have been issued predominantly for the purpose of the conduct of an audit rather than the pursuit of a criminal investigation. No clear decision had been made to pursue a criminal investigation based on the evidence, and respecting the further question as to whether an adversarial relationship had developed within the meaning of the Jarvis case, the pre-audit inquiries were but a first step in determining whether the taxpayer was a non-filer for the taxation years in question, and the practice of the Special Enforcement Program Unit doing the investigation was to only conduct audits and not criminal investigations.

Demands made by the Minister on the taxpayer, (who had filed a proposal under the Bankruptcy and Insolvency Act), pursuant to s. 231.2(1) respecting properties in Florida were not contrary to s. 69.1(1) of the Bankruptcy and Insolvency Act, which stipulated that "on the filing of a proposal, no creditor ... shall commence or continue any action, execution or other proceedings, for the recovery of the claim provable in bankruptcy, until the trustee has been discharged or the insolvent person becomes bankrupt ...".

Requirements were issued in connection with a joint program with the RCMP to combat organized crime, and were quashed.

The appellant had arranged for the sale of artwork to individual Canadian taxpayers who donated the works to registered charities at a marked-up value. When the Minister issued a requirement to the appellant under s. 231.2(1), the appellant was entitled to redact the name of the third-party taxpayers (donors) given that the Minister was investigating compliance by the taxpayers with the Act. Counsel for the Minister unsuccessfully argued that "the restriction against obtaining information or documents relating to unnamed persons only applies where the third party itself is not under investigation".

A demand to the respondent bank to disclose the name, address and telephone number of an account holder to whose account a tax debtor had deposited a cheque was not valid as there was no judicial authorization pursuant to s. 231.2(2). Décary J.A. described the purposes of s. 231.2(2).

An investigation of the taxpayers conducted by Special Investigations was a criminal investigation as stated by one of the investigators. Accordingly, the requirement power in s. 231.2(1), which did not distinguish between physical and corporate taxpayers, could not be utilized. The Minister's requirements for production of documents were quashed.

An accounting firm was not permitted to refuse to answer the Minister's written questions in writing (thereby generating new documents). Given the contrast with s. 231.2(1)(b) which permitted the Minister to compel the production of documents and records, under s. 231.2(1)(a) the Minister had the right to ask questions to elicit knowledge or facts.

The trial judge had erred in finding that the accounting firm had the right to redact documents to expunge the names of clients of the accounting firm who were unrelated to the taxpayers being investigated by CCRA.

The applicants received letters entitled Requirement to Provide Information and Documents With Respect to Donations Made For Charitable Organizations

The record as a whole including testimony of CCRA investigators indicated that the predominant purpose of the investigation giving rise to the Requirements was prosecution of the applicants for tax evasion. The Requirements issued to the individual applicants were ordered to be quashed, whereas those issued to the corporate applicants were upheld given that the privacy interests of corporate entities are minimal as compared with those of individuals.

The taxpayer, which was involved in facilitating donations of artwork by third parties, blanked out the names of the third parties when information about the transactions was requested by the Minister ("CCRA"). When CCRA applied to the Court for a requirement to receive information about the unnamed persons, the applicants exercised their rights pursuant to s. 231.2(5) to seek judicial review of the requirements. CCRA then side-stepped this process by indicating it would not enforce the old requirements and instead applied for new requirements indicating that it was seeking the information about the third parties in connection only with its audit of the applicants.

Heneghan J. found (at p. 5065) that:

"The Minister, not the taxpayer, bears the burden of complying with section 231.2"

and (at p. 5066) that:

"The Minister here has failed to objectively establish that he had fairly stated his purpose in issuing the new requirements."

Accordingly, the new requirements were invalid for failure to comply with ss.231.2(2) and (3).

Upon receiving a request for information relating to the taxpayer including a list of shareholders and their percentage shareholdings, CCRA was required to obtain the information by the administrative measures available to it (rather than being only obligated to exchange information already gathered by it), with the result that a requirement for such information issued to the taxpayer pursuant to s. 231.2(1) was valid. In the absence of any evidence that information relating to the tax returns or liability of unidentified Canadian taxpayers was being requested, there was no requirement to comply with the procedure in s. 231.2(3).

Arguments that tax planning memoranda were irrelevant to the issue whether the transactions under investigation were avoidance transactions, were dismissed.

The Minister issued a requirement obligating the respondent to provide banking documents concerning a delinquent taxpayer as well as the banking documents of other related Credit Union account holders. Mandamin, J. found that the requirement was valid as these other unnamed account holders were not persons that were under investigation by the Minister.

This was a companion decision to RBC Life Insurance.

The Minister had obtained authorizations from the Federal Court under s. 231.2(3) to require the taxpayer to produce information relating to the employees of its corporate customers who had participated in a promotional cruise organized by the taxpayer.

The trial judge's decision to grant the taxpayer's application under s. 231.2(6) and cancel the authorization was based on similar reasoning as in RBC, and was therefore upheld. Stratas J.A. noted two additional observations worth making. He stated (at para. 6):

Key to the Federal Court's decision was the failure of the Minister to disclose in the ex parte application that there was an alternative source by which the information it desired could be obtained. As the Federal Court noted in its reasons, this Court has held that the existence of an alternative source is a material fact that should be disclosed in the ex parte application and "[a] judge must not be left in the dark on such an important point": M.N.R. v. Derakhshani, 2009 FCA 190 at paragraph 29.

Regarding the Minister's submission that the authorization should nevertheless be upheld because of the interest of verifying compliance with the Act, Stratas J.A. stated (at para. 7):

Considering the relevance of the non-disclosure to the court's discretion to issue the authorization, the reasons behind the disclosure requirement, the extent of the culpability associated with the non-disclosure, and the importance and significance of the matters not disclosed, the Federal Court exercised its discretion to cancel the authorization. The Minister has not persuaded me that there is any error in principle or palpable and overriding error vitiating the Federal Court's exercise of discretion.

The Court made an order setting aside an order of the Federal Court, which had set aside an earlier order made ex parte under s. 232.2(3) authorizing the Minister to impose a requirement on the Greater Montreal Real Estate Board (a non-profit organization) to provide information and documents relating to its members, who were 8,500 real estate agents and brokers in Quebec.

The order related to an identifiable group (the real estate agents and brokers living or carrying on business in the area served by a particular office of CRA), and the applications judge was satisfied that the information was required for a tax audit conducted in good faith. There was no requirement that each and every member of the group be the subject of a "genuine and serious" inquiry.

S.231.2 permitted an order that would require a Canadian resident to provide information (i.e., the particulars of Canadian "PowerSellers") to which it had access in Canada and which in fact it accessed as part of its business conducted in Canada but which was stored on data facilities owned by a parent corporation in the United States.

A charity auditor had acted improperly when he handed over a list of donors, who had contributed comic books to the appellant, to the tax avoidance section. On his ex parte application to subsequently obtain the list of the donors pursuant to an s. 231.2 application, the Minister failed to disclose that the CRA tax avoidance section was already using the list obtained during the charity audit. In these circumstances, the appropriate remedy was to penalize the CRA by way of costs on a solicitor-client basis and to insist that the CRA reassess taxpayers on the basis of the list that was ordered to be produced by the Court rather than on the basis of the list previously provided.

Before finding that the Minister had properly obtained an authorization pursuant to s. 231.2(3) requiring the respondents to provide a list of all persons who had been sold interests in certain seismic data, Rothstein J. rejected a submission that the names of the investors would be more readily available through an audit of the respondents and stated (at p. 5364):

"I agree with counsel for the Minister that for the Minister to obtain the names of unnamed investors by way of an audit of the vendors would be to do indirectly what the Minister is not allowed to do directly. To obtain the names of unnamed persons from third parties, the Minister must seek a Court order."

The taxpayers offered "10-8" insurance plans to their customers, which generated exempt income and deductible interest. Under a 10-8 plan, the customer borrows money at 10% tax-deductible interest, and uses the borrowed amount to obtain an investment vehicle that returns 8% tax-exempt interest. After the Minister obtained authorizations from the Federal Court under s. 231.2(3) requiring the taxpayers to disclose customer lists, the taxpayers successfully applied under s. 231.2(6) to have those prior authorizations cancelled. The Minister had withheld significant information on the original application, including that CRA was deliberately engaging in an "audit blitz" so as to have a chilling effect on the 10-8 plans, notwithstanding that they were acknowledged to technically work.

The Court affirmed the cancellation of the authorizations. In response to a submission that a judge reviewing such authorization under s. 231.2(6) may only consider specifically whether the conditions in s. 231.2(3)(a) and (b) are satisfied, Stratas J.A. stated that the existence of judicial discretion is essential to the constitutional validity of an authorization in the first place under s. 231.2(3) (para. 23), that the "review under subsection 231.2(6) must include a discretionary element and is not limited to verifying that the two statutory preconditions are met" (para. 27), and that the alternative would render the Court "powerless" to address an abuse of process (para. 28): such as the withholding of relevant information - for example "the Minister could misinform the judge about the inconvenience and cost to persons who will be subject to the authorization" (para. 30); or even "bald lies" (para. 29).

Since Canada (Human Rights Commission) v. Canadian Liberty Net, [1998] 1 S.C.R. 626 at paras. 35-38, the Federal Courts have had "plenary powers" analogous to the inherent powers of a provincial superior court (para. 35), which include the power to address abuse of process.