Cullen,
J.:—This
is
an
application
for
review
of
a
requirement
by
the
Minister
of
National
Revenue
that
the
applicant,
John
D.
Merko,
produce
any
“foreign-based
information
or
document"
relevant
to
the
administration
or
enforcement
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
"Act")
pursuant
to
subsection
231.6(2)
of
the
Act.
The
applicant
filed
a
tax
return
for
the
1986
tax
year
in
which
he
claimed
a
refund
of
$19,930.80
based
upon
a
negative
income
of
$32,627.
Included
in
the
computation
of
the
negative
net
income
were
two
business
losses
totalling
$130,000
in
respect
of
the
applicant's
share
as
a
limited
partner
of
the
losses
incurred
by
the
following
limited
partnerships:
CRL
Management
and
Overhead
Ltd.
Partnerships
(CRL)—$20,000;
and
First
Taxinvestors
Ltd.
Partnership—$110,000
A
listing
of
the
written
exchanges
between
the
parties
is
necessary.
By
letter
dated
July
22,
1987,
Revenue
Canada
informed
the
applicant
that
losses
could
not
be
included
in
the
applicant's
return
pending
the
outcome
of
audits
being
conducted
on
the
limited
partnerships.
The
letter
was
quite
specific;
it
reads
in
part:
We
wish
to
advise
you
that
the
business
losses
in
the
amounts
of
$20,000
from
your
participation
in
CRL
Management
and
Overhead
Ltd.
Partnership
and
$110,000
from
your
participation
in
First
Taxinvestors
Ltd.
Partnership
will
be
verified
prior
to
your
Return
being
processed.
This
verification
will
be
carried
out
by
our
Calgary
District
Office.
Accordingly,
your
Return
will
be
held
in
abeyance
until
the
completion
of
the
verification.
However,
should
you
wish
us
to
process
your
Return
without
the
deduction
for
the
business
losses
claimed
from
CRL
Management
and
Overhead
Ltd.
Partnership
and
First
Taxinvestors
Ltd.
Partnership,
please
forward
your
request
in
writing
to:
[address
follows].
[Emphasis
added.]
The
plaintiff
was
not
amused
and
replied
March
28,
1988
as
follows:
This
letter
is
to
formally
complain
about
your
refusal
to
process
my
1986
Tax
Return
in
an
efficient
and
reasonable
manner.
The
only
correspondence
I
have
received
was
a
letter,
a
copy
of
which
is
attached,
in
which
you
advised
you
were
“verifying
my
participation
in
the
partnership”,
which
I
understand
you
had
done
last
summer.
I
hereby
demand
that
you
process
my
return
immediately.
Either
disallow
the
deductions
in
respect
to
my
limited
partnership
investments
and
state
your
reasons
so
I
can
appeal,
or
process
my
return
as
filed.
To
do
otherwise
is
an
abuse
of
process.
This
is
certainly
the
case
since
you
have
three
years
to
reassess,
if
you
desire
to
do
so.
On
April
11,
1988,
Revenue
Canada
wrote:
We
are
writing
in
reply
to
your
letter
of
March
28,
1988
to
Mr.
Elstyme
concerning
the
Department's
practice
of
delaying
the
processing
of
your
1986
tax
return
pending
the
results
of
audits
that
are
being
carried
out
on
businesses
in
which
you
are
a
partner
or
investor.
You
have
indicated
that
in
your
opinion
Revenue
Canada,
Taxation
should
process
your
tax
return
in
an
efficient
and
reasonable
manner
and
any
changes
arising
from
audits
should
be
reassessed
at
a
later
date.
Although
reviews
are
being
carried
out
as
quickly
as
possible,
invariably
there
are
delays
in
obtaining
all
the
necessary
information
to
complete
these
audits.
For
this
reason,
you
are
given
the
option
of
having
your
return
assessed
without
the
deduction
for
the
business
losses
claimed
from
CRL
Management
and
Overhead
Ltd.
Partnership
and
First
Taxinvestors
Ltd.
Partnership
before
the
audits
of
the
businesses
are
finalized.
This
option
has
been
available
to
you
since
July
22,
1987.
the
date
of
the
initial
letter
and
it
gives
you
the
opportunity
of
exercising
your
right
of
appeal.
You
mentioned
that
holding
your
1986
return
unassessed
is
an
abuse
of
the
process.
The
Department's
responsibility
for
maintaining
public
confidence
in
the
integrity
of
Canada's
self-assessment
system
of
taxation
is
of
paramount
importance.
Accordingly,
preventative
measures
as
these
are
necessary
to
ensure
that
the
Department
is,
and
perceived
to
be,
fulfilling
its
responsibility
and
protecting
the
Crown's
assets.
Further,
the
presumption
of
honesty
or
innocence
as
set
out
in
the
“Declaration
of
Taxpayer
Rights”
is
still
applicable.
Departmental
staff
are
responsible
to
make
an
impartial
determination
of
law
and
facts
to
ensure
collection
of
the
correct
amount
of
tax,
no
more
and
no
less.
However,
the
Department
cannot
abdicate
its
responsibility
for
the
administration
and
enforcement
of
the
Act
by
ignoring
potential
problem
areas,
and
must
take
such
action
as
is
determined
necessary
to
meet
its
responsibilities.
With
respect
to
CRL
Management
and
Overhead
Ltd.
Partnership
and
First
Tax-
nvestors
Ltd.
Partnership,
these
audits
are
still
in
progress.
At
this
moment,
it
is
difficult
to
determine
exactly
when
these
audits
will
be
completed.
As
requested
in
your
letter
as
one
option,
and
as
we
are
not
prepared
to
process
your
1986
return
as
filed,
we
will
assess
your
1986
Income
Tax
Return
without
the
deduction
for
the
business
losses
claimed
from
CRL
Management
and
Overhead
Ltd.
Partnership
and
First
Taxinvestors
Ltd.
Partnership.
[Emphasis
added.]
Thus,
for
the
reasons
stated
above,
Revenue
Canada
issued
a
notice
of
assessment
July
26,
1988
disallowing
the
business
losses.
The
applicant
filed
a
notice
of
objection
dated
July
27,
1988.
A
notice
of
reassessment
dated
November
2,
1988
reassessed
the
applicant's
1986
tax
return
in
respect
to
a
matter
not
related
to
the
business
losses.
On
January
5,
1989
a
notice
of
objection
was
served
on
the
Minister
by
the
applicant.
Then,
I
believe,
the
Tax
Avoidance
Section
of
Revenue
Canada
made
a
mistake
and
misinterpreted
or
misapplied
subsection
231.6(3)
and
sent
a
letter
to
the
applicant
dated
September
18,
1989
requesting
him
to
provide
within
30
days
of
the
date
of
the
September
18,
1989
letter
certain
information
and
documents
regarding,
inter
alia,
his
investment
in
BOHAR
Investment
Club
and
CRL
and
the
subsequent
conversion
to
Morning
Land
Ventures
Ltd.
and/or
Cold
Spring
Resources
Ltd.
(See
Exhibit
H
to
affidavit
of
John
Merko
sworn
May
15,
1990.)
Apparently
to
correct
this
error
the
Tax
Avoidance
Section
sent
a
further
letter
dated
January
5,
1990
to
the
applicant
which
reads
in
part
as
follows:
The
attached
requirement
letter
replaces
the
requirement
letter
previously
sent
to
you
in
September
1989.
The
only
change
is
that
the
Subsection
of
the
Income
Tax
Act
cited
is
changed
from
231.6(1)
to
the
current
231.6(2).
The
90
day
period
for
compliance
with
the
revised
requirement
is
effective
from
the
date
of
this
letter.
But
the
September
18,
1989
letter
contained
no
mention
of
subsection
231.6(1)
and
30
days,
not
90
days,
had
been
given
to
reply.
Obviously
the
respondent
in
the
September
1989
letter
had
failed
to
comply
with
its
own
legislative
requirements.
The
error
is
however
not
fatal.
Another
letter
was
sent
by
the
Tax
Avoidance
Section
pursuant
to
subsection
231.6(2)
of
the
Income
Tax
Act
requiring
the
applicant
to
provide
information
and
documentation
related
to
broad
matters
described
in
the
said
letter
within
90
days.
This
was
in
reference
to
activities
carried
on
by
First
Taxinvestors
Ltd.
Partnership.
By
letter
dated
May
4,
1990
from
the
Chief
of
Tax
Avoidance
Section
of
the
respondent,
the
applicant
was
advised
of
the
respondent's
intention
to
disallow
the
deduction
of
business
losses
in
respect
of
his
1986
taxation
year
and
the
reasons
for
such
disallowance.
This
was
the
first
time
the
applicant
had
received
reasons
for
disallowing
the
deduction
of
business
losses.
The
applicant
then
instructed
counsel
to
take
action
in
the
Federal
Court
of
Canada
appealing
the
reassessment.
By
notice
of
motion
dated
May
17,
1990,
the
applicant
applied
to
set
aside
the
February
26,
1990
requirement
to
provide
foreign-based
information
in
respect
of
the
activities
of
First
Taxinvestors
Ltd.
Partnership.
Applicant's
Position
The
applicant
states
that
the
issuance
of
the
requirement
constitutes
an
abuse
of
process
and
that
in
any
event
the
terms
of
the
requirement
are
unreasonable
and
should
be
set
aside
or
varied.
The
applicant
provides
copies
of
Technical
Notes
issued
by
the
Department
of
Finance
to
accompany
the
enactment
of
section
231.6
of
the
Act
in
which
he
highlights
the
following
phrases:
“as
is
necessary
to
permit
a
proper
assessment
for
Canadian
tax
purposes";
"which
could
assist
the
Minister
in
arriving
at
a
proper
assessment";
and
"to
obtain
the
necessary
information
to
make
a
proper
assessment
of
tax
for
Canadian
tax
purposes".
The
applicant
argued
that
the
documents
requested
by
Revenue
Canada
are
neither
necessary
for
a
proper
assessment
nor
will
they
assist
the
Minister
in
arriving
at
a
proper
assessment.
In
his
statement
of
fact
and
law,
the
applicant
also
relies
upon
two
cases:
Canterra
Energy
Ltd.
v.
The
Queen,
[1985]
1
C.T.C.
329;
85
D.T.C.
5245
(F.C.T.D.)
and
Edmonton
Liquid
Gas
Ltd.
v.
The
Queen,
[1984]
C.T.C.
536;
84
D.T.C.
6526
(F.C.A.).
The
substantive
issues
in
these
cases
are
not
related
to
section
236.1
but
do
contain
rulings
on
evidentiary
points.
In
Canterra,
Reed,
J.
admitted
a
budget
document
in
support
of
the
Crown's
interpretation
of
a
regulation,
but
accorded
it
very
little
weight.
In
the
Edmonton
Liquid
Gas
case
the
Court
quoted
the
remarks
of
the
Minister
of
Finance
with
respect
to
the
interpretation
of
certain
provisions
of
the
Income
Tax
Act.
The
applicant
cited
these
cases
in
support
of
his
attempt
to
rely
on
the
above-quoted
remarks
in
the
Technical
Notes.
Respondent's
Position
With
respect
to
the
issue
of
abuse
of
process,
the
respondent
states
that
there
is
no
abuse
of
process,
as
the
issuance
of
the
requirement
to
produce
was
an
administrative
matter
under
the
control
of
the
Minister,
and
has
nothing
to
do
with
the
process
of
this
Court.
The
respondent
further
submits
that
in
any
event
the
demand
is
reasonable
and
that
the
onus
of
demonstrating
that
it
is
unreasonable
lies
with
the
applicant.
In
support
of
this
position
the
respondent
cites
the
recent
case
of
McKinlay
Transport
Ltd.
v.
Canada,
[1990]
2
C.T.C.
103;
90
D.T.C.
6243;
106
N.R.
385,
in
which
the
Supreme
Court
of
Canada
held
that
a
demand
for
the
production
of
certain
documents
pursuant
to
section
231(3)
of
the
Act
constituted
a
reasonable
search
and
did
not
violate
section
8
of
the
The
Canadian
Charter
of
Rights
and
Freedoms
(The
Constitution
Act,
1982
Part
I).
Legislation
Section
231.6
was
enacted
in
1988
and
reads
as
follows:
231.6.(1)
"Foreign-based
information
or
document"
defined.
For
the
purposes
of
this
section,
"foreign-based
information
or
document"
means
any
information
or
document
which
is
available
or
located
outside
Canada
and
which
may
be
relevant
to
the
administration
or
enforcement
of
this
Act.
(2)
Requirement
to
provide
foreign-based
information.
Notwithstanding
any
other
provision
of
this
Act,
the
Minister
may,
by
notice
served
personally
or
by
registered
or
certified
mail,
require
that
a
person
resident
in
Canada
or
a
nonresident
person
carrying
on
business
in
Canada
provide
any
foreign-based
information
or
document.
(3)
Notice.
The
notice
referred
to
in
subsection
(2)
shall
set
forth
(a)
a
reasonable
period
of
time
of
not
less
than
90
days
for
the
production
of
the
information
or
document;
(b)
a
description
of
the
information
or
document
being
sought;
and
(c)
the
consequences
under
subsection
(8)
to
the
person
of
the
failure
to
provide
the
information
or
documents
being
sought
within
the
period
of
time
set
out
in
the
notice.
(4)
Review
of
foreign
information
requirement.
The
person
on
whom
a
notice
of
a
requirement
is
served
under
subsection
(2)
may,
within
90
days
after
the
service
of
the
notice,
apply
to
a
judge
for
a
review
of
the
requirement.
(5)
Powers
on
review.
On
hearing
an
application
under
subsection
(4)
in
respect
of
a
requirement,
a
judge
may
(a)
confirm
the
requirement;
(b)
vary
the
requirement
as
he
considers
appropriate
in
the
circumstances;
or
(c)
set
aside
the
requirement
if
he
is
satisfied
that
the
requirement
is
unreasonable.
(6)
Idem.
For
the
purposes
of
paragraph
(5)(c),
the
requirement
to
provide
the
information
or
document
shall
not
be
considered
to
be
unreasonable
because
the
information
or
document
is
under
the
control
of
or
available
to
a
non-resident
person
that
is
not
controlled
by
the
person
served
with
the
notice
of
the
requirement
under
subsection
(2)
if
that
person
is
related
to
the
non-resident
person.
(7)
Time
during
consideration
not
to
count.
The
period
of
time
between
the
day
on
which
an
application
for
review
of
a
requirement
is
made
pursuant
to
subsection
(4)
and
the
day
on
which
the
review
is
decided
shall
not
be
counted
in
the
computation
of
(a)
the
period
of
time
set
forth
in
the
notice
of
the
requirement;
and
(b)
the
period
of
time
within
which
an
assessment
may
be
made
pursuant
to
subsection
152(4).
(8)
Consequence
of
failure.
If
a
person
fails
to
comply
substantially
with
a
notice
served
under
subsection
(2)
and
if
the
notice
is
not
set
aside
by
a
judge
pursuant
to
subsection
(5),
any
court
having
jurisdiction
in
a
civil
proceeding
relating
to
the
administration
or
enforcement
of
this
Act
shall,
upon
motion
of
the
Minister,
prohibit
the
introduction
by
that
person
of
any
foreign-based
information
or
document
covered
by
that
notice.
Issues
1.
Is
the
requirement
to
provide
the
foreign-based
information
an
abuse
of
process
provided
in
the
Income
Tax
Act?
2.
Alternatively,
is
the
demand
excessively
broad
in
its
terms?
Section
231.6
was
enacted
in
1988
for
the
purpose
of
assisting
the
Minister
to
obtain
information
or
documents
which
are
available
or
located
outside
Canada
and
which
may
be
necessary
for
the
administration
and
enforcement
of
the
Act.
A
person
resident
in
Canada
or
a
non-resident
person
carrying
on
business
in
Canada
must
provide,
upon
being
notified
by
the
Minister,
any
"foreign-based
information
or
document"
defined
as
being
any
information
available
or
located
outside
Canada
that
could
be
relevant
to
enforcement
of
the
Act.
If
the
person
notified
fails
to
comply
by
providing
substantially
all
the
required
information
it
may
result
in
the
prohibition
of
introduction
of
such
information
as
evidence
in
a
civil
proceeding
related
to
the
enforcement
of
the
Act.
A
person
served
with
a
requirement
notice
may
apply
for
review
of
the
requirement
to
a
judge
within
90
days
of
receiving
the
notice.
The
judge
on
a
review
application
has
the
power,
pursuant
to
subsection
231.6(5)
to
confirm
the
requirement,
vary
the
requirement
as
he
considers
appropriate
in
the
circumstances,
or
set
aside
the
requirement
if
he
is
satisfied
that
the
requirement
is
unreasonable.
The
issue
of
whether
the
requirement
is
"appropriate
in
the
circumstances"
or
"reasonable"
is
a
question
of
fact
to
be
determined
on
the
facts
of
the
case.
Unfortunately
section
231.6
has
not
yet
been
judicially
considered
and
there
is
no
guidance
in
the
case
law.
The
section
does
set
out
in
subsection
231.6(6)
that
a
requirement
may
not
be
considered
to
be
unreasonable
on
the
ground
that
the
information
is
in
the
control
of
a
non-resident
who
is
not
controlled
by
the
person
who
has
been
served
with
the
requirement
if
the
non-resident
is
related
to
the
person
served,
i.e.,
a
non-resident
parent
company
of
a
Canadian
subsidiary.
The
question
of
relation
to
a
non-resident
is
considered
in
section
251
of
the
Act.
Thus,
one
of
the
issues
in
this
application
is
whether
the
requirement
to
produce
is
"reasonable"
or
whether
it
is
"appropriate
in
the
circumstances"
to
vary
or
set
aside
the
requirement.
In
my
opinion,
the
argument
of
the
applicant
based
on
the
phrases
outlined
in
the
Technical
Notes
as
to
whether
the
information
requested
is
necessary
for
a
proper
assessment
to
be
made
is
simply
another
way
of
saying
"reasonable"
or
"appropriate
in
the
circumstances"
Comments
As
indicated
earlier,
section
231.6
was
enacted
in
1988
and
to
the
best
of
my
knowledge
this
is
the
first
time
it
is
being
judicially
considered.
At
the
outset
counsel
for
the
applicant
made
it
clear
he
was
suggesting
an
abuse
of
the
process
provided
for
in
the
Income
Tax
Act,
and
not
alleging
an
abuse
of
the
Court's
process
by
the
respondent.
He
made
the
point
that
the
scheme
of
the
Act
provides
for
a
self-assessment
by
the
taxpayer
and
assessment
or
any
reassessment
by
National
Revenue,
a
provision
for
the
taxpayer
to
file
a
notice
of
objection
and
finally
an
opportunity
for
Revenue
Canada
to
accept
the
notice
of
objection
or
to
confirm
the
earlier
assessment
(reassessment).
Then,
if
the
taxpayer
is
not
satisfied,
the
matter
can
be
dealt
with
in
the
Tax
Court
or
the
Federal
Court.
In
the
situation
here
the
reassessment
of
the
applicant
was
made
by
the
respondent
on
November
2,
1988
and
on
January
9,1989
the
applicant
filed
a
notice
of
objection.
As
at
May
17,
1990
the
respondent
had
not
notified
the
applicant
that
he
had
vacated
or
confirmed
the
reassessment
(see
statement
of
claim,
paragraph
8
filed
May
17,
1990).
However,
in
paragraph
15
of
the
affidavit
of
John
Merko
sworn
May
15,
1990,
Merko
affirms
that
the
Chief
of
Tax
Avoidance
Section
had
written
to
him
on
May
4,
1990
advising
that
National
Revenue
was
disallowing
the
business
losses
and
the
reasons
for
so
doing
(nothing
really
turns
on
this
however).
Conclusions
It
is
clear
from
the
wording
of
the
legislation,
supra,
that
Parliament
intended
to
give
Revenue
Canada
strong,
comprehensive
and
far-reaching
powers
to
secure
“foreign-based
information
or
document".
Section
231.6,
in
defining
“foreign-based
information
or
document",
sets
forth
"any
information
or
document
which
is
available
or
located
outside
Canada".
To
secure
this
information
or
document
National
Revenue
need
only
be
able
to
show
“it
is
relevant
to
the
administration
or
enforcement
of
this
Act".
There
is
no
time
period
within
which
the
data
must
be
requested
and
clearly
it
is
not
obliged
to
do
so
during
the
course
of
assessing
or
reassessing
the
taxpayer,
notwithstanding
the
strong
argument
made
by
counsel
for
the
applicant
nor
the
use
of
the
words
"assessment"
in
the
copies
of
the
Technical
Notes
issued
by
the
Department
of
Finance
to
accompany
the
enactment
of
section
231.6
of
the
Act.
Had
Parliament
wanted
this
sweeping
power
to
be
confined
to
the
period
between
the
time
of
the
assessment
(reassessment)
and
the
notice
of
objection
(or
confirming
or
denying
the
objection),
it
would
have
been
an
easy
matter
to
say
so.
They
did
not.
Even
after
a
taxpayer
seeks
relief
in
the
courts,
National
Revenue
is
still
able
to
require
the
taxpayer
or
a
third
party
to
produce
foreignbased
information
or
documents
if
it
is
able
to
maintain
it
is
necessary
for
administration
or
enforcement
of
the
Act.
The
taxpayer
is
protected
from
abusive
use
of
this
section
through
the
review
of
foreign
investment
requirement
wherein
a
judge
may
confirm
the
requirement,
vary
the
requirement
as
he/she
considers
appropriate
in
the
circumstances,
or
set
aside
the
requirement
if
he/she
is
satisfied
that
the
requirement
is
unreasonable.
Thus,
for
reasons
stated
above,
I
find
the
re-
spondent's
requirement
to
produce
in
the
circumstances
here
is
not
an
abuse
of
the
process
provided
for
in
the
Income
Tax
Act.
Is
the
Demand
Reasonable:
Parliament,
through
the
wording
of
the
Act,
leaves
no
room
for
doubt
that
the
demand
for
the
foreign-based
information
or
document
is
prima
facie
reasonable
given
the
far-flung
nature
of
the
business
of
the
limited
partnership
and
the
large
loss
claimed
by
this
applicant.
The
applicant
must
clearly
make
an
attempt
to
secure
the
foreign-based
information
or
document
unless
it
is
his
contention
that
the
request/demand
is
unreasonable
in
which
case
a
procedure
is
in
place
to
make
his
case,
and
hence
the
application
to
this
Court.
I
cannot
find
the
request
unreasonable.
There
is
no
requirement
that
any
information
or
document
be
provided
but
there
is
the
sanction
of
subsection
231.6(8),
i.e.
the
taxpayer,
if
he
withholds
any
such
required
information
or
document,
cannot
use
it
at
a
subsequent
civil
proceeding.
The
requirement
puts
the
taxpayer
on
notice
about
the
kind
of
information
being
sought,
not
only
from
him
but
others.
He
can
choose
to
seek
out
all
the
data
possible,
and
tender
it
to
National
Revenue
or
he
can
indicate
that
some
or
all
of
the
information
sought
cannot
be
produced,
or
will
not
be
produced.
If
he
takes
the
latter
position,
there
is
the
sanction
of
subsection
231.6(8)
mentioned
earlier.
Accordingly,
there
being
no
abuse
of
the
process
provided
in
the
Income
Tax
Act,
and
in
the
circumstances
here
the
requirement
is
reasonable,
I
will
confirm
the
said
requirement.
The
respondent
is
entitled
to
its
costs
of
this
motion
in
any
event
of
the
cause.
Requirement
confirmed.
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