Redeemer Foundation v. Canada (National Revenue), 2008 DTC 6474, 2008 SCC 46, [2008] 2 SCR 643

                                                 SUPREME COURT OF CANADA

Between:

Redeemer Foundation

Appellant

and

Minister of National Revenue

Respondent

Coram: McLachlin C.J. and Binnie, LeBel, Deschamps, Fish, Charron and Rothstein JJ.

______________________________

Redeemer Foundation v. Canada (National Revenue), [2008] 2 S.C.R. 643, 2008 SCC 46

Redeemer Foundation                                                                                                        Appellant

v.

Minister of National Revenue                                                                                        Respondent

Indexed as:  Redeemer Foundation v. Canada (National Revenue)

Neutral citation:  2008 SCC 46.

File No.:  31753.

2008:  February 28; 2008:  July 31.

Present:  McLachlin C.J. and Binnie, LeBel, Deschamps, Fish, Charron and Rothstein JJ.

on appeal from the federal court of appeal

Taxation — Income tax — Administration and enforcement — Minister of National Revenue’s power to inspect, audit and examine taxpayers’ records — Whether Minister must obtain judicial authorization during course of legitimate audit of registered charity before asking charity to provide information that identifies its donors — Income Tax Act, R.S.C. 1985, c. 1 (5th Supp .), ss. 230(2) (a), 231.1(1) .

The appellant Foundation, a registered charity, operates a forgivable loan program that finances the education of students at an affiliated college.  The Canada Revenue Agency (“CRA”) was concerned that some donations to the program were not valid charitable donations because the donors’ contributions were made solely to finance the education of their own children.  CRA served the Foundation with a requirement to record the identity of each donor and the name of the student who received credit for each donation.  In a subsequent audit, CRA requested the donor information, which the Foundation provided.  CRA advised the Foundation that there might be grounds to revoke its charitable status and to reassess its donors.  Notices of reassessment were sent to some donors.  The Foundation applied for judicial review of the CRA’s request for donor information.  The reviewing judge declared that the request was improper without prior judicial authorization, the donor information should be returned, and the Minister of National Revenue should be prevented from acting upon the information to reassess donors.  The Federal Court of Appeal set aside the reviewing judge’s order and dismissed the application for judicial review.

Held (Binnie, Deschamps and Rothstein JJ. dissenting in part):  The appeal should be dismissed.

Per McLachlin C.J. and LeBel, Fish and Charron JJ.:  The Minister was entitled to the donor information through the combined effect of ss. 230(2) (a) and 231.1  of the Income Tax Act , and the Minister was not required to obtain judicial authorization before requesting the information.  The Minister has a broad power under s. 231.1  to inspect, audit and examine taxpayers’ records and any information that is or should be in the taxpayer’s books.  The Foundation was required to collect the donor information pursuant to its record keeping obligations under s. 230(2) (a) because the information was necessary for determining whether to revoke its registration as a charity.  Section 231.2  still serves a useful purpose if s. 231.1  is read as authorizing the Minister to obtain information on unnamed third parties during the audit of a taxpayer without judicial authorization, since s. 231.2  addresses circumstances where the Minister needs information about one or more taxpayers outside the context of a formal audit.  [1] [12-13] [15]

Regardless of whether the donor list was used by the CRA in pursuing its audits of the donors themselves, the CRA’s request for the donor information was made for the legitimate purpose of investigating the validity of the Foundation’s status as a registered charity.  The CRA could not confirm whether the donors’ contributions were valid charitable donations without the requested information.  The donor information is clearly the type of record that the Foundation is required to keep to verify the legitimacy of its donations and requiring the CRA to obtain judicial authorization before requesting it would be illogical and would serve no useful purpose. Furthermore, reassessment of donors is a logical consequence of a determination that a registered charity is not operating a valid charitable program.  A donor can reasonably expect that his or her donation will be examined if the registered charity is audited and that his or her claimed tax credit will be non‑compliant if the charitable program is not valid.  Requiring judicial authorization whenever an audit of a charity entails a possibility that its donors might be investigated and reassessed would be unworkable and, given the reciprocal nature of many tax arrangements, would potentially require judicial authorization in a variety of other circumstances.  Lastly, there is minimal risk that the Minister will audit taxpayers who are not suspected of non‑compliance solely to investigate unnamed taxpayers for non‑compliance.  [16-21] [26‑27]

The Federal Court does not have the jurisdiction to order the Minister to vacate tax assessments.  Taxpayers should challenge evidence used for a reassessment before the Tax Court of Canada.  [28]

Per Binnie, Deschamps and Rothstein JJ. (dissenting in part):  The CRA is acting outside ss. 230 and 231.1 of the Income Tax Act  when it seeks information other than to verify a taxpayer’s compliance with the Act through an audit of the taxpayer, and judicial authorization is required under s. 230.2(2)  if the information it seeks pertains to unnamed persons.  While read in isolation ss. 230 and 231.1 might be interpreted as empowering the CRA to require a taxpayer to keep and provide information identifying unnamed persons, these provisions must be interpreted with regard to s. 231.2.  In order for that section to be necessary and to have any meaning, it must provide the CRA with power in addition to what it is given under ss. 230 and 231.1.  If the CRA could request information pertaining to unnamed persons under its audit powers, then it could avoid the requirement for judicial authorization and s. 231.2(2)  — a taxpayer protection provision — would be ineffective.  This is not an issue of reading down s. 231.1(1)  to avoid redundancy, but rather an issue of reading ss. 230, 231.1 and 231.2 coherently.  Whereas ss. 230 and 231.1 focus on the taxpayer’s compliance with the Act, s. 231.2 enhances the CRA’s power and may be used for additional purposes such as dealing with non‑payment and obtaining information about unnamed persons.  [35-41]

Here, the CRA’s request was improper without judicial authorization under s. 231.2(2).  As early as July 2000, if not before, the CRA intended to reassess the Foundation’s donors.  This is not a case where its purpose was solely to audit the Foundation and the information was entirely within the Foundation’s records.  The CRA sought information pertaining to the compliance of specific but unnamed persons and nothing in the Act required the Foundation to keep that information other than the CRA’s specific request under s. 230(3).  In the circumstances of this case, the CRA could not require the information under its power to audit the Foundation or under s. 230(3) without obtaining judicial authorization under s. 231.2(2), nor could it avoid s. 231.2(2) by making a verbal or informal request for the donor information. Furthermore, the CRA cannot justify bypassing s. 231.2(2) with arguments based on reciprocity of tax treatment or taxpayers’ low expectations of privacy in their tax records.  Because the authority of the CRA is so broad, it is required to follow the procedures provided in the Act rigorously.  Section 231.2(2) was intended to provide some minimal restraint on the CRA’s broad, unilateral authority and judicial authorization under s. 231.2(2) is required when, in the course of an audit of a taxpayer, the CRA forms the intention to obtain information pertaining to unnamed persons.  [41] [43] [46‑49] [54‑56]

The Federal Court did not have jurisdiction to vacate the donors’ tax assessments.  Any issues as to the admissibility of evidence in respect of assessments should be made at the Tax Court of Canada.  [58]

Cases Cited

By McLachlin C.J. and LeBel J.

Referred to:  R. v. McKinlay Transport Ltd., [1990] 1 S.C.R. 627.

By Rothstein J. (dissenting in part)

Canada Trustco Mortgage Co. v. Canada, [2005] 2 S.C.R. 601, 2005 SCC 54; Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27.

Statutes and Regulations Cited

Federal Courts Act, R.S.C. 1985, c. F‑7, ss. 18.1(3) , 18.5 .

Income Tax Act, R.S.C. 1985, c. 1 (5th Supp .), ss. 152(8) , 169(1) , 230 , 231.1 , 231.2 , 248(1) .

Authors Cited

Canada.  Ministry of National Revenue.  Audit Directorate.  Requirement Guidelines.  Ottawa:  Ministry of National Revenue, July 20, 1995.

APPEAL from a judgment of the Federal Court of Appeal (Richard C.J. and Sharlow and Pelletier JJ.A.), [2007] 3 F.C.R. 40, 354 N.R. 147, [2007] 1 C.T.C. 280, 2006 D.T.C. 6712, [2006] F.C.J. No. 1492 (QL), 2006 CarswellNat 4821, 2006 FCA 325, reversing a decision of Hughes J., [2006] 1 F.C.R. 416, 281 F.T.R. 143, [2006] 1 C.T.C. 7, 2005 D.T.C. 5617, [2005] F.C.J. No. 1678 (QL), 2005 CarswellNat 3280, 2005 FC 1361, granting an application for judicial review of a decision of the Canada Revenue Agency to request third party donor information and documentation from the appellant.  Appeal dismissed, Binnie, Deschamps and Rothstein JJ. dissenting in part.

Jacqueline L. King, Robert B. Hayhoe and Gerald Chipeur, for the appellant.

Gordon Bourgard and Christine Mohr, for the respondent.

The judgment of McLachlin C.J. and LeBel, Fish and Charron JJ. was delivered by

[1]     The Chief Justice and LeBel J. — The issue in this appeal is whether the Minister was required under s. 231.2(2)  of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp .), to obtain judicial authorization before asking the Redeemer Foundation (“Foundation”), a registered charity, for information about the identity of its donors in the course of a legitimate audit of the Foundation.  In our view, he was not required to do so.  The Minister was entitled to information about the identity of the donors through the combined effect of s. 230(2) (a) and s. 231.1 .  (The relevant provisions are reproduced in the Appendix.)  Moreover, the Minister requested that information for a legitimate purpose — to investigate the validity of the Forgivable Loan Program (“FLP”) operated by the Foundation.  For these reasons, we would dismiss the appeal and affirm the judgment of the Federal Court of Appeal. 

I.      Facts

[2]     The Foundation is affiliated with Redeemer University College. The Foundation operates the FLP as a means of financing the education of students at the College. In October 1998, the Canada Revenue Agency (“CRA”) audited both the Foundation and the College in respect of the 1997 taxation year. The audit raised concerns regarding the Foundation’s compliance with the Income Tax Act . A central concern of the CRA was that many of the contributions to the FLP might not have been valid charitable donations because they were made by parents of students attending the College with the expectation that the money would be used to finance their child’s education. The CRA cautioned that it would consider disallowing deductions to parents on their individual income tax returns. Ultimately, however, the CRA determined that it required additional information to fully understand the transactions under investigation.

[3]     In particular, the CRA expressed its concern that the Foundation had been unable to provide completed transmittal forms which recorded the identity of each donor and the name of the student who was to receive credit for the donation. It resumed its audit of the Foundation in 2001 for the 1998, 1999 and 2000 taxation years. Again, the Foundation could not produce completed transmittal forms and advised the CRA that the forms had not been preserved for those years. In response, the CRA served the Foundation with a requirement under s. 230(3)  of the Income Tax Act  asking it to maintain proper records, including the transmittal forms. The CRA decided to wait until the transmittal forms were available before pursuing its investigation into the links between donors and students.

[4]     The CRA began a further audit in 2003 in regard to the 2001 and 2002 taxation years. In the course of that audit, the CRA’s representative made an oral request of the Foundation’s Executive Director for certain information, including a list of donors. The Foundation complied with this request. Upon its review of all of the information, the CRA advised the Foundation of its view that a valid charitable donation arrangement did not exist and that there might be grounds for revoking the Foundation’s charitable status as a result. Several meetings subsequently took place between the CRA and representatives for both the Foundation and the donors to discuss the implications of the CRA’s position on the charitable status of the Foundation and reassessment implications for the donors. In addition, the CRA contacted certain donors to advise them of its intention to disallow deductions for their donations to the Foundation and to request additional information. Notices of reassessment were eventually sent to some of these donors.

[5]     During a follow-up meeting with the Foundation in June 2004, the CRA requested the donor lists for the 2002 and 2003 taxation years. The Foundation refused to provide the information, upon the advice that it would be improper to do so without the CRA having first obtained an order from the Federal Court pursuant to ss. 231.2(2)  and 231.2(3)  of the Income Tax Act .  Section 231.2(2) of the Act states:

The Minister shall not impose on any person (in this section referred to as a “third party”) a requirement under subsection (1) to provide information or any document relating to one or more unnamed persons unless the Minister first obtains the authorization of a judge under subsection (3).

[6]     In September 2005, the Foundation brought an application for judicial review of the CRA’s 2003 request, with which the Foundation had complied by providing the CRA with the 2001 and 2002 donor lists and related information. The Foundation sought a declaration that the 2003 request was improper, that the information be returned and that the CRA be prevented from acting upon the information, such as by reassessing the donors identified by the information.

II.     Judgments Below

A.     Federal Court, [2006] 1 F.C.R. 416, 2005 FC 1361

[7]     Hughes J. allowed the Foundation’s application for judicial review and ordered that any reassessments based on the information obtained as a result of the 2003 request be set aside. Hughes J. held that ss. 231.2(2)  and 231.2(3)  were “intended to protect third parties from having information relating to their activities obtained from other persons audited by the Minister, who then will use it for taxation purposes” (para. 14).

[8]     Given that there was evidence that the CRA had used the information obtained from the Foundation to contact donors in respect of reassessment, in his view, the 2003 request fell within the scope of conduct covered by ss. 231.2(2)  and 231.2(3) . He therefore held that the CRA’s request for and use of the information without prior judicial authorization was wrong.

[9]     Hughes J. held that the Federal Court had the power to restrain the Minister from acting upon improperly obtained information by virtue of s. 18.1(3) (b) of the Federal Courts Act, R.S.C. 1985, c. F-7 , which includes the power to “set aside . . ., prohibit or restrain, a decision, order [or] act”. In his view, the word “decision” was “broad enough to include acts consequent upon the initial illegal act” (para. 22). It was on this basis that he set aside the reassessments.

B.     Federal Court of Appeal, [2007] 3 F.C.R. 40, 2006 FCA 325

[10] Pelletier J.A., writing for a unanimous court, allowed the Minister’s appeal, set aside the order of the Federal Court and dismissed the application for judicial review. Pelletier J.A. looked to other provisions of the Income Tax Act  to inform his interpretation of s. 231.2(2) . In particular, he relied on s. 230(1) , which requires taxpayers to keep records that will enable the Minister to determine taxes payable under the Act. In addition, he considered s. 230(2) , which identifies information that is specifically required to be kept by charities, and held that the information at issue was covered by this provision. When combined with the Minister’s general audit powers under s. 231.1(1) , Pelletier J.A. surmised that these provisions provided sufficient authority for the CRA’s 2003 request. As he explained:

If the auditor is entitled to obtain information by means of his own examination of the Foundation’s books and records, I can think of no principle which would require him to obtain a court order before asking for the Foundation’s assistance in obtaining the very same information. [para. 37]

[11] Pelletier J.A. rejected the CRA’s use of the information to reassess the Foundation’s donors as a valid concern. In his view, given the reciprocity of tax treatment between a charity and its donors, the CRA had a valid interest in reviewing the tax returns of the Foundation’s donors based on its audit of the Foundation and its conclusion that many donations were not eligible for deduction.

III.     Statutory Interpretation

[12] The case before us, first and foremost, is one of statutory construction.  The main section at issue is s. 231.1(1) which gives the Minister a broad power to inspect, audit and examine taxpayers’ records.  This is the section that the Minister and the Federal Court of Appeal relied on as authorizing the Minister to obtain without judicial authorization the names of donors to the Foundation:

231.1 (1) An authorized person may, at all reasonable times, for any purpose related to the administration or enforcement of this Act,

(a)    inspect, audit or examine the books and records of a taxpayer and any document of the taxpayer or of any other person that relates or may relate to the information that is or should be in the books or records of the taxpayer or to any amount payable by the taxpayer under this Act, . . .

[13] On its face, this section covers the situation at bar.  It authorizes the Minister to examine “information that is or should be” in the Foundation’s books.  The information at issue regarding third party taxpayers who had contributed to the Foundation was either in the Foundation’s books, or “should” have been in its books pursuant to the broad record-keeping requirements created by s. 230(2) :

230. . . .

(2)   Every registered charity and registered Canadian amateur athletic association shall keep records and books of account at an address in Canada recorded with the Minister or designated by the Minister containing

(a)   information in such form as will enable the Minister to determine whether there are any grounds for the revocation of its registration under this Act;

(b)   a duplicate of each receipt containing prescribed information for a donation received by it; and

(c)   other information in such form as will enable the Minister to verify the donations to it for which a deduction or tax credit is available under this Act.

The Minister led unchallenged evidence to the effect that the information it sought identifying the donors was necessary for determining whether the Foundation was issuing receipts not in accordance with the Act and, therefore, whether there were grounds to revoke its registration.  It would seem to follow that by the combined effect of ss. 230(2)(a) and 231.1 of the Act, the Minister was entitled to information on those donors within the hands or power of the Foundation. 

[14] The first argument of the appellant is that the principles of statutory construction require the Court to read s. 231.1(1) as not permitting access to any third party records without judicial authorization.  It was raised that s. 231.2 would serve no purpose if s. 231.1 were read as authorizing the Minister to obtain information on unnamed persons (i.e. the contributors or “third parties” in this case).  Therefore, s. 231.1(1) cannot be read as applying to information about unnamed persons, and a warrant is required before examining information about donors to the Foundation.

[15] Statutory provisions must be interpreted in a textual, contextual and purposive way, and all sections of a related group of provisions should be given coherent meaning if possible.  But, we do not accept the argument that s. 231.2 serves no purpose if s. 231.1 is read as authorizing the Minister to obtain information on unnamed third parties during the audit of a taxpayer. The Minister may well need to obtain information about one or more taxpayers outside the context of a formal audit. Section 231.2 responds to this need, subject to a requirement for judicial authorization if the Minister is seeking information relating to unnamed persons from a third party record holder.  It follows that the argument that s. 231.1(1) should be read down to avoid redundancy fails.

IV.     The Purpose of Requesting the Donor List

[16] Another argument raised in support of the appeal is that judicial authorization was required because one of the purposes the CRA was pursuing in obtaining the donor list was to reassess the Foundation’s donors.  In our opinion, however, the facts of this case confirm that the CRA needed the list to investigate its suspicions regarding the legitimacy of the FLP. The reassessment of the Foundation’s donors is just a logical consequence of the CRA’s suspicion that the FLP was not a valid charitable program.

[17] Upon concluding its audit in 2003 regarding the 2001 and 2002 taxation years, the CRA informed the Foundation of its findings as follows:

In our review of the Transmittal Forms, a list of donors and the list of                             students receiving the forgivable loans, we found that in the majority of cases the students solicited funds for the FLP from their own parents. The students then received 90% of the parents’ gifts under the FLP to pay for their tuition and related costs. The parents receive a charitable donation receipt for income tax purposes for 100% of the gift amount and their child-student receives a tuition receipt for the applicable portion of their loan . . . .

For the reasons listed above, there may be grounds to revoke the organization’s status as a registered charity. [Emphasis added; C.A. reasons, at para. 9.]

The above quotation confirms that the CRA reviewed the donor list, along with the transmittal forms and a list of students benefiting from the FLP, in order to assess the validity of the Foundation’s status as a registered charity. The CRA used the donor list to shed light on the links between donors and students, which were the very subject of its investigation of the Foundation and of the validity of the Foundation’s charitable status. Regardless of whether the donor list was used by the CRA in pursuing its audits of the donors themselves, the CRA clearly had a valid purpose in requesting and using the information to complete its audit of the Foundation.

[18] The position of the appellant would require the CRA to obtain judicial authorization whenever it has as even one of its purposes the reassessment of unnamed persons.  This approach would compel the CRA to obtain judicial authorization to access the records of practically any charity it chooses to audit. When a charity is audited, we presume that it will generally be to review the validity of the organization’s charitable status and/or the legitimacy of the donations it receives. Such a review will always entail a possibility, depending on the outcome of the initial investigation, that the donors will be investigated and, ultimately, reassessed.  It is therefore unclear under what circumstances the CRA would be able to audit a charity without having to obtain judicial authorization to review information pertaining to the charity’s donors. We find it hard to imagine how this test would be workable in practice other than by requiring the CRA to obtain judicial authorization every time it audits a charity.

[19] In addition to audits of charities, this approach would potentially require judicial authorization in a variety of other circumstances. Given the reciprocal nature of many tax arrangements, where a suspicion arises that one taxpayer is not complying with the Act, there may often be a corresponding suspicion that there are others who are not complying in regard to the same transactions. Presumably, the CRA may, in auditing the first taxpayer, obtain information pertaining to other taxpayers, and it may reassess those other taxpayers as a result. Judicial authorization would therefore be required.

[20] Returning to the issue of charities, we share the concerns of the Federal Court of Appeal regarding the ability of the CRA to review the records that charities are legally required to maintain. Section 230(2) , as mentioned, requires registered charities to keep certain records. Section 230(2) (c) specifically requires a registered charity to keep records containing

other information in such form as will enable the Minister to verify the donations to it for which a deduction or tax credit is available under this Act.

Under s. 230(3), where adequate records have not been kept, the Minister may require a charity to keep such records, as was done in this case. The donor list was used, in conjunction with the records the Foundation was specifically ordered to keep by the CRA, to assess the validity of the FLP.  In our opinion, the donor list was clearly the type of record the Foundation was required to keep pursuant to s. 230(2) . In the words of Pelletier J.A.: “The maintenance of books and records would not assist in monitoring compliance with the Act if the Minister was not able to consult those books and records” (para. 31).  It would be illogical to require a charity to keep records to enable the CRA to verify the legitimacy of its donations, but then require the CRA to obtain judicial authorization in order to review those records. Judicial authorization would not serve any useful purpose in such circumstances.

[21] In the instant case, another difficulty resulted from the fact that it was apparently necessary to identify the donors in order to assess the validity of the charity itself.  The CRA suspected that the FLP was not a valid charitable program because of the relationship between the donors and the beneficiaries (the students).  This suspicion could not be confirmed without obtaining records indicating the identities both of the donors and of those benefiting from their donations.

[22] The s. 231.2(2)  requirement should not apply to situations in which the requested information is required in order to verify the compliance of the taxpayer being audited. Regardless of whether or not there is a possibility or a probability that the audit will lead to the investigation of other unnamed taxpayers, the CRA should be able to obtain information it would otherwise have the ability to see in the course of an audit. The argument was made that if, during an audit, the records of the taxpayer record the identity of the other party to a transaction and the CRA requires nothing further, there is no need to resort to s. 231.2(2) . However, it must be kept in mind that, in the instant case, the Foundation had not been keeping proper records. The illogical implication is that merely because the charity was not keeping proper records, the CRA is required to obtain judicial authorization even though those records, which would have included the very information the CRA is seeking, are ones that the CRA would ordinarily be able to review during an audit.

V.     The Appellant’s Policy Argument

[23] Another argument relied on by the appellant and accepted by Justice Rothstein is that reading s. 231.1(1) as conferring the right to obtain information about third parties in the course of an audit may lead to misuse of the audit power.  Instead of seeking judicial authorization to obtain information about unnamed persons from a third party record holder, the Minister would simply audit the record holder.

[24] As mentioned above, s. 231.1(1) is broadly worded.  It allows access to “information that is or should be in the books or records of the taxpayer”.  It thus gives access to information about third parties that is required to be kept by the taxpayer, as well as information that may not be required to be kept but happens to be in the taxpayer’s records.

[25] It is true that the broad wording of s. 231.1(1) provides a powerful tool that may reveal a great deal of information about transactions between the taxpayer under audit and third parties.  However, this is business information.  Taxpayers have a very low expectation of privacy in their business records relevant to the determination of their tax liability: R. v. McKinlay Transport Ltd., [1990] 1 S.C.R. 627.

[26] The third party information at issue is directly tied to the operation of the Foundation and its status as a charity, receiving donations from third parties for which tax benefits are sought. The information was obtained by the Minister as part of a bona fide audit of the Foundation.  A person who contributes to a charity can reasonably expect that if the charity is audited, the donor’s contribution may be examined.  Such a review will always raise the possibility that the donors will be investigated and ultimately reassessed.

[27] There remains a concern that the CRA may attempt to investigate unnamed taxpayers under the “guise” of an audit.  Use of the word “guise” implies that the taxpayer being audited is not really suspected of non-compliance and that the unnamed persons are the real targets. However, if an organization’s charitable program is not valid, then both the charity and any of its donors who claim tax credits are non-compliant. The CRA has a valid interest in investigating both.  The same would be true of any other relationship involving reciprocal tax treatment.  In our view, the risk seems minimal that the CRA would use its authority to audit a taxpayer who is not personally suspected of non-compliance merely to investigate other unnamed taxpayers for non-compliance.

VI.  Remedy

[28] Given our conclusion that the CRA was not required to obtain judicial authorization in requesting and obtaining the donor list and related information, it is, strictly speaking, unnecessary to consider the issue of remedy for the purpose of disposing of this appeal. However, we feel that some comment is warranted on the Federal Court order granted by the applications judge, which vacated the reassessments of any donor who was identified to the CRA only by means of the information obtained as a result of the 2003 request.  We agree with Rothstein J. that the Federal Court does not have the jurisdiction to order the Minister of National Revenue to vacate tax assessments. Where a taxpayer has concerns regarding certain evidence being used against him for the purposes of reassessment, the proper venue to challenge its admissibility is the Tax Court of Canada.

[29] For these reasons, we would dismiss the appeal with costs.

The reasons of Binnie, Deschamps and Rothstein JJ. were delivered by

[30] Rothstein J. (dissenting in part) — I have read the reasons of the Chief Justice and LeBel J. but I am unable to concur.  In my respectful view, s. 231.2(2)  of the Income Tax Act, R.S.C. 1985, c.  1 (5th Supp .), was intended to provide some restraint on the broad unilateral authority of the Canada Revenue Agency (“CRA”).  The relevant provisions of the Act should be read in a manner that gives meaning to that section.  I would allow the appeal.  The relevant provisions of the Act have been reproduced in the reasons of the majority.

[31] There is no doubt that broad power has been conferred on the CRA in respect of its audit of taxpayers.  (Under s. 248(1) of the Income Tax Act , the definition of  “taxpayer” includes “any person whether or not liable to pay tax” and this includes charitable organizations such as the Redeemer Foundation (“Foundation”).)  Under s. 231.1(1), an authorized person may, for any purpose related to the administration and enforcement of the Income Tax Act , inspect, audit or examine books and records of a taxpayer.  The CRA may require any documents of the taxpayer and any other person that may relate to information that is or should be in the books and records of the taxpayer.

[32] Under s. 230(1), every person carrying on business and every person required to pay tax shall keep records and books of account in such form and containing such information as will enable the taxes payable to be determined.

[33] The requirement on charities to keep records and books is specifically dealt with under s. 230(2) .  Every registered charity is required to keep records and books containing information that will enable the CRA to determine if there are any grounds for revocation of the charity’s registration, a duplicate of each receipt for a donation containing prescribed information and other information as will enable the CRA to verify the donation for which deductions or tax credits are available.

[34] Under s. 230(3), where adequate records and books have not been kept, the CRA may require that the books and records shall be kept as specified by it.

[35] Read in isolation, these provisions might be interpreted as empowering the CRA, in addition to conducting an audit of a taxpayer at any reasonable time, to require such information to be kept as would enable the CRA to obtain the names of unnamed  persons.  However, these provisions must be interpreted having regard to other relevant provisions of the Act.  In Canada Trustco Mortgage Co. v. Canada, [2005] 2 S.C.R. 601, 2005 SCC 54, at para. 10, the Chief Justice and Major J. stated:

The interpretation of a statutory provision must be made according to a textual, contextual and purposive analysis to find a meaning that is harmonious with the Act as a whole. [Emphasis added.]

[36] Here the other relevant provision is s. 231.2.  Under s. 231.2(1),

the Minister may . . . for any purpose related to the administration or enforcement of this Act, . . . require that any person provide . . .

(a) any information or additional information . . . or

(b) any document.

Section 231.2(1) must be interpreted as providing the CRA with additional power to what it is given under ss. 230 and 231.1.  If it did not provide additional power, it would be unnecessary.  Parliament does not intend to enact pointless legislation.  As stated in Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27, at para. 27,

a label of absurdity can be attached to interpretations which defeat the purpose of a statute or render some aspect of it pointless or futile . . . .

[37] The CRA’s audit and inspection powers under ss. 230 and 231.1 cannot be as wide as the majority asserts because such interpretation would ignore and give no meaning to s. 231.2.  However, the additional power given to the CRA under s. 231.2(1), although very broad, is not itself unlimited.  It is made subject to s. 231.2(2)  which provides that the CRA shall not under s. 231.2(1) impose a requirement for information or documents relating to unnamed persons unless it first obtains judicial authorization.

[38] Under the majority’s interpretation and that of the Court of Appeal, the CRA could always avoid s. 231.2(2)  by requesting information pertaining to unnamed persons in the exercise of its audit power of the taxpayer it was asking to provide that information.  That would leave to the discretion of the CRA whether it wished to proceed by way of audit or judicial authorization to obtain information or documents relating to unnamed persons.  That would render s. 231.2(2) , a taxpayer protection provision, at best, a feeble requirement and, at worst, totally ineffective.

[39] At para.  15, the majority states that the argument that s. 231.1(1) should be read down to avoid redundancy fails.  With respect, the notion of reading down is misplaced.  What is required is to interpret provisions of the Act that bear upon each other to be coherent when read together.  The question here is whether, in the exercise of its authority to audit, the CRA may avoid s. 231.2(2) .  The majority’s approach would eliminate the need for s. 231.2(2)  entirely whenever the CRA is auditing a taxpayer.  Nothing in the Act suggests such a restricted application of s. 231.2(2) .

[40] I think the difference between ss. 230 and 231.1 on the one hand and s. 231.2 on the other is that under ss. 230 and 231.1, the focus is on the taxpayer’s compliance with the Act and the ability of the CRA to ensure that under a self-reporting system, it may seek and obtain information that will enable it to ensure such compliance or determine non-compliance by the taxpayer.  Under s. 231.2, the information and documents sought by the CRA, with a judge’s authorization when necessary and otherwise without it, may be seen as enhancing the CRA’s audit power of the  taxpayer, but  may also be for other purposes such as dealing with non-payment and obtaining information about unnamed persons.

[41] Where the CRA seeks information or documents for a purpose other than compliance by the taxpayer with the Act that may be determined through audit, it is acting outside ss. 230 and 231.1.  If what the CRA seeks pertains to unnamed persons, judicial authorization is required.

[42] As a result of the audit of the Foundation and Redeemer University College for the 1997 fiscal year, which apparently raised concerns for the CRA, letters were written on July 10, 2000 to donors to the Foundation proposing to reassess and disallow credits for donations associated with the Forgivable Loan Program (“FLP”) for students of the College.  It would thus appear that as early as July 2000, if not before, it was the CRA’s intent to reassess donors associated with the FLP.  During subsequent audits, books and records were required under s. 230(3), and information and documents were requested to enable the CRA to reassess donors for subsequent years.

[43] In my opinion, once the CRA wished to obtain the names of and information about unnamed persons, it was required to first obtain judicial authorization under s. 231.2(2) .  It could not avoid the necessity of obtaining that authorization by issuing a requirement under s. 230(3).  Further, I agree with Hughes J., the applications judge, that the necessity of judicial authorization could not be avoided by making a verbal or informal request for the information ([2006] 1 F.C.R. 416, 2005 FC 1361).

[44]  Whether information and documents were required for the sole purpose of  obtaining information about unnamed persons, or the dual purpose of auditing the Foundation and obtaining information about the unnamed persons, the CRA was obligated to comply with s. 231.2(2) .

[45] The CRA argues that the Foundation was required to maintain the information it sought for purposes of its audit.  It says it would be unreasonable and impractical to require the CRA to have to obtain judicial authorization just because there may be a chance that unnamed persons may be disclosed in the information of the taxpayer it is auditing.  It says it audits or examines close to 400,000 returns in a year.  Since it is entitled to the information for purposes of the audit, no useful purpose would be served by requiring it to obtain judicial authorization for information pertaining to unnamed persons.

[46] I agree that it would be unreasonable and impractical to require the CRA to obtain judicial authorization just because there may be a  possibility that  the names of persons other than the taxpayer may be disclosed in the information of the taxpayer it is auditing. But that is not this case.  In this case, the CRA had decided in July 2000 or earlier that it intended to reassess  donors, but needed more information before it could do so.  This is not a case where the information needed to reassess donors was entirely within the records when the CRA’s purpose was solely the audit of the Foundation.  When the CRA forms the intention to ask for information pertaining to or identifying unnamed persons to verify their compliance with the Act, judicial authorization must be obtained.

[47] I accept that the CRA audits and inspects almost 400,000 returns each year, but its own practices indicate that obtaining judicial authorization should not be unduly burdensome.  The CRA has issued “Requirement Guidelines” which outline steps to be taken to obtain information during an audit when information considered necessary by the CRA is not voluntarily forthcoming.  The Guidelines segment when a requirement under s. 231.2(1) may be issued and when a requirement under s. 231.2(2) , judicial authorization, is necessary.

[48] At para. 20, the Chief Justice and LeBel J. state that “[i]t would be illogical to require a charity to keep records to enable the CRA to verify the legitimacy of its donations, but then require the CRA to obtain judicial authorization in order to review those records.”  I do not say that if a taxpayer is required to maintain records, that the CRA cannot see those records without judicial authorization.  The distinction I do make is in circumstances in which the CRA has formed the intent to obtain information pertaining to compliance of specific but unnamed persons and requires the charity to maintain books and records or requests the charity to provide information so that the CRA can obtain the information and names of the unnamed persons.  In such cases, it must obtain judicial authorization. 

[49] The majority also says that s. 231.2(2)  should not apply in situations where the information requested is required to verify compliance by the audited taxpayer when that taxpayer has not been keeping “proper records”.  They say that the illogical implication is that the CRA must obtain judicial authorization merely because the taxpayer did not maintain proper records.  Here the Foundation had not been asked to keep transmittal records until November 1999.  At the same time, the CRA stated that it would “disallo[w] the deductions to parents on their individual income tax returns if the Charity fails to cease this practice” (participation in the FLP).  There is no indication, other than the CRA’s specific request that the Foundation maintain transmittal forms in 1999, that transmittal forms were “proper records” that the Foundation or any other charity was required to keep under s. 230(2) .  Once the CRA decided that it would reassess donors participating in the FLP, the request for transmittal forms was a request for information about unnamed persons pertaining to their compliance with the Act.  The letter request for transmittal forms in 1999 could not be used to bypass s. 231.2(2) .

[50] The Guidelines state:

When the Minister is seeking to require information from any person relating to one or more unknown parties, the Minister must obtain prior judicial authorization under subsection 231.2(3) of the ITA . . . .

(Ministry of National Revenue, Requirement Guidelines, July 20, 1995, at p. 5)

There is no indication that the requirement to obtain judicial authorization when the CRA is seeking information pertaining to unnamed persons is not applicable during the course of an audit. 

[51] The CRA says that inconsistent administrative practice is not a determinative factor in statutory interpretation.  I agree.  However, the Guidelines include the circumstances when judicial authorization is necessary without in any way indicating that the procedure should be avoided if possible for practicality reasons or that it is unnecessary when an audit is being conducted.  Indeed, the application is made ex parte, and pursuant to s. 231.2(3) , all that need be demonstrated is that the person or group is ascertainable and that the purpose of the application is to verify compliance by the person or group with any duty or obligation under the Act.  I infer that recourse to judicial authorization when necessary should not be unduly burdensome. 

[52] The CRA says that its power under s. 231.2(1) is permissive and that the restriction on that permissive power in s. 231.2(2)  does not transform the permissive power into a mandatory obligation.  However, as I have indicated, where the CRA seeks information pertaining to unnamed persons for the purpose of verifying their compliance with the Act, it cannot obtain that information under its authority to audit another  taxpayer.  It is open to the CRA to resort to s. 231.2.  If it does so, it is under s. 231.2(2)  when it seeks information about unnamed persons.

[53] The Federal Court of Appeal was of the opinion that because there is a reciprocity in the tax treatment of most transactions, the CRA may use the information obtained from one taxpayer to ensure compliance by the other party to the transaction.  The Court of Appeal stated:

The Minister has every interest in confirming that the amount claimed as a  business expense by the buyer is the amount recorded as revenue by the seller.  In the case of registered charities, the same reciprocity applies.  If the Minister determines that donations received are not eligible for deduction, then he has an interest in reviewing the returns of those to whom a receipt has been issued in respect of those donations.  This ability to subject both parties to a transaction to equivalent tax treatment is a fundamental aspect of the verification process.

([2007] 3 F.C.R. 40, 2006 FCA 325, at para.  41)

[54] I agree that there is reciprocity of tax treatment of many commercial and charitable transactions and that the CRA may have an interest in seeing how both the taxpayer and the other party to a transaction have recognized it for tax purposes.  If, during an audit, the records of the taxpayer record the identity of the other party to a transaction and the CRA requires nothing further, there is no need to resort to s. 231.2(2) .  But that is not an argument that justifies bypassing the requirements of s. 231.2(2)  which would be the case if every time a taxpayer was audited, the CRA had unfettered licence to obtain information pertaining to unnamed persons.

[55] In their reasons, my colleagues deal with the policy arguments surrounding the interpretation of the Act.  They state in para. 25 that individuals have a very low expectation of privacy in their business and tax records and that it is indeed the case that s. 231.1 may reveal a great deal of information about audited taxpayers and unnamed persons.  However, this case is one of statutory interpretation.  I agree that individuals and entities may have a low expectation of privacy in their business and tax records, but in my view, it is still necessary to interpret the Act in a manner that gives coherent meaning to the relevant provisions as read together.

[56] The Chief Justice and LeBel J. say the CRA is entitled, without resort to s. 231.2(2) , to request information that ought to be in the records of a taxpayer according to the Act.  However, as stated, the relevant sections of the Act are extremely broad.  Because the authority of the CRA under the Act is so broad, it should be required to follow the procedures provided in the Act rigorously.  Section 231.2(2)  was intended to provide some minimal restraint on those broad powers, and in my respectful view, in the course of an audit of a taxpayer, when the CRA forms the intention to obtain information pertaining to unnamed persons, judicial authorization under s. 231.2(2)  is required.

[57] I would allow the appeal with costs and restore the decision of the applications judge with one exception.  Paragraph 4 of the application judge’s order of October 4, 2005, reads:

The Respondent shall vacate all reassessments and proposals to reassess in respect of any donor where identity was made known to the Respondent only by means of the information illegally obtained;

[58] The CRA submits that the Federal Court does not have the jurisdiction to order the Minister of National Revenue to vacate tax assessments.  I agree.  Section 152(8)  of the Income Tax Act  deems an assessment to be valid unless varied or vacated on objection to the CRA or on appeal to the Tax Court of Canada.  Section 169(1)  of the Income Tax Act , providing for an appeal to the Tax Court, is the mechanism available to taxpayers who wish to have their assessments vacated.  Pursuant to s. 18.5  of the Federal Courts Act, R.S.C. 1985, c. F-7 ,

[the power of the Federal Court on judicial review is not applicable where] an Act of Parliament expressly provides for an appeal to . . . the Tax Court of Canada . . . .

The applications judge did not have jurisdiction to vacate the tax assessments of the donors in this case.  As the CRA quite properly conceded, any issues as to the admissibility of evidence in respect of assessments can be made at the Tax Court.

                                                                    APPENDIX

Income Tax Act, R.S.C. 1985, c. 1 (5th Supp .)

230. (1) [Records and books] Every person carrying on business and every person who is required, by or pursuant to this Act, to pay or collect taxes or other amounts shall keep records and books of account (including an annual inventory kept in prescribed manner) at the person’s place of business or residence in Canada or at such other place as may be designated by the Minister, in such form and containing such information as will enable the taxes payable under this Act or the taxes or other amounts that should have been deducted, withheld or collected to be determined.

(2) [Idem] Every registered charity and registered Canadian amateur athletic association shall keep records and books of account at an address in Canada recorded with the Minister or designated by the Minister containing

(a) information in such form as will enable the Minister to determine whether there are any grounds for the revocation of its registration under this Act;

(b) a duplicate of each receipt containing prescribed information for a donation received by it; and

(c) other information in such form as will enable the Minister to verify the donations to it for which a deduction or tax credit is available under this Act.

(2.1) [Idem, lawyers] For greater certainty, the records and books of account required by subsection (1) to be kept by a person carrying on business as a lawyer (within the meaning assigned by subsection 232(1)) whether by means of a partnership or otherwise, include all accounting records of the lawyer, including supporting vouchers and cheques.

(3) [Minister’s requirement to keep records, etc.] Where a person has failed to keep adequate records and books of account for the purposes of this Act, the Minister may require the person to keep such records and books of account as the Minister may specify and that person shall thereafter keep records and books of account as so required.

(4) [Limitation period for keeping records, etc.] Every person required by this section to keep records and books of account shall retain

(a) the records and books of account referred to in this section in respect of which a period is prescribed, together with every account and voucher necessary to verify the information contained therein, for such period as is prescribed; and

(b) all other records and books of account referred to in this section, together with every account and voucher necessary to verify the information contained therein, until the expiration of six years from the end of the last taxation year to which the records and books of account relate.

(4.1) [Electronic records] Every person required by this section to keep records who does so electronically shall retain them in an electronically readable format for the retention period referred to in subsection (4).

(4.2) [Exemptions] The Minister may, on such terms and conditions as are acceptable to the Minister, exempt a person or a class of persons from the requirement in subsection (4.1).

(5) [Exception where no return filed] Where, in respect of any taxation year, a person referred to in subsection (1) has not filed a return with the Minister as and when required by section 150, that person shall retain every record and book of account that is required by this section to be kept and that relates to that taxation year, together with every account and voucher necessary to verify the information contained therein, until the expiration of six years from the day the return for that taxation year is filed.

(6) [Exception where objection or appeal] Where a person required by this section to keep records and books of account serves a notice of objection or where that person is a party to an appeal to the Tax Court of Canada under this Act, that person shall retain every record, book of account, account and voucher necessary for dealing with the objection or appeal until, in the case of the serving of a notice of objection, the time provided by section 169 to appeal has elapsed or, in the case of an appeal, until the appeal is disposed of and any further appeal in respect thereof is disposed of or the time for filing any such further appeal has expired.

(7) [Exception where demand by Minister] Where the Minister is of the opinion that it is necessary for the administration of this Act, the Minister may, by registered letter or by a demand served personally, require any person required by this section to keep records and books of account to retain those records and books of account, together with every account and voucher necessary to verify the information contained therein, for such period as is specified in the letter or demand.

(8) [Permission for earlier disposal] A person required by this section to keep records and books of account may dispose of the records and books of account referred to in this section, together with every account and voucher necessary to verify the information contained therein, before the expiration of the period in respect of which those records and books of account are required to be kept if written permission for their disposal is given by the Minister.

231.1 (1) [Inspections] An authorized person may, at all reasonable times, for any purpose related to the administration or enforcement of this Act,

(a) inspect, audit or examine the books and records of a taxpayer and any document of the taxpayer or of any other person that relates or may relate to the information that is or should be in the books or records of the taxpayer or to any amount payable by the taxpayer under this Act, and

(b) examine property in an inventory of a taxpayer and any property or process of, or matter relating to, the taxpayer or any other person, an examination of which may assist the authorized person in determining the accuracy of the inventory of the taxpayer or in ascertaining the information that is or should be in the books or records of the taxpayer or any amount payable by the taxpayer under this Act,

and for those purposes the authorized person may

(c) subject to subsection (2), enter into any premises or place where any business is carried on, any property is kept, anything is done in connection with any business or any books or records are or should be kept, and

(d) require the owner or manager of the property or business and any other person on the premises or place to give the authorized person all reasonable assistance and to answer all proper questions relating to the administration or enforcement of this Act and, for that purpose, require the owner or manager to attend at the premises or place with the authorized person.

(2) [Prior authorization] Where any premises or place referred to in paragraph (1)(c) is a dwelling‑house, an authorized person may not enter that dwelling‑house without the consent of the occupant except under the authority of a warrant under subsection (3).

(3) [Application] Where, on ex parte application by the Minister, a judge is satisfied by information on oath that

(a) there are reasonable grounds to believe that a dwelling‑house is a premises or place referred to in paragraph (1)(c),

(b) entry into the dwelling‑house is necessary for any purpose relating to the administration or enforcement of this Act, and

(c) entry into the dwelling‑house has been, or there are reasonable grounds to believe that entry will be, refused,

the judge may issue a warrant authorizing an authorized person to enter the dwelling‑house subject to such conditions as are specified in the warrant but, where the judge is not satisfied that entry into the dwelling‑house is necessary for any purpose relating to the administration or enforcement of this Act, the judge may

(d) order the occupant of the dwelling‑house to provide to an authorized person reasonable access to any document or property that is or should be kept in the dwelling‑house, and

(e) make such other order as is appropriate in the circumstances to carry out the purposes of this Act,

to the extent that access was or may be expected to be refused and that the document or property is or may be expected to be kept in the dwelling‑house.

231.2 (1) [Requirement to provide documents or information] Notwithstanding any other provision of this Act, the Minister may, subject to subsection (2), for any purpose related to the administration or enforcement of this Act,  including the collection of any amount payable under this Act by any person, by notice served personally or by registered or certified mail, require that any person provide, within such reasonable time as is stipulated in the notice,

(a) any information or additional information, including a return of income or a supplementary return; or

(b) any document.

(2) [Unnamed persons] The Minister shall not impose on any person (in this section referred to as a “third party”) a requirement under subsection (1) to provide information or any document relating to one or more unnamed persons unless the Minister first obtains the authorization of a judge under subsection (3).

(3) [Judicial authorization] On ex parte application by the Minister, a judge may, subject to such conditions as the judge considers appropriate, authorize the Minister to impose on a third party a requirement under subsection (1) relating to an unnamed person or more than one unnamed person (in this section referred to as the “group”) where the judge is satisfied by information on oath that

(a) the person or group is ascertainable; and

(b) the requirement is made to verify compliance by the person or persons in the group with any duty or obligation under this Act.

(c) and (d) [repealed S.C. 1996, c. 21, s. 58(1)]

(4) [Service of authorization] Where an authorization is granted under subsection (3), it shall be served together with the notice referred to in subsection (1).

(5) [Review of authorization] Where an authorization is granted under subsection (3), a third party on whom a notice is served under subsection (1) may, within 15 days after the service of the notice, apply to the judge who granted the authorization or, where the judge is unable to act, to another judge of the same court for a review of the authorization.

(6) [Powers on review] On hearing an application under subsection (5), a judge may cancel the authorization previously granted if the judge is not then satisfied that the conditions in paragraphs (3)(a) and (b) have been met and the judge may confirm or vary the authorization if the judge is satisfied that those conditions have been met.

Appeal dismissed with costs, Binnie, Deschamps and Rothstein JJ. dissenting in part.

Solicitors for the appellant:  Miller Thomson, Toronto.

Solicitor for the respondent:  Attorney General of Canada, Ottawa.