R. v. Ling, [2002] 3 S.C.R. 814, 2002 SCC 74
Chee K. Ling Appellant
v.
Her Majesty The Queen Respondent
and
The Attorney General for Ontario,
the Attorney General of Quebec and
the Criminal Lawyers’ Association (Ontario) Interveners
Indexed as: R. v. Ling
Neutral citation: 2002 SCC 74.
File No.: 28315.
2002: June 13; 2002: November 21.
Present: McLachlin C.J. and L’Heureux‑Dubé,
Gonthier, Iacobucci, Major, Bastarache, Binnie, Arbour and LeBel JJ.
on appeal from the court of appeal for british columbia
Revenue Canada audited the appellant taxpayer with
respect to his claim for farm losses for the taxation years 1990 through 1993.
The auditors met the taxpayer’s accountant and examined books and records.
They also met the taxpayer and obtained receipt books from which they deduced
that income had not been reported. More meetings and further requests by the
auditors led to the production of more information, including financial records
and bank documents. On December 18, 1995, the auditors questioned the
taxpayer extensively and he admitted to mistakenly failing to report income.
A month later, the taxpayer’s file was transferred to the Special
Investigations Section of Revenue Canada, which is responsible for criminal
enforcement. Special investigations officials carried out further inquiries,
interviewing witnesses and sending requirement letters to four banks and the
taxpayer’s accountant. They then met the taxpayer, informed him that he was
under investigation and cautioned him as to his rights. The taxpayer declined
to answer any questions. He was later charged under s. 239(1) of the Income
Tax Act with tax evasion and making false or deceptive statements in income
tax returns. The trial judge found that the evidence gathered by the auditors
was not obtained in violation of the taxpayer’s rights under the Canadian
Charter of Rights and Freedoms and denied a motion to exclude the evidence
under s. 24(2) of the Charter . The taxpayer was convicted. The
summary conviction appeal judge set aside the convictions. He held that the
investigation began after the December 18 meeting and ordered a new trial
in which the court would consider whether the auditors’ evidence gathered after
that meeting should be excluded under s. 24(2) . The Court of Appeal
affirmed the decision.
Held: The
appeal should be dismissed.
In light of the principles set out in R. v. Jarvis,
[2002] 3 S.C.R. 757, 2002 SCC 73, Revenue Canada did not commence an
investigation into the taxpayer’s penal liability until after the
December 18 meeting. The evidence gathered prior to and during that
meeting in the proper exercise of an audit function could be shared with the
Special Investigations Section and used in the subsequent prosecution of the
taxpayer for s. 239(1) offences. After the December 18 meeting, the
predominant purpose of the inquiry was the determination of the taxpayer’s
penal liability. All evidence gathered after that meeting pursuant to the
requirement powers was obtained as part of an investigation and in violation of
the taxpayer’s Charter rights. The admissibility of this evidence, and
the evidence derived therefrom, will have to be considered in light of
s. 24(2) of the Charter .
Cases Cited
Followed: R.
v. Jarvis, [2002] 3 S.C.R. 757, 2002 SCC 73.
Statutes and Regulations Cited
Canadian Charter of Rights and
Freedoms, ss. 7 , 8 , 24(2) .
Income Tax Act, R.S.C. 1985, c. 1 (5th Supp .), ss. 231.1(1) , 231.2(1) , 239(1) , (2) .
APPEAL from a judgment of the British Columbia Court
of Appeal (2000), 149 C.C.C. (3d) 127, 144 B.C.A.C. 92, 236 W.A.C. 92, [2000]
B.C.J. No. 2082 (QL), 2000 BCCA 562, affirming a judgment of Millward J.,
[1999] 3 C.T.C. 386, [1998] B.C.J. No. 1512 (QL), setting aside the
taxpayer’s convictions for tax offences and ordering a new trial. Appeal
dismissed.
Craig C. Sturrock and
Thomas M. Boddez, for the appellant.
S. David Frankel, Q.C., Bruce Harper and Janet Henchey,
for the respondent.
Trevor Shaw, for
the intervener the Attorney General for Ontario.
Gilles Laporte and
Monique Rousseau, for the intervener the Attorney General of
Quebec.
Scott K. Fenton, for the intervener the Criminal Lawyers’ Association (Ontario).
The judgment of the Court was delivered by
Iacobucci and Major
JJ. —
I. Introduction
1
This appeal is determined by the principles set out in R. v. Jarvis,
[2002] 3 S.C.R. 757, 2002 SCC 73, an appeal heard concurrently. It
raises a similar question, namely, in what circumstances an inquiry by an
official of the Canada Customs and Revenue Agency (“CCRA”), formerly Revenue
Canada, constitutes an investigation that implicates the Charter rights
of the taxpayer. In Jarvis, we describe the circumstances in which an
inquiry constitutes a criminal investigation as those that engage the
adversarial relationship between the individual and the state, and we will use
that phrase in the same context here. Jarvis establishes that this
relationship is engaged where the predominant purpose of an inquiry is the
determination of a taxpayer’s penal liability under s. 239 of the Income Tax
Act, R.C.S. 1985, c. 1 (5th Supp.) (the “Act”).
2
In performing an audit, the auditor may use the requirement powers,
pursuant to ss. 231.1(1) and 231.2(1) of the Act. These sections give the
auditor the power to: (a) enter a taxpayer’s place of business or place of
record keeping; (b) require the taxpayer and third parties to answer questions
put to them; and (c) require the taxpayer and third parties to furnish
information and documents upon request.
3
If the audit reveals that the taxpayer has filed an incorrect tax
return, he or she may be subject to reassessment and civil penalties. In cases
where the taxpayer has wilfully made false or deceptive statements or entries
or attempted to evade the payment of a tax, he or she may be guilty of an
offence pursuant to s. 239(1) of the Act for which the punishments include
fines and imprisonment for a maximum of five years.
4
The issue here as in Jarvis is when, if ever, can evidence
obtained pursuant to the requirement powers of an audit be used to further an
investigation or prosecution for a s. 239(1) offence without violating the
suspect’s Charter rights? This question is answered by Jarvis.
5
Though the factual circumstances and issue raised in the present appeal
are less complicated than in Jarvis, the question of law is the same.
Evidence gathered by the CCRA pursuant to ss. 231.1(1) and 231.2(1) , in the
proper exercise of its audit function, may be used in a subsequent
investigation or prosecution for a s. 239(1) offence. However, where the
predominant purpose of a question or inquiry is the determination of penal
liability, CCRA officials relinquish the authority to use ss. 231.1(1) and
231.2(1) . Obtaining evidence under the requirement powers for such a purpose
is a violation of a suspect’s Charter rights. Such evidence may thus be
excluded from the prosecution of an offence.
6
The question, then, is in what circumstances is the predominant purpose
of a question or inquiry the determination of penal liability? In Jarvis,
at para. 93, we held that no one factor is determinative but that the trial
judge must assess the totality of the circumstances. Applying the Jarvis
test, we agree with Millward J. that the CCRA did not exercise its
investigative function until after the meeting between Revenue Canada officials
and the appellant on December 18, 1995.
7
Once the CCRA began to exercise its investigative function, the parties
were put in an adversarial relationship. The appellant is not entitled to
immunity from evidence obtained pursuant to the requirement power prior to and
during the December 18 meeting, or evidence derived therefrom. However, the
appellant is entitled to a new trial in which the court will consider
the admissibility of evidence obtained under the requirement power for the
predominant purpose of determining penal liability, and evidence derived
therefrom, in accordance with s. 24(2) of the Canadian Charter of Rights and
Freedoms . The appeal is dismissed and the order for a new trial is
confirmed.
II. Facts
8
Following an audit, Revenue Canada disallowed the appellant taxpayer’s
claimed farm losses for the years 1987 through 1989. The appellant’s taxes for
those years were reassessed on the basis that his farming operations were a
personal endeavour, not a business. In 1994, James Edward Thatcher, a
technical advisor with the Business Audit Section of Revenue Canada in
Vancouver, conducted a computer check which revealed that the appellant claimed
the same farming losses for the taxation years 1990 through 1993. As a result,
Thatcher selected those returns for a routine follow-up audit.
9
In November 1994, Thatcher informed the appellant, who was a doctor in
Kitimat, B.C., that he was conducting an audit and would be there in the spring
of 1995 to review his farming operations and medical practice. Arvind Pacheco,
of the Verification and Enforcement Division of Revenue Canada, was assigned to
work on the audit with Thatcher.
10
On June 5, 1995, Pacheco and Thatcher met with the appellant’s
accountant, Carlyle Shepherd, at Shepherd’s office to examine the appellant’s
books and records. In reviewing those records, Thatcher determined that fees
paid by the Medical Service Plan (“MSP”) were deposited directly to the
appellant’s accounts twice each month. There were other deposits into the same
accounts which could not be identified by them.
11
On June 7, 1995, Pacheco and Thatcher met with the appellant at the
appellant’s office in the Kitimat General Hospital. Complying with a request by
the auditors, the appellant produced two receipt books. Comparing the receipt
books to the bank records, the auditors deduced that office income had not been
reported.
12
Pacheco wrote to the appellant on June 21, 1995, requesting additional
information and, on July 27, 1995, he wrote again stating that if the
information was not forthcoming, requirements demanding it or a reassessment
based on the information currently available would be issued.
13
Pacheco met with the appellant at his farm in Delta, British Columbia on
August 9, 1995. On September 5 and 19, Shepherd provided further information
to Pacheco on behalf of the appellant.
14
On November 20, 1995, Pacheco telephoned the appellant to set up a
meeting for December 18, 1995. He also questioned the appellant about the
unidentified deposits that he had proposed to include in income. The appellant
responded that they were loans.
15
Pacheco wrote to the appellant on December 7, 1995, asking him to
provide further information and asking him to identify certain deposits before
the December 18 meeting.
16
The auditors met with the appellant on December 18 at the Vancouver
District Office of Revenue Canada for over three hours. The appellant was
questioned extensively about the unidentified deposits and unreported income.
In the course of this meeting, the appellant admitted that he had mistakenly
failed to report certain amounts as income.
17
At no point did the auditors inform the appellant of any concern about
tax evasion or about any rights he might have under the Charter in
relation to the inquiries being made of him. The following documents and
information had been obtained in the course of the audit:
(a) the appellant’s filed income tax returns;
(b) the working papers of the Revenue auditor
who had previously examined the appellant’s farming loss claim for 1987-89;
(c) two boxes of financial records at the
appellant’s accountants;
(d) a receipt book kept at the appellant’s
office;
(e) a journal recording cheques and cash
received and petty cash, kept at the appellant’s office;
(f) bank statements and bank deposit slips,
some kept by the appellant and some obtained from the banks;
(g) cheques from the Workers’ Compensation Board
to the appellant, obtained from the Board;
(h) oral and written responses by the
appellant’s accountants to specific queries and requests for documents,
including handwritten income and expense statements;
(i) statements made by the appellant to the
auditors in telephone conversations and in interviews on June 7 and December
18, 1995.
18
Following a meeting on December 29, 1995, the auditor, with the
appellant’s consent, obtained documents from certain brokerage firms and
chartered banks.
19
After December 18, 1995, but before January 18, 1996, Pacheco met with
Mr. Fleming, his group head, and Mr. Richard Olney, of Special Investigations,
the criminal enforcement branch of Revenue Canada. The outcome of the meeting
was a referral of the appellant’s file to Special Investigations on January 18,
1996, pursuant to instructions of Pacheco’s supervisor.
20
On February 26 and 27, 1996, Olney and Fleming interviewed two witnesses
who had previously been interviewed by the auditors. Requirement letters were
served on four banks and on the appellant’s accountant. On February 28, 1996,
Olney and Fleming met the appellant at his office. They read him a caution
from a card advising him generally that he was not obliged to make any statements
but if he did so they might be used in evidence and that he had a right to
retain and instruct a lawyer. The appellant declined to answer any questions.
On February 28, 1996, a Prosecution Report was prepared. The appellant was
charged with six counts of committing an offence contrary to s. 239(1) of the
Act on August 26, 1996.
III. Relevant
Statutory and Constitutional Provisions
21
Income Tax Act, R.S.C. 1985, c. 1 (5th Supp .)
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, 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.
.
. .
231.2 (1) 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, 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.
.
. .
239. (1) Every person who has
(a) made, or participated in, assented to or acquiesced in the
making of, false or deceptive statements in a return, certificate, statement or
answer filed or made as required by or under this Act or a regulation,
(b) to evade payment of a tax imposed by this Act, destroyed,
altered, mutilated, secreted or otherwise disposed of the records or books of
account of a taxpayer,
(c) made, or assented to or acquiesced in the making of, false
or deceptive entries, or omitted, or assented to or acquiesced in the omission,
to enter a material particular, in records or books of account of a taxpayer,
(d) wilfully, in any manner, evaded or attempted to evade
compliance with this Act or payment of taxes imposed by this Act, or
(e) conspired with any person to commit an offence described in
paragraphs (a) to (d),
is guilty of an offence and, in addition to any penalty otherwise
provided, is liable on summary conviction to
(f) a fine of not less than 50%, and not more than 200%, of the
amount of the tax that was sought to be evaded, or
(g) both the fine described in paragraph (f) and
imprisonment for a term not exceeding 2 years.
(2) Every person who is charged with an offence
described in subsection (1) may, at the election of the Attorney General of
Canada, be prosecuted on indictment and, if convicted, is, in addition to any
penalty otherwise provided, liable to
(a) a fine of not less than 100% and not more than 200%, of the
amount of the tax that was sought to be evaded; and
(b) imprisonment for a term not exceeding 5 years.
Canadian
Charter of Rights and Freedoms
7. Everyone has the right to life, liberty
and security of the person and the right not to be deprived thereof except in
accordance with the principles of fundamental justice.
8. Everyone has the right to be secure
against unreasonable search or seizure.
24. (1) Anyone whose rights or freedoms, as
guaranteed by this Charter , have been infringed or denied may apply to a court
of competent jurisdiction to obtain such remedy as the court considers
appropriate and just in the circumstances.
(2) Where, in proceedings under subsection (1), a
court concludes that evidence was obtained in a manner that infringed or denied
any rights or freedoms guaranteed by this Charter , the evidence shall be
excluded if it is established that, having regard to all the circumstances, the
admission of it in the proceedings would bring the administration of justice
into disrepute.
IV. Judicial
History
A. Provincial
Court of British Columbia — July 21, 1997
22
Graham Prov. Ct. J. denied the appellant’s motion for a stay of
proceedings, or, in the alternative, for an order under s. 24(2) of the Charter
that evidence obtained from the appellant by auditors of Revenue Canada be
excluded because the appellant’s Charter rights had been breached.
23
The trial judge found that the audit was continued throughout Pacheco’s
involvement with the file and that he had not reached any conclusion that the
appellant had evaded taxes before he was told by his supervisor to refer the
file to Special Investigations after the December 18 meeting. The appellant
was found guilty of each count of tax evasion.
B. Supreme
Court of British Columbia, [1999] 3 C.T.C. 386
24
The appellant sought an order under s. 24(2) that all evidence obtained
directly or indirectly through an audit conducted under the Income Tax Act
was inadmissible in a criminal proceeding.
25
The summary conviction appeal judge found that there was no direct
adversarial relationship between the taxpayer and the state prior to December
18, 1995 and that the information requested by Revenue Canada up to that date
was pre-existing business documents to which little Charter protection
applied. He pointed out that, if information gathered in an audit could not be
used in a later prosecution, the tax evasion provisions would be ineffective
to the point that even a search warrant might not be obtained.
26
On the issue of whether the actions of Revenue Canada were part of an
audit or an investigation, Millward J. noted that the parties were in
agreement, supported by case law, that the appropriate test to apply was
whether the predominant purpose of Revenue Canada’s actions was to further an
audit or an investigation but he found the test to be artificial and
inappropriate in these circumstances.
27
Millward J. disagreed with the trial judge’s finding that an investigation
had not commenced even after the December 18 meeting because Thatcher thought
it was premature to refer the file to Special Investigations until the audit
was completed. Instead, Millward J. found that the predominant purpose of the
auditor’s actions after the December 18 meeting was to gather information to be
used in their criminal investigation. He allowed the appeal, set aside the
convictions and ordered a new trial on all counts and in particular to consider
the evidence obtained after the December 18 meeting in light of s. 24(2) of the
Charter .
C. Court
of Appeal for British Columbia (2000), 149 C.C.C. (3d) 127
28
Rowles J.A., for the court, dismissed the appellant Ling’s appeal that
Millward J. had erred in failing to make an order excluding all evidence
obtained pursuant to the Income Tax Act requirement power for use in
criminal proceedings against the appellant.
V. Issue
29
This appeal raises a single issue:
Can the appellant claim use immunity for the compelled statements and
derivative use immunity for the “product” of his compelled testimony?
VI. Analysis
A. Application
of Jarvis Principles
30
The answer to the above question hinges on whether Revenue Canada was
conducting an investigation into the commission of an offence under the Act
when it gathered evidence from the appellant pursuant to the requirement
power. At what point did the adversarial relationship crystallize? As stated
in Jarvis, an audit and an investigation are not mutually exclusive.
Revenue Canada may conduct both concurrently. Revenue Canada must be careful,
however, not to use the requirement power of the audit to gather further evidence
for an investigation after it has commenced. If it does so it violates the Charter
rights of the investigated taxpayer.
31
Applying the factors set out in Jarvis to determine the
commencement of an investigation, we come to the following conclusions based on
the trial record:
(a) The
authorities did not have reasonable grounds to lay charges before December 18,
1995.
(b) It did
not appear prior to the December 18 meeting that a decision to proceed with a
criminal investigation could have been made.
(c) The
general conduct of the tax authorities was not such that it had decided the
taxpayer was under investigation for s. 239 offences.
(d) The
auditors had not transferred their files and materials to the investigators
until January 18, 1996.
(e) The
decision to proceed with a criminal investigation had only been made after
December 18, 1995.
(f) The
conduct of the auditors was not such that they were effectively acting as
agents for the investigators.
(g) It does
not appear that the investigators intended to use the auditors as their agent
in the collection of evidence.
B. Conclusion
32
We conclude, as did Millward J., that the audit was conducted properly
as an audit and not as an investigation up to and including the December 18
meeting. However, after that meeting the officials began to investigate the
appellant’s penal liability. The information gathered pursuant to the
requirement power on December 29, 1995 was gathered as part of an investigation
and in violation of the appellant’s ss. 7 and 8 Charter rights. All
evidence gathered prior to and during the meeting of December 18 was properly
obtained as part of the audit process and could be shared with the Special
Investigations Section. All evidence gathered subsequent to that meeting from
the appellant prior to warning him that he was the subject of an investigation
for the purpose of furthering the investigation or prosecution for s. 239(1)
offences violates the appellant’s Charter rights and will have to be
considered in light of s. 24(2) in the new trial as ordered by Millward J. and
confirmed by the Court of Appeal.
VII. Disposition
33
The appeal is dismissed and the order for a new trial is confirmed.
Appeal dismissed.
Solicitors for the appellant: Thorsteinssons, Vancouver.
Solicitor for the respondent: The Department of Justice,
Vancouver.
Solicitor for the intervener the Attorney General for
Ontario: The Ministry of the Attorney General, Toronto.
Solicitor for the intervener the Attorney General of
Quebec: The Department of Justice, Sainte‑Foy.
Solicitor for the intervener the Criminal Lawyers’ Association
(Ontario): Scott K. Fenton, Toronto.
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