Andison v. The Queen, 95 DTC 5058, [1995] 1 CTC 203 (FCTD)

Dubé J.:-This application is for an order quashing a demand issued by the Minister of National Revenue (the "Minister") pursuant to section 231.2 of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") as amended for the production of information and documents as set forth in a letter to the applicant dated December 10, 1993 (the "requirement").

The applicant claims the requirement is invalid on three grounds:

1. The requirement was not issued for a purpose related to the administration or enforcement of the Income Tax Act;

2. The requirement contains a false and misleading statement of purpose;

3. The Minister failed to obtain and serve on the applicant a judicial authorization with respect to the information and documents pertaining to "unnamed" corporation which is demanded in the requirement.

The applicant ("Andison") is a barrister carrying on the practice of law in Vancouver, B.C. During the years 1988 to 1992 he represented one Eliot Lieberman ("Lieberman") in connection with the acquisition of certain real property in the province of British Columbia. On October 26, 1993 the Minister received a request from the United States tax authorities seeking assistance in connection with an income tax investigation of Lieberman, pursuant to Article XXVII of the Canada-U.S. Income Tax Convention 1980 ("the Treaty"). The relevant provisions of section 231.2 of the Act, Article XXVII of the Treaty and section 3 of the United States Tax Convention Act (S.C. 1984, c. 20) read as follows:

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.

231.2(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).

Article XXVII-Exchange of Information

1. The competent authorities of the contracting states shall exchange such information as is necessary for carrying out the provisions of this Convention or of the domestic laws of the contracting states concerning taxes covered by the Convention insofar as the taxation thereunder is not contrary to the Convention....

2. If information is requested by a contracting state in accordance with this Article, the other contracting state shall endeavor to obtain the information to which the request relates in the same way as if its own taxation was involved notwithstanding the fact that the other State does not, at that time, need such information....

3. In no case shall the provisions of paragraphs 1 and 2 be construed so as to impose on a contracting state the obligation:

(a) To carry out administrative measures at variance with the laws and administrative practice of that or of the other contracting state;

(b) To supply information which is not obtainable under the laws or in the normal course of the administration of that or of the other contracting state; or

3.(1) The Convention is approved and declared to have the force of law in Canada during such period as, by its terms, the Convention is in force.

(2) In the event of any inconsistency between the provisions of this Act, or the Convention, and the provisions of any other law, the provisions of this Act and the Convention prevail to the extent of the inconsistency.

(3) The Minister of National Revenue may make such regulations as are necessary for the purpose of carrying out the Convention or for giving effect to any of the provisions thereof.

The first paragraph of the requirement which is a letter dated December 10, 1993 addressed to Andison and signed by Dennis Luciuk, Director of Taxation, Vancouver District Office, Department of National Revenue, reads as follows:

For purposes related to the administration or enforcement of the Income Tax Act, I hereby require from you within 30 days from the date of receipt of this notice information and documents as follows....

In short, the applicant’s position is that the requirement is invalid as it was not issued "for purposes related to the administration or enforcement of the Income Tax Act", but to compel the disclosure of information for the purpose of an Internal Revenue Service investigation of the U.S. in connection with a criminal investigation of Lieberman: thus the requirement contains a false and misleading statement of purpose.

On the other hand, the respondent submits that the applicant’s argument is misguided. The power for the Minister to issue a requirement is in respect of the Treaty and arises because the Treaty and its implementing legislation empower the Minister to require production of documents in the same manner as in the Income Tax Act. Paragraph 2 of Article XXVII makes it clear that if information is requested by the contracting state (the United States) then the other contracting state (Canada) "shall endeavour to obtain the information to which the request relates in the same way as if its own taxation was involved".

Since Article XXVII has the force of law in Canada by virtue of the Tax Convention Act the Minister has express legal authority to issue a requirement using the same mechanism provided by the Income Tax Act for purposes of the administration and enforcement of requests for information under the Treaty. In fact section 3 of the Tax Convention Act, stipulates that the Treaty has the force of law in Canada and will prevail over other domestic law to the extent of any inconsistencies.

In Canadian Pacific Ltd. v. The Queen, [1976] C.T.C. 221, 76 D.T.C. 6120 (F.C.T.D.), Walsh J. dealing with the Canada-U.S. Tax Convention and Protocol, 1942, said at page 245 (D.T.C. 6134) that: "The parties are in agreement that the terms of a treaty will override an Act and that it should be construed more liberally".

In Montreal Aluminium Processing Inc. et al. v. Attorney General of Canada, [1991] 2 C.T.C. 70, 91 D.T.C. 5424 (F.C.T.D.); [1992] 2 C.T.C. 356, 92 D.T.C. 6567 (F.C.A.), Joyal J. of this Court held that section 231.2 of the Income Tax Act, read with section 3 of the Convention Act and Article XXVII of the Convention, empowers the Minister to issue a requirement for the information sought by the U.S. authorities. The Convention provides that Canada shall endeavour to obtain the information requested in the same way as if its own taxation was involved and to pass it on to the U.S. Consequently, he found that the statement of claim disclosed no reasonable cause of action and struck it out. However, the Federal Court of Appeal allowed the taxpayer’s appeal on the ground that it was not obvious and beyond doubt that the claim in question would fail. In that appeal counsel for the Minister had conceded that the words used were incorrect, thus misleading: there is no such concession in the instant case. Hugessen J.A. stated as follows (at page 362 (D.T.C. 6569)):

It is settled law that the test as to whether or not the Minister, when he exercises his powers under subsection 231.2(1), is acting for a purpose specified in the Act is an objective one. In my view, it is arguable that the recipient of a requirement is entitled to a fair notice as to the purpose for which the Minister purports to exercise his powers under subsection 231.2(1).

[Emphasis added.]

In the instant case, Andison was notified that the purpose for which the Minister exercised his powers under section 231.2, was to assist the U.S. tax authorities in their tax investigation (Andison himself so admits in paragraph 3 of his own affidavit dated March 2, 1994). The applicant therefore was not misled.

Nevertheless, it wold have been advisable on the part of Revenue Canada to have added to the opening paragraph of its requirement letter the information already orally passed on to Andison, namely that the information was requested by the U.S. tax authorities in connection with an income tax investigation of Lieberman pursuant to Article XXVII of the Treaty. That would have settled the matter.

I believe however that the third point raised by the applicant is valid in the sense that application for a judicial authorization ought to have been obtained with reference to the unnamed corporations of which Lieberman was a shareholder. A demand under section 231.2 of the Income Tax Act cannot be used by the Minister to go on a "fishing expedition", nor can it be used by the Minister to determine the identity of specific taxpayers {Richardson & Sons Ltd. v. M.N.R., [1984] 1 S.C.R. 614, [1984] C.T.C. 345, 84 D.T.C. 6325).

Subsection 231.2(2) of the Income Tax Act prohibits the Minister from issuing a demand 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 231.2(3). Subsection 231.2(4) provides that where a judicial authorization is granted, the Minister must serve it together with the notice referred to in subsection (1). Thus, the requirement in respect of information or documents pertaining to any unnamed corporation of which Lieberman is a shareholder is invalid.

In Paquette v. M.N.R., [1992] 2 C.T.C. 75, 92 D.T.C. 6394 (F.C.T.D.), Teitelbaum J. of this Court held that even though National Revenue’s request contained an additional paragraph extending to other unnamed persons (hence invalid without prior judicial authorization under subsection 231.2(2) of the Act), the remainder of the requirement was still valid. Similarly in this case, the requirement as a whole is valid except for the information related to unnamed corporations for which the respondent will have to obtain judicial authorization.

The application is granted in part only.

Application granted in part.