R. v. McKinlay Transport Ltd., 85 DTC 5537, [1986] 1 CTC 29 (Ont. Prov. Ct.), aff'd 87 DTC 5438, [1987] 2 CTC (S.C.O.)

Langdon, Prov. Ct. J.:—The defendants are charged in one information, each with two separate counts under subsection 238(2) of the Income Tax Act. Counts 1 and 2 relate to McKinlay Transport Limited (hereinafter referred to as “McKinlay”) and Counts 3 and 4 refer to C. T. Transport Inc. (hereinafter referred to as “C.T.”). The first count against each defendant alleges that the defendant did fail to provide the Minister of National Revenue certain reports pursuant to a requirement for information served under the authority of paragraph 231(3)(a) of the Income Tax Act and certain books, records and documents required pursuant to paragraph 231 (3)(b) of the Income Tax Act. The second counts against each defendant allege that each defendant did fail to keep adequate records and books of account at its place of business in Canada following a requirement issued pursuant to the authority of subsection 230(3) of the Income Tax Act.

The defence motions to quash the information raise very fundamental issues which strike at two important enforcement provisions of the Income Tax Act. In broad terms the issues may be stated as follows:

1. Do the powers of enforced production of information or documents conferred by subsection 231(3) of the Income Tax Act when coupled with the enforcement provisions of subsection 238(2) of the Income Tax Act constitute powers of search or seizure?

2. If those powers are indeed powers of search or seizure are they unreasonable within the meaning of section 8 of the Canadian Charter of Rights and Freedoms thus rendering them inconsistent with the provisions of the Constitution of Canada and of no force or effect or is the infringement of Charter rights justified by section 1?

3. Is the power conferred by subsection 230(1) of the Income Tax Act authorizing the Minister of National Revenue to require a taxpayer to keep his records and books of account at his place of business or residence in Canada or at such other place as may be designated by the Minister, a power which goes beyond the powers necessarily incidental to those conferred by subsection 91(3) of the Canada Act, 1867 (the raising of money by any mode or system of taxation) and thus ultra vires the Parliament of Canada as encroaching on powers exclusively assigned to the provincial legislatures by the Canada Act, 1867 subsections 92(11) (the incorporation of companies with provincial objects) or 92(13) (property and civil rights in the province)?

Appended as Schedule A to this judgment is a copy of the Information [not reproduced].

Appended as Schedule B is a summary of the defendants’ argument regarding the Charter of Rights and Bill of Rights [not reproduced].

Appended as Schedule C to this judgment is a list of authorities to which counsel have referred the Court [not reproduced].

It is common ground that subbsection 238(2) of the Income Tax Act creates an offence of strict liability. Notice has been served on the Attorney General of Ontario pursuant to section 122 of the Courts of Justice Act and the Attorney General of Ontario has elected not to intervene in these proceedings.

For the purposes of the motion it has also been agreed that (a) some taxpayers are permitted to keep their books and records outside of Canada and (b) auditors of Revenue Canada have conducted on occasions and do conduct audits both inside and outside of Canada.

Facts

Defendants called Mr. Norman Eugene Hamed, a resident of the State of Michigan, and the Vice-President of Finance of Central Cartage Company, a company incorporated under the laws of the State of Michigan. His evidence established the following factual framework within which this motion must be decided. McKinlay Transport was incorporated pursuant to the laws of Ontario in 1950. It carries on business in Ontario and has authority as well to transport freight to Hull, Quebec and into the United States. C.T. Transport is also a company incorporated under the laws of the Province of Ontario in 1973 and carries on business in Ontario and in the United States of America. It also is in the business of motor freight transport of general commodities. Each company has a legal head office in Ontario. Central Cartage Company is a parent company of McKinlay Transport, i.e. owns that company, and C. T. Transport is a sister company of Central Cartage Company. All corporations are subsidiaries of Centra Inc., an American parent company which controls in all approximately 45 other companies.

Filed as Exhibits 1 and 2 on the motion were orders of the Minister of Consumer and Commercial Relations of Ontario authorized by subsection 161(3) of the Business Corporations Act permitting each of the defendants to keep its books and records in Sterling Heights, Michigan.

Although each defendant has a nominal head office in Ontario, the de facto head office of each corporation is in Sterling Heights, Michigan. All the books and records of the defendant companies are kept there. The entire accounting system of the defendant companies and of the 45 other companies under the umbrella of Centra Inc. are kept in an elaborate computer system owned and operated by Central Cartage Company, the parent of McKinlay Transport and the sister of C. T. Transport. This is one computer facility. Central Cartage Company owns the software on which the computer accounting system functions but that software was purchased from another corporation in Utah which holds a copyright to it. One of the conditions under which C.C.C. uses the computer software is that such software will not be disclosed to others without the consent of the copyright owner.

Personnel of the defendant companies in Ontario are not knowledgeable concerning this accounting system and none of those employees could decipher the books or records or operate the computer.

The books and records of both companies at all material times have been kept in Michigan and in the past there have been numerous audits by various taxing and other authorities of the federal and Ontario governments. These audits have always taken place at Sterling Heights, Michigan.

In the spring of 1982 Revenue Canada commenced an income audit of the two companies in respect of their 1979-80 tax year. Those audits were conducted in Sterling Heights, Michigan. Those audits were completed. In October 1983 the defendant companies received the requirements issued under the authority of subsections 230(3) and 231(3) of the Income Tax Act which requirements form the foundation for these prosecutions. These requirements were filed as Exhibits 4 and 5 and are appended to this judgment as Schedules D and E [not reproduced].

There is an Income Tax Enforcement Treaty in effect between the Government of the United States of America and the Government of Canada. That treaty permits the Canadian Government to request the Internal Revenue Service of the United States of America to use its process within the United States of America in order to assist the Canadian Government to obtain information necessary for the administration and enforcement of the Canadian Income Tax Act. After the requirements had been served in this case, the Internal Revenue Service of the United States Department of Treasury caused summonses to be served in the United States upon Centra Inc. regarding McKinlay Transport and McKinlay Transport [sic]. Copies of those summonses were filed as Exhibits 6 and 7.

Mr. Hamed is not an officer of either defendant company but in his capacity with Central Cartage Company and in his substantial past experience he has had dealings with the accounting department of both companies and of course has to co-operate with them in order to complete the filing of various tax and information returns. McKinlay Transport and C. T. Transport have offices in Mississauga within the territorial division in which this Court now sits. However, all the books and records are located in the computer in Sterling Heights, Michigan. That computer cannot easily be moved. Since Central Cartage Company purchased McKinlay Transport in 1971 or 1972 and since 1973 when Central Cartage Company incorporated C. T. Transport, the books and records have always been kept in Sterling Heights, Michigan.

The requirements served on the defendants under the authority of subsection 230(1) of the Income Tax Act require both companies for the first time to keep their books and records in Canada. On cross-examination Mr. Hamed testified that Revenue Canada auditors were able to do their audit in part at Sterling Heights, Michigan. He denies that the auditors were forbidden access to records. He does, however, admit that Revenue Canada auditors were in part prevented from conducting their audit at Sterling Heights although he claims they were allowed access to the information which they required and other information at other locations. The impasse arises in this case because Revenue Canada’s position is that its auditors were obstructed or prevented from carrying on their audit.

Mr. Gary D. Burstyn, the Senior Business Auditor of Revenue Canada, Windsor, Ontario, for the last five years gave evidence on behalf of the prosecution. He swore that he tried to do the audits of the two companies in November 1981 pursuant to telephone arrangements. He says that he never attended at Sterling Heights to do an audit but that he did go to meetings at that location to discuss issues. He says that he did not do an audit in Sterling Heights, Michigan: Revenue Canada has had some access to the computer at Michigan, that is, they did see it and obtain certain printouts. The audit began in earnest in May 1982 and, in the opinion of Mr. Burstyn, has never satisfactorily been concluded. He claims that the items stipulated in the requirements as requiring production were not provided. Hence the prosecutions.

The defendants argue that the service of the requirements coupled with penalties for non-compliance constitute unlawful searches or seizures and that they ought to be considered unreasonable for the following reasons.

1. Prior to issuance of the requirement or demand there is no necessity that the Minister believe that any violation has occurred or that evasion has been committed.

2. The power to authorize the requirements is not given to an impartial or to a judicial body.

3. No evidence on oath or otherwise must be presented to the Minister in order to obtain the authorization.

4. There is no reason why the power to issue an authorization cannot be delegated to an impartial or judicial body, i.e. to put someone between Revenue Canada and the taxpayer. It is argued that to place such an impartial person (to whom I shall refer as an arbiter) between the taxing authority and the taxpayer would constitute no real interference with the administration of the Act and would not unduly delay collection of taxes.

5. Even if the Minister of National Revenue considered evidence, he is not impartial. Indeed, subsection 231(3) by its very terms states that the Minister may “‘for any purposes related to the administration or enforcement of this Act . . . require from any person . . !" Defence points out that there are no limits whatever in the statute on this power of enforced production, that the Minister could hamstring a taxpayer by constantly requiring production of important documents and that he could repeatedly demand production of the same documents.

6. There are no guidelines whatever in the section.

7. It is repugnant in a free and democratic society to require an individual to assist in his own prosecution or assessment for taxation or to prepare records for the help of a Governmental authority.

8. The requirement in the particular case at bar that the defendants produce not only documents in their possession but also compile reports (reports which could result in the disclosure of an offence) goes beyond what is reasonably justifiable in a free and democratic society.

The defence is not suggesting that the Income Tax Act should be set aside but only that, with respect to powers of forced production, an arbiter or neutral body should be placed between the Government and the taxpayer.

9. With respect to the powers of the Minister under subsections 230(1) and (3) the defence argues that the power of the Minister to require a taxpayer to keep books and records at a specific place infringes the right of a taxpayer to keep his property where he chooses and that that right is part and parcel of the right to security of the person guaranteed by section 7 of the Charter. It is argued that a person's security is in large measure inextricably interwoven with that person's right to keep his property where he chooses. Thus if the Government can, for instance, tell an individual that his dwelling house must be in a certain location, he is required to reside elsewhere than where he has chosen and the right to the security of his person has been infringed. The right to security of the person can only be removed from an individual according to the principles of fundamental justice. In the submission of the defendants that requires a prior and impartial authorization and perhaps a prior hearing. Thus, it is argued that there has been a violation of section 7 since there has never been any hearing as to the desirability or necessity that the defendants should keep their books or records in Canada. The defence points out that under the terms of the requirements served in the case at bar (Counts 2 and 4) the Minister would require the defendants to keep their share transfer records and minute books at their head office thus preventing the defendants from keeping those records at the offices of their solicitors. That is argued to be an absurd requirement but if that requirement is to be imposed on the defendants it is argued that no legitimate aim of the Income Tax Act would be thwarted by the imposition of an arbiter.

10. The defendants contend that under paragraph 1(a) of the Canadian Bill of Rights they are entitled to enjoyment of property and the right not to be deprived thereof except by due process of law. They argue that the right to locate property is an integral part of the enjoyment thereof and that the arbitrary demand under the Income Tax Act cannot constitute due process.

11. The Minister’s power is also alleged to violate paragraph 2(e) of the Bill of Rights in that it deprives the defendants of the right to a fair hearing in accordance with the principles of fundamental justice for the determination of their rights and obligations. The defendants have argued with respect to the Bill of Rights that the powers of the Minister should be interpreted by “writing up” the statute to require that prior to a requirement being issued, there must be a fair hearing at which the defendants are represented and that the determination should be made by an impartial arbiter.

As to “writing up” the statute I will do no more than refer to Dickson, J. (as he then was) in Hunter et al. v. Southam Inc. (1985), 14 C.C.C. (3d) 97 at 115:

While the courts are guardians of the Constitution and of individual’s rights under it, it is the Legislature’s responsibility to enact legislation that embodies appropriate safeguards to comply with the Constitution's requirements. It should not fail to the courts to fill in the details that will render legislative lacunae constitutional.

12. Because certain companies are permitted to keep their records outside Canada while the defendants have now been required to do otherwise, defendants argue that this offends paragraph 1(b) of the Canadian Bill of Rights — the right of the individual to equality before the law and the protection of the law. While the Minister may have good reasons for making a requirement, the defence argues that prior to that determination being made, paragraph 2(e) must be complied with.

As I perceive the appellants' attack upon subsection 231(3) it must rise or fall upon a determination whether the powers therein conferred constitute powers of search or seizure.

I make that statement because, if those powers are powers either of search or of seizure, it appears utterly beyond dispute since Hunter et al v. Southam Inc. that those powers are unreasonable. They do not comply with the minimum requirements of section 8 of the Canadian Charter of Rights and Freedoms.

In the case of Hunter et al v. Southam Inc. there was no issue whether there had been a search or seizure. The only issue was whether that search was reasonable. The Court enunciated a number of tests against which minimum standards of reasonableness could be weighed. He held at 109 that the purpose of section 8 was:

to protect individuals from unjustified State intrusions upon their privacy. That purpose requires a means of preventing unjustified searches before they happen, not simply of determining, after the fact, whether they ought to have occurred in the first place. This, in my view, can only be accomplished by a system of prior authorization, not one of subsequent validation . . .

I recognize that it may not be reasonable in every instance to insist on prior authorization in order to validate governmental intrusions upon individual’s expectations of privacy. Nevertheless, where it is feasible to obtain prior authoriza- tion, I would hold that such authorization is a pre-condition for a valid search and seizure.

[Emphasis added.]

It is obvious beyond argument that subsection 231(3) contains no provision for prior authorization. It simply provides that the Minister may, for any purposes related to the administration or enforcement of this Act, by registered letter . . . require . . .

Particularly in view of the rather leisurely temporal history of the matter presently before the Court, I cannot think of any reason whatever why it could be said to be infeasible for prior authorization to be obtained.

Dickson, J. continued at 110:

For such an authorization procedure to be meaningful it is necessary for the person authorizing the search to be able to assess the evidence as to whether that standard has been met, in an entirely neutral and impartial manner. .. . While it may be wise, in my view of the sensitivity of the task, to assign the decision whether an authorization should be issued to a judicial officer, I agree with Prowse J.A. that this is not a necessary pre-condition for safeguarding the right enshrined in s. 8. The person performing this function need not be a judge, but he must at a minimum be capable of acting judicially.

The Court then went on to analogize the powers then under investigation with the powers conferred by subsection 231(4) of the Income Tax Act of the Minister of National Revenue to authorize the search. The Court made it plain that those powers of the Minister were properly characterized as investigatory rather than adjudicatory. In deciding whether to exercise the right to authorize entry and search the Court noted that the Minister would be governed by the dominant consideration of public interest and his duty as an executive officer of government to administer the Act. Thus, the decision would be guided by public policy and expediency. Dickson, J. then stated:

The court contrasted these powers with the judicial powers which s. 231(4) conferred on a judge of the superior or county court to approve the Minister’s authorization.

Bearing in mind that dicta and the very words of subsection 231(3) that the Minister's power is "for any purposes related to the administration or enforcement of this Act," it seems beyond question that the Minister is not capable in law of constituting a neutral and impartial arbiter in weighing the interests of the individual’s right to privacy against the conflicting interests of the state.

Moreover, at 113, the Court stated:

As Prowse, J.A. pointed out, if the powers of a commission member are as the Federal Court of Appeal found them to be, then it follows that the decision of the director in the course of an inquiry to exercise his powers of entry, search and seizure, is effectively unreviewable. The extent of the privacy of the individual would be left to the discretion of the director. A provision authorizing such an unreviewable power would clearly be inconsistent with s. 8 of the Charter.

Subsection 231(3) contains no provision for review of the Minister's discretion and for that reason again offends the standards of reasonableness enshrined by section 8.

Finally, as minimum standards the Court stated at 114:

The State’s interest in detecting and preventing crime begins to prevail over the individual's interest in being left alone at the point where credibly-based probability replaces suspicion. History has confirmed the appropriateness of this requirement as the threshold for subordinating the expectation of privacy to the needs of law enforcement. . . . In cases like the present, reasonable and probable grounds established upon oath, to believe that an offence has been committed and that there is evidence to be found at the place of the search, constitutes the minimum standard, consistent with s. 8 of the Charter for authorizing search and seizure. In so far as s. 10(1) and (3) of the Combines Investigation Act do not embody such a requirement, I would hold them to be further inconsistent with s. 8.

It hardly needs statement in the case at bar that no such requirement is found in subsection 231(3).

Hence, to come at the matter somewhat backwards, if subsection 231(3) authorizes search or seizure, there can be no question in my mind that such seizure is unreasonable within the meaning of section 8 of the Charter.

Does subsection 231(3) of the Income Tax Act Confer a Power of Search or Seizure?

This is a vexing question and has been decided differently by different courts.

To begin with this very issue was placed before the Supreme Court of Canada in James Richardson & Sons Limited v. M.N.R. et al., [1984] C.T.C. 345; 19 W.W.R. 577. The case was dealt with on other grounds and the Court did not determine this issue. However, the Court did note at 349 (W.W.R. 584):

The language of subsection 231(3) of the Income Tax Act is unquestionably very broad and on its face would cover any demand for information made to anyone having knowledge of someone else’s affairs relevant to that other person's tax liability. It would, in other words, if construed broadly, authorize an exploratory sortie into any taxpayer's affairs and require anyone having anything to contribute to the exploration to participate. It would not be necessary for the Minister to suspect non-compliance with the Act, let alone to have reasonable and probable grounds to believe that the Act was being violated as required in subsection 231(4). Provided the information sought had a bearing (or perhaps even could conceivably have a bearing) on a taxpayer's liability it could be called for under the subsection.

The Court went on to point out that certain limitations upon the Minister's power had been placed on the decision of the Supreme Court of Canada of Canadian Bank of Commerce v. A. G. Canada, [1962] S.C.R. 729. The Court went on to find in the case of James Richardson & Sons Limited that the Minister’s requirement there at issue did not meet the tests laid down by the Canadian Bank of Commerce case. It was thus unnecessary to decide the constitutional grounds advanced.

Counsel for the defence has pointed to dictionary definitions of “search” which are very broad. For instance, in Webster's New Collegiate Dictionary at page 1042 "search" is defined inter alia as: c. to read thoroughly, g: to look at as if to discover or penetrate intention or nature; 2. to uncover, find, or come to know by enquiry or scrutiny/vi. 1: to look or enquire carefully (searched for the papers); 2. to make painstaking investigation or examination.

The Shorter Oxford Dictionary on Historical Principles Volume II page 1822: search 1. trans. to go about (a country or place) in order to find, or to ascertain the presence or absence of, some person or thing; to explore in quest of some object. 2. to look through (a building, an apartment, a receptacle) in quest of some object concealed or lost. 3. to examine (a person) by handling, removal of garments and the like. 4. to look through, examine, writings, records, in order to discover whether certain things are contained there.

The Random House Dictionary of the English Language Unabridged Edition at page 1287 defines "search" inter alia 4. to look at, read or examine (a record, writing, collection, repository, etc.) for information; she searched the court house for a hint of his father's deed to the land.

It seems clear that section 8 of the Charter guarantees the right to be secure against unreasonable search or seizure. I consider that the use of the word "or" is deliberate and that the two words are to be read disjunctively. For the purposes of the present case I consider that the definition of "seizure" is perhaps more to the point than an examination of the concept of search. The Random House Dictionary of the English Language Unabridged Edition at page 1292 defines "seizure" as follows:

2. a taking or possession of an item, property, or person legally or by force.

What is perhaps more absent from the concept of seizure than from the concept of search is the notion of physical intrusion, especially a physical intrusion into premises. One of the key elements in the prosecution's argument to justify subsection 231(3) is that the issuance of a requirement by registered letter or personal service does not involve any physical intrusion into a person's premises (or indeed into the person) and hence is a distinct and separate kind of creature from either a search or a seizure. As was stated in the case of Rolbin v. The Queen, 2 C.R.R. 166, a case dealing with this very issue decided by Boilard, J.S.C. of the Quebec Superior Court at 170:

Furthermore I am not prepared, with all due respect to stretch out my mind or my imagination so far as to say that the request made by the Minister for additional information is tantamount to a search which would be executed in the taxpayer's home, office or premises he occupies. A search is a search and a demand for information is a demand for information. To me the distinction is very clear between both.

With the utmost respect and for reasons which I hope to make plain, I consider that that is rather a simplistic and naive approach although it does tend to support the notion that there cannot be search or seizure without physical intrusion.

If that analysis is correct, then if the State were unable to obtain a search warrant under section 443 of the Criminal Code, would it be lawful for Parliament in the exercise of its criminal law jurisdiction to authorize the Attorney General of Canada, for any purposes related to the administration or enforcement of the Criminal Code, by registered letter or by a demand served personally, to require from any person that he produce any document or thing. Parliament could couple the failure or refusal of the subject with a penalty of ten years’ imprisonment. If the approach to the Charter of Rights is a purposive one, it seems to me that the guarantee against unreasonable search and seizure would then be made meaningless by such a provision. The effect of the hypothetical provision would perhaps be more draconian than a power of unlimited search. In any event, it would seem that any subject having a defence to a charge of failing to answer a requirement would virtually have to permit the search to exculpate himself if charged with failing to answer the requirement. Therefore, followed to its logical conclusion, the unrestricted right to demand coupled with a penalty for failure to comply is very akin to seizure. In appropriate circumstances, the distinction between them would indeed be a distinction without a difference. In the case of Gershman Produce Company Limited v. Motor Transport Board [1985] 2 W.W.R. 63, Croft, J. of the Manitoba Queen's Bench held, following the Southam case at 75:

I begin with the observation that s. 8 refers to “search or seizure/’ and not to “search and seizure.” Accordingly, if the power to demand production amounts to unreasonable seizure, then there will be a violation even in the absence of a search.

He points out at 76 that the question or whether a required or forced production during an administrative enquiry is a seizure has been addressed in a number of cases.

Reich v. Alberta College of Physicians & Surgeons

Alberta Human Rights Commission v. Alberta Blue Cross Plan

Ziegler v. Hunter (see Schedule B).

He points out that in the Blue Cross case the Alberta Court of Appeal “unanimously concluded that a “forced production”” of documents in civil proceedings or during an administrative enquiry is a seizure. In Ziegler the Federal Court of Appeal considered whether a subpoena duces tecum provision in the Combines Investigation Act R.S.C. 1970 c. C-23, infringed section 8 of the Charter. In a dissenting judgment Marceau, J. agreed with the Blue Cross decision and stated at 252:

It is the taking hold by a public authority of a thing belonging to a person against that person’s will that constitutes the essence of the seizure, and the fact that the person is or is not forced to hand over the thing himself appears to me irrelevant.

[Emphasis added.]

in two sets of majority reasons both Hugessen and Le Dain, JJ. (as Le Dain, J. then was) held that the provisions under consideration amounted to neither a search nor a seizure. Hugessen, J. was of the view that [page 259] :

. . . Under a subpoena duces tecum, no one enters a citizen’s home or place of business other than himself and his invitees. The order of the court is addressed to the witness himself and is not an authorization to intrude but rather a command to produce.

He saw no analogy between such an order and the searches and seizures envisioned in section 8 of the Charter.

Subsequent to both these cases, the question was addressed by D. C. McDonald J. in Reich v. Alta. College of Physicians & Surgeons, supra. In a proceeding under the Alberta Medical Profession Act, R.S.A. 1980, c. M-12, the governing body had demanded the production of documents and, pursuant to the Act, had enforced the demand by way of a court order. McDonald J. followed his Court of Appeal and held that procedure to be a seizure.

Under the legislation which I must consider, the board, or a person designated by it, has the power to enter and inspect any place without prior approval, although that power is not specifically now under consideration. It also has the unrestricted right to require the production of documents and, by virtue of s. 24(4) of the Public Utilities Board Act, has all the powers vested in the Court of Queen’s Bench or a judge thereof.

It must also be remembered that the board has more than an administrative and investigative function. The documents which it has the power to demand be produced may be used during the show cause hearing. That hearing can result in the imposition of very real penalties. Furthermore, pursuant to s. 290 of the Highway Traffic Act, there can also be a prosecution and, on summary conviction, a fine of up to $2,000.

Within the context of the Highway Traffic Act I have concluded that the right of the board or its appointee to require unrestricted production is in fact a power of seizure within the contemplation of s. 8 of the Charter.

Having considered the various authorities referred to in the Gershman case it is my opinion that the dissenting judgment of Marceau, J. in the Ziegler case is a proper and correct definition of seizure. To me it appears that whether an agent of the State intrudes upon the person of the individual of his premises on the one hand or whether that person is forced to hand over the thing himself is utterly irrelevant. The effect is the same. It may be argued that this Court is bound by the decision of the High Court of Justice Divisional Court of Ontario in the case of Re Belgoma Transportation Limited and Director of Employment Standards, 47 O.R. (2d) 309 where the Court held (citing the headnote):

Section 45 of the Employment Standards Act, R.S.O. 1980, c. 137, empowering an employment standards officer to require the production of certain documents and to remove those documents for copying, does not violate the right to be secure against unreasonable search and seizure found in s. 8 of the Canadian Charter of Rights and Freedoms. The officer has no power to search, nor to seize documents which the person investigated refuses to produce; rather, that person is in a position similar to that of a recipient of a subpoena duces tecum.

In that case the Divisional Court declined to accept the view that a forced production of documents in a civil proceeding, or during an administrative enquiry is a seizure. The Court also stated at 311:

It appears to us that a person being investigated under this statute, is in a position very similar to that which faces a person served with a subpoena duces tecum. If the person served with the subpoena is of the view that the documents he is required to bring are not compellable, either as not being relevant or as being privileged or on some other ground, then it is open to him to refuse to bring them and the question of the validity of his refusal may be determined in proceedings to enforce the subpoena.

[Emphasis added.]

I would point out that the person prosecuted under subsection 238(2) does not have the right to have the validity of his refusal determined in any judicial proceedings. He has a defence of due diligence, i.e. if he cannot by the exercise of reasonable diligence find or produce the document he would have a defence. However, subsection 238(2) does not allow the person served with the requirement to raise as a defence any questions of privilege, self-incrimination or anything of the like.

In addition to that, the Belgoma Transportation decision was decided prior to the decision of Hunter v. Southam and it seems to me that Dickson, J. has fairly clearly decided that the notion of physical intrusion by an organ of the State upon a person's premises or person need not be a constituent element of search or seizure. At 106 the Court stated:

Since the proper approach to the interpretation of the Canadian Charter of Rights and Freedoms is a purposive one, before it is possible to assess the reasonableness or unreasonableness of the impact of a search or of a statute authorizing a search, it is first necessary to specify the purpose underlying s. 8: in other words, to delineate the nature of the interests it is meant to protect.

Historically, the common law protections with regard to governmental searches and seizures were based on the right to enjoy property and were linked to the law of trespass. It was on this basis that in the great case of Entick v. Carrington (1765), 19 State Tr. 1029, the court refused to countenance a search purportedly authorized by the Executive, to discover evidence that might link the plaintiff to certain seditious libels. Lord Camden prefaced his discussion of the rights in question by saying, at p. 1066:

“The great end, for which men entered into society, was to preserve their property. That right is preserved and sacred and incommunicable in all in- stances where it has not been taken away or abridged by some public law for the good of the whole.”

The defendants argued that their oaths as King’s messengers required them to conduct the search in question and ought to prevail over the plaintiff’s property rights. Lord Camden rejected this contention, at p. 1067:

"Our law holds the property of every man so sacred, that no man can set his foot upon his neighbour’s close without his leave: if he does he is a trespasser though he does no damage at all; if he will tread upon his neighbour’s ground, he must justify it by law.”

Lord Camden could find no exception from this principle for the benefit of King’s messengers. He held that neither the intrusions nor the purported authorizations were supportable on the basis of the existing law. That law would only have countenanced such an entry if the search were for stolen goods and if authorized by a justice on the basis of evidence upon oath that there was "strong cause” to believe the goods were concealed in the place sought to be searched. In view of the lack of proper legal authorization for the governmental intrusion, the plaintiff was protected from the intended search and seizure by the ordinary law of trespass.

In my view, the interests protected by s. 8 are of a wider ambit than those enunciated in Entick v. Carrington. Section 8 is an entrenched constitutional provision. It is not therefore vulnerable to encroachment by legislative enactments in the same way as common law protections. There is, further, nothing in the language of the section to restrict it to the protection of property or to associate it with the law of trespass. It guarantees a broad and general right to be secure from unreasonable search and seizure.

The Fourth Amendment, of the United States Constitution, also guarantees a broad right. It provides:

"Amendment IV

The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no warrants shall issue but upon probable cause, supported by oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.”

Construing this provision in Katz v. United States (1967), 389 U.S. 347, Stewart J., delivering the majority opinion of the United States Supreme Court, declared at p. 351 that “the Fourth amendment protects people, not places", Justice Stewart rejected any necessary connection between that Amendment and the notion of trespass. With respect, I believe this approach is equally appropriate in construing the protections in s. 8 of the Canadian Charter of Rights and Freedoms.

In Katz, Stewart J. discussed the notion of a right to privacy, which he described at p. 350 as "the right to be let alone by other people”. Although Stewart J. was careful not to identify the Fourth Amendment exclusively with the protection of this right, nor to see the Amendment as the only provision in the Bill of Rights relevant to its interpretation, it is clear that this notion played a prominent role in his construction of the nature and the limits of the American constitutional protection against unreasonable search and seizure. In the Alberta Court of Appeal, Prowse J.A. took a similar approach to s. 8, which he described [at p. 503 C.C.C., p. 426 D.L.R., p. 150 C.P.R.] as dealing "with one aspect of what has been referred to as a right of privacy which is the right to be secure against encroachment upon the citizens’ reasonable expectation of privacy in a free and democratic society”.

Like the Supreme Court of the United States, I would be wary of foreclosing the possibility that the right to be secure against unreasonable search and seizure might protect interests beyond the right of privacy, but for purposes of the present appeal I am satisfied that its protections go at least that far.

[Emphasis added.]

With the utmost respect to very learned judges who have held otherwise, it is my view that the statement of Dickson, J. speaking for a unanimous court lays to rest once and for all the necessity for physical intrusion as a necessary incident to a search or seizure and in fact supports the notion of Marceau, J. that:

It is the taking hold by a public authority of a thing belonging to a person against that person’s will, that constitutes the essence of a seizure and the fact that the person is or is not forced to hand over the thing himself appears to me irrelevant.

In dealing again with the Belgoma Transportation decision it is suggested that the person served with the requirement for production may choose to refuse that notice and determine his liabilities at a subsequent time. With the utmost respect, it is my view that the Supreme Court of Canada has rendered such an argument untenable in two decisions. The first again is Hunter v. Southam. At 109 under the heading “When is the balance of interests to be assessed” Dickson, J. stated:

If the issue to be resolved in assessing the constitutionality of searches under s. 10 were whether in fact the governmental interest in carrying out a given search outweighed that of the individual in resisting the governmental intrusion upon his privacy, then it would be appropriate to determine the balance of the competing interests after the search had been conducted. Such a post facto analysis would, however, be seriously at odds with the purpose of s. 8. That purpose is, as I have said, to protect individuals from unjustified State intrusions upon their privacy. That purpose requires a means of preventing unjustified searches before they happen, not simply of determining, after the fact, whether they ought to have occurred in the first place. This, in my view, can only be accomplished by a system of prior authorization, not one of subsequent validation.

The second case which renders such an argument untenable is the decision of Regina v. Therens, [1985] 1 S.C.R. 613; 18 C.C.C. (3d) 481 also a decision of the Supreme Court of Canada. While I appreciate that Le Dain, J. in the case of Ziegler et al. and Hunter et al., 8 D.L.R. 648 differed from Marceau, J. and held at 655:

In my opinion an order in the nature of a subpoena duces tecum is neither a search nor a seizure within the meaning of s. 8. I am unable, with great respect, to follow the opinion expressed on this point by the Alberta Court of Appeal in Re Alberta Human Rights Com'n and Alberta Blue Cross Plan . . .

Nevertheless, on the issue of whether a subject should disregard a valid requirement when subject to a sanction for so doing Le Dain, J. had this to say in the case of Regina v. Therens at 643 (C.C.C. 505):

A refusal to comply with a s. 235(1) demand without reasonable excuse is, under s. 235(2), a criminal offence. It is not realistic to speak of a person who is liable to arrest and prosecution for refusal to comply with a demand which a peace officer is empowered by statute to make as being free to refuse to comply. The criminal liability for refusal to comply constitutes effective compulsion. This psychological compulsion or coercion effected by the consequence of a refusal to comply with a s. 235(1) demand appears to be what Laskin J. (as he then was) had in mind in Hogan v. The Queen, [1975] 2 S.C.R. 574 at p. 587, where he said: “There is no doubt, therefore, that the accused was "detained’ within the meaning of s. 2(c)(ii) of the Canadian Bill of Rights; he risked prosecution under s. 235(2) if, without reasonable excuse, he refused the demand which involved accompanying the peace officer to fulfil it.”

Any criminal liability for failure to comply with a demand or direction of a police officer must be sufficient to make compliance involuntary. This would be true, for example, of compliance where refusal to comply would amount to a wilful obstruction of a police officer in the execution of his or her duty, contrary to s. 118 of the Criminal Code.

[Emphasis added.]

The requirement powers contained in subsection 231(3) of the Income Tax Act do not contain any “‘reasonable excuse exception” and they are certainly backed up by a substantial penalty under subsection 238(2) which provides that:

Every person who has failed to comply with or contravenes subsection . . . 231 is guilty of an offence and, in addition to any penalty otherwise provided, is liable on summary conviction to

(a) a fine of not less than $200 and not exceeding $10,000, or

(b) both the fine described in paragraph (a) and imprisonment for a term not exceeding six months.

I agree with Le Dain, J. that it is unrealistic to speak of the recipient of a letter of requirement as being free to refuse to comply. If he is not free to refuse to comply he is subject to compulsion. Thus the service of the requirement is tantamount to a seizure.

Finally, as an additional reason for rejecting physical intrusion as an element of search or seizure I add this. So rapid are the advances being made in science and technology that it may in the not too distant future become obsolete to consider that any sort of physical intrusion is a necessary part of search, seizure or even surveillance. The constitution must be alive and flexible enough to deal with such possibilities. We cannot permit the Charter of Rights to be overruled by technological progress. Such progress does not change the values the Charter seeks to protect. Indeed, perhaps it makes them more to be prized as they become more difficult to protect.

As I have already determined that the seizure is unquestionably unreasonable the onus then falls to the prosecution to establish under section 1 of the Canadian Charter of Rights and Freedoms that the powers contained in subsection 231(3) are reasonable limits prescribed by law and can be demonstrably justified in a free and democratic society. Mr. deBecker did not make any attempt to place before the Court comparable taxing legislations from other democratic jurisdictions nor did he avail himself of the opportunity to present any evidence as to foreign laws or as to the reasonableness of the law in question.

In my view since the law fails to meet every single basic requirement of a reasonable search laid down by the Supreme Court of Canada in Hunter v. Southam Inc. it is a short step to find that the Crown has utterly failed to discharge any onus cast upon it by section 1 of the Canadian Charter of Rights and Freedoms.

In the result, it is my opinion that the powers conferred upon the Minister of National Revenue by subsection 231(3) of the Income Tax Act offend section 8 of the Canadian Charter of Rights and Freedoms.

As was Said by Dickson, J. in Hunter v. Southam:

At the outset it is important to note that the issue . . . concerns the constitutional validity of a statute authorizing a search and seizure. It does not concern the reasonableness or otherwise of the manner in which the [prosecution] carried out their statutory authority. It is not the conduct of the [prosecution], but rather the legislation under which they acted, to which attention must be directed.

I consider therefore that it is my duty under subsection 52(1) of the Canada Act, 1982 to declare that subsection 231(3) of the Income Tax Act is of no force or effect.

In the result, Counts 1 and 3 in the Information are quashed. PART II

It remains only to deal with Counts 2 and 4 alleging a violation by the defendants of the duty imposed by requirement under subsection 230(3) to keep such records and books of account as the Minister may specify. I shall set out a summary of the argument submitted on behalf of the defendants.

1. McKinlay and C.T. are charged under subsection 238(2) of the Income Tax Act with having violated subsections 230(3) and 231(3) of the Income Tax Act.

2. The accuseds call into question the constitutional validity of subsections 230(1) and 230(3).

3. The sections in issue are set out at Tab 2 of the Authorities Brief submitted.

4. Section 91 of the Constitution Act, 1867, sets out the powers of the Federal Parliament. Subsection 3 relates to the raising of money by any mode or system of taxation.

5. Section 92 of the Constitution Act, 1867, sets out the powers of the Provincial Legislatures. Subsection 11 relates to the incorporation of companies with Provincial objects. Subsection 13 relates to property and civil rights in the province.

“6. The Parliament of Canada and the Legislatures of the several Provinces are sovereign within their sphere defined by the British North America Act [now the Constitution Act, 1867], but none of them has the unlimited capacity of an individual. They can exercise only the legislative powers respectively given to them by Sections 91 and 92 of the Act, and these powers must be found in either of these Sections/' (see The Attorney General of Nova Scotia and the Attorney General of Canada — Tab 9)

7. It is submitted that the power to require a person to keep his books or records at a specific location does not fall within the power of the Federal Parliament in relation to taxation, but rather is a power of the Provincial Legislatures in relation to either the incorporation of companies with Provincial objects or property and civil rights in the province. Indeed, the Ontario Legislature has passed legislation in relation to the location in which books and records of a corporation are to be kept, (see Tab 4)

8. Pursuant to the power of the Ontario Legislature, the accuseds have obtained Orders from the Ministry of Consumer and Commercial Relations permitting them to maintain their books and records in the State of Michigan.

9. It is submitted that neither the power to compel a person to keep his books and records at a specific location nor the power to demand a person to answer questions or provide documentation and information are essential to the power of the Federal Parliament in relation to taxation.

10. In James Richardson & Sons Limited v. M.N.R. et al. (see Tab 5), the Supreme Court of Canada left open the issue of whether subsection 231(3) of the Income Tax Act is intra vires the Parliament of Canada.

11. In re The Insurance Act of Canada (see Tab 10), the Privy Council stated that the Parliament of Canada cannot, by purporting to exercise taxation powers, appropriate to itself exclusively a field of jurisdiction in which, apart from such a procedure, it could exert no legal authority. Thus, in this case it was held that an insurer licensed under Provincial Legislation to carry on business within a province can do so without being licensed under Fed- eral Insurance Legislation. Furthermore, a provision in the Federal Insurance Legislation requiring insureds of provincially licensed insurers to pay a tax was held ultra vires.

12. In The King v. Imperial Tobacco Company of Canada Limited (see Tab 11), the Exchequer Court held that the Federal Parliament did not have power to legislate a provision requiring a taxpayer to repay to the Federal Government sums of money collected in excess of the amount which the taxpayer was required to collect on behalf of the Government. It was held that the provision under attack was not valid legislation under the taxing power of the Federal Parliament; but rather fell to be considered under the property and civil rights power of the Provincial Legislature. Upon appeal to the Supreme Court of Canada, this constitutional issue was not dealt with as it was unnecessary for the finding of the Court.

13. It is submitted that the provisions in issue in this case are not truly essential to the federal power in relation to taxation in order to be saved under the ancillary doctrine.

14. To be justified as ancillary to a federal power, the provision must be not only helpful, but absolutely necessary to the exercise of such power (The King v. Imperial Tobacco Company of Canada Limited). The provision must be “‘truly necessary for the effective exercise of Parliament’s Legislative Authority", (see The Queen v. Thomas Fuller Construction Co. — Tab 14). (See also Regional Municipality of Peel v. MacKenzie et al. —Tab 15).

15. Section 230 is not truly essential to the federal power in relation to taxation for the following reasons:

(a) The provision prohibits books and records to be kept even at the office of the lawyer or accountant of the taxpayer;

(b) Various taxpayers with a U.S. connection are permitted to keep records outside of Canada;

(c) Canadian auditors do have the power and, in fact, have conducted audits outside of Canada;

(d) If the taxpayer does not co-operate with the auditors, the auditors may obtain the information via the Internal Revenue Service of the Department of the Treasury of the United States of America pursuant to the Canada-U.S. Tax Treaty; (see Tab 6);

(e) If the auditors cannot locate the books and records necessary, Revenue Canada is free to reassess the taxpayer and place the onus on the taxpayer to prove its case. (see Johnston v. M.N.R., Tab 16);

(f) The power to designate where books and records are to be kept as opposed to which books and records are to be kept is not essential to the federal power in relation to taxation;

(g) Failure to keep books and records at a specific place under section 230 does not relate to either tax evasion or failure to file returns;

(h) The power to designate the location that books and records are to be kept is not essential to an audit, although it might arguably facilitate administrative ease in conducting an audit.

16. It is further submitted that the power to make a demand under subsection 231(3) is not truly essential to the federal power in relation to taxation for the following reasons:

(a) The Minister has absolute power to reassess and place the onus of proof on the taxpayer;

(b) The Minister has power to audit;

(c) The Minister has power to seize documents in the course of an audit;

(d) The Minister can demand documents or information without the requirement of any suspicion of wrongdoing. Therefore, fishing expeditions may be permissible.

17. The issue to be determined is not whether the provisions under attack facilitate the federal power in relation to taxation. The issue is whether such provisions are truly essential to the taxing power of the Federal Parliament.

18. The question to be determined is the extent to which the Federal Parliament can legislate in the name of raising money by taxation so as to infringe upon the rights of the Provincial Legislatures.

In making a determination of the issues raised the following factors must be borne in mind:

1. The Income Tax Act is a vastly complicated statute which relates to or governs myriad types of transactions carried on by almost every sort of taxpayer, individual or corporate.

2. The entire mechanism of the Act is based upon a system initially of self-assessment by the taxpayer subject to audit and review by the Minister.

3. I think judicial notice may safely be taken that absent the obligation of self-assessment, it would be impossible for the Government, no matter how vast its resources, to assess and compute the tax payable by each taxpayer and require its collection.

4. Regardless of the powers available to the Minister of National Revenue it is beyond the authority of Parliament to assure that it can lawfully compel the examination of books and records of taxpayers which are outside the territorial jurisdiction of Canada.

5. In order to make such a system of taxation functional as well as equal it is absolutely essential that the books and records of any taxpayer should be kept at a location where Parliament can lawfully compel their production or examination.

The Court does not take issue with any of the first six points submitted in argument.

As to point 7 the Court agrees that with respect to incorporation of companies with provincial objects the Provincial Legislature has exclusive jurisdiction to pass legislation in relation to the location in which books and records of a corporation are to be kept and probably also exclusive jurisdiction to determine what particular books are necessary for the purposes of such a corporation.

However, in a system of taxation as varied and complex as the Income Tax Act it is also necessarily incidental to those taxation powers for the State to be able to specify what books and records of account shall be kept and also to specify that they shall be kept in a place where they are subject to Canadian legal process, namely within the territorial jurisdiction of Canada. Nor is it unreasonable that the Minister should have the power to designate where within that vast territory such books and records shall be kept. I do not believe that the power of the Minister to order the location of the books is as unlimited as counsel suggests. By way of hypothetical example counsel have suggested that under subsection 230(1) the Minister could require a person whose only business and residence was in Vancouver to keep his books and records in Baffin Island. Conversely, for the effective administration of the Act, the Minister must have the power to prevent a person whose only business and residence is in Vancouver from keeping his books and records in Baffin Island.

The scheme of subsection 230(1) is first to require that every taxpayer keep his books and records at his place of business or residence in Canada.

The form and content of those books and records must be such as to enable the taxes to be exacted.

Assuming that the Minister might make an entirely unreasonable designation as to the place at which such books or records were to be kept, for instance, as in the hypothetical situation, I think it would be open to a taxpayer to argue successfully that the expression “as will enable the taxes payable under this Act . . . to be determined” modifies not only the form and content of the books and records but the “other place” designated by the Minister. That is a possible interpretation of the statute which is not unreasonable and which would render it plainly constitutional. Assuming that a construction of the statute that gives the Minister power to make an entirely unreasonable designation as to the location at which books must be kept would render the statute unconstitutional, the Court I believe is obliged to opt for the former construction.

Hence, as I construe subsection 230(1) if the books and records are not kept at the taxpayer's place of business or residence or if the Minister wishes them kept elsewhere he is under an obligation to choose that place so as to facilitate the collection of taxes. He is not free to exercise that power capriciously or solely for the purpose of inconveniencing the taxpayer.

Read in this light, subsection 230(1) is a power which is necessarily incidental to the functioning of the Income Tax Act and does not infringe on Provincial jurisdiction.

With respect to point 8 in the defendant's argument I would point out that the records which the Comptroller of Records of the Companies Branch of the Ministry of Consumer and Commercial Relations of Ontario has permitted to be kept outside of Ontario are only those records “required by sections 137 and 138 of the Business Corporations Act.” Moreover, that permission is granted upon condition that such records will be open for examination at the head office of the corporation or some other place in Ontario designated by the Minister by any person who is entitled to examine them and who has applied to the Minister for such examination. (It may be that this litigation could be avoided if the Minister of National Revenue had applied through the Minister for examination of such records). If it is reasonable for the Minister of Consumer and Commercial Relations to require that books requisite for companies with Provincial objects be kept either at the head office or at some other place within his territorial jurisdiction as he designates and if the defendants are relying on that power, I find it difficult to understand how the defendants can argue that the same power exercised federally with respect to taxation is unreasonable.

I can only say that I disagree with point 9 of the defendants' argument. The vastness of the Income Tax Act scheme must again be borne in mind. There are issues of administrative efficiency that require to be addressed. In my view such powers (subject always to compliance with the Canadian Charter of Rights and Freedoms) are essential to the power of the Federal Parliament in relation to taxation.

While I do not quarrel with the principles enunciated in paragraphs 11 and 12 of the defendants' argument I disagree with the conclusion reached in paragraph 13.

Concerning paragraph 15 of the argument I do not agree that section 230 prohibits the keeping of books and records at the office of a lawyer or accountant of the taxpayer. Section 230 does not prohibit the keeping of duplicate records nor does it permit the temporary transfer of records from time to time away from the place of business or residence provided that, generally, they are “kept” there. With respect to paragraph 15(b), various corporations with a U.S. connection are permitted to keep corporate records outside of Canada. Any taxpayer with a U.S. connection is permitted to keep records outside of Canada. The point is that all taxpayers are also required to keep records inside Canada at their place of business or residence or at such other place as may be designated by the Minister so as to enable the taxes to be collected.

I respectfully disagree that Canadian auditors have the power to conduct audits outside of Canada. It is obvious on the evidence that they have done so. I know of no statutory authority nor do I believe that Parliament possesses any authority to confer on a Canadian tax auditor the legally enforceable right to conduct an audit outside of Canada.

It is no answer to the extra-territorial concerns expressed by the Court that there exists at this time the Canada-U.S. Tax Treaty. It is true that, while the Treaty exists, each reciprocating state may make use of the information and legal process of the other in assessing or collecting taxes of various taxpayers. Also noteworthy is Article 22 of that Treaty which provides that either of the contracting states may on or after the 1st day of January 1944 unilaterally terminate the Treaty on January 1 of any year following the expiration of six months' notice. Such a treaty does not constitute a viable alternative to having Canadian taxpayers subject to audit under the authority of Canadian law.

While the Minister of Revenue may assess a taxpayer and place the onus on that taxpayer to show that he is wrong, it is in my opinion a necessary incident to that power that the Minister should have such access to the books and records of the taxpayer as will enable him to make a reasonable assessment. Were this Court to accept the submission of the defendants, the Minister would be in a position where he would have nothing better on which to base his assessment than a guess which might prove to be seriously embarrassing either to the taxpayer or to a Minister of the Crown or both. As well, the inability of the Minister to examine records outside Canada could hardly fail to result in unreasonable ministerial assessments where the onus is on the taxpayer to demonstrate their error. How is such a scheme better than the possible power of the Minister to require that records be kept in an unreasonable location?

Subparagraph (f) answered already.

With respect to paragraph 15(g), if the Minister is unable to order that books and records be kept in Canada and therefore unable in law to be assured of the opportunity to examine or audit those books and records it would in many cases be impossible for him to prosecute for tax evasion or failure to file returns. Again, it is the opinion of the Court that this power is necessarily incidental to the general taxation power.

Subparagraph (h) already answered.

Paragraph 16(a) already answered.

With respect to paragraphs 16(b) and (c) the Minister can neither audit nor seize that which is beyond the territorial jurisdiction of Canada. In any event with respect to Counts 2 and 4 no question of seizure arises. With respect to paragraph 16(d) the counts as framed, i.e. counts 2 and 4, relate solely to the alleged failure by the taxpayer to keep adequate records at its place of business in Canada and do not relate to a demand for documents or information.

It is the conclusion of this Court that subsections 230(1) and 230(3) are necessarily incidental to the federal powers of taxation exercised under the Income Tax Act and do not in any way infringe upon the rights of the Provincial Legislatures.

The defendant companies appear to have taken advantage of twentieth century technology. They are wholly owned subsidiaries of American companies. They have intermingled their record keeping in a computerized system which is located in the United States of America. One presumes that this well suits the purposes of the companies involved. However, the two defendants are incorporated in Ontario, carry on business in Canada and are Canadian taxpayers. They are subject to income tax liabilities. To permit them to keep all of their records (not merely corporate records but all records required for income tax purposes as well) beyond the Queen's writ would be an invitation, sooner or later, to make the entire Act unenforceable. Under the present circumstances and absent the powers under subsections 230(1) and (3), such degree of enforceability as there is is dependent upon the goodwill of a foreign state, a goodwill which cannot be assured. If indeed the process available under the Canada-U.S. Tax Convention is as effective as the defendants aver, one wonders how it is that the present impasse was reached. Moreover, I do not think that the defendants should be able so to structure their affairs that they can defeat the Canadian Income Tax Act by invoking a copyright agreement between an American corporation (which controls the Canadian taxpayer) and a Utah corporation which supplies the software for the interlocking computer system.

Finally, the Court is inclined to the view that the subject matter of the legislation, both subsection 230(1) of the Income Tax Act and sections 156 and 157 of the Business Corporations Act, are sections which in pith and substance deal with the types of books and records which persons, including corporations, must keep and the manner and place of their keeping. This subject matter has a double aspect: first, with respect to Provincial corporate purposes and secondly with respect to Federal income tax purposes. In my view so long as the legislation in both jurisdictions contains no repugnancy both statutes can live together. Multiple Access Limited v. McCutcheon et al., 138 D.L.R. (3d) 1.

For the foregoing reasons, the defendants’ motions with respect to Counts 2 and 4 are dismissed and the defendants will be required to plead to those two counts. Should they fail to do so a plea of not guilty will be entered by the Court.

Motions allowed in part.