The Queen v. Roth, 84 DTC 6181, [1984] CTC 185 (SCO)

Callon, J:—In these applications, the applicants seek to quash the order of the Honourable Judge Kane dated the 21st day of June, 1982, on grounds which will appear in these reasons. As the orders in questions were made under certain provisions of the Income Tax Act, RSC 1952, c 148 (“the Act”), and since certain provisions of the Canadian Charter of rights and Freedoms (“the Charter”) are also involved, it would be appropriate to set forth these provisions at the outset. The provisions are as follows:

The Income Tax Act

231. (1) Any person thereunto authorized by the Minister, for any purpose related to the administration or enforcement of this Act, may, at all reasonable times, enter into any premises or place where any business is carried on or any property is kept or anything is done in connection with any business or any books or records are or shall be kept, and

(a) audit or examine the books and records and any account, voucher, letter, telegram or other document which relates or may relate to the information that is or should be in the books or records or the amount of tax payable under this Act,

(b) examine property described by an inventory or any property, process or matter an examination of which may, in his opinion, assist him in determining the accuracy of an inventory or in ascertaining the information that is or should be in the books or records or the amount of any tax payable under this Act,

(c) require the owner or manager of the property or business and any other person on the premises or place to give him all reasonable assistance with his audit or examination and to answer all proper questions relating to the audit or examination either orally or, if he so requires, in writing, on oath or by statutory declaration and, for that purpose, require the owner or manager to attend at the premises or place with him, and

(d) if during the course of an audit or examination, it appears to him that there has been a violation of this act or a regulation, seize and take away any of the documents, books, records, papers or things that may be required as evidence as to the violation of any provision of this Act or a regulation.

(2) The Minister shall,

(a) within 120 days from the date of seizure of any documents, books, records, papers or things pursuant to paragraphs (1) (d), or

(b) if within that time an application is made under this subsection that is, after the expiration of that time, rejected, then, forthwith upon the disposition of the application.

return the documents, books, records, papers or things to the person from whom they were seized unless a judge of a superior court or county court, on application made by or on behalf of the Minister, supported by evidence on oath establishing that the Minister has reasonable and probable grounds to believe that there has been a violation of this Act or a regulation and that the seized documents, books, records, papers or things are or may be required as evidence in relation thereto, orders that they be retained by the Minister until they are produced in any court proceedings, which order the judge is hereby empowered to give on ex parte application.

(3) The Minister may, for any purposes related to the administration or enforcement of this Act, by registered letter or by a demand served personally, require from any person

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

(b) production, or production on oath, of any books, letters, accounts, invoices, statements (financial or otherwise) or other documents,

within such reasonable time as may be stipulated therein.

(4) Where the Minister has reasonable and probable grounds to believe that a violation of this Act or a regulation has been committed or is likely to be committed, he may, with the approval of a judge of a superior or county court, which approval the judge is hereby empowered to give on ex parte application, authorize in writing any officer of the Department of National Revenue, together with such members of the Royal Canadian Mounted Police or other peace officers as he calls on to assist him and such other persons as may be named therein, to enter and search, if necessary by force, any building, receptacle or place for documents, books, records, papers or things that may afford evidence as to the violation of any provision of this Act or a regulation and to seize and take away any such documents, books, records, papers or things and retain them until they are produced in any court proceedings.

(5) An application to a judge under subsection (4) shall be supported by evidence on oath establishing the facts upon which the application is based.

The Canadian Charter of Rights and Freedoms

1. The Canadian Charter of Rights and Freedoms guarantees the rights and freedoms set out in it subject only to such reasonable limits prescribed by law as can be demonstrably justified in a free and democratic society.

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.

52. (1) The Constitution of Canada is the supreme law of Canada, and any law that is inconsistent with the provisions of the Constitution is, to the extent of the inconsistency, of no force or effect.

There is no dispute concerning the material facts. Antonio Fernandes, a public officer employed by the Department of National Revenue, conducted an equiry into the income tax affairs of the applicants. On April 22, 1982, he swore an affidavit in support of a proposed entry and search of certain premises. Pursuant to subsection 231(4) of the Act, an authorization to enter and search certain premises was issued on behalf of the Minister on May 13, 1982, and this authorization was approved by The Honourable Judge Kane on June 21, 1982, as required by subsection 231(4). The authorization referred to the private residence of the applicant Roth and to offices of Touche, Ross & Co, Chartered Accountants, at 111 Richmond Street West, Suite 500, Toronto, and at 1 First Canadian Place, 100 King Street West, 12th Floor, Toronto. The authorization did not refer to the offices of Touche, Ross & Co, at 2 Sheppard Avenue East, Willowdale, Ontario, nor to the offices of Needham, Underhill & Partners. Certain books, records and documents were seized from the private residence of the applicant Roth but were subsequently returned to him.

On June 23, 1982, an officer of the Department of National Revenue attended at the offices of Touche, Ross & Co, at 111 Richmond Street West, Toronto, Ontario, and there learned that the files in which he was interested, were to be found at the offices of Touche, Ross & Co at 2 Sheppard Avenue East, Willowdale, Ontario. On the same day, an officer of the Department of National Revenue attended at those offices at 2 Sheppard Avenue East, and examined certain files which had been produced to him and which he then seized. Subsequent to that date, the Department determined that the general ledger of the applicant Microvue Products Inc was likely to be found at the offices of Needham, Underhill & Partners in Barrie, Ontario. On July 9, 1982, officers of the Department attended at the offices of Needham, Underhill & Partners in Barrie, Ontario, and served upon Mr Needham, a partner of the firm, a requirement for information and production of documents pursuant to subsection 231(3) of the Act. The general ledger of the appellant Microvue Products Inc was then produced to the officers and, after an examination by them, was placed under seizure.

On September 15, 1982, an order was obtained from The Honourable Judge Matlow pursuant to subsection 231(2) authorizing the retention of the documents, books and records seized from Touche, Ross & Co at 2 Sheppard Avenue East, Toronto, and from Needham, Underhill & Partners at Barrie, Ontario.

At the outset, it is important to recognize the legislative framework within which the powers in question in these applications are granted. The taxpayer is required to determine his income and to file a return of income in the prescribed form in which he estimates the amount of the tax, if any, payable by him. Subsection 230(1) requires him to keep such records and books of account as will enable his tax liability, if any, to be determined. Under section 152, the Minister is required to examine the taxpayer’s return of income and to determine the amount of any refund due to the taxpayer or the amount of his tax liability. To ensure compliance with the Act, section 231 grants certain investigatory powers to the Minister of National Revenue. These powers of seizure and of search and seizure are necessary to the proper functioning of the self-assessment system. It is exclusively a matter for the Minister to decide the extent of the investigation he should make in discharging his responsibilities under section 152 of the Act. In New Garden Restaurant and Tavern et al v MNR[1983] CTC 332; 83 DTC 5338, Mr Justice White stated:

In effect, the Income Tax Act contemplates a system of tax collecting based upon the fair and honest reporting of income by the taxpayer. Such a tax system requires that the government be permitted in the ordinary course of events to check the business records of the taxpayer in order to ascertain that the income tax returns filed are reasonably accurate. The checking and collating of such records by the government does not violate the taxpayer’s reasonable expectation of privacy since by the very filing of his return the taxpayer is aware that he must have records to back up the representations made in his income tax return and that the records used in the preparation of his income tax return must be as available for audit as the very tax return filed with the government.

The applicant, Roth, sets forth in his affidavit, a number of complaints concerning the manner in which the search of his residence was carried out by the investigating officers and submits that he was effectively placed under house arrest. In his affidavit filed, David Cameron Wood, the officer of the Department of National Revenue in charge of the search of the Roth residence denies any improper conduct throughout the search and in paragraph 26 of his affidavit states:

At the end of the search I asked Roth if he had any complaints about the conduct of any member of the search party. Roth told me that he had no complaints and that we were just doing our job.

In view of this conflict in the evidence, I cannot find that there was any improper conduct in the search of the Roth residence, let alone that he was effectively placed under house arrest.

The next ground put forward for the quashing of the orders is that both judges exceeded their jurisdiction by dealing with matters out of their respective counties. The Honourable Judge Kane specifically set forth his authority in his approval of the authorization and he had jurisdiction to issue the order which he did. The Honourable Judge Matlow made his order under subsection 231(2) upon proper material and did not authorize anything to take place in any other jurisdiction.

With respect to the seizure from the offices of Touche, Ross & Co, at 2 Sheppard Avenue East, the documents seized were the property of Touche, Ross & Co and not the property of the applicants. More importantly, the investigating officers were entitled to enter the premises under subsection 231(1) and, in doing so, were in the course of a continuing audit or examination of the affairs of the applicants. Under paragraph 23 l(l)(d), they were entitled to seize and take away the documents which they did. Paragraph 231(l)(d) is a power of seizure separate and distinct from the power of search and seizure under subsection 231(4).

The same reasoning applies to the seizure at the offices of Needham, Underhill & Partners. In addition, the documents seized there were produced as a result of the service upon Mr Needham of a requirement for information and production of documents pursuant to subsection 231(3) of the Act.

The final ground put forward for the quashing of the orders is that section 231 is an infringement of violation of the rights set forth in sections 7 and 8 of the Charter.

In New Garden Restaurant and Tavern et al v MNR [supra] at 223 [5340], Mr Justice White states:

The sole issue, as presented to me on this application, is whether s 231( 1 )(d) and, by implication, s 231(2) of the Act are unconstitutional on the grounds that s 231(l)(d) necessarily implies an unreasonable search and seizure contrary to s 8 of the Charter. The order sought by the applicants would in effect prohibit all tax investigators conducting audits under the aegis of s 231(1)(a), (b) and (c) of the Act from seizing, without a warrant pursuant to s 231( l)(d) of the Act, any documents they find in the course of their audits on the ground that such a seizure contravenes s 8 of the Charter. In support of their submission, the applicants rely on a decision of the Alberta Court of Appeal in Southam Inc v Hunter et al (1983), 3 CCC (3d) 497 in which the court held that s 10 of the Combines Investigation Act, RSC 1970, c C-23 was unconstitutional as violating s 8 of the Charter. In my opinion, the Southam case does not help the applicants. I read the decision of the Alberta Court of Appeal as indicating that, in their opinion, s 10 of the Combines Investigation Act in itself necessarily implied that before a search was conducted, the Restrictive Trade Practices Commission, which authorized the search, had already formed the belief of probable guilt of the party searched. In my view, s 231( l)(d) of the Act does not imply in itself any such preconceived belief of guilt and thus in my opinion, the Southam case is distinguishable from the case at bar.

In MNR v Paroian, Courey et al (1980) CTC 131; 80 DTC 6077, which was decided prior to the enactment of the Charter, the Ontario Court of Appeal approved the exercise of the powers contained in subsection 231(4) where its requirements have been fulfilled.

The powers and procedures set forth in section 231 of the Act are necessary and appropriate for the due functioning of the taxation system in effect in Can- ada. They have not become unnecessary or inappropriate by virtue of the enactment of the Charter and they are demonstrably justified in a free and democratic society.

Counsel’s reference to the orders of the Honourable Judge Kane dated the let day of June, 1982, is in fact the authorization issued on behalf of the Minister on May 13, 1982, as approved by the Honourable Judge Kane on June 21, 1982.

The applications are dismissed.