Date: 20051004
Docket: T-657-05
Citation: 2005 FC 1361
BETWEEN:
REDEEMER
FOUNDATION
Applicant
and
THE
MINISTER OF NATIONAL REVENUE
Respondent
REASONS FOR
ORDER
HUGHES J.
[1]
This
is an application for judicial review of a decision of an Auditor of the Canada
Revenue Agency acting on behalf of the Respondent Minister of National Revenue,
to request third party donor information and documentation from the Applicant
on May 14, 2003 purportedly pursuant to subsections 231.1(1) and 231.2(1) of
the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) as amended
(“Act”).
[2]
The
Applicant, Redeemer Foundation (“Foundation”), describes itself as a registered
charity in existence since 1987. It operates a fund, the Forgivable Loan
Program (FLP), which is said to be used exclusively for the advancement of
learning based on the Christian teachings of the Redeemer University College (“College”).
Part of this program involves the provision of funds by parents and other
persons closely involved with students of the College to the Foundation. Such
persons are referred to as donors. At one point early on in the operation of
this program a tax ruling was obtained in respect of some aspects of the scheme
administered by the Foundation.
[3]
The
Foundation was audited by CCRA three times: in 1998 (for the 1997 taxation
year), in 2001 (in respect of the 1998-2000 taxation years), and in 2003 (in
respect of the 2001 and 2002 taxation years). In October 1998 the Canada
Customs and Revenue Agency (“CCRA”) conducted an audit of the Foundation as a
result of which the CCRA identified donors who had contributed to the FLP in
the 1997 taxation year. In the 2001 audit the CCRA requested and received from
the Foundation a list of donors to the FLP. As a result of both audits, CCRA
sent letters to several of those donors stating an intention to reassess their
tax liabilities and disallow certain credits claimed in respect of their
donations to the FLP. In subsequent correspondence, and without explanation to
the donors, CCRA sent a further letter informing these donors that there would
be no reassessment and no change to the claimed credits.
[4]
On
May 14, 2003 an auditor representing the CCRA, in a meeting with the
Foundation, orally requested such information respecting the Foundation’s
donors to the FLP for the 2001 and 2002 taxation years. The Foundation again
provided a list of the donors for those years. In or about the end of 2004 or
early 2005 the Foundation became aware that CCRA was communicating with
several of the donors on the list provided, indicating that a reassessment
would be made and credits in respect of the FLP disallowed.
[5]
Further,
CCRA in May 2004 again made a request to the Foundation for information
respecting the identity and transactions with donors to the FLP. By this time the
Foundation had received advice to the effect that it would be improper for CCRA
to receive such information for use other than to audit the Applicant without CCRA
having first obtained an Order from this Court pursuant to section 231.2(2) and
(3) of the Income Tax Act. The Foundation, therefore, refused to
disclose such information. The Minister has neither asked for nor received
such an Order and has taken no further steps in respect of this request for
such information.
[6]
The
subject of this judicial review application is only in respect of the donor
list and related information sought by CCRA orally on May 14, 2003 and given “voluntarily”
by the Foundation to CCRA. No Order of this Court was sought or given in
respect of this information before the request was made, or at any time. The
Foundation seeks a declaration that the request made for such information was
improper, that the information be returned and that the Minister be prevented
from acting upon such information, for instance, be prevented from reassessing
the donors identified by that information.
[7]
Relevant
to this review are the provisions of sections 231.1(a) and 231.2(1), (2) and
(3) of the Income Tax Act:
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231.1. (1) An
authorized person may, at all reasonable times, for any purpose related to
the administration or enforcement of this Act,
(a) inspect, audit or examine the
books and records of a taxpayer and any document of the taxpayer or of any
other person that relates or may relate to the information that is or should
be in the books or records of the taxpayer or to any amount payable by the
taxpayer under this Act, and
***
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231.1.
(1) Une personne autorisée peut, à tout moment raisonnable, pour
l'application et l'exécution de la présente loi, à la fois:
a)
inspecter, vérifier ou examiner les livres et registres d'un contribuable
ainsi que tous documents du contribuable ou d'une autre personne qui se
rapportent ou peuvent se rapporter soit aux renseignements qui figurent dans
les livres ou registres du contribuable ou qui devraient y figurer, soit à
tout montant payable par le contribuable en vertu
de la présente loi
***
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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, including the collection of any amount payable under this Act by
any person, by notice served personally or by registered or certified mail,
require that any person provide, within such reasonable time as is stipulated
in the notice,
(a) any information or additional
information, including a return of income or a supplementary return; or
(b) any document.
(2) The Minister shall not impose
on any person (in this section referred to as a "third party") a
requirement under subsection 231.2(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 231.2(3).
(3) On ex parte application by the
Minister, a judge may, subject to such conditions as the judge considers
appropriate, authorize the Minister to impose on a third party a requirement
under subsection 231.2(1) relating to an unnamed person or more than one
unnamed person (in this section referred to as the "group") where
the judge is satisfied by information on oath that
(a) the person or group is
ascertainable; and
(b) the requirement is made to
verify compliance by the person or persons in the group with any duty or
obligation under this Act.
(c) (Repealed by S.C. 1996, c. 21,
s. 58(1).)
(d) (Repealed by S.C. 1996, c. 21,
s. 58(1).)
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231.2.
(1) Malgré les autres dispositions de la présente loi, le ministre peut, sous
réserve du paragraphe (2) et, pour l'application et l'exécution de la
présente loi, y compris la perception d'un montant payable par une personne
en vertu de la présente loi, par avis signifié à personne ou envoyé par
courrier recommandé ou certifié, exiger d'une personne, dans le délai
raisonnable que précise l'avis:
a)
qu'elle fournisse tout renseignement ou tout renseignement supplémentaire, y
compris une déclaration de revenu ou une déclaration supplémentaire;
b)
qu'elle produise des documents.
(2) Le
ministre ne peut exiger de quiconque -- appelé "tiers" au présent
article -- la fourniture de renseignements ou production de documents prévue
au paragraphe (1) concernant une ou plusieurs personnes non désignées
nommément, sans y être au préalable autorisé par un juge en vertu du
paragraphe (3).
(3) Sur
requête ex parte du ministre, un juge peut, aux conditions qu'il estime
indiquées, autoriser le ministre à exiger d'un tiers la fourniture de
renseignements ou production de documents prévue au paragraphe (1) concernant
une personne non désignée nommément ou plus d'une personne non désignée
nommément -- appelée "groupe" au présent article --, s'il est
convaincu, sur dénonciation sous serment, de ce qui suit:
a)
cette personne ou ce groupe est identifiable;
b)
la fourniture ou la production est exigée pour vérifier si cette personne ou
les personnes de ce groupe ont respecté quelque devoir ou obligation prévu
par la présente loi;
c) (Abrogé
par L.C. 1996, ch. 21, art. 58(1).)
d) (Abrogé
par L.C. 1996, ch. 21, art. 58(1).)
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[8]
The
circumstances concerning the request made by CCRA, represented by Mr. Consoli,
are set out in paragraphs 21, 22 and 23 of the affidavit of Mr. van Staalduinen,
Executive Director of the Foundation. He says:
21.
On
May 14, 2003, I met with Mr. Dominic Consoli, another tax avoidance auditor in
the same office as Mr. Walmsley. Mr. Consoli requested various items including
a list of 2001 and 2002 taxation year FLP participants and donation receipts
including donor names, amounts, dates and receipt numbers. My handwritten
notes for this meeting specifically record that Mr. Consoli was to get back to
me “before they do any reassessment of donors and give us a chance to comment
and have our accounting and legal advisers involved.” This reference is
consistent with my view that Mr. Consoli’s purpose in requesting the 2001/2002
donor names was to investigate the charitable deductions claimed by donors. A
copy of my handwritten notes taken during this meeting are attached as Exhibit
“I”.
22.
By
letter dated May 20, 2003, I delivered a list of 2001 and 2002 taxation year
donors to the Foundation requested by Mr. Consoli at our meeting on May 14,
2003. A copy of my letter to Mr. Consoli dated May 20, 2003 with the list of
2001 and 2002 donors is attached as Exhibit “J”. The donor list contained approximately
1000 names, gift dates, gift amounts and gift receipt numbers. These lists
have been left out of Exhibit “J” to respect the privacy of the donors. The
lists will be made available to the Court if necessary.
23.
I
turned the documents over to Mr. Consoli as I believed the Foundation was
required by law to do.
[9]
The
position taken by the Foundation in this application is that such request, even
if verbal and voluntarily complied with at the time, is a nullity in that an
Order as provided in section 231.2(3) Income Tax Act was not previously
sought by the Minister or given, thus the request is a nullity, the information
must be returned and any action taken in respect thereof against the donors so
identified must be quashed.
[10]
The
position taken by the Respondent Minister is that it was perfectly appropriate
for the CCRA auditor to request such information under the audit powers
provided for in section 231.1(1) of the Act, and if the information was
given voluntarily, there was no need for the Minister to resort to section
231.2 which is available only when there is refusal to comply voluntarily. The
Minister further argues that the Foundation has no standing to challenge the
steps, including reassessment of donors, taken by the Minister, only the donors
have standing. As well, the Minister challenges the jurisdiction of this Court
to preclude the Minister from taking any steps in acting upon this information.
[11]
The
nature and effect of the provisions of sections 231.2(1), (2) and (3) were
recently considered by the Federal Court of Appeal in Artistic Ideas Inc v.
Canada (CCRA), February 25, 2005, 2005 F.C.A. 68 in which the Court
reviewed the same authorities as submitted here by the Minister and made the
same arguments as made by the Minister. Rothstein J.A. for the Court found at
paragraphs 8 to 11 of this decision:
8
As I understand the scheme of section 231.2, the Minister may require a third
party to provide information and documents pertaining to the third party's
compliance with the Act. However, the Minister may not impose a requirement on
the third party to provide information or documents relating to unnamed persons
whom he wishes to investigate, unless he first obtains the authorization of a
judge. The judge may authorize the Minister to require such information only if
the unnamed persons are ascertainable and only if satisfied that information or
documents relating to them is required to verify compliance by them with the
Act.
9
The Minister says that the restriction against obtaining information or
documents relating to unnamed persons only applies where the third party itself
is not under investigation. Where, as here, the third party, Artistic, is under
investigation, subsection 231.2(2) does not apply. The Minister relies on
authorities such as James Richardson and Sons, Ltd. v. M.M.R., [1984]
1 S.C.R. 614 and Canadian Bank of Commerce v. Attorney General of Canada, [1962]
S.C.R. 729 for the proposition that the Minister's power to obtain the
names of unnamed persons is very broad and the fact that the documents required
to be produced may contain confidential information relating to unnamed persons
is irrelevant. He argues that subsection 231.2(2) only applies to preclude him
from going on a "fishing expedition" in respect of other taxpayers
where the third party itself is not under investigation. These authorities
pre-date subsections 231.2(2) and (3), although it is apparent that their
enactment was prompted, at least in part, by the Richardson
case. While they provide useful background, the relevant legislation is
different today than at the time of those decisions.
10
According to the evidence in the present case, the donors are intended to be
the subject of investigations by the Minister. They are precisely the persons
to whom subsections 231.2(2) and (3) apply. If the Minister wants to obtain the
names of the donors from Artistic, he must obtain an authorization from a judge
to do so. The Minister has not obtained such authorization and therefore he
cannot require Artistic to provide information about the donors.
11
However, where unnamed persons are not themselves under investigation,
subsections 231.2(2) and (3) do not apply. Presumably, in such cases the names
of unnamed persons are necessary solely for the Minister's investigation of the
third party. In such cases a third party served with a requirement to provide
information and documents under subsection 231.2(1) must provide all the
relevant information and documents including the names of unnamed persons. That
is because subsection 231.2(2) only pertains to those unnamed persons in respect
of whom the Minister may obtain an authorization of a judge under subsection
231.2(3).
[12]
In
the present case there is evidence that the Minister used the information
delivered by the Foundation pursuant to the May 14, 2003 request, to contact
donors so identified in respect of reassessment. Mr. van Staalduinen says in
paragraph 32(a) of his affidavit that he is aware of approximately 25 donors who
have received notices of reassessment. During cross-examination he indicated
that this number, he estimated, had risen to between 45 and 50 (Question 302).
[13]
Does
the situation change when the Minister’s request is made orally, rather than in
writing and does it change if the taxpayer then volunteers the information?
The mischief that section 231.2 was intended to address was considered by
Rothstein J. (as he then was) in MNR v. Sand Exploration Ltd.,
[1995] 3 F.C. 44 at paragraphs 14 (in part), 15 and 18:
14
While Richardson and Bruyneel provide a useful background,
it is important to note that the relevant legislation is different today than
at the time of those decisions. The strict approach adopted in those decisions
was necessitated by a broad statutory provision which, if interpreted too
broadly, left open the possibility of abuse by tax enforcement officials…
15
Counsel for the Minister submits, and I accept, that
section 231.2 was enacted to address these difficulties. By contrast with
subsection 231(3), subsections 231.2(2) and (3) expressly provide a process
with which the Minister must comply in order to require third parties to
provide information or documents relating to unnamed taxpayers. A ministerial
requirement to third parties to provide information about another person's tax
affairs now requires a Court authorization. Pursuant to subsection 231.2(3)
there must be evidence on oath that: the person is ascertainable; the purpose
is to verify compliance by the person with the Act; it is reasonable to expect,
on any grounds, non-compliance with the Act; and the information is not
otherwise more readily available. Forcing the Minister to comply with this
procedure addresses the mischief identified in Richardson and
is intended to prevent fishing expeditions.
….
18 Intrusion
into the privacy of individuals is always a sensitive matter, especially when third
parties, who themselves may have valid reasons for not wanting to disclose, are
required to provide the information. Undoubtedly this is the reason Parliament
saw fit to require the Minister to obtain Court authorization for such
intrusion upon satisfying the Court of the matters specified in subsection
231.2(3). But provided the requirements of this subsection are met, such
intrusion is authorized. There is no absolute prohibition from obtaining the
names of taxpayers from third parties and indeed section 231.2 now provides a
procedure for obtaining such information.
[14]
Taking
a functional and pragmatic approach to this legislation, it is clear that
Parliament intended to protect third parties from having information relating
to their activities obtained from other persons audited by the Minister, who
then will use it for taxation purposes. While section 231.2 provides for a
request by the Minister in writing and a refusal the requirement for a prior
Order cannot be limited to a situation where only that occurs. To do otherwise
would encourage the Minister’s officials and agents to attempt by other means
to secure the information whether by friendly means, subterfuge or guile and
prey upon the innocence, inadvertence or mistake of one taxpayer in order to
secure otherwise unavailable information about another. Parliament would not
have provided for a Court Order to be obtained, first before securing such
information if that provision could be so easily circumvented.
[15]
Thus
to obtain information from an audit of one taxpayer as to other taxpayers, for
the purpose of using that information to reassess those other taxpayers,
without first having obtained the appropriate Order of this Court, is wrong.
In this case the CCRA auditor acted wrongly in requesting that information and
the Minister acted wrongly in using it.
[16]
The
Minister’s counsel argues here that, even if such action was wrong, the
Foundation has no status to challenge that action. It is argued that section
18.1 of the Federal Courts Act, R.S.C. 1985, c. F-7 provides only that
the Attorney General, or “person directly affected” by a matter can make
such a challenge. Such an argument was raised in Friends of the Island Inc.
v. Canada (Minister of Public Works), [1993] 2 F.C. 229 where Reed
J. reviewed extensively the legislative background of section 18.1 and
concluded at page 283:
I think the wording in
subsection 18.1(1) allows the Court discretion to grant standing when it is
convinced that the particular circumstances of the case and the type of
interest which the applicant holds justify status being granted.
[17]
Here
it is the information of the Applicant that is at issue. That information was
created by and maintained by the Applicant. That information is being used in
a way that clearly disrupts the Applicant’s relationship with the donors listed
in the information. The Applicant is clearly a person directly affected by the
conduct at issue and has status to bring this application.
[18]
The
Minister argues that the auditor, in requesting the information, was acting as
a federal board or tribunal and made a decision in respect of which the
standard of review is patent unreasonableness. The auditor is not a “board
or tribunal”, and no “decision” was made. The auditor was simply
acting outside the bounds of the Act. He did an illegal act. No
question of deference arises.
[19]
The
issue then arises as to the nature of the relief, if any, that can be given.
The Applicant is clearly entitled to a declaration and to the return of any
documents and materials in the possession of the Minister that were improperly
obtained. Can the Minister be prohibited from acting upon such information?
[20]
The
Minister argues that only the Tax Court can review and set aside an
assessment. That is not the question here. The question here is whether this
Court can restrain the Minister from making an assessment in the first place
where it was based on information improperly obtained and whether this Court
can require the Minister to abandon or revoke such an assessment already made.
There appears to be no real precedent in this regard.
[21]
Section
18.1(3) of the Federal Courts Act sets out the powers of the Court to
grant relief in circumstances such as this:
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18.1(3) Powers
of the Federal Court On an application for judicial review, the Federal
Court may
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(a)
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order a federal
board, commission or other tribunal to do any act or thing it has
unlawfully failed or refused to do or has unreasonably delayed in doing; or
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(b)
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declare invalid or
unlawful, or quash, set aside or set aside and refer back for determination
in accordance with such directions as it considers to be appropriate,
prohibit or restrain, a decision, order, act or proceeding of a federal
board, commission or other tribunal.
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18.1(3) Pouvoirs
de la Cour federale Sur présentation d'une demande de contrôle
judiciaire, la Cour fédérale peut :
(a)
ordonner à l'office fédéral en cause d'accomplir tout acte qu'il a
illégalement omis ou refusé d'accomplir ou dont il a retardé l'exécution de
manière déraisonnable;
(b)
déclarer nul ou illégal, ou annuler, ou infirmer et renvoyer pour jugement
conformément aux instructions qu'elle estime appropriées, ou prohiber ou
encore restreindre toute décision, ordonnance, procédure ou tout autre acte
de l'office fédéral.
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[22]
This
power includes the power to “set aside….prohibit or restrain a decision,
order [or] act.” Here the initial improper act was the obtaining of
information as to donors illegally, that will be set aside. Consequent upon
that illegal act were the subsequent acts in reassessing such donors. Section
18.1(3) is not limited to the specific decision at issue: when it says “a
decision” such wording is broad enough to include acts consequent upon the
initial illegal act. Thus the Minister’s reassessments based on the illegally
obtained information will be set aside.
[23]
The
Applicant, being successful, is entitled to its costs to be taxed at the upper
end of Column III.
“Roger
T. Hughes”
Toronto,
Ontario
October
4, 2005
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