Docket: T-2080-14
Citation:
2016 FC 56
[UNREVISED
ENGLISH CERTIFIED TRANSLATION]
Ottawa, Ontario, January 20, 2016
PRESENT: The Honourable Madam Justice Gagné
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BETWEEN:
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SPE VALEUR
ASSURABLE INC
ROBERT PLANTE
CLAUDE LESSARD
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Applicants
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and
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CANADA REVENUE
AGENCY
ATTORNEY
GENERAL OF CANADA
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Respondents
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and
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L’AGENCE DU
REVENU DU QUÉBEC
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Intervener
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JUDGMENT AND
REASONS
I.
Nature of the case
[1]
The applicants are challenging the decision by
the Canada Revenue Agency [CRA] to provide the Agence du revenu du Québec [ARQ]
with a copy of numerous documents that were seized at the premises of the
applicant SPE Valeur Assurable inc [SPE] as part of a criminal investigation
and that were used to reassess SPE and its principal officer, the applicant
Robert Plante. The applicants submit that, once the criminal investigation was
completed and the CRA decided not to lay charges, the CRA could not retain a
copy of these documents, let alone provide them to the ARQ.
[2]
The CRA argues that its civil and penal functions
are not mutually exclusive and that it has the authority to use the documents
that were seized legally in a criminal investigation to assess a taxpayer, that
it could retain a copy of the documents for that purpose and that, under subparagraph 241(4)(d)(iii)
of the Income Tax Act, RSC 1985, c 1 (5th Supp) [ITA], it could
provide them to its provincial counterpart for taxation purposes.
[3]
The ARQ, which was granted leave to intervene in
this case, adds that the applicants cannot use an application for judicial
review to challenge the validity of a search warrant issued in January 2012 by
the Court of Québec and that the relevant tax provisions permit the transfer of
information between federal and provincial tax agencies.
II.
Facts
[4]
SPE is a company that works in the area of developing
and marketing software for capital asset and preventive maintenance management.
Robert Plante is its president and princpal officer while Claude Lessard, like
a number of other investors, acquired a licence to use the software developed
by SPE.
[5]
In 2007, the CRA began a tax audit of the
affairs of SPE and a number of licence holders. During the audit, the CRA had
reasons to believe that SPE had committed an offence under the ITA and
therefore submitted an information to obtain a search warrant under section 487
of the Criminal Code, RSC 1985, c C-46. SPE did not challenge the
validity of the warrant, and the search was executed at its offices on January
25, 2012.
[6]
A seizure report pursuant to section 489.1 of
the Criminal Code was filed, and the CRA was designated guardian of the
items seized for a three-month period, which was extended twice with Mr. Plante’s
consent. The criminal investigation was completed in December 2012, and no
charges were laid against SPE or Mr. Plante. The originals of the seized
documents were returned to Mr. Plante, and the CRA retained a copy.
[7]
While the CRA’s investigation was underway, a
number of investors, including the applicant Claude Lessard, received
notices of reassessment from the two tax agencies in connection with their licence
to use SPE’s software. They appealed from those assessments to the Tax Court of
Canada and the Court of Québec. Mr. Lessard’s case was designated as a
test case by the Court of Québec.
[8]
When its investigation was completed, the CRA reassessed
SPE and Mr. Plante relying, inter alia, on the seized documents. Informed
of this fact, counsel for the ARQ sought an adjournment of Mr. Lessard’s hearing
before the Court of Québec so that the ARQ could obtain from the CRA the seized
documents that were used to reassess SPE and Mr. Plante.
[9]
First, the CRA sent the ARQ its audit report
(T-20) and its penalty report for the 2003 to 2010 taxation years.
[10]
In November 2013, the ARQ sent a new request for
informtion to the CRA, this time to obtain the information for the search
warrant, the inventory of the seized property, the complete audit record and
the correspondence exchanged with the appeals division. The CRA replied that no
charges had been laid but that civil assessments had been issued. Consequently,
if the ARQ wished to obtain the requested documents, it would have to file a
motion under subsection 490(15) of the Criminal Code, which it did
in March 2014.
[11]
However, the CRA subsequently reversed its
position and advised the ARQ that the motion was no longer necessary. On May
13, 2014, it provided the following documents to the ARQ:
•
summary of adjustments for SPE prepared by the
auditor;
•
summary of adjustments for Robert Plante prepared
by the auditor;
•
the auditor’s reconciliation worksheets (deposits
and withdrawals for American accounts, expenditure reconciliation, various
supporting documents);
•
invoices, agency agreement, audited balance
sheets for Services préventifs d’évaluation inc and bank transfer documents; and
•
auditor’s redacted worksheets summarizing emails
including explanatory notes.
These documents supported the notice of reassessment
issued on October 7, 2013, against SPE and the one issued on October 18, 2013,
against Mr. Plante.
[12]
On June 3, 2014, the ARQ informed the applicants
that the Attorney General of Canada [AGC] had changed its opinion regarding the
need for the ARQ to bring a motion under subsection 490(15) of the Criminal
Code to obtain the desired documentation. The same day, the applicants
indicated their opposition to the disclosure of the documents, and a few weeks
later, their counsel set out the reasons for their opposition in a letter.
[13]
On July 31, 2014, the ARQ withdrew its motion
under subsection 490(15) of the Criminal Code, and the AGC sent a letter
to the applicants stating that their [translation]
“reasons for disputing the
said request were no longer relevant,” given the
ARQ’s withdrawal. With respect to disclosure of the documents, the AGC
reassured the applicants that the disclosure would be carried out in accordance
with subparagraph 241(4)(d)(iii) of the ITA and that if the applicants
were not satisfied with this response, their remedy was set out in section 18
of the Federal Courts Rules, SOR/98-106. Lastly, the applicants were
invited to contact counsel for the ARQ [translation]
“to obtain a copy of the list
of documents that were disclosed”. It is that
decision, confirmed by an email from the AGC on September 9, 2014, that is the
subject of this judicial review.
[14]
At the hearing of this application, it was
difficult to know exactly what documents had been disclosed as of that date:
counsel for the CRA suggested that all the documents had been disclosed and
that therefore the application had become moot. Counsel for the ARQ firmly
denied receiving all the documents requested; according to him, the documents
received represented only a small part of the documents that had been used to reassess
SPE and Mr. Plante.
[15]
One thing is certain, the applicants who are
seeking, inter alia, an order directing the CRA to [translation] “provide to them, within five days after
the judgment is issued . . . a complete list of documents, things or
information concerning the applicants that they retained after the tax audit
and criminal investigation conducted with respect to them” already know about this list because the originals of these
documents were returned to them.
III.
Issues
[16]
This application for judicial review raises the
following issues:
A.
Does this Court have jurisdiction to
determine the legality of retaining a copy of the documents seized by the CRA?
If so, did the CRA retain those documents legally?
B.
Can the CRA provide a copy of the seized
documents to the ARQ?
C.
Does this Court have jurisdiction to to
determine the admissibility of the seized documents? If so, are these documents
admissible before the Court of Québec?
D.
Can this Court make an order in the
nature of an injunction or prohibition?
IV.
Analysis
A.
Does this Court have jurisdiction to to
determine the legality of retaining a copy of the documents seized by the CRA?
If so, did the CRA retain those documents legally?
[17]
The intervener submits that this application is
nothing more than a dispute about the search warrant issued by the Court of
Québec and that therefore this Court does not have jurisdiction to determine whether
the CRA legally retained the documents.
[18]
I do not agree with the intervener. The
applicants’ application is directed at the fact that the CRA retained a copy of
the documents it seized once the criminal investigation was completed, used
this information to make an assessment and shared this information with the
provincial tax authorities for taxation purposes. This has nothing to do with
the validity of the warrant issued by the Court of Québec or the legality of
the search executed in the SPE’s offices or even respect for the applicants’ fundamental
rights.
[19]
Clearly, the other side of this coin is that the
applicants cannot now question the legality of the search or the protection of
their fundamental rights in the context of the criminal investigation against SPE
and Mr. Plante.
[20]
The applicants seek orders directing the CRA to (i)
provide them with a list of the documents it has in its possession; (ii) send
them the list of documents that it is intending to provide to the ARQ; (iii) destroy
all the documents; and (iv) prohibiting the respondents from providing these
documents to the ARQ. The first three remedies sought fall under
paragraph 18.1(3)(a) of the Federal Courts Act, RSC 1985, c
F-7, while the last one is covered by paragraph 18.1(3)(b) of the Act.
[21]
Accordingly, I will turn to the issue of whether
the CRA is legally retaining a copy of the seized documents, now that the
criminal investigation has been completed.
[22]
The applicants admit that they have recovered
the originals of the seized documents but maintain that, under subsections 490(1)
to (9.1) of the Criminal Code, the CRA could not retain a copy of them
once the criminal investigation was completed, much less give a copy of them to
a third party. The applicants cite the following decisions to support their
position: R v Cartier (1997), 197 AR 70 at paras 16 and 18 (ABQB) [Cartier];
Alberta (AG) v Black, 2001 ABQB 216 at paras 9, 17 and 19 [Black];
Bleet v Canada (AG), [1997] BCJ No 3195 at para 8 (Sup Ct) (QL) [Bleet].
[23]
The applicants add that since the Supreme Court
of Canada decision in R v Jarvis, 2002 SCC 73 at paras 84 and 88 [Jarvis],
a clear distinction must be drawn between the civil and penal functions of tax
authorities. In the applicants’ view, the principle established by that
decision, that audit powers cannot be used for the purposes of a criminal
investigation, also applies inversely: the CRA’s criminal investigative powers
cannot be used for auditing purposes.
[24]
First, I do not believe that the jurisprudence
cited by the applicants actually supports their position. In Cartier, the
Crown had not charged the applicant with an offence, but the police were continuing
their investigation. The Alberta Court of Queen’s Bench expressed the opinion
that the purpose of subsection 490(13) of the Criminal Code was to
permit tax debtors to recover their documents within a reasonable time period
without adversely affecting an ongoing investigation. Subsection 490(14) of the
Criminal Code provides that a copy of these documents, certified as a
true copy by the AGC, is admissible in evidence and has the same probative force
as the originals. I do not believe that it must be understood from the
principles established by that decision that copies of the seized documents have
to be destroyed once the criminal investigation is completed. The same comment
can be made about the decisions of the Alberta Court of Queen’s Bench in Black
and the British Columbia Supreme Court in Bleet where the courts were
simply dealing with the purpose of section 490 of the Criminal Code.
[25]
The question raised by this application is
answered in the decisions of the Federal Court of Appeal in Brown v Canada,
2013 FCA 111 at para 19 [Brown]; Blunder v Canada, 2014 FCA 156 at
paras 9-16 [Klundert]; Piersanti v Canada, 2014 FCA 243 [Piersanti];
and Romanuk v Canada, 2013 FCA 133 at paras 6-8 [Romanuk].
[26]
First, the Criminal Code provisions are
clear: since the seizure was executed under a valid warrant, the CRA has an unequivocal
right to make copies of the seized documents (Pèse Pêche Inc v R, 2013
NBCA 37 at paras 12-13; Re Moyer (1994), 95 CCC (3d) 174 at paras 15, 26
(Ont Gen Div); Cartier, above, at paras 20, 25; Bleet, above, at
para 8; Black, above, at para 27; Bromley v Canada, 2002 BSCC 149
at para 26).
[27]
Moreover, in Klundert, above, at para 10,
the Federal Court of Appeal noted that the applicant, like the applicants in
this case, was trying to use the Jarvis principle out of context and
that there was “no reason why
information obtained in a criminal investigation, such as information gathered
pursuant to a lawful search warrant, should not be available for related civil
purposes.” Because the CRA obtained a search
warrant against SPE, there is every reason to believe that its investigation
was legitimate and that it had grounds to believe that an offence under the ITA
had been committed. In these circumstances, it cannot be said “that the Canada Revenue Agency used its
criminal powers to enforce a civil debt” (Klundert,
above, at para 13).
[28]
I believe that the decision in Piersanti also
applies. Paragraph 9 thereof states the following:
The Judge did not
err in law when concluding that the appellant’s rights under sections 7 and 8 of
the Charter were not violated by the CRA when it used the information gathered
in the course of the criminal investigation to reassess the appellant’s income
tax liability for the years in question. The Judge’s legal finding accords with
Jarvis and with the self-assessment and the self‑reporting nature
of the income tax regime.
[29]
Contrary to what the applicants think, the
principle developed by the Federal Court of Appeal in Piersanti is not
based on the fact that, in that case, the applicant had pleaded guilty to 35
charges. The principle that information gathered in a criminal investigation
may be used to reassess without contravening the Jarvis rule applies, in
my humble opinion, regardless of the outcome of the criminal investigation.
[30]
Moreover, in Romanuk, above, at paras 6-8,
it does not appear that criminal charges were laid against the appellant.
The Federal Court of Appeal nonetheless confirmed that the CRA may continue to
use audit powers even after an investigation has been commenced and that the
results of the audit may be used in relation to an administrative matter, such
as issuing a notice of reassessment. The Court also found that the use of such
information to reassess did not violate the appellant’s rights under sections 7
or 8 of the Canadian Charter of Rights and Freedoms, Part I of The
Constitution Act, 1982, being Schedule B to the Canada Act 1982 (UK),
1982, c 11.
[31]
It follows that the CRA could retain a copy of
the documents seized during the search of SPE’s offices and that therefore it is
retaining them legally.
B.
Can the CRA provide copies of the seized
documents to the ARQ?
[32]
The applicants submit that as long as the seized
documents are not filed in support of a penal or criminal prosecution, they
remain confidential and the CRA cannot provide a copy of them to the provincial
tax authorities. Such a disclosure by the CRA would violate their reasonable
expectation of privacy.
[33]
The applicants did not point to any judicial authority
to support this reasonable expectation of privacy whereas the respondents referred
us to Jarvis at para 95 where the Supreme Court of Canada characterized
this expectation in a regulatory context as very weak:
…[T]axpayers have
very little privacy interest in the materials and records that they are obliged
to keep … and ... produce during an audit.… That is, there is no principle of
use immunity that prevents the investigators, in the exercise of their
investigative function, from making use of evidence obtained through the proper
exercise of the CCRA’s audit function.
[34]
It is true that the documents referred to here
were obtained as part of an audit. However, a combined reading of this case and
the Federal Court of Appeal decisions cited above leads us to conclude that the
applicants’ expectation in the circumstances of the case at bar was rather weak.
In particular, in Brown, above, at paras 19-20, the Court noted, as in
this case, that the applicant did not point to any judicial authority that
supported any expectation of privacy over the documents seized by the police
and given to the CRA.
[35]
That said, once the seized documents were used
to complete the audit of the applicants’ income tax returns, they remained
confidential and could only be disclosed in the narrow circumstances listed in
section 241 of the ITA. Subparagraph 241(4)(d)(iii) expressly allows the
CRA to provide confidential information “to an official solely for the purposes of the administration or
enforcement of a law of a province that provides for the imposition and collection
of a tax or duty”.
[36]
As the intervener clearly explains, it wishes to
use the documents seized and used by the CRA to reassess SPE and Mr. Plante
in its administration of the ITA; the Act Respecting the Québec Sales Tax,
CQLR, c T-0.1; Part IX of the Excise Tax Act, RSC 1985, c E-15; and the Tax
Administration Act, RSQ, c A-6.002. This use by the ARQ will not prejudice
the applicants because these provincial statutes ensure the confidentiality of
information.
[37]
Accordingly, I am of the opinion that, pursuant
to section 241 of the ITA, the CRA can provide the ARQ with a copy of the
documents seized during the search executed in SPE’s offices and used as the
basis for reassessing SPE and Mr. Plante.
C.
Does this Court have jurisdiction to determine
the admissibility of the seized documents? If so, are these documents
admissible in the Court of Québec?
[38]
It seems to me that the answer is obvious.
[39]
First, this Court does not have jurisdiction to
determine the validity of a tax assessment. The Tax Court of Canada, and the
Court of Québec for the application of Quebec tax laws, have exclusive
jurisdiction in this regard (Canada (National Revenue) v JP Morgan Asset
Management (Canada) Inc, 2013 FCA 250 at para 82).
[40]
Second, the admissibility of evidence and the
probative value to assign to it fall within the ambit of the court that has
jurisdiction over the matter and that is called upon to manage this evidence.
Accordingly, the applicants will be able to present all their arguments on the admissibility
of the seized documents before the courts that have jurisdiction (Redeemer
Foundation v Canada (National Revenue), [2008] 2 S.C.R. 643 at para 28).
D.
Can this Court make an order in the nature of an
injunction or prohibition?
[41]
Since I have concluded that the CRA legally retained
a copy of the seized documents and that it could provide a copy of them to the
ARQ pursuant to paragraph 241(4)(d)(iii) of the ITA, it is not necessary
to answer this question.
[42]
With respect to the first remedy the applicants
are seeking, namely that the respondents be directed to provide them with a
complete list of the documents they have in their possession, I repeat that
they know about this list because the CRA returned the originals to them.
V.
Conclusions
[43]
For all these reasons, the application for
judicial review will be dismissed with costs in favour of the respondents and
the intervener.
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