BT Céramiques Inc. v. Agence du revenu du Québec, 2020 QCCA 402

In March 2006, an official in the Montreal office of the CRA Special Investigations Division received a tip that a company (BT Céramiques) and its president (Bruno) were involved in tax evasion and had a close relationship with a senior CRA employee. The computer system showed that the returns of Bruno and BT Céramiques had stayed in the possession of the same auditor (lammarone) for three years without having been acted upon. A CRA appeals agent involved in a previous matter had been intimidated. In March 2007, a CRA manager decided to initiate an audit of two years subsequent to those previously reviewed, i.e., of the 2004-2005 years, with the audit to be performed by auditors in the Special Enforcement Program (“SEP” - whose mandate was to determine the civil liability of those engaged in criminal activities) rather than by those in the Criminal Investigations Program, who investigated tax evasion with a view to bringing charges. However, both programs were headed by the same Director (St-Amand). The audit revealed some evidence of CRA corruption (including an invoice for a kitchen counter from lammaronne) in addition to GST non-compliance by BT Céramiques. In March 2008, the file was transferred for criminal investigation, with the auditors providing some assistance in the preparation for obtaining a search warrant, with the search and seizure of documents occurring on May 6, 2008. The transferred information was used in laying charges for tax evasion relating to income tax, GST and QST. The Court of Quebec found that the search was unconstitutional based on the Jarvis tests and, as the seized evidence was to be excluded, ordered the acquittal of the appellants.

The Court of Appeal found that the Superior Court had inappropriately reversed these findings. In particular, there were no reversible errors in the Court of Quebec’s findings (applying the tests in Jarvis at para. 94) that:

• CRA had reasonable grounds, as early as March 2007, to proceed with a criminal investigation rather than initiate a tax audit and, a few months later, an internal investigation into the conduct of the CRA employee who had conducted the previous audit.
• The audit files were transferred to the investigators.
• The 4th and 5th Jarvis tests (was the conduct of the auditors such that they were effectively acting as agents for the investigators; and did investigators intend to use the auditors as their agents in collecting evidence) were not relevant given that St-Amand directed both units.
• While the evidence sought during the audit could be used to establish tax payable, the totality of the evidence demonstrated an interest in acquiring information on the criminal liability of the taxpayers and CRA employees.

CRA’s general conduct was such that it was consistent with the pursuit of a criminal investigation

Contrary to the Superior Court (one level below), the Quebec Court of Appeal found that the Court of Quebec (two levels below) had not made any reversible errors in invalidating evidence obtained in a search and seizure of a Quebec registrant (BT Céramiques), which was believed to have fraudulently claimed input tax credits and corrupted CRA officials. CRA had reasonable grounds, at its commencement of the audit in question, to proceed with a criminal investigation rather than merely initiating a tax audit, and while the evidence sought during the audit could be used to establish tax payable, the totality of the evidence demonstrated an interest in acquiring information on the criminal liability of the taxpayers and CRA employees. It was also relevant that the same Director headed up both the Montreal Special Enforcement Program (whose mandate was to determine the civil liability of those engaged in criminal activities) which performed the audit, and the Criminal Investigations Program, which investigated tax evasion with a view to bringing charges and which took over after completion of the audit, including preparing a search warrant.

Copies of the seized documents had, in turn, been provided by CRA to the ARQ, which brought its own tax evasion charges. In affirming the decision of the Court of Quebec to also exclude, pursuant to s. 24 of the Charter, use of such evidence by the ARQ as well, Dufresne JCA stated (at para. 184, TaxInterpretations translation):

On the basis of the trial judge's well-founded conclusion that the documents and information seized in the CRA's possession were obtained illegally by the CRA, the seizure by the ARQ was itself illegal. … [It] simply could not take advantage of the proceeds of the illegally obtained warrants. If this shortcut were allowed, the risk of abuse would be great, since one state agency could, in all events, take advantage of the other's searches, regardless of the legality of the means used to obtain them. The administration of justice and the protection of protected rights would suffer as a result.

Jarvis found that where the predominant purpose of a particular inquiry is the determination of a penal liability (e.g., under s. 239 of the ITA), CRA officials may not have recourse to the inspection and requirement tools in the ITA. Contrary to the Superior Court (one level below), the Quebec Court of Appeal found that the Court of Quebec (two levels below) had not made any reversible errors in invalidating evidence obtained in a search and seizure of a Quebec registrant (BT Céramiques), which was believed to have fraudulently claimed input tax credits and corrupted CRA officials. CRA had reasonable grounds, at its commencement of the audit in question, to proceed with a criminal investigation rather than merely initiating a tax audit, and while the evidence sought during the audit could be used to establish tax payable, the totality of the evidence demonstrated an interest in acquiring information on the criminal liability of the taxpayers and CRA employees. It was also relevant that the same Director headed up both the Montreal Special Enforcement Program (whose mandate was to determine the civil liability of those engaged in criminal activities) which performed the audit, and the Criminal Investigations Program, which investigated tax evasion with a view to bringing charges and which took over after completion of the audit, including preparing a search warrant.

Copies of the seized documents had, in turn, been provided by CRA to the ARQ, which brought its own tax evasion charges. In affirming the decision of the Court of Quebec to also exclude, pursuant to s. 24 of the Charter, use of such evidence by the ARQ, Dufresne JCA stated (at para. 184, TaxInterpretations translation):

[It] simply could not take advantage of the proceeds of the illegally obtained warrants. If this shortcut were allowed, the risk of abuse would be great, since one state agency could, in all events, take advantage of the other's searches, regardless of the legality of the means used to obtain them.