BT Céramiques – Quebec Court of Appeal finds that CRA violated the Jarvis principle in auditing following reasonable grounds for considering that there was taxpayer/CRA criminal conduct

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):

[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.

Neal Armstrong. Summary of BT Céramiques Inc. v. Agence du revenu du Québec, 2020 QCCA 402 under Charter, s. 8, s. 231.1(1), and Charter s. 24(1).