Bouclair – Court of Quebec orders a stay of a federal tax evasion prosecution based on an ARQ audit file gathered for Quebec civil penalty purposes

A Revenue Quebec audit team gathered incriminating evidence respecting the alleged diversion of company funds to pay for the construction of a chalet for its CEO (by allegedly paying false invoices directed to it by the builder). RQ did not accord any of the Jarvis protections to the company and its CEO, because it had no intention of criminally prosecuting – it was content to impose the equivalent of s. 163(2) penalties (in addition to the tax) – as did CRA, a year later, following the RQ lead.

However, in a bizarre twist, several years later, the CRA Investigations Division, in order to find sufficient work for its investigators, began selecting closed files for which s. 163(2) penalties had been imposed, for criminal investigation – which in this case, consisted mostly of asking the RQ for a copy of much of its file (a transmission of information which Galiatsatos JCQ found to be contrary to the intergovernmental agreement), and then executing searches on the company premises as well as those of the builder. The company and CEO then were charged with tax evasion under the ITA.

Galiatsatos JCQ acknowledged that, in a dry technical sense, perhaps CRA had not violated the Jarvis protections as conventionally expressed as it itself had not used any of its audit powers. However, he stated that he could not “condone … a practice” of using a “treasure trove of ready-made files for ‘investigation’ and prosecution containing uncautioned conscripted evidence,” as “otherwise, the Jarvis protections simply melt away.”

Here, the usual remedy of simply excluding evidence under s. 24(2) of the Charter was not a satisfactory solution as RQ likely would have audited the builder regarding the chalet even if it had observed Jarvis. Galiatsatos JCQ took the further step of ordering a stay of the prosecution, stating:

[S]hould the State choose not to engage the criminal process despite obvious signs of criminality, thereby choosing not to offer constitutional protections, it is expected that is will in turn choose to forego criminal prosecution. In order to ensure that the taxpayer’s constitutional rights are respected, such a broad discretionary decision must have a built-in mechanism by which it ensures that the taxpayer will not later be prosecuted on the basis of the fruits of such an expansive audit. …

Considered as a whole, the history of this investigation directly harms the integrity of the justice system and irreparably compromised the community’s sense of fair play and decency. Alternative remedies are insufficient to redress this prejudice. Even if much of the evidence is excluded under s. 24(2), the case would still be viable, since a significant portion of the evidence was deemed admissible by this Court.

Neal Armstrong. Summary of R. v. Bouclair Inc. (2020), 500-73-004592-180 (Court of Quebec) under s. 231.1(1).