Zeifmans LLP – Federal Court finds that an RFI issued to an accounting firm re named clients could extend to unnamed offshore entities if the latter were not being audited
An accounting firm (Zeifmans) unsuccessfully argued that the Minister should have sought prior judicial authorization under s. 231.2(3) of a requirement to provide information (RFI) issued in the course of a CRA audit of three related resident individuals (the “Named Persons”) who were Zeifman clients. The RFI (which was issued after various attempts by CRA to obtain the information directly from the Named Persons and from the records of Canadian banks) set out a long and detailed list of required information and documents in relation to the Named Persons and all “entities owned, operated, controlled or otherwise connected to [such] individuals” (the “Unnamed Persons.”)
In responding to this argument, Walker J first stated the principle:
If a Canadian taxpayer organizes their affairs through corporate or other entities, the CRA is entitled to obtain information related to those entities for the purpose of auditing and verifying the taxpayer’s compliance with the ITA. If the entities’ books and records are placed in the possession of third parties, the Minister is entitled to require the third party to provide the information requested if the unnamed persons are not subject to audit. The information is required to verify the compliance of the taxpayer being audited and no application for judicial authorization is required … . [emphasis added]
In rejecting the argument, she then stated:
There is no evidence in the record that the Unnamed Persons are a current investigation target. I find that the possibility that one or more of the Unnamed Persons may be subject to audit in the future is not sufficient to require judicial authorization for the RFI and the Minister’s reliance on subsection 231.2(1) was justified.
In also rejecting an argument that the RFI had not been issued to a “person” as required by s. 231.2(1) because it was issued to a partnership (Zeifmans), she stated that “the effect of subsection 244(20) is that the RFI was addressed to each partner for purposes of the ITA.”