Hubert Pierlot v. Her Majesty the Queen, [1994] 1 CTC 134

Carruthers, C.J.:—This appeal concerns the right of the Minister of National Revenue to request information from an individual pursuant to the provisions of subsection 231.2(1) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act").

Background:

The appellant, Hubert Pierlot, is the main officer and shareholder of Pierlot Family Farm Ltd. which carries on a farm operation in Green Meadows, Price Edward Island.

Revenue Canada decided in 1990 to audit Mr. Pierlot's records and those of his company under the provisions of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act").

William Vincent Grant, an auditor with Revenue Canada, testified in Provincial Court that on May 4, 1990, he contacted Pierlot Farm Ltd. about doing an audit basically to verify a large increase in the shareholder’s loan account of the company. Mr. Grant had a telephone conversation with Mr. Pierlot on May 7, 1990, regarding the matter. Difficulties were experienced with respect to carrying out the audit and getting the necessary information. As a result, R. H. McClinton, Director of Taxation, Charlottetown District Office, Department of National Revenue, Taxation, sent a letter to Mr. Pierlot dated January 14, 1991. This letter states, in part:

For the purposes related to the administration and enforcement of the Income Tax Act and pursuant to the provisions of Subsection 231.2(1) of the said Act, I hereby require from you production of the following information and provision of documents as follows:

(A) Pursuant to the provisions of paragraph 231.2(1)(a) of the said Act:

A declaration of income earned from all sources outside of Canada.

Information concerning the source of funds for the cash contribution to Pierlot Family Farms Ltd. listed in paragraph (b) including but not limited to:

The name and address of any estate, family member, non-resident or lending institution which provided the funds as a loan or gift or inheritance.

A statement of assets and liabilities for each of the years ending December 31, 1986, 1987 and 1988.

(B) Pursuant to the provisions of paragraph 231.2(1)(b) of the said Act:

Provision of all documents relating to loans made to Pierlot Family Farms Ltd. for the years 1987 and 1988 including the following amounts:

Month ending
June 30, 1987	$ 9,909.41
September 30, 1987	$73,560.51
December 31, 1987	$36,580.23
April 30, 1988	$54,997.72
August 31, 1988	$10,892.76
October 31, 1988	$44,109.32

Personal bank records for the calendar year 1987 and 1988 including name and address of bank; account number and bank statements or pass book.

Mr. Pierlot provided some of the requested information and documentation but he declined to provide all of it. He refused to provide some of the requested information and documentation because he was of the opinion that the money in question is not taxable income as it came from the estates of deceased relatives in Europe and, therefore, is not subject to inquiry or audit by Revenue Canada. He also submitted that the request by Revenue Canada should have been made under section 231.6 of the Income Tax Act.

He was charged that he did between January 14, 1991, and February 15, 1991, at or near Morell, Kings County, Province of Prince Edward Island:

Count 1—fail to comply with the requirements of a notice served personally upon him pursuant to paragraph 231.2(1)(b) of the Income Tax Act and amendments thereto, that ne provide information or additional information, including a return of income or supplementary return within the time specified in said notice, and did thereby commit an offence contrary to subsection 238(1) of the said Income Tax Act.

Count 2—fail to comply with the requirements of a notice served personally upon him pursuant to paragraph 231.2(1)(a) of the Income Tax Act, S.C. 1970-71-72, c-63 and amendments thereto, that he provide documents within the time stipulated in the said notice, and did thereby commit an offence contrary to subsection 238(1) of the said Income Tax Act.

The provincial court judge did not accept Mr. Pierlot’s explanation and found him guilty as charged. He imposed the minimum fine of $1,000 for each count and issued a compliance order under section 238(2) of the Income Tax Act.

The provincial court judge states at pages 5-6 of his judgment as follows:

The accused objected to giving this information on two grounds. 1.—The request should have been made under section 231.6. A reading of that section reveals that "foreignbased information or documents means any information or documents which are available or located outside Canada". This does not mean that money coming from outside Canada and used in Canada can not be the subject of inquiries by the Department except when requested under section 231.6. The information and/or documents requested by the Department under section 231.2 are within the knowledge and possession of the accused here in Canada, were properly requested and were denied by the accused. 2.—The money is the inheritance of dead relatives from outside the country therefore not taxable and therefore not subject to inquiries by the Department. I do not agree with this contention by the accused. The Department has the legal right to conduct an audit on a taxpayer, and therefore has the right to ascertain and demand the provenance and details thereof of certain large sums of money to satisfy itself that the claim is legitimate for the purpose of the audit and the Act. The taxpayer for the purpose of paragraphs 231 (2)(a) and 231 (2)(b) has not satisfied the Act by claiming that all he has to do to declare concerning the loans was that it was an inheritance from dead relatives.

Mr. Pierlot appealed the decision of the provincial court judge to a summary conviction appeal court judge who dismissed the appeal. He now appeals to this Court and alleges that the summary conviction appeal court judge did not give proper consideration to the facts of the case and the grounds of appeal.

Mr. Pierlot has represented himself throughout and while he is very conversant with the provisions of the Income Tax Act it is fair to say, I believe, that he is notas familiar with court procedure and the applicable Rules of Court. This has made it difficult, at all court levels, to deal with this case. Mr. Pierlot has not sought leave to appeal from this court and the respondent submits that the appeal should be dismissed on this basis alone. The respondent is correct in stating that Mr. Pierlot requires leave to appeal and I grant Mr. Pierlot leave to appeal.

Issues:

It is difficult to state precisely the grounds of appeal being relied upon by Mr. Pierlot in his notice of appeal and factum but the crux of the appeal revolves around Mr. Pierlot's contention that the information sought in the letter from R.H. McClinton, dated January 14, 1991, is foreign-based information which should have been sought under the provisions of section 231.6 of the Income Tax Act. Mr. Pierlot submits that the money in question is not taxable income as it came from the estates of deceased relatives in Europe and, is, therefore, in Mr. Pierlot's submission not subject to inquiry or audit by Revenue Canada. Mr. Pierlot states on page 3 of his factum:

I have asked the Court to quash the reassessment made by Revenue Canada of my personal tax return for 1988 and that of my wife, because it is illegal and they cannot support the assessment of the proceeds of estates, which are non taxable and non reportable. Moreover, these are Belgian estates which do not come under Canadian jurisdiction and therefore are not governed by the Income Tax Act.

He states on page 5 of his factum in relation to this issue:

Moreover this information was foreign-based and could not be requested under section 231.2(1). All other information requested in the letter of requirement of January 14, 1991 was provided or an attempt was made to provide this; Revenue Canada did not respond to the information we gave and made no further request for further information.

The summary conviction appeal court judge dealt with this argument in his judgment and states on pages 3-4 as follows:

The appellant states that improper demands were made upon him. He states that he does not have to disclose the source of the funds as such is private information about his personal affairs. The information that is sought, he states, is "foreign-based information, transactions with a foreign country, transfers from estates which does not come under Canadian jurisdiction and are not subject to Canadian income tax assessments".

Section 231.6 defines the meaning of "foreign-based information or documents". The respondent states it is not looking for foreign-based information and, therefore, there is no need to comply with section 231.6. The respondent states it is only looking for information within the knowledge and possession of the appellant. I agree with the respondent's argument. The respondent is not asking the appellant to provide anything that he is not now in possession of. If the appellant has, in fact, received money from an estate he should provide the respondent with the details of the source of the money. The appellant admits that he does have certain documentation which would show the source of the money and such should be given to the respondent.

Revenue Canada used the provisions of subsection 231.2(1) of the Income Tax Act as its authority to request Mr. Pierlot to provide the information in question. This subsection of the Income Tax Act states:

231.2 (1) Requirement to provide documents or information—Notwithstanding any other provision of this Act, the Minister may, subject to subsection (2), for any purpose related to the administration or enforcement of this Act, by notice served personally or by registered or certified mail, require that any person provide, within such reasonable time as is stipulated in the notice,

(a) any information or additional information, including a return of income or a supplementary return; or

(b) any document.

For convenience sake, the relevant portions of the letter or request to Mr. Pierlot dated January 14, 1991, from R.H. McClinton state as follows:

(A) Pursuant to the provisions of paragraph 231.2(1 )(a) of the said Act:

Information concerning the source of funds for the cash contribution to Pierlot Family Farm Ltd. listed in paragraph (b) including but not limited to:

The name and address of any estate, family member, non-resident or lending institution which provides the funds as a loan or gift or inheritance.

(B) Pursuant to the provisions of paragraph 231.2(1)(b) of the said Act:

Provision of all documents relating to loans made to Pierlot Family Farm Ltd. for the years 1987 and 1988 including the following amounts:

month ending
June 30, 1987	$ 9,909.41
September 30, 1987	$73,560.51
December 31, 1987	$36,580.23
April 30, 1988	$54,997.72
August 31, 1988	$10,892.76
October 31, 1988	$44,109.32

Mr. Pierlot takes the position that Revenue Canada has no right to this information. He bases his submission on the premise that the income in question is non- taxable as it was inherited from two family estates in Belgium. He further submits that as the income is non-taxable it is, therefore, non-business income and he does not have to report it and it, therefore, is not subject to audit by Revenue Canada.

Mr. Pierlot submits that Revenue Canada attended at his home during 1990 and spent approximately three days there photocopying records and documents which included deposit slips to the farm company account and the bank statements for the years under review. He submits that these records show six deposits totalling $233,246.23 were made to the farm company account. He submits that he gave Revenue Canada adequate information showing that this money was inherited from two family estates in Belgium. He further submits that since it was inherited it is non-taxable and, therefore, non-reportable. Since the money is non- taxable and non-reportable he claims he does not have to provide any further information under section 231.2 of the Income Tax Act and if Revenue Canada desires further information it must demand it under section 231.6 of the Income Tax Act. Subsections 231.6(1) and 231.6(2) provide:

231.6 (1) “Foreign-based information or document” defined.—For the purposes of this section, “foreign-based information or document" means any information or document which is available or located outside Canada and which may be relevant to the administration or enforcement of this Act.

231.6 (2) Requirement to provide foreign-based information—Notwithstanding any other provision of this Act, the Minister may, by notice served personally or by registered or certified mail, require that a person resident in Canada or a non-resident person carrying on business in Canada provide any foreign-based information or document.

The real issue involved in this case revolves around the fact, I believe, that Mr. Pierlot has refused to give Revenue Canada "the name and address of any estate which provided funds as an inheritance”.

He has told Revenue Canada that the money came from Belgium as an inheritance from his mother's estate and from an aunt's estate. The names and addresses of the estates could, I think, be classified as foreign-based information under subsections 231.6(1) and 231.6(2) of the Income Tax Act. But I am of the opinion that it is information that could equally well be asked for under subsection 231.2(1) of the Income Tax Act. It would seem a bit far-fetched to believe that Mr. Pierlot would receive something in excess of $230,000 and not know some details about its source. The respondent is only asking Mr. Pierlot to provide information that he has. Mr. Pierlot has not said he does not have this information. He takes the position, for the reasons outlined above, that he does not have to provide it. I do not find any merit in his position.

It is clear from the above quoted provisions of the Income Tax Act that Parliament intended to give Revenue Canada strong and comprehensive powers to acquire the information it needs when doing an audit and I cannot conclude that the request made it this case is, in any way, unreasonable.

The reasons for the broad powers of the Minister of National Revenue in the Income Tax Act were commented upon by Madam Justice Wilson of the Supreme Court of Canada in Canada v. McKinlay Transport Ltd., [1990] 1 S.C.R. 627, [1990] 2 C.T.C. 103, 90 D.T.C. 6243 where she states at pages 636-37 (C.T.C. 107-08, D.T.C. 6246):

A chief source of revenue for the federal government is the collection of income tax. The legislative scheme which has been put in place to regulate the collection of tax is the Income Tax Act. The Act requires taxpayers to file annual returns and estimate their tax payable as a result of calculations made in these returns. Moreover, the Act requires various third parties such as employers, corporations and banks to file information on wages, dividends, interest payments and the like: see paragraph 221 (1)(d) and Part II of the Income Tax Regulations, C.R.C. 1978, c. 945. In essence, the system is a selfreporting and self-assessing one which depends upon the honesty and integrity of the taxpayers for its success: see Search and Seizure Under the Income Tax Act (1985), a study paper prepared for the Law Reform Commission of Canada by Neil Brooks and Judy Fudge. Nonetheless, it would be naive to think that no one attempts to take advantage of the self-reporting system in order to avoid paying his or her full share of the tax burden by violating the rules set forth in the Act. Because of this reality Parliament enacted several provisions, among them subsection 231(3), giving the Minister of National Revenue power to investigate and audit taxpayers.

I agree with the summary conviction appeal court judge that Mr. Pierlot must give Revenue Canada the information it has asked for pursuant to the provisions of subsection 231(2) of the Income Tax Act and I dismiss this ground of appeal.

Mr. Pierlot also submits that he should not have been convicted and fined for two offences as he submits that subsection 238(1) of the Income Tax Act only creates one offence for failing to comply with subsection 231.2(1) of the Income Tax Act.

Subsection 231.2(1) of the Income Tax Act permits the Minister of National Revenue to require any person to provide information under paragraph 231.2(1 )(a) of the Act and to provide any document under paragraph 231.2(1 )(b) of the Act. Mr. Pierlot was requested to provide both and he was charged for failing to comply with both requirements. I do not accept his submission that he could not be charged with two offences under the circumstances of this case.

There is one aspect of this case that does cause me some concern. It appears that Revenue Canada reassessed Mr. Pierlot for the 1988 taxation year and taxed him on the inheritance money he received in 1988 as income. He states in his factum that he requested the summary conviction appeal court judge to consider the legality of the reassessment. He renews his request for this court to consider the reassessment and declare it contrary to the Canadian Charter of Rights and Freedoms. I would point out to Mr. Pierlot that the Income Tax Act contains provisions dealing with appeals of assessments and this Court does not have jurisdiction to deal with such matters.

I would, therefore, dismiss the appeal.

Appeal dismissed.