McKinlay Transport Limited and C.T. Transport Inc. v. Her Majesty the Queen, [1988] 1 CTC 426

Grange, J.A.: — This is an appeal pursuant to leave granted by this Court, from the order of Mr. Justice Trainor on a case stated to him by Provincial Judge Langdon relating to the constitutional validity of subsection 231(3) of the Income Tax Act, R.S.C. 1952, c. 148 (am. 1970-71-72, c. 63). That subsection is as follows:

231(3) The Minister may, for any purposes related to the administration or enforcement of this Act, by registered letter or by a demand served personally, require from any person

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

(b) production, or production on oath, of any books, letters, accounts, invoices, statements (financial or otherwise) or other documents,

within such reasonable time as may be stipulated therein.

The questions submitted to the Court were as follows:

(1) Was the learned provincial judge correct in law in finding that the service of a requirement pursuant to section 231(3) of the Income Tax Act is tantamount to a seizure within the meaning of section 8 of the Canadian Charter of Rights and Freedoms?

(2) Was the learned provincial judge correct in law in finding that the powers conferred upon the Minister of National Revenue by section 231(3) of the Income Tax Act offend section 8 of the Canadian Charter of Rights and Freedoms?

By his order (answering both questions of the stated case in the negative), Trainor, J. in effect found that the service of a requirement under the section was not a seizure within the meaning of section 8 of the Canadian Charter of Rights and Freedoms and did not offend that section. Section 8 of the Charter is as follows:

8. Everyone has the right to be secure against unreasonable search or seizure.

This Court has recently dealt with a similar problem in Thomson Newspapers Ltd. et al. v. Director of Investigation and Research et al. (1986), 57 O.R. (2d) 257; 30 C.C.C. (3d) 145 (now under appeal to the Supreme Court of Canada) where it was held that the obtaining of an order under section 17 of the Combines Investigation Act, R.S.C. 1970, c. C-23, compelling the pro- duction of books, papers and records was not a seizure under section 8 of the Charter and if it was a seizure, that seizure was not unreasonable. I consider it unnecessary to repeat what was said there. Essentially, the order was likened to a subpoena duces tecum. It was in no sense a search and it could not be considered a seizure or tantamount to a seizure because there was built into section 17 a subsection providing that no penalty could be imposed for failure to comply except upon the order of a Federal Court, Superior Court or County Court judge made upon notice to the alleged offender.

It is argued by the respondents that there is an essential and determinative distinction between the two Acts, as there is no provision in the Income Tax Act which is equivalent to subsection 17(3) of the Combines Investigation Act. I cannot accede to that argument. First, it is important to note that in contrast to section 17 of the Combines Investigation Act, section 231 of the Income Tax Act provides only a penalty for disobedience. It does not provide any mechanism to compel compliance. Consequently it can be argued there is less need for prior authorization. The important thing, however, it seems to me, is whether there is an opportunity afforded to protest the order before it takes effect. As was said in Thomson, supra, at page 269 [O.R.].

. . . It is not necessary to formulate a general rule as to what constitutes a seizure; it is sufficient to say that the s. 8 prohibition does not encompass an order requiring the production of documents so long as the section authorizing the order (or the law apart from that section) gives the person required to produce a reasonable opportunity to dispute the order and prevent the surrender of the documents. That in my view is precisely the position under s. 17 [Emphasis added.].

As Trainor, J. pointed out, the subsection of the Income Tax Act is not unqualified or unlimited. It is subject to certiorari proceedings wherein the requirement will be tested objectively to determine whether it is authorized by the section and whether it is relevant to the tax liability of a specific person. No "fishing expedition” will be permitted. See Canadian Bank of Commerce v. Attorney General of Canada, [1962] S.C.R. 729; [1962] C.T.C. 35; 61 D.T.C. 1264 and James Richardson & Sons, Ltd. v. M.N.R., [1984] 1 S.C.R. 614 at 623 et seq., [1984] C.T.C. 345; 84 D.T.C. 1264. In a system where the tax authorities depend largely on the good faith and integrity of the taxpayer to disclose information relevant to tax liability, it is necessary to give wide investigative powers to those authorities without compelling them to give statements under oath of reasonable and probable grounds for the requirement to produce, particularly where the requirement does not constitute enforced production. The essential consideration in my view is that the requirement to produce is not so intrusive as a search or seizure, that it in no sense resembles a search and cannot be tantamount to a seizure because the person subject to it has a right to take action to circumvent the required production. It is unthinkable that a prosecution would be undertaken or a penalty imposed for non-compliance while certiorari proceedings were pending or until a reasonable time after the disposition of those proceedings.

For these reasons and those given in Thomson, supra, I would dismiss the appeal. I would make no order as to costs.

Appeal dismissed.