Docket: T-1797-19
Citation: 2021 FC 853
Ottawa, Ontario, August 19, 2021
PRESENT: The Honourable Justice Fuhrer
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| BETWEEN:
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| TELLZA INC.
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| Applicant
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| and
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| MINISTER OF NATIONAL REVENUE
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| Respondent
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JUDGMENT AND REASONS
I.
Overview
[1]
Tellza Inc. operates in the telecommunications field and is an aggregator of long distance minutes. The Canada Revenue Agency [CRA] sought to audit Tellza’s goods and services tax/harmonized sales tax [GST/HST] returns for the reporting period November 1, 2016 to January 31, 2018.
[2]
In connection with its audit, the CRA issued a letter to Tellza on October 4, 2019 under subsection 288(1) of the Excise Tax Act, RSC 1985, c E-15 [ETA] to obtain all of Tellza’s electronic accounting data for this period. By its judicial review application, Tellza seeks to have the October 4, 2019 letter quashed or set aside.
[3]
The main issue for this Court’s determination is whether the Minister of National Revenue’s reliance on the ETA s. 288(1), instead of the ETA s. 289(1), to obtain Tellza’s accounting data was unreasonable. The relevant legislative provisions are reproduced in Annex “A”
below.
[4]
I find that none of the situations in which the presumptive reasonableness review can be rebutted is present in the matter before me: Canada (Minister of Citizenship and Immigration) v Vavilov, 2019 SCC 65 [Vavilov] at paras 10, 17. Further, what may be reasonable in a given review depends on the applicable legal and factual constraints that bear on the decision: Vavilov, at paras 90, 105. The party challenging the decision has the onus of demonstrating that the decision is unreasonable, bearing in mind that the exercise is not a line-by-line treasure hunt for error: Vavilov, at paras 100, 102.
[5]
I am not persuaded that the Minister’s decision was unreasonable in the circumstances. For the more detailed reasons that follow, I thus dismiss Tellza’s judicial review application.
[6]
I deal first with a preliminary issue regarding a co-pending application proceeding under Court File T-322-20 that the Minister brought for compliance with two subsequent letters for information the CRA issued on November 25, 2019, one to Tellza and the other to a Tellza director, Fred Panet. A question arose about whether the two applications should be heard together and if not, in which order these matters should be heard. I deal next with the issue of whether the October 4, 2019 letter was a “request”
under the ETA s. 288(1) or a “requirement”
under the ETA s 289(1), and thus, whether it was ultra vires and void ab initio because it was issued under the incorrect provision.
II.
Analysis
(1)
Preliminary Issue
[7]
By way of Order dated July 22, 2020, Case Management Judge [CMJ] Furlanetto (as she then was) ordered that Court Files T-1797-19 and T-322-20 be heard on the same day on October 14, 2020, one after the other, with the order of the hearings left to the discretion of the hearings judge. Following oral submissions from the parties on October 14, 2020, I exercised my discretion to hear Tellza’s judicial review application on Court File T-1797-19 [JR Application] first, followed by the Minister’s compliance application on Court File T-322-20 [Compliance Application].
[8]
At the outset, Tellza’s counsel requested that the Compliance Application be heard first because of the more complete record in that matter. In my view, doing so would have risked this Court becoming a forum for fact-finding on the merits of the JR Application, contrary to its role as a reviewing court: Delios v Canada (Attorney General), 2015 FCA 117 [Delios] at para 41. Further, “as a general rule, evidence that was not before the administrative decision-maker and that goes to the merits of the matter … is not admissible on judicial review”
: Delios, at para 42.
[9]
In addition, the JR Application involves only the validity of the October 4, 2019 letter, and not the November 25, 2019 letters at issue in the Compliance Application. Although it was a possibility that the outcome of the Compliance Application could render the JR Application moot, it was by no means a given especially before either matter was heard.
[10]
In my view, the Compliance Application involves sufficiently different considerations and issues, as well as one additional party, that hearing the JR Application first was the more just and expeditious, and least expensive manner of proceeding with both matters on the same date, further to CMJ Furlanetto’s July 22, 2021 Order.
(2)
“Request”
versus “Requirement”
[11]
Contrary to Tellza’s position that the October 4, 2019 letter was a “requirement”
and not a “request”
and hence, should have issued under the ETA s 289(1), instead of the ETA s 288(1), I am not persuaded that it was unreasonable for the CRA to issue the letter under the latter provision instead.
[12]
The parties do not disagree that the statutory interpretation of a provision must be consistent with the text, context and purpose of the provision: Vavilov, above at paras 117-120; see also Rizzo & Rizzo Shoes Ltd (Re), [1998] 1 S.C.R. 27 at para 21. The role of the reviewing court, however, on a reasonableness review involving statutory interpretation is not to “undertake a de novo analysis of the question or ‘ask itself what the correct decision would have been’”
: Vavilov, above at para 116, citing Law Society of New Brunswick v Ryan, 2003 SCC 20 at para 50.
[13]
Taking into account the context and purpose of the ETA, as a self-reporting and self-assessing taxation regime, as well as the plain, grammatical, dictionary meaning of “inspect, audit, or examine”
, in my view the CRA’s decision to rely on subsection 288(1) as the basis for issuing the October 4, 2019 letter was justified. I add that Tellza did not adduce any evidence contradicting that the letter was issued by an “authorized person,”
as contemplated in the relevant provision.
[14]
Subsection 288(1) essentially permits the authorized person to “inspect, audit or examine the documents, property or processes”
of persons with record keeping and reporting obligations under the ETA, including in connection with any claimed rebate or refund such as input tax credits or ITCs. Further, subsection 288(1) and the remainder of section 288 deal with the conditions under which the authorized person “may”
enter business or commercial premises to carry out these functions.
[15]
Tellza contends that the “inspection power”
under subsection 288(1) is more limited in scope than the “requirement power”
under subsection 289(1) of the ETA, in that the authorized person is not empowered to request or require information to be provided. Although I do not disagree with the general proposition about the more limited scope of subsection 288(1), I cannot agree with the latter contention for several reasons.
[16]
First, the ability to inspect premises is permissive; the provision does not mandate in-person inspections, audits or examinations. In other words, the inspection power is not limited to a physical location or locations but rather, in my view, relates to the person or persons whose documents, property or processes can be inspected, audited or examined. The purpose of this activity also is more limited, as contrasted with subsection 289(1), to determining obligations under Part IX (GST) of the ETA or the amount of any rebate or refund to which a person is entitled. Subsection 289(1), on the other hand, operates “[d]espite any other provision of this Part”
and applies more broadly to “any person”
within the confines of the stated purpose. That purpose also is broader, however, and described as “…any purpose related to the administration or enforcement of a listed international agreement or this Part [i.e. Part IX (GST)], including the collection of any amount payable or remittable under this Part by any person…”
[17]
Second, the applicable definitions of “document”
and “property”
in the ETA s 123(1) are not restricted to physical things. For example, a “document”
is defined as including “money, a security and a record,”
while a “record”
is defined as including “…any other thing containing information, whether in writing or in any other form.”
[Emphasis added.] In addition, “property”
is defined as meaning “any property, whether real or personal, movable or immovable, tangible or intangible, corporeal or incorporeal, and includes a right or interest of any kind, a share and a chose in action, but does not include money.”
[18]
I thus find that on a plain reading of the applicable definitions, within the context and purpose of the ETA, subsection 288(1) indeed grants an authorized person the power to request or require a taxpayer to provide information in any form. The inspection power necessarily entails, in my view, the power to request or require documents to be provided so that the authorized person can conduct the inspection, audit or examination effectively. I further find that the authorized person is not limited, in a modern, electronic era, to an inspection, audit or examination of the taxpayer’s documents and records at their premises.
[19]
For the above reasons, I find the Federal Court of Appeal’s decision in Canada (National Revenue) v Cameco Corporation, 2019 FCA 67 [Cameco] distinguishable. Cameco involved an issue about whether the taxpayer or employees could be compelled to answer oral questions during an inspection at the taxpayer’s premises, pursuant to the roughly equivalent, although not identical, provision under the Income Tax Act, RSC 1985, c 1 [ITA], that is subsection 231.1(1). The Federal Court of Appeal held that the words “inspect, audit or examine”
mean “self-directed enquiry”
but do not include “a power to compel a person to answer questions”
: Cameco, above at paras 18-19.
[20]
Here, the October 4, 2019 letter requests (“Please provide”
) all electronic accounting data, so that the self-directed enquiry can occur. In that sense, the data is necessary or required so that the Minister can conduct the contemplated inspection, audit or examination.
[21]
Further, the Supreme Court of Canada recognizes that, “the Minister of National Revenue must be given broad powers in supervising this regulatory scheme to audit taxpayers' returns and inspect all records which may be relevant to the preparation of these returns”
: R. v McKinlay Transport Ltd., [1990] 1 S.C.R. 627 at 648. [Emphasis added.] Indeed, the same phrase “inspect, audit or examine”
in the ITA s 231.1(a) has been held to empower the Minister to examine information that is or should be in the taxpayer’s books and records: Redeemer Foundation v Canada (National Revenue), 2008 SCC 46 [Redeemer] at para 13. Dissenting in part for other reasons, Justice Rothstein (as he then was) went so far as state that under the ITA s 231.1, the “CRA may require any documents of the taxpayer and any other person that may relate to information that is or should be in the books and records of the taxpayer”
: Redeemer, above at para 31. [Emphasis added.]
[22]
Tellza also contends that the request for records in an electronically readable format, along with the system administrator’s user ID and password, where applicable, falls outside the scope of the inspection power in the ETA s 288(1). I disagree for at least two reasons, the first of which involves the definitions of “document”
and “record”
discussed above. Second, subsection 286(3.1) of the ETA mandates the retention of records in an electronically readable format for the retention period stipulated in subsection 286(3) (i.e. “six years after the end of the year to which they relate”
). The applicable reporting period in this case falls well within the six-year retention period.
[23]
In addition, Tellza takes issue with the indication in the October 4, 2019 letter that the CRA may ask for more information later and suggests that this is another reason why the letter was more consistent with a “requirement”
pursuant to the ETA s 289(1). Again, I disagree. That the CRA may request or require more information once it has conducted the subsection 288(1) inspection, audit or examination is logical and not surprising. The fact that “additional information”
is mentioned specifically in the ETA s 289(1)(a) does not derogate, in my view, from the Minister’s reliance on the auditing tool provided in subsection 288(1), nor is the Minister restricted to making only one demand or request for information under such provision: R v Grimwood, [1987] 2 S.C.R. 755.
[24]
I also agree with the Minister that the fact the October 4, 2019 letter was sent by registered mail does not convert it to a requirement under subsection 289(1) of the ETA. Although the latter provision stipulates that the Minister must serve a requirement (either personally or by registered or certified mail), subsection 288(1) does not limit or prescribe the manner in which the authorized person can request the documents to be inspected, audited or examined.
[25]
At the hearing before me, Tellza also took issue with the fact that the October 4, 2019 letter was addressed to the company at its Hallandale Beach, Florida address in the United States of America (i.e. the mailing address provided on Tellza’s application for GST/HST rebate for the applicable reporting period) and thus, does not comply with the ETA s 292 regarding foreign-based information or document. There was no evidence in the matter before me, however, of the place where Tellza’s electronic accounting data was maintained, stored, or otherwise, available.
[26]
Further, the Minister’s record disclosed that Tellza is a Canadian company registered under Ontario law with an office in Toronto, Ontario. As argued by the Minister in response, and I agree, subsection 286(1) of the ETA stipulates that taxpayers required to file returns or who apply for a rebate or refund (under Part IX), must keep records in Canada, unless the Minister specifies in writing that the records may be kept somewhere else. Again, there was no evidence in this matter that the Minister has permitted Tellza to maintain its records outside Canada.
[27]
In any event, information stored in electronic form on servers outside Canada is capable, in law, of being located in Canada: eBay Canada Ltd. v M.N.R., 2008 FCA 348 (CanLII) [eBay] at paras 48, 51-52, [2010] 1 FCR 145. As queried by Justice Evans (as he then was), “[w]ho, after all, goes to the site of servers in order to read the information stored on them?”
: eBay, above at para 48.
III.
Conclusion
[28]
For the above reasons, I conclude that the issuance of the October 4, 2019 letter under the ETA s 288(1) was justified; Tellza has failed to persuade me that the Minister’s reliance on such provision was unreasonable in the circumstances, and that the letter was ultra vires and void ab initio. Rather, I find that Tellza engaged in an unacceptable line-by-line treasure hunt for errors.
[29]
I therefore dismiss the JR Application.
IV.
Costs
[30]
Both parties seek costs. I find the Minister, as the successful party, is entitled to her costs, payable by Tellza. The parties have 30 days from the date of this judgment in which to reach an agreement on costs or to make brief submissions, no longer than 3 pages, regarding costs for the Court’s determination.
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