Frank C. Smith Medicine Professional Corp – Federal Court finds that it was not unreasonable for CRA to request information under s. 231.1 (not 231.6) on a Buffalo USB key
CRA, which had been auditing the taxpayers -Dr. Smith, a physician and his Ontario professional corporation - learned of a USB key that included accounting data for Caymans corporations controlled by Dr. Smith. Dr. Smith initially had brought the USB key to Canada and provided it to his Canadian accountants, but they had sent it to their Buffalo office, which had the requisite software to extract the information on the key. The Minister issued request letters in October 2020 effectively requesting, pursuant to s. 231.1, information on the USB key along with certain other information. Although the Minister brought compliance applications in April 2021, this hearing dealt only with the taxpayers’ application for judicial review of the request letters.
After having indicated that the reasonableness of the letters turned on a test of whether there may be considered to be “a rational connection … between the information sought and the administration and enforcement of the ITA,” Fothergill J rejected a submission that the request letters sought foreign-based information and that they should have been issued under s. 231.6, stating:
I am satisfied that Dr. Smith is being audited with respect to potential unreported income and assets from his offshore holdings. His long association with, and ownership interests in [the two offshore companies] are sufficient to establish that the requests for information respecting the two entities are rationally connected to the audit of Dr. Smith personally. ...
… I am not persuaded that the evidence in this case is so compelling that it was unreasonable for the Minister to proceed otherwise than under s. 231.6 of the ITA. … [A] taxpayer cannot transform domestic-based information into foreign-based information merely by moving it outside the country.
He went on to note that, in dismissing the judicial review application, all he was deciding was that the request letters were not unreasonable - and that Dr. Smith would still have an opportunity (e.g., by adducing evidence relevant to the location of the material) “to equip the Court to decide whether a compliance order should be issued” in the subsequent hearing.
Summary of Frank C. Smith Medicine Professional Corporation v. Canada (National Revenue), 2022 FC 29 under s. 231.1(1).