R. v. Jarvis, [2002] 3 S.C.R. 757, 2002 SCC 73
Warren James Jarvis Appellant
v.
Her Majesty The Queen Respondent
and
The Attorney General for Ontario,
the Attorney General of Quebec and
the Criminal Lawyers’ Association (Ontario) Interveners
Indexed as: R. v. Jarvis
Neutral citation: 2002 SCC 73.
File No.: 28378.
2002: June 13; 2002: November 21.
Present: McLachlin C.J. and L’Heureux‑Dubé,
Gonthier, Iacobucci, Major, Bastarache, Binnie, Arbour and LeBel JJ.
on appeal from the court of appeal for alberta
Income tax — Administration and enforcement — Audits and
investigations — Whether distinction can be drawn
between audit and investigation under Income Tax Act — If so,
circumstances in which tax official’s inquiry constitutes penal investigation —
Whether evidence obtained during audit pursuant to
ss. 231.1(1) and 231.2(1) of Income Tax Act can be used to further
investigation or prosecution of offences under s. 239(1) of the Act
without violating taxpayer’s Charter rights — Canadian Charter of Rights and
Freedoms, ss. 7 , 8 — Income Tax Act, R.S.C. 1985, c. 1 (5th
Supp .), ss. 231.1 , 231.2 .
Income tax — Administration and enforcement — Audits and
investigations — Sections 231.1(1)
and 231.2(1) of Income Tax Act available “for any
purpose related to administration or enforcement” of Income Tax Act — Whether
“enforcement” of Income Tax Act includes investigation and prosecution of
offences under s. 239 of Act — Income Tax Act, R.S.C. 1985, c. 1 (5th
Supp .), ss. 231.1(1) , 231.2(1) , 239 .
Constitutional law — Charter of Rights — Fundamental justice —
Principle against self-incrimination — Extent to which
taxpayer under investigation for offences under s. 239 of Income Tax Act
benefits from principle against self‑incrimination — Canadian
Charter of Rights and Freedoms, s. 7 .
Constitutional law — Charter of Rights — Unreasonable search or
seizure — Taxpayer under investigation for offences
under s. 239 of Income Tax Act — Whether documents
obtained under ss. 231.1(1) and 231.2(1) of Income Tax Act after
penal investigation has commenced violate taxpayer’s right against unreasonable
search or seizure — Canadian Charter of Rights
and Freedoms, s. 8 — Income Tax Act, R.S.C. 1985, c. 1 (5th Supp .),
ss. 231.1(1) , 231.2(1) .
Revenue Canada began an inquiry following a tip that
the appellant taxpayer had not reported sales of his late wife’s art in his tax
returns for the 1990 and 1991 taxation years. In February 1994, the
auditor sent letters to the taxpayer indicating that his file had been selected
for audit and requesting certain books and records. The auditor visited art
galleries and gathered enough information to determine that the tip had some
validity. On March 16, she obtained further information by phone from the
taxpayer and his accountant. On April 11, the auditor and her supervisor
met the taxpayer to review his records. He was not cautioned. He answered
questions, provided banking information, signed a bank authorization, and
provided materials including records of sales and expenses related to the art. By
late April, the auditor had obtained the additional records and information
requested from the taxpayer and she concluded that he had grossly omitted
revenues in the relevant returns. On May 4, the auditor referred her
entire file to the Special Investigations Section of Revenue Canada, which
began an investigation to determine whether prosecution for tax evasion was
merited. Despite numerous requests concerning the status of the audit, the
auditor deliberately did not inform the taxpayer that his file had been
referred to the investigative section. After a review of the file, and on the
basis of the books and records obtained from the taxpayer at the
April 11 meeting, the investigator determined that reasonable and
probable grounds existed to seek a search warrant to investigate for tax
evasion. In November, a search warrant issued under the Criminal Code
authorized the searches of a Revenue Canada’s office and the respective
residences of the taxpayer and his accountant. In early 1995, requirement
letters issued to various banks under s. 231.2(1) of the Income Tax Act
by the investigator provided additional information.
The taxpayer was charged with tax evasion under
s. 239 of the Act. The trial judge held that the audit had effectively
become an investigation as of March 16, 1994. Since the auditor
failed to caution the taxpayer at the April 11 meeting, the statements and
documents gathered at that meeting were obtained in violation of his rights
under s. 7 of the Canadian Charter of Rights and Freedoms and
reference to that information in the Information to Obtain A Search Warrant was
removed. The trial judge concluded that what remained did not provide
“reasonable grounds” for a search warrant and, as a result, the execution of
the searches violated the taxpayer’s s. 8 Charter rights. He also
concluded that the banking records obtained by way of s. 231.2(1) in early
1995 violated the taxpayer’s s. 8 rights. Pursuant to s. 24(2) of
the Charter , the 1995 banking information and the evidence obtained at
the April 11 meeting and through the searches were excluded. The trial
judge granted a motion for a directed verdict of acquittal. The summary
conviction appeal judge ordered a new trial, holding that only the taxpayer’s
statements during the April 11 meeting should have been excluded from the
Information to Obtain and that the search warrant otherwise had been validly
issued. The Court of Appeal dismissed a further appeal and affirmed the order
for a new trial.
Held: The appeal
should be dismissed.
Although the Income Tax Act relies upon self-assessment and
self-reporting, the Minister of National Revenue has broad powers for the
administration and enforcement of the Act. Under ss. 231.1
and 231.2, a person authorized by the Minister has the powers to: enter a taxpayer’s place of business or place of record keeping;
require the taxpayer and third parties to answer questions put to them; and
require the taxpayer and third parties to furnish information and documents
upon request. To ensure compliance with the self-reporting requirements
of the Act, s. 239 creates offences which carry significant penalties,
including incarceration. Section 239 bears the formal hallmarks of
criminal legislation and, even though the Act is a regulatory statute,
non-compliance with its mandatory provisions will in some cases lead to
criminal charges. In prosecution thereof, the state is pitted against the
individual in an attempt to establish culpability. To conduct an appropriately
contextual Charter analysis, the various regulatory and penal
considerations must all exert some influence.
The scope of Charter rights and freedoms will vary according to
the circumstances. This case concerns both s. 7 and s. 8 of the Charter
and the exclusion of evidence under s. 24(2) of the Charter from a
trial for offences under s. 239 . The taxpayer’s liberty interest under
s. 7 was engaged by the introduction at his trial of statutorily compelled
information. In giving expression to the principle against self‑incrimination,
however, s. 7 does not envelop an abstract and absolute rule that prevents
the use of statutorily compelled information in all contexts. A contextual
analysis involves balancing the principle against self-incrimination with the
principle that relevant evidence should be available to the trier of fact. The
reasonable expectation of privacy guaranteed by s. 8 of the Charter
also is context-specific. At some point, the public’s interest in being left
alone by government must give way to the government’s interest in intruding on
privacy to advance its goals. Generally, there is a diminished expectation of
privacy in records produced during the ordinary course of regulated activities
and there is a relatively low privacy interest in records relevant to a tax
return.
A distinction can be drawn between the audit and
investigative powers under the Income Tax Act . By their express
terms, both ss. 231.1(1) and 231.2(1) are available for any purpose
related to the “administration” or “enforcement” of the Act. Although this
wording seems broad, when read in context, these sections do not include the
prosecution of s. 239 offences. In particular, the existence of a prior
authorization procedure under s. 231.3(1) where an offence is suspected
implies that the separate statutory inspection and requirement powers are
unavailable for the purpose of prosecutorial investigations. A warrant under
s. 231.3 of the Act covers generally the same ground as does the Criminal
Code ’s s. 487 warrant. When a tax official exercises his or her
investigative function, the parties are in an adversarial relationship because
of the liberty interest that is at stake. It follows that
there must be some measure of separation between the audit and investigative
functions.
Where the predominant purpose of an inquiry is the
determination of penal liability, there exists an
adversarial relationship between the taxpayer and the state. To determine whether the predominant purpose of an inquiry
is the determination of penal liability, one must look
to all factors that bear upon the nature of the inquiry. Apart
from a clear decision to pursue a criminal investigation, no one factor is
determinative. Even where reasonable grounds to suspect an offence exist, it
will not always be true that the predominant purpose of an inquiry is the
determination of penal liability. The following factors assist in ascertaining
whether an inquiry’s purpose is to investigate penal liability: (a) Did
authorities have reasonable grounds to lay charges or could a decision have
been made to proceed with a criminal investigation? (b) Was the general conduct
of the authorities consistent with a criminal investigation? (c) Did the
auditor transfer his or her file to the investigators? (d) Was the auditor’s
conduct such that he or she was acting as an agent for the investigators? (e)
Does it appear that the investigators intended to use the auditor as their
agent? (f) Is the evidence relevant to taxpayer liability generally or only to
penal liability? and, (g) Do other circumstances or factors suggest that an
audit became a criminal investigation?
Wherever the predominant purpose of an inquiry or question is the
determination of penal liability, all Charter protections that are
relevant in the criminal context must apply. When this is the case,
investigators must provide the taxpayer with a proper warning. With respect to
s. 7 of the Charter , the constitutional protections against
self-incrimination prohibit tax officials who are investigating the offences
from having recourse to the inspection and requirement powers under
ss. 231.1(1) and 231.2(1) . Rather, tax officials who exercise the
authority to conduct such investigations must seek search warrants under
s. 231.3 of the Act or s. 487 of the Criminal Code in
furtherance of their investigation. With respect to s. 8 of the Charter ,
taxpayers have very little privacy interest in materials they are obliged to
keep under the Act or to produce during an audit. Once an auditor has
inspected or required a document under ss. 231.1(1) and 231.2(1) , the
taxpayer cannot be said to have a reasonable expectation that the auditor will
guard its confidentiality. As a consequence, there is no general rule that
prevents auditors from passing files containing validly obtained audit
materials to investigators. Nor is there any reason that the CCRA cannot
conduct parallel administrative audits and criminal investigations. However,
if the CCRA simultaneously conducts an administrative audit and criminal
investigation, investigators can avail themselves only of that information
obtained pursuant to the audit powers prior to the commencement of the criminal
investigation. They cannot avail themselves of information obtained pursuant
to such powers subsequent to the commencement of the investigation into penal
liability.
Whether an inquiry is in furtherance of an audit or a penal
investigation is a question of mixed fact and law and is not immune from
appellate review. The record in this case does not support a finding that the
auditor used her misleading tactics to obtain information from the taxpayer or
his accountant under ss. 231.1(1) and 231.2(1) for the predominant
purpose of determining the taxpayer’s penal liability under s. 239. There
was no investigation into penal liability prior to May 4, 1994. Accordingly, the material that the trial
judge excluded from the Information to Obtain A Search Warrant owing to a Charter
violation was in fact validly gathered pursuant to the auditor’s inspection and
requirement powers. Since the searches were made pursuant to a valid warrant,
the evidence obtained during these searches should be admissible in a new
trial. The usage of the banking information obtained by the investigator
pursuant to s. 231.2(1) requirement letters in early 1995, after the
investigation was underway, violated the taxpayer’s s. 7 rights and should
be excluded.
Cases Cited
Referred to: British
Columbia Securities Commission v. Branch, [1995] 2 S.C.R. 3; R. v.
Norway Insulation Inc. (1995), 23 O.R. (3d) 432, aff’g [1995] 2 C.T.C. 451;
R. v. Araujo, [2000] 2 S.C.R. 992, 2000 SCC 65; Del Zotto v. Canada,
[1997] 3 F.C. 40, rev’d [1999] 1 S.C.R. 3; R. v. McKinlay Transport Ltd.,
[1990] 1 S.C.R. 627; Thomson Newspapers Ltd. v. Canada (Director of
Investigation and Research, Restrictive Trade Practices Commission), [1990]
1 S.C.R. 425; Knox Contracting Ltd. v. Canada, [1990] 2 S.C.R. 338; 143471
Canada Inc. v. Quebec (Attorney General), [1994] 2 S.C.R. 339; R. v.
Hydro-Québec, [1997] 3 S.C.R. 213; Smerchanski v. M.N.R., [1977] 2
S.C.R. 23; R. v. Wholesale Travel Group Inc., [1991] 3 S.C.R. 154; Comité
paritaire de l’industrie de la chemise v. Potash, [1994] 2 S.C.R. 406; R.
v. Grimwood, [1987] 2 S.C.R. 755; R. v. Ling, [2002] 3 S.C.R. 814,
2002 SCC 74; Re Ramm, [1958] O.R. 98; Hunter v. Southam Inc.,
[1984] 2 S.C.R. 145; General Motors of Canada Ltd. v. City National Leasing,
[1989] 1 S.C.R. 641; R. v. Nova Scotia Pharmaceutical Society, [1992] 2
S.C.R. 606; Baron v. Canada, [1993] 1 S.C.R. 416; Edmonton Journal v.
Alberta (Attorney General), [1989] 2 S.C.R. 1326; Symes v. Canada,
[1993] 4 S.C.R. 695; R. v. Lyons, [1987] 2 S.C.R. 309; Canadian
Broadcasting Corp. v. New Brunswick (Attorney General), [1991] 3 S.C.R.
459; Re B.C. Motor Vehicle Act, [1985] 2 S.C.R. 486; Reference re
ss. 193 and 195.1(1)(c) of the Criminal Code (Man.), [1990] 1
S.C.R. 1123; R. v. S. (R.J.), [1995] 1 S.C.R. 451; R. v. P. (M.B.),
[1994] 1 S.C.R. 555; R. v. Jones, [1994] 2 S.C.R. 229; R. v.
Fitzpatrick, [1995] 4 S.C.R. 154; R. v. White, [1999] 2 S.C.R. 417; R.
v. Plant, [1993] 3 S.C.R. 281; Smith v. Canada (Attorney General),
[2001] 3 S.C.R. 902, 2001 SCC 88; Bell ExpressVu Limited Partnership v. Rex,
[2002] 2 S.C.R. 559, 2002 SCC 42; Rizzo & Rizzo Shoes Ltd. (Re),
[1998] 1 S.C.R. 27; R. v. Gladue, [1999] 1 S.C.R. 688; Canadian Bank
of Commerce v. Canada (Attorney General), [1962] S.C.R. 729; James
Richardson & Sons, Ltd. v. M.N.R., [1984] 1 S.C.R. 614; R. v.
Multiform Manufacturing Co., [1990] 2 S.C.R. 624; R. v. Bjellebo,
[1999] O.J. No. 965 (QL); R. v. Pheasant, [2001] G.S.T.C. 8; R. v.
Chusid (2001), 57 O.R. (3d) 20; R. v. Roberts, [1998] B.C.J. No.
3184 (QL); R. v. Dial Drug Stores Ltd. (2001), 52 O.R. (3d) 367; Samson
v. Canada, [1995] 3 F.C. 306, leave to appeal refused, [1996] 1 S.C.R. ix (sub
nom. Samson v. Addy); R. v. Yip (2000), 278 A.R. 124, 2000 ABQB 873;
R. v. Anderson (2001), 209 Sask. R. 117, 2001 SKQB 334; R. v. Seaside
Chevrolet Oldsmobile Ltd. (2002), 248 N.B.R. (2d) 132, 2002 NBPC 5; R.
v. Warawa (1997), 208 A.R. 81; R. v. Coghlan, [1994] 1 C.T.C. 164; Gorenko
v. La Reine, [1997] R.J.Q. 2482, aff’d [1999] Q.J. No. 6268 (QL); Roncarelli
v. Duplessis, [1959] S.C.R. 121; Babcock v. Canada (Attorney General),
[2002] 3 S.C.R. 3, 2002 SCC 57; Canada (Director of Investigation and
Research) v. Southam Inc., [1997] 1 S.C.R. 748.
Statutes and Regulations Cited
Act to
amend the Income War Tax Act, S.C. 1944, c. 43,
s. 11.
Business Profits War Tax Act,
1916, S.C. 1916, c. 11.
Canadian Charter of Rights and
Freedoms, ss. 7 , 8 , 24 .
Criminal Code, R.S.C. 1985, c. C-46, s. 487 .
Income Tax Act, R.S.C. 1985, c. 1 (5th Supp .), ss. 2 , 150(1) , 151 ,
152(1) , (4) , 162 , 163 , 230(1) , 231.1 [am. 1994, c. 21,
s. 107], 231.2, 231.3 [idem, s. 108 ], 238(1), 239(1),
(2), 241 [am. 1994, c. 7, Sched. VIII, s. 137(1)].
Income War Tax Act, 1917, S.C. 1917, c. 28, s. 8.
Interpretation Act, R.S.C. 1985, c. I-21, s. 12 .
Authors Cited
Driedger,
Elmer A. Construction of Statutes, 2nd ed. Toronto: Butterworths,
1983.
Krishna, Vern. The
Fundamentals of Canadian Income Tax, 6th ed. Scarborough,
Ont.: Carswell, 2000.
Oxford English Reference
Dictionary, 2nd ed. Edited by Judy Pearsall and
Bill Trumble. Oxford: Oxford University Press, 1996, “enforce”.
APPEAL from a judgment of the Alberta Court of Appeal
(2000), 149 C.C.C. (3d) 498, 271 A.R. 263, 234 W.A.C. 263, 87 Alta. L.R. (3d)
52, 193 D.L.R. (4th) 656, [2001] 3 W.W.R. 271, [2000] A.J. No. 1347 (QL),
2000 ABCA 304, affirming a judgment of Lutz J. (1998), 225 A.R. 225, 63 Alta.
L.R. (3d) 236, 98 D.T.C. 6308, [1999] 3 W.W.R. 393, [1998] 3 C.T.C. 252, [1998]
A.J. No. 651 (QL), allowing the Crown’s appeal from a judgment of the
Provincial Court acquitting a taxpayer of tax offences and ordering a new
trial. Appeal dismissed.
Alan D. Macleod, Q.C., and Wendy K. McCallum,
for the appellant.
S. David Frankel, Q.C., Bruce Harper and Janet Henchey,
for the respondent.
Trevor Shaw, for
the intervener the Attorney General for Ontario.
Gilles Laporte and
Monique Rousseau, for the intervener the Attorney General of
Quebec.
Scott K. Fenton, for the intervener the Criminal Lawyers’ Association (Ontario).
The judgment of the Court was delivered by
1
Iacobucci and Major JJ. --
Is there a distinction between the Canada Customs and Revenue Agency’s (“CCRA”)
audit and investigative functions under the Income Tax Act, R.S.C. 1985,
c. 1 (5th Supp .) (“ITA ”)? If it is indeed correct to draw such a distinction,
when does the CCRA exercise its audit function and when does it exercise its
investigative function? Finally, what are the legal consequences for the
taxpayer when the CCRA exercises its investigative function?
2
Ultimately, we conclude that compliance audits and tax evasion
investigations must be treated differently. While taxpayers are statutorily
bound to co-operate with CCRA auditors for tax assessment purposes (which may
result in the application of regulatory penalties), there is an adversarial
relationship that crystallizes between the taxpayer and the tax officials when
the predominant purpose of an official’s inquiry is the determination of penal
liability. When the officials exercise this authority, constitutional
protections against self-incrimination prohibit CCRA officials who are
investigating ITA offences from having recourse to the powerful inspection and
requirement tools in ss. 231.1(1) and 231.2(1) . Rather, CCRA officials who
exercise the authority to conduct such investigations must seek search warrants
in furtherance of their investigation.
3
Here, the material that the trial judge excluded from the Information to
Obtain A Search Warrant owing to a Charter violation was in fact validly
gathered pursuant to the auditor’s inspection and requirement powers.
Accordingly, the searches ultimately carried out were authorized by warrant,
and no s. 8 violation occurred. Therefore, we would dismiss the appeal and
confirm the Court of Appeal of Alberta’s order of a new trial.
I. Factual
Background
4
The appellant, Warren Jarvis, is a farmer in Alberta. His wife, Georgia
Jarvis, was, until the time of her death, an artist earning income from the
sale of her works. Mrs. Jarvis reported this income on her annual individual
tax returns.
5
Mrs. Jarvis died on October 22, 1990. A few of her original works and a
number of limited edition prints remained unsold at the time; as well, it
appears that the appellant may also have had some additional prints created
subsequent to his wife’s death. The appellant was therefore able to continue
the sale of his late wife’s art, which he did. In 1992, as art sales began to
dissipate, the appellant, in an apparent attempt to put the past behind him,
moved into a rural log cabin, roughly 80 kilometres north-west of Calgary.
6
Early in 1994, an anonymous informant addressed a typewritten letter
(“the lead”) to the Chief of Audit in the Calgary District Taxation Office of
what was then Revenue Canada. For reasons of confidentiality, the lead is not
in evidence in this case. We do know, however, that the lead alleged that the
appellant had failed to report substantial income related to the 1990 and 1991
taxation years. Furthermore, the lead listed six Calgary art galleries that
had purchased Mrs. Jarvis’s art work from the appellant.
7
Although internal departmental policies identified all tax leads from
informants as being the responsibility of the Special Investigations Section,
the lead was in fact referred to the Business Audit Section. There, it was
assigned to Donna Goy-Edwards, an experienced business auditor. Goy-Edwards
took sole control over the file, reporting to her supervisor, John Moriarty.
8
On February 16, 1994, Goy-Edwards prepared an “Audit Plan,” consisting
of three separate tasks:
1) Clear lead.
2) Review disposition of all assets at date of
death in Oct/90. Review all tax consequences.
3) Audit accordingly.
Not all leads
received by the CCRA are substantiated; hence, “clearing” a lead refers to a
process whereby the auditor reviews source documents for the purpose of
determining the validity of the allegations contained in the lead. To this
end, Goy-Edwards attempted on February 16 and 17 by telephone to reach the
appellant and the accountant, Tom Burke, who had prepared the 1990 and 1991 tax
returns. She was unable to reach either, but left two voice messages on the
appellant’s telephone answering machine.
9
Goy-Edwards then sent two letters to the appellant on February 17. The
letters were addressed simply “General Delivery, Cremona, Alberta”. One letter
dealt with the appellant in his capacity as executor of his wife’s estate,
indicating that “[t]he file of the Late Georgia Jarvis has been selected for
audit for the [1990] taxation year” and that “this letter will serve as a
formal notice of the audit in progress”. The other letter concerned the
appellant in his personal capacity, and specified that his file had “been
selected for audit for the taxation years 1990 & 1991”, adding again that
the letter constituted formal notice of the audit. In each instance, the
appellant was requested to make available certain enumerated books and
records. Finally, the letters stated that the respective files would be held
in abeyance for a 15-day period to allow the appellant “an opportunity to
contact the writer and make arrangements to have the books and records made
available for the audit”.
10
On March 7, 1994, shortly after the 15-day period elapsed without word
from the appellant, Goy-Edwards commenced contact with third-party sources.
She researched departmental library services for written information on Mrs.
Jarvis’s art work, to obtain facts about her works and discover where they were
being displayed. Through these efforts, she was able to locate three
additional galleries, not listed in the lead, that had purchased art from the
appellant. Goy-Edwards then personally contacted or visited all nine
galleries. She identified herself as a Revenue Canada employee and requested
that she be granted access to certain of their books and records pertaining to
art sales.
11
Between March 7 and 16, Goy-Edwards was able to obtain information from
each of the galleries regarding the sale of Mrs. Jarvis’s works. From the
particulars contained in purchase invoices and cancelled cheques, the auditor
determined that the appellant had grossed $358,409 from sales to the nine
galleries between October 23 and December 31, 1990. For the 1991 calendar
year, the figure was $221,366. Endorsements found on the reverse side of the
cheques also disclosed information regarding the appellant’s banking
arrangements. Independently, Goy-Edwards calculated that, for sales accruing
to Mrs. Jarvis from January 1, 1990 until her death, the cost of sales was 29.5
percent of gross. Based on all of this information, along with the appellant’s
tax returns for the 1990 and 1991 taxation years, Goy-Edwards determined that
the lead had some validity.
12
Twice on March 8, the appellant attempted to reach Goy-Edwards by
telephone, leaving messages that he had called. These calls were not
immediately returned. On March 16, Jarvis’s accountant, Burke, telephoned
Goy-Edwards, who explained the audits that she was conducting, advised of the
taxation years concerned, and made some enquiries as to the appellant’s
financial affairs. Burke informed the auditor that the file was likely to be
in disarray, owing to the appellant’s poor record-keeping skills and the general
apathy towards financial and taxation matters that the appellant had exhibited
since Mrs. Jarvis’s death; in fact, Burke had seen no source documents, since
the appellant was in the habit of providing only summaries of his income.
13
Burke explained that, for taxation purposes, after Mrs. Jarvis’s death
the income accruing from the sale of her art, net of expenses, was reported as
part of the appellant’s farming income. According to the accountant, the
appellant netted somewhere in the vicinity of $58,000 for art sold in the 1990
taxation year, and precisely $43,061.79 for 1991. Goy-Edwards requested that
Burke submit copies of the income summaries that the appellant had provided
him. Burke replied that he would first have to speak to the appellant and
obtain his authorization to release the information.
14
Later the same afternoon, Burke called back to advise Goy-Edwards that
he had spoken to the appellant, and to pass on instructions for Goy-Edwards
personally to call the appellant concerning the audit. The auditor immediately
telephoned the appellant, confirmed that the latter was to gather the
documentation requested in the February 17 letters, and made arrangements to
meet at the appellant’s farm on April 11, 1994 to “commence a review of the books
and records”. The record indicates that the parties might have chosen this
date in order to provide the appellant with sufficient time to amass the
documentation, since many of his belongings were still packed up from his
move.
15
Goy-Edwards made no mention of the fact that she had already contacted
third party sources. In response to one of her questions, however, the
appellant confirmed the $58,000 figure relative to 1990 net art sales income.
Finally, Goy-Edwards advised the appellant that she would be accompanied by an
assistant during the audit. The appellant stated that he would not have any
difficulties with this.
16
On April 11, Goy-Edwards was in fact accompanied to the appellant’s
residence by her supervisor, Moriarty, whom she introduced on this occasion as
her “team leader”. The judge at first instance expressly disbelieved
Goy-Edwards’ explanation that Moriarty came along to provide navigational
assistance because of her lack of familiarity with the area in which the appellant
lived. The supervisor was present in an observational role.
17
During the interview, Moriarty did not actively take notes. Moreover,
Goy-Edwards took the lead in all discussions, with Moriarty interjecting only
occasionally to obtain clarification.
18
The appellant was not cautioned as to his rights. He answered all of
the auditor’s questions, which dealt primarily with the art sales but which
also touched upon his farming operations. The appellant stated that all
information pertaining to art sales was contained in the contracts and receipt
books he kept. He provided information about his banking arrangements, and
indicated that he would take steps to access the records pertaining thereto.
In addition, the appellant signed a bank authorization for an account held with
the Bank of Montreal, the existence of which he had not disclosed until
Goy-Edwards posed a question about it: the auditor knew of the account from her
third-party source investigations. She agreed to hold the authorization in
abeyance for a short while in order to give the appellant the opportunity
personally to obtain the documentation.
19
Goy-Edwards enquired into the inventory of originals and prints at the
date of Mrs. Jarvis’s death, as well as the appellant’s role in selling the
art. Her purpose with these lines of questioning was to compare the responses
given by the appellant to the information that she had previously obtained from
the departmental library. Finally, the appellant provided the auditor with art
sale-related materials, including the two receipt books tracking sales and a
number of other receipts documenting expenses. Goy-Edwards removed these books
and records for later examination.
20
A few days after the interview, on April 15, Burke telephoned Goy-Edwards
for an updated report on the state of the file. Goy-Edwards briefed the
accountant as to the April 11 meeting, and stated that she would keep him
apprised of the audit’s progress.
21
In late April 1994, Goy-Edwards obtained many of the records and much of
the information requested from the appellant. Subsequently, she performed
various calculations to determine whether all the income related to the art
sales had been properly reported. As a result of these calculations,
Goy-Edwards noted a discrepancy of approximately $700,000 between the
appellant’s earned and reported income over the two taxation years in
question. On this basis, the auditor concluded that the appellant had grossly
omitted revenues, suggesting that fraud was a possibility, and that further
action was warranted.
22
Therefore, rather than completing the audit, on May 4, 1994, Goy-Edwards
prepared a “Form T134” to refer the matter -- along with her entire file, which
contained records of all contacts, conversations, and calculations made in
respect of the matter -- to the Special Investigations Section of Revenue
Canada. This latter division was charged in the present case with determining
whether further investigation with a view to possible prosecution for tax evasion
was merited. The record indicates that, in general, not every referral from
the Business Audit Section necessarily results in charges being laid, and that
files are on occasion returned to the Business Audit Section after Special
Investigations makes a decision not to proceed with a criminal investigation.
23
Goy-Edwards did not attempt to contact the appellant or Burke to advise
them that the file was no longer under her control. Two days later, on May 6,
the appellant’s son Jim left a telephone message with the auditor, indicating
that he would be sending the requested Bank of Montreal statements on the
following Monday. The statements were in fact delivered on that date, and were
passed on to Special Investigations. Again, the appellant, his son and his
accountant were not notified that the appellant’s file had been referred to the
investigative section.
24
Inside Special Investigations, the appellant’s file was assigned to
investigator Diane Chang. Chang met with Goy-Edwards for one to two hours towards
the end of May 1994 in order to discuss the file. At some point shortly
thereafter, Chang had to contact Goy-Edwards again in order to clarify certain
of the notations contained in the auditor’s file. There may have been one or
two conversations of this nature, but there is nothing in the record that would
suggest that Chang, or any other investigator, ever instructed or requested
Goy-Edwards, under the guise of an audit, to obtain further information from or
about the appellant.
25
The investigator then reviewed Goy-Edwards’s files, performed her own
calculations and analyses, and gathered some information from other internal
sources in order to determine if there were reasonable and probable grounds to
obtain a search warrant to further an investigation into tax evasion. In June
1994, Chang determined that such reasonable and probable grounds did exist, and
began preparing an Information to Obtain A Search Warrant. For the next
several months, Chang worked on the Information to Obtain and sought approval
from her supervisors in Special Investigations to attend before an issuing
justice. Departmental approval was not granted until November 1994, despite
the fact that very little new information was received in the intervening
period.
26
Meanwhile, Burke had been attempting to reach Goy-Edwards to obtain
updates on the audit. As a consequence, Goy-Edwards contacted Chang.
Goy-Edwards asked what an appropriate response would be. Chang told the
auditor “to stall”: she did not want the appellant to discover that his file
had been referred to Special Investigation. Contrary to departmental policy,
which specifies that all contacts about a file should be recorded on “Forms
T2020”, Chang did not record this conversation with Goy-Edwards.
27
On September 8, Burke again phoned Goy-Edwards to inquire about the
file. She told him that she had been unable to make progress with the audit
because of an injury; Goy-Edwards later testified that, shortly before that
time, she had tumbled hard off of her bicycle, sustaining injuries to her head,
torso, and legs. Goy-Edwards did not mention to Burke that she had referred
the file to Special Investigations back in May. Burke left the appellant a
message on the same day, keeping him abreast of what news the auditor had
provided.
28
Burke left another message for Goy-Edwards on October 21, 1994, while
the auditor was out of her office. Upon returning at the beginning of
November, Goy-Edwards informed Moriarty that Burke had called. Moriarty, in
turn, spoke to the Chief of the Special Investigations Section early on
November 2 about how best to handle the issue. They determined, based on
departmental policy, that if Goy-Edwards was asked about the file, she would
have to “inform the [taxpayer] that the issue has been referred” to Special
Investigations.
29
Also on November 2, and very shortly after this discussion, Goy-Edwards
returned Burke’s call. The auditor left a message with the accountant’s wife
to the effect that she had been out of town and that she “ha[d] nothing to
report on the file”. In addition, Goy-Edwards asked that Burke be informed
that “the file has been in a holding pattern due to other work demands
including other projects”; the auditor later acknowledged that it was a mistake
to use these terms to describe the status of the file.
30
Goy-Edwards recorded the details of the November 2 call on a Form T2020,
which she then delivered to Chang. Concerned about the message Goy-Edwards had
left for Burke, and troubled by the fact that she had personally given
Goy-Edwards the instructions to stall, Chang approached her section manager.
31
Chang, the section manager, and the Chief of Special Investigations all
met on November 3 to discuss the policy regarding disclosure to the appellant.
Departmental policy was confirmed to be that, if Goy-Edwards or any other
Revenue Canada official were asked anything about the appellant’s file, that
person should explain that the file was in Special Investigations. All parties
were aware of the message that Goy-Edwards had left for Burke on the previous
day, and the section manager and the chief expressed bewilderment as to why the
auditor had spoken as she did. Still, subsequent to this meeting, no remedial
steps were taken to advise either Burke or the appellant of the file’s
transfer.
32
On November 23, 1994, Chang swore the Information to Obtain before
Fradsham Prov. Ct. J. in Calgary. Chang based her grounds for belief that the
appellant had committed offences, in part, upon analyses that she had conducted
from the books and records that the appellant had provided to Goy-Edwards at
the April 11 meeting.
33
A warrant was issued under s. 487 of the Criminal Code, R.S.C.
1985, c. C-46 , authorizing searches of the appellant’s residence, Burke’s
residence (place of business), and the Calgary office of Revenue Canada (in
order to seize the books and records that Goy-Edwards had borrowed from the
appellant during the April 11 meeting). The warrant was executed at all three
locations on November 29. The fruit of the searches ultimately served as a
substantial portion of the respondent Crown’s evidence at the appellant’s
trial.
34
In early 1995, Chang drew up requirement letters pursuant to s. 231.2(1)
of the ITA . These were issued to the appellant’s various banking institutions,
which complied with the requirements and provided Chang with the documentation
which she sought.
35
The appellant was brought to trial on three counts of making false or
deceptive statements in an income tax return (s. 239(1) (a) of the ITA )
and two counts of wilfully evading or attempting to evade payment of taxes (s.
239(1) (d) of the ITA ). The respondent sought to tender documents seized
pursuant to the warrant. The appellant objected, and two separate voir
dires were held to determine the admissibility of the documents.
36
Coincidentally, the issuing justice, Judge Fradsham, was also the trial
judge. He felt that the audit had effectively become an investigation as of
March 16, 1994, and excluded all information obtained by ss. 231.1(1) and
231.2(1) from that day forward: (1997), 195 A.R. 251 (Prov. Ct.) and (1997),
204 A.R. 123 (Prov. Ct.). Judge Fradsham granted the appellant’s motion for a
directed verdict of acquittal on August 7, 1997. The respondent’s appeal to
the Court of Queen’s Bench of Alberta was successful, and a new trial was
ordered: (1998), 225 A.R. 225. The Court of Appeal of Alberta dismissed a
further appeal, and affirmed the summary conviction appeal judge’s order for a
new trial: (2000), 271 A.R. 263. The appellant was granted leave to appeal
to this Court on May 17, 2001: [2001] 1 S.C.R. xii.
II. Relevant
Statutory and Constitutional Provisions
37
Income Tax Act, R.S.C. 1985, c. 1 (5th Supp .)
231.1 (1) An authorized person may, at all
reasonable times, for any purpose related to the administration or enforcement
of this Act,
(a) inspect, audit or examine the books and records of a
taxpayer and any document of the taxpayer or of any other person that relates
or may relate to the information that is or should be in the books or records
of the taxpayer or to any amount payable by the taxpayer under this Act, and
(b) examine property in an inventory of a taxpayer and any
property or process of, or matter relating to, the taxpayer or any other
person, an examination of which may assist the authorized person in determining
the accuracy of the inventory of the taxpayer or in ascertaining the
information that is or should be in the books or records of the taxpayer or any
amount payable by the taxpayer under this Act,
and for those purposes the authorized person may
(c) subject to subsection (2), enter into any premises or place
where any business is carried on, any property is kept, anything is done in
connection with any business or any books or records are or should be kept, and
(d) require the owner or manager of the property or business
and any other person on the premises or place to give the authorized person all
reasonable assistance and to answer all proper questions relating to the
administration or enforcement of this Act and, for that purpose, require the
owner or manager to attend at the premises or place with the authorized person.
(2) Where any premises or place referred to in
paragraph (1)(c) is a dwelling-house, an authorized person may not enter
that dwelling-house without the consent of the occupant except under the
authority of a warrant under subsection (3).
(3) Where, on ex parte application by the
Minister, a judge is satisfied by information on oath that
(a) there are reasonable grounds to believe that a
dwelling-house is a premises or place referred to in paragraph (1)(c),
(b) entry into the dwelling-house is necessary for any purpose
relating to the administration or enforcement of this Act, and
(c) entry into the dwelling-house has been, or there are
reasonable grounds to believe that entry will be, refused,
the judge may issue a warrant authorizing an authorized person to enter
the dwelling-house subject to such conditions as are specified in the warrant
but, where the judge is not satisfied that entry into the dwelling-house is
necessary for any purpose relating to the administration or enforcement of this
Act, the judge may
(d) order the occupant of the dwelling-house to provide to an
authorized person reasonable access to any document or property that is or
should be kept in the dwelling-house, and
(e) make such other order as is appropriate in the
circumstances to carry out the purposes of this Act,
to the extent that access was or may be expected to be refused and that
the document or property is or may be expected to be kept in the
dwelling-house.
231.2 (1) 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.
.
. .
231.3 (1) A judge may, on ex parte
application by the Minister, issue a warrant in writing authorizing any person
named therein to enter and search any building, receptacle or place for any
document or thing that may afford evidence as to the commission of an offence
under this Act and to seize the document or thing and, as soon as practicable,
bring it before, or make a report in respect of it to, the judge or, where the
judge is unable to act, another judge of the same court to be dealt with by the
judge in accordance with this section.
(2) An application under subsection (1) shall be
supported by information on oath establishing the facts on which the
application is based.
(3) A judge may issue the warrant referred to in
subsection (1) where the judge is satisfied that there are reasonable grounds
to believe that
(a) an offence under this Act was committed;
(b) a document or thing that may afford evidence of the
commission of the offence is likely to be found; and
(c) the building, receptacle or place specified in the
application is likely to contain such a document or thing.
(4) A warrant issued under subsection (1) shall
refer to the offence for which it is issued, identify the building, receptacle
or place to be searched and the person alleged to have committed the offence
and it shall be reasonably specific as to any document or thing to be searched
for and seized.
(5) Any person who executes a warrant under
subsection (1) may seize, in addition to the document or thing referred to in
that subsection, any other document or thing that the person believes on
reasonable grounds affords evidence of the commission of an offence under this
Act and shall as soon as practicable bring the document or thing before, or
make a report in respect thereof to, the judge who issued the warrant or, where
the judge is unable to act, another judge of the same court to be dealt with by
the judge in accordance with this section.
(6) Subject to subsection (7), where any document
or thing seized under subsection (1) or (5) is brought before a judge or a
report in respect thereof is made to a judge, the judge shall, unless the
Minister waives retention, order that it be retained by the Minister, who shall
take reasonable care to ensure that it is preserved until the conclusion of any
investigation into the offence in relation to which the document or thing was
seized or until it is required to be produced for the purposes of a criminal
proceeding.
(7) Where any document or thing seized under
subsection (1) or (5) is brought before a judge or a report in respect thereof
is made to a judge, the judge may, of the judge’s own motion or on summary
application by a person with an interest in the document or thing on three
clear days notice of application to the Deputy Attorney General of Canada,
order that the document or thing be returned to the person from whom it was
seized or the person who is otherwise legally entitled thereto if the judge is
satisfied that the document or thing
(a) will not be required for an investigation or a criminal
proceeding; or
(b) was not seized in accordance with the warrant or this
section.
(8) The person from whom any document or thing is
seized pursuant to this section is entitled, at all reasonable times and
subject to such reasonable conditions as may be imposed by the Minister, to
inspect the document or thing and to obtain one copy of the document at the
expense of the Minister.
239. (1) Every person who has
(a) made, or participated in, assented to or acquiesced in the
making of, false or deceptive statements in a return, certificate, statement or
answer filed or made as required by or under this Act or a regulation,
(b) to evade payment of a tax imposed by this Act, destroyed,
altered, mutilated, secreted or otherwise disposed of the records or books of
account of a taxpayer,
(c) made, or assented to or acquiesced in the making of, false
or deceptive entries, or omitted, or assented to or acquiesced in the omission,
to enter a material particular, in records or books of account of a taxpayer,
(d) wilfully, in any manner, evaded or attempted to evade
compliance with this Act or payment of taxes imposed by this Act, or
(e) conspired with any person to commit an offence described in
paragraphs (a) to (d),
is guilty of an offence and, in addition to any penalty otherwise
provided, is liable on summary conviction to
(f) a fine of not less than 50%, and not more than 200%, of the
amount of the tax that was sought to be evaded, or
(g) both the fine described in paragraph (f) and
imprisonment for a term not exceeding 2 years.
(2) Every person who is charged with an offence
described in subsection (1) may, at the election of the Attorney General of
Canada, be prosecuted on indictment and, if convicted, is, in addition to any
penalty otherwise provided, liable to
(a) a fine of not less than 100%, and not more than 200%, of
the amount of the tax that was sought to be evaded; and
(b) imprisonment for a term not exceeding 5 years.
.
. .
241. (1) Except as authorized by this section, no official shall
(a) knowingly provide, or knowingly allow to be provided, to
any person any taxpayer information;
(b) knowingly allow any person to have access to any taxpayer
information; or
(c) knowingly use any taxpayer information otherwise than in
the course of the administration or enforcement of this Act, the Canada
Pension Plan or the Unemployment Insurance Act or for the purpose
for which it was provided under this section.
(2) Notwithstanding any other Act of Parliament or
other law, no official shall be required, in connection with any legal
proceedings, to give or produce evidence relating to any taxpayer information.
(3) Subsections (1) and (2) do not apply in respect of
(a) criminal proceedings, either by indictment or on summary
conviction, that have been commenced by the laying of an information or the
preferring of an indictment, under an Act of Parliament; or
(b) any legal proceedings relating to the administration or
enforcement of this Act, the Canada Pension Plan or the Unemployment
Insurance Act or any other Act of Parliament or law of a province that
provides for the imposition or collection of a tax or duty.
.
. .
(4) An official may
(a) provide to any person taxpayer information that can
reasonably be regarded as necessary for the purposes of the administration or
enforcement of this Act, the Canada Pension Plan or the Unemployment
Insurance Act, solely for that purpose;
(b) provide to any person taxpayer information that can
reasonably be regarded as necessary for the purposes of determining any tax,
interest, penalty or other amount that is or may become payable by the person,
or any refund or tax credit to which the person is or may become entitled,
under this Act or any other amount that is relevant for the purposes of that
determination;
.
. .
(5) An official may provide taxpayer information relating to a
taxpayer
(a) to the taxpayer; and
(b) with the consent of the taxpayer, to any other person.
Canadian
Charter of Rights and Freedoms
7. Everyone has the right to life, liberty
and security of the person and the right not to be deprived thereof except in
accordance with the principles of fundamental justice.
8. Everyone has the right to be secure
against unreasonable search or seizure.
24. (1) Anyone whose rights or freedoms, as
guaranteed by this Charter , have been infringed or denied may apply to a court
of competent jurisdiction to obtain such remedy as the court considers
appropriate and just in the circumstances.
(2) Where, in proceedings under subsection (1), a
court concludes that evidence was obtained in a manner that infringed or denied
any rights or freedoms guaranteed by this Charter , the evidence shall be
excluded if it is established that, having regard to all the circumstances, the
admission of it in the proceedings would bring the administration of justice
into disrepute.
III. Judicial
History
A. Provincial Court of Alberta -- Criminal
Division (1997), 195 A.R. 251 (First voir dire)
38
Judge Fradsham’s extensive reasons were issued on February 25, 1997.
Applying the “predominant purpose” test enunciated in British Columbia
Securities Commission v. Branch, [1995] 2 S.C.R. 3, he concluded at para.
50 that, during the April 11 meeting, Goy-Edwards was “seeking out confirmatory
proof of her opinion that this was a matter of serious underreporting of income
which should be prosecutorily [sic] pursued by Special Investigations”.
In his view, she was conducting an investigation, and not a mere audit.
39
Following R. v. Norway Insulation Inc. (1995), 23 O.R. (3d) 432
(Gen. Div.), Judge Fradsham held that s. 8 of the Charter precludes the
use of s. 231.1(1) powers to further an investigation, in contradistinction to
an audit. When an investigation of s. 239 offences is underway, the taxpayer
who is the object of the investigation is entitled to exercise his or her right
to silence. In this case, the appellant had been told that an audit was
underway, and Judge Fradsham therefore took him to have been labouring under
the presumption that he was obliged to co-operate. The failure to caution the
appellant on that occasion violated his rights under s. 7 of the Charter .
The statements and documents obtained at the meeting were therefore “tainted”,
and reference to them in the Information to Obtain had to be removed. Judge
Fradsham also excised certain paragraphs from the Information to Obtain on the
basis of the fact that they were erroneous. What remained, in Judge Fradsham’s
opinion, did not provide “reasonable grounds to believe that in the place
sought to be searched there are things that will afford evidence of the
commission of an offence” (para. 106). As a result, the execution of the
search and seizure violated the appellant’s s. 8 Charter rights. Judge
Fradsham excluded the evidence under s. 24(2) of the Charter .
B. Provincial Court of Alberta -- Criminal
Division (1997), 204 A.R. 123 (Second voir dire)
40
A second voir dire was held in June 1997, to determine the admissibility
of the banking records obtained by the requirement letters. On this occasion,
Judge Fradsham held that the audit had effectively become an investigation as
of March 16, 1994, since by that date, “Ms. Goy-Edwards had already arranged
for her supervisor to attend the April 11 meeting” (para. 5). In his view,
Revenue Canada was unable to rely upon its “audit tools” from that day
forward. Judge Fradsham found that all banking information obtained by way of
s. 231.2(1) after March 16 should be excluded pursuant to s. 24(2) of the Charter .
C. Court of Queen’s Bench of Alberta
(1998), 225 A.R. 225
41
Subsequent to Judge Fradsham’s granting a directed verdict of acquittal,
the respondent sought to appeal this ruling, along with the earlier evidentiary
rulings, to the Court of Queen’s Bench. In an oral judgment, the summary
conviction appeal judge held that only the appellant’s utterances from the
April 11 meeting should have been excluded from the Information to Obtain.
Lutz J. found, at para.12, that the other evidence (i.e., the banking
documents, sales books, etc.), was “to a great extent already in the possession
of the [respondent].” Excising the tainted allegations from the Information to
Obtain, he found that the search warrant was still validly issued; therefore,
no s. 8 breach occurred.
42
Lutz J. did, however, uphold Judge Fradsham’s ruling on the bank
statements obtained pursuant to the requirements, as well as his ruling on the
application of s. 24(2) of the Charter .
D. Court of Appeal of Alberta (2000),
271 A.R. 263
43
Berger J.A., for the court, affirmed the summary conviction appeal
judge’s order for a new trial. He held that only the appellant’s statements
ought to have been excluded from the Information to Obtain, pursuant to s. 7 of
the Charter . The other documents and records were not “derivative
evidence”, and were admissible. Berger J.A. also upheld the warrant on
amplification and found no s. 8 breach. He declined to find that the s. 7
breach was so egregious as to warrant excluding the evidence obtained by the
searches under s. 24(2) of the Charter .
IV. Issues
44
This appeal raises the following specific issues:
II Did
the Court of Appeal of Alberta err in ruling the April 11, 1994 oral statements
inadmissible?
II Did
the Court of Appeal of Alberta err in admitting the documents given to the
auditors on April 11, 1994?
II Did
the Court of Appeal of Alberta err in finding that amplification saved the
search warrant?
II Should
the banking records obtained under s. 231.2 of the ITA be excluded?
The respondent
concedes the third issue, in light of R. v. Araujo, [2000] 2 S.C.R. 992,
2000 SCC 65. And in our analysis, we have melded the others for the purposes
of discussion.
V. Analysis
45
The determination of this appeal will turn on the overarching questions
set out in the first paragraph of these reasons. Is there an
audit/investigation distinction under the ITA ? Where is the line between the
two functions drawn? To what extent do taxpayers under investigation for ITA
offences benefit from the principle against self-incrimination under s. 7 of
the Charter ? Is a s. 8 violation made out where documents are obtained
under colour of the ITA ’s “audit powers” after a prosecutorial investigation
has commenced?
46
By way of introduction to these issues, it is useful to discuss the
statutory context of the ITA , and whether s. 239 offences are properly
considered regulatory or criminal for the purposes of Charter analysis.
Second, we will turn to the Charter provisions at issue, and the manner
in which they receive application. Third, we shall consider whether an
audit/investigation distinction exists under the ITA , and whether ss. 231.1(1)
and 231.2(1) can be employed for the investigation of a s. 239 offence. After
answering that question, we will set out a test to determine those
circumstances in which the predominant purpose of an inquiry is the
determination of penal liability. Finally, we will discuss the consequences
under the Charter of an audit’s having become a criminal investigation.
A. Overview
of the Statutory Context
(1) The Income Tax Act
47
The ITA legislative scheme has received ample attention from this
Court. While it is not necessary in this appeal to engage in a detailed review
of ITA jurisprudence, in the interest of situating the statutory provisions at
issue in their proper context, we shall commence our analysis with a brief
overview of some important features of the Canadian income tax system and the
manner in which it is administered.
48
Governments, indisputably, require revenue in order to finance their
operations and to implement social programmes. Currently, the collection of
federal income tax -- a measure first introduced at that level during the First
World War by The Business Profits War Tax Act, 1916, S.C. 1916, c. 11,
and The Income War Tax Act, 1917, S.C. 1917, c. 28, and thought to be
temporary -- comprises a crucial source of federal revenue, not to mention a
crucial source of revenue for a good number of provincial governments (see Del
Zotto v. Canada, [1997] 3 F.C. 40 (C.A.), at para. 19, per Strayer
J.A., whose dissenting reasons were affirmed by a unanimous panel of this
Court: [1999] 1 S.C.R. 3). In this connection, because the ITA controls the
manner in which federal income tax is calculated and collected, this Court has
recognized it as being “essentially a regulatory statute”: R. v. McKinlay
Transport Ltd., [1990] 1 S.C.R. 627, at p. 641, per Wilson J. (See
also: La Forest J., concurring in the same case, at p. 650, where he described
the ITA as “essentially of an administrative nature”; Thomson Newspapers
Ltd. v. Canada (Director of Investigation and Research, Restrictive Trade
Practices Commission), [1990] 1 S.C.R. 425, at p. 506, per La Forest
J.; Knox Contracting Ltd. v. Canada, [1990] 2 S.C.R. 338, at p. 354, per
Cory J.; 143471 Canada Inc. v. Quebec (Attorney General), [1994] 2
S.C.R. 339, at p. 378, per Cory J.; R. v. Hydro-Québec, [1997] 3
S.C.R. 213, at para. 46, per Lamer C.J. and Iacobucci J.) The ITA is
both detailed and complex.
49
Every person resident in Canada during a given taxation year is
obligated to pay tax on his or her taxable income, as computed under rules
prescribed by the Act (ITA, s. 2 ; Smerchanski v. M.N.R., [1977] 2 S.C.R.
23, at p. 32, per Laskin C.J.). The process of tax collection relies primarily
upon taxpayer self-assessment and self-reporting: taxpayers are obliged to
estimate their annual income tax payable (s. 151 ), and to disclose this
estimate to the CCRA in the income return that they are required to file (s.
150(1) ). (See also in this regard: McKinlay Transport, supra, at
pp. 636 and 648; V. Krishna, The Fundamentals of Canadian Income Tax
(6th ed. 2000), at p. 22.) Upon receipt of a taxpayer’s return, the Minister
is directed, “with all due dispatch”, to conduct an examination and original
assessment of the amount of tax to be paid or refunded, and to remit a notice
of assessment to this effect (ss. 152(1) and 152(2)). Subject to certain time
limitations, the Minister may subsequently reassess or make an additional
assessment of a taxpayer’s yearly tax liability (s. 152(4)).
50
While voluntary compliance and self-assessment comprise the essence of
the ITA ’s regulatory structure, the tax system is equipped with “persuasive
inducements to encourage taxpayers to disclose their income”: Krishna, supra,
at p. 767. In this connection, Krishna writes at p. 772, the “system is
‘voluntary’ only in the sense that a taxpayer must file income tax returns
without being called upon to do so by the Minister”. For example, in promotion
of the scheme’s self-reporting aspect, s. 162 of the ITA creates monetary
penalties for persons who fail to file their income returns. Likewise, to
encourage care and accuracy in the self-assessment task, s. 163 of the Act sets
up penalties of the same sort for persons who repeatedly fail to report
required amounts, or who are complicit or grossly negligent in the making of
false statements or omissions.
51
It follows from the tax scheme’s basic self-assessment and
self-reporting characteristics that the success of its administration depends
primarily upon taxpayer forthrightness. As Cory J. stated in Knox
Contracting, supra, at p. 350: “The entire system of levying and
collecting income tax is dependent upon the integrity of the taxpayer in
reporting and assessing income. If the system is to work, the returns must be
honestly completed.” It is therefore not surprising that the Act exhibits a
concern to limit the possibility that a taxpayer may attempt “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” (McKinlay
Transport, supra, at p. 637). The nature of the tax collection
scheme, however, creates an obstacle in this regard:
Often it will be impossible to determine from the face of the return
whether any impropriety has occurred in its preparation. A spot check or a
system of random monitoring may be the only way in which the integrity of the
tax system may be maintained.
(McKinlay Transport, supra, at p. 648)
Accordingly,
“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” (ibid.).
52
The sections within Part XV of the ITA provide the Minister with
“Administration and Enforcement” powers. They also impose reciprocal
obligations upon taxpayers: for example, in furtherance of the overall
reporting and verification scheme, s. 230(1) of the ITA requires all taxpayers,
for various specified periods of time, to maintain books and records of account
at their place of business or residence in Canada. These documents must be
kept “in such form and containing such information as will enable the taxes
payable under [the ITA ] or the taxes or other amounts that should have been
deducted, withheld or collected to be determined”.
53
The provisions that are central to the instant appeal vest the Minister
with extensive powers that may be used “for any purpose related to the
administration or enforcement” of the ITA . Section 231.1(1) continues the
inspection power that was introduced in An Act to amend the Income War Tax
Act, S.C. 1944, c. 43, s. 11. Paragraph (a) allows a person
authorized by the Minister to “inspect, audit or examine” a wide array of
documents, reaching beyond those that the ITA otherwise requires the taxpayer
to prepare and maintain. In the course of the inspection, audit or
examination, para. (c) provides that the authorized person may enter
into any premises or place that is not a dwelling-house; furthermore, para. (d)
imposes a correlative duty upon persons at the premises or place to provide
“all reasonable assistance and to answer all proper questions relating to the administration
or enforcement of this Act”. (Section 231.1(2) requires that, absent the
occupant’s consent, a judicial warrant be obtained for entry into a
dwelling-house.)
54
The requirement power in s. 231.2(1) boasts an even longer pedigree: its
origins are found in s. 8 of the original Income War Tax Act, 1917. By
this power, the Minister may compel any person to produce any information or
any document. Again, the scope of this power “reaches beyond the strict filing
and maintenance requirements of the Act” (McKinlay Transport, supra,
at p. 642, per Wilson J.).
55
To be effective, self-enforcing regulatory schemes require not only
resort to adequate investigation, but also the existence of effective
penalties: Thomson Newspapers, supra, at p. 528; R. v.
Wholesale Travel Group Inc., [1991] 3 S.C.R. 154, at p. 250, per
Cory J.; Comité paritaire de l’industrie de la chemise v. Potash, [1994]
2 S.C.R. 406, at p. 421, per La Forest J. In the ITA context, see Hydro-Québec,
supra, at para. 46, and Knox Contracting, supra, at p.
355. To this end, s. 238(1) sets out a summary conviction offence that is
triggered by non-compliance with the filing requirements or with other of the
Act’s provisions -- including ss. 231.1(1) and 231.2(1) , and the documentary
retention rules imposed by s. 230(1) . Section 238 ’s purpose is inherently
pragmatic or instrumental: the offence exists “not to penalize criminal conduct
but to enforce compliance with the Act” (R. v. Grimwood, [1987] 2 S.C.R.
755, at p. 756; McKinlay Transport, supra, at p. 641; 143471
Canada, supra, at p. 378).
56
Section 239(1) creates a number of additional offences. It speaks of
false or deceptive statements, destruction or alteration of documents, false or
deceptive documents, wilful evasion of income tax, and conspiracy to engage in
prohibited activities. In Cory J.’s words from Knox Contracting, supra,
at pp. 349-50: “Those who do evade the payment of income tax not only cheat the
State of what is owing to it, but inevitably increase the burden placed upon
the honest taxpayers.” As a consequence, the s. 239(1) offences carry rather
significant penalties. They may be proceeded on by way of summary conviction
or by way of indictment at the election of the Attorney General (s. 239(2)).
57
As with the s. 238 offence, this Court has recognized the centrality of
s. 239 to the income tax régime: see Strayer J.A.’s reasons, endorsed on
appeal to this Court, in Del Zotto, supra, at para. 23, where he
described s. 239 as being “designed to ensure compliance with the
self-reporting requirements of the Income Tax Act ”. Moreover, the
presence in the ITA of s. 239 does nothing to alter the regulatory or
administrative nature of the inspection and requirement powers, even though s.
239 “relate[s] to conduct that might well be discovered by the[ir] exercise” (Thomson
Newspapers, supra, at p. 516, per La Forest J. See also Comité
paritaire, supra, at p. 421). As already mentioned, it is under ss.
239(1) (a) and (d) that the appellant in the present case was
ultimately charged.
58
Having discussed the general statutory context, we will now deal
specifically with the important distinction between regulatory and criminal
statutory provisions.
(2) The Regulatory vs. Criminal Distinction
59
The parties have engaged in a spirited debate over the proper
contextualization of the ITA offences for the purposes of Charter
analysis. The respondent defines the ITA as comprising an “integrated
regulatory scheme”, the implication being that a person accused of offences
thereunder attracts little Charter protection. Meanwhile, the
appellants in both the present case and its companion, R. v. Ling,
[2002] 3 S.C.R. 814, 2002 SCC 74, as well as the intervener, the Criminal
Lawyers’ Association (Ontario), submit that the Act is essentially a
“dual-purpose statute” and that the s. 239 offences constitute “quintessential
criminal law”. It follows in the appellant Jarvis’s submission that, where tax
avoidance or evasion is being investigated, “the taxpayer must be afforded the
Charter protection that is the right of any Canadian suspected or accused of a
crime” (appellant’s factum, at para. 33). It is plain that the s. 239 offences
are no trifling matter as this provision bears at least the formal
hallmarks of criminal legislation, namely, prohibitions coupled with penalties
(see Hydro-Québec, supra, at para. 35). They may be prosecuted
upon indictment, and conviction can carry up to five years’ incarceration. It
is because of these factors that the penal sanctions in s. 239 are, in certain
contexts, referred to as “criminal”.
60
That is not to say, however, that they are “purely” or
“quintessentially” criminal for Charter purposes. The cases
cited in support of the appellant’s favoured characterization are of limited
relevance. The present case does not consider a number of issues such as:
whether the ITA offences are constitutionally supportable under the federal
criminal law power (Hydro-Québec, supra); the characterization of
s. 239 offences for the purpose of determining the appeal procedure from the
issuance of a s. 231.3 search warrant (Knox Contracting, supra);
or whether making false statements on an income tax return constitutes a
“criminal offence” under provincial legislation, so as to render revocable a
person’s licence to practice as a public accountant (Re Ramm, [1958]
O.R. 98 (C.A.)). In any case, the contextual approach to Charter
application is not a mere exercise in taxonomy.
61
As La Forest J. stated in Wholesale Travel, supra, at p.
209, “what is ultimately important are not labels (though these are undoubtedly
useful), but the values at stake in the particular context”. In this
connection, differing levels of Charter protection may obtain under the
same statute, depending on the circumstances. Compare Hunter v. Southam
Inc., [1984] 2 S.C.R. 145, and Thomson Newspapers, supra:
each dealt with the former Combines Investigation Act, R.S.C. 1970, c.
C-23, which, although it created penal offences, was recognized on the whole to
embody “a complex scheme of economic regulation” (see General Motors of
Canada Ltd. v. City National Leasing, [1989] 1 S.C.R. 641, at p. 676, per
Dickson C.J.; Thomson Newspapers, supra; R. v. Nova Scotia
Pharmaceutical Society, [1992] 2 S.C.R. 606, at pp. 648-49). The
provisions impugned in Hunter v. Southam authorized entry onto private
premises and hence attracted a much greater expectation of privacy than the
provision ordering the production of documents in Thomson Newspapers.
62
In this measure, the ITA presents no different consideration. Wilson J.
acknowledged as much in McKinlay Transport, supra, at p. 649,
where she suggested that greater s. 8 protection would obtain under the ITA if
tax officials were to enter onto private property in order to conduct a search
or seizure for the purposes of the Act, rather than to compel the same
documentation by way of requirement letters (see para. 53 of these reasons re:
s. 231.1(2) ; see also Baron v. Canada, [1993] 1 S.C.R. 416, at pp.
443-44; Del Zotto, supra, at paras. 12-13, per Strayer
J.A. (dissenting)). In sum, the ITA is a regulatory statute, but
non-compliance with its mandatory provisions can in some cases lead to criminal
charges being laid. In prosecution thereof, the state is pitted against the
individual in an attempt to establish culpability. Stiff jail terms can result
from a conviction. To conduct an appropriately contextual Charter
analysis in these cases, the various regulatory and penal considerations must
all exert some influence.
B. Contextual
Approach to Charter Rights
63
At this stage, it is a firmly established principle that the Charter
must receive contextual application. The scope of a particular Charter right
or freedom may vary according to the circumstances: Edmonton Journal v.
Alberta (Attorney General), [1989] 2 S.C.R. 1326, at pp. 1355-56, per
Wilson J.; McKinlay Transport, supra, at p. 644; Symes v.
Canada, [1993] 4 S.C.R. 695, at p. 793, per L’Heureux-Dubé J.
(dissenting); 143471 Canada, supra, at p. 347 (per Lamer
C.J.) and at pp. 361-62 (per La Forest J., dissenting); Comité
paritaire, supra, at p. 420, per La Forest J.
64
For present purposes, where ss. 7 and 8 of the Charter are at
issue, it is instructive to note both that the requirements of fundamental
justice relevant to the former section “are not immutable; rather, they vary
according to the context in which they are invoked” (R. v. Lyons, [1987]
2 S.C.R. 309, at p. 361, per La Forest J.) and that context will
determine the expectation of privacy that one can reasonably expect the latter
section to protect (Thomson Newspapers, supra, at pp. 495-96, per
Wilson J., dissenting, and at p. 506, per La Forest J.; McKinlay
Transport, supra, at pp. 645 and 647; Canadian Broadcasting
Corp. v. New Brunswick (Attorney General), [1991] 3 S.C.R. 459, at p. 478, per
Cory J.; Baron, supra, at p. 436, per Sopinka J.; British
Columbia Securities Commission v. Branch, supra, at para. 51, per
Sopinka and Iacobucci JJ.).
65
It is worth repeating that the appellant does not attack the
constitutionality of ss. 231.1(1) and 231.2(1) . Rather, his argument is that
the admission into evidence in tax evasion proceedings of statements and
documents that were compelled by Revenue Canada officials under these sections
was a violation of his rights under ss. 7 and 8 of the Charter . He thus
argues that the evidence should be excluded under s. 24(2) of the Charter .
In McKinlay Transport, supra, this Court considered whether the
predecessor provision to s. 231.2 , employed in conjunction with an income tax
audit, infringed s. 8 of the Charter . Wilson J. held that, although the
provision authorized a “seizure” for Charter purposes, it provided “the
least intrusive means by which effective monitoring of compliance with the Income
Tax Act can be effected” (p. 649). Wilson J. noted that the taxpayer’s
privacy interest in the compellable records was also relatively weak, and ruled
that the provision was constitutional. Faced with the McKinlay Transport
decision, the appellant did not raise the constitutionality of ss. 231.1(1) and
231.2(1) at his trial, but instead invoked s. 24(2) of the Charter in
order to “deprive from the Crown (for prosecution purposes) the fruits of their
[sic] deception” (appellant’s factum, at para. 45).
(1) Section 7
66
Section 7 of the Charter reads as follows:
7. Everyone has the right to life, liberty
and security of the person and the right not to be deprived thereof except in
accordance with the principles of fundamental justice.
A court
conducting an analysis under s. 7 must first determine whether there exists a
real or imminent deprivation of life, liberty, security of the person, or a
combination thereof. Next, the court must identify the relevant principle or
principles of fundamental justice and, finally, determine whether the
deprivation is in accordance with this principle or principles.
67
It is beyond doubt that the appellant’s s. 7 liberty interest is engaged
by the introduction of statutorily compelled information at his trial for the
s. 239 offences, owing to the threat of imprisonment on conviction: see Re
B.C. Motor Vehicle Act, [1985] 2 S.C.R. 486, at p. 515, per Lamer J.
(as he then was); Reference re ss. 193 and 195.1(1)(c) of the Criminal Code
(Man.), [1990] 1 S.C.R. 1123. The relevant principle of fundamental
justice in the present case is the principle against self-incrimination, an
elemental canon of the Canadian criminal justice system, standing for the
notion that individuals should not be conscripted by the state to promote a
self-defeating purpose: R. v. S. (R.J.), [1995] 1 S.C.R. 451, at para.
81, per Iacobucci J. This Court has clearly established that the
principle against self-incrimination finds residual expression under s. 7 : Thomson
Newspapers, supra; R. v. P. (M.B.), [1994] 1 S.C.R. 555, at
p. 577, per Lamer C.J.; R. v. Jones, [1994] 2 S.C.R. 229, at p.
256, per Lamer C.J.; S. (R.J.), supra; Branch, supra;
R. v. Fitzpatrick, [1995] 4 S.C.R. 154; R. v. White, [1999] 2
S.C.R. 417.
68
In giving expression to this principle, however, s. 7 does not envelop
an abstract and absolute rule that would prevent the use of information in all
contexts in which it is statutorily compelled: Jones, supra, at
p. 257; S. (R.J.), supra, at paras. 96-100; Fitzpatrick, supra,
at paras. 21 and 24; White, supra, at para. 45. A court must
begin “on the ground”, with a concrete and contextual analysis of all the
circumstances, in order to determine whether or not the principle against
self-incrimination is actually engaged: Fitzpatrick, at para. 25; White,
at para. 46. This analysis necessarily involves a balancing of principles.
One must, in assessing the limits on compellability demanded by the principle
against self-incrimination, consider the opposing principle of fundamental
justice suggesting that relevant evidence should be available to the trier of
fact in a search for truth: S. (R.J.), at para. 108, per
Iacobucci J. These competing interests will often be brought to the foreground
in regulatory contexts, where the procedures being challenged have generally
been designed (and are employed) as part of an administrative scheme in the
public interest: Fitzpatrick, at para. 27. As the Court stated in White,
at para. 48:
In some contexts, the factors that favour the importance of the search
for truth will outweigh the factors that favour protecting the individual
against undue compulsion by the state. This was the case, for example, in Fitzpatrick,
supra, where the Court emphasized the relative absence of true state
coercion, and the necessity of acquiring statements in order to maintain the
integrity of an entire regulatory regime. In other contexts, a reverse
situation will arise, as was the case, for example, in Thomson Newspapers,
supra, S. (R.J.), supra, and Branch, supra.
In every case, the facts must be closely examined to determine whether the
principle against self-incrimination has truly been brought into play by the
production or use of the declarant’s statement.
(2) Section 8
69
Section 8 of the Charter provides that:
8. Everyone has the right to be secure
against unreasonable search or seizure.
For the
application of s. 8, there must first be a search or seizure. Subsequently, it
must be determined whether the search or seizure was unreasonable. Like the
Fourth Amendment of the U.S. Constitution, s. 8 protects a reasonable
expectation of privacy: Hunter v. Southam, supra, at p. 159, per
Dickson J. (as he then was). What is reasonable, however, is context-specific.
In the application of s. 8, “an assessment must be made as to whether in a
particular situation the public’s interest in being left alone by government
must give way to the government’s interest in intruding on the individual’s
privacy in order to advance its goals, notably those of law enforcement” (id.,
at pp. 159-60).
70
In R. v. Plant, [1993] 3 S.C.R. 281, at p. 293, Sopinka J. listed
several factors that will determine the parameters of the protection afforded
by s. 8 with respect to informational privacy:
Consideration of such factors as the nature of the
information itself, the nature of the relationship between the party releasing
the information and the party claiming its confidentiality, the place where the
information was obtained, the manner in which it was obtained and the
seriousness of the crime being investigated allows for a balancing of the
societal interests in protecting individual dignity, integrity and autonomy
with effective law enforcement.
71
The context-specific approach to s. 8 inevitably means, as Wilson J.
noted in Thomson Newspapers, supra, at p. 495, that “[a]t some
point the individual’s interest in privacy must give way to the broader state
interest in having the information or document disclosed”. Naturally, if a
person has but a minimal expectation with respect to informational privacy,
this may tip the balance in the favour of the state interest: Plant, supra;
Smith v. Canada (Attorney General), [2001] 3 S.C.R. 902, 2001 SCC 88.
72
Generally, an individual has a diminished expectation of privacy in
respect of records and documents that he or she produces during the
ordinary course of regulated activities: see, e.g., Thomson Newspapers,
supra, at p. 507, per La Forest J.; 143471 Canada, supra,
at p. 378, per Cory J.; Comité paritaire, supra, at pp.
420-21; Fitzpatrick, supra, at para. 49. In the particular
context of the self-assessment and self-reporting income tax regime, a
taxpayer’s privacy interest in records that may be relevant to the filing of
his or her tax return is relatively low: McKinlay Transport, supra,
at pp. 649-50.
C. Audit
vs. Investigation
73
As mentioned above, the Charter issues in this appeal touch upon
the admission into evidence in a s. 239 prosecution of documents and utterances
compelled by ss. 231.1(1) and 231.2(1) . This problem did not arise in McKinlay
Transport, where the appellants were charged under s. 238 for failing to
comply with requirement letters, but there was no allegation that the
requirements were themselves being used to further the investigation of
an offence. In brief, this Court has yet to consider the extent to which the
use of ss. 231.1(1) and 231.2(1) to build a prosecutorial case infringes a
taxpayer’s constitutional rights.
(1) Submissions of the Parties
74
The submissions of the parties in this regard stand in stark
opposition. The parties seeking to rely upon the distinction describe ss.
231.1(1) and 231.2(1) as “audit” functions, i.e., fundamentally directed
towards compliance and civil reassessment concerns. The appellant submits that
the Crown can no longer use the ss. 231.1(1) and 231.2(1) “audit powers” from
the point at which its predominant purpose is to investigate a s. 239 offence.
The Criminal Lawyers’ Association (Ontario) and the appellant in the companion
case, Ling, submit that the inspection and requirement powers may be
used at any time, but that a person accused of a s. 239 offence must benefit
from use and derivative use immunity relative to any information that is
compelled from him during the audit process.
75
On the other hand, the respondent submits that there is no rigid
audit/investigation distinction. It reiterates that the ITA is an integrated
regulatory scheme, and argues that all of the powers are assigned to a single
person, the Minister, whose function under the Act does not change: the fact
that the Minister delegates the use of these powers to various CCRA
functionaries is irrelevant, as is the internal organizational structure of the
department. According to the respondent, the ss. 231.1(1) and 231.2(1) powers
are available in all circumstances, save two: where charges have been laid
under s. 239 and the sole purpose for their exercise is to obtain prosecutorial
evidence, and where the laying of charges is deliberately delayed in order for
prosecutors to use the powers to build their case. The respondent concedes, as
well, that s. 231.1(1) (d) does not countenance queries into the mental
state, or mens rea, required to prove the ITA offences; the definition
of “proper questions” in that paragraph does not extend that far, and answers
to such questions should therefore be excluded under s. 24(2) .
76
The intervening Attorneys General for Ontario and Quebec support the
respondent’s position. With respect to the proper use of ss. 231.1(1) and
231.2(1) , the Attorney General of Quebec adopts a “sole purpose” approach,
similar to the respondent’s. For its part, the Attorney General for Ontario
submits that there is no reasonable expectation of privacy in incriminatory
information gathered pursuant to regulatory powers; however, the abuse of
process doctrine and s. 7 of the Charter might find application in
situations of improper conduct, such as “where there is no legitimate interest
left in an audit and the auditors have become mere agents of an enforcement
objective” (Attorney General for Ontario’s factum, at para. 49).
(2) Our View
77
Analysis must begin with the words of the Act, and the proper
construction of ss. 231.1(1) and 231.2(1) . The approach to statutory
interpretation can be easily stated: one is to seek the intent of Parliament by
reading the words of the provision in context and according to their
grammatical and ordinary sense, harmoniously with the scheme and the object of
the statute (Interpretation Act, R.S.C. 1985, c. I-21, s. 12 ; Bell
ExpressVu Limited Partnership v. Rex, [2002] 2 S.C.R. 559, 2002 SCC 42; Rizzo
& Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27; R. v. Gladue,
[1999] 1 S.C.R. 688; E. A. Driedger, Construction of Statutes (2nd ed.
1983), at p. 87).
78
By their express terms, both ss. 231.1(1) and 231.2(1) are available
“for any purpose related to the administration or enforcement” or, in French, “pour
l’application et l’exécution” of the ITA . Although these terms are, at
first glance, extremely broad, we ultimately come to the conclusion that, in
the entire context, they do not include the prosecution of s. 239 offences.
79
As several of this Court’s recent cases have illustrated, the words
employed in the English and French versions of a federal statute are equally
authoritative and should be read together in order to ascertain the proper
meaning of the terms. The meaning of “administration” is clear. On the other
hand, the ordinary sense of the term “enforcement” could conceivably encompass
both assessment of tax liability and prosecution of offences (the Oxford
English Reference Dictionary (2nd ed. 1996) defines “enforce” as “compel
observance of (a law etc.)”). As for the French version, it provides
negligible assistance here, since the two terms are rendered in equally wide
scope, as “l’application et l’exécution”. Hence, the question remains:
does “enforcement” of the ITA include the prosecution of the s. 239 criminal
offences?
80
This Court considered the scope of the requirement power in Canadian
Bank of Commerce v. Canada (Attorney General), [1962] S.C.R. 729, James
Richardson & Sons, Ltd. v. M.N.R., [1984] 1 S.C.R. 614. At p. 625 of
the Richardson case, Wilson J. held that the provision could not be
employed for a “fishing expedition”, and that it was “only available to the
Minister to obtain information relevant to the tax liability of some specific
person or persons if the tax liability of such person or persons is the subject
of a genuine and serious inquiry”.
81
The respondent’s interpretation of “proper questions” for the purposes
of s. 231.1(1) (d) implies that the words “administration or
enforcement”, as they are used in the context of s. 231.1(1) , do not extend to
the investigation of ITA offences. Additionally and, in our view, more
significantly, it is useful to contrast the language of ss. 231.1(1) and
231.2(1) with that of s. 231.3(1) , which sets out an ex parte
application process for a warrant to search “for any document or thing that
may afford evidence [of] the commission of [the] offence under this Act”
(emphasis added). The existence of a prior authorization procedure where the
commission of an offence is suspected creates a strong inference that the
separate statutory inspection and requirement powers are unavailable to further
a prosecutorial investigation.
82
In response to a question put to him during the appeal, counsel for the
respondent submitted that the s. 231.3(1) warrant power was “residual”, in the
sense that it was intended to provide protection against the eventuality that a
taxpayer, informed of an audit against him or her, would destroy his or her
records in order to be charged with non-compliance under s. 238 rather than
evasion under s. 239; the theory advanced being that the warrant, because of
its being issued ex parte, would allow the authorities to act before the
taxpayer were even aware of the audit.
83
We cannot accept that argument. First, we find it difficult to imagine
why Parliament, if it truly desired to create such a safeguard for tax
assessment purposes, would attach three such onerous pre-requisites to its
issuance. The s. 231.3 warrant issues only in circumstances where the judge is
satisfied that there are reasonable grounds to believe: that an ITA offence was
committed (s. 231.3(3) (a)); that a document or thing affording evidence
of the offence is likely to be found (s. 231.3(3) (b)); and that the
place specified in the application for the warrant is likely to contain the
document or thing (s. 231.3(3) (c)). Plainly, s. 231.3 is concerned with
offences against the Act, and not with auditorial verifications. It follows
that the s. 231.3 warrant covers generally the same ground as does the Criminal
Code ’s s. 487 warrant (see R. v. Multiform Manufacturing Co., [1990]
2 S.C.R. 624), which was in fact the route chosen by Revenue Canada to obtain
evidence of the offences in the present case. According to one expert, it is
now the CCRA’s standard practice to use s. 487 of the Criminal Code
rather than s. 231.3 of the ITA : see Krishna, supra, at p. 810.
Second, and perhaps more fundamentally, Parliament made it an offence under s.
239(1) (b) to destroy records or books of account; substituting a charge
under one paragraph of s. 239(1) for another would be a Pyrrhic victory for the
miscreant taxpayer.
84
Although the taxpayer and the CCRA are in opposing positions during an
audit, when the CCRA exercises its investigative function they are in a more
traditional adversarial relationship because of the liberty interest that is at
stake. In these reasons, we refer to the latter as the adversarial
relationship. It follows that there must be some measure of separation between
the audit and investigative functions within the CCRA. Of course, having
determined this, it remains for us to determine the bounds between the ITA
audit and investigation and then to discuss the legal consequences. To this,
we now turn.
D. Delineating the Bounds Between Audit and
Investigation: Nature of the Inquiry
85
We have been directed to a plethora of cases that have attempted to draw
the line between audit and investigation for income tax purposes. There is a
lack of consensus on the matter. Some courts have stated that the
investigation begins at the time when there are reasonable and probable grounds
to believe that an offence has occurred: see R. v. Bjellebo, [1999]
O.J. No. 965 (QL) (Gen. Div.), at para. 171; R. v. Pheasant, [2001]
G.S.T.C. 8 (Ont. C.J.), at para. 68; R. v. Chusid (2001), 57 O.R. (3d)
20 (S.C.J.), at para. 61.
86
Some cases have referred to “reasonable suspicions” of an offence as
engaging the audit/investigation tripwire: R. v. Roberts, [1998] B.C.J.
No. 3184 (QL) (Prov. Ct.), at paras. 39-40; R. v. Dial Drug Stores Ltd.
(2001), 52 O.R. (3d) 367 (C.J.), at p. 387. Still other cases have held that
the test is one of “predominant purpose”: see the lower court judgments in the
case at bar; Samson v. Canada, [1995] 3 F.C. 306 (C.A.), leave to appeal
refused, [1996] 1 S.C.R. ix (sub nom. Samson v. Addy); R. v. Yip
(2000), 278 A.R. 124, 2000 ABQB 873, at para. 34; R. v. Anderson (2001),
209 Sask. R. 117, 2001 SKQB 334, at para. 36; R. v. Seaside Chevrolet
Oldsmobile Ltd. (2002), 248 N.B.R. (2d) 132, 2002 NBPC 5, at para. 51.
Another has purported to have applied the same test, only to find that the
predominant purpose will always be investigatory when “matters are
placed in the hands of” Special Investigations Section: see R. v. Warawa
(1997), 208 A.R. 81 (Q.B.), at paras. 11-12 and 134.
87
In Norway Insulation, supra, LaForme J. held, at p. 437,
that the regulatory nature of an inquiry “changed after Special Investigations
became involved and directed the subsequent work”. He also agreed with the
trial judge (reasons at [1995] 2 C.T.C. 451 (Ont. Ct. (Prov. Div.)) that it was
when the first auditor developed the opinion, ultimately erroneous, that there
was “sufficient evidence” of an offence, that the inquiry changed hue.
Finally, in R. v. Coghlan, [1994] 1 C.T.C. 164 (Ont. Ct. (Prov. Div.)),
at p. 172, Judge Ratushny opined that it was only when “Revenue Canada decides
to lay criminal charges” that the criminal investigation begins. Otherwise,
“the searches or seizures are for the bona fide purpose of determining
compliance with the Income Tax Act , whether or not Revenue Canada
suspects a criminal offence during that time” (ibid.). Coghlan
was followed in Gorenko v. La Reine, [1997] R.J.Q. 2482 (Sup. Ct.), at
p. 2500 (aff’d [1999] Q.J. No. 6268 (QL) (C.A.), leave to appeal to S.C.C.
granted and appeal discontinued, [2000] 2 S.C.R. ix).
88
In our view, where the predominant purpose of a particular inquiry is
the determination of penal liability, CCRA officials must relinquish the
authority to use the inspection and requirement powers under ss. 231.1(1) and
231.2(1) . In essence, officials “cross the Rubicon” when the inquiry in
question engages the adversarial relationship between the taxpayer and the
state. There is no clear formula that can answer whether or not this is the
case. Rather, to determine whether the predominant purpose of the inquiry in
question is the determination of penal liability, one must look to all factors
that bear upon the nature of that inquiry.
89
To begin with, the mere existence of reasonable grounds that an offence
may have occurred is by itself insufficient to support the conclusion that the
predominant purpose of an inquiry is the determination of penal liability.
Even where reasonable grounds to suspect an offence exist, it will not always
be true that the predominant purpose of an inquiry is the determination of
penal liability. In this regard, courts must guard against creating procedural
shackles on regulatory officials; it would be undesirable to “force the
regulatory hand” by removing the possibility of seeking the lesser
administrative penalties on every occasion in which reasonable grounds existed
of more culpable conduct. This point was clearly stated in McKinlay
Transport, supra, at p. 648, where Wilson J. wrote: “The Minister
must be capable of exercising these [broad supervisory] powers whether or not
he has reasonable grounds for believing that a particular taxpayer has breached
the Act.” While reasonable grounds indeed constitute a necessary condition for
the issuance of a search warrant to further a criminal investigation (s. 231.3
of the ITA ; Criminal Code, s. 487 ), and might in certain cases serve to
indicate that the audit powers were misused, their existence is not a
sufficient indicator that the CCRA is conducting a de facto
investigation. In most cases, if all ingredients of an offence are reasonably
thought to have occurred, it is likely that the investigation function is
triggered.
90
All the more, the test cannot be set at the level of mere suspicion that
an offence has occurred. Auditors may, during the course of their inspections,
suspect all manner of taxpayer wrongdoing, but it certainly cannot be the case
that, from the moment such suspicion is formed, an investigation has begun. On
what evidence could investigators ever obtain a search warrant if the whiff of
suspicion were enough to freeze auditorial fact-finding? The state interest in
prosecuting those who wilfully evade their taxes is of great importance, and we
should be careful to avoid rendering nugatory the state’s ability to investigate
and obtain evidence of these offences.
91
The other pole of the continuum is no more attractive. It would be a
fiction to say that the adversarial relationship only comes into being when
charges are laid. Logically, this will only happen once the investigators
believe that they have obtained evidence that indicates wrongdoing. Because
the s. 239 offences contain an element of mental culpability, the state will,
one must presume, usually have some evidence that the accused satisfied the mens
rea requirements before laying an information or preferring an indictment.
The active collection of such evidence indicates that the adversarial
relationship has been engaged, since it is irrelevant to the determination of
tax liability. Moreover, although there are judicial controls on the
unauthorized exercise of power (Roncarelli v. Duplessis, [1959] S.C.R.
121; Babcock v. Canada (Attorney General), [2002] 3 S.C.R. 3, 2002 SCC
57, at para. 25), we believe that allowing CCRA officials to employ ss. 231.1(1)
and 231.2(1) until the point where charges are laid, might promote bad faith on
the part of the prosecutors. Quite conceivably, situations may arise in which
charges are delayed in order to compel the taxpayer to provide evidence against
himself or herself for the purposes of a s. 239 prosecution. Although the
respondent argued that such situations could be remedied by the courts, we view
it as preferable that such situations be avoided rather than remedied. It is
for this reason that the test is as set out above.
92
Whether a matter has been sent to the investigations section is another
factor in determining whether the adversarial relationship exists. Again,
though, this, by itself, is not determinative. An auditor’s recommendation that
investigators look at a file might result in nothing in the way of a criminal
investigation since there is always the possibility that the file will be sent
back. Still, if, in an auditor’s judgment, a matter should be sent to the
investigators, a court must examine the following behaviour very closely. If
the file is sent back, does it appear that the investigators have actually
declined to take up the case and have returned the matter so that the audit can
be completed? Or, does it appear, rather, that they have sent the file back as
a matter of expediency, so that the auditor may use ss. 231.1(1) and 231.2(1)
to obtain evidence for a prosecution (as was found to be the case in Norway
Insulation, supra)?
93
To reiterate, the determination of when the relationship between the
state and the individual has reached the point where it is effectively
adversarial is a contextual one, which takes account of all relevant factors.
In our opinion, the following list of factors will assist in ascertaining whether
the predominant purpose of an inquiry is the determination of penal liability.
Apart from a clear decision to pursue a criminal investigation, no one factor
is necessarily determinative in and of itself, but courts must assess the
totality of the circumstances, and make a determination as to whether the
inquiry or question in issue engages the adversarial relationship between the
state and the individual.
94
In this connection, the trial judge will look at all factors, including
but not limited to such questions as:
(a) Did the authorities have
reasonable grounds to lay charges? Does it appear from the record that a
decision to proceed with a criminal investigation could have been made?
(b) Was the general conduct of the
authorities such that it was consistent with the pursuit of a criminal
investigation?
(c) Had the auditor transferred his
or her files and materials to the investigators?
(d) Was the conduct of the auditor
such that he or she was effectively acting as an agent for the investigators?
(e) Does it appear that the
investigators intended to use the auditor as their agent in the collection of
evidence?
(f) Is the evidence sought relevant
to taxpayer liability generally? Or, as is the case with evidence as to the
taxpayer’s mens rea, is the evidence relevant only to the taxpayer’s
penal liability?
(g) Are there any other circumstances
or factors that can lead the trial judge to the conclusion that the compliance
audit had in reality become a criminal investigation?
It should also
be noted that in this case we are dealing with the CCRA. However, there may
well be other provincial or federal governmental departments or agencies that
have different organizational settings which in turn may mean that the above
factors, as well as others, will have to be applied in those particular
contexts.
E. Charter Consequences
95
With respect to the consequences related to s. 8 of the Charter , McKinlay
Transport, supra, makes it clear that taxpayers have very little
privacy interest in the materials and records that they are obliged to keep
under the ITA , and that they are obliged to produce during an audit. Moreover,
once an auditor has inspected or required a given document under ss. 231.1(1)
and 231.2(1) , the taxpayer cannot truly be said to have a reasonable
expectation that the auditor will guard its confidentiality. It is well known,
as Laskin C.J. stated in Smerchanski, supra, at p. 32, that
“[t]he threat of prosecution underlies every tax return if a false statement is
knowingly made in it”. It follows that there is nothing preventing auditors
from passing to investigators their files containing validly obtained audit
materials. That is, there is no principle of use immunity that prevents the
investigators, in the exercise of their investigative function, from making use
of evidence obtained through the proper exercise of the CCRA’s audit function.
Nor, in respect of validly obtained audit information, is there any principle
of derivative use immunity that would require the trial judge to apply the “but
for” test from S. (R.J.), supra. If a particular piece of
evidence comes to light as a result of the information validly contained in the
auditor’s file, then investigators may make use of it.
96
On the other hand, with respect to s. 7 of the Charter , when the
predominant purpose of a question or inquiry is the determination of penal
liability, the “full panoply” of Charter rights are engaged for the
taxpayer’s protection. There are a number of consequences that flow from
this. First, no further statements may be compelled from the taxpayer by way
of s. 231.1(1) (d) for the purpose of advancing the criminal
investigation. Likewise, no written documents may be inspected or examined,
except by way of judicial warrant under s. 231.3 of the ITA or s. 487 of the Criminal
Code , and no documents may be required, from the taxpayer or any third
party for the purpose of advancing the criminal investigation. CCRA officials
conducting inquiries, the predominant purpose of which is the determination of
penal liability, do not have the benefit of the ss. 231.1(1) and 231.2(1)
requirement powers.
97
The predominant purpose test does not thereby prevent the CCRA from
conducting parallel criminal investigations and administrative audits. The
fact that the CCRA is investigating a taxpayer’s penal liability, does not
preclude the possibility of a simultaneous investigation, the predominant
purpose of which is a determination of the same taxpayer’s tax liability.
However, if an investigation into penal liability is subsequently commenced,
the investigators can avail themselves of that information obtained pursuant to
the audit powers prior to the commencement of the criminal investigation, but
not with respect to information obtained pursuant to such powers subsequent to
the commencement of the investigation into penal liability. This is no less
true where the investigations into penal liability and tax liability are in
respect of the same tax period. So long as the predominant purpose of the
parallel investigation actually is the determination of tax liability, the
auditors may continue to resort to ss. 231.1(1) and 231.2(1) . It may well be
that there will be circumstances in which the CCRA officials conducting the tax
liability inquiry will desire to inform the taxpayer that a criminal
investigation also is under way and that the taxpayer is not obliged to comply
with the requirement powers of ss. 231.1(1) and 231.2(1) for the purposes of
the criminal investigation. On the other hand, the authorities may wish to
avail themselves of the search warrant procedures under ss. 231.3 of the ITA or
487 of the Criminal Code to access the documents necessary to advance
the criminal investigation. Put another way, the requirement powers of ss.
231.1(1) and 231.2(1) cannot be used to compel oral statements or written
production for the purpose of advancing the criminal investigation.
98
In summary, wherever the predominant purpose of an inquiry or question
is the
determination of penal liability, criminal investigatory techniques must be
used. As a corollary, all Charter protections that are relevant in the
criminal context must apply.
F. Summary
99
By way of summary, the following points emerge:
1. Although the ITA is a regulatory
statute, a distinction can be drawn between the audit and investigative powers
that it grants to the Minister.
2. When, in light of all relevant
circumstances, it is apparent that CCRA officials are not engaged in the
verification of tax liability, but are engaged in the determination of penal
liability under s. 239, the adversarial relationship between the state and the
individual exists. As a result, Charter protections are engaged.
3. When this is the case,
investigators must provide the taxpayer with a proper warning. The powers of
compulsion in ss. 231.1(1) and 231.2(1) are not available, and search warrants
are required in order to further the investigation.
VI. Application
to the Facts of the Jarvis Case
100
Whether or not a given inquiry is auditorial or investigatory in nature
is a question of mixed fact and law. It involves subjecting the facts of a
case to a multi-factored legal standard (Canada (Director of Investigation
and Research) v. Southam Inc., [1997] 1 S.C.R. 748, at para. 35) and,
accordingly, Judge Fradsham’s finding is not immune from appellate review.
101
In our view, although Goy-Edwards’s conduct throughout her dealings with
the appellant and his accountant was not praiseworthy — and at points appears
deceptive — we do not think that the record rises to support a finding that she
obtained information under ss. 231.1(1) and 231.2(1) while conducting an
investigation, the predominant purpose of which was a determination of Jarvis’s
penal liability. While Goy-Edwards did on several occasions mislead the
appellant and his accountant as to the status of the file, she did not use misleading
tactics in order to obtain information under ss. 231.1(1) and 231.2(1)
for the purpose of advancing an investigation into penal liability. Moreover,
there seems to have been but minor contact between Goy-Edwards and Chang from
the moment when the file was transferred to Special Investigations on May 4,
1994. In brief, Goy-Edwards should undoubtedly have been truthful when asked
about the status of the appellant’s file, but there is no evidence to show that
she used her audit powers to obtain information for prosecutorial purposes.
102
We do not think it was improper for Goy-Edwards to have brought her
supervisor to the April 11 meeting in order to provide a “second opinion” as to
whether the file should be sent to the investigative section. The auditor
should not have asked if the appellant felt comfortable with the attendance of
an “assistant” when that person was in fact a supervisor, but this did not
change the fact that the referral to Special Investigations was the auditor’s
determination. So long as there has been no crystallization of the adversarial
relationship, there is, in our view, nothing wrong with an auditor seeking the
counsel of another before completing the transfer paperwork.
103
The record indicates that very little new information came to light as a
result of the April 11 meeting. Goy-Edwards was seeking confirmation of a
suspicion that she held that tax evasion may have occurred, but her goal in
this was to determine whether to refer the file. There is no suggestion that
she was seeking information to be used in an eventual prosecution, which fact
is borne out by the conclusions of the Court of Queen’s Bench and the Court of
Appeal: much of the material that was relied upon in the Information to Obtain
was already in Revenue Canada’s possession. In this respect, as previously
stated, it is clear that, although an investigation has been commenced, the
audit powers may continue to be used, though the results of the audit cannot be
used in pursuance of the investigation or prosecution.
104
We conclude that, on the facts of this case, the April 11 meeting did
not constitute an investigation into Jarvis’s penal liability under s. 239 of
the ITA . It follows that, other than the paragraphs struck from the
Information by the trial judge as being erroneous, nothing should have been
omitted from the application for the search warrant, and the warrant was
therefore validly issued. Based on the application of the relevant factors as
discussed above, we differ with the courts below and find that there was no
investigation into penal liability prior to May 4, 1994, when Goy-Edwards
filled out the Form T134 and referred her file to Special Investigations. The
record establishes that Chang’s efforts to determine whether reasonable grounds
to obtain a search warrant commenced upon her receipt of the file, and that she
concluded shortly thereafter that such grounds existed.
105
The searches of the appellant’s residence, his accountant’s residence,
and Revenue Canada’s Calgary office were therefore conducted pursuant to a
valid warrant. The evidence obtained therefrom should be admissible in a new
trial, if one is held. We point out, however, that some banking information
was obtained pursuant to s. 231.2(1) requirement letters in early 1995. On the
above analysis, this usage violated the appellant’s s. 7 rights, since the
investigation was at that point well underway. The respondent did not argue
that the trial judge had erred in his application of s. 24(2) of the Charter ,
and we would therefore order that the banking records be excluded from any
subsequent criminal proceedings against the appellant.
VII. Disposition
106
Accordingly, we would dismiss the appeal, and uphold the Alberta
Court of Appeal’s judgment and order for a new trial.
Appeal dismissed.
Solicitors for the appellant: Macleod Dixon,
Calgary.
Solicitor for the respondent: The Department
of Justice, Vancouver.
Solicitor for the intervener the Attorney General
for Ontario: The Ministry of the Attorney General, Toronto.
Solicitor for the intervener the Attorney General
of Quebec: The Department of Justice, Sainte‑Foy.
Solicitor for the intervener the Criminal Lawyers’
Association (Ontario): Scott K. Fenton, Toronto.