Citation: 2012TCC58
Date: 20120221
Docket: 2008-1643(IT)G
BETWEEN:
DOLORES ROMANUK,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDER
V.A. Miller J.
[1]
This is a motion by the
Appellant pursuant to section 54 of the Tax Court of Canada Rules (General
Procedure) (the “Rules”). She seeks an order granting her leave to
file a Second Amended Notice of Appeal (“proposed pleadings”) in which she
raises, as a new issue, that there has been a violation of the Canadian
Charter of Rights and Freedoms (the “Charter”).
[2]
The appeal concerns the
disallowance of losses claimed by the Appellant in the 1995, 1996 and 1997
taxation years from a software tax shelter investment called Softcom Solutions
– Partnership (“SSP”).
[3]
The additional facts
pled by the Appellant in the proposed pleadings are:
4. John Haisanuk, a CRA auditor (the “Auditor”) began
communicating with the partnership in 1995 respecting the Partnership’s
application for a tax shelter number.
…
32. On October 31, 1996, the Auditor wrote to the Partnership to
notify the partnership of an upcoming audit.
33. In December, 1996, the Auditor began communicating with Special
Investigations in Calgary and
began providing Special Investigations with documents pertaining to the
Partnership.
34. In January, 1997, the Auditor attended at the offices of the
Partnership, conducted interviews with various partners and was provided with
copies of the Software.
35. On April 8, 1997, the Auditor informed Special Investigations in
Calgary that he intended to send the file to Special Investigations in Mississauga.
36. On May 30, 1997, the Auditor met with members of the Partnership
at the office of David Muttart, who at the time was counsel for the
Partnership. During this meeting, the Auditor made further requests for
documents and information.
37. The Auditor referred the file to Special Investigations in June,
1997.
38. In August, 1997, Wally Dove sent a letter to the Auditor
attaching the documentation requested by the Auditor at the May 30, 1997
meeting.
39. On September 9, 1997, the Partnership was informed that the file
had been referred to Special Investigations.
[4]
The new issues raised
by the Appellant in the proposed pleadings are:
(a) Whether the Canada Revenue Agency (“CRA”) used its audit
powers under the Income Tax Act (the “Act”) to compel the
Partnership to provide information after the audit had become a criminal
investigation in contravention of the Charter.
(b) If the answer to the first issue is yes,
whether the evidence obtained in contravention of the Charter should be
excluded pursuant to section 24 of the Charter; and, the assessments vacated.
[5]
The materials presented
to the court on this motion consisted of the Appellant’s affidavit which was
filed in support of the motion, a transcript of the Appellant’s cross
examination with respect to her affidavit and counsels’ oral and written
argument. Attached to the transcript were two letters which had been sent to
SSP by the audit section of CRA. The first letter dated October 31, 1996 was
sent to the attention of Wally Dove and in it the auditor requested all the
books and records of SSP. The second letter dated April 9, 1997 was sent to the
attention of Sonya Zenz and it was a 30 day proposal letter.
[6]
The CRA performed a
field audit of SSP’s books and records on January 14, 15 and 16, 1997. The
Appellant was not present during the audit. She was neither questioned by the
auditor nor did she give any information to him. I have inferred from the
transcript of the cross examination on her affidavit that the Appellant was not
consulted by her partners who prepared a response to the auditor’s letter of
October 31, 1996.
[7]
Counsel for the
Appellant did not state that the Appellant attended the meeting with the
auditor on May 30, 1997 and I have concluded that she did not.
[8]
Wally Dove and Sonya
Zenz were charged criminally but the charges were stayed because of delay.
[9]
On a motion to amend
pleadings, it is open to the motions judge to evaluate the fundamentals of the
proposed amendment to ensure that the amendment conforms to the minimum
requirements of pleadings under the Rules. A proposed amendment to a
pleading which, on its face, does not raise a cause of action, should not be
allowed. See Canada v. Fluevog, 2011 FCA 338.
[10]
I have reviewed all the
material presented and I conclude that this motion must be dismissed because
the proposed issue does not disclose a reasonable cause of action.
[11]
The Appellant has
claimed a breach of a Charter right but she does not identify the right
in question and she does not claim that it was any of her personal rights which
were breached. The rights guaranteed by the Charter are personal rights.
(See paragraph 45 of R. v. Edwards, [1996] 1 S.C.R. 128). If there was a
breach of a Charter right, then that right belonged to another
individual who may have standing to bring the issue to Court.
[12]
It is the Appellant’s
position that CRA used its audit powers to compel SSP to provide information
after CRA had commenced a criminal investigation and that it was this conduct
which caused a Charter breach.
[13]
The Appellant’s
position was not supported by the material presented at the hearing. That
material disclosed that SSP was never compelled to provide information. SSP was
never served with a search warrant or a Requirement to Provide Documents or
Information pursuant to section 231.2 of the Income Tax Act. The CRA
sent two letters to SSP and those letters did not amount to coercion or
compulsion. They were the normal letters sent to a taxpayer in the course of an
audit by CRA. The letter dated October 31, 1996 requested the books and records
of SSP. In the letter dated April 9, 1997, the CRA informed the partners of SSP
of the outcome of its audit; it proposed to reassess all the partners of SSP;
and, it gave the partners 30 days to make any representations regarding the
proposed reassessments.
[14]
According to the new
facts in the proposed pleading, Wally Dove, a partner in SSP, sent information
to CRA after it had referred the file for criminal investigations. It is my
opinion that this conduct may be a factor when determining penal liability but
it is not a factor when considering the civil liability of the Appellant. My opinion
is supported by the decision of the Supreme Court of Canada in R. v. Jarvis,
[2002] 3 S.C.R. 757 where they distinguished between the CRA’s audit and
investigation functions. That Court wrote:
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.
[15]
In R. v. Jarvis
(supra) the Supreme Court of Canada also confirmed that the CRA was
entitled to conduct parallel criminal investigations and civil audits. They
wrote:
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).
…
103 …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.
[16]
I have concluded from
the material before me that the predominant purpose of the civil audit was to
assess the Appellant’s civil tax liability. The Appellant has not alleged that
she was the subject of a criminal investigation and she was never charged with
an offence. The proposed amendments do not allege that penal liability was the
predominant purpose of the audit.
[17]
For all of these
reasons, the motion is dismissed with costs to the Respondent in any event of
the cause.
Signed at Ottawa, Canada, this 21st day of February
2012.
“V.A. Miller”
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