Date:
20021227
Docket:
2001-2060-IT-G
BETWEEN:
ARTHUR
WEBSTER,
Appellant,
and
HER MAJESTY
THE QUEEN,
Respondent.
Reasons
for Order
Bonner,
T.C.J.
[1]
Arthur Webster is the Appellant in an appeal to this Court from
assessments of Income Tax for the 1995, 1996 and 1997 taxation
years. He has applied for an order requiring the Respondent to
produce a complete copy of an audit report dated September 21,
1997. The Minister of National Revenue (the "Minister")
has produced a copy of the report but has blacked out parts of
it.
[2]
The audit report was prepared by Patty Manchester, an employee of
the Canada Customs and Revenue Agency (CCRA). The report outlines
the course of an audit conducted by Ms. Manchester with
respect to Mr. Webster's activity as a foster parent
providing housing and care to high risk children. This activity
was conducted under contract with the Government of British
Columbia. As a result of the audit the assessments under appeal
were issued.
[3]
In her report Ms. Manchester referred to information provided to
the CCRA by an informant. Counsel for the Appellant sought a copy
of the report but the Appeals Division blacked out on the copy of
the report which was sent to him all portions which would enable
a reader to identify the informant. The Respondent invokes
informer privilege as justification for that action.
[4]
In the Notice of Motion, the Appellant relies on ss. 78, 85 and
91 of the General Procedure Rules. The Respondent's
list of documents delivered under s. 81 of the Rules
does not refer to the Audit Report. The Appellant's list does
refer to an edited version of the report (Item 29 Schedule A) and
to correspondence related to it. Examinations for discovery have
not yet been held.
[5]
An affidavit of the Appellant was filed in support of the motion.
In it, he states in part:
"5.
I understand that the information contained in the "blacked
out" portions of the edited Audit Report relates to an
informer who apparently communicated information to Revenue
Canada, causing the audit to occur.
6.
The identity of the informer is unknown to me and I have no way
of identifying and examining this potential witness without
disclosure of the material in the Audit Report.
7.
When pressed by my lawyer, paragraph J. (c) was eventually
disclosed by the Minister. That paragraph read:
"(c)
Consideration of the levying of
penalties
The
auditor did not consider the levying of penalties as the issue of
whether the income is in fact taxable is a complex area which is
subject to interpretation. There is no evidence to support that
the taxpayer knowingly reported the income
incorrectly."
8.
I fear that other equally relevant portions of the Audit Report
have also been improperly withheld, and that the Minister has
acted in error by so withholding.
9.
Whatever information may have singled me out and prompted the
audit should be disclosed to me to allow me to prepare my appeal
case properly."
[6]
An affidavit of Patty Manchester was filed by the Respondent. It
states in part:
"2.
In 1999, I conducted an audit of the Appellant in respect of an
activity carried on by the Appellant known as Paradox Residential
Services ("Paradox");
3.
Paradox's activities consisted of contracts with the Ministry
of Social Services (also known as the Ministry of Children and
Families) of the Government of British Columbia (the
"Ministry") to provide housing and care to high risk
children;
4.
The issue in these appeals is whether amounts received by the
Appellant from the Ministry to operate Paradox were taxable or
whether they were exempt from taxation under paragraph 81(1)(h)
of the Income Tax Act, R.S.C. 1985, c. 1
("5th Supp.").
5.
During the course of my audit, I was in contact with an
informant, who provided me with information about the Appellant
in confidence (the "Informant"). The Informant advised
me that the Informant is fearful of the Appellant and believes
that the Informant's safety will be threatened if the
information provided by the Informant is revealed to the
Appellant. I told the Informant that the CCRA would not disclose
to the Appellant that the Informant had provided information and
that the CCRA would not disclose to the Appellant the information
provided by the Informant.
6.
I prepared an audit report outlining the results of the audit. In
the Report, I made reference to the fact that the Informant had
provided certain information. The nature of the information
provided by the Informant is such that, if the information were
disclosed, such disclosure would also reveal the identity of the
Informant.
..."
[7]
Although it has no bearing on the outcome of this motion, I note
that Mr. Webster is mistaken in thinking that the
informant's information led to the audit. The audit was
already underway when the CCRA was contacted by the informant.
This was confirmed by viva voce testimony given by
Ms. Manchester at the hearing of the application.
[8]
Not only was the audit underway when the informant contacted the
CCRA, it was almost complete. Ms. Manchester produced a
letter dated April 6, 1999 sent by her to counsel for Mr.
Webster. It outlined the assessment which she proposed to issue
and the basis for it. That proposal was implemented by the
issuance of the assessments under appeal. The letter was sent
prior to her discussions with the informant. The information
supplied by the informant did not, it seems, affect the
assessments.
[9]
Ms. Manchester testified, and I accept her evidence, that the
blacked out information in the audit report relates only to what
was revealed by the informant after the promise of
confidentiality was given.
[10] The
Appellant's primary purpose in bringing this motion appears
to be to discover the identity of the informant. In my view that
identity is irrelevant. What is relevant in litigation is defined
by the pleadings. The Appellant, who relies on the exemption in
s. 81(1)(h) of the Act, pleads in part:
"The
Taxpayer maintains a principal place of residence at
649 Jadel Drive, Victoria, British Columbia (the
"Home").
The
Taxpayer resides in the Home with his foster
children."
Those
allegations are denied by the Respondent. The identity of the
informant will not assist in establishing whether those
allegations are true.
[11] The Notice
of Appeal raises an issue described as "Collateral
Issue". Paragraph 6 reads:
"The
Minister has previously represented to the Taxpayer, through the
Ministry of Children and Families, that the social assistance
payments are not included in the Taxpayer's income pursuant
to S. 81(1)(h). The Taxpayer has relied upon such
representations to his detriment in the preparation of his Tax
Returns, in that he has failed to deduct from his income any or
all expenses and deductions to which he is otherwise entitled.
The Minister is estopped from raising the
assessments."
Assuming
without deciding that there is some legal foundation for the
application in this case of the doctrine of estoppel the identity of the
informer is not relevant either to the making of the
representation or to reliance on it.
[12] It should
be remembered that the validity of an assessment of tax must rest
on the question whether the Minister, in arriving at the amount
of tax assessed, has properly applied the taxing statute to the
facts. It does not depend on whether the assessor's
investigation was thorough or shoddy or on the identity of the
assessor's sources of information. Even if Ms. Manchester did
receive information from an unreliable source, it does not follow
that the Appellant is entitled to relief. The right of appeal is
provided to allow taxpayers to challenge the result and not the
manner in which the result has been reached. The appeal will
succeed only if the amount of tax assessed is too
high.
[13] There is
simply no basis for directing that irrelevant information be
revealed and on that ground alone the application must
fail.
[14] The
application must be dismissed on second ground, informer
privilege. That privilege is a rule preventing the disclosure of
information which might identify an informer who has assisted in
the enforcement of the law by furnishing assessing information on
a confidential basis. The basis of the rule is discussed in
Leipert v. Her
Majesty the Queen where McLachlin J (as she then was)
said:
at p.
289,
"A
court considering this issue must begin from the proposition that
informer privilege is an ancient and hallowed protection which
plays a vital role in law enforcement. It is premised on the duty
of all citizens to aid in enforcing the law. The discharge of
this duty carries with it the risk of retribution from those
involved in crime. The rule of informer privilege was developed
to protect citizens who assist in law enforcement and to
encourage others to do the same. ..."
at p.
291
"Informer privilege is of such importance that one
found, courts are not entitled to balance the benefit enuring
from the privilege against countervailing considerations, as is
the case, for example, with Crown privilege or privileges based
on Wigmore's four-part test..."
and at p.
293
"Connected as it is to the essential effectiveness of
the criminal law, informer privilege is broad in scope. While
developed in criminal proceedings, it applies in civil
proceedings as well: Bisaillon v. Keable, supra. It
applies to a witness on the stand. Such a person cannot be
compelled to state whether he or she is a police informer:
Bisaillon v. Keable, supra. And it applies to the
undisclosed informant, the person who although never called as a
witness, supplies information to the police. Subject only to the
"innocence at stake" exception, the Crown and the court
are bound not to reveal the undisclosed informant's
identity.
Informer privilege prevents not only disclosure of the name of
the informant, but of any information which might implicitly
reveal his or her identify. Courts have acknowledged that the
smallest details may be sufficient to reveal
identity."
The
privilege does not apply only to protect the identity of the
informant who contacts the police regarding criminal matters. It
applies to protect the identity of a person who has given to
officials of the Department of National Revenue information which
has or may have led to an income tax assessment.
[15] With
respect to informer privilege the first main submission of
counsel for the Appellant is that it does not apply. Counsel
submitted:
"We
submit that the CCRA's claim to Informer Privilege is based
on a confusion between the enforcement and compliance function of
the police or other enforcement personnel, for example the
Special Investigations Unit of the CCRA which deals with tax
fraud and the CCRA as an executive body implementing and
interpreting legislation.
It cannot
be said that the CCRA's ability to function as an executive
body that implements and interprets legislation is unacceptably
hindered by the requirement the Informants' identities be
disclosed or that information which may disclose the identity of
Informants be disclosed.
In this
case there is no question of compliance or enforcement, indeed
the auditor levied no penalties against Mr. Webster when she
found that he had an honest belief that the program receipts were
non-taxable. [See Affidavit of Webster,
Exhibit "E"]"
[16] Having
regard to the nature and importance of the privilege I cannot
accept the argument that it is limited to communications with
members of the special investigations unit of the CCRA. An
informant who approaches that agency cannot be expected to assume
the risk that protection will be lost if the official to whom he
speaks is a member of the wrong branch of the agency. To so
restrict the ambit of the privilege would be wrong in principle
for it would capriciously limit its operation. As this
Court noted in Promex the
privilege:
"...
is too firmly entrenched for me to attempt to find ways to avoid
applying it. It is based upon sound considerations of
public policy that should not be eroded. Clearly it is
not restricted to criminal matters and I can see no reason not to
apply it to informants who give information in confidence to
officials of the Department of National Revenue. Without
diminishing in any way the obligation of the Crown to make full
disclosure of its case to an appellant in an income tax appeal, I
think the rule as it applies to informants who give
information in confidence to the tax authorities is a rule that
should be fostered. In my opinion, the four elements set
out by Wigmore have been met.
..."
(Emphasis added)
[17]
Section 220(1) of the Act
provided:
"The
Minister shall administer and enforce this Act and control
and supervise all persons employed to carry out or enforce this
Act and the Deputy Minister of National Revenue may
exercise all the powers and perform the duties of the Minister
under this Act."
Section
220(1) now provides:
"The
Minister shall administer and enforce this Act and the
Commissioner of Customs and Revenue may exercise all the powers
and perform the duties of the Minister under this
Act."
The word
'enforce' is to be given its ordinary meaning, to compel
observance. That is exactly what Ms. Manchester was doing in
performing the audit and in assessing tax.
[18] Next,
counsel argues that this is a case which falls within the
"innocence at stake" exception to the rule. Counsel
argues:
"In
the usual course, the Crown is required to prove their case
against a person. Here however, the Reassessment is deemed
correct and there is a reverse onus that requires Mr. Webster to
prove it wrong.
His
situation is in a sense more precarious than a criminal defendant
in that the CCRA has no burden to discharge. They do not need to
prove their case on the balance of probabilities much less beyond
a reasonable doubt. They merely assume the requisite
facts."
[19] This line
of argument is fundamentally flawed for it rests on the
assumption that every taxpayer who has been assessed or at least
every such person who contests his assessment, has been charged
with a crime and, on appeal from the assessment, is obliged to
prove his "innocence". The assumption is, quite simply,
wrong.
[20] The onus
in an income tax appeal obliges the Appellant to establish on the
balance of probabilities that the factual assumptions on which
the assessment rests are erroneous. That onus in most cases, and
in particular in this case, should be relatively easy to
discharge. The relevant facts, such as whether the foster
children resided in the
Appellant's principal place of residence, must be well known
to the Appellant. The innocence at stake exception does not
apply.
[21] The
application will be dismissed with costs.
Signed at
Toronto, Ontario, this 27th day of December 2002.
T.C.J.
COURT FILE
NO.:
2001-2060(IT)G
STYLE OF
CAUSE:
Arthur Webster and Her Majesty the Queen
PLACE OF
HEARING:
Vancouver, British Columbia
DATE OF
HEARING:
November 7, 2002
REASONS FOR
ORDER
BY:
the Honourable Judge Michael J. Bonner
DATE OF
ORDER:
December 27, 2002
APPEARANCES:
Counsel for
the Appellant: D. Laurence Armstrong
Counsel for
the
Respondent:
Lisa Macdonell
COUNSEL OF
RECORD:
For the
Appellant:
Name:
D. Laurence Armstrong
Firm:
Armstrong Nikolich
Victoria, British Columbia
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2001-2060(IT)G
BETWEEN:
ARTHUR
WEBSTER,
Appellant,
and
HER MAJESTY
THE QUEEN,
Respondent.
Application
heard on November 7, 2002 at Vancouver, British Columbia,
by
the
Honourable Judge Michael J. Bonner
Appearances
Counsel for
the
Appellant:
D. Laurence Armstrong
Counsel for
the
Respondent:
Lisa Macdonell
ORDER
The
application is dismissed with costs.
Signed at
Toronto, Ontario, this 27th day of December 2002.
T.C.J.
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