[1] By Order dated the 28th of September, 2004, issued at Vancouver, British Columbia, pursuant to subsection 231.2(3) of the Income Tax Act (the "Act"), I authorized the Minister of National Revenue (the "Minister") to impose on the National Foundation for Christian Leadership (the "Foundation") a requirement that the Foundation provide the Minister with certain information and documentation. Notice of the requirement was issued to the Foundation on the 29th of September, 2004.
[2] For ease of reference, section 231.2 of the Income Tax Act is reproduced as Schedule I to these reasons.
[3] Also for ease of reference, the substance of the Notice of Requirement is reproduced as Schedule II to these reasons. The names of ten individuals have been deleted from Schedule II for privacy reasons.
[4] By Notice of Motion filed the 15th of October, 2004, the Foundation sought review of my order. Pursuant to subsections 231.2(5) and (6) of the Act, the Foundation seeks the following relief:
1. A review of the Authorization;
2. An order cancelling the Authorization;
3. Costs; and
4. Such further and other order as this Honourable Court deems just.
[5] These reasons follow the hearing, by video conference between Ottawa and Vancouver, of the Foundation's motion.
BACKGROUND
[6] The following factual background was essentially not in dispute before the Court.
[7] Robert Fraser is an auditor employed in the Tax Avoidance Section of the Burnaby-Fraser Tax Services Office of the Canada Customs and Revenue Agency ("CCRA"). At all relevant times, he has had conduct of an audit of the Foundation and has had related concerns regarding charitable donation deductions made by numerous taxpayers who were involved in a common series of transactions with the Foundation. One of the programs administered by the Foundation involved the provision of bursaries to students who raised at least a specified amount of donations to the Foundation from at least five (5) donors. Related bursaries amounted to a maximum of 80% of the donations raised.
[8] Parents and relatives of some of the students made "gifts" or "donations" under the Foundation's program and claimed corresponding charitable donation deductions under section 118.1 of the Act. One of the issues under the audit of the Foundation is whether the donations collected under the program are donations under the Act eligible for the deduction under section 118.1 of the Act, as there is an issue whether the amounts were given with the expectation of receipt of a bursary by a particular student.
[9] Robert Fraser attests, in an affidavit that was before the Court when the Order that is here under review was issued, that the objective of the requirement sought, authorized and issued is to verify compliance by the individuals who have claimed charitable donation deductions with respect to donations to the Foundation's program with their duties and obligations imposed under the Act, and more particularly, whether the individuals correctly claimed charitable donation deductions under section 118.1 of the Act.
THE ISSUES
[10] Counsel for the Minister raised as a preliminary issue the question of whether or not the manner in which this matter has come before the Court is appropriate in law.
[11] At a more substantive level, counsel for the Foundation described the issue before the Court in essentially the following terms: whether the requirement to provide information and documents was in fact made to verify compliance by the persons in the group identified in numbered paragraphs (1) and (2) of the requirement. While the question of whether such group is ascertainable was raised as an issue in the written submissions on behalf of the Foundation, at the hearing before the Court, it was abandoned as an issue.
ANALYSIS
a) The Preliminary or Formal Issue
[12] Subsection 231.2(6) of the Act provides that a judge may cancel an authorization if he or she is not satisfied that the conditions in paragraphs 231.2(3)(a) and (b) have been met. Those conditions are that the unnamed person or persons referenced in the requirement is or are ascertainable and that the requirement is made to verify compliance by the person or persons with any duty or obligation under the Income Tax Act. Counsel for the Minister urges that the Foundation is not challenging the compliance of the requirement with either of those conditions but rather is challenging the adequacy of the materials put before the Court in seeking the authorization that the requirement be issued. In such circumstances, counsel urges, that the Foundation is not without an avenue to challenge the authorization and requirement but has simply chosen the wrong avenue. He urges that the appropriate avenue is an application for judicial review of the issuance of the requirement on behalf of the Minister.
[13] It is trite to say that where relief is sought under statutory authority, such as subsection 231.2(5) of the Act, and the statute conferring that authority provides that relief may only be granted on such an application in prescribed circumstances, which is the case in respect of subsection 231.2(6), the Court is without authority to grant relief in the absence of such circumstances. That being said, Rule 3 of the Federal Court Rules, 1998 provides that those Rules "...shall be interpreted and applied so as to secure the just, most expeditious and least expensive determination of every proceeding on its merits."
[14] Both counsel for the Foundation and counsel for the Minister expressed the view before the Court that it was in the interests of justice that the issue of substance before the Court be determined on its merits and that form should not prevail over substance. In the circumstances, the Court proposed that this matter should be dealt with as if there was before the Court an application for judicial review of the Minister's delegate's decision to issue the requirement in question, filed in a timely manner, and based entirely on the materials before the Court at the time of the hearing before me. Neither counsel took objection to so proceeding. In the result, I will turn to the substantive issue before the Court on the basis of such a judicial leap in the face of reality. I am satisfied that to do so is entirely in keeping with the spirit of Rule 3.
b) General Principles
[15] The following general principles relating to section 231.2 of the Income Tax Act were not in dispute before the Court: the procedure provided for by section 231.2 is intrusive; in the result, a restrictive approach in its use is mandated; the fact that the application is for an ex-parte procedure places an obligation on the Minister to act in the outmost good faith and to ensure full and frank disclosure of information; the Minister must fully justify to the Court the obtaining of information or documentation which he or she seeks to require when the information or documentation relates to unnamed persons; and a high standard of good faith and full disclosure is required of the Minister.
c) Compliance by the Minister with the General Principles Governing the Application of Section 231.2 of the Income Tax Act
[16] Counsel for the Foundation urged that, on the facts of this matter, the Minister by his or her delegate, simply did not meet the obligations of the Minister as reflected in the foregoing statement of general principles. The Minister first chose not to come to this Court. In the Spring of 2004, a similar requirement issued to the Foundation in respect of unnamed persons, without an authorization of a judge. The Foundation challenged that requirement by judicial review. The requirement was withdrawn.
[17] Further, Robert Fraser, in his affidavit that was before the Court in support of the application for the authorization issued by me attested that, in addition to conducting the audit of the Foundation, he was conducting audits of "...numerous taxpayers who were involved in a common series of transactions which I was reviewing." Under cross-examination, he appeared to take a quite different position. He expressed the view that examination of the affairs of donors might follow, depending on the outcome of the audit of the Foundation. At paragraph 8 of his affidavit, he attested:
The draft Requirement, pursuant to section 231.2 of the Act, ... is made to verify compliance by the individuals who have claimed a charitable donation deduction with respect to a donation to the Program with the duties and obligations imposed under the Act, in particular whether the individuals have correctly claimed a charitable donation deduction under section 118.1 of the Act with respect to amounts given to the [Foundation].
and yet the requirement itself, in the portion thereof set out in Schedule II, indicates that the requirement is:
For purposes related to the administration or enforcement of the Income Tax Act ... to determine whether or not National Foundation for Christian Leadership... properly issued donation receipts for bona fide donations... .
[18] I am satisfied that it is clear beyond question that the requirement is, at least initially, related to the audit of the Foundation. That being said, if the audit of the Foundation discloses that the Foundation was inappropriately issuing charitable donation receipts, the impact on those to whom the receipts were issued and who made donations and claimed deductions would be virtually automatic; as Mr. Fraser indicated under cross-examination "the two are hand in hand."
[19] As the judge issuing the authorization for the requirement, I am satisfied that I was not misled and that the requirements of subsection 231.2(3), that the person or group in relation to which information is sought, that is to say, the donor taxpayers, is ascertainable and the requirement was made to verify compliance by the person or persons in the group with a duty or obligation on them under the Income Tax Act, are satisfied. That is not to say that that was the only purpose for which the requirement was issued, the other being to determine or verify compliance by the Foundation with its duties and obligations under the Act. But that other purpose is intimately related with verification of compliance by the donor taxpayers. The one and the other are opposite-sides of the same coin. The existence of the objective in relation to the Foundation does not in any sense conflict with the purpose or objective in relation to the members of the group. The objectives are entirely complementary.
[20] In the result, I am satisfied that the review motion under subsection 231.2(5) of the Income Tax Act cannot succeed.
[21] I turn very briefly to the judicial review that is notionally before the Court. While I am in agreement with counsel for the Foundation that the Minister fell short of entirely fulfilling the obligations on him or her on a motion seeking authorization to issue a requirement, I am not satisfied that he or she fell so short as to justify the intervention of this Court. As I said earlier in these reasons, the Court was not misled. While that is not, and certainly should not be, the standard of approbation that the Minister seeks from this Court, I am satisfied that, on the facts of this matter, it is sufficient to support the issuance of the authorization and the consequent issuance of the requirement.
CONCLUSION
[22] In the result, the motion before the Court will be dismissed and, if an application for judicial review of the issuance of the requirement were before the Court, it would also be dismissed.
COSTS
[23] Costs would normally follow the event and are sought in the Minister's written materials. Costs are, of course, in the Court's discretion. In light of my concerns regarding the material put before the Court in support of the ex-parte application by the Minister for authorization, there will be no order as to costs.
__________________________________
J.F.C.
Ottawa, Ontario
December 17, 2004
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, including the collection of any amount payable under this Act by any person, 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.
231.2. (1) Malgré les autres dispositions de la présente loi, le ministre peut, sous réserve du paragraphe (2) et, pour l'application et l'exécution de la présente loi, y compris la perception d'un montant payable par une personne en vertu de la présente loi, par avis signifié à personne ou envoyé par courrier recommandé ou certifié, exiger d'une personne, dans le délai raisonnable que précise l'avis:
a) qu'elle fournisse tout renseignement ou tout renseignement supplémentaire, y compris une déclaration de revenu ou une déclaration supplémentaire;
b) qu'elle produise des documents.
(2) The Minister shall not impose on any person (in this section referred to as a "third party") a requirement under subsection 231.2(1) to provide information or any document relating to one or more unnamed persons unless the Minister first obtains the authorization of a judge under subsection 231.2(3).
(2) Le ministre ne peut exiger de quiconque -- appelé "tiers" au présent article -- la fourniture de renseignements ou production de documents prévue au paragraphe (1) concernant une ou plusieurs personnes non désignées nommément, sans y être au préalable autorisé par un juge en vertu du paragraphe (3).
(3) On ex parte application by the Minister, a judge may, subject to such conditions as the judge considers appropriate, authorize the Minister to impose on a third party a requirement under subsection 231.2(1) relating to an unnamed person or more than one unnamed person (in this section referred to as the "group") where the judge is satisfied by information on oath that
(a) the person or group is ascertainable; and
(b) the requirement is made to verify compliance by the person or persons in the group with any duty or obligation under this Act.
(c) (Repealed by S.C. 1996, c. 21, s. 58(1).)
(d) (Repealed by S.C. 1996, c. 21, s. 58(1).)
(3) Sur requête ex parte du ministre, un juge peut, aux conditions qu'il estime indiquées, autoriser le ministre à exiger d'un tiers la fourniture de renseignements ou production de documents prévue au paragraphe (1) concernant une personne non désignée nommément ou plus d'une personne non désignée nommément -- appelée "groupe" au présent article --, s'il est convaincu, sur dénonciation sous serment, de ce qui suit:
a) cette personne ou ce groupe est identifiable;
b) la fourniture ou la production est exigée pour vérifier si cette personne ou les personnes de ce groupe ont respecté quelque devoir ou obligation prévu par la présente loi;
c) (Abrogé par L.C. 1996, ch. 21, art. 58(1).)
d) (Abrogé par L.C. 1996, ch. 21, art. 58(1).)
(4) Where an authorization is granted under subsection 231.2(3), it shall be served together with the notice referred to in subsection 231.2(1).
(4) L'autorisation accordée en vertu du paragraphe (3) doit être jointe à l'avis visé au paragraphe (1).
(5) Where an authorization is granted under subsection 231.2(3), a third party on whom a notice is served under subsection 231.2(1) may, within 15 days after the service of the notice, apply to the judge who granted the authorization or, where the judge is unable to act, to another judge of the same court for a review of the authorization.
(5) Le tiers à qui un avis est signifié ou envoyé conformément au paragraphe (1) peut, dans les 15 jours suivant la date de signification ou d'envoi, demander au juge qui a accordé l'autorisation prévue au paragraphe (3) ou, en cas d'incapacité de ce juge, à un autre juge du même tribunal de réviser l'autorisation.
(6) On hearing an application under subsection 231.2(5), a judge may cancel the authorization previously granted if the judge is not then satisfied that the conditions in paragraphs 231.2(3)(a) and 231.2(3)(b) have been met and the judge may confirm or vary the authorization if the judge is satisfied that those conditions have been met.
(6) À l'audition de la requête prévue au paragraphe (5), le juge peut annuler l'autorisation accordée antérieurement s'il n'est pas convaincu de l'existence des conditions prévues aux alinéas (3)a) et b). Il peut la confirmer ou la modifier s'il est convaincu de leur existence.
(7) (Repealed by S.C. 1988, c. 55, s. 174.)
S.C. 1986, c. 6, s. 121; S.C. 1988, c. 55, s. 174; S.C. 1996, c. 21, s. 58; S.C. 2000, c. 30, s. 176.
(7) (Abrogé par L.C. 1988, ch. 55, art. 174.)
L.C. 1986, ch. 6, art. 121; L.C. 1988, ch. 55, art. 174; L.C. 1996, ch. 21, art. 58; L.C. 2000, ch. 30, art. 176.
SCHEDULE II
. . .
Notice of Requirement to Provide Information and Documents
For purposes related to the administration or enforcement of the Income Tax Act (herein the "Act") to determine whether or not National foundation for Christian Leadership ("NFCL") properly issued donation receipts for bona fide donations, pursuant to the provisions of subsection 231.2(1) of the Act, I hereby require that NFCL provide, on or before November 1, 2004 (the "required date"), the following documents:
(1) All of the official charitable donation receipts issued by NFCL from January 1st 2000 to August 31st 2003. The charitable donation receipts should contain all the required information under Regualtion 3501 of the Act;
(2) All of the donor forms received by NFCL from January 1st 2000 to August 31st 2003 from the donors identified in (1) above;
(3) For any donor form which is not available, provide the same information which the donor forms received from January 1st 2000 to August 31st 2003 contained including at least (i) the names of the donors, (ii) names of the students, and (iii) the amount donated;
(4) The 2002 application forms of the following 10 students: . . .
(5) For the 10 students identified in (4) above, explain (i) how you determine the Eligibility and the 'need to raise amounts' (NTR) shown on the application forms and what those figures represent, and (ii) how the final bursary was awarded.
. . .
FEDERAL COURT OF CANADA
TRIAL DIVISION
NAMES OF COUNSEL AND SOLICITORS OF RECORD
COURT FILE NO.: T-1556-04
STYLE OF CAUSE: THE MINISTER OF NATIONAL REVENUE
v. NATIONAL FOUNDATION FOR CHRISTIAN LEADERSHIP
PLACE OF HEARING: Ottawa, Ontario - by video conference
Counsel appearing at Vancouver, British Columbia
DATE OF HEARING: December 15, 2004
REASONS FOR ORDER: The Honourable Mr. Justice Gibson
DATED: December 17, 2004
APPEARANCES:
Mr. Carvalho . for the Applicant (Respondent on Motion)
Mr. Kiselbach for the Respondent (Applicant on Motion)
SOLICITORS OF RECORD:
Miller Thomson LLP for the Applicant
Barristers & Solicitors
Vancouver, BC à
V6Z 2M1
Morris A. Rosenberg for the Respondent
Deputy Attorney General of Canada
Vancouver, BC
V6Z 2S9
R.S.C. 1985, c. 1 (5th Supp.).
Subsection 231 of the Income Tax Act provides that, in section 231.2 and other specified sections, the term "judge" includes a judge of the Federal Court.
The Minister of National Revenue v. Sand Exploration Limited el al (1995), 49 DTC. 5358 (F.C.T.D.).
The Minister of National Revenue v. Toronto Dominion Bank (2004), 58 DTC. 6518 (F.C.T.D.).
Capital Vision Inc. et al v. The Minister of National Revenue (2003), 57 DTC. 5054 (F.C.T.D.).
See: The Foundations's Motion Record, page 028, at questions 86 to 88; page 029, at questions 95 to 97; page 031, at questions 105 to 107; and page 045 at questions 185 to 186.
The Foundation's Motion Record, page 045, reply to question 186.
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