Date: 20091020
Docket: T-1224-07
Citation: 2009 FC 956
Ottawa, Ontario, this 20th day of
October 2009
Present: The Honourable Mr. Justice
Pinard
BETWEEN:
LONDON LIFE – COMPAGNIE
D’ASSURANCE-VIE
630 Boulevard René-Lévesque West, suite
1900
Montreal, Quebec
H3B 4J5
Applicant
and
ATTORNEY GENERAL OF CANADA
and
THE MINISTER OF NATIONAL REVENUE
Respondents
REASONS FOR
JUDGMENT AND JUDGMENT
[1]
This
is an application for judicial review, under subsection 18.1 of the Federal
Court Act, R.S.C.
1985, c. F-7, and
subsection 231.2 of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.),
(the “ITA”)
of a Requirement to provide information, dated June 5, 2007, addressed by the
Canada Revenue Agency (“CRA”) to the applicant, London Life-Compagnie
d’assurance-vie (“London Life”).
* * * * * * *
*
[2]
London
Life is a federally incorporated life insurance company that carries on
business in the areas of life insurance, investment and retirement savings in
all of Canada’s provinces
and territories.
[3]
In
July 2005, the CRA commenced an audit of taxpayer Lofti Ghattas (or, the
“taxpayer”), an insurance broker, for taxation years 2002 and 2003. The audit
targeted inter alia expenses claimed by him under a budget item
describing “prime d’assurance payée et supportée par moi-même pour générer un
revenu”.
[4]
Mr.
Ghattas received commission from London Life based on his volume of annual
sales, provided that policies sold were maintained for at least twelve months.
If an important client wished to cancel its policy before twelve months had
expired, Mr. Ghattas would continue to pay the client’s premiums for the
remainder of the 12-month period, in order to retain his full commission. The
policies in question would remain in the possession of London Life, and not Mr.
Ghattas.
[5]
According
to the CRA, in order to determine whether the expenses claimed by the taxpayer
regarding this practice were legitimate under the ITA, it had to identify the
nature of the “reimbursement” made by Mr. Ghattas under the conditions of the
associated policies. In particular, the CRA states that it is essential to
obtain information that will assist in determining whether the reimbursements
in question were in relation to insurance-related or investment-related
products.
[6]
On
December 15, 2006, the Minister of National Revenue (the “Minister”) issued a
Requirement to the applicant requesting information and documents in its
possession pertaining to clients to whom Mr. Ghattas had sold insurance
policies. These clients’ names, along with other identifying information
obtained from the taxpayer, were listed in a table annexed to the Requirement.
This first Requirement was, however, cancelled because not all policyholders
were mentioned and health information was captured in the request.
[7]
On
June 5, 2007, the applicant was served with a second Requirement by the
Minister, pursuant to paragraph 231.2(1)(a) of the ITA, requesting
information and documents within 30 days of its receipt by the applicant.
[8]
On
June 29, 2007, the applicant filed an application for judicial review seeking
an order quashing the second Requirement because of the Minister’s failure to
seek prior judicial authorization.
* * * * * * *
*
[9]
The
content of the Requirement currently under review is as follows:
Aux fins de l’application ou de
l’exécution de la Loi de l’impôt sur le revenu, concernant M. Lotfi
Ghattas, j’exige que, dans les trente jours suivant la date de réception de la
présente demande péremptoire, vous fournissiez les renseignements et produisiez
en vertu des dispositions de l’alinéa 231.2(1)(a)(b) [sic] de
ladite Loi :
i)
Une copie
des polices d’assurance-vie dont vous trouverez le numéro de contrat de police,
le nom des payeurs ainsi que le nom des assurés en annexe ci-jointe :
Pour les contrats d’assurance-vie, vous
n’avez pas à inclure les informations portant sur l’état de santé des assurés.
ii)
La liste
de tous les paiements reçus et remboursements faits pour ces mêmes polices en
précisant le nom du bénéficiaire, la date ainsi que le montant payé avec toutes
les pièces justificatives à l’appui.
[10]
Particularly
significant to this proceeding is the fact that the Minister did not seek
judicial authorization, pursuant to paragraph 231.2(2) of the ITA, before
issuing the Requirement.
* * * * * * * *
[11]
The
following provisions of the ITA are relevant to this proceeding:
|
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), of a
comprehensive tax information exchange agreement between Canada and another
country or jurisdiction that is in force and has effect or, for greater
certainty, of a tax treaty with another country, by notice served personally
or by registered or certified mail, require that any person provide, within
such reasonable time as stipulated in the notice,
(a) any information or
additional information, including a return of income or a supplementary return;
or
(b) any document.
(2) The Minister shall not
impose on any person (in this section referred to as a “third party”) a requirement
under subsection (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 (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 (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) and (d)
[Repealed, 1996, c. 21, s. 58(1)]
. . .
|
231.2 (1)
Malgré les autres dispositions de la présente loi, le ministre peut, sous
réserve du paragraphe (2) et pour l’application ou l’exécution de la présente
loi (y compris la perception d’un montant payable par une personne en vertu
de la présente loi), d’un accord général d’échange de renseignements fiscaux
entre le Canada et un autre pays ou territoire qui est en vigueur et
s’applique ou d’un traité fiscal conclu avec un autre pays, 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) 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) 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) et d) [Abrogés, 1996, ch. 21, art.
58(1)]
. . .
|
* * * * * * * *
[12]
Paragraph
231.2(1) of
the ITA grants the Minister broad power to require any person to provide
any information or document for “any purpose related to the
administration or enforcement of this Act”. This power is, however, restrained
by paragraph (2) which, on its face, imposes a duty on the Minister to first
obtain a court order, pursuant to paragraph (3), before imposing on any “third
party” a requirement under 231.2(1) to provide information or documents
relating to one or more “unnamed persons”.
[13]
The
applicant’s central claim is that the Requirement issued by the Minister on June 5, 2007
is invalid because the Minister, contrary to paragraph 231.2(2), did not seek
prior authorization from this Court to access information pertaining to unnamed
persons in the possession of London Life, the third party. The Minister counters
that he had no such obligation: once the criteria set out in subsection
231.2(1) are met, disclosure was mandatory, without a court order.
[14]
The
applicant finds support for its position in this Court’s ruling in Minister
of National Revenue v. Toronto Dominion Bank, 2004 FC 169, 253 F.T.R. 90.
There, the Toronto Dominion Bank refused to respond, absent a court order, to a
request from the Minister to provide information about an unnamed person to
whom a TD bank account belonged, into which funds had been deposited by a tax
debtor. Madam Justice Danièle Tremblay-Lamer wrote:
[20] Although
the [Minister] maintained that he only wanted to ascertain whether his debtor
Jonathan Myette, who is under investigation, had tried to reduce his property
at the expense of his creditors, it cannot be argued without risk of absurdity
that this is a situation covered by subsection 231.2(1), since the Minister is
trying to obtain information on the name of the holder of bank account No.
4152-291062 and the names and account numbers of persons whom the Bank knows
have acted as nominees for Jonathan Myette. How can it be argued that these
persons have been named?
[21] The
fact that the information sought could potentially prove relevant in the
investigation being conducted regarding the tax debtor Jonathan Myette is of no
importance. Subsection 231.2(2) is clear: prior authorization is necessary.
The Federal Court of Appeal upheld her decision
(2004 FCA 359). Justice Robert Décary, writing for the Court, explained:
[7] .
. . The purpose of subsection 231.2(2) is to protect both the third party
with the information and the person concerned. The third party naturally
wants to be sure, before it gives information to the Minister (which moreover
here is confidential under paragraph 244(d) of the Bank Act) that
it has a legal duty to do so. The person concerned is entitled to have his or
her privacy respected to the extent provided by law. It is specifically to
achieve this twofold objective that Parliament has limited the Minister’s power
and required him to obtain prior judicial authorization, once the conditions
mentioned in paragraphs 231.2(3)(a) and (b) are met.
[8] The
Minister is seeking to do this here although subsection 231.2(2) does not
intend him to do so. Additionally, the effect of accepting his
interpretation of section 231.2 would be to invalidate subsections 231.2(2) and
(3) and the protection they provide, since the Minister would be obtaining
under subsection 231.2(1), without prior judicial consent, information
concerning unidentified persons once he is not investigating or says he is not
investigating those persons. The very purpose of subsections 231.2(2) and (3)
is to protect unidentified persons who are not being investigated while making
it possible in the interests of justice, and subject to judicial review, for
information to be obtained on persons who are in fact under investigation.
[My
emphasis.]
[15]
For
their part, the respondents in the present case first submit, based on R. v.
McKinlay Transport Ltd., [1990] 1 S.C.R. 627, the following:
It is now trite law that to ensure
the integrity of a self-reporting and self-assessing fiscal regime which
depends on the honesty of its taxpayers, the MNR “must be given broad powers
[…] to audit taxpayers’ returns and inspect all records which may be relevant
for the preparation of these returns”, whether or not he has reasonable grounds
for believing that a particular taxpayer has breached the Act. 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 can be maintained. The
scope of documents and information that may be sought by the MNR is much wider
that those which must be statutorily recorded, kept or made, and includes those
a taxpayer would expect to be protected under s.8 of the Canadian Charter of
Rights and Freedoms.
[16]
Referring
specifically to subsections 231.2(1) to (3) of the ITA, the respondents further
submit:
Inter
alia, the MNR may request any person to provide information or communicate
documents concerning him- or herself or a third party, irrespective of their
relationship, whether the information or documents concerns known or unknown
persons. . . .
Disclosure
to the MNR is mandatory from the moment the criteria set out in subs. 231.2(1)
is met. . . .
[17]
I
agree. Indeed, section 231.2 covers two situations: the Minister requests
information about (1) a known taxpayer; or (2) unknown persons. In the former
situation, the Minister clearly is not required to first obtain judicial
authorization prior to serving a request for information upon any person (see Redeemer
Foundation v. Minister of National Revenue, 2008 SCC 46, at paragraph 15; eBay
Canada Ltd. v. Minister of National Revenue, 2008 FCA 348, at paragraph 23;
Canada (Minister of National Revenue) v. Great Montréal Real Estate Board,
[2008] 3 F.C.R. 366 (C.A.), at paragraph 13; Canada (Customs & Revenue
Agency) v. Artistic Ideas Inc., 2005 D.T.C. 5165, 2005 FCA 68, at
paragraphs 10 to 12; Minister of National Revenue v. Toronto Dominion Bank,
supra, at paragraph 18).
[18]
In
this case, CRA is auditing Mr. Ghattas’ tax returns. The taxpayer is known and
of course identified. The request for information served upon the applicant who
is also known, mentions his name in the first paragraph. The policy holders,
about whom information is sought, are also known, as they are listed in an
annex to the request for information.
[19]
In
the circumstances, I conclude that the request for information served upon the
applicant by the CRA complies with the requirements of section 231.2 of the ITA
and that the Minister was not subjected to prior judicial authorization.
[20]
Furthermore,
if one accepted the applicant’s view that the Requirement, in this case, is
related to “unnamed persons”, because its annex does not necessarily indicate
the names of the insured persons and does not mention the names of the
beneficiaries of the insurance policies, judicial authorization would not be
required, as those “unnamed persons” are not under audit. As the affidavit of
Mrs. Danielle Asselin, an auditor for the CRA, shows, at paragraphs 16 to 19
(Respondents’ Record, at page 5), the information and documents sought will not
be used to conduct an audit on another taxpayer, known or unknown.
[21]
In Canada (Customs and Revenue
Agency) v. Artistic Ideas Inc., supra, issued a few months after Toronto
Dominion Bank, supra, Rothstein J.A. (as he then was) wrote:
[8] As
I understand the scheme of section 231.2, the Minister may require a third
party to provide information and documents pertaining to the third party’s
compliance with the Act. However, the Minister may not impose a Requirement
on the third party to provide information or documents relating to unnamed
persons whom he wishes to investigate, unless he first obtains the
authorization of a judge. The judge may authorize the Minister to require
such information only if the unnamed persons are ascertainable and only if
satisfied that information or documents relating to them is required to verify
compliance by them with the Act.
[My
emphasis.]
Justice Rothstein went on to say:
[11] .
. . [W]here unnamed persons are not themselves under investigation,
subsections 231.2(2) and (3) do not apply. Presumably, in such cases the
names of unnamed persons are necessary solely for the Minister’s investigation
of the third party. In such cases a third party served with a Requirement to
provide information and documents under subsection 231.2(1) must provide all
the relevant information and documents including the names of unnamed persons.
That is because subsection 231.2(2) only pertains to those unnamed persons in
respect of whom the Minister may obtain an authorization of a judge under
subsection 231.2(3).
[My
emphasis.]
[22]
Faced
with the apparently contradictory rulings of different panels of the Federal
Court of Appeal in Toronto Dominion Bank and Artistic Ideas Inc.,
decisions of this Court since then have tended to follow the latter. In Minister
of National Revenue v. Morton, 2007 FC 503, Deputy Judge Barry Strayer
concluded at paragraph 11, albeit with limited explanation, that Artistic
Ideas “indicates more clearly the intention of subsection 231.2(2)”.
Justice Leonard Mandamin, in Minister of National Revenue v. Advantage
Credit Union, [2009] 2 F.C.R. 185, agreed with Deputy Judge Strayer:
[17] .
. . Subsection
231.2(2) clearly relates “one or more unnamed persons” to the authorization
required in subsection 231.2(3). Those “one or more unnamed persons” in subsection
232.1(2) are individuals in subsection 232.2(3) for whom “the requirement is
made to verify compliance by the person or persons in the group with any duty
or obligation under this Act.” I conclude that the interpretation of subsection
231.2(2) given by the Federal Court of Appeal in Artistic
Ideas, above, governs this matter.
[23]
In Her
Majesty the Queen v. Amex Bank of Canada, 2008 FC 972, 333 F.T.R. 259, Deputy
Judge Orville Frenette, confronted with the same dilemma, opted for reasons of
comity to follow his colleagues’ lead. He offered this comment:
[49] Reading [231.2(3)] in connection with 231.2(2), it is easy to see
how one could take the view that the unnamed person or group of persons being
referred to must be the intended subject of an investigation. The alternative
approach, whereby subsection 231.2(2) is read such that it covers all unnamed
persons or groups of persons, would mean that the Minister could never receive
information about unnamed parties that is incidentally necessary for an
investigation because the Minister could not meet the requirements of subsection
231.2(3). Indeed, given the situation in Artistic Ideas, I can see why
the Court followed the path that it did. In that case, a third party under
investigation could have benefited from the protection being afforded to others
who were not the subject of investigation – and therefore unattainable under
subsection 231.2(3) – but whose information was necessary for the investigation
of the third party.
[24]
Ultimately,
the matter appears to have been settled by the Federal Court of Appeal itself in
eBay Canada Ltd., supra, at paragraph 23:
It
is evident from paragraph 231.2(3)(b) that subsection 231.2(2) is
intended to be used when the Minister wishes to verify whether the unnamed
persons, not the person on whom the requirement is served, are in compliance
with their obligations under the Act. . . .
[25]
In
addition to the above, the
applicant offers two remaining arguments: first, that the respondents have not
established that the information and documents requested are relevant to the
administration of the ITA, and second, that the respondents have not
established that the issuance of the second Requirement was a reasonable
exercise of the powers of investigation granted by the ITA.
[26]
With
respect to the first point, the respondents’ affiant, auditor Danielle Asselin,
sets out the following justification for the request, which I accept:
8.
Le
traitement fiscal des dépenses réclamées par M. Ghattas au titre de
« Prime d’assurance payée et supportée par moi-même pour générer un
revenu » dépendra de la nature du montant du remboursement effectué selon
les conditions du contrat d’assurance, ce que je ne suis pas en mesure de
déterminer pour l’instant;
9.
Entre
autres, il est essentiel d’obtenir les renseignements demandés afin de
connaître de quoi est constitué le produit d’assurance acheté et les
remboursements effectués (i.e. purement de l’assurance et/ou un
investissement);
10.
L’obtention
d’une copie des contrats d’assurance demandés à la demanderesse, ainsi que la
liste de tous les paiements reçus et remboursements faits pour lesdites polices
d’assurance est essentielle afin de documenter le dossier de vérification
relativement aux dépenses réclamées;
11.
Sans les
renseignements et documents requis de la demanderesse, l’ARC n’a pas les
preuves documentaires pour statuer de manière éclairée sur l’admissibilité des
dépenses réclamées par monsieur Ghattas;
[27]
As noted above, the
Minister’s power under the ITA to access information is expansive and need only
meet a very low bar in so far as it must pertain to “any purpose related to the
administration or enforcement of this Act”.
[28]
With
respect to the last point, I have found no basis for the applicant’s claim that
the Minister has an obligation to prove that the issuance of a Requirement is a
reasonable exercise of its power under the ITA. Indeed, the Supreme Court in Redeemer
Foundation, supra, repeatedly emphasizes the breadth of the
Minister’s authority under subsection 231.1 to request information in the
course of an audit, including of third parties with respect to unnamed persons.
* * * * * * * *
[29]
For
all the above reasons, the application for judicial review is dismissed, with
costs.
JUDGMENT
The application for judicial
review is dismissed, with costs.
“Yvon
Pinard”
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