Date:
20130517
Docket: A-76-12
Citation: 2013 FCA 133
CORAM: SHARLOW
J.A.
DAWSON J.A.
WEBB
J.A.
BETWEEN:
DOLORES ROMANUK
Appellant
and
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT
WEBB J.A.
[1]
This
is an appeal from the order of V.A. Miller J. of the Tax Court of Canada (2012
TCC 58) dismissing the appellant’s motion for an order to grant her leave to
file a Second Amended Notice of Appeal. While I would dismiss this appeal, my
reasons for doing so are not the same as the reasons provided by the Judge for
dismissing the appellant’s motion.
[2]
The
Appellant was reassessed in relation to her 1995, 1996, and 1997 taxation years
to deny the Appellant’s claim for losses allocated to her by the Softcom
Solutions Partnership (the Partnership). Penalties were also assessed under
subsections 162(1) and 163(2) of the Income Tax Act,
R.S.C. 1985, c. 1 (5th Supp.), (the Act).
[3]
As
part of the proposed amendments to her Notice of Appeal, the appellant is
seeking to add additional alleged facts in relation to:
(a) the
communications between the auditor for the Canada Revenue Agency (CRA) and the
Partnership;
(b) various
meetings that the CRA auditor had with certain partners; and
(c) the
communications and interactions between the auditor for the CRA and Special
Investigations section of the CRA.
The appellant is alleging that the
CRA used its audit powers as provided in section 231.1 of the Act to
require the Partnership to provide information after the CRA had commenced an
investigation for the purpose of determining whether one or more persons should
be charged with an offence under section 239 of the Act. Based on the facts as alleged
by the appellant, subsection 231.1(1) of the Act is the only relevant
subsection of section 231.1. Therefore, in these reasons I will refer to
subsection 231.1(1) of the Act. The appellant argues that the use of
these audit powers by the CRA in this case violated the appellant’s rights
under sections 7 and 8 of the Canadian Charter of Rights and Freedoms, The
Constitution Act, 1982, being Schedule B to the Canada Act 1982 (U.K.), 1982,
c. 11 the “Charter”).
[4]
The
remedy that the Appellant is seeking is the exclusion of evidence or the
allowance of her appeal. Essentially, the appellant is arguing that because the
CRA may have been or was contemplating charging the appellant or someone else
with an offence under section 239 of the Act, the CRA could no longer
use any of its audit powers to gather information or documents that could be
used for the purpose of reassessing her or that could be used in relation to
her appeal before the Tax Court of Canada.
[5]
When
considering whether to allow an amendment to pleadings to add facts and claims,
the judge is to assume that the additional facts as set out in the proposed
amendments are correct and is to then determine whether it is “plain and
obvious” that the claim being made discloses “no reasonable cause of action” (Hunt
v. Carey Canada Inc., [1990] 2 S.C.R. 959, at paragraphs 30 to 34). Since
the facts as pled are to be taken as proven, there is no need for the judge, in
deciding whether to allow the amendment, to review any evidence that may be
submitted to try to prove the alleged facts. If any such evidence is submitted
at such hearing for this purpose, it should not be reviewed by the judge in
deciding whether to allow the amendments.
[6]
Assuming
that the proposed additional facts are proven, it does not seem to me that the
appellant has any cause of action arising from these additional facts. In R.
v. Jarvis, [2002] 3 S.C.R. 757, the issue was whether the audit and
inspection rights under subsection 231.1(1) of the Act and the requirement
to produce documents or information under subsection 231.2(1) of the Act
could be used to gather information or documents for the purpose of prosecuting
a person in relation to an offence under section 239 of the Act. The
Supreme Court referred to the distinction between an audit inquiry related to
the administration of the Act (which could include the assessment of
penalties under subsections 162(1) and 163(2) of the Act) and an
investigation that could lead to charges for an offence under section 239 of
the Act. Once the “predominant purpose” of an inquiry is related to the
investigation and prosecution of an offence under section 239 of the Act,
the CRA can no longer use its inspection and requirement powers under
subsections 231.1(1) and 231.2(1) of the Act to gather information or
documents that may be used in such investigation and prosecution (paragraphs 46
and 88 of Jarvis).
[7]
In
paragraph 103 of Jarvis, the Supreme Court also confirmed that “…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”. Since the audit powers may
continue to be used, even though the results cannot be used in relation to an
investigation or prosecution, the results can be used in relation to an
administrative matter, such as a reassessment.
[8]
The
use of such information or documents in administering the Act and
reassessing the appellant does not violate her rights under either section 7 or
8 of the Charter because the CRA has the right to continue to use its
audit powers provided that the information or documents are only used for the
purposes of administering the Act. If the information or documents are
to be used in an investigation or prosecution of an offence under section 239
of the Act, the issue for the particular court dealing with the
prosecution of the offence under section 239 of the Act, will be whether
the predominant purpose of the exercise of such powers was to gather
information or documents for such investigation or prosecution.
[9]
The
appellant referred to the decision of Bowman J. (as he then was) in O’Neill
Motors Limited v. The Queen, 96 DTC 1486 which was affirmed on appeal to
this Court ([1998] 4 F.C. 180). However, this case can be easily distinguished
from O’Neill Motors. In O’Neill Motors the documents had been
seized under an illegal search as the search warrant had been issued under a
section of the Act that was subsequently held to be unconstitutional.
There is no allegation here that any documents had been seized under any
invalidly issued search warrant. The information and documents in this case
were either voluntarily submitted or were obtained by CRA using its audit
powers.
[10]
As
a result, it is plain and obvious that the appellant cannot succeed in her
additional claims assuming that the additional facts as pled are proven. Even
if the CRA were contemplating an investigation of the appellant before any
requirement for information was made by the CRA, this does not suspend the
right of the CRA to make such requests for information for the purposes of
administering the Act using the inspection and audit powers as set out
in subsections 231.1(1) and 231.2(1) of the Act. Any information or
documents obtained using such powers could be used to reassess the appellant
(including the assessment of penalties under subsection 162(1) and 163(2) of
the Act). Whether such information or documents could also be used for
the purpose of an investigation of an offence under section 239 or the
prosecution of such offence is not a matter for the Tax Court of Canada. The
only issue before the Tax Court of Canada is the validity of the reassessment, i.e.,
whether the appellant’s claim in relation to the losses of the partnership that
were allocated to her is correct and whether the assessment of the penalties
under subsections 162(1) and 163(2) is correct.
[11]
I
would dismiss the appeal, with costs.
"Wyman W.
Webb"
“I
agree.
K.
Sharlow J.A.”
“I
agree.
Eleanor
R. Dawson J.A.”
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