Jerome
J.T.C.C.:
—
These
three
applications
for
judicial
review
of
requirements
issued
by
the
respondent
pursuant
to
section
231.2
of
the
Income
Tax
Act
(the
“Act”)
came
on
for
hearing
together
before
me
at
Vancouver,
British
Columbia,
on
April
3,
1996.
At
the
close
of
argument
I
took
the
matters
under
reserve
and
indicated
that
written
reasons
would
follow.
Facts
The
applicants
are
companies
active
in
the
forest
industry.
In
1994,
Revenue
Canada
sought
information
from
them
in
the
course
of
auditing
four
or
five
other
companies
involved
in
the
same
industry.
The
affidavit
of
Mr.
Martin
Skretkowicz,
an
International
Taxation
Officer
with
the
Department
of
National
Revenue,
sworn
June
15,
1995,
indicates
at
paragraph
5
that
the
Department
sought
to
determine
“an
appropriate
transfer
price
associated
with
several
aspects
pertaining
to
the
sale
of
forest
products”
in
the
course
of
an
investigation
pursuant
to
section
69
of
the
Act.
Section
69
reads
as
follows:
(1)
Except
as
expressly
otherwise
provided
in
this
Act,
(a)
where
a
taxpayer
has
acquired
anything
from
a
person
with
whom
he
was
not
dealing
at
arm’s
length
at
an
amount
in
excess
of
the
fair
market
value
thereof
at
the
time
he
so
acquired
it,
he
shall
be
deemed
to
have
acquired
it
at
that
fair
market
value;
(b)
where
a
taxpayer
has
disposed
of
anything
(i)
to
a
person
with
whom
he
was
not
dealing
at
arm’s
length
for
no
proceeds
or
for
proceeds
less
than
the
fair
market
value
thereof
at
the
time
he
so
disposed
of
it,
or
(ii)
to
any
person
by
way
of
gift
inter
vivos,
he
shall
be
deemed
to
have
received
proceeds
of
disposition
therefor
equal
to
that
fair
market
value;
and
(c)
where
a
taxpayer
has
acquired
property
by
way
of
gift,
bequest
or
inheritance,
he
shall
be
deemed
to
have
acquired
the
property
at
its
fair
market
value
at
the
time
he
so
acquired
it.
Paragraph
10
of
the
affidavit
of
Mr.
Skretkowicz
indicates
that
the
Department
wanted,
to
verify
the
reasonableness
of
commissions,
discounts
and
sale
prices
of
pulp,
paper
and
newsprint
sold
into
the
Canadian,
American,
Japanese
and
Korean
markets
during
the
years
1988
to
1992
with
respect
to
the
five
specific
Canadian
taxpayers
selling
these
products
to
or
through
a
non-resident
related
person.
Thus,
the
Department
was
asking
some
companies
active
in
the
forest
industry
to
provide
information
which
would
allow
it
to
determine
a
comparable,
uncontrolled
price
for
forest
products
which
could
then
be
checked
against
the
prices
reported
by
those
companies
under
audit,
and
a
determination
made
as
to
whether
or
not
they
had
accurately
reported
their
income.
The
applicants
were
sent
letters
by
the
respondent
requiring
extensive
information
and
documents
regarding
the
applicants’
“arm’s
length”
transactions
in
Canada,
the
United
States,
Japan,
and
Korea
from
1988
to
1992.
The
respondent
purports
to
have
been
acting
pursuant
to
paragraphs
231.2(1)(a)
and
231.2(1)(b)
of
the
Act.
The
relevant
section
reads
as
follows:
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,
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.
(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;
(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)
it
is
reasonable
to
expect,
based
on
any
grounds,
including
information
(statistical
or
otherwise)
or
past
experience
relating
to
the
group
or
any
other
persons,
that
the
person
or
any
person
in
the
group
may
have
failed
or
may
be
likely
to
fail
to
provide
information
that
is
sought
pursuant
to
the
requirement
or
to
otherwise
comply
with
this
Act;
and
(d)
the
information
or
document
is
not
otherwise
more
readily
available.
(4)
Where
an
authorization
is
granted
under
subsection
(3),
it
shall
be
served
together
with
the
notice
referred
to
in
subsection
(1).
(5)
Where
an
authorization
is
granted
under
subsection
(3),
a
third
party
on
whom
a
notice
is
served
under
subsection
(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.
(6)
On
hearing
an
application
under
subsection
(5),
a
judge
may
cancel
the
authorization
previously
granted
if
the
judge
is
not
then
satisfied
that
the
conditions
in
paragraphs
(3)(a)
to
(d)
have
been
met
and
the
judge
may
confirm
or
vary
the
authorization
if
the
judge
is
satisfied
that
those
conditions
have
been
met.
Applicants’
submissions
The
applicants
assert
that
the
respondent
was
not
acting
for
a
purpose
related
to
the
administration
or
enforcement
of
the
Act,
and
that
the
requirement
relates
to
unnamed
persons
thereby
requiring
adherence
to
subsection
231.2(2).
Since
that
section
can
impose
an
obligation
on
a
third
party
to
provide
information
or
documents
relating
to
an
unnamed
person
or
group,
it
quite
properly
requires
prior
approval
by
a
judge.
Prior
judicial
authorization
is
a
concept
that
puts
the
onus
on
the
Minister
to
show
that
the
interest
of
the
state
in
obtaining
the
information
outweighs
those
of
the
individual.
Respondent’s
arguments
The
Minister’s
defence
of
these
requirements
is
set
out
in
the
following
paragraphs
of
the
respondent’s
Memorandum
of
Argument:
The
requirements
do
not
impose
upon
the
Applicants
an
obligation
to
provide
information
and
documents
relating
to
one
or
more
unnamed
persons.
The
information
requested
related
to
the
Applicants
themselves.
The
provision
of
the
names
of
the
agents
or
customers
is
incidental
to
the
purpose
of
the
requirements.
Subsection
231.2(2)
is
designed
to
prevent
the
situation
where
the
Minister
is
looking
for
non-complying
taxpayers
and
does
not
know
their
identities.
This
intent
is
illustrated
by
paragraphs
231.2(3)(b)
and
(c)
which
indicate
that
such
requirements
are
issued
to
verify
compliance
where
it
is
reasonable
to
expect
that
a
group
of
persons
may
have
failed
to
provide
information
or
to
otherwise
comply
with
the
Act.
It
is
impossible
for
the
Minister
to
obtain
judicial
authorization
in
this
instance,
as
the
Minister
is
not
seeking
to
audit
the
sales
agents
or
the
customers
of
the
Applicants.
The
Minister
could
not
satisfy
the
pre-
conditions
of
paragraphs
231.2(3)(b)
and
(c).
This
is
further
indication
that
the
restriction
in
sub-section
231.2(2)
should
not
apply
to
this
situation,
because
the
Minister
could
never
get
a
judicial
authorization
in
respect
of
the
information.
(emphasis
in
original)
The
Minister
only
seeks
the
information
insofar
as
it
relates
to
the
Applicants.
The
Minister
of
National
Revenue
is
not
going
on
a
“fishing
expedition.”
The
requirements
were
issued
with
respect
to
serious
and
on-going
inquiries
in
the
affairs
of
five
taxpayers.
The
fact
that
there
are
taxpayers
under
audit
is
not
challenged
by
the
Applicants.
In
reply
to
paragraph
47
[of
the
applicants’
memorandum],
the
Respondent
says
that
each
requirement
was
issued
to
verify
compliance
by
five
specific
forestry
companies.
The
Respondent
will
only
agree
to
disclose
the
identities
of
these
five
companies
in
accordance
with
the
provisions
of
section
241
of
the
Act.
The
specific
identity
of
the
forestry
companies
under
audit
is
not
relevant
as
the
Applicants
have
not
challenged
whether
the
Minister
is
legitimately
auditing
these
companies.
In
reply
to
paragraph
49
[of
the
applicants’
memorandum],
the
Respondent
says
that
the
information
sought
is
in
relation
to
the
Applicants.
The
purpose
of
the
addition
of
section
231.2(2)
in
the
Act
was
to
address
the
type
of
situation
found
in
the
Richardson
case.
In
other
words,
the
person
from
whom
information
is
requested
pursuant
to
section
231.2
can
only
claim
that
subsection
231.2(2)
applies
if
that
person
was
not
a
party
to
the
transactions
under
scrutiny
as
was
the
case
in
Richardson.
Analysis
In
James
Richardson
&
Sons
Ltd.
v.
Minister
of
National
Revenue,
[1984]
1
S.C.R.
614,
[1984]
C.T.C.
345,
84
D.T.C.
6325,
the
Supreme
Court
of
Canada
stated
that
although
the
language
of
section
231.2
is
very
broad,
it
should
not
be
construed
too
liberally.
Madame
Justice
Wilson
adopted
and
affirmed
the
restrictions
enunciated
in
Canadian
Bank
of
Commerce
v.
Canada
(Attorney
General)
(sub
nom.
Canadian
Bank
of
Commerce
v.
Attorney
General
(Canada)),
[1962]
S.C.R.
729,
62
D.T.C.
1236,
at
page
623
(C.T.C.
350)
whereby,
(a)
the
test
of
whether
the
Minister
is
acting
for
a
purpose
specified
in
the
Act
is
an
objective
one
and
has
to
be
decided
on
the
proper
interpretation
of
the
subsection
and
its
application
to
the
circumstances
disclosed;
(b)
the
obtaining
of
information
relevant
to
the
tax
liability
of
some
specific
person
or
persons
whose
liability
to
tax
is
under
investigation
is
a
purpose
related
to
the
administration
or
enforcement
of
the
Act.
Counsel
for
the
applicants
also
referred
to
a
number
of
cases
which
indicate
that
the
Court
favours
a
formalistic
adherence
to
the
rule
that
the
Minister
must
name
those
taxpayers
under
investigation
or
else
proceed
by
way
of
subsection
231.2(2)
(see
e.g.
Paquette
v.
Minister
of
National
Revenue,
[1992]
2
C.T.C.
75,
92
D.T.C.
6394
(F.C.T.D.);
Andison
v.
Minister
of
National
Revenue,
[1995]
1
C.T.C.
203,
95
D.T.C.
5058
(F.C.T.D.)).
The
conditions
set
out
at
subsection
231.2(3)
are
designed
to
guard
against
abusive
investigations
by
the
Department
of
National
Revenue.
If
the
respondent
is
not
prepared
to
name
those
taxpayers
under
investigation,
she
must
proceed
by
way
of
subsection
231.2(3).
Subsection
231.2(2)
requires
that
the
Minister
obtain
judicial
authorization
before
issuing
a
requirement
pursuant
to
subsection
231.2(1)
with
respect
to
unnamed
persons.
The
respondent
contends
that
the
information
sought
is
with
respect
to
the
applicants’
own
operations
and
that
the
provisions
regarding
unnamed
persons
are
not
applicable.
However,
the
request
for
information
was
made
in
the
context
of
an
investigation
into
the
tax
liability
of
five
other
companies,
not
the
applicants.
As
a
result,
the
applicant
should
be
afforded
greater
protection
against
revealing
potentially
damaging
information.
The
applicants
maintain
that
public
disclosure
of
the
information
is
against
their
business
interests.
The
memorandum
of
fact
and
law
of
the
applicants
in
T-1147-95
indicates
at
paragraphs
14
and
15
that
the
applicants
would
be
at
a
disadvantage
with
respect
to
their
clients
who
would
be
aware
of
the
discounts
offered
to
other
clients,
and
would
lose
bargaining
power
with
respect
to
clients
or
agents
who
would
discover
what
other
clients
or
agents
were
including
with
their
transactions
with
the
applicants.
The
other
applicants
would
face
similar
difficulties.
The
affidavit
of
Martin
Skretkowicz
indicates
at
paragraph
17
that
questionnaires
were
sent
to
approximately
forty
forestry
companies
across
Canada.
Because
not
every
company
was
asked
to
provide
the
information
at
issue,
they
would
not
all
face
the
same
competitive
disadvantages
faced
by
the
applicants.
The
Minister
is
not
justified
in
compelling
certain
taxpayers
to
turn
over
information
which
could
be
prejudicial
to
their
interests
but
which
does
not
have
a
bearing
on
their
own
tax
liability.
If
the
Minister
needs
information
the
release
of
which
could
be
prejudicial,
all
companies
in
the
forestry
industry
must
be
required
to
supply
such
information,
as
would
be
the
case
if
a
regulation
were
to
issue
pursuant
to
paragraph
221
(
1
)(d)
which
reads
as
follows:
221
(1)
The
Governor
in
Council
may
make
regulations
(d)
requiring
any
class
of
persons
to
make
information
returns
respecting
any
class
of
information
required
in
connection
with
assessments
under
this
Act
Conclusion
The
Minister
in
this
case
is
not
seeking
information
about
compliance
by
the
applicants
with
the
Income
Tax
Act.
Rather,
she
is
seeking
information
relating
to
the
tax
returns
of
unidentified
taxpayers.
As
these
taxpayers
under
investigation
are
not
named,
the
Minister
must
proceed
by
way
of
subsection
231.2(3)
in
order
to
issue
a
requirement
pursuant
to
subsection
231.2(1).
These
applications
for
judicial
review
of
the
requirements
issued
by
the
respondent
pursuant
to
subsection
231.2(1)
of
the
Income
Tax
Act
are
granted
with
costs.
Applications
for
judicial
review
were
granted.
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