Gernhart v. R., [1997] 2 CTC 23, 97 DTC 5038

Dubé J.:

Both parties in this income tax matter seek a determination of a question of law under paragraph 17(3)(b) of the Federal Court Act and Rule 474 of the Federal Court Rules. They agree as to the facts and the two questions to be decided. They also agree that the constitutional validity of subsection 176(1) of the Income Tax Act be adjudicated and the declaratory relief re- suiting from said invalidity, if any, be sought by way of this procedure. The subsection in question reads as follows:

176. (1) - As soon as is reasonably practicable after receiving notice of an appeal to the Tax Court of Canada, other than one referred to in section 18 of the Tax Court of Canada Act, the Minister shall cause to be transmitted to the Tax Court of Canada and to the appellant, copies of all returns, notices of assessment, notices of objection and notifications, if any, that are relevant to the appeal.

The agreed statement of facts reads as follows:

(a) On or about April 19, 1994, the Applicant filed a Notice of Appeal, under the General Procedure, in the Tax Court of Canada pursuant to section 169 of the Income Tax Act.

(b) Pursuant to subsection 176(1) of the Income Tax Act the Minister of National Revenue (the “Minister”), after receiving notice of an appeal to the Tax Court of Canada under the General Procedure, transmitted to the Court copies of all returns, notices of assessment, notices of objection and notification that were relevant to the appeal (the “Documents”). [In the case of an appeal under the Informal Procedure of the Tax Court of Canada, subsection 170(2) of the Income Tax Act provides for the same requirement.]

(c) Under subsection 124(2) of the Tax Court of Canada Rules (the “General Procedure”) [and subsection 9(1) of the said rules (the “Informal Procedure”)], the Documents which have been transmitted to the Court by the Minister pursuant to such provisions are treated as part of the record by the Court.

(d) Although the Documents transmitted to the Court by the Minister may never be tendered as evidence by either party, they are deemed to form part of the record of the Court.

(e) Subsection 124(3) of the General Procedure states that nothing in the Documents constitutes evidence until they are separately tendered as such at trial.

(f) Since subsection 124(2) of the General procedure must be given some meaning, it must be concluded that the trial judge has access to the entire Court record and may consult it, including the Documents transmitted pursuant to subsection 176(1) of the Income Tax Act.

(g) Section 16 of the General Procedures provides:

Photocopies of Court Documents

Subject to any order that the Court, in special circumstances, may make restricting access to a particular file by persons other than the parties to a matter before the Court, any person may, subject to appropriate supervision, and when the facilities of the Court permit without interfering with the ordinary work of the Court,

(a) inspect any Court file relating to a matter before the Court; and

(b) on payment of $0.40 per page, obtain a photocopy of any document on a Court file.

(h) Accordingly, absent an Order of the Court under section 16 of the General Procedure, any member of the public would be entitled to see a document in the “Court file”.

(i) The “Court file” is an expression of even wider meaning than the “Court record”. The Documents transmitted by the Minister would certainly be included in the expression “Court file”.

(j) The effect is that the Documents transmitted by the Minister to the Court can be accessed and copied by the general public whether or not they are tendered in evidence by any of the parties to the action.

(k) In addition, the public can access the Documents before the actual trial commences, even though the particular matter is destined to be settled out of Court and either or both of the parties may have no intention of proceeding with the appeal.

The two questions to be decided are:

(a) Does subsection 176(1) of An Act Respecting Income Taxes, R.S.C. 1985, c. 1 (5 Supplement), as amended, violate section 8 of the Canadian Charter of Rights and Freedoms to the extent that it permits “unreasonable seizure”?

(b) If the answer to question one is in the affirmative, is subsection 176(1) of the Act Respecting Income Taxes a reasonable limit within the meaning of section 1 of the Charter?

Finally, section 8 of the Charter reads as follows:

8. Everyone has the right to be secure against reasonable search and seizure.

With reference to the first question, clearly, the key issue to be resolved is whether or not there is an “unreasonable seizure” or any “seizure” at all involved in this matter.

The applicant argues that the taxpayer has no discretion in respect to the filing of certain documents under the Income Tax Act: they must be filed with the income tax returns and thereafter, upon appeal, are transferred to and become part of the Tax Court file and are available to lawyers, judges and, indeed, any member of the public. In R. v. Dy ment, [1988] 2 S.C.R. 417, 55 D.L.R. (4th) 503, 89 N.R. 249, Mr. Justice La Forest, at page 431 (D.L.R. 516, N.R. 265), defined seizure under section 18, in general terms as follows:

As I see it, the essence of a seizure under section 8 is the taking of a thing from a person by a public authority without that person’s consent.

What constitutes a seizure according to the applicant is the taking of a taxpayer’s confidential information and making it available to the public. There may be documents that are obviously personal and private and ought not to be disclosed to the public. There are no demonstrable interests in forcing the taxpayer to make disclosures of such documents as part of the ordinary course of income tax appeals. The applicant argues that if the Crown or the taxpayer consider that certain documents or pieces of information are relevant to the case, they could ask to have the relevant exhibits filed as part of the evidence. At that point, any one of the parties would be entitled to raise an objection and the trial judge would have to decide.

The applicant points out that the expectation of privacy is already recognized in section 241 of the Income Tax Act which provides a very carefully circumscribed code of confidentiality.

Counsel for the respondent agrees that it is inappropriate that the public and the judges should have access to the whole income tax file. He believes the judge should be limited to the Court record, and the material placed before a judge ought to be controlled by counsel. Because the taxpayer knows that pursuant to subsection 176(1) there will be a disclosure to the Court of a number of personal documents in his file, if an appeal is undertaken by him, he may fear the loss of his rightful expectations of privacy.

Thus, both parties agree that subsection 176(1) of the Act is no longer appropriate, that times have changed. With the convenience of photocopiers it is no longer necessary to transfer the whole income tax file to the Tax Court. The respondent, however, submits that the Charter remedy is not the proper recourse since, in his view, no seizure has occurred.

That is the crux of the matter, whether or not subsection 176(1) constitutes “unreasonable seizure”. In my view, it does not.

The applicant relies on a number of cases that are distinguishable from the case at bar because these cases involve investigative activities. In Thomson Newspapers Ltd. v. Canada (Director of Investigation & Research)^, [1] an order to produce documents was granted under the Combines Investigation Act*. [2] The Court ruled that there was a seizure under section 8 of the Charter. This case is distinguishable from the present case due to the fact that the seizure occurred in the process of an investigation.

In Comité paritaire de P industrie de la chemise c. Sélection miltom*, [3] in the course of an investigation, information was requested in regards to some employment records of a very heavily regulated industry. This case is also distinguishable on the grounds that the seizure occurred during an investigation. The R. v. McKinlay Transport Ltd.^ [4] case involved a tax audit. The British Columbia Securities Commission v. Branch^ [5] decision is a securities case in which an investigation occurred.

In R. v. Dyment Mr. Justice La Forest, as mentioned earlier, stated that in order to constitute a seizure, a public authority must take something from an individual without his consent. In income tax matters the taxpayer is under a statutory obligation to file annual income tax returns and, in order to fulfill that obligation, must produce certain documents. But, in my view, it cannot be said that the documents filed along with the tax returns have been seized by the Minister. The Minister does have investigative powers under the Income Tax Act®, [6] but receiving tax returns is not one of them. The mere transfer of these documents to the Court for an appeal cannot be construed as a seizure.

Consequently, there has not been an “unreasonable seizure” in violation of section 8 of the Charter. Both parties have invited the Court to recommend that subsection 176(1) of the Act be amended so as to afford better privacy to the taxpayer. The role of the Court is to decide and not to recommend. If the respondent is inclined to streamline and update subsection 176(1) of the Act, he can very well ask Parliament to do so without the blessing of the Court.

That being said, I certainly agree with both parties that the taxpayer is entitled to a reasonable expectation of privacy, and that it is no longer necessary for the administration of justice that the whole taxpayer’s file become the Tax Court’s identified file. With the advance of modern technology, relevant documents can be identified, produced and reproduced instantaneously at relatively modest costs. Under the present system, the reluctance of some taxpayers to reveal to the whole world their personal affairs may possibly inhibit them from appealing an assessment of the Minister. For example, a taxpayer who is claiming heavy interest expense could be perceived as a person who is ruinously indebted.

Pursuant to subsection 176(1), once a notice of appeal is received by the Tax Court, the Minister must transmit all documents to the Tax Court where they can be accessed and copied by the general public, whether or not they are tendered in evidence at the trial. And the judge himself may peruse the file, whether or not the documents are eventually produced in evidence, which is inappropriate in the concept of civil litigation. A party to a litigation is entitled to know what evidence has been considered by the decisionmaker. And the issues to be determined by him must be the ones that are crafted by the parties, consensually or otherwise.

Consequently, the first question is answered in the negative: subsection 176(1) of the Act does not violate section 8 of the Charter. It follows that the second question need not be answered.

No voilation found.