Fédération Des Caisses Populaires Desjardins De Québec, Applicant v. Minister of National Revenue, Respondent; And Attorney General of Canada, Mis-en-Cause, [1997] 2 CTC 159

De Blois J.:

The Court is dealing with an application to review a judicial authorization granted by a Superior Court judge pursuant to section 231.2(3) of the Income Tax Act which included the following conclusions:

[TRANSLATION]

AUTHORIZES the Minister of Revenue to require the Fédération des Caisses Popularies Desjardins de Québec, 95, avenue des Commandéurs, Lévis, Québec C6V 6P6, to provide information or documents on:

Individuals or corporations who sent amounts in Canadian or foreign currency out of Canada in any manner whatsoever through any of the Caisses Popularies Desjardins affiliated with the Fédération des Caisses Populaires Desjardins during the period from January 1, 1991, to December 31, 1993.

The applicant is appealing from that decision and order and asks this Court to quash and cancel, for all legal purposes, the authorization granted on February 14, 1994, on the ground that the conditions in paras. 231.2(3)(a) to (d) of the Act have not been met and more specifically that:

[TRANSLATION]

(a) the group concerned is not an ascertainable group within the meaning of subsection 231.2(3) of the Act;

(b) Raynold Bélanger’s information at no time indicates that one or more members of the group concerned are currently under investigation by the respondent;

(c) it is not reasonable to expect that a person who sends amounts in Canadian or foreign currency out of Canada may have failed or may be likely to fail to provide information that is sought pursuant to the requirement or to otherwise comply with the Act; nor does the transfer of money out of Canada constitute an offence under the Act or a failure to comply with any provision of the Act;

(d) Raynald Bélanger’s information shows no grounds, includes no information and refers to no past experience indicating that any, member of the group concerned, in transferring amounts in Canadian or foreign currency out of Canada through the applicant or any of the Caisses Popularies Desjardins affilliated with the applicant, may have failed or may be likely to fail to provide information that is sought pursuant to the requirement or to otherwise comply with the Act;

(e) it is not necessary to check the documents referred to in subparagraph 7(B) of the information to verify compliance by the persons concerned with their duties or obligations under the Act, as there are a number of other means available to the respondent for verifying compliance with the Act by the persons concerned;

(f) the information or documents required by the applicant are otherwise more readily available; furthermore, Raynald Bélanger’s information neither states that the information or documents concerned are not otherwise more readily available nor provides evidence thereof.

The applicant further submits that the group identified by the respondent is arbitrary and inadequately identified or identifiable or ascertainable within the meaning of paragraph 231.2(3)(a) of the Income Tax Act.

It can be seen from the evidence at the hearing into the application for review that the applicant, to which the authorization applies, is only one of twelve federations of caisses populaires in the Québec region and represents only three hundred seventeen (317) of the seven thousand (7,000) caisses populaires in existence. The request to provide documents for the years 1991, 1992 and 1993 covers nine thousand seven hundred four (9,704) transactions for an aggregate amount of seventy-five million seven hundred seventy-nine thousand seven hundred dollars ($75,779,700), and it is unreasonable to request that these documents be provided, since these transactions are governed by no provisions of or regulations made pursuant to the Income Tax Act.

Furthermore, the applicant Fédération is only an intermediary in these transfers; nor does it represent the only means to transfer the money in question out of Canada.

Raynald Belanger, the co-ordinator of the Department of National Revenue investigation team, who testified at the review hearing, acknowledged that none of the persons covered by the application for judicial authorization are currently under investigation by the Department of National Revenue. However, he submitted that the respondent is entitled to obtain this information for audit purposes.

Although this is not specified in the order and authorization of February 14, 1994, it was the director of taxation at the Department of National Revenue’s Québec District Office who fixed the conditions and drew up the list of documents requested in a letter dated January 24, 1994, as follows:

[TRANSLATION]

REQUIREMENT TO PROVIDE DOCUMENTS

Subject - Requirement to provide documents concerning unnamed persons pursuant to section 231.2 of the Income Tax Act.

Dear Sir:

For purposes related to the administration or enforcement of the Income Tax Act, and in accordance with paragraph 231.2(l)(b) of the said Act, I require you to provide, within thirty (30) days of the date of reception of this letter, the following documents:

Copies of cheques, official cheques, bank transfers, telephone or cable transfers and supporting documents related to the amounts, in Canadian or foreign currency, sent out of Canada by any of the Caisses Populaires affiliated with the Fédération des Caisses Populaires Desjardins de Québec during the period from January 1, 1991, to December 31, 1993.

The applicant submits that this was an unreasonable search or seizure contrary to section 8 of the Canadian Charter of Rights and Freedoms and constituted a veritable fishing expedition.

Section 231.2 reads as follows:

231.2 Requirement to provide documents or information.

(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.

231.2(2)

(2) Unnamed persons. 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).

231.2(3)

(3) Judicial authorization. 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.

231.2(5)

(5) Review of authorization. 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.

231.2(6)

(6) Powers on review. 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.

These provisions empower the respondent minister, for any purpose related to the administration or enforcement of the Act, to require the provision of additional information and returns of income and of the documents referred to in paragraphs 231.2(l)(a) and (b).

Subsection 231.2(3) empowers the Minister, after obtaining a judicial authorization based on an informant’s oath, to require the provision, as provided for in subsection (1), of documents in the possession of third parties that relate to unnamed persons referred to as the “group”, provided that the conditions set out in paragraphs 231.2(3)(a) to (d) are met.

The authorization may be granted ex parte, but may also be reviewed under subsections 231.2(5) and (6) of the Income Tax Act.

On hearing an application for review, a judge may cancel or confirm or vary the authorization previously granted.

These provisions are the result of a number of amendments to the Income Tax Act based on very specific judgments rendered over the past decade respecting the procedure and powers of investigation conferred on the Minister of National Revenue under the Income Tax Act, and on the evolving case law on the interpretation of section 2 of the Canadian Charter of Rights and Freedoms.

The decisions in Canadian Bank of Commerce v. Canada (Attorney General), [1962] S.C.R. 729 (S.C.C.), and Canada (Director of Investigation & Research, Combines Investigation Branch) v. Southam Inc., [1984] 2 S.C.R. 145 (S.C.C.), laid down the basic conditions and tests to be applied to unreasonable seizures in view of section 8 of the Canadian Charter of Rights and Freedoms. More recently, in R. v. McKinlay Transport Ltd., [1990] 1 S.C.R. 627, the Supreme Court made a vary significant distinction

from Canada (Director of Investigation & Research, Combines Investigation Branch) v. Southam Inc. in respect of a demand for information and documents under subsection 231(3) of the Income Tax Act as it then read. At that time, the provision required no form of prior authorization.

In McKinley, Wilson J. wrote at page 640 that the seminal case on the interpretation to be given to section 8 of the Charter is Canada (Director of Investigation & Research, Combines Investigation Branch) v. Southam Inc., in which the Court had determined that one of the purposes underlying the section 8 right was the protection of an individual’s reasonable expectation of privacy.

At page 641 of her judgment, Wilson J. wrote the following:

The Income Tax Act is essentially a regulatory statute since is controls the manner in which income tax is calculated and collected. This Court pointed out in R. v. G rimwood, [1987] 2 S.C.R. 755, at p. 756, that “the purpose of ss. 231(3) and 238(2), when read together, is not to penalize criminal conduct but to enforce compliance with the Act”.

Wilson J. continued as follows at page 645:

Since individuals have different expectations of privacy in different contexts and with regard to different kinds of information and documents, it follows that the standard of review of what is “reasonable” in a given context must be flexible if it is to be realistic and meaningful.

She then quoted the following passage by A.D. Reid and A.H. Young in “Administrative Search and Seizure Under the Charter” (1985), 10 Queen's L.J. 392, at p. 400:

There is, therefore, a large circle of social and business activity in which there is a very low expectation of privacy. The issue is not whether, but rather when, how much, and under what conditions information must be disclosed to satisfy the state’s legitimate requirements. Every person who files an annual tax return may be said to enjoy a low expectation of privacy with respect to information about his income. But that is surely tempered by an expectation that demands for information have limits, and will be administered under terms that are fair and reasonable. That is what section 8 of the Charter is all about.

Wilson J. added the following at page 616:

The rationale for this was that what is reasonable “depends upon consideration of what is sought, from whom, for what purpose, by whom, and in what circumstances”...

In James Richardson & Sons Ltd. v. Minister of National Revenue, [1984] 1 S.C.R. 614 (S.C.C.), Wilson J. had held that the Minister could not check generally on compliance with the Act by traders in the commodities futures market by using subsection 231(3) to conduct a “fishing expedition” into the affairs of one broker’s customers. The demand had to be related to a genuine and serious inquiry into the tax liability of some specific person or persons.

In a judgment of the Federal Court, Trial Division dated May 19, 1995, in Minister of National Revenue v. Sand Exploration Ltd., which is reported at (1995), 95 D.T.C. 5358 (Fed. T.D.), Rothstein J. wrote the following at page 5361:

While Richardson and Bruyneel provide a useful background, it is important to note that the relevant legislation is different today than at the time of those decisions. The strict approach adopted in those decisions was necessitated by a broad statutory provision which, if interpreted too broadly, left open the possibility of abuse by tax enforcement officials. In Richardson at page 622 Wilson J. outlines the mischief that could result from a broad interpretation of the former subsection 231(3)....

By contrast with subsection 231(3), subsections 231.2(2) and (3) expressly provide a process with which the Minister must comply in order to require third parties to provide information or documents relating to unnamed taxpayers. A Ministerial requirement to third parties to provide information about another person’s tax affairs now requires a Court authorization. Pursuant to subsection 231.2(3) there must be evidence on each that: the person is ascertainable....

Rothstein J. continued as follows:

Although section 231.2 addresses many of the problems associated with seeking information about unnamed taxpayers under the former subsection 231(3), I still agree With counsel for the respondents that a procedure by which the Minister may require third parties to disclose information about unnamed taxpayers is intrusive. I further agree that the restrictive approach mandated in Richardson remains valid. See Her Majesty the Queen v. 311326 Alberta Ltd., [1993] A.J. No. 25 (C.A.). Further I think the fact that the Minister may obtain a Court authorization ex parte places an obligation on the Minister to act in the utmost good faith and ensure full and frank disclosure of information. See for example, Her Majesty the Queen v. Duncan, [1992] 1 F.C. 713 at 730 (T.D.). For all these reasons, the standard to be met by the Minister in making an application for Court authorization under subsection 231.2(3) is high.

In the case at bar, the respondent Minister of National Revenue makes no distinction between the persons making such transactions, that is, whether they are individuals, partnerships or corporations. The arbitrary identification made by the respondent Minister of National Revenue is based on the nature of the transactions and not on the persons making those transactions. Thus, the group is classified or identified on the basis of the nature of the transaction and not of an unnamed person within the meaning of section 231.2(3) of the Income Tax Act.

Furthermore, even if it were necessary to interpret section 231.2(3) broadly, which the courts have rejected, the Court believes that the statement or information supported by the informant’s affidavit is clearly insufficient for identifying or specifying a particular group within the meaning of section 231.2(3) I.T.A. The respondent’s arbitrary choice of a group or category of three hundred seventeen (317) caisse populaire branches affiliated with the Québec Fédération while ignoring the other six thousand five hundred (6,500) caisses populaires affiliated with eleven (11) other federations of caisses populaires in the province of Quebec and other chartered banks doing business in the province of Quebec that carry out the same types of transactions for their customers is discriminatory and harmful to the Fédération des Caisses Populaires, since the requirement letter sent to the applicant is aimed at a set of transactions that are not themselves regulated by the Income Tax Act rather than at a set of persons or groups pursuing a common purpose of avoiding the administration and enforcement of the Act.

Of the three examples given by the informant in the case at bar, only one showed liability or an offence against the enforcement and administration of the Income Tax Act. The informant’s affidavit has failed to demonstrate, to the satisfaction of the Court, the identification and specification of a group in pursuit of a common purpose as required by paragraph 231.2(3)(g) I.T.A.

These are essential conditions for obtaining the authorization provided for in subsection 231.2(3) I.T.A. Furthermore, it is clear from the informant’s affidavit that the documents in question may be had and the respondent’s purpose attained far more easily and accurately from each of the caisses populaires, since the transfer originates in a caisse and not through the Fédération des caisses populaires de Québec, which is merely an intermediary in which the individual in question is a member, and it is ultimately the Caisse centrale that carries out the transfer.

This is an essential condition to be proven under paragraph 231.2(3)(d) to justify issuance of the requested authorization. In the circumstances, it was not proved in the informant’s affidavit in support of the application for authorization, while the evidence adduced at the hearing into the application for review and the cross-examination of the informant tend to show that the condition has not been met.

In Sand Exploration, the group identified in the application for authorization was Clearly ascertainable and each member of the group of persons whose identity was sought had performed a specific identifiable act in pursuit of a common purpose: the purchase of a tax shelter. That tax shelter regulated by the Income Tax Act which had been acquired by clearly identified individuals, was the subject of a serious inquiry by the respondent.

The case at bar does not concern an ascertained and clearly identified group within the meaning of subsection 231.2(3) I.T.A. The choice of documents required by the respondent is arbitrary, general and not specifically authorized by the judge because they were not requested in the original application. The words [TRANSLATION] “all documents relating to a group of transactions” are generic and cannot serve as the basis for authorizing a seizure, even as administrative seizure, as said down by the Supreme Court in Richardson and McKinlay. The application in the case at bar is a fishing expedition.

It is therefore the Court’s view that the respondent has failed to meet the essential conditions for an authorization set out in paragraphs 231.2(3)(a) to

(d) of the Income Tax Act and that this authorization cannot be granted in light of the evidence adduced at the hearing into the application for review under subsection 231.2(5) of the Income Tax Act. The authorization in question may be obtained ex parte, which is why Parliament has provided for this application for review to permit an applicant to prove in certain circumstances that the affidavit in support of the information and application is insufficient.

It is therefore appropriate, by virtue of the powers conferred on the judge for the review hearing under subsection 231.2(6), to cancel the authorization previously granted since certain essential conditions set out in paragraphs 231.2(3)(a) to (d) of the Income Tax Act have not been met.

FOR THESE REASONS, THE COURT:

ALLOWS this application for review of the judicial authorization granted on February 14, 1994;

CANCELS the authorization granted to the respondent on February 14, 1994, to issue the requirement to provide documents under subsection 231.2(3) of the Act, which was served on the respondent on February 21, 1994,;

DECLARES the requirement to provide documents sent to the applicant on February 24, 1994, to be null and void for all legal purposes;

THE WHOLE with costs.

Application allowed