Section 231.1

Subsection 231.1(1) - Inspections


Ghermezian v. Minister of National Revenue, 2023 FCA 183

s. 231.1 request can require the compulsion of information not currently in documents/ onus on taxpayer to demonstrate that time given for response was unreasonable

The Minister applied for s. 231.7 compliance orders respecting CRA requests for various documents made pursuant to s. 231.1(1) (and s. 231.2(1)). In reversing the finding below that s. 231.1(1) did not authorize the compulsion of information, other than information contained in a document and in rejecting the appellants’ submission that, if in addition to s. 232.1(1), 231.1(1) also authorized the issuance of compulsory written demands requiring a person to provide information and documents, this would create operational incompatibility between the provisions, Roussel JA stated (at paras. 36-37):

The fact that the procedural requirements in section 231.2 are absent from section 231.1 does not establish a conflict. Given that subsection 231.2(1) allows the Minister to seek information from persons who are not part of the audit process (third-party record keepers), one can easily understand the requirement that notice be served on the person required to provide the information or documentation. …

The doctrine of paramountcy, as argued by the appellants, cannot be engaged in the absence of conflict between the two provisions.

Roussel JA also confirmed the finding below that “if the appellants wished to assert that the time afforded for compliance with the requirements was either objectively or subjectively unreasonable, they bore the burden of proof on that issue” (para. 48) and that such burden had not been met.

Roussel JA further found that “prior judicial authorization will only be required where the Minister seeks information relating to ascertainable unnamed persons with the intention that the information will be used to verify the unnamed persons’ compliance with their obligations under the ITA” (para. 59) whereas here, there was no reversible error in the Federal Court’s finding “that the evidence demonstrated that the Minister did not intend to investigate the tax compliance of the unnamed persons, but rather the tax compliance of the relevant appellants and other named entities” (para. 60).

Canada (National Revenue) v. Ghermezian, 2022 FC 236, aff'd in part 2023 FCA 183

s. 231.1(1) authorizes the Minister to compel the production of existing documents, but not to provide written answers

In the context of applications by the Minister for s. 231.7 compliance orders respecting CRA requests for various documents made pursuant to s. 231.1(1), Southcott J rejected the submissions of the respondent taxpayers that s 231.1(1) affords the Minister only an inspection power, i.e., authority (for any purpose related to the administration or enforcement of the Act) to attend at the premises of a taxpayer or other person to inspect books and records or other documents, and that s 231.1(1) does not grant the Minister power comparable to s 231.2(1), either to: (a) compel provision of documents outside the context of an inspection; or (b) compel the provision of information other than information about the location or provenance of documentation sought in the context of an inspection. Southcott J stated (at paras, 73-74) that he found the analysis in Tellza “compelling” (e.g., that the equivalent ETA provision “indeed grants an authorized person the power to request or require a taxpayer to provide information in any form”) and concluded (at para. 78) that “s 231.1(1) entitles an authorized person to demand provision of documentation without physically attending at a place or premises where the documentation is kept.”

However, Southcott J accepted the taxpayers’ submissions in this regard by concluding (at para. 111) that “s 231.1 … does not authorize issuance of a demand compelling the recipient to provide, through written answers to questions, substantive information relevant to a taxpayer’s tax position” as contrasted to “authoriz[ing] compulsion of only pre-existing documentation” (para. 79). He stated in this regard (at para. 96):

[T]he distinction underlying the reasoning in Cameco is between documented and undocumented information. Section 231.1(1)(a) empowers the Minister to compel provision of the former but not the latter.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Evidence department manager can provide affidavit evidence on the activities of his department 125
Tax Topics - Income Tax Act - Section 231.2 - Subsection 231.2(1) presumption that CRA official was authorized, and CRA required to assess what is a reasonable notice period in light inter alia of the volume of requested material 313
Tax Topics - Income Tax Act - Section 244 - Subsection 244(5) s. 244(5) not the only means for the Minister to establish service by registered mail 130
Tax Topics - Income Tax Act - Section 231.6 - Subsection 231.6(2) burden on taxpayer to establish that the documents were not accessible from Canada before s. 231.6 can oust s. 231.1 or 231.2 113

Frank C. Smith Medicine Professional Corporation v. Canada (National Revenue), 2022 FC 29

requested information regarding a Caymans subsidiary had a rational connection to an audit of the taxpayers

CRA, which had been auditing the taxpayers -Dr. Smith, an orthopaedic surgeon in Hamilton, and his Canadian professional corporation (“Smith MPC”) - for their 2010 to 2016 taxation years, learned of a USB key that included accounting data for a Caymans corporation controlled by Dr. Smith (“COG Ltd”) pertaining to the 2003 to 2018 taxation years. Dr. Smith initially had brought the USB key to Canada and provided it to his Canadian accountants, but they had sent it to their Buffalo office, which had the requisite software to extract the information on the key. The Minister issued request letters in October 2020 effectively requesting, pursuant to s. 231.1, information on the USB key along with certain other information, and also expanding the years of the taxpayers under audit to the years 2003 to 2018. Although the Minister brought compliance applications in April 2021, this hearing dealt only with the taxpayers’ application for judicial review of the request letters.

After noting that the reasonableness of the letters turned on a test of whether there may be considered to be “a rational connection … between the information sought and the administration and enforcement of the ITA” (para. 23), Fothergill J stated (at paras. 27, 37):

[A]ssessing or re-assessing a taxpayer, even for years that fall outside the normal reassessment period, in circumstances where the taxpayer may have made any misrepresentation attributable to neglect, carelessness or willful default … is a purpose for which a request for information may be made under s 231.1 … .

… I am satisfied that Dr. Smith is being audited with respect to potential unreported income and assets from his offshore holdings. His long association with, and ownership interests in, COG Ltd and Assets Ltd are sufficient to establish that the requests for information respecting the two entities are rationally connected to the audit of Dr. Smith personally.

In addressing a submission that the request letters sought foreign-based information and should have been issued under s. 231.6, he first noted (at para. 42) that Ghermezian:

did not rule out the possibility that "“there could be circumstances in which the record before the Minister includes evidence that information is located outside Canada that is so compelling that it would be unreasonable for the Minister to proceed otherwise than under s. 231.6” … .

However, he stated (at paras. 43, 45-46):

I am not persuaded that the evidence in this case is so compelling that it was unreasonable for the Minister to proceed otherwise than under s. 231.6 of the ITA. I agree with the Minister that a taxpayer cannot transform domestic-based information into foreign-based information merely by moving it outside the country. Furthermore, information in electronic form stored on servers outside Canada is in law capable of being located in Canada (eBay Canada …).

The Minister’s applications under s 231.7 of the ITA will afford Dr. Smith an opportunity to adduce evidence relevant to the location of the material, to equip the Court to decide whether a compliance order should be issued (Ghermezian at para 107). …

For the purposes of the present proceedings, whether the information or documents are located within or outside Canada does not affect the reasonableness of the requests. The information sought is rationally connected to the audit of Dr. Smith, and the requests were therefore reasonable.

The application for judicial review was dismissed.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 231.6 - Subsection 231.6(2) it was not unreasonable for CRA to request information under s. 231.1 (not 231.6) on a Buffalo USB key 357

Friedman v. Canada (National Revenue), 2021 FCA 101

Jarvis also applies to allegations that CRA information requirements violate the Charter right not to self-incriminate

The Friedmans, a married couple, who had each received Requests for Information under s. 231.1(1) (“RFIs”) that were addressed to them personally, appealed the Federal Court decision granting a compliance order against them under s. 231.7(1). They submitted that ss. 231.1(1) and 231.7(1) infringed their rights under s. 13 of the Charter in that those provisions did not prohibit use of the information gathered in any subsequent criminal proceedings and that the Federal Court failed to follow Lin which, in dealing with RFIs with essentially identical wording, found that compliance with the RFIs was not required because it was unclear whether the RFIs were directed to the taxpayers individually or to their related foreign entities.

In rejecting the second submission, Pelletier JA stated (at paras. 30-31) that any failure to follow “judicial comity,” i.e., the expectation “that judges will consider the decisions of their colleagues carefully and, if they choose to differ, will explain why … is not a basis for appellate intervention.”

In rejecting the first submission, he stated (at paras. 35, 39) that “courts should not decide constitutional cases in a factual vacuum” such as here, where there were “merely hypothetical possibilities which may or may not arise” (e.g., a subsequent criminal investigation commencing). He went on to find that, in any event, even though Jarvis (which “established a predominant purpose test to determine if inquiries by the Minister were intended to determine a taxpayer’s tax liability or a taxpayer’s criminal liability” (para. 41)) dealt explicitly only with ss. 7 and 8 of the Charter, and not s. 13 thereof, that test nonetheless appeared to be applicable here, where there was no criminal investigation.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Judicial Comity not following a decision of a fellow Federal Court judge is not reviewable error 267
Tax Topics - Other Legislation/Constitution - Charter (Constitution Act, 1982) - Section 13 allegation that ss. 231.1 and 231.7 violated the Charter lacked a factual foundation and, in any event, there was no allegation of a criminal investigation 366
Tax Topics - General Concepts - Stare Decisis stare decisis does not apply horizontally 134

Canada (National Revenue) v. Atlas Tube Canada ULC, 2018 FC 1086

required disclosure of an EY tax due diligence report discussing uncertain tax filing positions of a target

The Minister sought an order pursuant to s. 231.7 requiring the respondent (“Atlas”) to provide a draft due diligence report (the “Report”) prepared by an accounting firm (“EYC”), that reviewed the tax attributes of a Canadian corporation (“LSI”) that subsequently was acquired by Atlas’ U.S. parent (“JMC”) and of a Canadian subsidiary (“LSC”) of LSI, as well as LSC’s material tax exposures resulting from its Canadian tax filings including risk of challenge by CRA. Shortly thereafter, JMC transferred a subsidiary of amalgamated LSI (“New LSI”) to Atlas, and an issue in a CRA audit of Atlas for that year was the valuation of a U.S. subsidiary of New LSI.

Southcott J referenced (at para. 28) “the low threshold of relevance applicable under s 231.1” and stated (also at para. 28) that:

[I]t is clear that the Report was prepared for purposes of the transaction that is under audit. As previously explained, the Minister need not demonstrate that the requested document is relevant to a specific issue under audit.

Furthermore, although the Report dealt with LSI Canadian companies, it “may be relevant to the valuation of the US shares that CRA is reviewing.” Accordingly, the low threshold under s. 231.1 for relevance was met.

In going on to find that the Report was not protected by disclosure on the basis of the BP case, Southcott J found (at paras 65 and 66):

… I agree with the Minister’s position that BP is to be read as precluding general and unrestricted access to TAWPs [tax accrual working papers] on a prospective basis, outside the context of an audit of particular issues. …

… Unlike in BP, the Minister’s request for access to the Report in the present case is made in the context of an active audit of particular issues. I have previously concluded that the information in the Report sought by the Minister meets the applicable threshold of relevance in that context. I therefore find that compelling Atlas to provide the Report would not offend the principle described in BP that a taxpayer is not required to self-audit.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 231.7 - Subsection 231.7(1) low threshold of relevance was met 298
Tax Topics - General Concepts - Solicitor-Client Privilege predominant purpose of due diligence report was to aid a business decision 336

Canada (National Revenue) v. Stankovic, 2018 FC 462

a taxpayer with an unreported Swiss bank account was not yet under criminal investigation

In 2009, the French authorities obtained the Falciani List (on which an HSBC employee in Switzerland had copied account holder information) and pursuant to Art. 26 of the Canada-France Convention provided information to CRA showing inter alia that the taxpayer had a large HSBC account in Switzerland. However, the taxpayer had not reported the account, or any interest thereon, and CRA proceeded to send three request letters in 2015 and 2016 pursuant to s 231.1(1). The taxpayer ultimately responded, but without providing any information concerning any HSBC account in Switzerland. On November 8, 2016, the Minister applied under s 231.7(1) for a compliance order.

In granting the order and rejecting the taxpayer’s submission that the request letters were issued in connection with “a criminal investigation going on behind the scenes of which the [CRA] Auditor ha[d] no knowledge,” Russell J stated (at paras 50, 55, 58 and 59):

… Offshore accounts are not, per se, illegal and it is the duty of the Minister under the Act to inquire and ensure that those with offshore accounts are meeting their tax liabilities. … If the Respondent’s position were accepted, it would mean that, given the government’s intent to deal with offshore tax offenders, every Canadian taxpayer with an offshore bank account would be immune from compliance with the audit requests made under s 231.1(1) because this could lead to criminal proceedings at some time in the future. The governing jurisprudence makes it clear that possible future criminal proceedings do not excuse a taxpayer from compliance with a s 231.1(1) request. See Jarvis… .

It is … clear that, even if a CRA auditor has a suspicion that an offence may have occurred, a mere suspicion does not change the predominant purpose of an audit into a criminal investigation. See Jarvis…

… Given that the Auditor’s evidence is that the Respondent “has not reported [the] existence of any money, securities, or assets in HSBC Swiss account(s), nor any income earned therefrom,” it is certainly possible that CRA could have begun an investigation to establish the elements of criminal tax evasion, although there is no evidence that it has. … Assessing the totality of the circumstances … I conclude that the predominant purpose of the request letters is a civil tax compliance audit and that no adversarial relationship between the state and the Respondent exists. …

Ellingson … made it clear that the Jarvis test must be based upon evidence, and cannot be based upon the subjective suspicions of the taxpayer involved. …

Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Charter (Constitution Act, 1982) - Section 7 use of stolen data provided by French tax authorities did not violate taxpayer's Charter rights 202
Tax Topics - General Concepts - Stare Decisis Quebec CA decision relied upon 40
Tax Topics - Income Tax Act - Section 231.7 - Subsection 231.7(1) mere suspicion of criminal activity did not oust s. 231.1 215

Campbell v. Canada (Attorney General), 2018 FC 412

a foreign bank consented to provide information respecting foreign transactions of Canadian residents pursuant to a CRA requirement

The taxpayer applied to have a requirement issued to him under s. 231.1(1) set aside on the basis it was issued as part of a criminal investigation of him. Under Rule 312, he sought permission to supplement the record (containing only the materials before CRA in issuing the requirement) by filing a copy of the record in a different court file concerning an application made by the Minister against Citibank, N.A., for an order requiring the disclosure of certain information concerning a number of taxpayers resident in Canada and to cross-examine the two CRA employees who signed affidavits in that other file (on the grounds that this could help prove that the CRA had begun a criminal investigation).

Grammond J first noted (at para. 15):

…[C]ourt file no. T-919-16 … is an application for leave to impose a requirement on Citibank to disclose information regarding transactions involving Cayman National Bank and unnamed residents of Canada. It was granted on consent. It was supported by affidavits of two CRA employees, Mr. David Letkeman and Ms. Stephanie Henderson, [which] … describe how the CRA came to believe that the requirement could lead to the production of information regarding Canadian taxpayers’ undisclosed foreign assets and tax liability. … [I]nformation provided by Citibank as a result of this requirement brought Mr. Campbell’s situation to the attention of the CRA.

He went on to find that the affidavits in that other case did not show that the taxpayer was under criminal investigation, and that there was an insufficient basis for giving the taxpayer the right to cross-examine the two officials in the other case.

Canada (National Revenue) v. BP Canada Energy Company, 2015 DTC 5077 [at 5958], 2015 FC 714, rev'd 2017 FCA 61

Minister may compel the disclosure of tax accrual working papers

Campbell J allowed the Minister's s. 231.7 application to enforce her demand for unredacted copies of its tax accrual working papers (containing descriptions of issues for which it had exposure). The papers were compellable because they were "an important tax record in BP Canada's possession" (para. 25). Whatever policy ramifications flow from compelling the production of such papers are within the Minister's purview to manage, not the courts' (para. 29).

Neither did Campbell J see why there should be an exercise of Court discretion to quash the demand. The Minister's position had always been that such papers were compellable, and the restraint with which it typically applied that policy was not binding (paras. 11, 13).

Arguments that the taxpayer effectively was being "conscripted" to audit itself were unpersuasive, as the working papers had already been prepared for other (accounting) reasons (para. 24). Although the papers had been prepared for what now were statute-barred years, their content remained relevant to subsequent years (para. 32).

Finally, as to whether the demand was unfair, Campbell J adopted (at para. 47) a statement of the Minister that:

...If the CRA does not uncover the tax positions in time, the shareholders of BP win, and the taxpayers of Canada lose. If the tax position is discovered and challenged by the CRA, the matter can ultimately be resolved by the Tax Court of Canada as to the propriety.

Piersanti v. Canada, 2014 FCA 243

propriety of evidence collection for criminal purposes is irrelevant to its admissibility in tax appeals

The taxpayer had been convicted of over 30 GST-related offences. In the course of appealing the related reassessments, she moved, on Charter grounds, to exclude from evidence any information the Minister obtained from Requests for Information, arguing that the RFIs were made in the course of a criminal investigation.

The trial judge dismissed the taxpayer's motion, finding that the situation involved a concurrent criminal investigation and audit. Trudel JA further added (at para. 9):

The Judge's legal finding accords with Jarvis and with the self-assessment and the self-reporting nature of the income tax regime. Whether the CRA could properly use such documents to prosecute the appellant for criminal offences under the ETA is irrelevant to the current civil proceedings.

In any event, even if the taxpayer were correct that her rights were breached, it was "at best a technical breach" which did not call for a remedy under s. 24(2) of the Charter (para. 9).

Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Charter (Constitution Act, 1982) - Section 8 propriety of evidence collection for criminal purposes is irrelevant to its admissibility in tax appeals 173
Tax Topics - Excise Tax Act - Section 289 propriety of evidence collection for criminal purposes is irrelevant to its admissibility in tax appeals 173

R. v. Posteraro, 2014 DTC 5040 [at 6734], 2014 BCPC 31

discovery of arguably incriminating evidence in audit does not automatically mean the investigation now has a criminal purpose

The accused applied to exclude evidence collected from an audit on the basis that the audit had a criminal investigation purpose. Applying the predominant purpose test in Jarvis to dismiss the taxpayer's application, Marchand J noted that the mere fact that the auditor did not pass along the audit file to the Enforcement Division at the very earliest reasonable time (7 September 2010) did not mean that the Audit Division's primary purpose had changed to a criminal purpose before the file was passed along (16 December 2010).

R v. He, 2012 DTC 5129 [at 7234], 2012 BCCA 318

The Court affirmed the trial judge's decision to exclude evidence obtained by CRA in the course of a pilot project to evaluate the adequacy and reliability of the point-of-sale systems of various business including that of the accused, including the warrantless seizure of accounting diskettes. The project was a randomly sampled study intended for policy research, and was not meant to investigate tax liabilities. CRA officials misrepresented their authority under the project in order to seize the diskettes. The Court found that this amounted to a warrantless seizure in violation of the taxpayer's Charter rights.

Hinkson J.A. also remarked (at para. 54) that the Supreme Court of Canada's requirement in Richardson, that the Minister exercise power under s. 231.2 only if the taxpayer's liability is a "subject of genuine and serious inquiry," also applies to s. 231.1.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 288 - Subsection 288(1) 185

Redeemer Foundation v. Canada (National Revenue), 2008 DTC 6474, 2008 SCC 46, [2008] 2 S.C.R. 643

After the CRA served the appellant with a requirement under s. 230(3) asking that it maintain "transmittal forms" showing the identities of (parent) donors to the appellant and the names of students (typically children of the parents) who received funding for their attendance at a university that was affiliated with the appellant, CRA requested donor lists from the appellant. As the Minister led unchallenged evidence that the information it sought identifying donors was necessary for determining whether the appellant was issuing receipts otherwise than in accordance with the Act (so that there would be grounds to revoke its registration), the Minister was entitled to the requested information due to the combined effect of ss.230(2)(a) and 231.1, without seeking judicial authorization under s. 231.2(2). This interpretation did not render s. 231.2 redundant, as s. 231.2 responded to the need for the Minister to seek information relating to unnamed persons from a third party record holder outside the context of a formal audit.

Stanfield v. Canada (Minister of National Revenue), 2005 DTC 5454, 2005 FC 1010

After applying a range of factors Noël J. concluded that the predominant purpose of letters and questionnaires was to further a criminal investigation and were not within the parameters of the audit functions contained in s. 231.1(1). The letters and questionnaires were quashed, and the Minister prohibited from taking any proceedings for the applicants' failure to respond.

R. v. Dial Drugstores Ltd., 2003 DTC 5206 (Ont. Sup. Ct. J.)

An investigation by CCRA of the taxpayer was not transmuted into a criminal investigation until the auditor met with Special Investigations and referred the file to them for their consideration. Reilly J. noted (at p. 5219) that:

"The mere fact that the audit was provoked as a result of suspicion of non-compliance does not turn it into an investigation to determine penal liability."

He also noted (at p. 5220) that:

"Questions related to mens rea do not fall within the scope of s. 231.1(1)(d)."

R. v. Ling, 2002 DTC 7566, 2002 SCC 74, [2002] 3 S.C.R. 814

CCRA was conducting an audit and not an investigation of the taxpayer up until the time of a three-hour meeting in which the taxpayer was questioned extensively about unidentified deposits and unreported income. Accordingly, evidence gathered prior to and during that meeting was properly obtained as part of the audit process and could be shared with Special Investigations, whereas evidence gathered subsequent to that meeting and prior to warning him that he was the subject of an investigation for the purposes of furthering an s. 239(1) prosecution, violated the taxpayer's Charter rights and would have to be reconsidered in light of s. 24(2) of the Charter at a new trial.

R. v. Jarvis, 2002 DTC 7547, 2002 SCC 73, [2002] 3 S.C.R. 757

cannot use audit powers if CRA predominant purpose is to establish criminal liability

Where the predominant purpose of a particular inquiry is the determination of a penal liability (e.g., under s. 239 of the Act), CCRA officials may not have recourse to the inspection and requirement tools in ss. 231.1(1) and 231.2(1). In this regard, "enforcement" in s. 231.1(1) and 231.2(1) did not include prosecution of an s. 239 criminal offence. Here, the predominant purpose of an investigation by an auditor was not the determination of penal liability for the taxpayer, with the result that information obtained in the investigation was admissible for the purpose of an application for a search warrant. Accordingly, the warrant was validly issued.

Words and Phrases

The Queen v. Norwood, 2001 DTC 5111 (FCA)

The photocopying by a Revenue Canada auditor of notes made by an accountant in his interview with the taxpayer which the auditor obtained from an empty office at the time the accountant was out of town was not authorized by s. 231.1(1). Sharlow J.A. stated (at p. 5114) that "one might question whether an auditor can be said to have exercised his powers of investigation at a 'reasonable time' if he takes a document from an accountant's private office when he knows the accountant is out of town". Furthermore, because the taxpayer had a reasonable expectation of privacy (notwithstanding that "a taxpayer's expectation of privacy in an accountant's notes recording personal information are at the low end of the scale"), there was a breach of the taxpayer's rights under s. 8 of the Charter.

Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Charter (Constitution Act, 1982) - Section 8 surreptitious photocopying 164

The Queen v. Kloster, 98 DTC 6258 (Prov. Ct. B.C.)

The use of s. 231.1 to obtain bank records and records of a solicitor who had acted for the accused breached the reasonable expectations of privacy of the accused. Bagnall J. found that the use of the evidence so obtained without judicial authorization was not permitted under s. 24(2) of the Charter.

Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Charter (Constitution Act, 1982) - Section 8 taking of bank records breached privacy 52

The Queen v. Norway Insulation Inc., 95 DTC 5328, [1995] 2 CTC 451 (Ont. C.J. (G.D.))

After the taxpayer's file was referred to Special Investigations based on the initial auditor's suspicion that the taxpayer had not reported income, Special Investigations sent the file back to audit for further investigation, with the result that further information was obtained pursuant to s. 231.1(1). On the basis of the information so obtained, search warrants were obtained and executed.

Before finding that the evidence so obtained under s. 231.1(1) should be excluded under s. 24(2) of the Charter and that the search warrants (having been obtained as a consequence of the excluded evidence) had been correctly quashed by the judge below, LaForme J. stated (at p. 5330):

"Section 231.1(1) is designed as a regular audit tool to ensure compliance with the Act. It is not designed to gather evidence for the purpose of a criminal prosecution."

R. v. Rosenberg, 87 DTC 5189, [1987] 1 CTC 385 (S.C.O.)

A Revenue Canada officer was authorized to examine and make copies of documents which the OPP had seized and detained pursuant to s. 446 of the Criminal Code, subject to Revenue Canada either obtaining the consent of the taxpayers or obtaining a proper search warrant under s. 231.3 of the Act.

Lipsey v. MNR, [1984] CTC 208, 84 DTC 6191 (FCTD)

An order was granted restraining the Department from taking further steps in the investigation of the affairs of the taxpayer and specifically from asking him questions. A S.231(4) authorization to enter and search had previously been quashed. To permit the Department to require answers to questions posed pursuant to S.231(1)(c) would have the effect of stultifying the quashing of the authorization - both the S.231(4) search and the S.231(1)(c) questions would seek the same information.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Evidence 48

See Also

Tellza Inc. v. Canada (National Revenue), 2021 FC 853

CRA could request records in electronic form and did not need to utilize the requirement provision

CRA issued a letter to Tellza under ETA s. 288(1) (similar to ITA s. 231.1(1)) to obtain all of Tellza’s electronic accounting data for a 20-month period. Fuhrer J rejected Tellza’s position that this letter was a "requirement" and not a "request" and hence, should have been issued under the ETA s 289(1) (similar to ITA s. 231.2(1)), instead of the ETA s 288(1), and found that it was not unreasonable for CRA to have issued the letter under the latter provision instead. In this regard, she indicated (at para. 18) that, although s. 288(1) was narrower in scope than s. 289(1), s. 288(1) nonetheless “grants an authorized person the power to request or require a taxpayer to provide information in any form,” and further stated that “the authorized person is not limited, in a modern, electronic era, to an inspection, audit or examination of the taxpayer’s documents and records at their premises.”

After having noted (at para. 15) that the word “document” (used in s. 288(1)), was effectively defined in ETA s. 123(1) to include “any other thing containing information, whether in writing or in any other form” (her emphasis), she also rejected (at para. 22) the contention of Tellza that “the request for records in an electronically readable format, along with the system administrator’s user ID and password, where applicable, falls outside the scope of the inspection power in the ETA s 288(1).”

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 288 - Subsection 288(1) it was not unreasonable for CRA to exercise its audit power by requesting a copy of all electronic records for a 20-month period 287

R. v. Bouclair Inc., 2020 QCCQ 4548 (Court of Quebec)

stay of a federal tax evasion prosecution ordered based on an ARQ audit file gathered for Quebec civil penalty purposes

During a routine audit of a home fashion and décor company (“Bouclair”), the ARQ discovered that Bouclair had paid for the construction of a home for its CEO by paying false invoices (i.e., invoices purportedly for work done for Bouclair) rendered to it by VP Construction (a builder of log cabins in the Mont Tremblant area). The ARQ (“RQ”) predetermined from the outset that the file would never be flagged for a criminal investigation. The auditor received the falsified invoices, and confessions and admissions by company representatives, and the ARQ then audited VP Construction, thereby obtaining copies of the “real” invoices for the log cabin work. In 2012, RQ reassessed Bouclair and the CEO, and also assessed penalties, which were paid promptly. In 2013, CRA in reliance on the ARQ legwork, made corresponding reassessments, including under s. 163(2) - also paid promptly.

However, in 2015, the CRA Investigations Division, in order to find sufficient work for its investigators, began selecting files, including the Bouclair one, from a list of old, closed and archived files, not flagged for investigation but for which significant penalties had been imposed under s. 163(2), on the basis that there was a high likelihood of criminal tax evasion. The CRA investigator obtained a full copy of the RQ auditor’s Bouclair files, leading to the investigator obtaining three search warrants for Bouclair’s head office, for VP Construction’s office, and for the accused’s external accounting firms’ offices. Following the investigation, the three accused – Bouclair, its CEO and its Vice-President of Real Estate-- were charged jointly with various ITA tax evasion offences.

After finding (at para. 162) that “the improvised system established by the CRA to pick from closed audit files was not abusive, in and of itself” and that the transfer of the file information from the RQ to CRA was unlawful as being contrary to the relevant inter-governmental agreement given that “the CRA’s investigative body sought to obtain it from RQ for the explicit purpose of incriminating the accused in a criminal matter – in contravention of the statutory prohibition against sharing (subject to exceptions)” (para. 232), and (at para. 264) “that the applicants did not have a reasonable expectation of privacy in the emails, faxes or billing and commercial documents held by VP Construction in its premises” given that “a taxpayer’s privacy interest with regard to his tax record vis-à-vis the Government is – without being absent – relatively low,” Galiatsatos JCQ went on to find that there had been a violation of the Jarvis principle (notwithstanding that CRA had not performed the audit), stating (at paras 297, 298, 300):

…[T]he closed RQ audit files may be seen as a treasure trove of ready-made files for “investigation” and prosecution containing uncautioned conscripted evidence.

The Court cannot condone such a practice. … Otherwise, the Jarvis protections simply melt away.

…[I]f the evidence establishes that the Jarvis protections are systemically neglected from the outset, for internal policy reasons or otherwise, this may prove fatal to the entire admissibility of the fruits of the audit.

Galiatsatos JCQ further noted that the ARQ auditor had already concluded before even seeing the false invoices that the VP Construction work had not been performed for Bouclair, and stated (at paras 315, 345, and 346):

…[T]he … auditor… at that very early stage, had both subjectively [and]… objectively found evidence of tax evasion and set out from that point to build a case to establish the requisite intent, using the compliance audit mechanisms as a means of gathering evidence, even though she never intended the matter to be prosecuted criminally.

… If Jarvis precautions had been on RQ’s mind at the relevant times, in my view, the matter would have – and should have – been referred for criminal investigation before even requesting and receiving the VP invoices… . … [B]efore even requesting to see the invoices, the potential for an innocent explanation was far-fetched. …

…[T]he Court finds that the applicants’ constitutional rights were violated from the moment the auditor required production of the invoices for the VP Construction expenses.

After noting (at para 389) that this breach of the applicants’ charter rights was serious as they had “uncautioned, volunteered incriminating documents and incriminating statements that served as the foundation for the criminal charges that were eventually brought against them,” Galiatsatos JCQ went on to find that, in addition to excluding the improperly obtained evidence (including the false invoices), obtained in the searches – but not the evidence obtained from the audit of VP Construction as this had been decided upon at the outset, that a stay of proceeding would be appropriate, so as to avoid an abuse of process, stating (at paras. 440, 442, 469):

… [T]he systematic and institutionalized neglect of Jarvis by RQ … would not necessarily be objectionable. … [I]t was (and still is) the prerogative of RQ to decide from the outset that certain offences will never be the object of criminal charges.

However, should the State choose not to engage the criminal process despite obvious signs of criminality, thereby choosing not to offer constitutional protections, it is expected that is will in turn choose to forego criminal prosecution. In order to ensure that the taxpayer’s constitutional rights are respected, such a broad discretionary decision must have a built-in mechanism by which it ensures that the taxpayer will not later be prosecuted on the basis of the fruits of such an expansive audit. …

Considered as a whole, the history of this investigation directly harms the integrity of the justice system and irreparably compromised the community’s sense of fair play and decency. Alternative remedies are insufficient to redress this prejudice. Even if much of the evidence is excluded under s. 24(2), the case would still be viable, since a significant portion of the evidence was deemed admissible by this Court.

Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Charter (Constitution Act, 1982) - Subsection 24(2) exclusion of evidence not a sufficient remedy to protect against breach of Jarvis protections 475

BT Céramiques Inc. v. Agence du revenu du Québec, 2020 QCCA 402

documents were illegally seized since there had been an audit conducted following reasonable grounds for considering there to have been criminal conduct

Jarvis found that where the predominant purpose of a particular inquiry is the determination of a penal liability (e.g., under s. 239 of the ITA), CRA officials may not have recourse to the inspection and requirement tools in the ITA. Contrary to the Superior Court (one level below), the Quebec Court of Appeal found that the Court of Quebec (two levels below) had not made any reversible errors in invalidating evidence obtained in a search and seizure of a Quebec registrant (BT Céramiques), which was believed to have fraudulently claimed input tax credits and corrupted CRA officials. CRA had reasonable grounds, at its commencement of the audit in question, to proceed with a criminal investigation rather than merely initiating a tax audit, and while the evidence sought during the audit could be used to establish tax payable, the totality of the evidence demonstrated an interest in acquiring information on the criminal liability of the taxpayers and CRA employees. It was also relevant that the same Director headed up both the Montreal Special Enforcement Program (whose mandate was to determine the civil liability of those engaged in criminal activities) which performed the audit, and the Criminal Investigations Program, which investigated tax evasion with a view to bringing charges and which took over after completion of the audit, including preparing a search warrant.

Copies of the seized documents had, in turn, been provided by CRA to the ARQ, which brought its own tax evasion charges. In affirming the decision of the Court of Quebec to also exclude, pursuant to s. 24 of the Charter, use of such evidence by the ARQ, Dufresne JCA stated (at para. 184, TaxInterpretations translation):

[It] simply could not take advantage of the proceeds of the illegally obtained warrants. If this shortcut were allowed, the risk of abuse would be great, since one state agency could, in all events, take advantage of the other's searches, regardless of the legality of the means used to obtain them.

Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Charter (Constitution Act, 1982) - Section 8 CRA violated the Jarvis principle in auditing following reasonable grounds for considering that there was taxpayer/CRA criminal conduct 481
Tax Topics - Other Legislation/Constitution - Charter (Constitution Act, 1982) - Subsection 24(1) ARQ could not use documents obtained by CRA contrary to the Charter 345

R. v. BT Céramiques Inc., 2017 QCCS 4262, rev'd 2020 QCCA 402

mere suspicion of tax (GST) evasion insufficient to render a penal investigation

Jarvis found that where the predominant purpose of a particular inquiry is the determination of a penal liability (e.g., under s. 239 of the ITA), CRA officials may not have recourse to the inspection and requirement tools in the ITA. In reversing the decision of the Court of Quebec to invalidate evidence obtained in a search and seizure of a Quebec registrant (BT Céramiques), which was believed to have fraudulently claimed input tax credits and corrupted CRA officials, Payette JCS stated:.

When it commenced the audit, the CRA only had suspicions that BT Céramiques was engaged in tax evasion and that a “grand patron” in the CRA was assisting it. …

[T]he judge contrasted “auditing” and “investigation” … without noting that the audit powers themselves constitute powers of investigation, and without pausing to determine if the objective of the steps she described was to establish penal liability of the respondents.

Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Charter (Constitution Act, 1982) - Section 8 mere suspicion of tax evasion and corrupting CRA officials is insufficient to invalidate audit information 547

R v. Lombardo, 2011 DTC 5065 [at 5733] (B.C. Prov. Ct.)

The audit division of CRA commenced an audit of the accused after a leader in the CRA special enforcement division brought to their attention a reported judgment, arising out of child support proceedings, in which the B.C. Supreme Court had made a finding that the accused had manipulated his restaurant's point-of-sale system so as to conceal income. After an auditor had accessed various accounting records of the accused's business purportedly pursuant to CRA's civil audit powers, further information was collected pursuant to search warrants and production orders.

At the time of the commencement of the audit, CRA had reasonable grounds to conclude that an offence had been committed. Yee J. held in this voir dire proceeding that the evidence obtained directly or derivatively by the use of the audit powers, including the data obtained by search warrants and production orders, was inadmissible pursuant to ss. 7, 8 and 24(2) of the Charter, as its admission would bring the administration of justice into disrepute.

Mommersteeg and Giffen v. The Queen, 96 DTC 1011, [1995] 2 CTC 2767 (TCC)

A polite oral request made to a travel agency by a Revenue Canada auditor for access to their frequent flyer program records did not contain the "element of compulsion, communicated by notice in writing" contemplated by s. 231.2(1), nor was the auditor's visit to the travel agency the exercise of a right or power conferred by s. 231.1.

O'Reilly v. Commissioners of the State Bank of Victoria (No.2), 83 ATC 4156 (HC)

S.263 of the Income Tax Assessment Act 1936, which provided that a revenue officer "shall at all times have full and free access to all buildings, places, books, documents and other papers for any of the purposes of this Act", was not complied with where an officer of a bank refused to unlock a vault containing records of various customers. It was noted, however, that a restrictive interpretation should be given to S.263 in light of the existence of another section (similar to S.231(3) of the Canadian Act) in which the granting to the Commissioner of the power to require persons to furnish information was accompanied by the granting of procedural protections to those persons, such as a requirement that there be notice in writing.

Administrative Policy

7 October 2020 APFF Roundtable Q. 2, 2020-0852141C6 F - APFF 2020 Roundtable Q2 - Request for Information

CRA may request personal bank statements when conducting indirect reviews

In responding to a question as to where and why bank and credit card statements are required in CRA’s audits of individuals and shareholders, CRA stated:

In the case of a sole proprietorship or a corporation with one or few shareholders, there may be a commingling of business and personal funds. Therefore, when conducting indirect reviews, auditors also request personal financial information from other individuals including the spouse or common-law partner of the sole proprietor, shareholder or any person who contributes financially to the household income and expenses or lives in the same residence as the sole proprietor or shareholder.

The authority to request the personal bank statements of the shareholder and other persons named above is set out in, inter alia, subsection 231.1(1). That provision allows the CRA to inspect, audit or examine the books and records of other persons to the extent that information in those books or records could relate to information that is or should be in the books or records of the taxpayer who is the subject of the inspection, audit or examination.

27 February 2019 CTF Corporate Management Tax Conference, Q.7

must be a valid business reason (communicated to taxpayer) for requiring information

Although s. 231.1 uses the word “any,” judges have imposed a reasonableness test.

CRA decided not to appeal the BP decision to the Supreme Court because it would effectively have been asking for absolute authority. Headquarters clarified to field auditors that there must be a valid business reason for seeking information, and that reason should be communicated to the taxpayer.

27 November 2018 CTF Roundtable Q. 11, 2018-0779971C6 - Record Retention Policy Guideline

in some circumstances CRA considers that it can require a taxpayer to disclose its uncertain tax positions

What is CRA’s approach to requesting taxpayer records, particularly a taxpayer’s analysis of its tax risks, and is CRA updating its published position?

CRA indicated that it can seek the production of tax accrual working papers, provided that the request for such records is relevant to specific risks or items under audit, and it uses restraint in seeking the information. Factors that may be considered are the taxpayer’s past level of compliance and the existence of large unexplained tax reserves.

While CRA officials may, in certain circumstances, request a list of what the taxpayer considers to be its uncertain tax positions, CRA officials should first perform research and analysis in forming the basis of their reassessment. Provided all relevant facts and transactions are included in the taxpayer’s uncertain tax positions, exclusions of the related advice and analysis may be accommodated. Where the criteria in the revised Communiqué (which will be posted on the Canada website) are met, CRA retains the right to certain tax positions as outlined in Atlas Tube. CRA recognizes the principle in BP that taxpayers are not required to self-audit.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Solicitor-Client Privilege solicitor-client privilege does not extend to list of uncertain tax positions 117

24 May 2018 CTF Seminar - Preventing, Navigating, and Resolving Tax Disputes under “Managing Tax Risk, The Ins and Outs of Reporting and Compliance” (Gordon Parr)

CRA will still demand tax accrual working papers from difficult taxpayers with large unexplained tax reserves

Gordon Parr (Director) indicated that, partly in response to the BP decision, CRA is currently updating its internal communiqué with respect to obtaining information from taxpayers, registrants and third parties. The communiqué will outline that CRA officials can seek the production of tax accrual working papers, provided that the request for such records is relevant to a specific risk issue or item under audit and the CRA official is using a certain level of restraint in seeking this information.

Tax accrual working papers may be sought where there are identified unresolved tax issues and there is a higher risk of non-compliance. Factors that may be considered include the level of non-compliance, large unexplained tax reserves, and potential tax at risk. The taxpayer’s list of uncertain tax positions that relates to tax reserves in the taxpayer’s financial statements is considered to be part of the taxpayer’s books and records and is not a privileged document unless otherwise demonstrated.

While CRA officials may, in certain circumstances, request the list of what the taxpayer has determined to be its uncertain tax positions, in considering the structures and transactions outlined, CRA officials should perform their own research and analysis in forming the basis of any potential reassessment. Provided that all of the relevant facts of the transactions are included in their uncertain tax positions, exclusions of the advisors’ analysis of the legal and tax effects of the transactions may be considered.

23 February 2016 Toronto Centre Tax Professionals Seminar under “Access to Accountants' Working Papers”

external working papers requested where no direct information and high risk

In request for comments on the BP case and CRA’s policies respecting seeking access to the working papers of accounting firms, CRA stated orally:

[A]uditors should attempt to collect the information from the most direct source, and in the least intrusive manner. So if the source documentation is available in the taxpayer's books and records, and there's open and transparent disclosure of the uncertain tax positions, there's a level of cooperation and mutual trust, and the CRA is getting the information it needs to determine whether taxable income is understated or the tax balance is overstated…then generally we wouldn't request access to the taxpayer's or the accountant's working papers. But, where we can't get that direct information, in those situations where there is a high risk issue we will request that information. The request has to be relevant to the outstanding issues… .

3 November 2003 Internal T.I. 2003-0044817 F - Copies of Electronic Documents

CCRA auditors may take electronic copies of taxpayer records
Also released under document number 2003-00448170.

In the course of an audit, a taxpayer carrying on a business refused to hand over diskettes containing text files of accounting data to the auditors, and also refused to allow the auditors to make electronic copies of those diskettes. The Directorate stated:

[U]nder the terms of subsection 231.5(1) … where, pursuant to sections 231.1 and 231.2, electronic records (such electronic records being "records" within the meaning of the definition of "record" in section 231 and the definition of "record" in subsection 248(1)) are being audited or reviewed or produced, the person who is doing the auditing or reviewing, or to whom the production is made, or any CCRA official, may make or cause to be made electronic copies of them.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 231.5 - Subsection 231.5(1) CCRA audit right to take electronic copies and to print out 247

90 C.R. - Q62

It is RC's general practice to request accountants to produce specific working papers for examination where they can reasonably be considered an extension of the client's records.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 231.2 47

86 C.R. - Q.29

Documents potentially covered by s. 231.1(1) include internal auditor reports and accountants' working papers.

81 C.R. - Q10

Where the auditors' working papers contain closing or balancing adjustments that are relevant to the tax returns, these working papers are considered an extension of the clients records for purposes of the tax audit. Working papers respecting tax planning matters should be able to withstand RC's scrutiny.

79 C.R. - Q34

RC does not routinely request audit files from accountants for inspection.

Paragraph 231.1(1)(a)


Canada (National Revenue) v. Miller, 2021 FC 851

taxpayer required to disclose terms of oral contract and to obtain documents that should have been in his records

Mr. Miller was a businessman who engaged in consulting work for clients and companies looking to raise funds to access the Canadian public markets. One client was a company based and operating in Europe (“Casala”), from which he received payment for his services via accounts maintained in a Luxembourg bank. Other clients paid his professional fees through deposits in trust with two Canadian law firms.

Walker J granted a compliance order pursuant to s. 231.7(1) for the following “Disputed Items” on the basis that they came within the scope of s. 231.1(1)(a) as information that should have been contained in Mr. Miller’s records: any and all invoices in respect of Mr. Miller’s provision of services to Casala (paras. 39); information regarding the terms and conditions of his oral contract with Casala (para. 45); a detailed schedule of compensation paid by Casala (para. 48); documentation relating to the Luxembourg bank accounts (subject to receipt from the bank of a statement that all or part of the requested documents were not available) and an accounting of all amounts deposited into the Luxembourg accounts and the source of the amounts deposited (para. 63); copies of the trust ledgers from one of the law firms Mr. Miller engaged giving detailed description of the purpose of a series of payments from the law firm, including supporting documentation (para 76); and details of Mr. Miller’s gross professional income for the 2016 taxation year (para. 82).

Walker J did not find the following Disputed Items to properly be the subject matter of a compliance order: a description of the development of Mr. Miller’s business relationship with Casala (para. 54); and copies of the second law firm’s trust accounts as the Minister had not established that her request for this supporting documentation would reveal information that Mr. Miller had not already provided (para. 80).

Regarding her compliance order to provide information regarding the terms and conditions of his oral contract with Casala, she stated (at para. 44) that this was information “that Mr. Miller ought to have documented in his records,” that the “requests do not stray into the problematic type of questions identified in Cameco and BP Canada” e.g., an attempt “to compel Mr. Miller to reveal his ‘soft spots’,” and that a “request for the information that would have been included in any written contract and issued invoices is the Minister’s mechanism to ensure her access to basic information necessary for the Audit.”

Regarding the required the disclosure of the trust ledger accounts with the law firms, she stated (at para. 59):

I do not agree that the Cameco decision establishes that a taxpayer discharges their obligation to satisfy a request that is otherwise within the scope of subsection 231.1(1) with a response that they simply do not have those documents in their possession. … [A] taxpayer is required to exercise reasonable efforts to obtain and provide to the Minister information and documentation that should be in its books and records.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 231.7 - Subsection 231.7(1) s. 231.7 compliance order for a description of the terms of an oral contract 310

Canada (National Revenue) v. Lin, 2019 FC 646

low threshold of relevance - but auditees must be specified

Three individuals whom CRA suspected of not disclosing offshore assets received letters requesting the filing of T1135s and requesting information, which CRA considered to be within its powers to request information under s. 231.1(1). In dismissing the Crown’s application for a compliance order under s. 231.7, Boswell J noted:

[T]he Letters are addressed to both the individuals and their connected entities. The entities are not specified, and it is not clear who is being audited - the individual Respondents or unnamed entities.

The Court must be satisfied that the person against whom a compliance order is sought is one who was required under section 231.1 or 231.2 to provide the access, assistance, information or document sought by the Minister. Because it is not at all clear whether the Letter was directed to the Respondents individually or their connected entities, the first requirement of section 231.7 … for obtaining a compliance order has not been satisfied … .

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 231.7 - Subsection 231.7(1) CRA request for an information-request compliance order dismissed because it was unclear which entities were covered 386

Canada (National Revenue) v. Cameco Corporation, 2019 FCA 67

Minister cannot under s. 231.1(1) compel oral answers to its questions other than for aid in auditing taxpayer books and records

The respondent (“Cameco”) had appealed transfer-pricing assessments to the Tax Court. CRA then audited subsequent years, where essentially the same issues arose, and applied to the Federal Court for an order pursuant to s. 231.7(1) compelling Cameco to submit 25 listed employees of it and subsidiaries to CRA interviews. The Federal Court dismissed this application.

In dismissing the Crown’s appeal of such dismissal, Rennie JA noted that, under s. 231.1(1)(d) “[t]he obligation to assist is in aid of the inspection, search, examination or review of records” (para. 22), whereas here the Minister, rather than seeking “to compel answers as to the taxpayer’s knowledge of their provenance and location,” sought “oral answers to oral questions” in order “to facilitate her understanding of Cameco's potential tax liability (paras. 13-14).

The Crown submitted (as summarized at para. 7) that in s. 231.1(1)(a):

“inspect, audit or examine” are broad and encompass, on their own, the authority to ask questions of a taxpayer or employees of a taxpayer, including the employees of its overseas subsidiaries, and to require that they be answered orally.

In rejecting this submission, Rennie JA indicated (at para. 18) that the word “audit” in this phrase took its colour from “inspect” and “examine,” which were directed to “the book and records” of the taxpayer, that “[o]ral examination is not the ordinary meaning of the word audit” (para. 19), that if the requirement to answer questions were implied in s. 232.1(1)(a) “then the obligation in paragraph (d) and the express power to compel answers, would be unnecessary” (para. 23) and that under 1986 amendments to what now is s. 231.1(1) (at para. 32) “that sought ‘to provide clear limits to Revenue Canada’s enforcement powers’”:

The elimination of the word “orally” from the duty to answer all proper questions “relating to the audit” as well as the elimination of the obligation to give answers under oath or by statutory declaration is telling. (para. 33)

Words and Phrases
Locations of other summaries Wordcount
Tax Topics - Statutory Interpretation - Ejusdem Generis 3rd word in phrase was limited by focus on other 2 words 138
Tax Topics - Statutory Interpretation - Redundancy/reading in words CRA’s broad interpretation of s. 231.1(1)(a) would render s. 231.1(1)(d) redundant 172
Tax Topics - Statutory Interpretation - Interpretation Act - Subsection 45(2) interpretation informed by legislative amendment narrowing the wording 58

Administrative Policy

31 May 2019, Statement from the Canada Revenue Agency regarding the decision in Canada (National Revenue) v. Cameco Corporation (2019 FCA 67), CRA Webpage

CRA can infer and assume where, post-Cameco, taxpayers refuse interviews

After noting that it will not seek to appeal Cameco, CRA indicated that this case decided:

[T]he Minister … does not have the authority to compel the employees requested by the CRA to attend interviews and answer oral questions under a general audit and inspection rule of the Income Tax Act.

…[T]he FCA … also stated that:

  • all taxpayers should fully cooperate with reasonable requests arising in the course of an audit;
  • it remains open to the Minister to make inferences when no answer is given; and
  • the Minister is free to make assumptions and to assess on that basis.

CRA then stated:

The CRA will continue to seek interviews where necessary and expects that the vast majority of taxpayers will continue to comply. Where taxpayers decline interviews in circumstances similar to the Cameco case, the CRA will use alternative means to carry out its obligations in verifying a taxpayer's level of compliance, which may increase tax uncertainty and compliance burden for the taxpayer. This may include the use of assumptions about the nature of a taxpayer's business activities and tax planning to form the basis of an assessment of taxes owing.

27 March 2019 CTF Seminar - Transfer Pricing

access to tax accrual working papers only where necessary

BP is not a complete bar to access tax accrual working papers, as indicated by Atlas. The Communiqué contemplates reasonableness and restraint. It indicates that CRA need not always see the analysis behind transactions, as what is needed is the facts and (also, sometimes in a s. 247 context) the purpose of the transaction. If CRA is satisfied that it understands the facts and purpose of the transaction, it will make its own determination of its legal effects.

Headquarters is to be notified if auditors are seeking tax accrual working papers.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 247 - New - Subsection 247(10) downward-adjustment requests reviewed for whether there is double non-taxation 115
Tax Topics - Income Tax Act - Section 247 - New - Subsection 247(2) - Paragraph 247(2)(d) 3-step process before s. 247(2)(d) is applied 175
Tax Topics - Income Tax Act - Section 233.8 - Subsection 233.8(3) use of CbC reports for assessing risk 36

AD-19-02 Obtaining Information for Audit Purposes 2019-03-21

Communiqué on “Obtaining Information for Audit Purposes” including access to tax accrual working papers and interpretation of BP

Pending decision in Cameco

Pending a final decision in this case, CRA officials can continue to have oral discussions with taxpayers and can request that individuals be interviewed.

Large tax reserves indicative of high risk of non-compliance

CRA officials will examine the books and records of the taxpayer and rely predominantly upon original source information and contemporaneous documentation to ensure that the overall risk of non-compliance is low. A taxpayer with large unexplained tax reserves may be considered to be at a higher risk of non-compliance.

Requests for TAWPs of higher risk taxpayers

Tax accrual working papers can be requested where they are relevant to a specific item under audit. ...

Tax accrual working papers, particularly the list of uncertain tax positions, can also be requested to identify audit issues in the context of an ongoing audit. This can be done in circumstances where CRA officials determine there is a higher risk of non-compliance. …

Listing of uncertain tax positions not privileged

The taxpayer’s list of uncertain tax positions that relates to the tax reserve in their financial statements is not a privileged document. …

Exclusions of advisors’ tax analysis may be accommodated

Provided all the relevant facts of the transactions are disclosed, including the taxpayer's purpose or purposes in undertaking a transaction or series of transactions, exclusions of their advisors’ analysis of the legal and tax effects of the transactions may be accommodated.

TAWP requests are not requests to self-audit

The CRA’s position is that taxpayers are required to disclose sufficient detail regarding their business and tax transactions for the CRA to fulfill its mandate of assessing taxes owing. Where the criteria outlined in the communiqué are met, the CRA considers that it retains the right to request tax accrual working papers, including a list of uncertain tax positions. A request for the taxpayer’s list of uncertain tax positions in these circumstances is not a request that the taxpayer self-audit. The CRA may audit transactions underlying these positions and will make its own determination as to the tax effects of the transactions. Overall, the onus remains with the taxpayer to report and pay the correct amount of tax pursuant to the ITA or ETA under Canada’s self-assessment system.

Paragraph 231.1(1)(d)


Canada (National Revenue) v. Cameco Corporation, 2017 FC 763, aff'd 2019 FCA 67

s. 231.1(1)(d) does not accord CRA an unfettered right to interview taxpayer personnel

In the course of doing a transfer-pricing audit of the 2010-2012 taxation years of the respondent (“Cameco”), the Minister demanded in-person interviews with 25 listed personnel who were present or former employees of Cameco or non-resident subsidiaries. Cameco refused this demand and the Minister sought a compliance order under s. 231.7.

McVeigh J accepted (at para. 50) that transfer-pricing litigation before the Tax Court respecting earlier taxation years would “likely resolve most of the issues that would form the basis of the requested interviews.” She further found (at para 39):

Cameco has provided the Minister with every opportunity to inspect, audit and examine their books, records and documents and to inspect their property. … Cameco has not allowed the oral interviews that they had done in previous years given the numbers requested and the fact that the subject matter of the audit is similar, if not identical as the ongoing litigation before the Tax Court of Canada.

In dismissing the Minister’s application, McVeigh J first found (at para. 42):

[]P]aragraph 231.1(1)(d)… does not provide the Minister with an unlimited right to conduct oral interviews of Cameco employees. To do so would ignore the mid-amble of the section which expressly restricts assistance for the purposes of allowing the Minister to “inspect, audit or examine” the books, records, documents and property of Cameco. In order to avoid redundancy, the Court must attribute a meaning and function to the words “and for those purposes” over and above what is expressed in the balance of the provision. Those purposes are the inspection, audit or examination of books, records, documents or property. The Minister’s argument that “inspect, audit and examine” in paragraph 231.1(1)(a) necessarily includes the authority to ask questions of a taxpayer would render paragraph 231.1(1)(d) redundant.

She then stated (at paras. 43, 44 and 50):

Parliament could not have intended for there to be no restraint on how the Minister questions employees of a corporation. …

The Minister’s interpretation imposes a much broader form of examination for discovery than allowed before the Tax Court of Canada without any of the procedural safeguards. The Minister arrived at a different answer than Cameco regarding transfer pricing and it is the role of the Tax Court of Canada to sort out who is correct. …

The time and cost involved in allowing the Minister to interview more than 25 Cameco personnel scattered across the world is not proportional to the information being sought since the Tax Court of Canada will determine the issues that are the focus of the requested interviews.

Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Federal - Tax Court of Canada Rules (General Procedure) - Section 95 - Subsection 95(1) unfettered CRA interview right would undercut Rules and proportionality principle 262
Tax Topics - Statutory Interpretation - Redundancy/reading in words presumption against tautology 71

BP Canada Energy Company v. Canada (National Revenue), 2017 FCA 61

taxpayers should not be compelled to disclose to CRA the uncertain tax positions contained in their working papers

In order to explain the numerical derivation of an amount being reviewed by CRA on its audit of the taxpayer, the taxpayer provided redacted copies of some of its tax accrual working papers (“TAWPs”). The auditors were satisfied with this backup, but noticed that the redacted listed amounts of taxes that could be payable as a result of uncertain tax positions taken by the taxpayer appeared to be much larger than the proposed CRA reassessments. This concern was also alleviated by the taxpayer, but the auditors nonetheless insisted that the taxpayer provide a list of the uncertain tax positions that it had taken for the benefit of future CRA audits, and made a s. 231.7 application to enforce their demand for this information.

In finding that Campbell J below should not have granted this order, Noël CJ stated (at para. 82):

[The] obligation to “self-assess” does not require taxpayers to tax themselves on amounts which they believe not to be taxable. Faced with an issue that is reasonably open to debate…taxpayers are entitled to file their tax return on the basis most favourable to them. … [A]lthough auditors are entitled to be provided with “all reasonable assistance” in performing their audits (paragraph 231.1(1)(d)…), they cannot compel taxpayers to reveal their “soft spots”. …

After referencing financial reporting obligations of public companies under provincial securities legislation including the accurate reporting of accrued taxes and before noting concerns of CPA Canada that required disclosure to CRA of tax accrual working papers would reduce the candour of disclosures by companies to their external auditors, he stated (at para. 86):

By enacting subsection 231.1(1), Parliament could not have intended to vest the Minister with a power so sweeping that it would undermine those obligations.

He concluded (at para. 99):

[T]he Minister cannot invoke subsection 231.1(1) for the purpose of obtaining general and unrestricted access to those parts of BP Canada’s Tax Reserve Papers which reveal its uncertain tax positions. In practical terms, this means that the Minister cannot enlist taxpayers who maintain TAWPs to perform the core aspect of audits conducted under the Act.

Locations of other summaries Wordcount
Tax Topics - Statutory Interpretation - Interpretation Act - Section 8.1 federal power should be exercised harmoniously with provincial law 212

See Also

Jimenez, R. (On the Application of) v The First Tier Tribunal (Tax Chamber), [2019] EWCA Civ 51

sending a demand for information to a former UK resident did not entail an exercise of extraterritorial enforcement jurisdiction but merely entailed the potential imposition of UK penalties against any UK assets

The taxpayer was a UK national who had formerly resided in the U.K. and was now resident in Dubai. In connection with its investigation of his past and present tax positions including as to when he ceased to be a U.K resident, the HMRC issued a notice under paragraph 1 of Schedule 36 to the Finance Act 2008 to the taxpayer at his address in Dubai asking the taxpayer to produce information including details of bank and credit card accounts since 6 April 2004 and a schedule of his visits to the UK between that date and 5 April 2013. Paragraph 1 provided:

An officer of Revenue and Customs may by notice in writing require a person ("the taxpayer")—

(a) to provide information, or

(b) to produce a document,

if the information or document is reasonably required by the officer for the purpose of checking the taxpayer's tax position.

The decision below to quash the paragraph 1 notice was reversed. After noting (at para. 41) that “HMRC do not of course contend that the civil penalties for non-compliance with the notice could be directly enforced against the taxpayer in a foreign state but … [i]n the case of a UK taxpayer with a residence abroad, there will in many cases be a real possibility that the taxpayer continues to hold assets within the jurisdiction which could be used to recover the civil penalties for non-compliance,” Patten LJ stated (at paras 48 and 49):

Prescriptive (sometimes called legislative) jurisdiction is the power to make rules or issue instructions binding on the persons to whom they are directed. It is distinguishable from the enforcement of those rules by some type of coercive action which in the case of legislation or a direction affecting someone abroad may involve the legislating state taking positive action in the jurisdiction of another state.

…It is sufficient that the sending of a taxpayer's notice to Mr Jimenez in Dubai has not been shown to contravene any international obligation of the UK.

In his concurring reasons (with which Nicola Davies LJ also agreed), Legatt LJ stated (at paras. 52-54):

Counsel for Mr Jimenez … relied on a distinction … adopted … in Oroville Reman & Reloadbetween documents of notice that merely involve the supply of information with no threat of penalties in the event of non-compliance and documents involving a compulsory process or containing a command. They submitted that a document of the latter kind, such as the notice issued in this case which explicitly threatened penalties if Mr Jimenez did not comply with it, must be regarded as an unlawful exercise of enforcement jurisdiction.

Delineating the precise boundary between prescriptive (or legislative) and enforcement jurisdiction in international law is far from straightforward. But I do not accept that sending a notice by post to a person in a foreign state requiring him to produce information that is reasonably required for the purpose of checking his tax position in the UK violates the principle of state sovereignty. Such a measure does not involve the performance of any official act within the territory of another state – as would, for example, sending an officer of Revenue and Customs to enter the person's business premises in a foreign state and inspect business documents that are on the premises pursuant to paragraph 10 of Schedule 36. Nor does it seem to me objectionable that the notice is expressed as a command rather than a mere request for the supply of information. …

It is a further and separate question whether the imposition of a civil penalty under Part 7 of Schedule 36 for failure to comply with such a taxpayer notice would involve an exercise of enforcement jurisdiction. Again, however, I cannot see that it would, provided that no steps are taken to seek to enforce the penalty in a foreign state.

Locations of other summaries Wordcount
Tax Topics - Statutory Interpretation - Territorial Limits a demand for information issued to a former UK resident was valid 392

Administrative Policy

20 November 2017 CTF Annual Conference - CRA Panel on Issues in the Administration and Enforcement of the ITA, Q.12

Cameco appealed given that scope of transfer-pricing audits is broader than on discovery

In Cameco, the Court dismissed CRA’s application to question 25 corporate employees in the course of an audit, noting that this would essentially amount to a discovery process without the procedural safeguards built into ordinary discovery. Should an audit be narrower or broader than discovery in tax litigation?

CRA responded that the audit process is necessarily and generally a broader process than the discovery process, because the former is directed at determining what the taxpayer did in order to come to an accurate assessment of tax, whereas in tax litigation, there is an attempt to narrow and focus on the issues still in dispute. Accordingly, oral interviews on audit cannot be equated with oral interviews on discovery. Although for the Cameco audit, 25 interviews seems like a lot, in the context of a large transfer pricing matter, the taxpayer should have offered 5 or 10.

20 November 2017 CTF Annual Conference - CRA Panel on Issues in the Administration and Enforcement of the ITA, Q.11

in response to BP Canada, CRA will focus information requests on what the taxpayer did

What is the CRA’s policy on tax accrual working papers and its response to BP Canada?

CRA noted that its focus is in determining what taxpayers have done. CRA did not appeal BP Canada, as it was uncomfortable seeking an absolute right to seek information. CRA has set up a committee and is revising its procedures. CRA’s policy is to request only the information that it believes it requires, and to do so on a basis (in terms of consistency, documentation and justification) that will withstand court scrutiny. Where this standard is not met (e.g., the receipt of unreasonable and burdensome requests), the taxpayer should speak to a more senior large case file manager or the assistant director of its TSO.

Subsection 233.1(2)

Administrative Policy

7 October 2016 APFF Roundtable Q. 1C, 2016-0652771C6 F - T106 and multiple year ends

acquisition of control generally will not generate additional T106 filings

Will CRA accept a single form T106 for the period of 12 months ending on December 31, 2016 if that period consists of a taxation year ending on April 30, 2016 as a result of an acquisition of control and a taxation year ending on December 31, 2016 resulting from the choice of that year end by the corporation? If yes, is the filing deadline June 30, 2017? CRA responded:

[I]f the number of months from the start of the fiscal period until the new year end of December 31, 2016 exceeds 12 months, the CRA will require the filing of more than one T106. Otherwise, one T106 with a letter accompanying the form will be acceptable. …

Provided that the sum of the stub taxation years does not exceed 12 months, the CRA will accept the filing of the T106 form on June 30, 2017 (6 months after the December 31, 2016 year end).

Subsection 231.1(3) - Application


R. v. Baudais, 2014 DTC 5071 [at 6973], 2014 BCSC 856

CRA could obtain warrants under Criminal Code rather than tax statutes

The accused argued that it was inappropriate for CRA to obtain a search warrant under s. 487 of the Criminal Code in respect of suspected offences under the Income Tax Act and Excise Tax Act, as both Acts have their own provisions for obtaining search warrants that (the accused argued) place more stringent requirements on obtaining a search warrant (ITA s. 231.3(1) and ETA s. 290). He argued that the specific procedures set out in those provisions "should not be ignored" in favour of more general procedures dealing with the same matter, and that CRA's policy of obtaining warrants under the Criminal Code instead of the ITA and ETA is a pervasive abuse of process.

Barrow J found no merit in the accused's submissions. The overriding of a general provision by a specific one occurs where the two provisions cannot "stand together," whereas here the provisions merely authorized warrants "somewhat differently" (para. 49).

As for the abuse of process argument, CRA's choice to invoke the Criminal Code procedure was appropriate. Barrow J stated (at para. 54):

[I]n this case the revenue authorities would have had to obtain two warrants, had they attempted one under the Income Tax Act and one under the Excise Tax Act, as opposed to a single warrant granted under the Criminal Code. Second, there is no basis to conclude that because the Income Tax Act and Excise Tax Act warrants can only be issued by a superior court judge, that the level of review applied by the issuing judicial officer is any different, never mind more rigorous, than the review carried out by any other judicial officer.

Locations of other summaries Wordcount
Tax Topics - Statutory Interpretation - Other/Conflicting Statutes CRA could obtain warrants under Criminal Code rather than tax statutes 106

A.G. (Canada) v. Pica, 86 DTC 6001, [1986] 1 CTC 155 (Ont CA)

The seizure of 48 boxes of documents pursuant to s. 231(1)(d) was permissible given the complexity of the taxpayer's affairs. To insist that in all cases the determination of relevance be based upon the examination of the documents at the time of the search would be impractical.

The Queen v. Dzagic, 85 DTC 5252, [1985] 1 CTC 346 (S.C.O.), rev'd 86 DTC 6432, [1986] 2 CTC 288 (Ont CA)

rev'd on other grounds 86 DTC 6432, [1986] 2 CTC 288 (Ont CA)

S.231(1)(d) is ultra vires by virtue of s. 8 of the Charter because it permits seizure in advance of any judicial authorization. "The argument advanced by the appellant that immediate seizure may be necessary to prevent loss or destruction of potential evidence, is in my view without merit on the issue of the constitutionality of the section although it may conceivably, at least, justify warrantless seizures in special circumstances."

New Garden Restaurant and Tavern Ltd. v. MNR, 83 DTC 5338, [1983] CTC 332 (SCO)

The procedure contemplated by S.231(1)(d) should not be regarded as interfering with the types of privacy interests protected by S.8 of the Charter, given the public interest in a reasonably efficient system of collecting taxes.

S.231(1)(d) (as opposed to S.231(4)) does not authorize an auditor to seize if he had formulated a belief of probable guilt prior to coming upon the incriminating records.

Royal Craft Products Ltd. v. The Queen, 80 DTC 6143, [1980] CTC 97 (Alta. C.A.)

It was indicated, obiter, that S.231(1)(d) "embraces all the documents required to be retained by a taxpayer under S.230", rather than being limited to the seizure of documents relating to the taxation year in which there appears to have been a violation.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 231.3 - Subsection 231.3(3) 50

In re Usarco Ltd., 80 DTC 6085, [1980] CTC 145 (Ont CA)

It was stated, obiter, that it is immaterial that there is a time lag between the noting of the violation and the seizure.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 231.3 - Subsection 231.3(7) 114

Subsection 231.1(4)

See Also

Delzotto v. The Queen, 95 DTC 5518, [1995] 2 CTC 298 (FCTD)

Before going on to find that there was insufficient evidence of a material change in circumstances (i.e., insufficient evidence that a proposed enquiry was primarily directed at incriminating the taxpayer) to justify lifting a stay order that had been previously granted, McKeown J. stated, in obiter dicta (at p. 5523):

"... it does not appear to me that simply because a court has validated a statute on the basis that it is primarily a regulatory statute, the Department is entitled to bypass any regulatory aspect of it and concentrate solely on bringing penal actions without the need to have any economic input.