Section 231.2

Cases

Deloitte & Touche Inc., Trustee of Vancouver Trademark Inc. v. Attorney General of Canada, 97 DTC 5520 (FCTD)

The Minister was able to make a demand for working papers of a trustee in bankruptcy that it had prepared in order to analyze irregularities between the company in question and its shareholders. The obtaining of this work product did not amount to an expropriation, nor was the word "document" in s. 231.2(1) meant to include only source documents and not documents such as those created by a trustee in bankruptcy.

AGT Ltd. v. Attorney General of Canada, 97 DTC 5189 (F.C.T.A.)

The taxpayer provided information to the CRTC indicating that its income tax filing positions were aggressive and requesting that its rate base take the risk of reassessment into account. The CRTC allowed the taxpayer's request for confidentiality in respect of this information.

The taxpayer was required to provide this information pursuant to a demand under s. 231.2(1). Desjardins J.A. stated (at p. 5194) that "the notices of requirements constitute the least intrusive means by which effective monitoring of compliance with the Act can be effected" and also stated (at p. 5194) that "the fact that the documents in issue were prepared for another forum, namely for providing the CRTC with information required under a rate setting process, does not prevent the Minister from having access to them since they are relevant to the potential tax liability of the taxpayer".

R. v. Harris, 95 DTC 5653 (BCSC)

Because the purpose of the Special Enforcement Branch of Revenue Canada Special Investigations was to cause maximum disruption to criminal operations rather than collecting revenue, a demand made by the Special Investigations Branch pursuant to s. 231.2(1) of the Act had a criminal aspect rather than a purely regulatory or administrative aspect. Accordingly, the accused could not be charged with failure to comply with the demand because it, in turn, was based on information that had been obtained from the RCMP Drug Squad in contravention of the accused's rights under s. 8 of the Charter.

Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Constitution Act, 1982 - Section 8 SI demand was criminal 93

Andison v. The Queen, 95 DTC 5058 (FCTD)

The IRS requested assistance from Revenue Canada in connection with a criminal investigation of a client ("Lieberman") of the applicant, who was a BC barrister. A demand made on the applicant by Revenue Canada was valid pursuant to Article XXVII of the Canada-U.S. Income Tax Convention notwithstanding that there was only oral disclosure that the information was requested by the U.S. tax authorities in connection with an income tax investigation of Lieberman pursuant to Article XXVII. However, the portion of the requirement requesting information or documents pertaining to an unnamed corporation of which Lieberman was a shareholder, was invalid because no prior judicial authorization had been obtained as required by s. 231.2(3).

1013808 Ontario Inc. v. The Queen, 94 DTC 6352 (Ont. Ct. (G.D.))

A requirement to produce the minute book for a corporation within one day of the time of receipt of the notice constituted a "reasonable time" because the minute books were required under the Business Corporations Act to be maintained by the corporation and did not have to be identified through a search and review of files. In distinguishing re: Joseph and M.N.R, 85 DTC 5391, Platana J. stated (p. 6354) that the "general principle formulated by Galligan, J., of seven to ten days in my view is appropriately applied to circumstances where the request is for non-specific documents of a nature which are not required to be kept by statute."

Montreal Aluminium Processing Ltd. v. Attorney General of Canada, 92 DTC 6567 (FCA)

It was arguable that the recipient of a requirement under s. 231.2 was entitled to fair notice as to the purpose for which the Minister purported to exercise his powers under that provision. In this case, it was alleged that the Minister was motivated by American requests for information rather than by purposes relating to the administration or enforcement of the Act. Accordingly, the Court set aside the decision of the motion judge, and dismissed the Crown's motion to strike out the taxpayer's Statement of Claim.

Morena v. The Queen, 90 DTC 6685 (FCTD)

The seizure contemplated by s. 231.2(1) is reasonable and does not violate s. 8 of the Charter. The information which the Minister may require may include information respecting personal assets, liabilities and/or expenditures which are not required by the Act to be recorded or kept.

Licht v. MNR, 90 DTC 6574 (FCTD)

Cullen J. found that the taxpayer was entitled to 60 days to reply to a demand for information, rather than the 10 days stipulated in the notice, in light of the fact that the questions asked needed careful attention and the services of an accountant and the likelihood that the applicant would be subject to criminal prosecution.

N.M. Skalbania Ltd. v. R., 89 DTC 5495 (B.C. Co.Ct.)

In light of admissions of the Crown that it had made demands on the defendant pursuant to s. 231.2(a) "not as a result of any ongoing investigation into the affairs of Mr. Skalbania or the corporate defendant, but merely because no return in question had been filed when it was due and owing," the conviction of the defendant under s. 238(2) in respect of its failure to comply with the demand, was set aside. Since s. 231.2 is only available to the Minister to facilitate an ongoing and serious inquiry, it was inapplicable. Instead, "section 150(2) is available to the Minister generally to demand a return whether or not a tax return has been filed."

R. v. McKinlay Transport Ltd., 87 DTC 5051, [1988] 1 CTC 421 (Ont HC), aff'd 88 DTC 6314, [1988] 1 CTC 426 (Ont CA), further, aff'd 90 DTC 6243, [1990] 1 S.C.R. 627

The recipient of a demand under s. 231(3) can successfully attack such demand before prosecution for failure to comply on a number of grounds including the following:

  1. That a reasonable time for production has not been afforded ...
  2. That the Minister is engaged in a fishing expedition and not a serious enquiry as to some taxpayer's liability.
  3. That the documents demanded are not germane or relevant to the issues between the parties.
  4. That the documents are privileged.

R. v. Schacher, 86 DTC 6580 (Alta. Prov. Ct.)

Revenue Canada served demands on the accused to file returns for the previous 4 years as a result of inquiries and requests from the RCMP rather than as the result of a bona fide belief that the accused might have taxable income from the years in question, or the ability to pay arrears owing. Since the demands were not served as a result of a genuine and serious inquiry into the tax liability of the accused, he was acquitted. (S.231(3))

R. v. Bruyneel, 86 DTC 6119, [1986] 1 CTC 295 (BCCA)

The accused, a chartered accountant, during the course of an audit of his client who was a party to a joint venture agreement, was not subject to a s. 231(3) demand to provide the names of the other parties to the joint venture agreement. (S.231(3))

Joseph v. M.N.R., 85 DTC 5391, [1985] 2 CTC 164 (S.C.O.)

A demand upon the applicants' solicitor to produce records "without delay" was found to be invalid because a reasonable time for complying was not stipulated. Galligan, J. stated: "What is a reasonable time will vary depending upon the circumstances. In the case of lawyers ... I cannot imagine holding a period of less than seven to ten days to be reasonable notice." (S.231(3))

Special Risks Holdings Inc. v. The Queen, 84 DTC 6054, [1984] CTC 71 (FCTD), aff'd 84 DTC 6215, [1984] CTC 563 (FCA)

The issuance of a requirement pursuant to S.231(3)(b) more than 2 months after a joint application had been made to set the action down for trial, a step which should have stopped any further investigations, was an abuse of process.

Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Federal - Federal Court Rules - Rule 483(4) 81
Tax Topics - General Concepts - Abuse of Process extremely late motion for further discovery 81

James Richardson & Sons v. M.N.R., 84 DTC 6325, [1984] CTC 345, [1984] 1 S.C.R. 614

"S.231(3) is only available to the Minister to obtain information relevant to the tax liability of some specific person or group of persons if the tax liability of such person or persons is the subject of a genuine and serious inquiry." A requirement issued to a commodities futures market broker asking that the broker deliver details of the trading activities of all its customers' trading activities for 1977, a requirement which was made for the purpose of checking generally on compliance with the Act by futures traders, did not comply with this test.

MNR v. Potereyko, 83 DTC 5113 (Sask. PC)

A demand that documents be furnished "forthwith" provided a "reasonable time" for compliance. "It is trite law to say that 'forthwith' means that one is to do an act or carry out an obligation with all reasonable dispatch, delaying the execution of the mandate only to carry out such other acts or duties as may, by the particular circumstances, be seen to be reasonably necessary". (S.231(3))

Words and Phrases
forthwith

In re James Richardson & Sons, Ltd., 82 DTC 6211 (FCA)

The issuance of a S.231(3) requirement is not a decision that may be appealed under S.28 of the Federal Court Act.

James Richardson & Sons, Ltd. v. MNR, 82 DTC 6204, [1982] CTC 239 (FCA), rev'd supra.

rev'd on other grounds, supra.

Since "the raising of money by taxation necessarily involves what is related to the administration and enforcement of the taxation legislation", S.231(3) is intra vires Parliament.

In the circumstances of this case, the stipulation that "reasonable time" be given was met, even though the requirement stated that the information should be provided "without delay". The appellant was on notice that the Department was seeking this information, and whether reasonable time has been given affects the issue whether there has been compliance or non-compliance, not the validity of the requirement.

R. v. Rockville Holding Ltd., 78 DTC 6494 (Alta. S.C.)

There is nothing in s. 231(3) which suggests that the Minister has no right to lay a charge under s. 238(2) if the taxpayer fails to comply with a demand under s. 231(3)(a).

Canadian Bank of Commerce v. Attorney General of Canada, 62 DTC 1236, [1962] S.C.R. 729

A demand of the Minister upon the appellant bank for information of all transactions of one of its customers (the Union Bank of Switzerland) between 1 January 1955 and 31 December 1959 and production of documents relating to those transactions, was valid notwithstanding that the demand was not directed to the question of liability for taxation of the appellant and notwithstanding that the information sought would disclose private transactions in which a number of persons were involved who were not under investigation and might not be liable to tax. Cartwright J. stated (p. 1241):

"The purpose of the requirement, then, is to obtain information relevant to the tax liability of some specific person or persons whose liability to tax is under investigation; this is a purpose related to the administration or enforcement of the Act."

See Also

New Zealand Stock Exchange v. Inland Revenue Commissioner, [1991] 4 All E.R. 443 (PC)

In refusing to follow the decision in James Richardson & Sons Ltd. in a similar fact situation, Lord Templeman noted that in that case "the court held that the express power in s. 221, a power which had not been exercised, limited the general power conferred by s. 231" (p. 448). In the New Zealand statute, there was no such specific provision.

Administrative Policy

91 C.R. - Q.59

The terms of the applicable treaty will be reviewed to determine if a request can be made under s. 231.2 for the purpose of responding to a treaty partner's information request.

90 C.R. - Q62

When there is good reason to believe that tax planning documentation which is relevant to determining the intention of the taxpayer is in the possession of the accountant, and it has not been provided after informal and formal written requests, a requirement under s. 231.2 may be issued.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 231.1 - Subsection 231.1(1) 27

Articles

Kellough, "Section 231.2 Requirement Letters", 1993 Conference Report, pp. 2:1 - 11.

Kroft, "Disclosure to and by Revenue Canada", 1991 British Columbia Tax Conference, Volume 1

Subsection 231.2(1) - Requirement to provide documents or information

Cases

Canada (Attorney General) v. Chambre des notaires du Québec, 2016 SCC 20, [2016] 1 S.C.R. 336

s. 231.2 does not apply to lawyers

Notaries practising law in Quebec received requirements under s. 231.2 to provide documents or information relating to clients for tax collection or audit purposes. Wagner and Gason JJ found (at para. 87):

[T]he requirement scheme in the ITA infringes s. 8 of the Charter and must be declared to be unconstitutional insofar as it applies to notaries and lawyers in Quebec.

In support of this conclusion, they stated (at para. 44):

The defects in question are that the client is given no notice of the requirement, that an inappropriate burden is placed solely on the notary or lawyer concerned, that compelling disclosure of the information being sought is not absolutely necessary and that no measures have been taken to help mitigate the impairment of professional secrecy.

Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Constitution Act, 1982 - Section 8 s.231.2 demands for information do not apply to lawyers 370
Tax Topics - Income Tax Act - Section 232 - Subsection 232(1) - Solicitor-Client Privilege exception for accounting records is unconstituional 134

Canada (National Revenue) v. Lee, 2016 FCA 53

s. 231.2(1) requirement could extend to assets of corporations owned by taxpayer

CRA issued a Requirement under s. 231.2(1) requiring the taxpayer to provide a broad range of information and documents relating to his financial and tax affairs. Corporations owned by the taxpayer (but not specifically named in the requirement) had unremitted source deductions and GST. The taxpayer did not comply with the order, and the Minister applied to the Federal Court under s. 231.7, seeking an order compelling the taxpayer to comply. The Federal Court dismissed the application on the basis inter alia that the requirement was “overly expansive in breadth and in depth” (2015 FC 634, at para. 6) and noted (at para. 39) that it was unclear whether the taxpayer was “being asked to list his personal assets or to include documentation about corporate assets that he would only have access to in his capacity as a director or officer of the corporations.”

Before ordering the taxpayer to comply with the requirement, Dawson J.A. stated (at para. 5):

Section 231.2…confers broad and general powers on the Minister to require any person to produce any information or any document for any purpose related to the administration or enforcement of the Act.

Respecting the specific concerns of Mandamin J below, she stated (at paras. 7, 8):

“The fact the Requirement required disclosure of assets owned beneficially by the respondent neither made the Requirement overbroad nor ambiguous. Further, the scope or breadth of the Requirement is a matter for the Minister, so long as the information requested is required for any purpose related to the administration or enforcement of the Act.

Moreover, it is not improper for a requirement to issue that requires information to be provided about a third party. See, for example, Taxpro Professional Corporation., 2011 FC 224…aff’d 2011 FCA 306… .”

R. v. Logan, 2012 DTC 5155 [at 7381], 2012 BCSC 1444

The taxpayer appealed a conviction under s. 238(1) for failing to comply in a timely manner with a demand under s. 231.2(1) to provide CRA with signed and completed returns. Melnick J. dismissed the taxpayer's argument that the s. 231.2(1) request was invalid in that there was not a "genuine and serious inquiry" into the taxpayer's tax liability. He stated (at paras. 21-22):

While a demand that an individual submit returns under section 231.2 may not be conclusive proof that there was a genuine and serious inquiry into a taxpayer's liability where there is evidence suggesting the contrary, it does amount to prima facie evidence of a genuine and serious inquiry and will satisfy the Crown's burden in situations where there is no evidence to the contrary.

In the present case, there was no evidence that the Minister was motivated by some ulterior purpose.

Canada (National Revenue) v. Cormark Securities Inc., 2012 DTC 5029 [at 6672], 2011 FC 1472

The taxpayer assisted its clients in acquiring minority shares in "Tech Wreck" corporations that had become insolvent, with a view to their accessing the substantial pool of losses from the old businesses. Mactavish J. granted the Minister's ex parte application to require the taxpayer to disclose its client list. The purpose of the requirement was demonstrably to verify an ascertainable group's compliance with the Act, given that the taxpayer would clearly know which of its clients participated in the scheme and given provisions of the Act which targeted loss trading. Mactavish J. noted that the Minister "no longer needs to show that the Requirement Order relates to a 'genuine and serious inquiry' into the tax liability of a specific person or persons,'" and that it was enough to show a good faith attempt to verify compliance (para. 50).

There was no merit to the taxpayer's submission that the Minister's application had failed to disclose that the information sought could have been obtained by mining its own databases or through the System for Electronic Document Analysis and Retrieval (SEDAR). Neither of these systems would enable the Minister to identify which loss companies were being used, and neither system would reveal the identities of the clients (because their ownership percentages were too low).

Canada (National Revenue) v. Morton, 2007 DTC 5445, 2007 FC 503

The Respondent was unsuccessful in a submission that a notice given under s. 231.2(1) was not valid because the information requested related to a corporation that had been dissolved. Strayer D.J. noted (at para. 8) that "the information requested relates to the identification of assets which had belonged to a defunct company that owed unpaid taxes and might be revived in the future for purposes of collection".

Canada (Minister of National Revenue) v. Ellingson, 2006 DTC 6402, 2006 FCA 202

Requirements issued to the taxpayer following the laying of charges against him in California in connection with various offences involving an illicit drug importation and distribution operation and the laundering of the proceeds were found to have been issued predominantly for the purpose of the conduct of an audit rather than the pursuit of a criminal investigation. No clear decision had been made to pursue a criminal investigation based on the evidence, and respecting the further question as to whether an adversarial relationship had developed within the meaning of the Jarvis case, the pre-audit inquiries were but a first step in determining whether the taxpayer was a non-filer for the taxation years in question, and the practice of the Special Enforcement Program Unit doing the investigation was to only conduct audits and not criminal investigations.

Fabi v. Canada (Minister of National Revenue), 2006 DTC 6169, 2004 FC 1779

Demands made by the Minister on the taxpayer, (who had filed a proposal under the Bankruptcy and Insolvency Act), pursuant to s. 231.2(1) respecting properties in Florida were not contrary to s. 69.1(1) of the Bankruptcy and Insolvency Act, which stipulated that "on the filing of a proposal, no creditor ... shall commence or continue any action, execution or other proceedings, for the recovery of the claim provable in bankruptcy, until the trustee has been discharged or the insolvent person becomes bankrupt ...".

Ellingson v. Canada (Minister of National Revenue), 2005 DTC 5492, 2005 FC 1068

Requirements were issued in connection with a joint program with the RCMP to combat organized crime, and were quashed.

Canada (Customs and Revenue Agency) v. Artistic Ideas Inc., 2005 FCA 68

The appellant had arranged for the sale of artwork to individual Canadian taxpayers who donated the works to registered charities at a marked-up value. When the Minister issued a requirement to the appellant under s. 231.2(1), the appellant was entitled to redact the name of the third-party taxpayers (donors) given that the Minister was investigating compliance by the taxpayers with the Act. Counsel for the Minister unsuccessfully argued that "the restriction against obtaining information or documents relating to unnamed persons only applies where the third party itself is not under investigation".

Canada (Minister of National Revenue) v. Toronto Dominion Bank, 2005 DTC 5140, 2004 FCA 359

A demand to the respondent bank to disclose the name, address and telephone number of an account holder to whose account a tax debtor had deposited a cheque was not valid as there was no judicial authorization pursuant to s. 231.2(2). Décary J.A. described the purposes of s. 231.2(2).

Les Plastiques Algar (Canada) Ltée v. Canada (Minister of National Revenue), 2004 DTC 6296, 2004 FCA 152

An investigation of the taxpayers conducted by Special Investigations was a criminal investigation as stated by one of the investigators. Accordingly, the requirement power in s. 231.2(1), which did not distinguish between physical and corporate taxpayers, could not be utilized. The Minister's requirements for production of documents were quashed.

Canada (National Revenue) v. Kitsch, 2003 DTC 5540, 2003 FCA 307

An accounting firm was not permitted to refuse to answer the Minister's written questions in writing (thereby generating new documents). Given the contrast with s. 231.2(1)(b) which permitted the Minister to compel the production of documents and records, under s. 231.2(1)(a) the Minister had the right to ask questions to elicit knowledge or facts.

The trial judge had erred in finding that the accounting firm had the right to redact documents to expunge the names of clients of the accounting firm who were unrelated to the taxpayers being investigated by CCRA.

Kligman v. MNR, 2003 DTC 5100 (FCTD)

The applicants received letters entitled Requirement to Provide Information and Documents With Respect to Donations Made For Charitable Organizations

The record as a whole including testimony of CCRA investigators indicated that the predominant purpose of the investigation giving rise to the Requirements was prosecution of the applicants for tax evasion. The Requirements issued to the individual applicants were ordered to be quashed, whereas those issued to the corporate applicants were upheld given that the privacy interests of corporate entities are minimal as compared with those of individuals.

Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Constitution Act, 1982 - Section 8 minimal corporate privacy expectation 87

Capital Vision Inc. v. MNR, 2003 DTC 5054 (FCTD)

The taxpayer, which was involved in facilitating donations of artwork by third parties, blanked out the names of the third parties when information about the transactions was requested by the Minister ("CCRA"). When CCRA applied to the Court for a requirement to receive information about the unnamed persons, the applicants exercised their rights pursuant to s. 231.2(5) to seek judicial review of the requirements. CCRA then side-stepped this process by indicating it would not enforce the old requirements and instead applied for new requirements indicating that it was seeking the information about the third parties in connection only with its audit of the applicants.

Heneghan J. found (at p. 5065) that:

"The Minister, not the taxpayer, bears the burden of complying with section 231.2"

and (at p. 5066) that:

"The Minister here has failed to objectively establish that he had fairly stated his purpose in issuing the new requirements."

Accordingly, the new requirements were invalid for failure to comply with ss.231.2(2) and (3).

Locations of other summaries Wordcount
Tax Topics - General Concepts - Onus 64

Pacific Network Services Ltd. v. MNR, 2002 DTC 7585 (FCTD)

Upon receiving a request for information relating to the taxpayer including a list of shareholders and their percentage shareholdings, CCRA was required to obtain the information by the administrative measures available to it (rather than being only obligated to exchange information already gathered by it), with the result that a requirement for such information issued to the taxpayer pursuant to s. 231.2(1) was valid. In the absence of any evidence that information relating to the tax returns or liability of unidentified Canadian taxpayers was being requested, there was no requirement to comply with the procedure in s. 231.2(3).

Locations of other summaries Wordcount
Tax Topics - Treaties 110
Tax Topics - Treaties - Articles of Treaties - Article 27 implied power to exercise requirements for information 105

Fraser Milner Casgrain LLP v. MNR, 2002 DTC 7310 (FCTD)

Arguments that tax planning memoranda were irrelevant to the issue whether the transactions under investigation were avoidance transactions, were dismissed.

See Also

1068754 Alberta Ltd., trustee of DGGMC Bitton Trust v. ARQ, 2018 QCCA 8 (Quebec Court of Appeal)

the ARQ did not exceed its Quebec-based audit authority when it issued a s. 231.2 demand to a Calgary bank branch

The ARQ, which was auditing the appellant trust (“DGGMC”) based on a suspicion that the central management and control of DGGMC was in Quebec rather than Alberta, issued a requirement to a Calgary branch of the Banque Nationale du Canada (“BNC”) for various bank records respecting DGGMC under the Quebec equivalent of ITA s. 231.2(1). BNC, which carried on business in Quebec and had its head office there, provided the demanded documents, which were placed under seal when DGGMC sought to have the requirement nullified. DGGMC had argued unsuccessfully below that, as the ARQ only had the authority to impose tax within the province, it was exceeding its authority in sending a requirement outside the province.

After noting first that the required information was confidential, Hogue JCA found (at para. 34) and contrary to the finding below, that the requirement constituted a seizure. She then discussed s. 462 of the Bank Act, including s. 462(2), which provided:

Any notification sent to a bank with respect to a customer of the bank …constitutes notice to the bank and fixes the bank with knowledge of its contents only if sent to and received at the branch of the bank that is the branch of account of an account held in the name of that customer.

Before dismissing DGGMC’s appeal, she stated (at paras. 51-53, Tax Interpretations translation):

Here we are not concerned with … a seizure outside of Quebec which, it is true, could require the seizing party to approach an authority of the foreign State with a view to obtaining its collaboration in order to proceed. The ARQ wished to obtain particulars respecting banking transactions of a trust which it believes resides in Quebec. In order to do so it approached BNC, which carries on business in Quebec and has its head office there. However, it sent its requirement to the Calgary branch in order to comply with subsection 462(2). Compelling it, as would the appellant, to obtain the collaboration of the Albertan authority to “communicate” this demand would serve no useful purpose and, to the contrary, would encumber the process. The principle of comity between States does not require otherwise since no concrete act occurred on the Albertan territory, other than the simple communication of a requirement addressed to BNC.

The communication of the requirement to BNC through one of its branches situated outside Quebec is the sole external element that is present here. However, such communication is purely accessory and is insufficient to conclude that the ARQ exercised its powers of taxation or of audit outside of Quebec or exceeded its competence.

…The AARQ did not seek to “regulate persons, property, acts or legal facts which had no important and real link with Quebec.”

Locations of other summaries Wordcount
Tax Topics - Statutory Interpretation - Territorial Limits communication to bank branch outside Quebec did not constitute a significant act outside Quebec 183

Administrative Policy

19 December 2012 Internal T.I. 2012-0472761I7 - Definition of person in respect to a province

An inquiry from the Newfoundland/Labrador TSO was generated when a provincial official questioned whether the federal government could, in the absence of an information exchange agreement, require information and/or documents from the provincial governement pursuant to s. 231.2. After citing MNR v Braithwaite, 70 DTC 6001 (Ex Ct), the Directorate stated:

a person would include Her Majesty in right of a province and a reference to Her Majesty in right of a province would be a reference to the provincial government including a ministry of that government. Accordingly, a province would be subject to section 231.2....

IC73-10R3 "Tax Evasion"

Articles

Pooja Samtani, "Requirements on the Rise: Defending Against Demands for Taxpayer Information", Tax Management International Journal, 2013, p. 357

Threshold for validity of a Requirement (p. 357)

A requirement is valid if the requested information may be relevant in determining the tax liability of the taxpayer. In establishing the purpose of a requirement, the CRA need not prove that it is engaged in a genuine and serious inquiry of one or more specific persons. The test is whether the information sought by the CRA is required to verify compliance with the Act and is needed for an audit conducted in good faith. The latter condition evidently guarantees that the CRA "will act judiciously" in the exercise of its audit powers. [FN 3: Canada (National Revenue) v. Greater Montreal Real Estate Board, 2007 FCA 346, leave to appeal to the Supreme Court of Canada dismissed at ¶48.]

CRA's increasing reliance on Requirements, and Court's willingness to allow them (p. 358)

Recent decisions reflect both the increased reliance by the CRA on requirements and the willingness of the courts to sanction their use. In Redeemer Foundation v. Canada (National Revenue) [2008 SCC 46], for example, the Supreme Court of Canada held that the CRA was not required to obtain prior judicial authorization where information about unnamed persons was sought in the course of an audit of a named taxpayer. The majority of the Supreme Court concluded that judicial authorization would not be required in situations in which the requested information was needed to verify the compliance of the named taxpayer being audited, "regardless of whether or not there is a possibility or a probability that the audit will lead to the investigation of other unnamed taxpayers."

Consequences of substantial failure to comply (p. 358)

The failure to provide substantially all the documents or information covered by such a requirement allows the CRA to later bring a motion to prohibit the introduction into evidence of any such material in an appeal or other civil proceeding relating to the Act. For example, if a person provides only 50 out of 100 documents required, that person may be prohibited from introducing into evidence any of the 100 documents required, including those provided to the CRA. In this regard, it is not simply the quantity of the documents supplied, but also their relevance that is taken into account in assessing whether there has been substantial compliance with the requirement.

Strategic uses of judicial review applications (p. 358)

Although there are fairly limited circumstances in which a judicial review application will be successful, it remains an important tool for taxpayers because the application, once commenced, essentially "stops the clock" in terms of compliance. ...

...

Requirements that are intended to elicit information about earlier taxation years may be issued after the expiry of the normal reassessment period for those years. That being said, it would defeat the purpose of the statutory limitation period if the CRA could require a taxpayer to undertake an expensive, time-consuming, and labour-intensive process to retrieve and produce documents that it was no longer required by the Act to retain.

Taxpayer's right to redact names of third parties (p. 358)

In appropriate circumstances, the recipient of a requirement may have a right to redact the names of third parties from documents that fall within the scope of the requirement, but it must first establish a factual basis for asserting the right to redact. As cautioned by the Federal Court, there must be "clear evidence that the unnamed persons are to be investigated. That evidence must go beyond a mere speculation that these persons may be of interest to the tax authorities. Only in the face of such evidence, should the broad powers of the [CRA] be curtailed." [FN 15: Artistic Ideas Inc. v. Canada Customs & Revenue Agency, 2004 FC 573 at ¶33, aff'd 2005 FCA 68.]

Subsection 231.2(2) - Unnamed persons

Cases

Canada (National Revenue) v. Advantage Credit Union, 2008 DTC 6535, 2008 FC 853

The Minister issued a requirement obligating the respondent to provide banking documents concerning a delinquent taxpayer as well as the banking documents of other related Credit Union account holders. Mandamin, J. found that the requirement was valid as these other unnamed account holders were not persons that were under investigation by the Minister.

Articles

Gabrielle St. Halair, amp; Alain-Robert Nadeau, "The Minister's Broad Audit Powers and the Right to Privacy in the Charitable Context", Canadian Current Tax, Vol. 19, No. 9, June 2009.

Subsection 231.2(3) - Judicial authorization

Cases

Rona Inc. v. Canada (National Revenu), 2017 CAF 118

objectionable CRA tactic to gather input for a requirement letter did not preclude a s. 231.2(3) authorizing order

Rona Inc. appealed an order made by Martineau J of the Federal Court to authorize the Minister to serve Rona with a requirement letter (RL) with respect to its business clients pursuant to s. 231.2(3) to the Act and s. 289 of the ETA. Specifically, Rona submitted that the judge erred in allowing the RL to be served on the basis that CRA officials obtained a copy of a form used to open commercial credit on the pretext that they were building contractors, and subsequently used that form in the preparation of the RL

Boivin JA stated that the judge had concluded that the form was blank and generally available to the public, the taxpayer was not being audited, and there was no risk that the administration of justice would be brought into disrepute if the RL were served. (para 5)

After noting that Jodoin, 2017 SCC 26, p. 52 indicated "that when an appellate court is faced with the exercise of a judge's discretion, it must'"show great deference...'," Boivin J A dismissed the appeal, concluding (at para 8):

In this case, the appellant did not satisfy us that the judge erred in the exercise of his discretion.

Canada (National Revenue) v. KPMG LLP, 2016 FC 1322

s. 231.2(3) overrode CPA duty of client confidence

KPMG LLP sought to quash an order of Noël J - that authorized the Minister to impose on KMPG a requirement pursuant to s. 231.2(3) to disclose confidential information relating to certain of its unnamed clients relating to their participation in a tax structure known as the Offshore Company Structure – on the grounds that Rule 208 of the Ontario Code of Professional Conduct for CPAs (and similar rules in other provinces) provided that “a member or firm shall not disclose any confidential information concerning the affairs of any client [or] former client… .”

After noting (at para 7) that there was a listed exception from this rule where “such information is required to be disclosed by order of lawful authority,” and before dismissing the motion, Crampton CJ stated (at para 9):

In my view, the language of s. 231.2(3) of the Act is clear and overrides the general confidentiality rule imposed by Rule 208 of the Code. … [C]ancelling or varying Justice Noël’s Order … would appear to be inconsistent with Parliament’s intent in enacting s. 231.2 (R. v. McKinlay Transport Ltd., [1990] 1 S.C.R. 627, at paras 36-38; MNR v Sand Exploration Ltd, [1995] FCJ No 780 (QL), at paras 17-18 (TD).

Canada (National Revenue) v. Lordco Parts Ltd., 2013 FCA 49

previously granted ex parte order cancelled

This was a companion decision to RBC Life Insurance.

The Minister had obtained authorizations from the Federal Court under s. 231.2(3) to require the taxpayer to produce information relating to the employees of its corporate customers who had participated in a promotional cruise organized by the taxpayer.

The trial judge's decision to grant the taxpayer's application under s. 231.2(6) and cancel the authorization was based on similar reasoning as in RBC, and was therefore upheld. Stratas J.A. noted two additional observations worth making. He stated (at para. 6):

Key to the Federal Court's decision was the failure of the Minister to disclose in the ex parte application that there was an alternative source by which the information it desired could be obtained. As the Federal Court noted in its reasons, this Court has held that the existence of an alternative source is a material fact that should be disclosed in the ex parte application and "[a] judge must not be left in the dark on such an important point": M.N.R. v. Derakhshani, 2009 FCA 190 at paragraph 29.

Regarding the Minister's submission that the authorization should nevertheless be upheld because of the interest of verifying compliance with the Act, Stratas J.A. stated (at para. 7):

Considering the relevance of the non-disclosure to the court's discretion to issue the authorization, the reasons behind the disclosure requirement, the extent of the culpability associated with the non-disclosure, and the importance and significance of the matters not disclosed, the Federal Court exercised its discretion to cancel the authorization. The Minister has not persuaded me that there is any error in principle or palpable and overriding error vitiating the Federal Court's exercise of discretion.

Canada (National Revenue) v. Greater Montréal Real Estate Board, 2008 DTC 6420, 2007 FCA 346

The Court made an order setting aside an order of the Federal Court, which had set aside an earlier order made ex parte under s. 232.2(3) authorizing the Minister to impose a requirement on the Greater Montreal Real Estate Board (a non-profit organization) to provide information and documents relating to its members, who were 8,500 real estate agents and brokers in Quebec.

The order related to an identifiable group (the real estate agents and brokers living or carrying on business in the area served by a particular office of CRA), and the applications judge was satisfied that the information was required for a tax audit conducted in good faith. There was no requirement that each and every member of the group be the subject of a "genuine and serious" inquiry.

Words and Phrases
identifiable

eBay Canada Limited v. Canada (National Revenue), 2007 DTC 5573, 2007 FC 930

S.231.2 permitted an order that would require a Canadian resident to provide information (i.e., the particulars of Canadian "PowerSellers") to which it had access in Canada and which in fact it accessed as part of its business conducted in Canada but which was stored on data facilities owned by a parent corporation in the United States.

All Saints Greek Orthodox Church v. Canada (Minister of National Revenue), 2006 DTC 6264, 2006 FC 374

A charity auditor had acted improperly when he handed over a list of donors, who had contributed comic books to the appellant, to the tax avoidance section. On his ex parte application to subsequently obtain the list of the donors pursuant to an s. 231.2 application, the Minister failed to disclose that the CRA tax avoidance section was already using the list obtained during the charity audit. In these circumstances, the appropriate remedy was to penalize the CRA by way of costs on a solicitor-client basis and to insist that the CRA reassess taxpayers on the basis of the list that was ordered to be produced by the Court rather than on the basis of the list previously provided.

MNR v. Sand Exploration Ltd., 95 DTC 5358 (FCTD)

Before finding that the Minister had properly obtained an authorization pursuant to s. 231.2(3) requiring the respondents to provide a list of all persons who had been sold interests in certain seismic data, Rothstein J. rejected a submission that the names of the investors would be more readily available through an audit of the respondents and stated (at p. 5364):

"I agree with counsel for the Minister that for the Minister to obtain the names of unnamed investors by way of an audit of the vendors would be to do indirectly what the Minister is not allowed to do directly. To obtain the names of unnamed persons from third parties, the Minister must seek a Court order."

See Also

Derrin Brothers Properties Ltd & Ors, R (on the application of) v A Judge of the First Tier Tribunal (Tax Chamber) & Ors, [2016] BTC 10, [2016] EWCA Civ 15

third party notices to UK accounting firm and banks did not require them to be given explanation why information required

The Australian Tax Office ("ATO") made a request under Art. 27 of the UK-Australia Treaty of HMRC relating to its investigations of an Australian resident ("Gould") and his associates and clients, which suggested to it that a UK accounting firm ("Lubbock Fine") was providing nominee directors and shareholders to UK-incorporated companies to make it appear that their factual residence was outside Australia.

Schedule 36 to the Finance Act 2008 (U.K) in relevant part provided:

2. (1) An officer of Revenue and Customs may by notice in writing [a "third party notice"] require a person–

(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 tax position of another person whose identity is known to the officer ("the taxpayer").

(2) A third party notice must name the taxpayer to whom it relates, unless the tribunal has approved the giving of the notice and disapplied this requirement under paragraph 3.

3. (1) An officer of Revenue and Customs may not give a third party notice without–

(a) the agreement of the taxpayer, or

(b) the approval of the tribunal.

(3) The tribunal may not approve the giving of a taxpayer notice or third party notice unless–

(a) an application for approval is made by, or with the agreement of, an authorised officer of Revenue and Customs,

(b) the tribunal is satisfied that, in the circumstances, the officer giving the notice is justified in doing so,

(c) the person to whom the notice is to be addressed has been told that the information or documents referred to in the notice are required and given a reasonable opportunity to make representations to an officer of Revenue and Customs,

(d) the tribunal has been given a summary of any representations made by that person, and

(e) in the case of a third party notice, the taxpayer has been given a summary of the reasons why an officer of Revenue and Customs requires the information and documents.

As a result of the ATO request, HMRC applied to the First Tier Tribunal pursuant to schedule 36 for permission to send third party notices, and subsequently sent them to Lubbock Fine and three banks. Schedules attached identified in total 40 corporate entities, and sought most documents relating to services provided by Lubbock Fine respecting those entities and the flow of funds through the companies. Three of the companies were identified as taxpayers (those beneficially owned by Mr. Gould) and received letters providing a summary of the reasons for seeking third party notices, but the other companies in relation to whom documents were requested did not get letters directly, precluding them from submitting written objections. The application of 24 of those companies for an order quashing the notices was rejected by the High Court, and in their appeal to the Court of Appeal they argued inter alia (at para. 65) that "all 24 appellants, whether taxpayers or non-taxpayers, had to be told prior to the FTT hearing who the taxpayers were and why the documents were reasonably required to establish the taxpayers' tax position."

In rejecting these arguments, Sir Terence Etherton stated (at paras. 68, 74-76):

The purpose of the statutory scheme is to assist HMRC at the investigatory stage to obtain documents and information without providing an opportunity for those involved in potentially fraudulent or otherwise unlawful arrangements to delay or frustrate the investigation by lengthy or complex adversarial proceedings or otherwise. It is inevitable in many cases, particularly where there are complex arrangements designed to evade tax, that at the investigatory stage it will be difficult, if not impossible, for HMRC to be definitive as to the precise way in which particular documents will establish tax liability. It is also clear that in many cases disclosure of HMRC's emerging analysis and strategy and of sources of information to the taxpayer or those associated with the taxpayer may endanger the investigation by forewarning them. ...

…Schedule 36 does not…require that the third party [i.e., Lubbock Fine and the banks] is given any explanation of the reasons why the officer requires the information and documents. It does not expressly confer on the third party a right to make representations directly to the FTT or a right to appear before the FTT…

[T]he reason the third party is to be told that the information or documents are required and be given a reasonable opportunity to make representations to HMRC is to enable it to state any practical difficulties with compliance.…[T]he third party does not have to be given any explanation as to why the officer requires the information and documents...because it is not for the third party to argue any case for the taxpayer as to the width or nature of the investigation... .

...…Schedule 36 does not require that any information at all be given to the non-taxpayer entity [i.e., the 24 appellants], whose documents or copies of whose documents are required to be produced by the third party or about whom information is sought from the third party.

Arguments based on Articles 6 and 8 of the European Convention on Human Rights were also rejected.

Locations of other summaries Wordcount
Tax Topics - Treaties - Articles of Treaties - Article 27 documentary demands made by HMRC pursuant to Art. 27 on UK companies being investigated by Australia were valid 145

Subsection 231.2(6)

Cases

Canada (National Revenue) v. RBC Life Insurance Company, 2013 FCA 50

see also Lordco)

The taxpayers offered "10-8" insurance plans to their customers, which generated exempt income and deductible interest. Under a 10-8 plan, the customer borrows money at 10% tax-deductible interest, and uses the borrowed amount to obtain an investment vehicle that returns 8% tax-exempt interest. After the Minister obtained authorizations from the Federal Court under s. 231.2(3) requiring the taxpayers to disclose customer lists, the taxpayers successfully applied under s. 231.2(6) to have those prior authorizations cancelled. The Minister had withheld significant information on the original application, including that CRA was deliberately engaging in an "audit blitz" so as to have a chilling effect on the 10-8 plans, notwithstanding that they were acknowledged to technically work.

The Court affirmed the cancellation of the authorizations. In response to a submission that a judge reviewing such authorization under s. 231.2(6) may only consider specifically whether the conditions in s. 231.2(3)(a) and (b) are satisfied, Stratas J.A. stated that the existence of judicial discretion is essential to the constitutional validity of an authorization in the first place under s. 231.2(3) (para. 23), that the "review under subsection 231.2(6) must include a discretionary element and is not limited to verifying that the two statutory preconditions are met" (para. 27), and that the alternative would render the Court "powerless" to address an abuse of process (para. 28): such as the withholding of relevant information - for example "the Minister could misinform the judge about the inconvenience and cost to persons who will be subject to the authorization" (para. 30); or even "bald lies" (para. 29).

Since Canada (Human Rights Commission) v. Canadian Liberty Net, [1998] 1 S.C.R. 626 at paras. 35-38, the Federal Courts have had "plenary powers" analogous to the inherent powers of a provincial superior court (para. 35), which include the power to address abuse of process.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Abuse of Process statutory scope of judicial discretion 289