Section 231.7

Subsection 231.7(1) - Compliance order


Canada (National Revenue) v. Friedman, 2019 FC 1583

Lin interpretation, that a requirement letter insufficiently specified who was covered, not followed

The Friedmans, a married couple, who had not filed T1135 returns, each received Requests for Information under s. 231.1(1) (“RFIs”) whose wording was essentially identical to those received by the taxpayers in Lin, e.g., they were addressed to them personally, and stated inter alia:

Your personal income tax returns and any other related or associated entities have been selected for audit … . [Y]ou may have offshore holdings that you have failed to disclose … .

In order to expedite and facilitate our audit, we will require a clear understanding of all entities with which you had a connection or affiliation during the taxation years noted above. …

Please send us back the attached questionnaire fully completed within 30 days … .

The taxpayers refused to provide the requested information and argued that, like Lin, the RFIs were not clearly addressed to them and it was unclear whether the CRA is auditing them or their related entities. In rejecting these submissions, Pamel J noted that it was unclear whether the Court in Lin was provided with the questionnaires accompanying the letters, and stated (at para. 35):

Upon close examination of the RFIs and, in particular, the accompanying questionnaires, I am satisfied that, unlike in Chamandy [2014 FC 354] and SML, the CRA is clearly directing its questions to Mr. and Mrs. Friedman in their personal capacity as taxpayers. In addition, as opposed to how matters were assessed in Lin, the CRA is specifically directing those questions to the Friedmans in respect of their personal tax situation.

Pamel J also rejected their submissions that the RFIs contravened s. 13 or 7 of the Charter.

Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Charter (Constitution Act, 1982) - Section 13 s. 231.1(1) demand made in civil audit context did not contravene s. 13 115
Tax Topics - Other Legislation/Constitution - Charter (Constitution Act, 1982) - Section 7 s. 231.1(1) demand made in civil audit context did not contravene s. 7 164

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

CRA request for an information-request compliance order dismissed because it was unclear which entities were covered

The three respondents were a couple and their daughter. The father considered himself to reside only in China, whereas his wife and daughter acknowledged that they were Canadian residents. The father stated that he had filed Canadian returns only because he did not realize that he was a non-resident.

Each respondent received a letter from CRA in September 2016, captioned as being respecting an audit of the 10 taxation years ending on December 31, 2015, and stating:

Your personal income tax returns and any other related or associated entities have been selected for audit for the above noted period. [CRA] is in possession of information that has led us to determine that you may have offshore holdings that you have failed to disclose as required by the Income Tax Act. All individuals, corporations, trusts or partnerships are required to complete and file form T1135 … .

The letter went on to request completion of a questionnaire. Only some of the information was provided, and CRA then sought a compliance order under s. 231.7.

In rejecting most of the respondents’ submissions, Boswell J stated (at paras. 23, 25 and 27):

[A]ny valid reason, such as a suspicion of offshore holdings, meets the low threshold for the reasonableness of an audit … .

… There is no statutory time limit within which to make a request for information under subsection 231.1(1) … .

The fact that the Letter does not specify the documents, books, or records to be produced is not fatal to the requests for information … .

However, he nonetheless dismissed the application on the following ground (paras.31-32):

[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 by the Minister … .

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 231.1 - Subsection 231.1(1) - Paragraph 231.1(1)(a) low threshold of relevance - but auditees must be specified 152

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

low threshold of relevance was met

The U.S. parent (JMC) of the Canadian taxpayer (Atlas) acquired another Canadian company (LSI), following which some of the pieces of LSI ended up in Atlas’ hands in a post-closing reorganization. CRA requested, pursuant to s. 231.1, a copy of a tax due diligence report - that EY had prepared on LSI in advance of the LSI acquisition - on the grounds that it might be relevant to its audit of Atlas.

The EY report included an analysis of the tax filing positions taken by LSI and their risk of successful challenge by CRA. Atlas argued that compelling disclosure of the report was contrary to BP, which found that tax accrual working papers setting out uncertain tax positions were protected. In rejecting this argument, Southcott J stated (at paras. 65-66):

BP is to be read as precluding general and unrestricted access to TAWPs 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. …[T]he 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.

He also found that, as the report’s “dominant purpose when commissioned and generated was to inform the decision whether to proceed with the transaction and at what price” rather than to assist Stikeman in structuring the acquisition, it was not protected by solicitor-client privilege.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 231.1 - Subsection 231.1(1) required disclosure of an EY tax due diligence report discussing uncertain tax filing positions of a target 343
Tax Topics - Income Tax Act - Section 232 - Subsection 232(1) - Solicitor-Client Privilege predominant purpose of due diligence report was to aid a business decision 307

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

mere suspicion of criminal activity did not oust s. 231.1

CRA found out from the French authorities that the taxpayer was on the list obtained from a disgruntled HSBC employee of those with large Swiss bank accounts. The taxpayer had not reported the account or the interest thereon. When CRA sought a compliance order under s. 231.7(1) for the taxpayer to answer its requests for information issued under s. 231.1(1), the taxpayer argued that it was obvious that this was occurring pursuant to a criminal investigation of her. Russell J disagreed, stating (at paras. 50, 55) that:

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. …

[A] mere suspicion does not change the predominant purpose of an audit into a criminal investigation. See Jarvis … .

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 231.1 - Subsection 231.1(1) a taxpayer with an unreported Swiss bank account was not yet under criminal investigation 402
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 182
Tax Topics - General Concepts - Stare Decisis Quebec CA decision relied upon 32

Revcon Oilfield Constructions Incorporated v. Canada (National Revenue), 2017 FCA 22

s. 231.7 continues to apply to non-lawyers

The taxpayer was ordered by the Federal Court under s. 231.7 of the Act to comply with certain requests for documents and information issued against it during an audit. In rejecting the taxpayer’s submission, based on Chambre des notaires and Thompson, that the Federal Court lacked authority to make this order, Stratas JA stated (at paras 6 and 7):

[T]he Supreme Court read down section 231.7 to exclude lawyers and notaries. But section 231.7 otherwise remains in force.…

… The appellant is neither a lawyer nor a notary. Therefore, in this case, section 231.7 still authorized the Federal Court to make the order it did.

Respecting the further submission that the order “indirectly ordered the appellant’s law firm to disclose material, contrary to the Supreme Court’s two decisions” he stated (para. 9):

… The Federal Court’s order is directed only against the appellant… . Here, the client had a full opportunity to contest issues relating to legal professional privilege and legal professional privilege was fully respected in this case.

Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Charter (Constitution Act, 1982) - Section 8 s. 231.7 read down, not invalidated, by Thompson/Chambre des notaires 46

Canada (Minister of National Revenue) v. SML Operations (Canada) Ltd., 2003 DTC 5535, 2003 FC 868

An application by the Minister was dismissed given that the Minister had not demonstrated that the person served with the requirement letter was the taxpayer rather than its officer in his personal capacity (as the salutation in the requirement letter was addressed "Dear Sir", and a threat of incarceration for failure to respond suggested that the letter was not directed to a corporation), and given that it had not been demonstrated that the person required to provide the requested information or documents had not done so (as there had been the production of some documents).

Subsection 231.7(4)


Canada (Minister of National Revenue) v. Les Développements Béarence Inc., 2019 FC 22

CRA cannot require a taxpayer to reformat its information for CRA’s reading convenience

Grammond J had previously made an order pursuant to s. 231.2 that the taxpayer (“Béarence,” a land developer with numerous land sales and who had been undergoing a CRA audit) provide, within five days, an Excel file containing all the daily transactions for its 2012 to 2015 years and a report of transactions by each general ledger account for those years. Over five months later, the Minister sought an order that Béarence was in contempt of court for not having complied with the order.

Bell J accepted the taxpayer’s submission that CRA already had available to it all the information it needed (including with respect to federal and provincial "sales tax" matters - para. 10) to perform its audit (including the provision to it of a copy of the general ledger, and information provided to the ARQ) and stated (at paras. 12-13, TaxInterpretations translation):

[D]oes the CRA have the right to require that Béarence disburse funds to provide information in the format requested by the CRA where this information has already been provided and is available in another format? …

[N]either the CRA nor this Court can impose the format in which this information must be provided to the CRA, as all the necessary information has already been provided.

He went on to find, in the alternative, that in any event, the following elements for a finding of contempt were not established: an unequivocal indication of what must be done (the order appeared to incorrectly assume that the requested documents were in existence and it did not specify that Béarence was to create documents- and, if it had, such an order would be appealable); and the order had knowlingly and intentionally been violated (there was reasonable doubt in this regard).

Accordingly, no contempt declaration was made.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 231.2 - Subsection 231.2(1) no obligation to reformat previously-provided information 140
Tax Topics - Excise Tax Act - Section 289 - Subsection 289(1) no requirement to provide information in reformatted form 109

Canada (National Revenue) v. Chi, 2018 FC 897

imprisonment if failure to pay fine for contempt, and provide bank statments, within 30 days

The respondent (“Chi”) failed to supply banking documents under a June 2016 Request for Information pursuant to s. 231.2(1) and subsequent October 2017 Compliance Order pursuant to s. 231.7. At issue were banking records and statements for three accounts registered at an HSBC branch in Hong Kong in the name of corporations owned or controlled directly or indirectly by the taxpayer, and a fourth TD Bank account. Mosley J, on a motion brought ex parte by the Minister was satisfied that there was a prima facie case of contempt of the Compliance Order, and in April 2018 ordered Chi to attend the Court’s general sittings in Ottawa (the “Show-Cause Order”). Chi, who was present at the show-cause hearing and testified as to why he should not be found in contempt of the order, provided the TD bank statements (only) at that time. In finding Chi to be in contempt, LeBlanc J stated (at paras. 40, 45):

… [T]he evidence … displays sporadic attempts by Mr. Chi to contact representatives at the HSBC in Hong Kong to obtain the bank statements at issue, most of them fruitless as Mr. Chi either failed to follow-up on information provided or failed to obtain the evidence that could support his contention that he is unable to comply with the Compliance Order.

…[T]he evidence before me points not to a clear and unequivocal effort to comply, but rather leads me to conclude, beyond a reasonable doubt, that Mr. Chi has demonstrated a “serious indifference or contemptuous disregard at the Court” ... .

After noting (at para. 35) that there were mitigating factors calling for a milder sentence than in other cases, LeBlanc J ordered Chi to pay a fine of $2,000 and legal costs of $3,500, and provide the HSBC bank statements (or documented evidence that they were unavailable) all within 30 days, failing which Chi would be subjected to 15 days’ imprisonment.