Section 231.9

Inappropriate scope of s. 231.9 rule (pp. 7-10)

• Where the taxpayer refuses to provide information on the basis of solicitor-client privilege and the Minister nonetheless issues a notice of non-compliance (NNC), this could pressure the taxpayer into waiving privilege rather than undertaking the onerous NNC dispute process – suggesting that since a compelled waiver is not valid, the production of documents resulting from the NNC’s issuance would likely constitute an unreasonable search or seizure contrary to s. 8 of the Charter.
• Even if s. 231.9(6) or (9) authorizes the Minister or the Federal Court, on an appeal under s. 231.9(4) or (8), to evaluate the legality of the underlying requirement under s. 221.1, 231.2 or 231.6 (a “Requirement”) or whether the taxpayer was required to comply with it, evaluation of the legality of the Requirement or of the taxpayer’s s. 7 or 8 Charter right to refuse to comply with it are questions of law “’that are of fundamental importance and broad applicability’, with significant legal consequences for the justice system as a whole or for other institutions of government”, subject to review on a standard of correctness (Vavilov, at paras. 59-62).
• This requirement for a review of correctness clashes with s. 231.9(9), which contemplates the Federal Court reviewing whether any CRA decision to reject a privilege claim in relation to a document covered by a NNC was reasonable, a review which generally would be limited to considering that decision in light of the material before the CRA decision maker – which, crucially, would not include the document for which privilege was claimed.
• In contrast, the Federal Court’s review under s. 231.7 of any compliance order sought by the Minister of a document for which the taxpayer claimed privilege would be applied under a correctness standard (likely including a review of the document) – so that there could be a situation (representing an affront to the rule of law) in which taxpayer was penalized under s. 231.9 for what was subsequently established not to be a failure.
• Regarding the requirement in s. 231.9(6) for the Minister to vacate a NNC where the taxpayer had “done everything reasonably necessary to comply with each [relevant] requirement,” a taxpayer taking reasonable steps to comply with a requirement should not be subjected to the s. 231.9(12) penalty merely because the Minister, with the benefit of hindsight, points to alternative actions which the taxpayer might have taken.
• For example, if CRA issues a Requirement (with a 30-day deadline) asking for a copy of a share purchase agreement concluded 30 years earlier (relevant to the ACB of shares) and the taxpayer, believing that such agreement would be at an off-site storage site, searches such records and does not locate the agreement and so reports to CRA, who then issues a NNC, it might be inappropriate in the circumstances for the Minister to then determine that the taxpayer did not do everything reasonably necessary because it did not request a copy of the agreement from the law firm which assisted on the original purchase.