Date: 20180430

Docket: T-1888-16

Citation: 2018 FC 462

Ottawa, Ontario, April 30, 2018

PRESENT:  The Honourable Mr. Justice Russell

BETWEEN:

MINISTER OF NATIONAL REVENUE

Applicant

and

BILJANA STANKOVIC

Respondent

ORDER AND REASONS

I.  INTRODUCTION

[1]  This is a summary application under s 231.7(1) of the Income Tax Act, RSC 1985, c 1 (5th Supp) [Act], for an order requiring the Respondent to provide the Applicant with all books, records and information specified in the demand letters that were issued to the Respondent on November 2, 2015, December 23, 2015, and February 17, 2016, pursuant to s 231.1(1) of the Act.

II.  BACKGROUND

[1]  In November 2015, the Canada Revenue Agency [CRA] commenced an audit of the personal tax returns of the Respondent for the 2006 to 2014 taxation years.

[2]  The audit was triggered by information that the CRA received from French authorities under Article 26 of the Convention between Canada and France for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital, Canada and France, 2 May 1975, Can TS 1976 No 30, as amended [Treaty].

[3]  The information relates to what is publicly known as the “Falciani List.” Around 2007-2008, an employee at HSBC Private Bank [HSBC] in Switzerland, Hervé Falciani, copied account holder information. French authorities obtained the Falciani List in 2009, and offered information to Canada pertaining to Canadians. Pursuant to Article 26 of the Treaty, Canadian authorities asked French authorities to provide the names of Canadians on the list.

[4]  The information the CRA obtained indicated that the Respondent held assets, and possibly earned income from one or more HSBC accounts in Switzerland. The Respondent, however, had not reported money or assets held in Swiss HSBC accounts, or any income earned therefrom, on her personal T1 returns for any of the years under audit.

[5]  On November 2, 2015, a CRA auditor [Auditor] sent a letter advising the Respondent of an audit of her personal income taxation years 2006 to 2014. Pursuant to s 231.1(1) of the Act, the letter contained a questionnaire and requested information, books and records needed to conduct the audit. The Respondent returned the questionnaire to the Auditor but various parts were unanswered or incomplete.

[6]  On December 18, 2015, the Auditor and the Respondent had a phone conversation. The Auditor asked the Respondent if she had any HSBC accounts in Switzerland. She replied that she did not.

[7]  On December 23, 2015, the Auditor sent the Respondent a second request letter pursuant to s 231.1(1) of the Act.

[8]  On February 9, 2016, the Auditor met with the Respondent and her former counsel. The Respondent disclosed the existence of a bank account she had in the United States, which had not been disclosed on her income tax filings for the years in question. But she denied having an HSBC account in Switzerland. The Auditor alleges that, at this meeting, he advised the Respondent and her former counsel that the CRA had obtained information from a tax treaty partner that the Respondent had an HSBC account in Switzerland with a balance in excess of $1,000,000.

[9]  On February 17, 2016, the Auditor sent the Respondent a third request letter pursuant to s 231.1(1) of the Act and advised her that a failure to comply with the request would result in the CRA seeking a compliance order under s 231.7(1) of the Act. The letter noted that the CRA had obtained information from a tax treaty partner that the Respondent had an HSBC account in Switzerland. The letter also requested a long list of information regarding that account including various transaction details, asset and income reports, account opening documents, client profiles, letters of instruction and the Manager’s file.

[10]  On March 29, 2016, the Auditor received some information from the Respondent in partial response to the three outstanding request letters. The information provided, however, did not include any records concerning any HSBC account in Switzerland.

[11]  On April 5, 2016, the Respondent’s former counsel and the Auditor had a phone conversation. The Auditor alleges that Respondent’s former counsel advised him that the Respondent would not be providing any further information about foreign bank accounts, and that she would only make full disclosure if the CRA agreed to various conditions such as no interest or penalties and immunity from prosecution. The Auditor advised the Respondent’s former counsel that the Respondent is required to comply with s 231.1(1) of the Act without conditions.

[12]  On April 28, 2016, the Respondent’s former counsel sent the Auditor a letter expressing concerns with the legality of the procedure followed by the CRA in obtaining the information from a treaty partner, and repeating the Respondent’s willingness to comply with the request subject to various conditions.

[13]  On July 7, 2016, the Applicant’s counsel sent a letter to the Respondent’s former counsel, stating that the Respondent’s concerns had no legal basis and reiterating that a failure to comply with the request letters would result in the CRA seeking a compliance order pursuant to s 231.7(1) of the Act.

[14]  On July 29, 2016, the Respondent’s former counsel once again expressed concerns with the procedure and stated a willingness to comply with the request upon various conditions.

[15]  On November 8, 2016, the Applicant made a summary application under s 231.7(1) of the Act for an order compelling the Respondent to provide the Applicant with all books, records and information specified in the demand letters that were issued to the Respondent on November 2, 2015, December 23, 2015, and February 17, 2016.

[16]  On December 28, 2017, the Respondent removed her former counsel. In an order dated January 18, 2017, Justice Kane allowed the Respondent’s motion for an adjournment but ordered that should the Respondent not retain counsel she is required to proceed on the date set down for the hearing of this application.

III.  ISSUES

[17]  The Applicant submits that the following are at issue in this application:

1. Are the conditions for issuing a compliance order under s 231.7(1) of the Act met?
2. Is the CRA precluded from conducting a civil income tax compliance audit on the Respondent and issuing request letters pursuant to s 231.1(1) of the Act based on information it received pursuant to the Treaty?

[18]  The Respondent submits that the following are at issue in this application:

1. Is the predominant purpose of the CRA audit a determination of the Respondent’s criminal liability?
2. If the compliance order is granted, should the order be limited to the provision of information, books and records from January 1, 2009 onwards pursuant to s 230(4) of the Act?

IV.  STATUTORY PROVISIONS

[19]  The following provisions of the Act are relevant in this application:

V.  ARGUMENT

A.  Applicant

(1)  Conditions for Issuing a Compliance Order

[20]  The Applicant submits that the Act provides the powers necessary to compel production of information and documents. Section 220 makes enforcement of the Act a duty of the Minister of National Revenue [Minister]. Since this duty is mandatory, information provided by a foreign government cannot be ignored when that information concerns income tax compliance by persons subject to the Act. Under s 231.1(1), the Minister may, for any purpose related to the administration or enforcement of the Act, inspect, audit or examine the books and records of a taxpayer. If the Minister is acting for a purpose related to the administration or enforcement of the Act, a person served with a request under s 231.1 must provide the Minister with the required information within a reasonable time. See Canada (Minister of National Revenue) v Marshall, 2006 FC 279 at paras 15-16 [Marshall]. A taxpayer’s expectation of privacy with respect to these documents is “relatively low” and the Minister cannot know whether records are relevant until they are examined: R v McKinlay Transport Ltd, [1990] 1 SCR 627 at 650 [McKinlay]. Section 231.7(1) of the Act allows a judge to order a person to provide the access, assistance, information or documents sought by the Minister. To do so, the Court must be satisfied that the person was required to provide the access, assistance, information or documents under ss 231.1 or 231.2, that the person failed to do so, and that the information or document is not protected by solicitor-client privilege. See Marshall, above, at paras 15-18.

[21]  The Applicant says that, in this case, letters were issued to the Respondent pursuant to s 231.1(1) of the Act for the purpose of conducting a civil tax compliance audit and that the Respondent has failed to produce all of the documents and records requested. The Applicant notes that solicitor-client privilege has not been raised as an issue with respect to these documents and records.

(a)  Reliance on the Falciani List

[22]  The Applicant says that the CRA is entitled to rely on information obtained from the Falciani List. Prior to the Applicant’s application for a compliance order, the Respondent had maintained that the CRA’s reliance on information from the Falciani List was a violation of her rights under s 7 of the Canadian Charter of Rights and Freedoms, Part I of the Constitution Act, 1982, being Schedule B to the Canada Act 1982 (UK), 1982, c 11 [Charter]. While the Respondent has not maintained this argument in her written submissions to this Court, she has still submitted that the Applicant should not be able to rely on information from the Falciani List.

[23]  The Applicant submits that the Respondent cannot invoke the Charter concerning the Government of France’s acquisition of the Falciani List because s 32(1) of the Charter limits its application to Canadian state actors. While the Charter may apply outside of Canada when a person is acting on behalf of the Government of Canada, it does not apply to the gathering of information outside of Canada when the authorities involved were not acting on behalf of any of the governments of Canada, the provinces or the territories. See R v Harrer, [1995] 3 SCR 562 at para 12 [Harrer]. The Applicant says that when the Government of France obtained the Falciani List it was not acting on behalf of the Government of Canada. In R v Hape, 2007 SCC 26 at para 94, a majority of the Supreme Court of Canada held that “[a] criminal investigation in the territory of another state cannot be a matter within the authority of Parliament or the provincial legislatures, because they have no jurisdiction to authorize enforcement abroad.” The Applicant says that the Falciani List was provided by the French tax authority in 2010 after the CRA requested the list pursuant to Article 26 of the Treaty. Article 26 provides that contracting states may exchange information for tax assessment purposes.

[24]  The Applicant submits that use of the Falciani List by a Canadian tax authority was considered by the Quebec Court of Appeal in Berger v Québec (Agence du revenu), 2016 QCCA 226 [Berger CA]. In Berger CA, the Quebec Court of Appeal affirmed the Quebec Superior Court’s dismissal of an application for judicial review brought to quash a formal request by the Agence de Revenu du Quebec [ARQ] that required a taxpayer to disclose records related to the taxpayer’s HSBC accounts. See Berger c Québec (Agence du revenu), 2014 QCCS 3280 [Berger CS]. The Quebec Court of Appeal held that, despite the ARQ’s reliance on information from the Falciani list, “the judge was entitled to conclude that, according to McKinlay Transport and Jarvis, the issuance of the formal demand brought about no Charter violation” because the predominant purpose of the request was an audit investigation and not a penal investigation. See Berger CA, above, at paras 24-31.

[25]  The Applicant also submits that the Federal Court of Appeal has held that s 7 of the Charter does not apply in the circumstances of a civil tax audit because s 7 does not protect economic rights. See Kaulius v Canada, 2003 FCA 371 at paras 29-30.

(b)  Predominant Purpose

[26]  The Applicant submits that the CRA is seeking information for the predominant purpose of civil income tax compliance and not for the purpose of a criminal investigation. The Act is a regulatory statute that grants the Minister both audit and investigatory power. See R v Jarvis, 2002 SCC 73 at para 99 [Jarvis]. This Court has observed that “[a]n audit is not a criminal process but an administrative one which does not trigger the implication of Charter rights”: Stanfield v Canada (Minister of National Revenue), 2005 FC 1010 at para 35 [Stanfield]. In Jarvis, however, the Supreme Court of Canada held that the Minister is prevented from using the requirement powers granted by s 231.1(1) of the Act when the Minister’s “predominant purpose” is an investigation for the purpose of penal liability because that creates an adversarial relationship between the Minister and the taxpayer which engages the taxpayer’s rights under s 7 of the Charter. See Jarvis, above, at paras 84 and 96. Paragraph 94 of Jarvis established a set of factors for determining whether the predominant purpose of an inquiry is the determination of penal liability:

(a)  Did the authorities have reasonable grounds to lay charges? Does it appear from the record that a decision to proceed with a criminal investigation could have been made?

(b)  Was the general conduct of the authorities such that it was consistent with the pursuit of a criminal investigation?

(c)  Had the auditor transferred his or her files and materials to the investigators?

(d)  Was the conduct of the auditor such that he or she was effectively acting as an agent for the investigators?

(e)  Does it appear that the investigators intended to use the auditor as their agent in the collection of evidence?

(f)  Is the evidence sought relevant to taxpayer liability generally?  Or, as is the case with evidence as to the taxpayer’s mens rea, is the evidence relevant only to the taxpayer’s penal liability?

(g)  Are there any other circumstances or factors that can lead the trial judge to the conclusion that the compliance audit had in reality become a criminal investigation?

[Emphasis in original.]

[27]  The Applicant says that none of the factors identified in Jarvis indicate that the purpose of the Auditor’s inquiries was the investigation of penal liability and makes the following submissions with respect to each factor:

1. No criminal charges have been laid, so this factor does not apply;

2. The evidence shows that the CRA is conducting a civil income tax compliance audit to verify tax liability under the Act;

3. The Auditor is part of the CRA’s Offshore Compliance Audit Division and has not referred or transferred the file to investigators in the CRA’s Criminal Investigation Division;

4. There is no evidence suggesting that the Auditor has contacted CRA investigators or that a criminal investigation is being disguised as an audit;

5. There is no evidence that CRA investigators or any prosecutorial authority initiated the Auditor’s conduct or were using the Auditor to gather evidence for penal investigation purposes;

6. The books and records sought in the s 231.1(1) request letters relate to income tax liability under the Act and none are relevant only to proving penal liability;

7. No other circumstances or factors beyond the Respondent’s bare assertions and speculative inferences based on media articles suggest that the Auditor has misled the Respondent about his intentions and is conducting a de facto criminal investigation.

[28]  The Applicant submits that the evaluation under the predominant purpose test must be evidence-based. See Canada (Minister of National Revenue) v Ellingson, 2006 FCA 202 at paras 16 and 33 [Ellingson]. The Respondent may have a subjective belief that she is under criminal investigation but this is a speculative inference not supported by the evidence. The Applicant emphasizes that the Auditor was consistent throughout cross-examination on his affidavit that he is conducting a civil income tax compliance audit and had not referred the Respondent’s file to the CRA’s Criminal Investigation Division.

[29]  The Applicant says that the concept of an “inference” must be distinguished from mere speculation and that the Respondent’s position that she is being investigated is speculative. An inference is a logical deduction from established facts. Speculation occurs when there is a gap in the reasoning process that “requires a leap of faith.” And since an inference can only follow from established facts, if there are no proved facts then what remains must be speculation. See Canada (Information Commissioner) v Toronto Port Authority, 2016 FC 683 at para 80, quoting Attaran v Canada (Foreign Affairs), 2011 FCA 182 at paras 32-34. See also R v Chanmany, 2016 ONCA 576 at para 45. The Applicant says that the Respondent’s submission that the purpose of the audit is criminal investigation is based on some generalized statements of elected officials and announcements in CRA press releases about a taxpayer’s duty to comply with the Act. The Applicant says that this position is speculative and contrary to the Auditor’s direct evidence that the request letters issued under s 231.1(1) of the Act are for the purpose of a civil income tax compliance audit. The Applicant submits that the Respondent’s reliance on circumstantial evidence ignores this direct evidence which rebuts her position.

[30]  The Applicant also submits that the Respondent failed to put the question of the Auditor’s knowledge of statements of elected officials or CRA news releases to the Auditor during cross-examination. Therefore, pursuant to the rule in Browne v Dunn (1893), 6 R 67 (HL), fairness required the Respondent to bring the matter to the Auditor’s attention and the Respondent is now precluded from suggesting that the Auditor was influenced by those facts.

[31]  The Applicant also says that delay in beginning to audit the Respondent does not corroborate her position that the request letters were issued for the predominant purpose of a criminal investigation. The Auditor explained that extended delays in commencing an audit are caused by workload and are not unusual in the Offshore Compliance Audit Division. The Applicant says that the Respondent’s position that delay is indicative of the predominant purpose being a criminal investigation is a bare assertion unsubstantiated by evidence and unsupported at law.

[32]  Even if a criminal investigation is underway, the CRA may still concurrently rely on its audit powers to obtain information directed at determining tax liability. See Jarvis, above, at para 97. And the Supreme Court of Canada was clear that “the test cannot be set at the level of mere suspicion that an offence has occurred [because] [a]uditors may, during the course of their inspections, suspect all manner of taxpayer wrongdoing, but it certainly cannot be the case that, from the moment such suspicion is formed, an investigation has begun”: Jarvis, above, at para 90.

[33]  The Applicant also points out that the proposition that statements by government officials about the importance of offshore income tax compliance in the wake of the disclosure of the Falciani List mean that the predominant purpose of a request letter is a penal investigation was rejected in Berger CS, above, at para 91.

(2)  Scope of the Compliance Order

[34]  The Applicant says that there is no limit that prevents the CRA from requesting records for periods beyond the document retention periods set out in s 230(4) of the Act. Records and books that are still available must be provided to the Minister if they are requested under s 231.1(1) of the Act. See Minister of National Revenue v Plachcinski, 2016 CarswellNat 10234 (WL) at para 20 (FC) [Plachcinski]. Considering the requirements to provide information issued pursuant to s 231.2(1) of the Act, the Federal Court of Appeal was clear that “there is no statutory time limit for requirements”: Canada (National Revenue) v Kitsch, 2003 FCA 307 at para 32 [Kitsch]. See also Plachcinski, above, at para 19, and 1144020 Ontario Ltd v Canada (Minister of National Revenue), 2005 FC 813 at para 60 [1144020 Ontario Ltd].

B.  Respondent

(1)  Predominant Purpose

[35]  The Respondent submits that the Applicant’s predominant purpose is investigatory because the Applicant believes that the Respondent has committed a criminal offence. The Respondent agrees with the Applicant that the factors enunciated in Jarvis should be used to determine whether the Applicant’s predominant purpose is a criminal investigation rather than a civil tax audit. See, Jarvis above, at para 94. The Federal Court of Appeal has explained that, since the purpose of a criminal investigation is to determine whether an offence has been committed, the first factor in Jarvis addresses two distinct issues. Therefore, even if charges are not eventually laid, a criminal investigation may have already commenced. See Kligman v Minister of National Revenue, 2004 FCA 152 at para 29 [Kligman]. When the predominant purpose of an inquiry is the determination of penal liability, “an adversarial relationship... crystallizes between the taxpayer and the tax officials” that engages constitutional protections against self-incrimination: Jarvis, above, at para 2. The Supreme Court of Canada also held that “[i]n most cases, if all ingredients of an offence are reasonably thought to have occurred, it is likely that the investigation function is triggered”: Jarvis, above, at para 89. The Respondent says that the Applicant reasonably thought that all the elements of a criminal offence occurred in this case and submits the following point to this conclusion: public statements about the Minister’s intent; the use of stolen data from the Falciani List; the audit extends beyond the CRA’s one-year standard audit policy; the over five year delay before the CRA began the audit; and similar conclusions drawn by courts in analogous circumstances.

[36]  The Respondent says that a statement to Parliament by the former Prime Minister, the Right Honourable Stephen Harper, indicated that it was his government’s intent to prosecute Canadians who used undisclosed Swiss bank accounts. See House of Commons Debates, 40th Parl, 3rd Sess, No 74 (30 September 2010) at 4616 (Rt Hon Stephen Harper). She says that the current government has maintained this policy. While acknowledging that the former Prime Minister’s statement does not indicate intent to criminally investigate her specifically, the Respondent submits that the general intent of the current government indicates that a criminal investigation of her tax affairs has begun.

[37]  The Respondent also submits that the Applicant should not have the right to use information from the Falciani List because French tax authorities contravened local law when they obtained the information. The Auditor confirmed that the CRA received information about the Respondent from French tax authorities pursuant to Article 26 of the Treaty and that the appearance of the Respondent’s name on the Falciani List prompted the CRA to select her for audit. The Respondent points to decisions of French courts that have held that information obtained from the Falciani List cannot be used by French tax authorities. See Cass com, 31 January 2012, No 11-13097, aff’g CA Paris, 8 February 2011, X c Directeur général des finances publiques. The Respondent says that the Auditor’s acknowledgement that the Applicant is relying on information from the Falciani List indicates that the predominant purpose of the audit is criminal investigation.

[38]  The Respondent also says that the length of time it took for the CRA to begin the audit indicates that the predominant purpose of the audit is to criminally investigate her. She says that the CRA’s standard policy, described in the CRA Audit Manual, is to audit individuals and small businesses up to one year prior to the current taxation year. Section 152(3.1) of the Act provides a normal reassessment period of three years for individuals. But the Minister may reassess beyond the normal reassessment period when the taxpayer has “made any misrepresentation that is attributable to neglect, carelessness or wilful default”: Act, s 152(4)(a)(i). The onus is on the Minister to prove that the taxpayer’s misrepresentation was attributable to neglect, carelessness or wilful default. See e.g. Wachsmann v The Queen, 2009 TCC 420 at para 8. A misrepresentation alone does not satisfy this onus. See Boucher v Canada, 2004 FCA 46 at para 5. The Respondent accepts that it is common for CRA to reassess taxpayers based on new information provided by third parties but emphasizes that the Applicant has chosen to audit her rather than reassess. She says that the decision to reassess based on the information in the Falciani List indicates that the predominant purpose of the audit is not civil tax compliance.

[39]  The Respondent also notes that the CRA waited over five years after receiving the information in the Falciani List before it began to audit her. She submits that if the predominant purpose of the audit was regulatory compliance, the audit would be limited by the normal three-year assessment period. The CRA’s willingness to wait five years indicates that the CRA is confident that it will be able to establish the elements of misrepresentation or tax evasion and be able to go beyond the normal assessment period. The Respondent also points out that s 230(4) of the Act only requires taxpayers to retain books and records for six years. She says that the Applicant’s request for information beyond this six year requirement indicates that the predominant purpose of the audit is not regulatory.

[40]  The Respondent also submits that a case from the Ontario Court of Justice, R v Borg, 2007 ONCJ 451 [Borg], shows that the Auditor’s statement that the audit’s purpose is not criminal investigatory is not sufficient to show that the predominant purpose of the audit is regulatory. In Borg, Justice F.L. Forsyth excluded evidence obtained in the course of a CRA audit from the accused’s criminal tax evasion trial. Justice Forsyth rejected the CRA Auditor’s assertion that the purpose of the audit was civil tax compliance in part because the Auditor was initially suspicious that the defendant’s business was in an industry rife with tax fraud and because the Auditor continued the audit to gather evidence of criminal intent. See Borg, above, at paras 119 and 207. The Respondent says that this is analogous to the present application because the Auditor became suspicious because the Respondent’s name appeared on the Falciani List. She also says that the information the Auditor has of her financial affairs would allow the Auditor to complete a tax reassessment, so the purpose of the audit must be to gather evidence for a criminal prosecution.

[41]  The Respondent submits that since the predominant purpose of the audit is criminal investigation her Charter rights to silence, to security against unreasonable search and seizure, and not to self-incriminate are all engaged and the Applicant’s application for a compliance order must be dismissed. See Charter, ss 8, 11(c) and 13.

(2)  Scope of the Compliance Order

[42]  Should the Court grant the Applicant’s request for a compliance order, the Respondent submits that the order should be limited to the provision of books and documents dated January 1, 2009 and afterwards. Since s 230(4) of the Act only requires a taxpayer to retain books and records for six years, she says that any compliance order should not extend beyond the statutory requirement to keep records.

(3)  Remedy

[43]  In addition to requesting that the Applicant’s application for a compliance order be dismissed, the Respondent also requests that this Court:

1. Declare that the predominant purpose of the audit is a criminal investigation;

2. Declare that the request letters issued by the CRA, dated November 2, 2015, December 23, 2015, and February 17, 2016 are void as they violate the Respondent’s Charter rights; and

3. Prohibit the CRA and the Applicant from using or continuing to use information and documents that the Respondent produced at her February 9, 2011 meeting with the Auditor.

VI.  ANALYSIS

[44]  The Respondent asserts – through counsel – that the Applicant is playing a “long, twisting, waiting game in order to get the Respondent to self-incriminate” in breach of her Charter rights. Hence, in order to justify why she does not have to comply with the s 231.1(1) request letters and produce all of her bank account information for the audit period, the Respondent has raised a number of grounds that I will deal with in turn.

A.  Predominant Purpose

[45]  The Respondent says that the CRA has issued the request letters pursuant to s 231.1(1) of the Act in order to gather books and records for the predominant purpose of a criminal investigation and prosecution, and not for the income tax compliance audit to which the requests are ostensibly related.

[46]  Relying upon the Supreme Court of Canada decision in Jarvis, above, and the Federal Court of Appeal decision in Kligman, above, the Respondent argues as follows:

47.  The statutory powers vested in the CRA to administer the Act are very broad to ensure the compliance with the Act. However, the Supreme Court of Canada stated in R. v. Jarvis that:

“Ultimately, we conclude that compliance audits and tax evasion investigations must be treated differently. While taxpayers are statutorily bound to co-operate with CCRA auditors for tax assessment purposes (which may result in the application of regulatory penalties), there is an adversarial relationship that crystallizes between the taxpayer and the tax officials when the predominant purpose of an official’s inquiry is the determination of penal liability. When the officials exercise this authority, constitutional protections against self-incrimination prohibit CCRA officials who are investigating ITA offences from having recourse to the powerful inspection and requirement tools in ss. 231.1(1) and 231.2(1). Rather, CCRA officials who exercise the authority to conduct such investigations must seek search warrants in furtherance of their investigation.” [Emphasis and underlying [sic] added]

48.  Consequently, if the predominant purpose of the Minister’s audit of the Respondent is criminal in substance, the audit constitutes a criminal investigation and therefore, violates the Respondent’s fundamental rights as laid out in the Charter.

49.  In order to determine whether the CRA’s audit has been indicative of a criminal investigation rather than of a civil audit in nature, the Supreme Court of Canada in Jarvis has set out a non-exhaustive list of factors to be used for determining the predominant purpose of the inquiry. The non-exhaustive factors are:

a.  Did authorities have reasonable grounds to lay charges or could a decision have been made to proceed with a criminal investigation?

b.  Was the general conduct of the authorities consistent with a criminal investigation?

c.  Did the auditor transfer his or her file to the investigators?

d.  Was the auditor’s conduct such that he or she was acting as an agent for the investigators?

e.  Does it appear that the investigators intended to use the auditor as their agent?

f.  Is the evidence relevant to taxpayer liability generally or only to penal liability?

g.  Do other circumstances or factors suggest that an audit became a criminal investigation?

...

52.  Given the facts surrounding this application, the Minister has reasonably thought that the Respondent has committed a criminal offence such as a tax evasion or tax fraud and therefore it is likely that the CRA has began [sic] investigating the Respondent criminally.

[47]  The Respondent has no direct evidence to support this position and seeks to convince the Court, on the basis of several circumstantial factors that, when considered cumulatively, lead to the inevitable conclusion that “it is likely that the CRA has began [sic] investigating the Respondent criminally.” However, all of the direct evidence on file – the affidavit of Mr. Lloyd MacElheron, the Auditor with the Offshore Compliance Audit Division who made the requests for information, and his rigorous cross-examination by the Respondent’s counsel – is crystal clear that the audit is a legitimate exercise of s 231.1(1) of the Act and has nothing to do with any contemplated criminal investigation and the Respondent’s Charter rights. The Respondent does not question the Auditor’s integrity. Her position is that there is likely a criminal investigation going on behind the scenes of which the Auditor has no knowledge.

[48]  In her attempt to convince the Court that, notwithstanding the Auditor’s clear evidence, she is nevertheless more likely than not the target of a clandestine criminal investigation, the Respondent asks the Court to consider the following factors:

• (a) It is public knowledge that the previous and current Canadian governments have expressed a strong intent to prosecute tax fraud and evasion, and have specifically referred to Canadians who are using secret Swiss bank accounts to avoid paying taxes;

• (b) The HSBC List of Canadians with Swiss bank accounts obtained by Canada from the French authorities was the reason the Auditor selected the Respondent for an audit;

• (c) The fact that the CRA is auditing the Respondent’s tax years of 2006 through 2014, nine years beyond the standard audit policy applicable to individuals and small businesses, further corroborates the predominant purpose of the audit, that is, to criminally investigate the Respondent;

• (d) The fact that the CRA has decided to reassess the Respondent based on the information in the HSBC List indicates that the predominant purpose of the audit is not a regulatory compliance;

• (e) If the predominant purpose of the audit were a regulatory compliance, the CRA would be limited by the three-year normal reassessment limitation period and the audit would have commenced immediately or shortly after the CRA received the HSBC List, in order for the CRA to not be limited by the three-year normal reassessment limitation period. The fact that the CRA waited for five and a half years before auditing the Respondent indicates that, after receiving the HSBC list, the CRA knew that it would be able to go beyond the normal reassessment period. More specifically, the CRA waited so long because the CRA reasonably thought that the elements of misrepresentation or tax evasion, allowing the CRA to go beyond the normal reassessment period, have occurred and that waiting for five and a half years before auditing the Respondent will not limit the CRA’s ability to reassess the Respondent in any taxation year. In summary, the CRA’s lengthy postponement further corroborates the proposition that the predominant purpose of the audit is to criminally investigate the Respondent;

• (f) The Act provides for a six-year limitation period for the conservation of books and records at s 230(4). The Act specifically provides that taxpayers must keep “records and books of account... until the expiration of six years from the end of the last taxation year to which the records and books of account relate.” Taxpayers are obligated to keep books and records only for a six-year period preceding the current tax-year end. The CRA requested information and books and records from the Respondent beyond the six-year mandate requiring the Respondent to keep books and records. The fact that the Auditor is seeking documents beyond the six-year limitation period is indicative that the Minister may have a predominant purpose other than to conduct a regulatory audit; and

• (g) By analogy, the Auditor has likely become suspicious of the Respondent’s tax affairs because of the presence of the Respondent’s name on the infamous HSBC List. Furthermore, the extreme detail of the Auditor’s knowledge of some of the Respondent’s financial affairs, including her condominium in New York and her bank accounts with HSBC, Santander Bank and her holdings in the United Kingdom indicates that the Auditor has already accumulated enough information to reassess the Respondent, but, instead, the Auditor chose to continue the audit to pursue a fishing expedition to gather evidence for a criminal prosecution.

[49]  All of the Respondent’s speculation about delay, the true intent of the Auditor’s actions, and what may have been in the Auditor’s mind, have either been specifically addressed by the Auditor in his affidavit and his cross-examination by Respondent’s counsel, or were not put to him and so cannot be relied upon here. So the Court has direct evidence on these points that refutes the mere speculations of the Respondent. Respondent’s counsel has made it clear that the Auditor’s integrity is not in question. The suggestion is that the Auditor does not know what is really taking place. Yet many of these speculative factors (e.g. why the delay, or why has the Respondent not been reassessed) are clearly and convincingly addressed by the Auditor in his evidence. But the Respondent continues to ask the Court to accept her subjective speculations over clear and convincing direct evidence. The Court cannot, of course, do this.

[50]  As for the general climate and concerns about the use of offshore (including Swiss) bank accounts to avoid tax liability and prosecution of offenders to the full extent of the law, there is no suggestion in the evidence that the Respondent is regarded by the CRA as any kind of offender. 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. That is why the Auditor has requested information from the Respondent. 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, above.

[51]  On this issue, I do not see any material disagreement between the parties on the applicable principles. The disagreement occurs when the principles are applied to the facts of this case and, in particular, what the evidence tells us. The law is clear that a civil tax compliance audit is not a criminal process, but is an administrative one which does not immediately engage the Charter. See e.g. Stanfield, above, at para 35.

[52]  Also, as the Applicant points out, the state of the law concerning the Minister’s use of s 231.1(1) of the Act to obtain information and documents and an individual’s Charter rights is well settled. The Supreme Court of Canada decisions in Jarvis and R v Ling, 2002 SCC 74, have comprehensively and authoritatively ruled concerning situations where the Minister utilizes ss 231.1(1) or 231.2(1) of the Act to demand from a taxpayer, or any person, information and documents, and the question of when an individual’s Charter rights may become engaged.

[53]  Jarvis held that where the “predominant purpose” of the Minister’s information and document demands were for civil audit purposes to determine tax liability, an individual’s s 7 Charter rights are neither applicable nor engaged. However, where the “predominant purpose” of the Minister’s information and document demands are for the investigation of penal liability, then an individual’s s 7 Charter rights are engaged. Jarvis holds that when the predominant purpose of inquiries are penal, only at that point are the individual and Minister in an adversarial relationship which attracts Charter scrutiny and protection. Jarvis is clear that an individual and the Minister are not in an adversarial relationship in the circumstances of a civil income tax compliance audit.

[54]  Only when the predominant purpose of the Minister’s inquiries are to determine penal liability do ss 7 and 8 of the Charter preclude the Minister from using s 231.1(1) of the Act. Conversely, when the predominant purpose of the Minister’s inquiry is the determination of civil tax liability, the Minister is not precluded from using requirement powers and the taxpayer is not able to invoke the Charter as a basis to refuse to produce information and documents sought by way of a requirement.

[55]  It is also 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, above, at paras 89 and 90.

[56]  As both parties point out, Jarvis sets out a multi-factored test to be used to ascertain whether the predominant purpose of the Minister’s inquiry is for a civil audit to determine tax liability or whether the predominant purpose of the Minister’s inquiries is investigatory to determine penal liability, or at what point an audit may turn into an investigation. No one factor of the “predominant purpose” test is determinative. A reviewing court must look at the totality of the circumstances at the time requests under s 231.1(1) of the Act are used by the Minister. The factors the Supreme Court of Canada identified in the “predominant purpose” test are set out by both parties in their written submissions:

(a)  Did the authorities have reasonable grounds to lay charges? Does it appear from the record that a decision to proceed with a criminal investigation could have been made?

(b)  Was the general conduct of the authorities such that it was consistent with the pursuit of a criminal investigation?

(c)  Had the auditor transferred his or her files and materials to the investigators?

(d)  Was the conduct of the auditor such that he or she was effectively acting as an agent for the investigators?

(e)  Does it appear that the investigators intended to use the auditor as their agent in the collection of evidence?

(f)  Is the evidence sought relevant to taxpayer liability generally? Or, as is the case with evidence as to the taxpayer’s mens rea, is the evidence relevant only to the taxpayer’s penal liability?

(g)  Are there any other circumstances or factors that can lead the trial judge to the conclusion that the compliance audit had in reality become a criminal investigation?

[Emphasis in original.]

[57]  There is no disagreement between the parties on the applicability of the Jarvis test to this case. The Respondent simply says that, when the Jarvis factors are applied to the facts of this case, the “predominant purpose” of the s 231.1(1) requests is to determine penal liability. I cannot agree. The Respondent has provided the Court with little more than her subjective fears and speculative theories to offset the clear evidence that the predominant purpose of the s 231.1(1) requests in this case are nothing more than a civil audit. With one exception, noted below, I am left with no alternative but to accept the Applicant’s answers to the Jarvis test:

a)  This factor does not apply as no criminal charges have been laid against the Respondent.

b)  No - the evidence before the Court is that the Minister is conducting a civil income tax compliance audit. The information and documents being sought under the authority of the ss. 231.l(1) of the Act are for the purpose of verifying tax liability under the Act.

c)  No - the evidence before the Court is that the auditor has not made any referral or transfer of this matter to investigators or personnel at the CRA Criminal Investigations Directorate. The Applicant’s affiant, Mr. MacElheron is an auditor in the CRA offshore compliance audit division. He does not conduct criminal investigations as part of his duties.

d)  No - the evidence of the auditor is that the auditor has had no contact with CRA investigators. There is no evidence whatsoever to indicate that a criminal investigation was being conducted under the guise of an audit, or that the conduct of the auditor was on behalf of or at the behest of CRA investigators.

e)  No - the evidence of the auditor is that he has had no contact with investigators. There is no evidence to indicate that the conduct of the auditor was initiated on behalf of CRA investigators or any other prosecutorial or police authority. The CRA was not utilizing this auditor or the CRA’s information gathering powers to gather evidence for penal investigation purposes.

f)  The books and records sought relate directly to a determination of income tax payable under the Act. It cannot be said that the records sought relate only to criminal liability and not to liability for income tax under the Act. None of the information and document demands contained in the ss. 231.1(1) requests are relevant evidence only for proving penal liability.

g)  No - There are no other circumstances, factors or evidence other than bare assertions, reference to articles in the media, speculative inferences and accusations which would lend credibility to the Respondent’s position that the CRA auditor has deliberately misled the Respondent about his intentions and was actually conducting a de facto criminal investigation of the Respondent. The CRA auditor repeatedly informed the Respondent that an income tax compliance audit was being conducted, and the request letters issued pursuant to ss. 231.1(1) of the Act were issued for the purpose of conducting an income tax compliance audit.

[58]  With regard to the first Jarvis factor, the Applicant’s position cannot be the complete answer. As the Federal Court of Appeal pointed out in Kligman, above, at para 29, “[f]actor (a) addresses two different issues that may arise at different times in the process.” In paragraph 31 of Kligman, above, Justice Létourneau went on to observe that, when looking at the second question in factor (a), “it is important to look at the record to see if it appears ‘that a decision to proceed with a criminal investigation could have been made’ [and noted] that the test is cast in terms of a mere possibility as opposed to a probability” (emphasis in original). Here, the Auditor has candidly admitted that the Respondent’s name was obtained from the Falciani List. Indeed, the February 17, 2016 request letter sent to the Respondent lists her HSBC Profile Name, Customer Profile Code and five account numbers. 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. So this factor must weigh moderately in the Respondent’s favour. The Supreme Court has made clear, however, that “[a]part from a clear decision to pursue a criminal investigation, no one factor is necessarily determinative in and of itself.” See Jarvis, above, at para 93. Assessing the totality of the circumstances, and considering that the other Jarvis factors all weigh in the Applicant’s favour, 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.

[59]  In Ellingson, above, the Federal Court of Appeal has made it clear that the Jarvis test must be based upon evidence, and cannot be based upon the subjective suspicions of the taxpayer involved. In the present case, the Respondent offers little more than her subjective and speculative suspicions that the predominant purpose of the s 231.1(1) requests is, as her counsel put it at the hearing of this matter, to get the Respondent to self-incriminate. There is, in fact, no evidence that a penal investigation has commenced, or is even contemplated.

B.  Use of the Falciani or HSBC List

[60]  As the Respondent points out, the Auditor confirmed that the CRA received information from the government of France in May 2010, pursuant to Article 26 of the Treaty, and that the Respondent was on a list of HSBC clients. It is not clear how the French authorities acquired this list, but it seems to be accepted that it originated from a former employee of Swiss HSBC.

[61]  The Respondent says that the CRA does not have the right to use any of this information obtained from French authorities because such information is stolen data.

[62]  There is no clear evidence that the French authorities acquired this list illegally, and Canada certainly did not. As the Applicant points out, it is clear that the Charter only applies to Canadian state actors. See Charter, s 32(1). It is also clear that the Charter does not apply to information gathered extraterritorially where the authorities or source of the information were not acting on behalf of the Government of Canada. See Harrer, above, at para 12. The Respondent does not appear to assert that her Charter rights apply extraterritorially. Her position, as elaborated in written submissions, is as follows:

36.  The Respondent believes that the list of names, and other information about Canadians with funds in the HSBC bank in Switzerland, transmitted by the French authorities to the CRA, or a portion of them, is derived from the Stolen Data.

37.  Furthermore, the Respondent believes that when the CRA requested, and obtained the list of names in the possession of the French tax authority and information related to them, the CRA knew or should have known that this information constituted primarily Stolen Data.

38.  French courts have held that Stolen Data could not be used by the French tax authorities against their own citizens in the process of tax audits.

...

57.  It is a known fact that Falciani, a former employee of a Swiss HSBC bank, stole a list of HSBC clients (the “HSBC List”) and the HSBC List somehow made its way to the French tax authority.

58.  The Auditor has confirmed that the CRA received information from the Government of France in May 2010, pursuant to Article 26 of the Treaty[.]

59.  The CRA should not have the right to use any of the information obtained from the French tax authorities [from] Falciani’s residence as these consisted primarily of the Stolen Data which the French tax authorities obtained in contravention of local law.

[63]  Notwithstanding these bald assertions by the Respondent, we have clear Canadian jurisprudence directly on point that addresses these issues and, in my view, the Respondent has not distinguished her situation in any way, or raised any legal argument, that would allow me to disregard these authorities in the present case.

[64]  The issues raised by the Applicant on this point were addressed by the Quebec Superior Court in Berger CS, above, and confirmed on appeal by the Quebec Court of Appeal. See Berger CA, above. The Quebec Court of Appeal affirmed the Quebec Superior Court’s decision that Mr. Berger’s rights under ss 7 and 8 of the Charter were not violated by the ARQ relying on the same HSBC List as was relied on in the present case. Incidentally, applying Jarvis, above and McKinlay, above, the Quebec Court of Appeal also affirmed that there was no basis for Mr. Berger’s assertions that the information demanded of Mr. Berger relying upon that list was part of a penal investigation or that his Charter rights were violated by the ARQ’s demand for information.

C.  Scope of Compliance Order

[65]  The Respondent asserts that any compliance order should be limited to the provision of books and documents dated January 1, 2009 and afterwards. Once again, however, the jurisprudence is clear that there is no time limit on requests for records beyond the s 230(4) retention period. See Plachcinski, Kitsch, and, 1144020 Ontario Ltd, all above.

D.  Conclusions

[66]  The Applicant has established the requirements for issuing a compliance order pursuant to s 231.7 of the Act. The Respondent has not established before me that she has any right or reason to resist and refuse to comply with the s 231.1(1) requests for information that are at issue in this case. Consequently, the application is allowed and the Minister is entitled to the relief requested.

ORDER IN T-1888-16

THIS COURT ORDERS that

1. The application is allowed.

2. Within 45 days of the date of this Order, the Respondent shall provide to the Minister all books, records and information as set out in the demand letters dated November 2, 2015 (including fully completing the questionnaire attached thereto), December 23, 2015 and February 17, 2016 as attached hereto as Schedule “A”.

“James Russell”

Schedule “A”

 

 

 

 

 

FEDERAL COURT

SOLICITORS OF RECORD

DOCKET:	T-1888-16
STYLE OF CAUSE:	MINISTER OF NATIONAL REVENUE V BILJANA STANKOVIC
PLACE OF HEARING:	Toronto, Ontario
DATE OF HEARING:	April 12, 2018
ORDER AND REASONS:	RUSSELL J.
DATED:	April 30, 2018

APPEARANCES:

Jack Warren Cédric Renaud-Lafrance	For The Applicant
Nathaniel Hills	For The Respondent

SOLICITORS OF RECORD:

Attorney General of Canada Toronto, Ontario	For The Applicant
Rotfleisch & Samulovitch Professional Corporation Toronto, Ontario	For The Respondent