506913 N.B. Ltd. v. The Queen – Tax Court Holds GST Auditors did not Violate the Jarvis Rule

Bill Innes on Current Tax Cases

http://decision.tcc-cci.gc.ca/en/2013/2013tcc209/2013tcc209.html New Window

506913 N.B. Ltd. v. The Queen[1] (June 24, 2013) is a decision on a motion to exclude evidence assembled by CRA during a GST audit on the basis that the preponderant purpose of the audit was to investigate the criminal liability of the taxpapers.[2]  A second prong of the motion was to exclude evidence obtained through criminal search warrants.  The court summarized the motion as follows:

[2]            It appears that the Appellants are asking the Court to exclude all evidence gathered by the CRA during its audits and investigations of them. The specific documents include all the documents listed in Schedule A of the Respondent’s List of Documents (Partial Disclosure) and nearly all of the documents contained in the disclosure list for a criminal trial involving the Appellants. The Notice of Motion also refers to documents obtained by RCMP officers.

[3]            In Part II of their Brief on Motion, the Appellants state that the issues to be addressed by the Court are as follows:

1.                 Whether the Appellants have suffered a breach of their section 8 Charter of Rights and Freedoms (“the Charter”) rights in the circumstances and, in particular, whether the Minister’s agents, auditors and investigators improperly conducted a criminal investigation under the guise of an exercise of audit powers.

2.                 Whether the searches and seizures of documents and records that were carried out under judicial authorizations by the Minister’s auditors, investigators and RCMP officers were illegal and therefore contrary to section 8 of the Charter because they were based on illegally obtained evidence as set out in the Brief on Motion, thus entitling the Appellants to an Order excluding the evidence under subsection 24(2) of the Charter.

The decision is very lengthy (122 paragraphs) and the reader will likely not benefit much from a very detailed review of the facts.  The gist of the matter is that two GST auditors based in Moncton, New Brunswick testified that they had no inkling of criminal activity until late in 2000.  In October of 2000 the SI Group of the Saint John, New Brunswick office of CRA commenced a criminal investigation of the taxpayers.  The GST auditor in charge of the file continued his audit after being advised of the criminal investigation but the court held he did not do so as an agent of the SI Group in Saint John.  The two offices pursued their parallel investigations until early 2001 when the GST auditors from Moncton turned their files over to the SI Group in Saint John.  The Tax Court concluded that Jarvis permitted this type of parallel investigation:

[105]   On the basis of the evidence before me, I have concluded that Mr. Boudreau’s activities between October 25, 2000 and February 16, 2001 constituted an administrative audit that he conducted at the same time as the SI Group was conducting its criminal investigation. The SCC in Jarvis recognized the legitimacy of such parallel inquiries as follows:

The predominant purpose test does not thereby prevent the CCRA from conducting parallel criminal investigations and administrative audits.  The fact that the CCRA is investigating a taxpayer’s penal liability, does not preclude the possibility of a simultaneous investigation, the predominant purpose of which is a determination of the same taxpayer’s tax liability. . . .[76]

[106]   In the present appeal, there is no section 8 Charter breach as a result of the parallel inquiries. The predominant purpose of Mr. Boudreau’s inquiry during the aforementioned period did not change: it was to determine 506913’s tax liability under the GST Act.

The taxpayers’ attack on the evidence obtained with criminal warrants was also dismissed, but on the basis of the collateral attack rule:

[120]   It is clear from the facts before me that the search warrants issued by the judge of the Provincial Court of New Brunswick were orders. The challenging of these orders in this Court is a collateral attack. Under the doctrine of collateral attack, the Appellants can only challenge these orders in the New Brunswick courts. It is not for this Court to quash the warrants or decide that the New Brunswick courts did not have jurisdiction to issue them.

[121]   Counsel for the Appellant also argued that if I do not quash the warrants or decide that the New Brunswick courts did not have jurisdiction to issue the warrants, then I should still exclude the evidence obtained in the course of executing the warrants on the basis that the Appellants’ rights under section 8 of the Charter were infringed. This point is moot since I have found that the actions of the CRA officials did not constitute a breach of section 8 of the Charter.

[122]   For the foregoing reasons the Appellants’ motion is dismissed with costs to the Respondent.

This decision is an interesting example of the type of factual and legal analysis that is necessary in dealing with a Jarvis argument.  It also makes a useful companion case to the Klundert decision which was blogged earlier this week.

[1] 2013 TCC 209, heard on common evidence with Cambridge Leasing Ltd. v. The Queen.

[2] See:  R. v. Jarvis – 2002 SCC 73 – [2002] 3 S.C.R. 757 – 2002-11-21.