http://decision.tcc-cci.gc.ca/en/2013/2013tcc226/2013tcc226.html 
Terry Piersanti v. The Queen[1] (July 11, 2013) turned primarily on whether the decision of the Supreme Court of Canada in
Jarvis v. The Queen[2] could be used to block the introduction of documents in an appeal in the Tax Court.
The facts in this case are not complex:
[4] John Di Rito is a team leader in the Criminal Enforcement Division of the Canada Revenue Agency (“CRA”) and he has conducted criminal investigations with the CRA for 16 or 17 years.
[5] In 1999, Mr. Di Rito obtained a lead from the audit division of CRA that various corporations which owned shopping centres were not reporting the Goods and Services Tax (GST) which they collected from their commercial tenants. He prepared a preliminary report but in order to advance the case he needed the financial records of the corporations. On June 30, 1999 he sought a search warrant from a Justice of the Peace. It was declined. He then sought a search warrant from a Judge who granted his request.
[6] The search warrant was exercised on July 14, 1999 at the law office of Piersanti & Co. Among the documents seized were the records of various corporations which Mr. Di Rito thought were controlled by the Appellant and her spouse.
[7] The Appellant’s spouse made a claim of solicitor/client privilege on the seized documents and the documents were sealed. Apparently, there were numerous hearings over a period of years with respect to these sealed documents.
[8] After the privilege claim was made, to further the investigation, Mr. Di Rito began to use Requirements issued pursuant to section 289[3] of the Excise Tax Act (the “ETA”). He stated that he did not seek any information which he thought might be covered by solicitor/client privilege. He served the Requirements on various banks, credit card companies and real estate firms and he interviewed tenants of the shopping centres which were owned by the corporations. According to Mr. Di Rito, he served between 50 and 60 Requirements from October 1999 until July 2001.
Most of the Requirements were with respect to information concerning the corporations but some of the Requirements referenced the Appellant and/or her spouse.
[9] Mr. Di Rito relied on the documents he received from the Requirements to lay a total of 68 charges in the Superior Court of Justice against the Appellant, her spouse, Glenwoods Properties Inc., Hanlon Properties Inc., and Tottenham Properties Inc. All charges were laid under the ETA. Pursuant to an Agreed Statement of Fact dated February 22, 2005, the Appellant entered a guilty plea to 35 of the charges. These charges detailed offences that occurred from 1995 to 1998. The charges against the Appellant’s spouse were dropped and the charges against the corporations were stayed.
[10] Mr. Di Rito used the same documents which he received as a result of the Requirements to raise the income tax reassessments at issue in this appeal.
[Emphasis added]
The appellant argued that the introduction of the documents obtained under the Requirement violated her rights under sections 7 and 8 of the
Canadian Charter of Rights and Freedoms[4] and relied upon the Jarvis decision as well as the decision in
O’Neill Motors Limited v. R.[5] The Respondent’s argument was threefold:
1. Jarvis did not apply in civil tax proceedings;
2. The Requirements “were not used to gather documents respecting the Appellant but were used to gather documents with respect to the corporations she controlled” [para. 14]; and
3. The introduction of the documents would not bring the administration of justice into disrepute:
R. v. Grant.[6]
In addition to the submissions of the parties, the court asked for submissions on a recent decision of the Federal Court of Appeal:
[17] Prior to making my decision with respect to the motion, I asked both counsel for their submissions in light of the recent decision in
Romanuk v The Queen, 2013 FCA 133.
[18] Counsel for the Appellant referenced paragraph 6 in
Romanuk and reiterated that the “predominant purpose” of Mr. DiRito’s inquiry was criminal in nature. Therefore all information and documents were obtained without a search warrant and in violation of the Appellant’s rights under sections 7 and 8 of the
Charter. The documents obtained by the CRA through the use of the Requirements in the present case were not obtained for the purpose of administering the ITA but rather for the purpose of furthering a criminal prosecution for GST evasion. Counsel again submitted that the decision in O’Neill Motors (supra) is applicable considering the circumstances in this appeal.
[19] Counsel for the Respondent wrote that the Federal Court of Appeal decision in Romanuk affirmed that CRA could continue to use its civil audit powers even after it has begun a criminal investigation of the taxpayer. The results obtained from the use of the civil audit powers cannot be used in relation to a prosecution of the taxpayer but they can be used to raise a reassessment of the taxpayer.
The court dismissed the taxpayer’s motion to exclude the information obtained under the requirements:
[20] As of July 1999, the predominant purpose of Mr. Di Rito’s investigation was the determination of the Appellant’s penal liability under the ETA. The documents received as a result of the Requirements was in furtherance of that investigation. Such evidence may be excluded from the prosecution of an offence:
R v Ling, [2002] SCC 74 at paragraph 5. However, the issue before this court is the determination of the Appellant’s income tax liability not her penal liability. The question is whether the Appellant’s section 7 and 8 rights under the
Canadian Charter of Rights and Freedoms (the “Charter”) were violated when the documents obtained through the use of the Requirements were used to reassess the Appellant’s income tax liability.
[21] The CRA may conduct both an audit and an investigation concurrently. They are not mutually exclusive:
Ling (supra) at paragraph 30.
[22] The Supreme Court of Canada made a distinction between the procedures that had to be used when CRA officials were engaged in a criminal investigation rather than the verification of tax liability. They found that although an audit and an investigation could be conducted concurrently, the results of the audit could not be used in furtherance of the prosecution. However, the results of the audit can be used in relation to an administrative matter, such as a reassessment:
Romanuk v The Queen, 2013 FCA 133 at paragraph 7.
[23] It is my view that the Appellant’s rights under section 7 and 8 of the Charter are not violated by using the information from the Requirements to raise the reassessments at issue. In fact, the use of Requirements is one of the tools the CRA has to further an audit. Her section 7 and 8 rights may have been violated by using the information from the Requirements to prosecute her under the ETA but that would have been a question for the Superior Court of Justice to decide at the Appellant’s trial for GST evasion: Romanuk at paragraph 8. The Appellant chose not to raise that defence at the proceedings before the Superior Court of Justice.
[24] The Appellant relied on the decision in
O’Neill Motors to assert that the reassessments should be vacated. However,
O’Neill Motors is distinguishable from the present appeal. At the prosecution of
O’Neill Motors, the criminal court found that the documents relied on to lay the charges were illegally seized under section 231.3 of the ITA as that section had been found to be unconstitutional. It also found that the subsequent re-seizure of the documents under section 487 of the
Criminal Code was an abuse of process and a violation of O’Neill Motors’ rights under sections 7 and 8 of the
Charter. There was no such determination by the criminal court in the present matter. In addition, unlike the situation in
O’Neill Motors, the documents in the present appeal were not seized pursuant to an unconstitutional section of the ETA.
[25] It is the Appellant’s position that the CRA used an improper investigation tool to gather information to prosecute the Appellant. It is my view that this position should have been advanced before the criminal court where the Appellant’s penal liability was at issue. The only issue before this court is the Appellant’s income tax liability. I find that it was proper for the CRA to use the documents it received as a result of the Requirements to assess the Appellant’s income tax liability. In the context of our self-assessment and self-reporting income tax regime, a taxpayer’s privacy interest in records that may be relevant to his or her tax liability is relatively low:
R v McKinlay Transport Ltd, [1990] 1 SCR 627 at paragraph 38.
[26] In
Romanuk (supra), the taxpayer alleged that the CRA used its audit powers in subsection 231.1(1) of the ITA to obtain documents after it had commenced a criminal investigation. The taxpayer argued that the use of these audit powers by CRA violated her sections 7 and 8
Charter rights. Webb JA wrote:
[8] The use of such information or documents in administering the Act and reassessing the appellant does not violate her rights under either section 7 or 8 of the Charter because the CRA has the right to continue to use its audit powers provided that the information or documents are only used for the purposes of administering the Act. If the information or documents are to be used in an investigation or prosecution of an offence under section 239 of the Act, the issue for the particular court dealing with the prosecution of the offence under section 239 of the Act, will be whether the predominant purpose of the exercise of such powers was to gather information or documents for such investigation or prosecution.
…
[10] Even if the CRA were contemplating an investigation of the appellant before any requirement for information was made by the CRA, this does not suspend the right of the CRA to make such requests for information for the purposes of administering the Act using the inspection and audit powers as set out in subsections 231.1(1) and 231.2(1) of the Act. Any information or documents obtained using such powers could be used to reassess the appellant (including the assessment of penalties under subsection 162(1) and 163(2) of the Act). (emphasis added) Whether such information or documents could also be used for the purpose of an investigation of an offence under section 239 or the prosecution of such offence is not a matter for the Tax Court of Canada. The only issue before the Tax Court of Canada is the validity of the reassessment, i.e., whether the appellant’s claim in relation to the losses of the partnership that were allocated to her is correct and whether the assessment of the penalties under subsections 162(1) and 163(2) is correct.
In the result, the court dismissed the appeal since it concluded that the evidence supported the income tax assessments raised against the taxpayer.
Comment: This decision is troubling in that its seems to lead to the conclusion that the Jarvis principle can never be used to exclude material in the Tax Court (with the possible exception that material that has been excluded by a superior court in a criminal prosecution may be similarly excluded by the Tax Court, e.g., O’Neill Motors). There is no doubt that CRA can pursue parallel criminal and civil investigations against the same taxpayer so long as it does not use material obtained in the course of the civil audit to further the criminal proceedings. In Romanuk the Tax Court judge concluded as follows:[7]
[16] I have concluded from the material before me that the predominant purpose of the civil audit was to assess the Appellant’s civil tax liability. The Appellant has not alleged that she was the subject of a criminal investigation and she was never charged with an offence. The proposed amendments do not allege that penal liability was the predominant purpose of the audit.
The Federal Court of Appeal appears to have accepted this finding. In Piersanti there seems to have been no evidence of any parallel civil audit. On the facts set out in paragraphs 4 through 10 of the reasons for judgment all of the evidence gathered under the Requirements appears to have been intended for use in the ETA prosecution and the income tax assessments appear to have been issued after the conclusion of the prosecution, almost as an afterthought. The investigator, Mr. Di Rito had 16 or 17 years experience as a criminal investigator and nothing in the reasons for judgment suggests he had any role in civil audits. It would therefore seem that these facts disclose a prima facie case that to the extent the Requirements referred to the appellant (and, possibly, her spouse and companies controlled by her), the information obtained would have been excluded by a superior court as violating sections 7 and 8 of the Charter, but for the plea bargain. Does the fact that there was no decision by a superior court on the admissibility of such material mean that the Tax Court lacks jurisdiction to rule on the question? Certainly if a superior court had ruled the material either admissible or inadmissible because of a Charter breach the Tax Court would be precluded from challenging that finding as a result of the collateral attack rule. Where there was no finding by a superior court does it further the interests of justice to permit such material to be introduced in the Tax Court where the evidence is clear that the material was obtained in violation of a taxpayer’s Charter rights unrelated to any pending civil audit?
The Piersanti decision raises a number of complex issues that would benefit from a review on appeal.
[1] 2013 TCC 226.
[2] 2002 SCC 73.
[3] Subsection 289(1) of the ETA corresponds with subsection 231.2(1) of the
Income Tax Act which was discussed in Jarvis:
289. (1) Despite any other provision of this Part, the Minister may, subject to subsection (2), for any purpose related to the administration or enforcement of a listed international agreement or this Part, including the collection of any amount payable or remittable under this Part by any person, by notice served personally or by registered or certified mail, require that any person provide the Minister, within any reasonable time that is stipulated in the notice, with
(a) any information or additional information, including a return under this Part; or
(b) any document.
[4] Life, liberty and security of person
7. Everyone has the right to life, liberty and security of the person and the right not to be deprived thereof except in accordance with the principles of fundamental justice.
Search or seizure
8. Everyone has the right to be secure against unreasonable search or seizure.
[5] [1996] 1 CTC 2714 (TCC); affirmed [1998] 3 CTC 385 (FCA).
[6] 2009 SCC 32.
[7] 2012 TCC 58.