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Appeal Court Dicta

Federal Tax - Audits

. Miller v. Canada (National Revenue)

In Miller v. Canada (National Revenue) (Fed CA, 2022) the Federal Court of Appeal sets out basic information-gathering duties of taxpayers, and the information-gathering rights of the Minister of National Revenue, both under the Income Tax Act:
[6] The ITA establishes a system for the collection of income tax in this country based on self-reporting by taxpayers. As noted by the Supreme Court of Canada in R. v. McKinlay Transport Ltd., 1990 CanLII 137 (SCC), [1990] 1 S.C.R. 627 at 637, 90 D.T.C. 6243 [McKinlay Transport], it would be naïve to think that all taxpayers will properly self-report and pay the taxes they owe. In recognition of this reality, the ITA contains a broad suite of enforcement mechanisms.

[7] The first of these measures relevant to this appeal is set out in subsection 230(1) of the ITA. It requires taxpayers to maintain books and records in Canada containing the information required to determine the amount of taxes payable by them and provides as follows:
"230 (1) Every person carrying on business and every person who is required, by or pursuant to this Act, to pay or collect taxes or other amounts shall keep records and books of account (including an annual inventory kept in prescribed manner) at the person’s place of business or residence in Canada or at such other place as may be designated by the Minister, in such form and containing such information as will enable the taxes payable under this Act or the taxes or other amounts that should have been deducted, withheld or collected to be determined. "

"230 (1)"" Quiconque exploite une entreprise et quiconque est obligé, par ou selon la présente loi, de payer ou de percevoir des impôts ou autres montants doit tenir des registres et des livres de comptes (y compris un inventaire annuel, selon les modalités réglementaires) à son lieu d’affaires ou de résidence au Canada ou à tout autre lieu que le ministre peut désigner, dans la forme et renfermant les renseignements qui permettent d’établir le montant des impôts payables en vertu de la présente loi, ou des impôts ou autres sommes qui auraient dû être déduites, retenues ou perçues. "
[8] Sections 230 to 232 of the ITA set out the authority of the Minister of National Revenue (the Minister) to conduct audits, require production of information and documents, and obtain compliance orders. In general terms, these provisions allow either the Minister (in practice, through a delegate) or those authorized to act on the Minister’s behalf to audit taxpayers, request documents and information from taxpayers or third parties, and, if the information or documents are not forthcoming, allow the Minister to seek a compliance order from a superior court in a province or from the Federal Court. Section 231.6 of the ITA contains specific provisions relating to obtaining documents located outside of Canada, and section 232 of the ITA relates to certain matters concerning documents held by lawyers in respect of which claims for solicitor-client privilege pertain.
. Zeifmans LLP v. Canada

In Zeifmans LLP v. Canada (Fed CA, 2022) the Federal Court of Appeal considered whether prior judicial authorization is required for an administrative requirement that an accounting firm disclose client information to the Minister of National Revenue [Income Tax Act, s.231.2]. The case is brief.

. Levett v. Canada (Attorney General)

In Levett v. Canada (Attorney General) (Fed CA, 2022) the Federal Court of Appeal considered a unsuccessful challenge to 'RFIs' (Requests for Information) directed issued by the CRA to the Swiss tax authorities under a tax treaty.

. Iris Technologies Inc. v. Canada (National Revenue)

In Iris Technologies Inc. v. Canada (National Revenue) (Fed CA, 2020) the Federal Court of Appeal considered the withholding of HST/GST refunds pending audits. The taxpayer sought an interim mandatory injunction to release the funds, in the light of this statutory provision:
229 (1) Where a net tax refund payable to a person is claimed in a return filed under this Division by the person, the Minister shall pay the refund to the person with all due dispatch after the return is filed.
[14] Turning to the merits of the motion, the motions judge noted that in order to succeed in obtaining mandatory interim relief—which is akin to the granting of a mandatory injunction—the appellant would first have to show that it had a strong prima facie case in its underlying judicial review application (RJR-MacDonald Inc. v. Canada (Attorney General), 1994 CanLII 117 (SCC), [1994] 1 S.C.R. 311, 111 D.L.R. (4th) 385; R. v. Canadian Broadcasting Corp., 2018 SCC 5 at paras. 15, 17-18, [2018] 1 S.C.R. 196). To answer this question, the motions judge considered whether the appellant had a strong case in light of the language of subsection 229(1) of the ETA and the test for mandamus stated in Apotex Inc. v. Canada (Attorney General) (1993), 1993 CanLII 3004 (FCA), [1994] 1 F.C. 742, 69 F.T.R. 152 (C.A.).


Did the Federal Court err in dismissing the appellant’s motion for interim relief?

[34] Where a mandatory interlocutory injunction is sought, a court is required to assess whether the applicant has shown a strong prima facie case, not merely that there is a serious issue for trial that is neither frivolous nor vexatious (Canadian Broadcasting Corp. at paras. 15, 18).

[35] In this case, the question is whether the appellant has a strong prima facie case in its underlying application for mandamus to compel the Minister to assess its GST/HST returns for the monthly reporting periods starting September 1, 2019 and ending February 29, 2020, and to pay refunds for those and any subsequent periods until the conclusion of the Minister’s audit. This, in turn, engages the test for granting an order of mandamus, as set out in Apotex.

[36] There is no dispute that the first two steps of the Apotex test are met. Subsection 229(1) of the ETA creates a public legal duty to act, and the Minister owes that duty to the appellant. The focus of the inquiry before this Court is whether the interpretation of subsection 229(1) requires that a refund be paid before an assessment or audit is completed. The answer to this question bears directly on the assessment of the third step of the mandamus test: whether the appellant has a clear right to the performance of the Minister’s duty under subsection 229(1) of the ETA.

[37] I agree with the motions judge’s conclusion that the appellant failed to show a strong prima facie case. Subsection 229(1) of the ETA imposes a legal duty to assess the appellant’s returns. Although the assessments for three returns were outstanding at the time the motion was heard, the motions judge found that the Minister "“is entitled to a reasonable amount of time in which to assess these returns”" (at para. 56). The appellant’s application for mandamus was therefore premature. While the question is more accurately framed as whether the Minister has assessed the claim ""with all due dispatch"" as opposed to ""a reasonable amount of time"", I am not convinced that the motions judge's determination in this regard constitutes a reviewable error.

[38] This Court has the benefit of the Federal Court’s reasons in Express Gold Refining Ltd. v. Canada (National Revenue), 2020 FC 614, rendered May 12, 2020, subsequent to the decision of the motions judge. In Express Gold the Federal Court was required to answer the question now before us in the context of an application to compel the payment of a net tax refund "“with all due dispatch”" as required by subsection 229(1) and before an audit was completed. I have read the reasons in Express Gold and agree with the Federal Court’s analysis. I add that Express Gold was argued before us.

[39] There is no doubt that subsection 229(1) establishes a public duty on the Minister to assess, and to pay a refund when a refund is found to be payable (Nautica Motors Inc. v. Canada (Minister of National Revenue), 2002 FCT 422 at paras. 45, 47, 218 F.T.R. 296). The text of subsection 229(1) is clear and unambiguous. Subsection 229(1) requires that "“[w]here a net tax refund payable […] is claimed in a return […] the Minister shall pay the refund […] with all due dispatch after the return is filed.”" The French version is equally clear: "“Le Ministre verse avec diligence le remboursement […].”" The issue before the Federal Court in Express Gold, and before this Court, is whether the scope of that duty extends to include a requirement that the Minster pay a refund before any assessment is completed.

[40] The Federal Court approached this question in light of the governing principle that the relevant provisions are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme and object of the act and the intention of Parliament (Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54 at para. 10, [2005] 2 S.C.R. 601). As noted by the Federal Court, subsection 229(3) is part of the contextual interpretation. This subsection provides that interest is to be paid on a net refund after a thirty-day period following filing, indicating that Parliament contemplated some refunds would not be paid immediately (Express Gold at para. 53).

[41] Following a thorough analysis of the text, context, and purpose of subsection 229(1), the Federal Court in Express Gold concluded that the obligation to pay a refund with all due dispatch did not displace the Minister’s obligation to verify that the refund is in fact payable under the ETA. This conclusion is dispositive of the question whether the appellant has a clear right to an order compelling the payment of the refunds.


[43] I agree with the Federal Court’s conclusion that when interpreted harmoniously with other relevant provisions and the scheme of the ETA, "“[s]ubsection 229(1) imposes an obligation to pay a net tax refund, if one is found to be owing, with all due dispatch. Subsection 296(1) confirms that the Minister can assess a claim for a net tax refund. This does not displace the requirement that any refund found to be owing must be paid without delay”" (Express Gold at para. 58).

[44] I am not persuaded that the Minister’s duty under subsection 229(1) to pay refunds "“with all due dispatch”" prevents the assessment of refunds prior to payment. Overlooked in the appellant’s argument is the word "“payable”" in subsection 229(1). Not any and all refunds are to be paid. Only refunds that are "“payable”" under the ETA are required to be paid. This in turn means that the obligation to pay refunds is necessarily conditioned by the Minister’s obligation under section 275 of the ETA to confirm that they are in fact owing (Canada Revenue Agency v. Tele-Mobile Company Partnership, 2011 FCA 89 at para. 5, 417 N.R. 261; Canada (National Revenue) v. JP Morgan Asset Management (Canada) Inc., 2013 FCA 250 at para. 78, [2014] 2 F.C.R. 557).

[45] Nor am I persuaded that a period of time has elapsed such that the motions judge, on the facts before her on April 14, ought to have found it appropriate to order the Minister to assess and pay the three months left outstanding. What constitutes "“all due dispatch”" is a fact and context dependent determination that takes into account the complexity of the audit, the amounts involved, the diligence of the CRA in its execution, and the degree of cooperation of the taxpayer (Nautica Motors; Express Gold).
. Canada (Attorney General) v. Valero Energy Inc.

In Canada (Attorney General) v. Valero Energy Inc. (Fed CA, 2020) the Federal Court of Appeal allowed an appeal by Canada (CRA) to strike a judicial review application by a corporation challenging information and document demands imposed on it by an income tax audit:
[27] While the parties raise a number of issues and sub-issues on the appeal and cross-appeal, in my view, a single question is dispositive of the appeals. When looking at the entire Application, including most importantly its factual underpinnings, the real question turns on whether the Minister can be blocked from exercising her statutory authority under subsection 231.2(1) of the Act. While this appeal deals with the striking of an application for judicial review on administrative law principles, at its heart is the examination of the Minister’s authority under subsection 231.2(1) of the Act to issue a requirement for information for use in an audit. A closer look at the text of subsection 231.2(1) is instructive.
Requirement to provide documents or information

Production de documents ou fourniture de renseignements

231.2 (1) Notwithstanding any other provision of this Act, the Minister may, subject to subsection (2), for any purpose related to the administration or enforcement of this Act (including the collection of any amount payable under this Act by any person), of a listed international agreement or, for greater certainty, of a tax treaty with another country, by notice served personally or by registered or certified mail, require that any person provide, within such reasonable time as is stipulated in the notice,

231.2 (1) Malgré les autres dispositions de la présente loi, le ministre peut, sous réserve du paragraphe (2) et, pour l’application ou l’exécution de la présente loi (y compris la perception d’un montant payable par une personne en vertu de la présente loi), d’un accord international désigné ou d’un traité fiscal conclu avec un autre pays, par avis signifié à personne ou envoyé par courrier recommandé ou certifié, exiger d’une personne, dans le délai raisonnable que précise l’avis :

(a) any information or additional information, including a return of income or a supplementary return; or

a) qu’elle fournisse tout renseignement ou tout renseignement supplémentaire, y compris une déclaration de revenu ou une déclaration supplémentaire;

(b) any document.

b) qu’elle produise des documents.
[28] The text is clear. The Minister may for any purpose related to the administration of the Act, including the collection of any amount payable under the Act, require that a person provide any information or additional information, or any document. This tool permits the Minister to properly administer and enforce the Act. On occasion, the Minister must have access to information and documents during the course of an audit in order to accurately review tax returns and decide whether to issue an assessment. In the appeals before us, once provided, this information would allow the Minister to complete her review of Valero’s returns for its 2011 to 2015 taxation years, and determine whether she should issue an assessment.


[35] I turn now to the Crown’s third issue. As outlined in paragraph [29] above, the actual question is whether the Application has any possibility of success when reviewed in its entirety. If an order setting aside the requirement for information is granted, the Minister will be prevented from properly exercising her powers under the Act. She will be impeded from completing a fulsome review of Valero’s taxation years of 2011 to 2015 and will be unable to calculate accurately what amount of tax, if any, should have been withheld by Valero in regards to the international shipping services provided to it in Canada. Valero itself admits in its Application that the calculation of these amounts is complex. Preventing the Minister from having the requested documentation in this context cannot stand.

[36] The Minister has not yet assessed. Once she has received the complete information and documents, she may well find that Valero has no liability. In my view, Valero cannot stop the Minister from carrying out her statutory duty under the Act to assess income tax payable by way of an application for judicial review. It is clear from the overall Application, noting in particular the settlement offer it made to the CRA, that this is precisely what Valero is attempting to do.

[37] Taking a holistic approach with a view to understanding the real essence of the Application, I find that in the circumstances of this case, the doctrines of promissory estoppel and legitimate expectations cannot be utilized to prevent the Minister from obtaining the necessary documents she requires to properly administer the Act and fulfill her obligations. The Minister is required to administer and enforce the Act. This positive duty encompasses, at the very least, an obligation to assess taxpayers under the Act and to take appropriate steps to collect unpaid taxes (Vallelunga v. Canada, 2016 FC 1329, [2017] 2 C.T.C. 192, at paragraphs 12-13). To accede to Valero’s arguments would, effectively, override the power granted to the Minister under subsection 231.2(1) of the Act to obtain the proper documents to assess Valero during the 2011 to 2015 period. Again, this cannot be right (see also Prince v. Canada (National Revenue), 2020 FCA 32, 314 A.C.W.S. (3d) 658, at paragraph 17).


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