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Federal Tax - Constitutional

. Deegan v. Canada (Attorney General)

In Deegan v. Canada (Attorney General) (Fed CA, 2022) the Federal Court of Appeal considered a Charter s.8 [ubreasonable search and seizure] action where the plaintiffs sought declaration against treaty tax provisions that required financial institutions to disclose records to the Minister of National Revenue, who in turn was required to disclose them to the United States for their tax assessment purposes. In the privacy element of the s.8 test, the court considered R v Jarvis (SCC, 2002) as the leading Supreme Court of Canada case on the criminal use of administratively-disclosed records:
[46] The next question is whether this possibility is a significant intrusion into the privacy interests of affected persons. The starting point is R. v. Jarvis, 2002 SCC 73, [2002] 3 S.C.R. 757 in which the Supreme Court made a distinction between audit and investigative materials obtained by the Canada Revenue Agency (CRA).

[47] With respect to audit materials, the Court considered s. 8 of the Charter and concluded that "“taxpayers have very little privacy interest in the materials and records that they are obliged to keep under the ITA, and that they are obliged to produce during an audit. … [T]here is nothing preventing auditors from passing to investigators their files containing validly obtained audit materials.”" (Jarvis at para. 95). Accordingly, s. 8 does not prevent audit material from being used for a criminal prosecution by the CRA.

[48] The Court in Jarvis took a different view of criminal investigative materials and s. 7 of the Charter. Section 7 protects against self-incrimination:
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.

"7 ""Chacun a droit à la vie, à la liberté et à la sécurité de sa personne; il ne peut être porté atteinte à ce droit qu’en conformité avec les principes de justice fondamentale."
[49] With respect to s. 7, the Court wrote that: "“when the predominant purpose of a question or inquiry is the determination of penal liability, the ‘full panoply’ of Charter rights are engaged for the taxpayer’s protection.”" (Jarvis at para. 96).

[50] The circumstances in this case are quite different from the facts in Jarvis. However, the general comments in Jarvis, above, concerning the use of audit materials is useful in this case. The Federal Court recognized this when it determined that the Impugned Provisions are "“essentially of an administrative nature.”" (para. 268). This suggests that there is very little privacy interest in the seized information even though the United States may use the information for purposes of a criminal prosecution.

[51] The appellants take issue with one aspect of Jarvis. They acknowledge that Jarvis characterizes the ITA as a regulatory statute even though non-compliance with the statute may lead to criminal charges. However, the appellants suggest there is nothing regulatory about prosecutions under the ITA and that a more nuanced approach to characterizing the ITA should be taken. They suggest that it is timely and appropriate to revisit the comment in Jarvis that the ITA is a regulatory statute.

[52] Jarvis is of course binding on the Federal Court and this Court. Accordingly, Justice Mactavish did not err in relying on it.

[53] As for whether the comment from Jarvis should be revisited by the Supreme Court, the appellants have failed to demonstrate that this is appropriate in the context of this case.

[54] The Impugned Provisions are clearly regulatory in nature. As set out in the Federal Court’s reasons, the Impugned Provisions are similar to information automatically provided to the CRA for regulatory purposes (e.g., T4s by employers, T5s by financial institutions, and taxpayers’ annual disclosure of foreign holdings).

[55] Further, the automatic disclosure of information embodied in the Impugned Provisions has gained widespread international support through the development of a common reporting standard. The standard is reflected in amendments to the ITA in ss. 270-281.

[56] It is difficult to see how a seizure contemplated by the Impugned Provisions significantly intrudes into privacy interests, as the appellants appear to suggest. Accordingly, I see no reason in this case to revisit the comment in Jarvis that the entire ITA is a regulatory statute.

[57] At the hearing, the appellants further suggest that the predominant purpose test developed in Jarvis in the context of s. 7 of the Charter, should be imported into the Impugned Provisions. This test provides that, with respect to s. 7, if the predominant purpose of an inquiry is the determination of penal liability, the ‘full panoply’ of Charter rights applies. (Jarvis at para. 96).

[58] The appellants were not able to describe with specificity how the Jarvis predominant purpose test could apply to the Impugned Provisions. Without a clearer explanation from the appellants as to how the predominant purpose test is relevant in this appeal, the submission will not be pursued further.

[59] In the result, I conclude that the Impugned Provisions do not intrude significantly on the privacy interests of affected persons simply on the basis that the information may possibly be used for a criminal prosecution.
. Hunt v. Canada

In Hunt v. Canada (Fed CA, 2020) the Federal Court of Appeal, Stratas JA writing, dismisses a constitutional s.53 case for being inadequately advanced and, essentially, explains what the parties need to address the issue in future:
53. Bills for appropriating any Part of the Public Revenue, or for imposing any Tax or Impost, shall originate in the House of Commons.


[10] The answer to the broader issue whether sections 207.05 and 207.06, separately or in combined effect, constitute an invalid delegation of taxation power to the Minister turns on the answer to certain specific subsidiary questions. At first glance, I would venture that two sets of questions need to be considered:
What exactly do the sections, individually or collectively, empower the Minister to do? What exactly is the Minister’s discretion?

Are there discernable and definitive criteria, explicit or implicit, governing the Minister’s discretion under the sections? Or is the discretion so undefined and unconstrained by criteria—effectively a standardless sweep—that the Minister, not Parliament, is really setting the tax rate or imposing the tax?
The exact wording of these subsidiary questions and whether other questions are relevant await full argument in a future case.

[11] To answer these questions, we must interpret the legislation using the accepted method. Under that method, we examine the text, context and purpose of the legislative provision: see, e.g., Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54, [2005] 2 S.C.R. 601 at para. 10, Re Rizzo & Rizzo Shoes Ltd., 1998 CanLII 837 (SCC), [1998] 1 S.C.R. 27, 154 D.L.R. (4th) 193 and Bell ExpressVu Limited Partnership v. Rex, 2002 SCC 42, [2002] 2 S.C.R. 559; see also Entertainment Software Assoc. v. Society Composers, 2020 FCA 100 at para. 39 and authorities cited therein regarding how this analysis should be conducted; and for recent, instructive Supreme Court executions of this analysis, see TELUS Communications Inc. v. Wellman, 2019 SCC 19, [2019] 2 S.C.R. 144 and R. v. Rafilovich, 2019 SCC 51, 442 D.L.R. (4th) 539.

[12] Imagine a provision that, on its literal text, appears to give the Minister a broad, seemingly limitless discretion to impose a tax. But the analysis does not stop there. The Court must go further and examine the context and purpose of the provision: ATCO Gas & Pipelines Ltd. v. Alberta (Energy & Utilities Board), 2006 SCC 4, [2006] 1 S.C.R. 140 at para. 48; Montréal (City) v. 2952-1366 Québec Inc., 2005 SCC 62, [2005] 3 S.C.R. 141 at para. 10; see also CIBC World Markets Inc. v. Canada, 2019 FCA 147 at para. 27 and Hillier v. Canada (Attorney General), 2019 FCA 44, 431 D.L.R. (4th) 556 at para. 24. This further examination can shed light on the meaning of the words and can reveal latent ambiguities requiring resolution.

[13] In some cases, after a full examination of the text in light of its context and purpose, the Court might conclude that Parliament’s provision, in its authentic meaning, satisfactorily constrains the Minister’s discretion and defines what she can do and how she should do it. The Minister would not be creating and imposing a tax or coming up with the tax rate on her own. She would not be a law unto herself.

[14] But in other cases, the Court might conclude that Parliament’s provision, in its authentic meaning, gives the Minister an unconstrained, undefined discretion without criteria. The Minister, not Parliament, would be creating and imposing the tax or coming up with the tax rate on her own. She would be a law unto herself.

[15] Under that scenario, any measure adopted by the Canada Revenue Agency to guide the improperly wide discretion Parliament has given the Minister, such as policies, practices or interpretation bulletins, would be irrelevant. They would not fix the fatal problem: Parliament’s over-delegation of taxation power in the first place contrary to section 53 of the Constitution Act, 1867.

[16] The parties’ memoranda of fact and law did not deal in sufficient detail or at all with these questions. The same can be said for the Tax Court: reasons of the Tax Court at para. 34.

[17] During the hearing in this Court, the panel repeatedly asked the parties whether, as a matter of legislative interpretation, section 207.06 vests a wide, undefined discretion in the Minister or constrains the Minister and, if so, to what extent and how. The parties were unable to provide responses precise or thorough enough to assist the Court satisfactorily.

[18] The determination of this matter potentially has great precedential effect: implications may be created for other provisions. As well, where the foundation supporting a ruling on a constitutional question is missing or faulty and we do not have to decide the question, we should not do so: Mackay v. Manitoba, 1989 CanLII 26 (SCC), [1989] 2 S.C.R. 357, 61 D.L.R. (4th) 385. That is the case here: we lack adequate submissions and fully developed reasons from the Tax Court.


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