Brown v MNR, 2012 TCC 251

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Income From Criminal Activities and the Use of Information by the CRA obtained by Police in the Course of a Criminal Investigation

Brown v The Queen, 2012 TCC 251

At issue was whether there was a violation of the taxpayer’s Section 8 Charter rights when the police on their own motion passed documents and information seized pursuant to a warrant issued in the course of a criminal investigation on to the CRA.

The Court concluded that there was no violation of the taxpayer’s section 8 rights, and that neither the failure of the warrant to mention that information would be passed on to the CRA nor the fact that criminal charges were dropped were material in dealing with the section 8 argument.

The Court said that a taxpayer is subject to tax on income derived regardless of the source, and must keep reliable books and records of all his income including income from illegal sources.  Absent these records, the MNR may issue an arbitrary assessment using a method that is appropriate in the circumstances.


Mr Brown (“taxpayer”) was reassessed on the basis of the “modified deposit” method, and the MNR included in income significant amounts for the tax years 2004-2007, said to have been obtained through selling drugs.

The taxpayer was investigated and charged (eventually dropped) of Criminal Code offences, and this information was passed on to the CRA by the Police (as this is a routine practice in such cases).  Also shared with the CRA were documents seized by the police inwarrant-authorizedd searches of the taxpayer’s apartment. The CRA was not made aware of the warrant, search, or seizure.

There was significant evidence that despite declaring a modest income, the taxpayer lived a lavish lifestyle and kept numerous accounts where the deposits and withdrawals exceeded his declared income.  The taxpayer stated that the deposits were from gifts and past savings he kept at home, and had witnesses give evidence in purported support of this.


The Court dealt with the taxpayer’s argument that his Charter rights has been violated as a result of the police passing on information to the CRA.  The Court assumed that the argument was based on the violation of Section 8’s protection against unreasonable search and seizure.  Justice Hogan referred to section 231.1 of the ITA which grants the auditors broad powers of inspection, and noted that these powers are not limited to the examination of documents in possession of the taxpayer only.  CRA officials have the power to issue third-party information requirements, and the court stated that these powers were not used with respect of the police in this case as the documents were already shared by the police with the CRA.

The court referred to the decision of Markovic v Canada, 2007 TCC 18 , where information obtained by the police pursuant to a warrant in a narcotics investigation was handed over to the CRA.  In that decision, where section 8 violation was argued, the TCC held that it’s not improper for the CRA to use information provided pursuant to a valid warrant issued and acted on in the course of a criminal investigation:

. . . It was simply a case of the police informing CRA after the searches and after subsequent criminal proceedings. Ultimately the charges against Natasa Markovic were withdrawn and the charges against Milos were stayed. As a result, this Court finds that there is no basis for the Appellant’s claim that his Charter rights under sections 8 and 24 were violated.

Thus, the Court is saying that if the criminal charges had proceeded then there would be a claim of the section 8 rights being violated, but as they were withdrawn there is no such basis.  This is a questionable conclusion.

The court referred to the decision of the SCC in R. v. McKinlay Transport Ltd., [1990] 1 S.C.R. 627 the alleged violation of the section 8 protection was due to CRA’s issuance of demands for information pursuant to subsection 231(3). In that case the majority held that demands issued to enforce the act did not violate section 8 of the charter as being unreasonable seizures, based on the finding that a taxpayer’s privacy interest in documents relevant to determining tax liability are very low in relation to the CRA.  The courts decision there, however, related to production of documents pursuant to a demand-for-production power under the ITA.

The Court also referred to the SCC decision in R. v. Jarvis, 2002 SCC 73, where the issue was whether information gathered by the CRA in furtherance of its audit function could be shared with officials conducting a subsequent criminal investigation.  The SCC there stated that:

That is, there is no principle of use immunity that prevents the investigators, in the exercise of their investigative function, from making use of evidence obtained through the proper exercise of the CCRA’s audit function. Nor, in respect of validly obtained audit information, is there any principle of derivative use immunity that would require the trial judge to apply the “but for” test from S. (R.J.), supra. If a particular piece of evidence comes to light as a result of the information validly contained in the auditor’s file, then investigators may make use of it. [emphasis original]

The Court recognises that the facts in Jarvis were the opposite of the facts in the case at Bar, but the court concluded that “if the former does not violate section 8, then the latter should be acceptable”.  What the court is saying is that if there is no violation of the section 8 rights during a criminal investigation, the passing on to the CRA of information obtained during that investigation does not violate section 8.  This appears to be correct.

Justice Hogan dealt with two other arguments.  The first related to the failure of the warrant to mention that information obtained would be passed onto the CRA.  He noted that the validity of the warrant was not challenged and that the privacy interest in the documents in relation to the CRA were low, before concluding that the failure was not material.

The second argument was based on the criminal charges being dropped, and the court held that this was of no relevance in relation to the privacy interest of the taxpayer in the documents.  The court based this on the conclusion that there was no evidence that the CRA auditor, in accepting the information from the police, intended to conduct a criminal investigation. Thus, the use of CRA’s productive powers was not inappropriate.

The court found the evidence tendered in support of the argument that the cash came from savings to be unreliable and unbelievable and without corroborating evidence, and dismissed the appeal.

– Sas Ansari, JD LLM PhD (exp)

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