Category Archives: Request for Information

MNR v RBC Life Insurance Co, 2013 FCA 50

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Minister’s Duty to Make Full Disclosure – Third Party Production Orders Pursuant to 231.2(3)

MNR v RBC Life Insurance Co, 2013 FCA 50

[companion case MNR v Lordco Parts Ltd, 2013 FCA 49]

In this case, the MNR had applied for an authorization pursuant to 231.2(3), and the third party had challenged the authorization pursuant to 231.2(6), resulting in the FC cancelling the previously granted authorization. At issue were three questions (para 11)

1) What is the jurisdiction of the Federal Court on an ex parte application under subsection 231.2(3) and on a review under 231.2(6)?

2) Did the Minister make full and frank disclosure of relevant information on the ex parte application in this case?

3) Did the Minister’s valid audit purpose save the authorizations?

The FCA concluded that court reviewing an authorization, pursuant to 231.2(6), has discretion to look beyond whether the preconditions of 231.2(3) are met, and has discretion to cancel the authorization if the MNR has failed to meet its duty of making full disclosure of all material facts that may affect the court’s decision to grant or deny the authorization sought in the first instance. A valid secondary audit purpose will not save the authorization where there is a primary no-audit purpose that is not well tied to the audit purpose.


The MNR appealed from the judgement of the FC (2011 FC 1249), where the FC cancelled four authorizations the MNR had obtained pursuant to subsection 231.2(3) of the ITA, requiring the taxpayers to produce information and documents relating to certain of their customers who had purchased the 10-8 insurance plan.

The FC cancelled the authorization on the basis that:

  1. The MNR had not disclosed “a significant amount of relevant evidence on the ex parte application”, depriving the court of the ability to appreciate the full context in which the application was brought (para 8). The relevant information fell into four categories:
    1. The Department of Finance’s refusal to amend the Act to address outdated provisions;
    2. Information contained in an advance income tax ruling request relevant to whether there was compliance with the Act
    3. The CRA’s decision to “send a message to industry” by refusing to answer the advance tax ruling request, and taking measures to chill the 10-8 plan by undertaking an “audit blitz”, and
    4. The CRA’s GAAR committee had determined that the 10-8 plan likely complied with the letter, if not the spirit, of the Act.
  2. The MNR failed to meet one of the two preconditions, to wit, that the authorizations were made to verify compliance with the ITA. Even though there was an audit purpose to be had, the evidence was that the primary goal was to chill the 10-8 plan business – because of the dislike of the MNR of this business on policy grounds.  The purpose was to achieve through audits what the department of finance refused to do through legislative amendment.


The MNR, in the pursuit of verifying compliance with the ITA, may require third parties to provide information about unnamed taxpayers. The ITA provides the procedure to be followed to compel third parties to produce the information:

  1. The MNR can obtain, ex parte, an authorization from a judge requiring third parties to provide information about unnamed taxpayers pursuant to 231.2(3) of the ITA.
    1. This initial ex parte stage required the MNR to satisfy the court the preconditions are met: (i) the unnamed taxpayers are ascertainable, and (ii) the purpose of the authorization is to verify the unnamed taxpayer’s compliance with the ITA
  2. When the third party becomes aware of the authorization, an application can be brought to have the authorization reviewed.
    1. The reviewing judge may cancel, confirm, or vary the authorization – 231.2(6) of the ITA

If not cancelled, the MNR may then enforce the authorization through a compliance order pursuant to section 231.7.

1)     What is the jurisdiction of the Federal Court on an ex parte application under subsection 231.2(3) and on a review under 231.2(6)?

The MNR argued that although a judge issuing the authorization pursuant to 231.2(3) has discretion not to grant the authorization even if the preconditions are met, a court on review under 231.2(6) can only verify that the two preconditions are met and has no other discretion.

The FCA disagreed that a reviewing court was limited under 231.2(6). The court noted that both provisions used the word ‘may’, and the plain words of 231.2(6) show that the reviewing judge is free to go beyond the statutory preconditions and exercise discretion as to whether the authorization should be left in place – “a judge “may … vary” the authorization even where “the judge is satisfied that [the two preconditions] have been met.” (para 19).  The investigation part of the ITA also has the aim “to ensure the fair and proper treatment of the persons subject to the Minster’s investigative powers” (para 21).

One purpose of the review under 231.2(6) is to protect third parties’ privacy interests, as this is a sensitive matter, given that “third parties [may] themselves have valid reasons for not wanting to disclose, are required to provide the information” (para 22, Quoting MNR v Sand Exploration Limited (1995),  95 DTC 5358 (FCTD), at p 5362).  Judicial discretionary power is vital to the constitutionality of 231.2 and similar provisions because these kinds of powers engage section 8 of the Charter, and judicial discretion brings the powers in line with the requirements of section 8 (para 23, quoting MNR v Derakhshani, 2009 FCA 190, at para 19).  A review by a judge can’t be divorced from what the judge is being required to review, thus connecting 231.2(3) with 31.2(6) (para 25).

The ITA requires, to the extent possible, that the reviewing judge under 231.2(6) be the same as the one who granted the authorization under 231.(2) (subsection 231.2(5)), which indicated that the review is not a simple matter of ensuring the two pre-conditions are met and contains a discretionary element.

2)     Did the Minister make full and frank disclosure of relevant information on the ex parte application in this case?

In seeking an authorization under 231.2(3), the MNR can’t leave the judge in the dark on facts relevant to the exercise of discretion, even where facts are harmful to the MNR’s case. There is a high standard of ‘good faith’ on the MNR to make ‘full disclosure’ so as to ‘fully justify’ an ex parte  order.  The Court said:

[31]           The Minister’s submission also raises issues of a more fundamental nature. A breach of the obligation to make full and frank disclosure of information relevant to the Court’s exercise of discretion on an ex parte application, such as that contemplated under subsection 231.2(3), can hobble the Court’s ability to act properly and judicially, and can result in the making of orders that should not have been made. It is an abuse of process.

[32]           In effect, the Minister says that subsections 231.2(3) and 231.2(6) constitute a complete code, ousting the Court’s ability to redress such an abuse of process. I disagree.

[33]           The Federal Courts have a power, independent of statute, to redress abuses of process, such as the failure to make full and frank disclosure of relevant information on an ex parte application: Indian Manufacturing Ltd. et al. v. Lo et al. (1997), 75 C.P.R. (3d) 338 at page 342 (F.C.A.); May& Baker (Canada) Ltd. v. Motor Tanker “Oak”, [1979] 1 F.C. 401 at page 405 (C.A.).

The Federal Court has “inherent “plenary powers” to investigate, detect, and redress abuses of its own process that lies outside any statutory grant – it is an immanent attribute of the court and part of the court’s essential character (paras 34-36).

The findings of the FC that the facts not disclosed, supported by some evidence in the record, were one of mixed fact and law, and not to be disturbed absent palpable and overriding error by the FC.

3)     Did the Minister’s valid audit purpose save the authorizations?

The FCA stated that the FC held that the valid audit purpose was secondary to the main purpose of chilling the disliked business, such that the main purpose was not sufficiently tied to the valid audit purpose. Even if the MNR has a valid audit purpose, a reviewing judge is still empowered to cancel the authorization due to material non-disclosure of relevant information by the MNR – so long as the information was materials and could have affected the outcome of the ex parte applications (para 46-47).

The cancellation of previously granted authorizations is sometimes necessary to deny the minister of “an advantage unfairly obtained”, and the court sometimes must exercise its discretion to deter the MNR so that the duty of full disclosure and the results of the failure to make such disclosure are brought home.

Sas Ansari, BSc BEd PC JD LLM PhD (exp) CPA In-Depth Tax 1, 2 &3

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Breau v The Minister of National Revenue, 2012 FC 1207

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Requests for Information while Criminal Investigation is Ongoing

Breau v The Minister of National Revenue, 2012 FC 1207

At issue was whether requirements for information (RIFs) issued by the MNR ought to be set aside on the basis that they were improperly issued for the purpose of gathering information for a criminal investigation – ie violation of section 7 Charter right against silence (ie self-incrimination).

The FC, after reviewing the relevant law and considering the evidnece closely, held that in this case the RIFs were properly issued in furtherance to a mainly civil purpose, and not predominantly to support the parallel criminal investigation.  The fact that the civil and criminal invetigations were simultaneous and overlapping required close scrutiny of the circumstances.  However, the mere existance of a criminal investigation doesn’t preclude auditors from assessing civil liability or seeking relevant information for establishing civil liability (even if the information may also be relevant for cirminal liability).


The Appellant (JB) was allegedly involved in a tax plan that involved the sale of business losses to other taxpayers.  JB told investors that he and others provided management advice to struggling companies whose losses were sold to unit purchasers. The management services was provided by Synergy Group (2000) Inc., and JB was the officer, director, and agent of this corporation.

The CRA took three actions: (1) conducts audits of unit purchasers starting in 2005, (2) started a criminal investigation against the promoters, including applying for production orders, and (3) began civil audits of the promoters, asking for relevant information and documents.


The FC began by reviewing the legal framework.  The MNR has power to require taxpayers to provide information for any purpose related to the administration or enforcement of the ITA (s 231.2(1)), AND may also apply to court for a search warrant by showing reasonable and probable grounds of an offence committed under the ITA, and the place identified where the evidence is likely to be found (231.3(3)).  A judge may also order third parties to produce documents relevant to an offence against any act of Parliament (Crimina Code s 4870.12).

The civil powers under the ITA cannot be used to circumvent the protections of section 7 of the Charter, including the right to silence.  The SCC in R v Jarvis, 2002 SCC 73 (CanLII), 2002 SCC 73, recognized that the Charter protects taxpayers against the use of RIFs to further a criminal investigation. The protection arises where “the predominant purpose of a particular inquiry is the determination of penal liability,” (para 10), and this requires a court to look at “the totality of the circumstances, and make a determination as to whether the inquiry or question in issue engages the adversarial relationship between the state and the individual”.

The factors relevant to the inquiry include (at para 10):

1.         Did the authorities have reasonable grounds to lay charges? Does it appear from the record that a decision to proceed with a criminal investigation could have been made?


2.         Was the general conduct of the authorities such that it was consistent with the pursuit of a criminal investigation?


3.         Had the auditor transferred his or her files and materials to the investigators?


4.         Was the conduct of the auditor such that he or she was effectively acting as an agent for the investigators?


5.         Does it appear that the investigators intended to use the auditor as their agent in the collection of evidence?


6.         Is the evidence sought relevant to taxpayer liability generally? Or, as is the case with evidence as to the taxpayer’s mens rea, is the evidence relevant only to the taxpayer’s penal liability?


7.         Are there any other circumstances or factors that can lead the trial judge to the conclusion that the compliance audit had in reality become a criminal investigation?

RIFs can be challenged by judicial review on the basis that they were improperly issued for a penal purpose: Kligman v Canada (Minister of National Revenue), 2004 FCA 152 (CanLII), 2004 FCA 152; Stanfield v Minister of National Revenue, 2005 DTC 5454.