BETWEEN:
and
Heard at Toronto, Ontario, on April 9, 2013.
Judgment delivered at Ottawa, Ontario, on May 17, 2013.
REASONS FOR JUDGMENT BY: WEBB J.A.
CONCURRED IN BY: SHARLOW J.A.
DAWSON J.A.
Docket: A-76-12
Citation: 2013 FCA 133
CORAM: SHARLOW J.A.
DAWSON J.A.
WEBB J.A.
BETWEEN:
DOLORES ROMANUK
Appellant
and
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT
[1] This is an appeal from the order of V.A. Miller J. of the Tax Court of Canada (2012 TCC 58) dismissing the appellant’s motion for an order to grant her leave to file a Second Amended Notice of Appeal. While I would dismiss this appeal, my reasons for doing so are not the same as the reasons provided by the Judge for dismissing the appellant’s motion.
[2] The Appellant was reassessed in relation to her 1995, 1996, and 1997 taxation years to deny the Appellant’s claim for losses allocated to her by the Softcom Solutions Partnership (the Partnership). Penalties were also assessed under subsections 162(1) and 163(2) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), (the Act).
[3] As part of the proposed amendments to her Notice of Appeal, the appellant is seeking to add additional alleged facts in relation to:
(a) the communications between the auditor for the Canada Revenue Agency (CRA) and the Partnership;
(b) various meetings that the CRA auditor had with certain partners; and
(c) the communications and interactions between the auditor for the CRA and Special Investigations section of the CRA.
The appellant is alleging that the CRA used its audit powers as provided in section 231.1 of the Act to require the Partnership to provide information after the CRA had commenced an investigation for the purpose of determining whether one or more persons should be charged with an offence under section 239 of the Act. Based on the facts as alleged by the appellant, subsection 231.1(1) of the Act is the only relevant subsection of section 231.1. Therefore, in these reasons I will refer to subsection 231.1(1) of the Act. The appellant argues that the use of these audit powers by the CRA in this case violated the appellant’s rights under sections 7 and 8 of the Canadian Charter of Rights and Freedoms, The Constitution Act, 1982, being Schedule B to the Canada Act 1982 (U.K.), 1982, c. 11 the “Charter”).
[4] The remedy that the Appellant is seeking is the exclusion of evidence or the allowance of her appeal. Essentially, the appellant is arguing that because the CRA may have been or was contemplating charging the appellant or someone else with an offence under section 239 of the Act, the CRA could no longer use any of its audit powers to gather information or documents that could be used for the purpose of reassessing her or that could be used in relation to her appeal before the Tax Court of Canada.
[5] When considering whether to allow an amendment to pleadings to add facts and claims, the judge is to assume that the additional facts as set out in the proposed amendments are correct and is to then determine whether it is “plain and obvious” that the claim being made discloses “no reasonable cause of action” (Hunt v. Carey Canada Inc., [1990] 2 S.C.R. 959, at paragraphs 30 to 34). Since the facts as pled are to be taken as proven, there is no need for the judge, in deciding whether to allow the amendment, to review any evidence that may be submitted to try to prove the alleged facts. If any such evidence is submitted at such hearing for this purpose, it should not be reviewed by the judge in deciding whether to allow the amendments.
[6] Assuming that the proposed additional facts are proven, it does not seem to me that the appellant has any cause of action arising from these additional facts. In R. v. Jarvis, [2002] 3 S.C.R. 757, the issue was whether the audit and inspection rights under subsection 231.1(1) of the Act and the requirement to produce documents or information under subsection 231.2(1) of the Act could be used to gather information or documents for the purpose of prosecuting a person in relation to an offence under section 239 of the Act. The Supreme Court referred to the distinction between an audit inquiry related to the administration of the Act (which could include the assessment of penalties under subsections 162(1) and 163(2) of the Act) and an investigation that could lead to charges for an offence under section 239 of the Act. Once the “predominant purpose” of an inquiry is related to the investigation and prosecution of an offence under section 239 of the Act, the CRA can no longer use its inspection and requirement powers under subsections 231.1(1) and 231.2(1) of the Act to gather information or documents that may be used in such investigation and prosecution (paragraphs 46 and 88 of Jarvis).
[7] In paragraph 103 of Jarvis, the Supreme Court also confirmed that “…it is clear that, although an investigation has been commenced, the audit powers may continue to be used, though the results of the audit cannot be used in pursuance of the investigation or prosecution”. Since the audit powers may continue to be used, even though the results cannot be used in relation to an investigation or prosecution, the results can be used in relation to an administrative matter, such as a reassessment.
[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.
[9] The appellant referred to the decision of Bowman J. (as he then was) in O’Neill Motors Limited v. The Queen, 96 DTC 1486 which was affirmed on appeal to this Court ([1998] 4 F.C. 180). However, this case can be easily distinguished from O’Neill Motors. In O’Neill Motors the documents had been seized under an illegal search as the search warrant had been issued under a section of the Act that was subsequently held to be unconstitutional. There is no allegation here that any documents had been seized under any invalidly issued search warrant. The information and documents in this case were either voluntarily submitted or were obtained by CRA using its audit powers.
[10] As a result, it is plain and obvious that the appellant cannot succeed in her additional claims assuming that the additional facts as pled are proven. 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). 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.
[11] I would dismiss the appeal, with costs.
"Wyman W. Webb"
“I agree.
K. Sharlow J.A.”
“I agree.
Eleanor R. Dawson J.A.”
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: A-76-12
STYLE OF CAUSE: DOLORES ROMANUK v. HER MAJESTY THE QUEEN
PLACE OF HEARING: Toronto, Ontario
DATE OF HEARING: April 9, 2013
REASONS FOR JUDGMENT BY: WEBB J.A.
CONCURRED IN BY: SHARLOW, DAWSON J.J.A.
APPEARANCES:
|
Patrick Deziel |
FOR THE APPELLANT
|
|
Craig Maw |
FOR THE RESPONDENT
|
SOLICITORS OF RECORD:
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Toronto, ON |
FOR THE APPELLANT
|
|
Deputy Attorney General of Canada |
FOR THE RESPONDENT
|