Date: 20021227
Docket: 2001-2060-IT-G
BETWEEN:
ARTHUR WEBSTER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Order
Bonner, T.C.J.
[1] Arthur Webster is the Appellant in an appeal to this Court from assessments of Income Tax for the 1995, 1996 and 1997 taxation years. He has applied for an order requiring the Respondent to produce a complete copy of an audit report dated September 21, 1997. The Minister of National Revenue (the "Minister") has produced a copy of the report but has blacked out parts of it.
[2] The audit report was prepared by Patty Manchester, an employee of the Canada Customs and Revenue Agency (CCRA). The report outlines the course of an audit conducted by Ms. Manchester with respect to Mr. Webster's activity as a foster parent providing housing and care to high risk children. This activity was conducted under contract with the Government of British Columbia. As a result of the audit the assessments under appeal were issued.
[3] In her report Ms. Manchester referred to information provided to the CCRA by an informant. Counsel for the Appellant sought a copy of the report but the Appeals Division blacked out on the copy of the report which was sent to him all portions which would enable a reader to identify the informant. The Respondent invokes informer privilege as justification for that action.
[4] In the Notice of Motion, the Appellant relies on ss. 78, 85 and 91 of the General Procedure Rules. The Respondent's list of documents delivered under s. 81 of the Rules does not refer to the Audit Report. The Appellant's list does refer to an edited version of the report (Item 29 Schedule A) and to correspondence related to it. Examinations for discovery have not yet been held.
[5] An affidavit of the Appellant was filed in support of the motion. In it, he states in part:
"5. I understand that the information contained in the "blacked out" portions of the edited Audit Report relates to an informer who apparently communicated information to Revenue Canada, causing the audit to occur.
6. The identity of the informer is unknown to me and I have no way of identifying and examining this potential witness without disclosure of the material in the Audit Report.
7. When pressed by my lawyer, paragraph J. (c) was eventually disclosed by the Minister. That paragraph read:
"(c) Consideration of the levying of penalties
The auditor did not consider the levying of penalties as the issue of whether the income is in fact taxable is a complex area which is subject to interpretation. There is no evidence to support that the taxpayer knowingly reported the income incorrectly."
8. I fear that other equally relevant portions of the Audit Report have also been improperly withheld, and that the Minister has acted in error by so withholding.
9. Whatever information may have singled me out and prompted the audit should be disclosed to me to allow me to prepare my appeal case properly."
[6] An affidavit of Patty Manchester was filed by the Respondent. It states in part:
"2. In 1999, I conducted an audit of the Appellant in respect of an activity carried on by the Appellant known as Paradox Residential Services ("Paradox");
3. Paradox's activities consisted of contracts with the Ministry of Social Services (also known as the Ministry of Children and Families) of the Government of British Columbia (the "Ministry") to provide housing and care to high risk children;
4. The issue in these appeals is whether amounts received by the Appellant from the Ministry to operate Paradox were taxable or whether they were exempt from taxation under paragraph 81(1)(h) of the Income Tax Act, R.S.C. 1985, c. 1 ("5th Supp.").
5. During the course of my audit, I was in contact with an informant, who provided me with information about the Appellant in confidence (the "Informant"). The Informant advised me that the Informant is fearful of the Appellant and believes that the Informant's safety will be threatened if the information provided by the Informant is revealed to the Appellant. I told the Informant that the CCRA would not disclose to the Appellant that the Informant had provided information and that the CCRA would not disclose to the Appellant the information provided by the Informant.
6. I prepared an audit report outlining the results of the audit. In the Report, I made reference to the fact that the Informant had provided certain information. The nature of the information provided by the Informant is such that, if the information were disclosed, such disclosure would also reveal the identity of the Informant.
..."
[7] Although it has no bearing on the outcome of this motion, I note that Mr. Webster is mistaken in thinking that the informant's information led to the audit. The audit was already underway when the CCRA was contacted by the informant. This was confirmed by viva voce testimony given by Ms. Manchester at the hearing of the application.
[8] Not only was the audit underway when the informant contacted the CCRA, it was almost complete. Ms. Manchester produced a letter dated April 6, 1999 sent by her to counsel for Mr. Webster. It outlined the assessment which she proposed to issue and the basis for it. That proposal was implemented by the issuance of the assessments under appeal. The letter was sent prior to her discussions with the informant. The information supplied by the informant did not, it seems, affect the assessments.
[9] Ms. Manchester testified, and I accept her evidence, that the blacked out information in the audit report relates only to what was revealed by the informant after the promise of confidentiality was given.
[10] The Appellant's primary purpose in bringing this motion appears to be to discover the identity of the informant. In my view that identity is irrelevant. What is relevant in litigation is defined by the pleadings. The Appellant, who relies on the exemption in s. 81(1)(h) of the Act, pleads in part:
"The Taxpayer maintains a principal place of residence at 649 Jadel Drive, Victoria, British Columbia (the "Home").
The Taxpayer resides in the Home with his foster children."
Those allegations are denied by the Respondent. The identity of the informant will not assist in establishing whether those allegations are true.
[11] The Notice of Appeal raises an issue described as "Collateral Issue". Paragraph 6 reads:
"The Minister has previously represented to the Taxpayer, through the Ministry of Children and Families, that the social assistance payments are not included in the Taxpayer's income pursuant to S. 81(1)(h). The Taxpayer has relied upon such representations to his detriment in the preparation of his Tax Returns, in that he has failed to deduct from his income any or all expenses and deductions to which he is otherwise entitled. The Minister is estopped from raising the assessments."
Assuming without deciding that there is some legal foundation for the application in this case of the doctrine of estoppel[1] the identity of the informer is not relevant either to the making of the representation or to reliance on it.
[12] It should be remembered that the validity of an assessment of tax must rest on the question whether the Minister, in arriving at the amount of tax assessed, has properly applied the taxing statute to the facts. It does not depend on whether the assessor's investigation was thorough or shoddy or on the identity of the assessor's sources of information. Even if Ms. Manchester did receive information from an unreliable source, it does not follow that the Appellant is entitled to relief. The right of appeal is provided to allow taxpayers to challenge the result and not the manner in which the result has been reached. The appeal will succeed only if the amount of tax assessed is too high.
[13] There is simply no basis for directing that irrelevant information be revealed and on that ground alone the application must fail.
[14] The application must be dismissed on second ground, informer privilege. That privilege is a rule preventing the disclosure of information which might identify an informer who has assisted in the enforcement of the law by furnishing assessing information on a confidential basis. The basis of the rule is discussed in Leipert v. Her Majesty the Queen[2] where McLachlin J (as she then was) said:
at p. 289,
"A court considering this issue must begin from the proposition that informer privilege is an ancient and hallowed protection which plays a vital role in law enforcement. It is premised on the duty of all citizens to aid in enforcing the law. The discharge of this duty carries with it the risk of retribution from those involved in crime. The rule of informer privilege was developed to protect citizens who assist in law enforcement and to encourage others to do the same. ..."
at p. 291
"Informer privilege is of such importance that one found, courts are not entitled to balance the benefit enuring from the privilege against countervailing considerations, as is the case, for example, with Crown privilege or privileges based on Wigmore's four-part test..."
and at p. 293
"Connected as it is to the essential effectiveness of the criminal law, informer privilege is broad in scope. While developed in criminal proceedings, it applies in civil proceedings as well: Bisaillon v. Keable, supra. It applies to a witness on the stand. Such a person cannot be compelled to state whether he or she is a police informer: Bisaillon v. Keable, supra. And it applies to the undisclosed informant, the person who although never called as a witness, supplies information to the police. Subject only to the "innocence at stake" exception, the Crown and the court are bound not to reveal the undisclosed informant's identity.
Informer privilege prevents not only disclosure of the name of the informant, but of any information which might implicitly reveal his or her identify. Courts have acknowledged that the smallest details may be sufficient to reveal identity."
The privilege does not apply only to protect the identity of the informant who contacts the police regarding criminal matters. It applies to protect the identity of a person who has given to officials of the Department of National Revenue information which has or may have led to an income tax assessment.[3]
[15] With respect to informer privilege the first main submission of counsel for the Appellant is that it does not apply. Counsel submitted:
"We submit that the CCRA's claim to Informer Privilege is based on a confusion between the enforcement and compliance function of the police or other enforcement personnel, for example the Special Investigations Unit of the CCRA which deals with tax fraud and the CCRA as an executive body implementing and interpreting legislation.
It cannot be said that the CCRA's ability to function as an executive body that implements and interprets legislation is unacceptably hindered by the requirement the Informants' identities be disclosed or that information which may disclose the identity of Informants be disclosed.
In this case there is no question of compliance or enforcement, indeed the auditor levied no penalties against Mr. Webster when she found that he had an honest belief that the program receipts were non-taxable. [See Affidavit of Webster, Exhibit "E"]"
[16] Having regard to the nature and importance of the privilege I cannot accept the argument that it is limited to communications with members of the special investigations unit of the CCRA. An informant who approaches that agency cannot be expected to assume the risk that protection will be lost if the official to whom he speaks is a member of the wrong branch of the agency. To so restrict the ambit of the privilege would be wrong in principle for it would capriciously limit its operation. As this Court noted in Promex[4] the privilege:
"... is too firmly entrenched for me to attempt to find ways to avoid applying it. It is based upon sound considerations of public policy that should not be eroded. Clearly it is not restricted to criminal matters and I can see no reason not to apply it to informants who give information in confidence to officials of the Department of National Revenue. Without diminishing in any way the obligation of the Crown to make full disclosure of its case to an appellant in an income tax appeal, I think the rule as it applies to informants who give information in confidence to the tax authorities is a rule that should be fostered. In my opinion, the four elements set out by Wigmore have been met. ..." (Emphasis added)
[17] Section 220(1) of the Act provided:
"The Minister shall administer and enforce this Act and control and supervise all persons employed to carry out or enforce this Act and the Deputy Minister of National Revenue may exercise all the powers and perform the duties of the Minister under this Act."
Section 220(1) now provides:
"The Minister shall administer and enforce this Act and the Commissioner of Customs and Revenue may exercise all the powers and perform the duties of the Minister under this Act."
The word 'enforce' is to be given its ordinary meaning, to compel observance. That is exactly what Ms. Manchester was doing in performing the audit and in assessing tax.
[18] Next, counsel argues that this is a case which falls within the "innocence at stake" exception to the rule. Counsel argues:
"In the usual course, the Crown is required to prove their case against a person. Here however, the Reassessment is deemed correct and there is a reverse onus that requires Mr. Webster to prove it wrong.
His situation is in a sense more precarious than a criminal defendant in that the CCRA has no burden to discharge. They do not need to prove their case on the balance of probabilities much less beyond a reasonable doubt. They merely assume the requisite facts."
[19] This line of argument is fundamentally flawed for it rests on the assumption that every taxpayer who has been assessed or at least every such person who contests his assessment, has been charged with a crime and, on appeal from the assessment, is obliged to prove his "innocence". The assumption is, quite simply, wrong.
[20] The onus in an income tax appeal obliges the Appellant to establish on the balance of probabilities that the factual assumptions on which the assessment rests are erroneous. That onus in most cases, and in particular in this case, should be relatively easy to discharge. The relevant facts, such as whether the foster children resided in the Appellant's principal place of residence, must be well known to the Appellant. The innocence at stake exception does not apply.
[21] The application will be dismissed with costs.
Signed at Toronto, Ontario, this 27th day of December 2002.
|
"Michael J. Bonner" |
T.C.J.
COURT FILE NO.: 2001-2060(IT)G
STYLE OF CAUSE: Arthur Webster and Her Majesty the Queen
PLACE OF HEARING: Vancouver, British Columbia
DATE OF HEARING: November 7, 2002
REASONS FOR ORDER BY: the Honourable Judge Michael J. Bonner
DATE OF ORDER: December 27, 2002
APPEARANCES:
Counsel for the Appellant: D. Laurence Armstrong
Counsel for the Respondent: Lisa Macdonell
COUNSEL OF RECORD:
For the Appellant:
Name: D. Laurence Armstrong
Firm: Armstrong Nikolich
Victoria, British Columbia
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2001-2060(IT)G
BETWEEN:
ARTHUR WEBSTER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Application heard on November 7, 2002 at Vancouver, British Columbia, by
the Honourable Judge Michael J. Bonner
Appearances
Counsel for the Appellant: D. Laurence Armstrong
Counsel for the Respondent: Lisa Macdonell
ORDER
The application is dismissed with costs.
Signed at Toronto, Ontario, this 27th day of December 2002.
|
"Michael J. Bonner" |
T.C.J.