Introduction – Tax Search Warrants
Canadian federal income tax law contains provisions that give the Canada Revenue Agency (“CRA”) a wide range of powers to administer and enforce the law. For example, Section 231.1 gives the credit rating agency the power to review and inspect taxpayers’ books and records, and Section 231.2 gives the credit rating agency the power to require a taxpayer or a third party to provide documents and information upon request. These powers apply to the rating agency’s civil tax audits. However, the rights of a taxpayer under Section 7 of the Charter of Rights and Freedoms are asserted as soon as a criminal tax investigation is initiated by the credit rating agency. In R v Jarvis, the Canadian Supreme Court set the test to determine when a civil tax audit has turned into a criminal tax investigation. In particular, the Supreme Court of Canada ruled that “wherever the primary purpose of an investigation or question is to determine criminal liability, all of the Charter safeguards relevant in a criminal context must apply”. In handling a criminal tax investigation, the credit rating agency cannot rely on the administrative and enforcement powers available under Sections 231.1 and 231.2 of the Income Tax Act. In the context of criminal tax investigations, the rating agency must obtain a search warrant in accordance with subsection 231.3 (1) of the Income Tax Act. This article contains tax advice on warrants.
Tax Search Warrant – Section 231.3 of the Income Tax Act
Subsection 231.3 (1) of the Income Tax Act allows the rating agency to file an ex parte application to a judge of a provincial or federal judge for an arrest warrant “to enter a building, container or place and search for documents or records to search things that may provide evidence of the commission of a crime under this law “.
Under subsection 231.3 (3), a judge may issue a search warrant if he is satisfied that there is reason to believe that:
- A criminal offense under the Income Tax Act was committed;
- It is likely that some document or item will be found that can provide evidence of the commission of the crime under the law. and,
- The building, container, or location indicated in the filing is likely to contain such a document or thing.
Tax Search Warrant – Seizure, Retention, Return of Content
When a search warrant is issued under Subsection 231.3 (1) of the Income Tax Act, it must identify the person authorized to enter the building, container or place and search for the document or item in question and bring it up or report it the judge (who issued the search warrant) or another judge in the same court (subsection 231.3 (4), Income Tax Act). In addition, Subsection 231.3 (5) of the Income Tax Act allows any person executing a search warrant to confiscate “any other document or thing” that provides evidence of a crime under the Act, in addition to those listed in the search.
According to subsections 231.3 (6) and 231.3 (7) of the Income Tax Act, the judge must decide whether or not the rating agency is authorized to hold the seized materials. In particular, subsection 231.3 (6) requires that a judge issue an order indicating that the seized material is retained by the credit rating agency, unless the credit rating agency provides otherwise. Subsection 231.3 (6) obliges the credit rating agency to treat the seized document or item “responsibly” and to ensure that it is “retained until an investigation into the criminal offense in relation to which the document or item has been seized is completed” “or until such content” has to be created for the purpose of criminal proceedings “.
Pursuant to Subsection 231.3 (7) of the Income Tax Act, a judge may order that the seized document or item be returned to the person from whom it was seized or to the person otherwise legally entitled if the judge is satisfied is that the document or thing:
- Not required for an investigation or criminal proceeding; or,
- Was not seized under the warrant or Section 231.3 of the Income Tax Act.
Tax Search Warrant – Taxpayers’ access to confiscated content and rights and privileges during a Tax Search Warrant
Subsection 231.3 (8) of the Income Tax Act enables the person from whom a document or item is confiscated “at all reasonable times and under such reasonable conditions” to view and obtain copies of such materials “at the Minister’s expense”.
However, it is difficult to give precise tax guidance on the period of time a judge can order that documents and seized items (e.g. computers) be “held by the minister” before they are returned to the person who made them originate from seized or the person who is otherwise legally entitled to such a document or such thing. Additionally, the retention period for documents or seized items may vary depending on relevant or external factors including, but not limited to, the scope of the rating agency’s criminal investigations or delays due to the COVID-19 pandemic. Since records are usually retained by the credit rating agency for an extended period of time, it is important for taxpayers exposed to a potential tax search warrant to keep all physical files and computer records secure as well as being confiscated off-site or in the cloud.
It is important to note that a taxpayer’s computers and documents can also be kept in an accountant’s files along with the accountant’s working papers by the credit rating agency. However, in certain circumstances, an attorney-client privilege may be available for accountant-client correspondence if the accountant is hired by the attorney to facilitate communication between the taxpayer and the Canadian tax attorney or to provide information to the tax attorney on behalf of the taxpayer To make available . In Telus Communications Inc. v. Canada (Attorney General), the federal appeals court ruled that advice given to a client through an agent acting on behalf of the client (e.g., the accountant) is privileged because the accountant is acting on behalf of legal counsel The customer received legal advice.
It is strongly recommended that upon delivery of a search warrant, the taxpayer immediately engages a Canadian tax attorney to ensure that all of their rights and privileges under Section 232 (1) of the Income Tax Act are preserved. In particular, Section 232 (1) of the Income Tax Act gives taxpayers the right to assert “legal and client rights” and “refuse to disclose an oral or documentary communication on the grounds that it is a communication between the person and the person’s lawyer in professional trust. “
Section 487 of the Criminal Code and search warrants
According to Section 487 (1) of the Criminal Code, a judge can also “grant an interested person permission to examine arrested or seized material”. Accordingly, in lieu of a search warrant under section 231.1, the rating agency may obtain a search warrant under subsection 487 (1) of the Criminal Code. In the Mandate Erectors and Weldings Ltd v. The Queen case, documents were seized in accordance with a search warrant pursuant to Section 487 (1) StGB. In this case, the taxpayer tried to prevent the credit rating agency from continuing to keep and use copies of the documents seized in a criminal investigation because the search warrant was not properly issued. However, the court disagreed with the taxpayer, stating that “irreparable harm” would not occur if the taxpayer’s request were rejected.
Pro Tax Tips – Tax Advice and Tax Search Warrants
Tax search warrants can have enormous financial consequences for businesses and their owners. Failure to comply with a search warrant is a criminal offense under Section 238 (1) of the Income Tax Act. A taxpayer who does not provide the rating agency with any documents or property listed in a search warrant can be obliged to pay a fine in accordance with Section 238 (1). In addition, a taxpayer found guilty of a criminal offense under Section 238 (1) of the Income Tax Act will be liable, in addition to a summary conviction penalty, to (a) a fine of at least $ 10,000 and no more than $ 25,000; or (b) both a fine and a prison sentence not exceeding 12 months.
If you are the subject of a search warrant, criminal tax investigation by the rating agency, or if you are charged with a Section 238 (1) Income Tax Act, please contact our tax authorities for tax advice from our top Canadian tax attorneys.
The content of this article is intended to provide general guidance on the subject. You should seek advice from a professional about your particular circumstances.