David J. Rotfleisch, CPA, CA, JD, is the incorporation tax attorney for Rotfleisch & Samulovitch PC, a Toronto-based boutique tax law firm.
Canada’s federal income tax law contains provisions that the Canada Revenue Agency a wide range of powers to administer and enforce the law. For example, Section 231.1 gives the rating agency the power to examine and inspect taxpayers’ books and records Section 231.2 grants the rating agency the power to charge a taxpayer. or a third party, to provide documents and information on request. These powers apply to the rating agency’s civil tax audits.
The rights of a taxpayer under Section 7 of the Charter of Rights and Freedom as soon as a criminal tax investigation is initiated by the rating agency. in the R v Jarvis, the Supreme Court of Canada, set the test to determine when a civil tax audit 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, everyone Charter protection, which is relevant in a criminal context, must apply. “
In the event of a criminal tax investigation, the rating agency cannot rely on the administrative and enforcement powers available in the sections 231.1 and 231.2 of the Income Tax Act. The rating agency must seek advice in the context of criminal investigations [instead] a search warrant under Section 231.3 (1) EStG. This article contains tax advice on warrants.
Section 231.3 EStG
Subsection 231.3 (1) of the Income Tax Act allows the rating agency to issue a ex parte Request by a judge in a federal or federal court for an arrest warrant to “enter a building, container or place and search for documents or items 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.
Seizure, storage, return of content
When a Search warrant is issued in accordance with subsection 231.3 (1) of the Income Tax Act and must identify the person authorized to enter and search the building, container or place for the document or object in question and to present it to the judge or report it to 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 paragraphs 231.3 (6) and 231.3 (7) of the Income Tax Act, the judge must decide whether the rating agency is entitled to keep the seized material or not. 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.
Taxpayers’ access during a 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 typically 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 maintain the offsite or cloud backup of all physical files and computer records, as will be the case that it will be confiscated.
Accountants and search warrants
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, under certain circumstances, an attorney-client privilege may be available for correspondence between accountant and client if the accountant is hired by the attorney to facilitate communication between the taxpayer and the tax attorney or to provide information to the tax attorney on behalf of the taxpayer to deliver . in the 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 since the accountant has received legal advice on behalf of the client.
It is strongly recommended that when a search warrant is served, the taxpayer immediately engages a tax attorney to ensure that all of his rights and privileges under Section 232 (1) EStG are preserved. In particular, Section 232 (1) of the Income Tax Act gives taxpayers the right to assert “legal and client rights” and “to refuse to disclose an oral or documentary communication on the grounds that it is a communication between the person and the Advocate the person in professional confidence. “
Section 487 of the Criminal Code and search warrants
Subsection 487 (1) of the Criminal Code also allows a judge to “give 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 against The Queen, documents were confiscated 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.
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.
David J Rotfleisch, CPA, CA, JD, is the incorporation tax attorney of Rotfleisch & Samulovitch PC, a Toronto-based boutique tax law firm. With over 30 years of experience as a lawyer and accountant, he has assisted start-ups, resident and non-resident entrepreneurs and corporations in their tax planning, including will and estate planning, voluntary disclosure and tax dispute resolution. visit www.Taxpage.com and send an email to David at [email protected].