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FEDERAL INCOME TAX - Appeals - Tax Court of Canada - Pleadings - Striking out a pleading

Friday, April 27, 2018 @ 8:30 AM  


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Appeal by the taxpayer from an order striking out portions of his amended notice of appeal. The main issue in the appeal was whether it is plain and obvious that, in a proceeding before the Tax Court of Canada related to the validity of a reassessment, certain evidence could not be excluded based on section 8 of the Canadian Charter of Rights and Freedoms (Charter). The evidence in issue was obtained by the Canada Revenue Agency (CRA) as a result of issuing requirements for information under subsection 231.2(1) of the Income Tax Act (ITA). Prior to issuing the requirements, an investigation had commenced to determine if charges should be laid against the taxpayer in relation to an offence under section 239 of the ITA. The same person who was conducting the investigation also issued the requirements for information to two banks. Largely based on the documents that were subsequently obtained from the banks, a net worth assessment was prepared which resulted in the CRA determining that the taxpayer had unreported business income and a tax liability for 2007 and 2008. Following certain representations made by the taxpayer to the CRA, the taxpayer was reassessed on the basis that he had unreported business income of $5,855,773 for 2007 and $4,815,601 for 2008. The taxpayer appealed the reassessments to the Tax Court of Canada. The Crown was successful in its motion to strike several portions of the taxpayer’s amended notice of appeal, including the portions relating to the taxpayer’s Charter arguments, as the Tax Court judge found that these arguments had no reasonable prospect of success at trial. In the current appeal, the taxpayer submitted that any information that was obtained as a result of the requirements was not admissible in the proceedings before the Tax Court of Canada related to the appeal of his reassessments because his rights under section 8 of the Charter had been infringed.

HELD: Appeal dismissed. The commencement of an investigation that could lead to charges under s. 239 of the Act did not preclude the CRA from using requirements to obtain information or documents that could be used only in relation to the reassessments. Both the reassessments and any charges under s. 239 of the ITA ultimately related to the underlying tax liability of the taxpayer. While using requirements to obtain information after an investigation had commenced could result in that information or those documents not being admissible in a proceeding related to the prosecution of offences under s. 239, it did not preclude that information or documents from being admissible in a Tax Court of Canada proceeding where the issue was the validity of an assessment issued under the ITA. It was plain and obvious that the CRA's power to issue requirements under section 231.2 of the ITA to obtain information or documents that would be used for the administrative purpose of reassessing a taxpayer was not suspended by the commencement of an investigation. Accordingly, any information or documents obtained as a result of the issuance of the requirements in this case could not be excluded, based on section 8 of the Charter, from the proceedings in the Tax Court of Canada related to the validity of the reassessments of the taxpayer’s tax liability for 2007 and 2008.

Bauer v. Canada, [2018] F.C.J. No. 339, Federal Court of Appeal, W.W. Webb, D.G. Near and J.B. Laskin JJ.A., March 27, 2018. Digest No. TLD-April232018009