Like Klundert, this is another case where the TCC said that it might refuse CRA evidence if the evidence could not be used in a criminal prosecution. This view seems unreliable.
The Supreme Court of Canada said, in a 2002 case called R. v. Jarvis, that the CRA cannot use its normal audit powers to investigate a criminal case. The usual audit powers, which are broad, are for assessing tax liability, not tax evasion liability. Once CRA decides it may prosecute someone, it must get warrants for further investigation. It can’t use its ordinary audit powers for the criminal investigation. With its ordinary audit powers, CRA can send written requirements to taxpayers or to third parties, such as banks, demanding documents or other information. If CRA does rely on its regular audit powers in a criminal investigation, the Court may (not must) reject the evidence, if it would bring the administration of justice into disrepute to use the evidence for prosecution.
These “Jarvis” rules apply for criminal cases; they protect Charter rights which only apply when someone faces criminal charges. They don’t apply to civil matters, such as Customs Act seizures or tax assessments. (See
Tourki v. Canada (Minister of Public Safety and Emergency Preparedness), 2007 FCA 186.)
So, the fact that CRA may not be able to use evidence in a criminal prosecution shouldn’t mean that it can’t use the same evidence in a civil action. In Jarvis, the SCC said that: “the requirement powers of ss. 231.1(1) and 231.2(1) cannot be used to compel oral statements or written production for the purpose of advancing the criminal investigation.” [Jarvis, Para. 97]. It did not say that the audit powers may not be used for a non-criminal investigation into whether the accused owe tax. In fact, the SCC approved use of audit powers even during a criminal investigation:
“[97] The predominant purpose test does not thereby prevent the CCRA from conducting parallel criminal investigations and administrative audits. The fact that the CCRA is investigating a taxpayer’s penal liability, does not preclude the possibility of a simultaneous investigation, the predominant purpose of which is a determination of the same taxpayer’s tax liability. … So long as the predominant purpose of the parallel investigation actually is the determination of tax liability, the auditors may continue to resort to ss. 231.1(1) and 231.2(1).” [Jarvis, Para. 97]
Justice D’Arcy recognized this “parallel audit power” at para. 105 of his decision. And much of his analysis of the evidence focused on whether the auditors took part in the criminal investigation. (D’Arcy J. said they did not.) So, he decided the audit evidence could be used for the GST reassessments. Even so, D’Arcy J. left open the possibility that the TCC might refuse evidence in a tax appeal if the auditor took part in the criminal investigation. (Often, the CRA criminal investigators, who take over from the original auditor, will also issue the notice of reassessment for the tax liability.)
The GST appellants also asked D’Arcy J. to consider whether the warrants CRA used for the criminal investigation were valid and, if invalid, to reject the evidence CRA got with them. But D’Arcy J. said that the only place taxpayers may challenge a criminal warrant is the court which issued it (in this case, the New Brunswick provincial court.)
Though TCC judges seem open to the idea, you may not be wise to count on having the TCC refuse evidence because it couldn’t be used in a criminal prosecution. Even if the auditors are gathering evidence and sharing it with criminal investigators, the sharing does not seem to invalidate the evidence for use in the tax audit and a later TCC appeal.
See 506913 N.B. Ltd. and Cambridge Leasing Ltd. v. The Queen, 2013 TCC