Federal Court Decisions

 

 

Date:  20071009

Docket: T-1620-06

Citation: 2007 FC 932

Ottawa, Ontario, October 9, 2007

PRESENT:     The Honourable Mr. Justice Shore

 

BETWEEN:

MINISTER OF NATIONAL REVENUE

Applicant

and

 

BERNARD DROPSY,

as representative of CD²I COOPÉRATIVE DE SERVICES EN

DÉVELOPPEMENT INTERNATIONAL, and as administrator of

WARRINGTON

Respondent

 

REASONS FOR JUDGMENT AND JUDGMENT

 

OVERVIEW

[1]               A request for information according to subsection 231.2 (1) of the Income Tax Act, R.S.C. 1985, c. 1 (5^th Supp.) (ITA) "…empowers the Minister to compel a taxpayer to provide “information”…”. (Tower v. Canada (Minister of National Revenue – M.N.R.) (F.C.A.) v. Kitsch, [2004] 1 F.C.R. 183, [2003] F.C.J. No. 1153 (QL).)

The Minister may, however, only request additional information relevant to the taxpayer’s tax liability. (R. v. McKinlay Transport Ltd., [1990] 1 S.C.R. 627.)

[2]               The Federal Court of Appeal has recognized that: “A requirement is valid if the requested information may be relevant in the determination of the tax liability of the named taxpayer”. This low threshold allows the Minister to obtain information that may be relevant in determining a taxpayer’s liability under that Act. (Kitsch, above.)

 

[3]               Furthermore, the person served with a request for information, that is given a reasonable amount of time for production of information or documents, will be required to comply if the Minister was acting for a purpose related with the administration or enforcement of the ITA. (1144020 Ontario Ltd. v. Canada (Minister of National Revenue – M.N.R.), 2005 FC 813, [2005] F.C.J. No. 1018 (QL).)

 

BACKGROUND

[4]               Mr. Bernard Dropsy is a representative of CD²I Coopérative de services en développement international (CD²I) and administrator of Warrington Security Securities Limited (Warrington).

 

[5]               The Canada Revenue Agency (CRA) is attempting to verify CD²I’s compliance with the ITA, for the 2003, 2004 and 2005 taxation years.

 

[6]               As part of the Minister’s investigation of CD²I’s business affairs, it has also verified all of the Respondent’s business relations with its members and business partners, namely, Warrington.

 

[7]               The Minister issued two Requirements for Information (RFIs) to Mr. Dropsy; one as representative of CD²I and the second as administrator of Warrington, pursuant to paragraphs 231.2(1)(a) and (b) of the ITA, on June 29, 2006.

 

Requirements for information from CD²I

[8]               CD²I was required to provide the following information and documents to the Minister within 30 days of service of the RFIs:

§         Le nom de tous les membres faisant partie des personnes ayant investi un montant nominal (membres autres que ceux qui ont transféré un REER ou tout autre placement enregistré à CD2I) à un moment ou à un autre et faisant partie des membres de la coopérative pour les années 2003, 2004 et 2005. Nous aimerions obtenir à leur égard leur adresse ainsi que leur pourcentage de participation pour chacune des années 2003, 2004 et 2005.

 

§         Tous les relevés bancaires de tous les comptes bancaires de la coopérative CD2I pour l’année 2005 ainsi que les livres comptables et pièces justificatives expliquant les dépôts et les retraits.

 

(Applicant’s Record, Tab A, p. 4.)

 

 

Requirements for information from Warrington

 

[9]               Warrington was required to provide the following information and documents to the Minister within 30 days of service of the RFIs:

·        Relevés bancaires

·        Chèques retournés par la banque

·        Grand livre

·        Journal général

·        Écritures de régularisation

·        Chiffriers

·        Livre des minutes

·        Caisse-recettes

·        Caisse-déboursés

·        Nom de tous les administrateurs de la compagnie

·        Description des principales activités de la société et services offerts aux clients

 

(Applicant’s Record, Tab B, p. 8.)

 

 

[10]           Copies of the above-mentioned RFIs were also served on the attorneys of CD²I.

 

[11]           Neither CD²I nor Mr. Dropsy has provided the requested information.

 

[12]           The Applicant specifies that the tax liabilities of CD²I are under administrative investigation, and the information and documents sought from Mr. Dropsy are considered necessary to assist in completing the audit as well as verifying the admissibility of the members’ investments.

 

ISSUES

[13]           (1)   In accordance with section 231.7 of the ITA, was the Respondent required under subsection 231.2(1) of the ITA to provide the documents and information requested in the Requirement Letters?

(2)  Has the Respondent complied with the Requirement Letters?

(3)  What are the requirements which must be satisfied before this Court exercises its discretion under section 231.7 of the ITA to order a person to provide access, assistance, information or documents sought by the Minister under subsection 231.2(1) of the ITA?

(4)  Have the requirements for an order under section 231.7 of the ITA been satisfied in this case?

 

ANALYSIS

Standard of Review

[14]           According to the Federal Court of Appeal’s decision in AGT Ltd. v. Canada (Attorney General) (C.A.), [1997] 2 F.C. 878, [1997] F.C.J. No. 398 (QL):

[27]      Subsection 231.2(1) is drafted in broad language, but its scope has been reduced through the rules of interpretation to situations where the information sought by the Minister is relevant to the tax liability of some specific person or persons, and when the tax liability of such person or persons is the subject of a genuine and serious inquiry…

 

 

Therefore, "…each notice of requirement issued under that provision must meet the test of relevancy and reasonableness". (AGT, above, para. 21.)

 

[15]           This Court must give effect to the legislative intention which grants discretion to the Minister in this regard. In reviewing the Minister’s decision, this Court should not re-weigh the factors or interfere merely because it would have come to a different conclusion.

 

Requirement to provide documents or information

[16]           The ITA is a regulatory statute based on the principle of self-reporting and self-assessment. The integrity of the system must therefore allow for some form of monitoring that is effective yet not intrusive.

 

[17]           The Ministry’s power to investigate and audit taxpayers is provided by s. 231.2 of the ITA which reads as follows:

 

 

[18]           A request for information according to subsection 231.2 (1) "…empowers the Minister to compel a taxpayer to provide “information”…”. The Minister may, however, only request additional information relevant to the taxpayer’s tax liability. (Tower, above; R. v. McKinlay, above.)

 

[19]           The Federal Court of Appeal has recognized that: “A requirement is valid if the requested information may be relevant in the determination of the tax liability of the named taxpayer”. This low threshold allows the Minister to obtain information that may be relevant in determining a taxpayer’s liability under that Act. (Kitsch, above.)

 

[20]           Furthermore, the person served with a request for information, that is given a reasonable amount of time for production of information or documents, will be required to comply if the Minister was acting for a purpose related with the administration or enforcement of the ITA. (1144020 Ontario Ltd., above.)

 

Requirement for information from CD²I

[21]           The Respondent submits that he provided the Applicant with complete extensive unrestricted and voluntary disclosure from CD²I including information in respect of its relationship to members and Warrington. He further submits that the documents and information had been provided prior to the requirements and with a future, continuing unrestricted and complete access to all information and documents in the possession or control of CD²I. 

 

[22]           The Minister specifies that, pursuant to paragraph 231.2(1)(a), he may request additional information in order to complete, confirm or infirm an audit.

 

 

 

Requirement for information from Warrington

[23]           The Respondent submits that neither he or CD²I have any documents in their possession, or physical or legal control that belong to, or pertain to, Warrington, other than those obtained by CRA. He equally states that, despite his administrative position, he has “no control over Warrington and whatever information it may possess, and [he has] no corporate authority, nor any information about Warrington relating to the questions directed at [him].” (Affidavit of Bernard Dropsy, para. 30.)

 

[24]           From direct reference to excerpts of cross-examination, the Minister has brought forward:

(a)  The Respondent has signed the warehousing contract on behalf of WARRINGTON and he has offered no logical justification for doing so;

(b)  The Respondent has signed a letter on behalf of WARRINGTON by which the price of an order of CD²I to WARRINGTON, was changed and by which he gave an acquittance (quittance) of any further payment;

(c)  The purchasing contract of 223 cases of nouveau wine to CD²I dated August 24, 2004, which was signed by the Respondent on behalf of Warrington;

(d)  The Respondent has given instructions in order to transfer money from a bank account of WARRINGTON; although he has given such instructions, he claims that he does not have possession or control of the bank statement.

 

(e)  The financial statements of CD²I for the year ended on December 31, 2004, have added proof for they state that CD²I has conducted business with a foreign company that is administered by a member (« une société étrangère administrée par un des membres »).

(Applicant’s Record, Tab 5.)

 

[25]           Consequently, for the foregoing reasons, the Court agrees with the Applicant that the Respondent has sufficient access to the documents and information regarding Warrington and, by virtue of such, has sufficient corporate authority to provide the information and documents regarding Warrington which were requested by the Applicant.

 

[26]           The Minister specifies that the additional information and documents sought from the Respondent, Mr. Dropsy, as representative of CD²I, and as administrator of Warrington, are necessary to assist in completing the audit as well as verifying the admissibility of the members’ investments.

 

[27]           The Minister explains that, although the Respondent was served with the RFIs on June 29, 2006, he has yet to provide the information and documents sought.

 

[28]           The Respondent has, therefore, not complied with the request for information and is, therefore, not in compliance with section 231.2.

 

 

Requirements for a compliance order

[29]           When the Requirements for information are not complied with, the Minister may request from the Court, a compliance order, pursuant to section 231.7:

 

[30]           The Court must, however, be satisfied that the person served with the requirement letter, was required under subsection 231.2(1) of the ITA to provide the information, that the information was not provided and that under paragraph 231.7(1)(b) of the ITA, the information or documents are not protected from disclosure by solicitor-client privilege. (Canada (Minister of National Revenue – M.N.R.) v. Marshall, 2006 FC 279, [2006] F.C.J. No. 350 (QL).)

 

[31]           Based on the above-mentioned, it is clear that, pursuant to subsection 231.2(1), the Respondent is a person who was required to provide information or documents to the Minister. Despite the thirty days provided to comply, the Respondent did not provide any of the requested documents or information and no solicitor-client privilege has been invoked.

 

[32]           For the foregoing reasons, it is appropriate for this Court to exercise its discretion and order that the Respondent provide the information and documents sought by the Minister under the RFIs served on June 29, 2006.

JUDGMENT

 

THIS COURT ORDERS,

1)         Pursuant to section 231.7 of the Income Tax Act, that the Respondent comply with the notice issued by the Minister and shall forthwith, and in any event, not later than thirty days from the date of this Order, provide the Information and Documents requested by the Minister of National Revenue in the two Requirements to provide documents, dated June 29, 2006.

 

2)      Costs to be borne by the Respondent.

 

 

“Michel M.J. Shore

FEDERAL COURT

 

SOLICITORS OF RECORD

 

 

 

DOCKET:                                          T-1620-06

 

STYLE OF CAUSE:                          MINISTER OF NATIONAL REVENUE

                                                            v. BERNARD DROPSY,

 

as representative of CD²I COOPÉRATIVE DE SERVICES EN DÉVELOPPEMENT INTERNATIONAL, and as

administrator of WARRINGTON

 

 

PLACE OF HEARING:                    Montreal, Quebec

 

DATE OF HEARING:                      September 5, 2007

 

REASONS FOR JUDGMENT

AND JUDGMENT:                          SHORE J.

 

DATED:                                             October 9, 2007

 

 

 

APPEARANCES:

 

Me Maria Bittichesu	FOR THE APPLICANT
Me Emilio S. Binavince	FOR THE RESPONDENT

 

SOLICITORS OF RECORD:

 

LAW OFFICES OF FRANCES M. VIELE Ottawa, Ontario	FOR THE APPLICANT
JOHN H. SIMS, Q.C. Deputy Attorney General of Canada	FOR THE RESPONDENT