Complying with a Canada Customs Revenue Agency auditor

Do I have to let a Canada Customs Revenue Agency (CRA) auditor immediately look at all my files, books and records where that auditor is at my company's (TEDco) front desk, saying I am being audited?

Generally, the best tax advice for me is to comply with the auditor, and provide all requested information. Failure to comply with the auditor may aggravate the auditor, who may then use more intrusive methods to obtain information.[1] There are exceptions to this general advice based on the situation; is the auditor auditing TEDco to ensure that my company is complying with the ITA, or is the auditor adversarial in nature. The following answer first discusses what materials TEDco must disclose if the auditor is auditing TEDco for compliance reasons, and then discusses the materials Apple must disclose if the auditor is adversarial.

An “authorized person” is a person authorized by the Minister for the purposes of sections 231.1 to 231.5 of the Federal Income Tax Act (like the auditor),[2] and may at all reasonable times, like regular business hours of a company, inspect, audit or examine the books, records or any document of a taxpayer or person, regarding a payable amount under the ITA.[3] A taxpayer cannot physically, or otherwise interfere with an auditor’s investigation.[4] If a taxpayer does not provide access to information, assistance, etc., a judge may order a taxpayer to comply with the investigation,[5] or the taxpayer faces the possibility of being in contempt of court.[6]

An authorized person may not inspect, audit or examine books, records or any document of a taxpayer or person that has “solicitor-client privilege” attached to it. “Solicitor-client privilege” means an oral or documentary communication passed between the person and his or her lawyer in professional confidence, but does not include that taxpayer or person’s accounting record of a lawyer, as well as a supporting voucher or cheque.[7] These are documents where the client expects privacy, and where the lawyer is ethically required to keep this information confidential.[8] Although s. 232 states that only a lawyer may claim privilege, Lavallee held that the client can also claim privilege for a document.[9] If privilege is claimed on a document, that document will be placed and sealed in an envelope and given to a custodian. A 14 day time limit will then ensue to complete the claim of privilege on the document (including a 3 day notice period).[10]

If the auditor is adversarial in nature, and exercises their statutory compulsion powers to charge Apple with an offence, rather than a regulatory purpose, TEDco will be able to invoke their rights against self-incrimination under the Charter, and not have to provide any materials.[11] Determining the auditor’s dominant intention (either compliance or adversarial) depends on 7 criteria: did the authorities have reasonable grounds to lay charges, was the auditor’s attitude consistent with a criminal investigation, did the auditor transfer his files to criminal investigators, was the auditor acting as an agent for investigators, were investigators going to use the auditor’s evidence, is the evidence relevant to taxpayer liability or the taxpayer’s mens rea, are there other facts making the search look like a criminal investigation.[12]

Whether TEDco complies with the auditor will depend on the facts at hand.

FOOTNOTES:
[1] Richard Kirby, “Fighting the CCRA” in Lisa Phillips, Tax Lawyering 322.
[2]Income Tax Act, R.S.C. 1985 (5th Supp.), c.1, s. 231. (ITA).
[3] Ibid. at s. 231.1(a).
[4]Ibid. at s. 231.5(2).
[5] Ibid. at s. 231.7(1).
[6] Ibid. at s. 231.7(4).
[7] Ibid. at s. 232(1).
[8] Lavallee, Rackel and Heintz v. Canada (Attorney General), [2002] 3 S.C.R. 209, at para. 35. (Lavallee).
[9] Ibid. at para. 40.
[10] Supra note 2 at s. 232(3.1).
[11] James Sprague, “Good Cop/Bad Cop” in Lisa Phillips, Tax Lawyering 330 at 333.
[12] R. v. Jarvis, [2002] 3 S.C.R. 757, at para. 94.