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Scope of the CRA’s ability to use compelled information against taxpayers


Bill Maclagan and David Ross, of Blake, Cassels & Graydon, review recent case law regarding the scope of the Canada Revenue Agency’s (CRA) ability to use compelled information against taxpayers.

Section 231.1 of the Canada Income Tax Act (Act) gives the CRA the power to inspect the books and records of a taxpayer, and any document of the taxpayer or any other person that may relate to the information that should be in the taxpayer’s books and records, or relate to any amount payable under the Act. CRA may enter business premises or other property to carry out its inspection.

It also gives the CRA the power to issue a written demand for information or documents to any person, for any purpose related to the administration or enforcement of the Act.

If a person fails to comply with either section 231.1 or 231.2, the CRA may seek a court order compelling compliance under section 231.7 of the Act. A person who fails to obey such an order risks imprisonment for contempt of court.

The CRA may not use these powers to pursue a criminal investigation for tax evasion. Once the CRA “crosses the Rubicon” and begins a criminal investigation, the Canadian Charter of Rights and Freedoms, which constitutionally protects certain rights and freedoms, prevents the CRA from compelling the taxpayer to incriminate him or herself by using sections 231.1 or 231.2 to compel the taxpayer to provide information.

Rather, the CRA must obtain judicially authorised search warrants pursuant to the Act or the Criminal Code if it wishes to obtain documents from the taxpayer or conduct a search to pursue a criminal investigation.

Romanuk v Canada, a recent Federal Court of Appeal decision, demonstrates that the CRA may continue to use sections 231.1 and 231.2 for the purposes of administering and enforcing the Act after it “crosses the Rubicon”.

The taxpayer argued that the CRA could not use information gathered using sections 231.1 and 231.2 to assess her income tax liability because the CRA was contemplating charging her with an offence when it gathered the information and the information was therefore gathered in violation of the constitution. She argued that the information should be excluded as evidence in her appeal to the Tax Court of Canada.

The court rejected the taxpayer’s argument and held that the CRA has the right to continue to use its audit powers provided that the information or documents are only used for the purposes of administering the Act. Therefore, the information gathered could be used to reassess the taxpayer. If the information or documents are used in an investigation or prosecution for tax evasion, the court dealing with the prosecution would deal with whether the information was gathered in violation of the constitution.

The court distinguished an earlier case that vacated an assessment because the assessment relied on information obtained pursuant to an illegal search warrant. The search was illegal because the warrant was issued under a section of the Act later found to be unconstitutional. By contrast, the information in Romanuk was either voluntarily submitted or obtained using the CRA’s audit powers.

By principal Tax Disputes correspondent for Canada, Bill Maclagan ( and David Ross ( of Blake, Cassels & Graydon.

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