In the case of MNR v PayPal Canada, an application was made by the minister (to the Federal Court of Canada) under subsection 231.2(3) of Canada's Income Tax Act (ITA) and subsection 289(3) of the Excise Tax Act (ETA) for judicial authorisation to impose on PayPal Canada (PayPal) a requirement to provide information and documents related to certain unnamed persons. These unnamed persons were corporations and individuals that had held a business account with PayPal and that had used PayPal's online payment platform in the course of their commercial activities during the period from 2014 through to autumn 2017.
This request by the CRA for information about 'unnamed persons' was a classic 'fishing expedition'. The CRA had no particular information that it was acting on, but it argued that such information was necessary to combat tax non-compliance in the underground economy. PayPal raised concerns that there was not even a threshold amount for each transaction targeted by the requirement, and that the requirement would interfere with the privacy of PayPal's clients. Overall, PayPal argued that the authorisation sought by the minister was an overly broad interference with the privacy of PayPal's clients and was unreasonable.
The information required by the CRA from PayPal included: (a) the full name of every individual and corporation holding a business account in the relevant period that provided PayPal with a Canadian address; (b) the date of birth of each individual; (c) business names; (d) telephone numbers; (e) full addresses; (f) email addresses; and (g) social insurance numbers and/or business numbers, if available. The CRA also requested information regarding the transactions made by the accountholders.
Subsection 231.2(3) of the ITA (and the equivalent provision in the ETA) allows a judge of the Federal Court to authorise the CRA to impose a requirement to produce documents or information relating to one or more unnamed persons if the judge is satisfied by information on oath that: (a) the person or group is ascertainable; and (b) the requirement is made to verify compliance by the person or persons in the group with any duty or obligation under the ITA (or ETA, as applicable).
The court held that both of these conditions were satisfied by the minister. The persons or group of persons were ascertainable, as the unnamed persons were corporations and individuals holding a business account with PayPal that have used PayPal's online payment platform in the course of their commercial activities during the period covering the calendar years 2014 to the date of service of the unnamed persons requirement; and (b) the unnamed persons requirement was made to verify compliance by these unnamed persons with their duties and obligations under the ITA and ETA. The court did not question the breadth of information that the CRA demanded, but held that the "expectation of privacy with respect to business records is very low". The order was therefore granted and the requirement was issued.
One should expect that the CRA will continue to use requirements relating to unnamed persons as a means of identifying taxpayers who may not have complied with income and sales tax reporting obligations.
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