Under the provisions of the Income Tax Act (the “ITA”), the CRA is authorized to inspect a taxpayer’s books and records and to require taxpayers to provide information and documents in the course of an income tax audit. However, the extent of the CRA’s powers are defined by law and there is no provision in the ITA that explicitly requires a taxpayer to submit to an oral examination as opposed to providing answers to questions in writing.
In the recent decision of Minister of National Revenue v. Cameco Corporation, 2017 FC 763, the Minister of National Revenue (the “Minister”) sought to compel 25 people to attend for oral examinations as part of a transfer pricing audit of Cameco. Cameco agreed to provide answers to written questions posed by the CRA but refused the demand for attendance and examination. The Minister applied to the Federal Court for a compliance order, arguing that the language in section 231.1 of the ITA entailed the authority to compel the examinations in question.
The judge disagreed, holding that in the circumstances written questions were sufficient to provide the CRA with the information sought. In arriving at the result, the judge held that subsection 231.1(1) “is not so wide as to compel an indeterminate number of people for oral interviews” and “does not provide the Minister with an unlimited right to conduct oral interviews”.
The Court’s analysis highlights the problematic nature of the Minister’s position that the CRA might be authorized by law to compel taxpayers to attend examination as part of an audit. Indeed, the analysis provides strong support for the contrary view. For example, the Court noted that if the Minister had unlimited power to compel oral examinations as part of an audit, she would have the right to a much broader form of examination for discovery than what is allowed under the Tax Court of Canada Rules governing tax appeals. Moreover, under the examinations that the Minister applied to compel, the procedural safeguards that exist under the Tax Court of Canada Rules would be absent; namely, the presence of counsel and a court reporter, the ability to choose a single representative of the company to be examined, and other procedural fairness rights.
Notably, one of the reasons Cameco refused the oral interviews was that it had agreed to oral interviews in past audits, which were not recorded, and when those matters proceeded to the Tax Court, the CRA and Cameco had “very different recollections” of what was said in the interviews.
This case was decided on facts in which the attempt by the CRA to compel the attendance of 25 people for examination was significant and burdensome. However, if the law is principled, then the interpretation of section 231.1 should remain constant whether the CRA were to attempt to compel the attendance of one person or 25. Indeed, an attempt to read section 231.1 to find authority that would authorize the CRA to compel some people for attendance for examination, but not too many people, would strain any proper interpretation of that section.
Absent express statutory language, it would be extraordinary if the CRA were authorized by law to compel taxpayers to answer questions orally. Not only would the rules governing such an exceptional procedure be unknown, but the answers given by a taxpayer through this type of compelled interview could potentially be used to advance a criminal investigation or prosecution under the rule in R. v. Jarvis, 2002 SCC 73. This would undoubtedly engage constitutional issues, which were not addressed by the Court in Cameco.
Importantly, a plain reading of the relevant provisions of the ITA reveals that any authority to compel an oral examination of a taxpayer (or other person in relation to a taxpayer) as part of an audit does not appear to be contained in the statutory language and such compulsion is therefore beyond the reach of the CRA. It will be recalled that in BP Energy Company v. Minister of National Revenue, 2017 FCA 61, the appeal court considered and placed limits upon the Minister’s statutory authority to compel the production of certain types of documents in an audit. In Cameco, the Court once again instructed that the powers available to the Minister are limited by law and taxpayers are entitled to the protection of that law.