to report all their commissions. Rejecting the challenge mounted by the Real Estate Board, the Federal Court of Appeal noted that section 231.2 of the Income Tax Act permitted the CRA to conduct “fishing expeditions” as long as the necessary court orders or warrants were obtained.
2.7 Information gathered from the taxpayer
Information is gathered from the taxpayers at the time of filing, and at the time of any subsequent review of their returns.
Taxpayers are required to file a return if they owe any taxes to the CRA for the relevant reporting period, or if they have been requested to file by the CRA. There are also various other reasons why a taxpayer may be required to file a return, which are discussed in Chapter 3.
If there is no tax payable, and if a taxpayer is not caught by one of these reasons, then no return needs to be filed, and thus the CRA will not gather any information from the taxpayer for that given year — that is unless the CRA performs an audit for that year.
According to section 150(1) of the Income Tax Act> (ITA), annual tax returns must be filed by taxpayers in the prescribed form, which means providing the CRA with certain data points (i.e., each figure in a tax return is a data point, such as CPP contributions and taxes deducted at source). Filed returns should include documentation to support relevant income and expenses; however, detailed books and records themselves are not to be included with the filing. Section 230 of the ITA explains that although not all information is required to be filed, it is essential that the taxpayer maintain these books and records of accounts in case of later review.
Once the returns have been provided by the taxpayer, and either before or after issuance of the initial Notice of Assessment, the CRA may seek further information regarding the taxpayer’s tax obligations. The CRA may simply request additional information or may audit the taxpayer on either a narrow or broad basis. Depending on the type of audit, the auditor may focus narrowly on specific issues, or investigate on more of a large-scale review, auditing all aspects of the taxpayer’s finances, including personal and business finances.
3. Confidentiality
When the Minister obtains filed returns or other relevant information, confidentiality prevents the use of this information, unless specifically for the administration and enforcement of the Income Tax Act (ITA). Confidentiality of taxpayer information within the income tax collection system in Canada is paramount.
The CRA is prohibited in all but certain specified instances from disclosing taxpayer information, according to section 241 of the ITA. The Supreme Court of Canada, in Slattery (Trustee of) v. Slattery [1993], has commented on the purpose of section 241 as follows:
“Section 241 involves a balancing of competing interests: the privacy interest of the taxpayer with respect to his or her financial information, and interest of the Minister in being allowed to disclose taxpayer information to the extent necessary for the effective administration and enforcement of the Income Tax Act and other federal statutes referred to in s 241(4). Access to financial and related information about taxpayers is to be taken seriously, and such information can only be disclosed in prescribed situations. Only in those exceptional situations does the privacy interest give way to the interest of the state.”
Section 241 of the ITA limits the scope of confidentiality to taxpayer information only. Taxpayer information includes any type of information, so long as it relates to the taxpayer, that has been created for or by the Minister for the purposes of the ITA or is prepared from such information but does not include information that does not directly or indirectly reveal the identity of the taxpayer to whom it relates.
Essentially, the CRA is prohibited by the ITA from knowingly using taxpayer information for purposes other than for the course of administrative or enforcement under the ITA, including prohibition against knowingly allowing access to or knowingly providing taxpayer information to any person. Agency officials who are in breach of this confidence are subject to penalties under subsection 239(2.2) of the ITA. Penalties may include imprisonment of up to 12 months, and/or fines of up to $5,000.
Moreover, according to subsection 241(2) of the ITA, agency officials cannot be compelled to produce or provide any evidence relating to a taxpayer for use in a non-tax related legal proceeding.
Re Glover v. Glover related to a case in which Mrs. Glover was awarded the custody of her two young children who were then removed from the home by Mr. Glover. In an attempt to track down Mr. Glover, a judge of the Supreme Court of Ontario ordered the CRA to provide the Court with Mr. Glover’s address. Upon an appeal of the initial decision, the Court of Appeal of Ontario concluded that Mr. Glover’s address was necessary to the CRA and an integral part of the information received by the CRA. Thus according to law, this information could only be provided by the CRA to persons authorized by law to receive it. According to the court, neither the Supreme Court of Ontario nor Mrs. Glover was such a person under section 241, and thus the CRA was prohibited from providing it to them.
Unlike the case in Re Glover v. Glover, a taxpayer’s information is not always protected by law. In fact, the Minister is authorized by the ITA to break confidentiality by disclosing taxpayer information in certain instances, such as the administering of criminal justice, government programs, or of the ITA itself. This disclosure occurs when the taxpayer’s privacy interest is outweighed by the public interest in administering justice. According to section 241 of the ITA, disclosure of taxpayer information is permitted when related to —
• imminent danger of physical injury or death to any individual,
• criminal proceedings,
• the transfer of information from and between the government, and
• legal proceedings that are related to the administration enforcement of the ITA.
An interesting exception to highlight under subsection 241(3) is in connection to criminal proceedings when commenced by the laying of an “information” (i.e., in order to prosecute, this document provides information about the crime the person is suspected to have committed) or a “charge.” In this exception, the CRA cannot initiate the criminal proceeding by using confidential information; the CRA must base its case on independently obtained evidence. Only once an actual charge has been laid, the proceedings initiated, and the need for confidential information to substantiate the case, may confidential information then be used.
For example, this exception would apply when the CRA suspects that a taxpayer may be a drug dealer. In this case the CRA would be prevented from providing information to the police that would result in laying charges for the crime. However, if the police had already charged an individual with this crime, the CRA would be permitted to provide personal information that may assist the Crown in making its case against the taxpayer.
Taxpayers’ are not without hope when compelled to disclose confidential tax information in a criminal proceeding. Instances have shown taxpayers successfully stopping disclosure by the CRA by invoking section 11 of the Charter of Human Rights. This is shown in Tyler v. M.N.R. [1991], where the taxpayer was facing charges both criminally and under the Narcotic Control Act when the Minister required the taxpayer to hand over confidential tax information, including statements of assets, liabilities, income, and expenses, pursuant to subsection 231.2 of the ITA. Although the information was required by the CRA, it intended to communicate this information to the police while the charges were outstanding. This allowed for the taxpayer to successfully prevent the release of such information, arguing that providing such information would deny him the right to silence under section 11 of the Charter of Human Rights, which says that a person who has been charged of an offence has the right “not
