INCOME TAX |
Practice |
Artistic Ideas Inc. v. Canada (Customs and Revenue Agency)
T-1141-02
2004 FC 573, Snider J.
16/4/04
23 pp.
Application for order striking portion of requirement requiring applicant to provide names, addresses of donors, charities without prior judicial authorization--Artistic Ideas Inc. (applicant), as sales agent for two American art galleries, arranges sale of artwork to individual Canadian taxpayers (donors) who normally donate such artwork to registered charities--Donors obtain tax benefits from such donations, based on difference between appraised value of works of art and what donors paid for them--Such transactions sometimes referred to as "art flips"--Tax Avoidance Section of Customs and Revenue Agency (CCRA) began auditing applicant--Tax Avoidance Officer served requirement on applicant to provide certain documents pursuant to Income Tax Act, s. 231.2(1), including names of donors, charities--Concurrent investigation by CCRA into art flips ("art project") to identify, reassess all donors involved in art flips--Applicant agreed to provide CCRA with documents requested except for names, addresses of donors, charities--(1) To prevent M.N.R. from conducting "fishing expedition", broad powers of s. 231.2(1) can only be exercised in course of genuine and serious inquiry into tax liability of named individual--Although connection between applicant and art project, promoters of art flips, such as applicant, not generally pursued as part of art project--Tax Avoidance Officer suggested in cross-examination applicant of some interest to those pursuing art project--Given applicant's central role in art flip transactions, interest understandable--However, not negating genuine and serious concerns giving rise to audit in first place--Accordingly, audit of applicant genuine and serious inquiry into tax liability--(2) Whether names of donors and charities possibly relevant to applicant's audit--As stated in Tower v. M.N.R., [2004] 1 F.C.R. 183 (F.C.A.), test for whether information required for audit very low--Respondent need only show names of donors and charities may be relevant--Having such names would enable M.N.R. to verify, by consulting with third parties, that transactions reported by applicant did in fact take place-- Further, concerns about accuracy of redacted documents understandable--Only originals provide full, accurate picture of applicant's business dealings--Thus names of donors, charities may be relevant--(3) Whether judicial authorization pursuant to s. 231.2(2) required for disclosure of names of donors and charities--As applicant not conducting "fishing expedition" question becomes, to what extent, if any, does s. 231.2(2) limit M.N.R.'s powers under s. 231.2(1)?-- Requirement not invalid merely because resulting in disclosure of private transactions involving persons not under investigation and who may not be liable to tax--Ss. 231.2(2), (3) allow M.N.R. to obtain information about unnamed persons under investigation, but only if M.N.R. first obtains authorization of judge--Intent to prevent MNR from gathering information where M.N.R. not revealing specific taxpayer whose liability under scrutiny to person not under investigation by M.N.R.--Such authorization may be given if judge satisfied person or group ascertainable and requirement made to verify compliance with Act by persons in group (s. 231.2(3))--F.C.A. addressing question of what happens when requirement served on person who is both subject of genuine audit and holder of names of other persons also under CCRA's magnifying glass in Tower--Right of redaction, if exists, should only be considered on basis of factual background-- Right of redaction not arising simply because disclosure would result in disclosure of information involving persons not under investigation--If valid audit of party on whom requirement served, Tower, states two questions to answer: (1) whether theoretical right to withhold or redact names of unnamed persons; (2) whether applicant establishing factual basis for asserting right of redaction--Answer to first question found in inclusion of words "subject to subsection (2)" in s. 231.2(1)--Nothing in s. 231.2 prevents person from being both taxpayer subject to audit and person subject to unnamed persons' obligations of ss. 231.1(2) and (3)--As to second question, in absence of clear evidence with respect to any potential audit of charities, disclosure of names of charities valid part of requirement without prior judicial authorization--Review of cases cited although none directly on point--Requiring prior judicial authorization for disclosure of names of donors not at odds with existing case law-- Requirement, in so far as purports to require applicant to provide names and addresses of donors without prior judicial authorization pursuant to Act, s. 231.2(2) set aside--Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1, s. 231.2 (as am. by S.C. 1996, c. 21, s. 58; 2000, c. 30, s. 176).