Redress Risk Management (post until May 31/19)
Tax

Case highlights limits of CRA audit powers

A Quebec judge's recent criticism of the Canada Revenue Agency’s conduct in a probe that led to criminal charges highlights the fact that the CRA is not permitted to use its audit powers as part of a criminal or tax evasion investigation, says Toronto tax litigation lawyer David J. Rotfleisch.

As the Montreal Gazette reports, Justice Dominique Larochelle of the Court of Quebec recently ruled that the CRA illegally obtained evidence that was used to charge two men with using one company to inflate the expenses of other companies through false billing, to ultimately reduce their reported revenues.

In this case, the CRA, says the article, “overstepped the boundaries between its ability to make auditorial verifications and a criminal investigation.”

In her decision, Larochelle notes that the CRA's conduct was “highly reprehensible,” and explains that the agency “has the power to make verifications on the revenues of an individual, or a company, and abused it to conduct the type of police investigation where, for example, warrants would have to be authorized by a judge,” reports the Gazette.

The Income Tax Act, writes Larochelle, “accords it broad powers in terms of its application and execution. The corollary is the obligation to use it judiciously, in a transparent way and with respect to the Constitution.

“The case demonstrates that the investigation (conducted) under the cover of verification lasted for a year. Despite the red flags that were raised and the availability of resources, the case was not reoriented towards an investigation that respected the rules,” Larochelle writes, as reported by the Gazette.

As Rotfleisch, founding tax lawyer at Rotfleisch & Samulovitch Professional Corporation, explains, “if an auditor suspects that fraud or tax evasion charges might be brought, the auditor is supposed to refer the file to the Investigations Division of the CRA and full criminal protection procedures, such as search warrants, to obtain information must be used.” 

 

To Read More David Rotfleisch Posts Click Here
Lawyer Directory
NearZeroHexigent Consulting (to remain until August 31/19)MKD International (post until Sept. 30/19)Feldstein Family Law (post until May 31/19)Greystones Health Jasmine Daya & Co.Grey Wowk Spencer LLPNerland Lindsey