Canada: Conjecture and the Canada Revenue Agency's Voluntary Disclosure Program

Last Updated: February 23 2012
Article by Peter Aprile

The Canada Revenue Agency's Voluntary Disclosure Program (the "Program") encourages taxpayers to voluntarily disclose unreported income. The Program promises that a taxpayer who voluntarily discloses previously unreported income will not be prosecuted for tax evasion and will not have any civil penalties imposed if the Agency's four Program conditions are met. The Agency's four Program conditions are: (1) the disclosure must be voluntary; (2) the disclosure must be complete; (3) the disclosure must involve the application, or potential application, of a penalty; and (4) the disclosure must include information that is at least one year past due.

In many cases, the Minister will not exercise his discretion to accept a taxpayer's disclosure under the Program citing any type of enforcement action. The Agency appears to have defined "enforcement action" as any real or contemplated, direct or indirect, action that could have revealed the information that the taxpayer sought to disclose under the Program. In the Federal Court's Reasons for Judgment in Amour International Mines d'Or Ltée ("AIMO") v. Attorney General of Canada, the Court considered the Minister's decision to deny AIMO's disclosure on the basis that, prior to AIMO's disclosure, the Agency initiated some enforcement action. For present purposes, the salient facts in AIMO are as follows.

AIMO applied for judicial review of the Minister's decision to not exercise his discretion to accept AIMO's disclosure under the Program. AIMO argued that the Agency's alleged enforcement action was not sufficiently linked to the subject disclosure. Counsel for the Respondent submitted that the Minister's decision was reasonable on the basis that the Agency initiated an audit of a corporation with which AIMO was associated ("Greymount") and that the Greymount audit constituted enforcement action that would have revealed the information that AIMO sought to disclosure under the Program.

The Court noted that the Respondent's argument did not appear to be supported by any evidence or legal inference capable of establishing that the Greymount audit would have, in fact, uncovered the AIMO information. In these circumstances, the Court asked counsel for the Respondent to explain how the Agency would have allegedly uncovered the AIMO information. In response, counsel for the Respondent posited that that "mere mortals would find it difficult to understand the thought process of a tax collector".

The Court did not accept the Respondent's argument and supported its conclusion referring to Lord Macmillan Reasons for Judgment in Jones v. Great Western Railway Co.. In Jones Lord Macmillian held that "[t]he dividing line between conjecture and inference is often a very difficult one to draw. A conjecture may be plausible but it is of no legal value, for its essence is that it is a mere guess. An inference in the legal sense, on the other hand, is a deduction from the evidence, and if it is a reasonable deduction it may have the validity of legal proof". The Court held that – although the standard of review is reasonableness – the Minister could not purport to justify his decision with mere conjecture. Unsurprisingly, the Court granted AIMO's application for judicial review.

We believe that AIMO represents a victory for "mere mortals" providing support for the position that the Minister should adopt a narrower definition of enforcement action and that the Minister is required establish a real connection between the enforcement action and the tax information disclosed.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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