The recent Piersanti v The Queen1 decision offers an important lesson for both tax professionals and criminal defense counsel. Taxpayers who do not challenge the admissibility of evidence in a criminal tax evasion trial risk having that evidence used against them in subsequent Tax Court of Canada ("TCC") proceedings. Piersanti is a step back from the pre-Jarvis2 decision of O'Neill Motors v Canada,3 in which the TCC vacated reassessments that were based on unconstitutionally obtained documents that had been excluded from evidence at a criminal trial.
In Piersanti, the taxpayer was unsuccessful in having incriminating documents excluded from evidence before the TCC. The documents had been obtained by the CRA during a criminal investigation under the Excise Tax Act (Canada) ("ETA"), in a manner that would have arguably rendered them inadmissible in a criminal tax evasion trial. The TCC hearing arose from reassessments issued under the Income Tax Act (Canada) ("ITA") based on those documents.
The background for the ETA investigation was as follows. The CRA received information that various corporations that owned shopping centres were not reporting GST on rents. A CRA investigator sought and obtained a search warrant that was executed at the law office of Piersanti & Co. to obtain records pertaining to corporations controlled by the appellant and her spouse. The appellant's spouse claimed privilege over the documents. Subsequently, the CRA investigator issued up to 60 requirements for information under section 289 of the ETA to obtain documents from third parties, including banks, credit card companies and real estate companies. He also interviewed shopping centre tenants. The documents obtained by the CRA investigator formed the basis for criminal charges to which the appellant pled guilty.
The appellant argued at the TCC that the documents obtained by the requirements that formed the basis for the ITA reassessments were obtained without judicial authorization in the course of a criminal investigation under the ETA. She further argued that her rights under sections 7 and 8 of the Charter were violated. The appellant submitted that these documents should therefore be excluded in the TCC appeal, pursuant to section 24 of the Charter.
Despite holding that the predominant purpose of the CRA's investigation at the time the requirements were issued was to determine penal liability, the TCC refused to exclude the documents. It would thus appear based on the factual findings that the documents obtained under the requirements may not have been admissible evidence in the criminal proceedings against the appellant, pursuant to the principles laid out by the Supreme Court of Canada in Jarvis. The Charter issue would have been a matter for the Superior Court to determine when the appellant was prosecuted, however that was not raised before the Superior Court. Therefore, in the TCC's view, the question to be determined was whether the appellant's Charter rights were violated when documents obtained pursuant to the ETA requirements were used as a basis for ITA reassessments.
The TCC confirmed the distinction between civil audits and criminal investigations, stating that while they can be conducted concurrently, audit results may not be used to prosecute once the predominant purpose is that of a criminal investigation.4 However, the TCC reasoned that audit results thereafter may still be used in relation to an administrative matter, including issuing reassessments. The TCC further held that the question of whether documents obtained in the course of a civil audit were misused in criminal proceedings is not a question for the TCC. The TCC therefore held that the appellant's Charter rights were not violated when the information from the requirements was used for the ITA reassessments. The TCC held that, if anything, issuing the requirements was a basic audit practice.
Some questions remain open after Piersanti. For example, would the outcome at the TCC have been different if the appellant had successfully argued that the documents were inadmissible in Superior Court? If that had occurred, Piersanti would have been factually closer to O'Neill Motors in which, as noted above, the TCC vacated reassessments based on unconstitutionally obtained documents which had been excluded from evidence at a criminal trial.
In factual situations comparable to Piersanti, it remains unresolved whether, if the evidence had been excluded by a Superior Court, the TCC would exclude the same evidence and grant the extraordinary remedy of completely vacating the reassessments. If a Superior Court makes an order regarding admissibility, arguably the TCC would not have jurisdiction to make a contradictory order, since that could be regarded as a collateral attack on the original order.5
Furthermore, and with respect, Piersanti may be criticized for relying on the proposition that a civil audit may properly be conducted simultaneously with a criminal investigation, as long as information from the former does not contribute to the latter. Although that principle is well understood, this was not the case in Piersanti, since there did not appear to have been a simultaneous civil audit and criminal investigation. To the contrary, there was a criminal investigation that inappropriately relied on ETA audit provisions which results were then used for ITA reassessments.
Piersanti was decided by a trial Court and is merely persuasive authority, not binding in future cases. However, in light of the open questions that remain after Piersanti and the collateral attack issue, criminal counsel in tax evasion cases are well advised to bear civil tax consequences in mind when negotiating plea bargains, on the understanding that the TCC may admit evidence that may be otherwise inadmissible, if unchallenged before the Superior Court.
1 2013 TCC 226 ("Piersanti").
2 R v Jarvis, 2002 SCC 73 ("Jarvis").
3 96 DTC 1486 (TCC); Aff'd 98 DTC 6424 (FCA) ("O'Neill Motors").
4 See Jarvis, at para. 88.
5 Cambridge Leasing Ltd v The Queen, 2013 TCC 209, at para. 120.
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