Authorities must relinquish their broad compulsory auditing
powers when engaging in an adversarial determination of penal
liability or, as stated by the Supreme Court in R. v. Jarvis,  3 SCR
7571 when they "cross the Rubicon". This flows
from the protection against self-incrimination enshrined under
section 7 of the Canadian Charter of Rights and Freedom, a
protection which, traditionally, only benefits individuals.
However, according to a recent Court of Québec decision in
Agence du revenu du Québec c. BT
Céramiques inc., 2015 QCCQ 145342 the
protection of the Rubicon is not exclusive to individuals: it also
shields corporations. This decision's pending appeal is one to
keep an eye out for, as it might revisit the scope of
corporations' rights during regulatory audits and penal
A "domino effect" triggered by suspicions of
corruption and tax evasion
BT Céramiques concerns an illegal and disguised
federal criminal investigation that contaminated subsequent
enforcement actions through a "chain reaction".
Informed of possible corruption within its ranks, the Canada
Revenue Agency ("CRA") launched an
administrative audit against corporate and individual suspects,
including BT Céramiques. Broad compulsory powers were
exercised by CRA auditors to compel those persons to disclose
information. The audit revealed regulatory noncompliances, but did
not lead to the issuance of tax reassessments or other
administrative enforcement actions.
Instead, the matter was referred to the CRA's investigation
division, which conducted searches in business and residential
premises based on the information obtained by the auditors. The
results of the searches were then shared with and relied upon by
the Québec Revenue Agency to charge the targets, including a
corporation, with several counts of provincial tax offences.
BT Céramiques and its co-accused sought to exclude the
prosecution's evidence on the basis that it had been obtained
in violation of their fundamental rights. Specifically, they argued
that the evidence was the fruit of a poisonous tree as it derived
from an illegal audit made in furtherance of a criminal
A protection also afforded to corporations
The Court agreed that the evidence did in fact derive from the
CRA audit, whose predominant purpose was to determine the
accuseds' criminal liability. In finding so, the Court stated
that the prohibition on audits made in furtherance of criminal
investigations applied notwithstanding the corporate nature of BT
translation from French] In Jarvis, the [Supreme] Court
was dealing with an individual only, whereas in the present matter
the respondents include both a corporation and individuals. In
addressing the distinctions between the situation of an individual
and that of a legal entity, the Federal Court of Appeal, in Kligman v. M.N.R. (C.A.), 2004 FCA
152 observed that the Supreme Court did not distinguish between
these two types of entities for the purpose of the audit
" I should
add that the Supreme Court's conclusions relating to the
availability of the requirement powers in subsection 231.2(1) of
the Act do not distinguish between an individual and a corporate
taxpayer: such powers are not available for the purpose of
advancing a criminal investigation. [...]"
Given the highly objectionable conduct of the authorities and
their lack of transparency towards the investigation's targets,
Justice Larochelle concluded that the violation was serious enough
to exclude the evidence.
BT Céramiques is a reminder of the prohibition
on the authorities to use compulsory auditing powers as the work
horses of simultaneous penal investigations. More significantly, it
further supports the applicability of such prohibition to
investigations concerning corporations. Subject to the outcome of
the appeal, one may theorize that the prohibition has evolved into
a general principle that applies independently of the scope of the
fundamental rights afforded to corporations.
Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).