Executive Summary: Key Legal and Evidentiary Issues

• Scope of the Minister of National Revenue’s information-gathering and audit powers under sections 231.1, 231.2 and 231.7 of the Income Tax Act in relation to Benjamin Cohen and his related corporations.

• Whether the respondents, after multiple requests over several years, failed to provide required information and documents or instead made reasonable efforts and were unable to obtain further material.

• Application of the legal standard that a person cannot be compelled to produce documents that do not exist or are not reasonably available, provided non-possession and non-availability are shown on a balance of probabilities.

• The respondents’ argument that the Minister’s unchanged and broad requests effectively required them to self-audit by determining what additional information remained outstanding despite substantial production and third-party information obtained by the CRA.

• Assessment of the respondents’ partial compliance, including provision of copies of 766 electronic files, and whether this level of cooperation defeated the second condition for issuing a compliance order.

• Weighing the seriousness of non-compliance consequences, including potential fines and imprisonment under subsection 238(1) of the Income Tax Act, against the respondents’ demonstrated efforts and claimed inability to produce further documents.

Facts and background

The Minister of National Revenue filed a summary application under section 231.7 of the Income Tax Act against Benjamin Cohen and several related corporations: 9156-4096 Québec Inc., Rcongold Systems Inc., Triad Management Services Inc., Triad Real Estate Services Inc., 205 Brunswick Holdings Inc., and Triad Gesco Ltd. The Canada Revenue Agency was conducting an audit to determine whether these respondents had complied with their duties and obligations under the Income Tax Act for the 2014 to 2019 taxation years. On January 21, 2021, the CRA auditor sent requests for information regarding those years. The respondents were later informed that the audit period was extended to 2014 to 2019 because of material transactions and compliance risks identified in the tax year ends. After the respondents initially failed to provide the requested information and documents, the CRA sent further letters or demands on April 23, 2021, again seeking complete answers and documents under subsection 231.1(1) of the Act and allowing 30 days to respond. Between May 31, 2021, and October 14, 2022, the respondents delivered portions of the requested documents. On August 18, 2022, acting in his capacity as shareholder and administrator of the corporate respondents, Mr. Cohen was personally required to provide documents and information for himself and for all of the related corporations, with a further 30-day deadline from that second requirement.

The information and documents requested

The Minister’s requests covered extensive financial, banking, corporate, and property-related information. For Mr. Cohen personally, the CRA sought lists and statements for all deposit and credit accounts held in Canada and abroad for the relevant period; details and source documents for all corporate and individual debts and receivables; records for all rental properties declared on his individual income tax returns, including revenues, expenses, and rental contracts; all source documents for the demolition and construction of a property located at 28 Devon Street in Westmount, Quebec; lists of all other assets in Canada or abroad; lists of all listed personal property held and disposed of; an organizational chart of all shareholdings in corporations, partnerships, trusts or ventures; and a detailed list of all nominee contracts involving him or related entities. Similar categories of information were requested from each corporate respondent, including comprehensive banking and credit account information, debts and receivables with source documents and year-end balances, details of tenants and contracts, information on acquisitions or dispositions of capital assets, minute books and shareholder agreements, accounting data such as general ledgers, trial balances and balance sheets, lists of all other assets, organizational charts of shareholdings, nominee contracts, and, for certain corporations, specific documentation related to the property at 6500 TransCanada Highway, including adjusted cost base calculations, proceeds of disposition, costs of disposition, construction details, communications and agreements with the Canada Mortgage and Housing Corporation, and calculations of equity value for a rollover under section 85 of the Income Tax Act.

The Minister’s submissions on audit powers and non-compliance

The Minister argued that Canada’s tax system is a self-reporting system and that some individuals take advantage of this to avoid paying their full share of the tax burden. To counteract this, Parliament has given the Minister broad powers to audit taxpayers. Relying on case law, the Minister emphasized that subsection 231.1(1) allows authorized persons to inspect, audit or examine documents, property or processes of a taxpayer or other person for any purpose related to the administration or enforcement of the Act, and to require reasonable assistance and answers to proper questions. The Minister submitted that the requirements of section 231.7 were satisfied because the respondents were required under sections 231.1 or 231.2 to provide the access, assistance, information or documents sought, they had not fully complied despite the passage of more than two years and numerous reminders, and the documents requested were for a proper purpose related to administration and enforcement of the Act. The Minister contended that the CRA auditor, as a person authorized by the Minister, had properly exercised a wide discretion without any statutory time limit, and that the respondents, without proof of impossibility or legitimate excuse, had not shown reasonable efforts to provide everything requested. The Minister also submitted that the outstanding material was business and financial information not protected by solicitor-client privilege and that no claim of privilege had been made.

The respondents’ submissions on reasonable efforts and burden

The respondents maintained that, in light of their partial collaboration and the significant volume of documents already provided, a compliance order should not issue. They argued that when a person has been required to provide access, assistance, information or documents and has partly complied, the second condition in section 231.7—that the person “did not” provide what was required—cannot be considered met, especially given the severe consequences that can follow such an order. Mr. Cohen explained that locating, obtaining, and sometimes converting the information and documents was long and difficult because not all records were in electronic format; some were archived, and some may have been lost or forgotten given the time elapsed between the taxation years under audit and the responses. He also pointed out that the corporate respondents had limited resources to devote to assembling the requested material. The respondents argued that many items noted as “Outstanding issue, noncompliance” had already been obtained by the CRA from the Quebec Revenue Agency and other third parties during the audit. Mr. Cohen further stated that he does not preserve copies of cheques issued for personal expenses and that the corporate respondents do not preserve copies of cheques issued for their expenses, apart from copies provided by financial institutions when included with monthly account reconciliations.

Arguments about self-auditing and the scope of requests

The respondents submitted that, considering the information and documents they had already provided, together with those obtained by the Minister from the Quebec Revenue Agency and third parties, the Minister should refine the requests for information and identify which elements remained unanswered. They argued that no compliance order should issue unless the Minister first narrowed the requests, allowed a reasonable time to respond to the refined list, and held an in-person meeting between representatives of the Minister and the respondents to review the information requests and address any outstanding issues. They suggested that a meeting with the auditor, or an on-site audit, was likely the most efficient way to proceed. The respondents contended that by not updating the requests in light of what had already been obtained, the Minister effectively placed them in a position where they had to self-audit to determine what might still be missing, which they said rendered the requests unreasonable and unfair. They also argued, by reference to case law, that their obligation was limited to providing access, assistance, information or documents that exist, are in their possession, or can be obtained with reasonable efforts, and that it does not extend to creating documents or obtaining information that cannot be secured with reasonable efforts. They warned that an order compelling production in circumstances where they simply could not comply would be unfair and expose them to serious consequences.

The court’s analysis of the statutory conditions

The court identified three conditions that must be met for a compliance order under section 231.7: that the person against whom the order is sought was required under section 231.1 or 231.2 to provide the access, assistance, information or documents; that the person did not do so; and that the information or documents are not protected by solicitor-client privilege. On the first condition, the court noted that section 231.1(1) is broadly worded and provides expansive powers for information gathering, including inspections, examinations, entry to premises (subject to warrant requirements for dwelling-houses), questioning, and demands for reasonable assistance, for any purpose related to the administration or enforcement of the Act. The court concluded that the respondents were required to provide the access, assistance, information or documents sought by the Minister. Turning to the second condition, the court considered whether the respondents had failed to provide the requested information or had demonstrated reasonable efforts and an inability to produce what remained outstanding. Referring to case law, the court accepted that the Minister cannot require a person to produce documents that do not exist or that are not available to that person, and that the taxpayer must show both non-possession and non-availability, supported by reasonable efforts, on a balance of probabilities. The court found that, in this case, the respondents had provided a detailed list of documents and information produced in response to each item requested by the CRA and, where an item was not delivered, had supplied justification and explanations of their efforts. The court also noted that the respondents had provided copies of 766 electronic files to the Minister. In light of this evidence, and bearing in mind the seriousness of possible non-compliance consequences including fines and imprisonment under subsection 238(1) of the Act, the court found that the respondents had shown reasonable efforts and was not satisfied that they were uncooperative. It therefore held that the second condition for issuing a compliance order was not met.

Outcome and disposition, including the successful party and costs

Because the court was not satisfied that the second statutory condition had been met, it did not need to decide whether the documents and information were protected by solicitor-client privilege and did not address that issue further. The court dismissed the summary application for a compliance order concerning Benjamin Cohen, 9156-4096 Québec Inc., Triad Gesco Ltd., Triad Management Services Inc., Triad Real Estate Services Inc., 205 Brunswick Holdings Inc., and Rcongold Systems Inc. The court ordered that the application be dismissed with costs in favour of the respondents. No specific monetary amount for costs was stated in the judgment.