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A Complete Victory for CRA in Data-Mining Cases!

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As we blogged about here and here, the CRA has an often forgotten power to issue ‘Requirements for Information’ (“RFIs”) on third parties which can be used to compel them to hand over evidence in their possession to the CRA to be used to determine if another taxpayer has unremitted tax or undeclared income. The recent case in Minister (National Revenue) v Roofmart Ontario Inc (2019 FC 506) dealt with those RFI powers, in particular the CRA’s ability to issue an RFI when it did not know the identity of the taxpayer it ultimately wanted to investigate (the so-called ‘unnamed person requirement’).

That case was appealed to the Federal Court of Appeal (“FCA”), and the decision in favour of the CRA was released earlier this month.

By way of background, the CRA brought forward an application to require the titular Roofmart Ontario Inc. (“Roofmart”), which operated roofing materials stores across the country, to disclose purchase history for all customers who either made total annual purchases of $10,000 or more between January 2018 and June 2018 or made total annual purchases of $20,000 or more between January 2015 to June 2018.

Roofmart opposed the application.

To evaluate the merit of an RFI application involving an unnamed person, the judge must consider if the unnamed person or group is ‘ascertainable’ and that the RFI is being made to verify that person or group’s compliance with the Acts. To do this, the court evaluates whether the unnamed person or group in the Minister’s application is sufficiently distinguishable from all of the information possessed by the third party under the RFI.

Ultimately, the Federal Court sided with the CRA and found that the total annual purchase amounts set out in the RFI application were sufficient to distinguish the target group customers (who were likely residential and commercial contractors) from among Roofmart’s other customers.

Roofmart then appealed to the FCA.

On appeal, Roofmart argued, among other things, that the Federal Court did not properly apply the statutory criteria to grant an RFI because the ‘unnamed persons’ the CRA was attempting to investigate were not ‘ascertainable’. Roofmart further argued that the CRA’s application amounted to a “fishing expedition” which amounted to “an invasion of privacy into thousands of taxpayers’ detailed personal information”.

The FCA disagreed. The FCA found that the large number of Roofmart’s customers captured by the RFI did not weigh on the validity of the application. The FCA agreed with the Federal Court that the unnamed persons the CRA wanted to investigate were readily ascertainable because of the quantitative elements of the RFI (i.e. annual purchases of $10,000 or more, etc.). To the FCA, it did not matter that the RFI might capture the purchase information of taxpayers who were not commercial or residential contractors, who were of no interest to the Minister.

The FCA also rejected Roofmart’s argument that CRA had failed to prove that the information it sought would “verify compliance” with tax statutes. The FCA instead concluded that the evidence given by the CRA was sufficient to demonstrate that the RFI would ‘verify compliance’ (it would be used to verify filing of returns as required, required payroll, GST and HST remittances, and the reporting of any and all of the income earned on the sale or supply of roofing materials, etc.).

The takeaway here is that the CRA seems to have won a complete victory on the FRI front, and that it will be very difficult for persons subject to the RFI’s to resist them. As to the ultimate, targets of the RFI’s the news is perhaps more ominous.  Commercial and residential contractors beware: CRA now has almost complete powers to find you!

Now may be the time to get professional advice on past transactions. The CRA still permits voluntary disclosures in certain situations to disclose past tax liability, allowing builders and contractors to get out ahead of any potential audit.

Do you require assistance in this area? If so, please click here.

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