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IGNORING CRA COULD LEAD TO JAIL!

COURT ISSUES 30-DAY JAIL THREAT TO TAXPAYER FOR NONCOMPLIANCE

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We have previously written about Requests for Information ("RFI") issued to taxpayers under audit by the Canada Revenue Agency ("CRA") – and the importance of complying with CRA RFIs, with assistance from Experienced Tax Counsel.

 If an RFI is not complied with, the CRA can obtain a Court order (a "Compliance Order") to force the taxpayer to produce the requested information. The recent Federal Court ("FC") case Minister of National Revenue v. 1718743 Ontario Incorporated, 2026 FC 435 ("Sanderson") demonstrates that refusing to comply with an RFI, and then with a Compliance Order, is contempt of court, which can lead to heavy fines and even potential jail time!

In this Tax Audits Series Report, we review Sanderson and examine the heavy cost of ignoring a Compliance Order following an RFI.

Background to Sanderson

Sanderson is a rare sentencing decision regarding a landscaping corporation and its principal Mr. Sanderson, who had pled guilty to contempt of court after ignoring a Compliance Order requiring him to produce certain financial documents, and to identify his and his corporation's assets to the CRA collections department.

At the outset, the Court deferred sentencing to allow Mr. Sanderson
time to "purge" his contempt – i.e., to expunge the contempt by producing the required records. Instead of complying, Mr. Sanderson provided a single-page letter with zero supporting documents, and with claims that he was "locked out of online Banking" and that thousands of corporate files had been lost/corrupted.

The CRA collections officer dismantled these claims. The agency produced bank records proving the company maintained active accounts with recent commercial deposits. Under cross-examination, Mr. Sanderson even admitted he owned a RAM truck that he had completely omitted from his asset disclosure. He apologized, chalking his behavior up to being a "bad businessman" rather than a dishonest one.

FC Imposes Fines and Threatens Jail

The FC dismissed Mr. Sanderson's excuses and ruled that he had flagrantly failed to purge his contempt. The Court entirely rejected the online lockout excuse, noting that he could have just gone to the bank to request copies of the required documents.

As a result, the Court hit both the corporation and Mr. Sanderson with individual $3,800 fines, alongside $6,585 in legal costs, along with an order that if the fines and costs are not paid within 30 days, Mr. Sanderson would be imprisoned for 30 days, or until he produces the requested documents.

Takeaways

Sanderson shows that if a tax dispute escalates to a formal compliance order, the legal risk shifts from standard tax adjustments to personal fines and even incarceration!  

Businesses in receipt of RFIs should seek Experienced Tax Counsel to determine the best approach to compliance.  While noncompliance can lead to trouble as in Sanderson, we have also written before about the pitfalls of overcompliance.  Experienced Tax Counsel can help find the right middle ground, protecting a business from either extreme and saving money and time in the long run.

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For an updated Index of our Tax Audit Series, click here.