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RFI Update: They just keep coming!

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In an earlier blog, we covered the oft-forgotten power of the CRA to issue Requirements for Information (“RFIs”) which can be used to compel a third party to deliver evidence in its possession to the CRA. The CRA then uses that evidence to determine if another taxpayer (typically a customer or supplier of the third party) has unremitted tax or undeclared income.
As recently reported by the Financial Post, the CRA has successfully obtained an RFI against Home Depot force the store to turn over certain commercial customer profiles and those customers’ total annual spending. The scope of the RFI is very large and encompasses customers of the firm between 2013 and 2016 at all 182 of Home Depot’s stores.
Readers will note that this immediately brings to mind the case in Minister (National Revenue) v Roofmart Ontario Inc, 2019 FC 506. There, the CRA successfully brought forward an application to require the titular Roofmart (a roofing supply store) to disclose their customers’ information. Like with Home Depot, the CRA’s objective was to gain information about residential and commercial construction contractors who may not have been complying with their tax obligations.
Home Depot joins a growing list of construction suppliers subject to RFIs which has grown to include the likes of Roofmart, Rona, Canac-Marquis Grenier Ltée (a Quebec hardware store chain), and Groupe BMR (a building materials supply company).
Commercial contractors and homebuilders have to understand that the CRA has a wide latitude to make use of its information gathering powers under Sections 231.2(3) and 289(3) of the Income Tax Act (“ITA”) and Excise Tax Act (“ETA”), respectively.
These sections allow the Minister of National Revenue to bring an application to the federal court to require a person to disclose information and documents related to an “unnamed person” or a group of “unnamed persons” for the purposes of assessing their compliance with their obligations under either Act.
Whether or not the court grants the application depends on if the “unnamed persons” that the CRA seeks to audit as a result of obtaining the third-party data are “ascertainable” from the information requested. This means that the information needs to be sufficiently distinguishable from the information in possession of the third party.
In Roofmart, the court found in favour of the CRA because the CRA was only asking for certain customers who hit annual threshold in purchases for a set number of years–-rather than all Roofmart’s customers. This is also likely the case with Home Depot.
The flipside of this is the “fishing expedition” problem encountered Canada (National Revenue) v Hydro-Québec, 2018 FC 622. There, the court denied the CRA’s application to get access to Hydro Québec customer information on the basis that the application did not contain any means to distinguish between “business customers” and the rest of Hydro-Québec’s 4.3 million customers. Additionally, the information requested (billing start dates, end dates, late penalties on the accounts, etc.) had no connection to information that could be used to verify whether customers had complied with their tax obligations.
As these RFIs become more common and the law provides a relatively low threshold for the CRA to clear to establish that the group of “unnamed persons” is “ascertainable”, there is an open question whether some large-scale construction suppliers will consider simply complying with the CRA request at the outset—forgoing a court challenge. Essentially, under this framework, all the CRA has to do to gain access to the customer data of a hardware giant like Home Depot is to request data for a specific range of customers—a relatively easy task.
Commercial contractors and homebuilders beware; with the broad-based scope of the CRA’s RFI powers and modern business practice to create detailed profiles on customers with their purchase history, the CRA now has even greater tools to uncover unremitted tax and undisclosed income. As we have said before, there is no better time to consult a tax lawyer to discuss issues in this area, since the CRA still permits voluntary disclosures in certain situations to disclose past tax liability, allowing contractors to get out ahead of any potential audit.
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