Canada (National Revenue) v. Schreiber

Canada (National Revenue) v. Schreiber
Court (s) Database
Federal Court Decisions
Date
2024-05-13
Neutral citation
2024 FC 729
File numbers
T-908-23
Decision Content
Date: 20240513
Docket: T-908-23
Citation: 2024 FC 729
Ottawa, Ontario, May 13, 2024
PRESENT: The Honourable Madam Justice McVeigh
BETWEEN:
THE MINISTER OF NATIONAL REVENUE
Applicant
and
JÜRGEN SCHREIBER
Respondent
JUDGMENT AND REASONS
I. Introduction [1] The Minister of National Revenue (the Applicant or the Minister) seeks a compliance order under section 231.7 of the Income Tax Act, RSC 1985, c 1 (5th Supp) as amended [ITA], requiring Jürgen Schreiber (the Respondent) to provide the Applicant with documents and information sought from him pursuant to a demand issued on July 5, 2022.
II. Background [2] The Respondent is a successful businessman.
[3] Prior to December 28, 2016, the Respondent was a Canadian resident. After this date, he declared himself a non-resident, stating that he primarily resided in the Bahamas.
[4] From 2017 to 2019, Bateman MacKay LLP prepared income tax returns for the Respondent in order to report his Canadian-source rental income. The Respondent reported rental income under section 216 of the ITA. In 2018, the firm also prepared a second return concerning the Respondent’s employment income for 2017, which was issued by a Canadian employer.
[5] From 2017 to 2019, the firm determined that the Respondent remained a non-resident.
[6] The Respondent re-established Canadian residency in 2022. During this time, he advised Bateman MacKay LLP of the change in his residency status, and the firm filed the Respondent’s 2022 personal income tax return.
[7] Although the Respondent declared himself a non-resident from the end of 2016 to 2019, the Canada Revenue Agency (the Agency) noted that he still had ties to Canada given:
The Respondent owned at least two Canadian properties;
The Respondent continued his employment or engagement with Canadian companies, including OEG Inc., Aldo Group Inc. and GTEC Holdings Ltd. (later Avant Brands Inc.). The Respondent also received electronic fund transfers (EFTs) to and from his related offshore corporations, including Hiroko Holdings Inc. (Hiroko Holdings), Retail Invest & Consulting PTE Ltd. (Retail Invest), D’Banyan International Ltd. (D’Banyan) and Eight Treasures Limited (Eight Treasures). Some of these EFTs were made to a “Kevin Schreiber” in Canada, whom the Agency believes is related to the Respondent; and
The Respondent incorporated three Canadian corporations: 1195282 B.C. Ltd (119 BC), 1151807 B.C. Inc. (115 BC), and 11134981 Canada Inc. (111 Canada) in 2018 and 2019. The Respondent was a shareholder of 119 BC and 111 Canada, and served as a director of 115 BC.
[8] In 2022, the Agency commenced an audit of the Respondent in respect of the January 1, 2016 to December 31, 2019 taxation years. The purpose of the audit was to: i) determine the Respondent’s residency status; and ii) determine whether the Respondent had complied with his duties and obligations under the ITA, including whether he had reported all of his domestic and offshore holdings and transactions as required.
[9] To verify his residency and compliance with the ITA, the Agency issued a demand to the Respondent under subsection 231.1(1) of the ITA, dated July 5, 2022 (the Demand).
[10] The Demand compelled the Respondent to provide certain documents that the Agency reasonably believed were available or located in Canada and in the Respondent’s power, possession, and control. In particular, the Demand required information about seven entities of which the Respondent was either an owner, shareholder or director: Hiroko Holdings, Retail Invest, D’Banyan, Eight Treasures, 119 BC, 115 BC, and 111 Canada.
[11] The Demand asked for the following:
Complete answers to an enclosed questionnaire;
Financial statements, trial balances, accounts groupings and year end adjusting entries for all entities;
Copies of all foreign tax returns for all entities;
Corporate organizational charts, for each year if different, including all resident and non-resident, corporations, trusts, bare trusts, partnerships, co-ownerships and joint ventures which the Respondent or a member of his family controlled, directly or indirectly, either alone or together with related parties;
Details and copies of all intercompany loan agreements, including those loan agreements with related non-resident entities, and reconciled to the trial balances of the relevant entities;
Details of all dividends issued and received, and reconciled to the trial balances of the relevant entities, along with dividend surplus calculations for dividends received from related non-resident entities;
Copies of any and all intercompany agreements and shareholder agreements (i.e. service agreements, research and development agreements, royalty agreements, unanimous shareholder agreements, etc.);
Details supporting and a reconciliation to the relevant trial balances for any filed T106, T1134, T1135, T1141 and T1142 forms for all entities;
Minute books of 119 BC from inception, including but not limited to the following: general shareholders meetings, special committee meetings, corporate governance and compensation committee meetings, board of trustees meetings, agenda files, finance committee meetings, audit committee meetings, investment committee meetings, executive committee meetings and conduct review committee meetings;
Copies of any rulings or opinions requested by the entities from the Agency and the reply received;
Any documents relating to tax planning for all entities that occurred during the audit period; and
The calculation of tax attributes of all shares held by the Respondent during 2015 to 2019 for all entities.
(Collectively, the Required Material.)
[12] The Respondent was afforded 60 days, until September 6, 2022, to provide all of the Required Material. He requested several extensions to provide this information, totalling approximately six additional months. The last extension required the Respondent to produce all of the Required Material by February 28, 2023.
[13] In response to the Demand, the Respondent’s representative, Miller Thomson LLP (the Representative), provided annual returns that were filed with BC Registry Services for 115 BC for the 2019 to 2022 taxation years. The Respondent also provided corporate tax returns for 115 BC for the 2018 and 2019 taxation years.
[14] On December 6, 2022, the Representative responded to the Agency with a loan agreement between Hiroko Holdings and 115 BC dated February 8, 2018. In respect of Hiroko Holdings, the Representative claimed several items in the Demand did not exist. The Respondent also refused to provide copies of all foreign tax returns for Hiroko Holdings on the basis that this entity was a Bahamian corporation and did not carry on business in Canada.
[15] On January 20, 2023, the Representative responded to the Agency regarding a different entity, D’Banyan, claiming that the Agency’s powers did not extend to the 2017 and 2018 taxation years, as the Respondent was not a resident of Canada. For the 2016 taxation year, the Representative concluded that the Respondent fulfilled his obligations concerning D’Banyan. An enclosed schedule indicated that the majority of documents for the 2016 taxation year did not exist.
[16] Around January 25, 2023, the Department of Justice wrote to the Respondent, advising that compliance proceedings would be initiated under section 231.7(1) of the ITA if he did not provide all of the Required Material by February 15, 2023.
[17] On February 2, 2023, the Representative wrote to the Agency about Hiroko Holdings, claiming that the Agency could not compel the production of materials for the 2017 and 2018 taxation years, as neither the Respondent nor the corporation were residents of Canada. An enclosed schedule noted that the majority of documents for the 2016 taxation year did not exist.
[18] On February 2, 2023, the Representative responded about Retail Invest, stating that the Agency could not request information for the 2017 and 2018 taxation years, as neither the Respondent nor the corporation were residents of Canada. The Representative only provided Retail Invest’s financial statements, trial balance and foreign tax return for the financial year ended November 30, 2016. The Representative claimed that the majority of documents for the 2016 taxation year did not exist.
[19] Around February 10, 2022, the Agency was advised that the Department of Justice had a call with the Representative. The Agency agreed to wait until February 28, 2023 before initiating a compliance application.
[20] On February 17, 2023, the Representative informed the Agency that, as the Respondent was not a resident of Canada during the 2019 taxation year, the Agency could not compel the production of documents for D’Banyan, Retail Invest and Hiroko Holdings for this year.
[21] On February 21, 2023, the Representative advised the Agency about Eight Treasures, claiming that the Agency could not compel the production of materials relating to the 2017, 2018 and 2019 taxation years, as neither the Respondent nor the entity were residents of Canada. The Representative also claimed that several items requested for the 2016 taxation year did not exist.
[22] On February 28, 2023, the Representative responded to the Agency about 111 Canada, noting that the entity did not have any documents for the 2016 and 2017 taxation years, as the company was not incorporated until December 7, 2018. For the 2018 and 2019 taxation years, the Representative claimed that the majority of documents did not exist.
[23] For 115 BC, the Representative stated that there were no documents prior to its incorporation date on February 5, 2018. For the 2018 to 2019 taxation years, the Representative claimed that the majority of documents did not exist.
[24] For 119 BC, the Representative stated that there were no documents prior to its incorporation date on January 24, 2019. For the 2019 taxation year, the Representative claimed that the majority of documents did not exist.
[25] On February 28, 2023, the Respondent provided financial statements and trial balances for 115 BC for the fiscal years ended October 31, 2018 and October 31, 2019. The Respondent also included 119 BC’s minute book and related documents, and a share purchase agreement between 119 BC and the Respondent. Lastly, the Respondent provided his answers to the Agency’s questionnaire.
[26] Apart from tax planning documents for 119 BC, neither the Respondent nor his Representative claimed solicitor-client privilege or common interest privilege over any of the Required Material.
[27] On April 27, 2023, the Applicant initiated this application against the Respondent on the basis that he did not provide all of the information requested in the Demand. The Applicant argued that the majority of the Required Material remained outstanding, and this documentation was not protected from disclosure by solicitor-client privilege.
[28] During the course of oral submissions, the Applicant indicated that the minute books of 119 BC were no longer being sought. Rather, on this application, the Applicant requested the following information:
Complete answers to questions 1.1 to 7.3 of the questionnaire for the 2017 to 2019 taxation years;
Financial statements, trial balances, accounts groupings and year end adjusting entries for all entities other than 115 BC;
Copies of all foreign tax returns for all entities;
Corporate organizational charts for each year, if different, for all entities, including all resident and non-resident, corporations, trusts, bare trusts, partnerships, co-ownerships and joint ventures which the Respondent or a member of his family controlled, directly or indirectly, either alone or together with related parties;
Details and copies of all intercompany loan agreements for all entities, including those loan agreements with related non-resident entities, and reconciled to the trial balances of the relevant entities;
Details of all dividends issued and received, and reconciled to the trial balances of the relevant entities. For dividends received from related non-resident entities, provide details of the dividend surplus calculations;
Copies of any and all intercompany agreements and shareholder agreements for all entities;
Details supporting and a reconciliation to the relevant trial balances for any filed T106, T1134, T1135, T1141, and T1142 forms for all entities;
Copies of any rulings or opinions requested by the entities from the Agency and the reply received;
Any documents related to tax planning for all entities that occurred during the audit period; and
The calculation of tax attributes of all shares held by the Respondent from 2015-2019 in respect of all entities.
III. Issue [29] The primary issue underlying this application is whether the Applicant is entitled to a compliance order under subsection 231.7(1) of the ITA compelling the Respondent to provide the outstanding Required Material. However, in order to address this question, a related concern is whether a non-resident is required to respond to a request for information under section 231.1(1).
IV. Relevant Provisions [30] The relevant provisions of the ITA are set out in Appendix A.
V. Arguments [31] I will not address the entirety of the parties’ arguments, as some are not determinative of this matter and are slightly “offside” the real issue.
A. Applicant’s Submissions [32] The Applicant argues that the Respondent was properly served with the Demand under subsection 231.1(1) of the ITA and that he failed to provide the Required Material. The Applicant claims that the main issue on this application is whether subsections 231.1(1) and 231.7(1) of the ITA apply to the Respondent for the 2017 to 2019 taxation years. The Applicant states that they do. The Applicant contends that a taxpayer (or any person), whether resident or not, is required to produce any documents and information requested by the Minister whenever the statutory conditions are met.
(1) The Compliance Provisions Are Applicable to the Respondent [33] In this case, the Applicant asserts that the compliance provisions, sections 231.1(1) and 231.7(1), are applicable to the Respondent. Under the general principles of statutory interpretation, the Applicant claims that the compliance provisions apply to any person who is in Canada, whether or not they are a resident.
[34] First, the Applicant notes that the text of the compliance provisions is precise and unequivocal. The subject of both provisions is a “person.” Neither the text of the sections, nor the definitions of “person” and “taxpayer,” refer to a “resident” or “non-resident.” The Applicant notes that both “person” and “taxpayer” are defined terms under subsection 248(1) of the ITA, and that these provisions expand the scope of “person” and “taxpayer.” The Applicant argues that “person” must be given its ordinary meaning, which is a human being or a natural person.
[35] Based on a textual reading, the Applicant claims that the question of whether the Respondent is a resident or non-resident for income tax purposes is irrelevant. Rather, the Applicant notes that both the English and French versions of subsection 231.1(1) require a taxpayer, which includes any person, to provide information to the Applicant. Additionally, the English and French versions of subsection 231.7(1) allow a judge to compel a “person.” The Applicant states that the text of the provisions, in both languages, does not refer to residency.
[36] The Applicant also argues that the Respondent’s argument, that he was a non-resident during the audit period and cannot be subject to the provisions, impermissibly reads an unexpressed condition into the text. The Respondent is asking for “resident in Canada” to be included with every reference to “person” and “taxpayer” under the provisions. The Applicant asserts that the Court should reject this approach, as Parliament would have explicitly used the word “resident” if it sought to narrow the scope of the compliance provisions. The Applicant also argues that Parliament distinguishes taxpayers on the basis of residency in other parts of the ITA.
[37] In terms of context, the Applicant contends that the compliance provisions are part of a broader set of information gathering provisions under the ITA, including sections 231.2 and 231.6. Under the former, Parliament has carved out a class of persons, unnamed persons, from the Minister’s general authority to issue a requirement. Therefore, if Parliament had sought to exempt non-residents, the Applicant states it would have specifically done so, as seen with unnamed persons in section 231.2(1).
[38] Moreover, the Applicant notes that the enactment of section 231.6 shows Parliament’s intention to restrict the Minister’s information gathering powers on the basis of residency in other provisions. Section 231.6 states that the Minister may require a “person resident in Canada or a non-resident person carrying on business in Canada” to provide foreign-based information. The Applicant argues that Parliament has expressly narrowed the ambit of “person” in this section. In contrast, Parliament has placed no limitations, qualifications or modifications on “taxpayer” or “person” in subsections 231.1(1) and 231.7(1).
[39] As an aside, the Applicant claims that section 231.6 does not apply in this case, as it is only available where foreign-based information is exclusively accessible or located outside of Canada. In this instance, the Applicant argues that the requested information is accessible to the Respondent in Canada. The Applicant notes that the Respondent is currently in Canada, and claims that he has power and control over the required documents in Canada.
[40] Finally, in relation to the purpose of the text, the Applicant notes that the compliance provisions permit the Minister to verify persons’ records to ensure compliance with the ITA. The Applicant cites R v McKinlay Transport Ltd, [1990] 1 SCR 627 [McKinlay], where the Supreme Court of Canada found that the Minister must be given broad powers to audit taxpayer returns and inspect all relevant records. The Applicant asserts that “Parliament cannot have intended that an individual who has a presence in Canada simply be able to declare themselves non-resident for Canadian tax purposes with the effect of depriving the Minister of any ability to verify that declaration using the broad powers Parliament has given her: the Compliance Provisions.” The Applicant notes that even non-residents of Canada are subject to tax on their Canadian-source income under the ITA, and the Minister must be able to audit those persons.
[41] The Applicant also refers to 1068754 Alberta Ltd v Québec (Agence du revenu), 2019 SCC 37 [Alberta Ltd], where the Supreme Court of Canada determined that a demand had been validly issued by the Agence du revenu du Québec to an entity in Alberta. In that decision, while assessing territorial jurisdiction, the Applicant argues that the Court found the “focus must be on the place where enforcement of the Demand may be sought as the determinative point in characterizing the exercise of the coercive power at issue.” In this case, the Applicant claims that the consequences of failing to comply with the Demand, and its potential for enforcement, are all effected in Canada. Regardless of residency status for tax purposes, the Applicant notes that the Respondent accepts the territorial jurisdiction of Canadian law when he enters the country; therefore, to the extent that the Respondent is present in Canada, he is subject to Canadian law. The Applicant concludes that there is “no real issue of territorial jurisdiction in this case.”
(2) The Requirements of Section 231.7 Are Satisfied [42] The Applicant asserts that the requirements of section 231.7 are otherwise satisfied. The Demand was issued for a proper purpose: to audit the Respondent’s residency status and to assess his worldwide income from all sources during the audit period in order to verify whether he complied with his duties and obligations under the ITA.
[43] The Applicant states that the length of time afforded was reasonable. The Respondent waited months to declare that he would not be able to provide the Required Material on the basis of his residency status. The Applicant argues that it has been over a year since the Demand was issued, and the Required Material remains outstanding. Based on the record available, the Applicant contends that there is nothing showing the Respondent required more than 60 days. Additionally, the Applicant asserts that the Respondent’s claims, that there are no documents existing for 2016, are bald allegations which are unsubstantiated by the evidence.
[44] Finally, the Applicant argues that the Required Material is not protected from disclosure by solicitor-client privilege. In accordance with section 231.7(1)(b) of the ITA, the Applicant states that privilege only attaches to communications between a solicitor and client, which were intended to be confidential for the purposes of seeking or providing legal advice. The Applicant asserts that this is not the case here, as the outstanding material consists of business and financial information.
(3) There Are No Discretionary Considerations [45] Finally, the Applicant states that there are no discretionary considerations which warrant denying this application. The Applicant asserts that it is in the interests of justice for this Court to exercise its discretion and issue the compliance order. Furthermore, the Applicant states that a demand offers the least intrusive means of monitoring compliance with the ITA, as it merely calls for the production of documents or information.
B. Respondent’s Submissions [46] The Respondent argues that, where information is sought under section 231.1, which concerns a non-resident taxpayer, the Applicant must first make a determination about that individual’s residency status. The Respondent contends that this will impact the type of production compellable under the ITA.
[47] The Respondent claims that he provided the Applicant with all of the information and documentation under his possession, power and control, which was sought during the period that he was resident in Canada, including information and documentation pertaining to his worldwide income and foreign holdings. The Respondent states that he answered all of the audit inquiries respecting his Canadian income and holdings for the entirety of the audit period, which is all he was required to do.
[48] The Respondent argues that this Court should order the Applicant to make a finding about his residency status. Alternatively, the Respondent asks this Court to refer the question of residency to the Tax Court pursuant to section 18.5 of the Federal Courts Act, RSC 1985, c F-7 [Federal Courts Act].
(1) The Minister Needs to Determine Residency First [49] The Respondent takes issue with the proposition that the Applicant is entitled to documents and information before making a determination about the Respondent’s residency status. The Applicant uses Lin to suggest that the Agency can use section 231.1 to compel information before or without making a determination regarding residency status. The Respondent argues that this is incorrect at law. Rather, consistent with Lin, the Respondent states that this Court lacks the jurisdiction to make a determination respecting residency.
[50] The Respondent claims that a residency determination informs the type of information that the Applicant can compel under section 231.1. The Respondent asserts that section 231.1 is meant to apply to persons with a sufficient nexus to Canada, in order to impose federal income tax liability. A demand made in respect of a non-resident, with no apparent connection to Canada, would not proceed under this provision. The Respondent claims that the Agency can rely on other provisions of the ITA, such as sections 231.2 and 231.6.
[51] The Respondent asserts that the Applicant’s argument, which states that section 231.6 does not apply in the present circumstances because the Respondent is currently in Canada, is contrary to the jurisprudence. In Landbouwbedrijf Backx BV v Canada, 2019 FCA 310 and Landbouwbedrijf Backx BV v The Queen, 2021 TCC 2, the courts confirmed that “an assessment is conclusive as between the parties only in relation to the assessment for the year in which it was made.” Given the Respondent’s tax filings showed he was a non-resident from 2017 to 2019, the Respondent argues that the Applicant cannot rely on the Respondent’s physical location in 2023 to bind him to the audit period.
[52] The Respondent also contends that the Applicant’s statement, that section 231.1 is indifferent to residency status, would allow the Applicant to demand information from every non-resident with tenuous ties to Canada, which would lead to “absurd results.”
(2) The Compliance Provisions Are Not Applicable to the Respondent [53] While the Respondent recognizes that the language of the ITA is broad, he argues that the case law has narrowed that scope. In particular, he states that the definition of a “taxpayer” cannot include non-residents who do not have Canadian-source income or Canadian holdings. Otherwise, there would be no limit on who could be characterized as a taxpayer under the ITA, as this could include every existing individual and corporation, whether or not they were a Canadian resident. The Respondent claims that this would be in “blatant disregard” of international law.
[54] The Respondent asserts that, based on the Agency’s own internal records, the Agency recognizes that it has to rely on international tax treaties and Tax Information Exchange Agreements to obtain information from non-residents. The Respondent argues that, as he was a non-resident for several years, he filed his income tax returns as such. For all years, he states that his non-resident related entities were not taxpayers and, accordingly, were not subject to section 231.1.
(3) Non-Resident Related Entities Are Not Taxpayers Under Section 231.1 [55] The Respondent contends that he was not required to provide the Applicant with information about his non-resident related entities during the years that he was not a resident, as the entities were not “taxpayers” under the ITA. Since the Respondent was a taxpayer and resident of Canada in 2016, he provided all of the information pertaining to his worldwide income for that year. However, from 2017 to 2019, the Respondent states that he was a taxpayer under the ITA for only Canadian-source income or gains arising from the disposition of Canadian property, and he was not required to produce information relating to his non-Canadian income.
[56] The Respondent claims the Federal Court of Appeal considered this very issue. In Oceanspan Carriers Ltd v Canada, [1987] 2 FC 171, 1987 CanLII 9009 (FCA) [Oceanspan], the Respondent argues that the Court determined that a non-resident corporation, which did not earn income from Canadian sources, could not be considered a “taxpayer” under the ITA. More specifically, the Respondent refers to the following quote:
[ . . . ] The definition of "taxpayer", properly understood in its context in the whole of the scheme of the Act, shows, indisputably in my view, that it refers to resident individuals or corporations who may be liable to pay tax at some time whether or not they are, at any given time, liable therefor. A non-resident without income from Canadian sources can never be liable to pay tax under the Act on its foreign income. It is not, therefore, a corporation contemplated by the definition of "taxpayer" in the Act.
[Emphasis added.]
[57] The Respondent also cites Marino v The Queen, 2020 TCC 50 [Marino], which involved a non-resident individual. In that decision, the Tax Court noted that a non-resident, with no source of Canadian income, was not a “taxpayer” and did not have a taxation year. The Tax Court also analyzed section 250.1 of the ITA, finding that the provision did not have the effect of giving every non-resident person a taxation year.
[58] Moreover, pursuant to the case law, the Respondent asserts that the words “taxpayer” and “person” can be used interchangeably under the ITA.
[59] In this case, as the Respondent was not a “taxpayer” from December 28, 2016 to the end of the audit period (in accordance with Oceanspan), the Respondent argues that he was not a “person” under the ITA. Based on Marino, the Respondent contends that subsection 2(3) of the ITA identifies only a subset of non-residents that are taxable, which includes those who were employed in Canada, carried on business in Canada, or disposed of taxable Canadian property in the year or prior year. For reasons discussed more fully below, I cannot agree with this argument.
[60] The Respondent also points to Regulation 105(1) of the Income Tax Regulations (CRC 1977, c 945), which does not require a non-resident recipient of fees, commissions or any other amounts to file an income tax return solely on the basis of receiving payment for services rendered in Canada. Similarly, the Respondent cites the Agency’s own published administrative rulings, which state that “[a] non-resident individual that does not have any Canadian source income would not be considered a “taxpayer” as it is defined in the Act.”
[61] Therefore, the Respondent argues that, if a non-resident entity does not have any tax payable, either due to being employed in Canada, having carried on a business here or having disposed of taxable Canadian property, it is not a taxpayer at all. Accordingly, in the present circumstances, the Respondent claims that the Applicant has the right to seek information about his non-resident related entities and of himself as it relates to his Canadian-source income, income from a business in Canada, or gains arising from the disposition of Canadian property during the audit period. The Respondent argues that the Applicant cannot ask for all the details respecting his non-resident related entities (and himself) during his non-resident years.
[62] Finally, the Respondent factually distinguishes the Applicant’s authority, Alberta Ltd, which is relied upon for assessing the limits of territorial jurisdiction when compelling the production of documentation. In that decision, the Respondent argues that the Supreme Court found that the bank had branch operations both inside and outside of Quebec. The Respondent contends that the Court relied on the bank’s operations in Quebec to find that Agence du revenu du Québec’s request had not been extraterritorial. The Respondent claims that this reasoning is not applicable here, since the Agency served the Demand on the Respondent personally (and not on a third party), and the Demand related to a period where the Respondent declared himself a non-resident and could have no tax liability for his non-Canadian worldwide income during those years.
(4) The Minister Has Deprived the Respondent of the Opportunity to Judicially Review a Residency Decision [63] Pursuant to sections 18.1 and 28 of the Federal Courts Act, the Respondent notes that the Court has the power to judicially review any decision of the Agency. However, the Respondent states that the Agency has not made a determination respecting his residency. Under the jurisprudence, a “decision” is a finding that is final and binding. In this case, the Respondent asserts that the Minister or Agency must make a finding respecting his residency before imposing any audit powers pursuant to section 231.1 of the ITA.
[64] The Respondent argues that the Applicant is “putting the cart before the horse,” as he cannot judicially review the Agency’s residency determination before responding to the Demand. The Respondent contends that the Applicant has denied him of procedural fairness by depriving him of the opportunity to know the case to meet.
(5) The Compliance Order is Not Warranted [65] In order to receive a compliance order pursuant to subsection 231.7(1) of the ITA, the Respondent notes that the Applicant bears the burden of satisfying the tripartite test from Canada (National Revenue) v Chamandy, 2014 FC 354 [Chamandy]. The Respondent states that a judge should not exercise their discretion unless all of the conditions are clearly met. Moreover, the Respondent indicates that the ITA only requires a taxpayer to make reasonable efforts to acquire documentation when a demand is made pursuant to section 231.1. Therefore, if a document never existed or was not available (since it was not in the taxpayer’s possession), then the Respondent asserts a compliance order should not be granted.
[66] In the present circumstances, the Respondent asserts that he made reasonable efforts to provide all of the available Required Material in his possession, power and control. The Respondent contends that some of the documentation, which the Applicant requested in the Demand, does not exist. The Respondent argues that he cannot produce what does not exist, and refers to Canada (National Revenue) v Amdocs Canadian Managed Services Inc, 2015 FC 1234 [Amdocs]. The Respondent indicates that section 231.1 only requires that he provide reasonable assistance to produce the Required Material, as he does not have to “detail each and every one of his search efforts” voluntarily and without being prompted by the Minister.
[67] Moreover, the Respondent notes that section 231.1 allows the Agency to make follow-up requests for information when necessary. Therefore, the Respondent claims that the Agency is allowed to inquire about the Respondent’s search for any materials which he states do not exist. The Respondent asserts that the Agency did not make any such requests. As a result, the Respondent contends that the Court should not reward the Applicant for this failure.
[68] Finally, the Respondent claims solicitor-client privilege and common interest privilege over tax planning documents relating to 119 BC, which was detailed in his February 28, 2023 submissions. The Respondent states that this Court should not grant a compliance order with respect to those documents.
VI. Analysis A. Preliminary Issue [69] As a preliminary matter, the Applicant contends that the Respondent failed to lead admissible evidence regarding his claim that he was not a resident of Canada from 2017 to 2019. The Applicant argues that the Respondent is improperly attempting to prove his residency status through his accountant, Vinay Khosla, who filed an affidavit for this application (the Khosla Affidavit). The Respondent did not file his own affidavit. The Applicant argues that this evidence is inadmissible because it is hearsay and contrary to Rule 81 of the Federal Courts Rules, SOR/98-106 [Rules].
[70] The Applicant asserts that the Khosla Affidavit does not meet any of the hearsay exceptions, nor does it meet the necessity or reliability test set out by the Supreme Court of Canada in R v Khelawon, 2006 SCC 57. In particular, the Applicant states that the Respondent was available to affirm an affidavit, given he was located in Canada. Therefore, the Applicant contends that the Khosla Affidavit was not necessary. Additionally, the Applicant argues that the Khosla Affidavit is not reliable because he was unaware of the facts, had no first-hand knowledge, and made no efforts to verify the information provided.
[71] As a result, the Applicant claims that there is no admissible evidence showing that the Respondent was legally a resident of the Bahamas.
[72] Upon considering the Khosla Affidavit, I find that it is acceptable for this application. It would appear that the Applicant’s argument is largely concerned with an inability to cross-examine the source of this information, the Respondent, as the Applicant states it is “an attempt to shelter [the Respondent] from cross-examination.” However, similar to Canada (National Revenue) v 2276230 Ontario Inc, 2021 FC 242, although the Respondent did not provide the best evidence for his arguments, nor explain why such evidence could not be provided, I will not strike the Khosla Affidavit. Rather, I will afford it less weight on this application.
B. Is Residency a Consideration in the Compliance Provisions? [73] The Respondent has provided documentation relating to his Canadian-source income during his self-declared non-residency. The Agency now asks this Court for a compliance order to obtain further materials from the Respondent, including information about relevant non-resident entities. The Agency asserts that a compliance order is needed to determine the Respondent’s residency status and to assess whether he complied with his duties and obligations under the ITA.
[74] Based on the parties’ submissions, it appears that the Applicant and the Respondent are in agreement that the Tax Court of Canada has exclusive jurisdiction to decide the matter of residency. Both parties rely on Canada (National Revenue) v Lin, 2019 FC 646 [Lin], which states that any determination of residency for the purposes of the ITA is an issue beyond this Court’s jurisdiction. However, the parties disagree regarding whether residency must be decided first; that is, whether it must be considered prior to applying sections 231.1 and 231.7 of the ITA.
[75] The Applicant refers to Ghermezian v Canada (Attorney General), 2020 FC 1137 [Ghermezian 1], where the Court cited Lin. The Court noted Lin does not suggest that a dispute regarding residency status prevents the Minister from exercising its powers under section 231.1.
[76] While the jurisprudence has hinted at the impact of residency status, there is nothing directly on point where foreign-based information was sought by the Agency from a non-resident, under sections 231.1(1) and 231.7(1) of the ITA, for the purpose of making a residency determination and assessing overall compliance with the legislation.
[77] However, the question of whether the Respondent complied with the Demand, and whether the compliance order can be granted, depends, in part, on whether residency is a consideration that affects the operation of sections 231.1(1) and 231.7(1). In other words, the issue is whether residency limits the scope of these provisions, including whether it must be determined first.
(1) Relevant Jurisprudence [78] There is limited case law on this issue. In a few instances, the Court has hinted at how residency could influence the applicability of sections 231.1(1) and 231.7(1). In other cases, there are discussions on foreign-based information, including the use of section 231.6 or relevant tax treaties. However, there is no definitive answer to this question.
[79] In Lin, the parties raised a residency concern, arguing that a non-resident was not required to respond to a request for information under section 231.1 of the ITA. In referring to this issue at paragraphs 28-29, the Court stated that:
Resident status under the ITA (i.e., ordinary resident, a factual resident, a deemed resident, a deemed non-resident, and a non-resident) affects the obligations of individuals to pay taxes. Not all non-residents are exempt from paying taxes, however, as subsection 2(3) of the ITA specifies circumstances when a non-resident may be liable to pay tax on income earned in Canada.
Mr. Lin filed tax returns for the period of the audit. However, by virtue of section 18.5 of the Federal Courts Act, RSC 1983, c F-7, determining his residency status for purposes of the ITA during the tax years in question is an issue beyond this Court’s jurisdiction. That issue lies within the jurisdiction of the Tax Court of Canada because it involves determining his liability to pay tax under the ITA as a non-resident (Johnson v The Queen, 2007 TCC 288).
[80] In my opinion, Lin is not completely on point. In that decision, the C