The CRA's Win Against Undisclosed Offshore Accounts

In Canada (National Revenue) v. Stankovic (2018 FC 462), the CRA received information from a foreign government about offshore accounts not reported by a Canadian taxpayer. The FC held that the CRA can legally use such information in a civil income tax compliance audit without violating the taxpayer's rights to Charter protection, regardless of whether a criminal prosecution is likely to follow on the basis of the information gathered. However, it remains to be seen how a judge might assess this evidence in a civil or criminal proceeding on the merits.

Under the exchange-of-information provision (article 26) of the Canada-France tax treaty, the French authorities provided the Canadian government with names, including the taxpayer's, of Canadian taxpayers who held undisclosed Swiss bank accounts. The names were from a list ("the Falciani list," also known as "the Lagarde list" and "the HSBC list") that the French government had obtained in 2009.

The taxpayer's main argument was that the predominant purpose of the audit was a criminal investigation. Specifically, the taxpayer challenged a section 231.7 compliance order (which allows the CRA to apply for a court order relating to an audit) regarding a section 231.1 information request on the grounds that her rights to life, liberty, and security of the person under section 7 of the Charter were violated. The court applied the factors established in R v. Jarvis (2002 SCC 73) and concluded that the taxpayer could not benefit from the protection of the Charter because the predominant purpose of the audit was civil income tax compliance, and section 7 of the Charter does not protect economic rights. Russell J added that
[o]ffshore accounts are not, per se, illegal and it is the duty of the Minister under the Act to inquire and ensure that those with offshore accounts are meeting their tax liabilities. . . . If the Respondent's position were accepted, it would mean that . . . every Canadian taxpayer with an offshore bank account would be immune from compliance with the audit requests made under s 231.1(1) because this could lead to criminal proceedings at some time in the future.
The taxpayer also argued that the CRA did not have the right to use any of the information in the Falciani list because it was stolen data. However, the FC said that the CRA received the information from the French authorities pursuant to article 26 of the Canada-France treaty and therefore had not acquired the information illegally. Russell J rejected as irrelevant the fact that the French courts had concluded that the tax authorities had contravened local law by using the information in the Falciani list in conducting their audits. Indeed, since section 32(1) of the Charter "only applies to Canadian state actors . . . [i]t is also clear that the Charter does not apply to information gathered extraterritorially where the authorities or source of the information were not acting on behalf of the Government of Canada." Thus, Stankovic is consistent with the principles established in Berger c. Agence du revenu du Québec (2016 QCCA 226).

Anthony Sylvain
McCarthy Tétrault LLP, Montreal
[email protected]

Canadian Tax Focus
Volume 8, Number 4, November 2018
©2018, Canadian Tax Foundation