Can an Auditor Compel a Taxpayer To Create a New Document?

It is not uncommon for a CRA auditor to ask a taxpayer to create a new document or modify an existing one in the course of an audit. For example, auditors frequently ask taxpayers to provide organizational charts containing a variety of detailed information regarding each member of a corporate group. If these charts do not contain all of the desired information, auditors sometimes ask taxpayers to add additional information, or even to create entirely new charts. Although the CRA can compel a taxpayer to create a new document when the document is merely incidental to the requested information (Tower v. MNR, 2003 FCA 307), it cannot compel a taxpayer to create a new document when the document is the requested information (Canada (National Revenue) v. Amdocs Canadian Managed Services Inc., 2015 FC 1234).

In Tower, an auditor served a requirement to provide information on the taxpayer's accountants (BDO) pursuant to section 231.2, demanding that the accountants "prepare new documents with their subjective understanding of the intention of the applicants and BDO" regarding a certain transaction. The taxpayer and BDO objected to this request on the grounds that section 231.2 does not allow an auditor to conduct a written examination for discovery or compel a taxpayer to create a new document. The FC agreed, holding that section 231.2 only contemplates the production of documents that are already "in existence," and that the provision was not intended to be "so broad as to provide the Minister with the option to conduct a written examination for discovery." However, this decision was overturned by the FCA, which held that section 231.2 "enable[s] the Minister not only to get the information regarding a taxpayer's income, but also to specify the form in which this information must be provided." In other words, the CRA can require information to be presented in the "form" of a new document.

Contrast this with the FC's more recent decision in Amdocs, where an auditor demanded that a taxpayer provide an organizational chart containing very specific information (pursuant to section 231.1). The taxpayer (AMCS) did not have a chart fitting the auditor's description, so it offered to provide a different one. The CRA was not satisfied with this compromise and sought a compliance order from the FC. The FC accepted AMCS's evidence that it did not have the requested chart. It then remarked that it was "not clear whether the CRA is . . . requesting that AMCS create a chart in the required form if one does not already exist" (emphasis in original). On the latter point, the court observed: "The ITA does not contemplate the creation of records where they do not exist. That which does not exist cannot be produced."

At first blush, the conclusions in Tower and Amdocs appear inconsistent and even contradictory. However, it is important to note the distinction between the types of documents in the two cases. In Tower, the auditor requested a written statement containing information that could as easily have been conveyed orally. In that sense, the written statement was not truly "documentary" in nature; the piece of paper containing the statement was incidental to the statement itself. In Amdocs, however, the auditor requested something that was truly documentary in nature: an organizational chart is essentially a visual aid that can be conveyed only by documentary means.

Lane Zabolotney
MLT Aikins LLP, Saskatoon

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