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.
MLT Aikins LLP, Saskatoon