The federal Tax Act gives the Canada Revenue Agency (“CRA”) broad powers to inspect, audit, and examine a taxpayer’s records without a court order. An issue about the extent of the powers of tax investigators came before the Supreme Court of Canada recently relating to unnamed taxpayers. The case involved a CRA investigation into a registered charity affiliated with a private school in southern Ontario. The charity operated a forgivable loan programme as a means of financing the school and its facilities. In its investigation, the CRA expressed concern that the charitable contributions to the loan programme may not have been real charitable donations but rather made by the parents of students attending the school on the understanding that the money would be used to finance the education of their children in lieu of tuition.
The CRA decided that it needed more information to determine the charitable donations it was investigating. As a result, the CRA requested documents from the charity that recorded the identity of each donor and the name of the student who was to receive credit for the donation. The CRA then intended to enquire further of the donors whether tuition had actually been paid over and above the charitable donation. The charity refused to provide the documents arguing that the CRA first needed a court order.
The Supreme Court was divided in its decision, four judges to three. The majority held that the CRA was entitled to the requested information without first having to obtain a court order. It rejected an argument that one of the purposes of the CRA request was, in fact, to reassess the tax returns of donors. The court noted that taxpayers have a low expectation of privacy in their tax records when it relates to tax liability.
Is the decision right based on the close split? As one respected judge said years ago, the Supreme Court of Canada is not right because it is the Supreme Court. It is right because its decisions are the final decisions in the judicial system.