Zeifmans – Federal Court of Appeal decision may effectively reduce the availability of judicial review of a CRA information requirement

Zeifmans, 2021 FC 363, aff’d 2022 FCA 160 concerned the application of the Zeifmans accounting firm for judicial review of a CRA issuance of a requirement letter pursuant to s. 231.2(1) respecting three named individual clients of the firm (“Named Persons”) and all “entities owned, operated, controlled or otherwise connected to [such] individuals” (the “Unnamed Persons.”) The submission of Zeifmans - that judicial authorization should have been obtained pursuant to s. 231.2(3) given that the requirement extended to the Unnamed Persons – was rejected essentially because there was “no evidence in the record that the Unnamed Persons [we]re a current investigation target.”

However, in dismissing a subsequent application of the Minister for a compliance order pursuant to s. 231.7, Pallota J found that the Unnamed Persons were an investigation target, given inter alia that the lead auditor (Mr. Bowe) had indicated in cross examination in those compliance-order proceedings that the requirement had been issued as part of the CRA audits of all the companies in the group.

Biringer JA first noted that “if the requirement asks for information relating to unnamed persons only to verify the named persons’ compliance under the ITA, judicial authorization is not required,” whereas “if a [i.e., any] purpose of a requirement is to seek information and documentation regarding unnamed persons in order to verify their compliance with the ITA, prior judicial authorization is needed.”

She concluded “that the Federal Court made a palpable and overriding error by not giving effect to Mr. Bowe’s consistent and repeated testimony that the only purpose of the Requirement was to further the audits of [the three named persons].” Mr. Bowe indicated on his cross-examination that, although he could not foreclose the possibility that the Minister might use the required documents for audits of the Unnamed Persons at some point in the future, this was “speculation” (para. 84).

Although the CRA information statement in support of the requested requirement had stated that one of the purposes of the requirement was “[t]o verify if offshore entities are managed and controlled from Canada by the [named individuals]” (suggestive of a purpose of determining whether they were resident in Canada and subject to Canadian tax), Biringer JA referred to Mr. Bowe’s testimony to the effect that the focus instead was on whether such management and control from Canada indicated that the Named Persons had access to the relevant information.

She agreed “with the Federal Court that judicial review of the Minister's decision to issue a requirement was a different process with different purposes and consequences than a compliance proceeding to enforce the requirement.” Here, however, there was “a very thin, if not invisible, line between reasonableness and correctness review of the issue: whether the Requirement was issued without lawful authority” so that “the Federal Court erred in concluding that the task before [it] in the Compliance Proceedings was meaningfully different from the task completed by the Courts in the JR Proceedings”. Accordingly, she found that the Zeifmans abused the court's process by relitigating whether prior judicial authorization was required.

This finding that a challenge to a proposed compliance order effectively amounted to “relitigating” the prior judicial review proceeding may result in a taxpayer needing to choose between seeking judicial review of an inappropriate CRA requirement for information under s. 231.1(1)(f) or 231.2(1), and waiting for and challenging a CRA request for a s. 231.7 compliance order. Since the taxpayer’s position in a compliance order hearing is potentially stronger (being a correctness rather than reasonableness review, with potentially more evidence admitted and perhaps with judicial attention to circumscribing the scope of a broadly-worded proposed order having regard to the potential penal consequences), a taxpayer might effectively have to forego judicial review and await a compliance hearing.

Neal Armstrong. Summaries of Canada (National Revenue) v. Zeifmans LLP, 2026 FCA 147 under s. 231.7(1) and s. 244(20).