In March 2006, an official in the Montreal office of the CRA Special Investigations Division received a tip that a company (BT Céramiques) and its president (Bruno) were involved in tax evasion and had a close relationship with a senior CRA employee. The computer system showed that the returns of Bruno and BT Céramiques had stayed in the possession of the same auditor (lammarone) for three years without having been acted upon. In March 2007, a CRA manager decided to initiate an audit of two years subsequent to those previously reviewed, i.e., of the 2004-2005 years, with the audit to be performed by auditors in the Special Enforcement Program (“SEP” - whose mandate was to determine the civil liability of those engaged in criminal activities) rather than by those in the Criminal Investigations Program, who investigated tax evasion with a view to bringing charges. The audit revealed some evidence of CRA corruption (including an invoice for a kitchen counter from lammaronne) in addition to GST non-compliance by BT Céramiques. In March 2008, the file was transferred for criminal investigation, with the auditors providing some assistance in the preparation for obtaining a search warrant, with the search and seizure of documents occurring on May 6, 2008. The Court of Quebec found that the search was unconstitutional based on the Jarvis test and, as the seized evidence was to be excluded, ordered the acquittal of the appellants.
After reviewing the Jarvis criteria for determining whether the predominant purpose of the audit ending in March 2008 was to determine penal liability, and before concluding that this was not the case, so that the acquittals were annulled and the file ordered to be reviewed by a different judge, Payette JCS stated (at paras. 83, 87-88, 96, 98, TaxInterpretations translation):
When it commenced the audit [in March 2007], the CRA only had suspicions that BT Céramiques was engaged in tax evasion and that a “grand patron” in the CRA was assisting it. … Such suspicions were not the equivalent of reasonable grounds to believe that BT Céramiques and Bruno had corrupted a CRA official. …
Did the CRA possess such grounds before the transfer of the file to the SEP in April 2007? Taking her conclusions into account, the judge did not respond to this question. ...
The discovery of an invoice for a kitchen counter permitted a belief that lammarone had been placed in a situation of a conflict of interest. … [T]his did not constitute a reasonable ground to permit the CRA to obtain a search warrant or to make accusations of corruption against BT Céramiques or Bruno. …
Furthermore, the judge contrasted “auditing” and “investigation” in concluding that there was a contravention of the Jarvis principles. She often referred to this “contrast” without noting that the audit powers themselves constitute powers of investigation, and without pausing to determine if the objective of the steps she described was to establish penal liability of the respondents… .
In this case, the facts found by the judge did not permit a conclusion that the conduct of the authorities examined in its entirety gave rise to a belief that they were proceeding in a criminal investigation.
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