The Minister of National Revenue (“Minister”) has substantial powers to require taxpayers to provide documents and information pursuant to ss. 231.1 and 231.2 of the Income Tax Act (Canada) (“ITA”). Failing to provide required information may result in the Crown seeking a compliance order from the Federal Court (“FC”) under s. 231.7. A compliance order obligates a recalcitrant person to provide “any access, assistance, information or document sought by the Minister under section 231.1 or 231.2”, if a FC judge is satisfied that the person was required to comply but did not do so and the information or documents were not privileged. Failing to comply with a compliance order may render a person guilty of contempt of court under Rule 466 of the FC Rules.
Procedurally, a person allegedly in contempt of court would be served with an order requiring the person to attend before the FC and be prepared to present a defense. The order requiring attendance must be sufficiently clear to enable the person to understand the case against them. The burden is proof beyond a reasonable doubt, which is the criminal burden of proof. If the FC holds the person in contempt, the sanctions may include a fine, imprisonment for less than five years, costs and an order to do or refrain from any act.
In the recent case Minister of National Revenue v Schimpf,1 the FC held the taxpayer in contempt and issued a fine with a costs order. The Minister attempted to audit the taxpayer for her 2010 and 2011 taxation years, issued detailed information requests and warned in writing that she may seek a compliance order. The Minister sought, obtained and served a FC compliance order on the taxpayer. The taxpayer did not comply, thus, the FC granted an order requiring the taxpayer to attend a contempt hearing. The Crown established before the FC that the taxpayer: did not generally comply with CRA information request; was personally served with the compliance order; did not comply with the order whatsoever; was personally served with an order to appear at the contempt hearing; did not appear as required; and failed to pay the cost order pursuant to the compliance order application.
The FC canvassed the applicable principles for contempt of court, confirming:
- The party alleging contempt has the burden of proof and the person alleged to be in contempt does not need to provide evidence;
- The burden of proof is proof beyond a reasonable doubt and three elements must be so proven;
- The order must have clearly and unequivocally stated what must be or must not be done – in other words, an order must include all essential details about where, when and to whom it applies and must not rely on overly broad language;
- The party in breach must have had knowledge of the order, which can be inferred in the circumstances or by establishing willful blindness;
- The party in breach must have intentionally done what was prohibited or failed to do what was required under the order;
- Unless the Court directs otherwise, evidence shall be oral; and
- The purpose of the contempt power is to ensure respect for the judicial process to secure its effective operation.
The FC held, on the facts, that all of the elements had been established beyond a reasonable doubt. The taxpayer had been served personally with the Court orders and had left a voicemail for Crown counsel following the orders. The taxpayer did not provide required information to the Minister. The FC found that the taxpayer was fully informed of all requests and orders and simply did not comply or appear at the contempt hearing. Consequently, the FC held that the taxpayer was in contempt and thus issued a sentence.
The FC’s sentencing took into account the following factors:
- The gravity of the offence;
- Whether the offence was a first offence;
- The presence of any mitigating factors, such as good faith or an apology (or, for that matter, the presence of aggravating factors such as flagrant conduct); and
- Specific and general deterrence of similar conduct to ensure both compliance by the party and a continuing public confidence in the administration of justice.
The FC also noted the need to balance the severity of the law with moderation (proportionality) and the balance between a mere token fine, the gravity of the situation and a need for general deterrence: allowing parties to conduct themselves with impunity and unscathed would encourage bad acts and destroy the intended effect of the law. In the circumstances, the FC imposed a fine of $3,000 payable within 30 days and, in keeping with case law principles, reasonable solicitor-client costs. The FC also ordered that either the required information and documents be provided within 30 days or the taxpayer provide a reasonable explanation as to why that could not be provided, under threat of imprisonment.
The FC further ordered that failure to pay the fine and costs within 30 days would result in the taxpayer being imprisoned. The imprisonment sanction would not be imposed if the taxpayer explained under oath why she was not able to pay at all or unable to pay within the imposed time frame.
While perhaps not advancing the jurisprudence, Schimpf highlights for taxpayers and their advisors the risks associated with non-compliance with Ministerial requests for information and compliance orders. Anecdotally, the Minister appears to be seeking compliance orders more frequently and seems poised to escalate matters as far as necessary to enforce compliance.