How To Deal With Tax Search Warrants – Steering From Canadian Tax Attorneys – Tax

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How To Deal With Tax Search Warrants – Guidance From Canadian Tax Lawyers

17 August 2021

Barrett Tax Law

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The CRA cannot use its civil audit powers in a criminal
investigation

When the Canada Revenue Agency (CRA) investigates potential tax
fraud, they will typically rely on search warrants in order to
seize books and records to gather evidence. This is because when
the CRA conducts a criminal investigation, it can no longer use its
civil audit powers to gather evidence as the taxpayer’s rights
under the Canadian Charter of Rights and Freedoms must be
protected. In R v Jarvis, 2002 SCC 73, the Supreme Court
of Canada held that a line must be drawn between the CRA’s tax
audit powers and its criminal investigative powers, therefore it
must obtain a search warrant in order to gather evidence.

For a judge to issue a search warrant, under s.231.3(3) of the
Income Tax Act, he or she must be satisfied that there are
reasonable grounds to believe:

An offence under the Income Tax Act has been
committed;
A document or thing that may afford evidence to the commission
of the offence is likely to be found;
The building, receptacle or place specified in the application
is likely to contain such a document or thing.

CRA’s procedures regarding a search warrant

The search warrant sought by the CRA will generally list all
premises that they expect to find the books and records of the
taxpayer under investigation. The CRA agents will be accompanied by
local police or RCMP officers when they attend each premise listed
on the search warrant and will serve a copy to the taxpayer at the
outset of the search. Since the CRA has the discretion in deciding
how it conducts the search, the agents may take photographs of any
area listed on the search warrant and seize any potential evidence
including electronic devices such as computers, laptops, tablets,
external hard drivers or flash drives.

Always have a plan to deal with CRA’s tax search
warrant

In December 2019, the CRA announced that it executed two search
warrants in Vancouver in its continuing efforts to combat domestic
tax evasion and non-compliance in the real estate sector. In
2018-2019, there were 12 taxpayers that were sent to jail for tax
evasion for a total of 19 years. Since the liberal government has
greatly increased allocation of resources to the CRA, all business
should at least have a general plan to deal with a potential CRA
search warrant. Here are our general tips:

Designate a liaison: appoint an experienced or senior officer
to act as the liaison between the investigators and the corporation
during the search.
Review the search warrant: read the warrant carefully to verify
there is no defect such as the corporation’s name or address.
If there is such defect, raise it to the investigators and make a
note of any such defect and the conversation with the
investigators.
Contact your legal counsel: immediately contact your lawyer and
ask the investigators politely to delay the search until the lawyer
arrives. However, the investigators do not have an obligation to
wait. In that case, request a copy of the search warrant so your
legal counsel can review them later.
Cooperate: always cooperate with the investigators and never
attempt to obstruct the search.
Assert all applicable privileges: assert privilege over all
documents that may reasonably be categorized as such. You should
make a statement to the investigators before they start the search
that the business is claiming privilege over documents in the
possession of its lawyers. It is always a good practice for a
business to isolate privileged documents by keeping them in a
separate hard copy or electronic folder.
Shadow the investigators: assign a person to follow each
investigator through the search to make sure the investigators do
not enter areas not authorized in the search warrants.
Take notes: write detailed notes throughout the search. A
business owner should record all items seized by the investigators,
any defects on the search warrant and all conversation between the
investigators regarding any objections made to the manner or
conduct of the search. There are constitutional rights against
unreasonable search and seizes, therefore the written notes can be
very important later.

It is highly recommended to have a plan to prepare for
unexpected tax search because once evidence has been seized,
taxpayers are generally at a disadvantaged position.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.