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.