Audit Disclosure: Do I Have The Right To Remain Silent?

• Published date: 05 August 2021
• Subject Matter: Accounting and Audit, Tax, Audit, Income Tax
• Law Firm: Borden Ladner Gervais LLP
• Author: Ms Laurie A. Goldbach, Jay Dyck and Dana O'Shea

In the 2021 Federal Budget, the government proposed the allocation of more than $304 million over the next five years to support audit disclosures through the funding of the Canada Revenue Agency's (CRA) new and existing programs. The purpose of these programs is to combat tax evasion and aggressive tax avoidance. Such measures will include an increase of audits and enhancing capacity to identify tax evasion.

As we emerge from the COVID-19 pandemic, individuals and entities will be looking to improve their financial positions and the CRA will be looking to recover on its significant investment in combating tax evasion. As such, we expect to see a significant increase in the number of tax evasion investigations.

Canadian courts often grapple with the constitutional problem created by the legislative powers granted to taxation authorities and the rights guaranteed to individuals under the Canadian Charter of Rights and Freedoms¹ (the Charter). Provincial and federal taxation authorities have statutory powers to compel the disclosure of documents for tax auditing purposes. At the same time, Section 7 of the Charter protects an individual's right against self-incrimination and the right to remain silent throughout the audit disclosure process. These legal concepts can and often do clash when an individual (the Target) is being audited, while also being investigated for tax evasion at the same time. If the Target provides documentation to an auditor as required and such documentation or information contains incriminating evidence that could potentially be disclosed to the criminal investigative body. Where do we draw the line?

Although the jurisprudential trend has been to impose a constitutional limit on taxation authorities in favour of Charter rights, more recent jurisprudence indicates that this still remains to be a difficult determination when criminal investigations run parallel or subsequent to a tax audit.

R v. Jarvis: When the Supreme Court drew a line in the sand

In 2002, the Supreme Court of Canada (the SCC) handed down a landmark ruling in R v. Jarvis, 2002 SCC 73 (Jarvis). In Jarvis, the SCC drew a line between the CRA's audit and investigative functions. Taxpayers are statutorily bound to co-operate with the CRA auditors for tax assessment purposes. However, the SCC confirmed that an individual's Charter rights are triggered as soon as the predominant purpose behind the CRA's request to produce documents is done with the objective of determining...