The Tax Court of Canada Green-lights CRA Use of Improperly Obtained Evidence in Piersanti v. The Queen

The Tax Court of Canada has held in Piersanti v. The Queen, 2013 TCC 226 [Piersanti] that information that may have been seized unlawfully during the course of a criminal investigation can still be used to reassess one’s income tax liability. This case concerns a Canada Revenue Agency (CRA) reassessment of Piersanti’s tax returns for several years. The reassessment was based on documents that were seized during a tax-evasion investigation of several companies to which the Piersanti is connected. The CRA may have breached Piersanti’s Charter rights because it used an investigative power that is not permitted in criminal investigations.

After completing this criminal investigation and convicting Piersanti of tax evasion, the CRA used some of the documents to reassess several of her tax returns. Piersanti argued that this violated her Charter rights because the documents were unlawfully seized during a criminal investigation. By rejecting this argument and holding that the documents are admissible for the purpose of reassessments, the Tax Court of Canada has opened the door to potentially broader use of unlawfully obtained evidence.

A Hunt for Documents Using All Means

The CRA began a tax evasion investigation into several companies that owned shopping centres. It suspected that these companies were not reporting the Goods and Services Tax (GST) that they collected from their commercial tenants. A team leader of the CRA’s Criminal Enforcement Division executed a search warrant on the law office of Piersanti & Co. because he thought that Piersanti owned the companies. The documents were sealed after Piersanti’s spouse made a claim of solicitor-client privilege on them.

The CRA team leader began to use the Requirements investigative power in section 289 of the Excise Tax Act. A Requirement is a civil audit power that is generally used to collect information for the purpose of assessing an individual’s tax liability. It is not generally used in criminal investigations. The CRA used Requirements to obtain documents from several banks, credit card companies, and real estate firms.

The CRA used the seized documents to lay several tax evasion charges against Piersanti and her companies in the Superior Court of Justice. Piersanti pled guilty, and the charges against her companies were stayed. However, the CRA then used the documents gathered with the Requirements to reassess Piersanti’s tax returns for several years. This action resulted in new assessments that accounted for several hundred thousand dollars in undeclared income.

Using Civil Powers in Criminal Proceedings Engages the Charter

Piersanti appealed these reassessments to the Tax Court of Canada. At her hearing, she made a motion for an Order to exclude all the documents that the CRA relied on that were gathered using Requirements. She argued that the use of Requirements to obtain the documents in the course of a criminal investigation breached her sections 7 and 8 Charter rights.

Central to Piersanti’s argument is the Supreme Court of Canada’s decision in R. v. Jarvis, 2002 SCC 73 [Jarvis]. The Court held that civil investigative powers could not be used in criminal investigations:

In our view, where the predominant purpose of a particular inquiry is the determination of penal liability, CCRA officials must relinquish the authority to use the inspection and requirement powers... . (Jarvis at para 88.)

Further, the Court clearly declares that the use of civil audit powers in criminal proceedings engages the Charter. Piersanti relies on Jarvis to argue that the evidence gathered using Requirements should be excluded because it was unlawfully seized during a criminal investigation. The government argued that Piersanti’s rights were not violated in this case because the evidence is being used in a civil, not criminal, trial.

Reassessments Can Flow from Criminal Investigations

The court agreed with the government and held that Piersanti’s rights were not violated by the use of the Requirements evidence in the civil trial. The primary argument advanced in support of the court’s position is that the central issue of the case is the determination of Piersanti’s income tax liability, not her penal liability.c

The court relies on the Federal Court of Appeal case Romanuk v. The Queen, 2013 FCA 133 [Romanuk], which held that the results of an audit can be used in relation to an administrative matter such as a reassessment. However, the river does not flow both ways. The results of an audit cannot be used to further a prosecution.

If the CRA Has the Documents, It Can Use the Documents

The court is well aware that the initial gathering of the evidence may have been unlawful, but it does not give any weight to this argument:

Her section 7 and 8 rights may have been violated by using the information from the Requirements to prosecute her under the ETA but that would have been a question for the Superior Court of Justice to decide at the Appellant’s trial for GST evasion... . (Piersanti at para 23.)

The court’s reasoning in this case is simple: Since this is a civil and not a criminal trial, the evidence can be used. Essentially, the court just applies Romanuk. However, the court does not acknowledge that the intended use of the evidence shifted from its initial gathering for a criminal prosecution to its eventual use in a civil tax return reassessment.

This ruling does nothing to discourage the use of Requirements in criminal investigations. The court could have sent a stronger signal to CRA investigators by excluding the documents or at least explicitly acknowledging that it was relying on evidence that was initially obtained through what may have been an illegal act. By not setting an example in this case, the CRA has little disincentive to prevent its investigators from improperly using civil powers in criminal investigations.