R. v. Mariani, 2019 ONCJ 128

CITATION: R. v. Mariani, 2019 ONCJ 128 DATE: 2019-03-08 ONTARIO COURT OF JUSTICE BETWEEN: HER MAJESTY THE QUEEN — AND — VINCENT MARIANI and MARIANI METAL FABRICATORS LTD. Before Justice M. Greene Reasons for judgment sections 7, 8 and 24(2) of the Charter S. Thomas and Y. Pressman …………………………………………………… for the Crown S. Bergman, R. Cuervo-Lorens and M. Hodges ……………… for Mr. Mariani and MMFL [ 1 ] The Applicants, Mr. Mariani and Mariani Metal Fabricators Limited (MMFL), are charged with four counts of willfully evading taxes pursuant to section 239(1)(

d) of the Income Tax Act (ITA) by making false statements on their income tax returns, and with 24 counts of willfully obtaining unwarranted tax credits by overstating business expenses in MMFL’s tax returns pursuant to section 327(1) of the Excise Tax Act (ETA). These charges arise from an audit that began in April, 2013. The auditor ended the audit in February, 2014 when she referred the file to criminal investigations. Once it was referred to criminal investigations, the investigators obtained search warrants and production orders for records relating to the above noted offences.

The evidence that supported the grounds for the warrants and production order largely came from information learned during the audit and collected through the auditor’s compulsion powers pursuant to

section 231 of the ITA. The Applicants now argue that their rights as guaranteed by sections 7 and 8 of the Charter were violated because the auditor improperly used her audit powers to secure the relevant information. The Applicant also raised some additional issues about the execution of the warrants. Crown counsel took the position that there were no Charter breaches.

Summary of the Evidence (

i) The Audit [ 2 ] The main evidence presented at the hearing came from Mrs. Voth, the auditor assigned to audit MMFL. Mrs. Voth denied any suggestion that she was considering penal consequences for MMFL or that she had any thoughts to the audit being a penal investigation as opposed to a standard civil audit. According to Mrs. Voth, as soon as she decided that penal consequences may attach to the actions of MMFL and Mr. Mariani she referred the matter to criminal investigations and suspended her audit. [ 3 ] Mrs. Voth began her audit in April of 2013.

Her first step in her audit was to review the notes from the screener. She then, based on this initial review, created an audit plan. The first step in the audit plan was to review the revenue for MMFL over the past five years. She then reviewed all the file information and records in the possession of CRA. Mrs. Voth also wrote to MMFL and advised them that she would be auditing them for the years 2011 and 2012. As part of her audit she asked for a copy of the company’s records.

[ 4 ] On June 28, 2012, MMFL provided the electronic accounting records of MMFL in relation to the years of 2011 and 2012. These records were then entered into a program so that excel spread sheets could be made for a closer examination by Mrs. Voth. [ 5 ] In her review of the records, Mrs. Voth noticed that over two million dollars in payments, originally debited from the shareholder’s account, were reversed and subsequently declared as business expenses. Many of these payments, in fact most of these payments, involved a company called Capoferro. [ 6 ] On July 2, 2013, Mrs.

Voth conducted a google street view search of the residence that Mr. Mariani moved into in March of 2013. Despite the fact that 2013 was not the relevant time frame of the audit, Mrs. Voth testified that she conducted this search because she wanted to see

i) Mr. Mariani’s standard of living and ii) how far he lived from work. Mrs. Voth later agreed that Mr. Mariani’s standard of living was not a helpful area of inquiry for the audit because Mr. Mariani declared a significant income in his own tax filings. When asked about the utility of looking up Mr. Mariani’s address from 2013 when the audit was focused on 2011 and 2012, Mrs. Voth stated that while Mr. Mariani formally changed his address in March 2013, this did not mean that he had not moved into this residence earlier. Mrs.

Voth at no point conducted a google street view or any kind of search for the residence in which Mr. Mariani resided in 2011 and 2012. [ 7 ] During Mrs. Voth’s google street view of Mr. Mariani’s 2013 residence she noticed that the house was under construction. She also noticed that a construction trailer was on the property. Mrs. Voth zoomed into the photograph and discovered that the name on the construction truck was “Capoferro”; the same company connected to the above mentioned payment reversals. [ 8 ] Mrs. Voth then conducted a google search of Capoferro.

She discovered that Capoferro designs homes in the Greater Toronto Area. [ 9 ] According to Mrs. Voth, at this point in time her suspicions were aroused, in particular about whether Mr. Mariani’s company was paying for the construction on his personal residence. [ 10 ] On July 8, 2013, Mrs. Voth attended at MMFL and met with Mr. Mariani and other persons from MMFL including the accountant and the bookkeeper. She had already drafted a general outline of what she planned on asking Mr. Mariani and the staff at MMFL. It is unclear from the evidence just how closely Mrs. Voth kept to her interview plan.

She did, however, ask about the structure of MMFL, their booking practices and the history of the company. She did not alert Mr. Mariani about her suspicions about his house and her other concerns that Mr. Mariani was having his company pay for other personal expenses. She also did not ask about the deferred payments. Mrs. Voth conceded that the answers to these questions would have assisted in determining the true tax liability of the company. [ 11 ] After leaving MMFL on July 8, 2013, Mrs. Voth drove by Mr. Mariani’s residence. She did not advise Mr. Mariani of her plan to do this. [ 12 ] On July 9, 2013, Mrs.

Voth sent a letter to Ms. Clemete (the bookkeeper) asking for additional documents. [ 13 ] On July 23, 2013, Mrs. Voth received additional documentation from MMFL. Of particular interest to Mrs. Voth were the invoices from Capoferro. Mrs. Voth reviewed all the invoices provided by MMFL from Capoferro. The invoices were not detailed and did not outline the scope of work completed by Capoferro. A number of the invoices however indicated that they were for the “Bow Project”. Mrs. Voth researched the Bow Project and determined that this was a project involving a large building in Calgary.

Given her research on Capoferro, this seemed outside the general work done by Capoferro as Capoferro built houses in the GTA only. In other words, on its face, it appeared to Ms. Voth that Capoferro did not work on the Bow Project despite what was written on the invoices. Given this conclusion, Mrs. Voth’s suspicion that MMFL was paying Capoferro for the work done on Mr. Mariani’s house increased. She denied, however, that she was in a position to refer the file to investigations at this point. Mrs.

Voth testified that she still needed additional documents to confirm her suspicions. [ 14 ] Very little was done on the audit from August 13, 2013 until October 2013 as Mrs. Voth went on leave. Upon her return in October 2013, Mrs. Voth created an excel spread sheet summarizing all the information she had received and reviewed. Given the evidence she now had in her possession that Mr. Mariani was likely paying for personal expenses out of his company, Mrs. Voth turned her mind to imposing civil penalties on the company. Despite the fact that all the material received pointed to Mr.

Mariani falsely declaring a significant personal expense as a business expense, Mrs. Voth testified that she did not have enough information to refer the file to criminal investigations because she did not yet have confirmation from Capoferro that they were not legitimately working for MMFL.

[ 15 ] In November, 2013 Mrs. Voth wrote to Ms. Clemente again asking for additional documents, but Ms. Clemente responded that she had nothing further to provide. [ 16 ] On December 12, 2013, Mrs. Voth and her supervisor, Mr. Halversen attended at MMFL for a final meeting with Mr. Mariani and the bookkeeper. The main issues discussed were Mr. Mariani’s son’s wedding (this wedding took place in Quebec and was completely paid for by MMFL) and the payments to Capoferro. Mr. Mariani was advised of the CRA’s intention to impose civil fines on MMFL. Mr.

Mariani maintained that he paid personally for the work done by Capoferro on his residence and advised Mrs. Voth and Mr. Halverson that he could provide proof of personal payment to Capoferro, but they did not view these documents as being relevant to their investigation. It remains unclear to this court why documents which could prove that Mr. Mariani paid for his home renovations himself were not relevant to Mrs. Voth. [ 17 ] The December 12 meeting was described as being very confrontational. Voices were raised and it did not end well. After this meeting, Mrs. Voth and Mr.

Halverson attended at Capoferro and spoke to a staff member. This staff member confirmed that Capoferro only worked in the greater Toronto area. Days later, Mrs. Voth sent a formal request to Capoferro to provide CRA with all the documents relating to Mr. Mariani and MMFL. [ 18 ]The owner of Capoferro testified that he did not want to provide the CRA with this documentation but he ultimately complied with the request because he was required to do so by law. [ 19 ] Upon receiving the invoices from Capoferro, Mrs. Voth noticed that the invoices looked different from the invoices that MMFL had provided. Mrs.

Voth was concerned that MMFL had altered the invoices. During the voir dire, the owner of Capoferro testified and provided what may be an innocent explanation for the altered invoices. This explanation, however, was not known to Mrs. Voth at the time. [ 20 ] On February 5, 2014, a short time after reviewing the new Capoferro invoices, Mrs. Voth referred the file to criminal investigations. Mrs.

Voth testified that she decided to refer the file to criminal investigations at this stage because she now had evidence that a large amount of personal expenses were being declared as business expenses and it now appeared that the Capoferro invoices had been altered. The referral letter to criminal investigations drafted by Mrs. Voth made extensive reference to the invoices received from Capoferro. It also made reference to Mr. Mariani’s son’s wedding and as series of other business expenses that Mrs.

Voth thought were actually personal expenses. (ii) The Searches [ 21 ] Once the matter was referred to criminal investigations that unit began their own investigation into MMFL and Mr. Mariani. On June 30, 2015, Mr. Denis, a CRA investigator, swore an ITO in support of an application to seize documents from Capoferro relating to Mr. Mariani and MMFL. The search warrant was granted and the search was executed on July 7, 2015. A return to justice in relation to this search was filed on August 17, 2015. [ 22 ] On November 20, 2015, Mr.

Lebel, another investigator from CRA, swore an ITO in support of an application to obtain search warrants for the business office of MMFL, Mr. Mariani’s residence and the offices of McCarney Greenwood LLP (MMFL’s accountant’s office). [ 23 ] The search warrants were granted and all three search warrants were executed on December 1, 2015. During the search of the business premises of MMFL the investigators made forensic images of eleven hard drives. They also seized numerous documents and other electronic material.

In total 107 bankers boxes full of paper and electronic data was seized. [ 24 ] The report to justice for all the three search warrants were filed on February 3, 2016. [ 25 ] On April 14, 2016, Mr. Lebel swore an information in support of an application for three production orders. These production orders related to the documents from Mr. Mariani’s personal accounts and MMFL accounts. The production orders were authorized on August 14, 2016.

Issues [ 26 ] The applicants raise numerous constitutional issues:

a) Were the Applicants’

section 7 and 8 Charter rights violated when the CRA interviewed the Applicant and compelled documents from the Applicants between the dates of July 7, 2013 and December 12, 2013?

b) Were the Applicants’

section 8 Charter rights violated when the CRA compelled documents from Capoferro on December 18, 2013?

c) Were the Applicants’ rights as guaranteed by

section 8 of the Charter violated when officer’s obtained search warrants and production orders based largely on the information learned during Mrs. Voth’s audit?

d) Were the Applicants’ rights as guaranteed by

section 8 of the Charter violated when CRA searched computers absent authorization to do so?

e) Were the Applicants’ rights as guaranteed by

section 8 of the Charter violated when CRA investigators searched the seized digital storage devices outside the time permitted by the search warrant?

f) Were the Applicants’ rights as guaranteed by

section 8 of Charter violated when the investigators filed the return to justice 60 days after the execution of the warrants?

g) If any Charter violations occurred, what remedy is appropriate? The Jarvis Application

i) Reasonable Expectation of Privacy and Standing [ 27 ] In the case at bar it was argued that MMFL had no standing under

section 7 of the Charter because MMFL is a corporation and as such

section 7 rights are not engaged. Counsel for MMFL agreed therefore the Applicant, MMFL, only relies on alleged

section 8 breaches. [ 28 ] Some of the material gathered by Mrs. Voth during her audit were documents in the possession of Capoferro. Crown counsel argued that since these documents were created by Capoferro, were in the possession and control of Capoferro and related to Capoferro’s work with MMFL and Mr. Mariani, the Applicants therefore had no reasonable expectation of privacy in relation to these documents. Counsel for the Applicants’ argued that in light of the reasoning in R. v. Marakah, 2017 SCC 59 , and R. v.

Buhay, 2003 SCC 30 , there is a reasonable expectation of privacy. [ 29 ] In my view, the Applicants do have a reasonable expectation of privacy in the documents that CRA compelled Capoferro to provide to them. I reach this conclusion for a number or reasons. Firstly, the subject matter of the search were documents relating specifically to MMFL and Mr. Mariani. The CRA was not interested in Capoferro’s work generally, they just wanted the material about MMFL and Mr. Mariani.

Secondly, while confidentiality between an independent contractor and a company is not legally protected the way solicitor client privilege is, there can be no doubt that companies expect some level of confidentiality around fees and contracts. Applying common sense, it is my view that MMFL and Mr. Mariani did have a subjective expectation of privacy in the Capoferro documents. Thirdly, this subjective expectation is objectively reasonable given the nature of the relationship and the evidence of Mr. Russo that he only provided the documents because he was compelled to do so. I am mindful that Mr.

Mariani and MMFL had no physical control over the documents and that they were not in Mr. Mariani’s or MMFL’s possession at the time, these factors, however, are not determinative. When I consider the totality of the information, I am satisfied that MMFL and Mr. Mariani did have a privacy interest in the Capoferro documents and as such their

section 8 Charter rights are engaged. [ 30 ] Crown counsel also argued that the Applicants had no reasonable expectation of privacy in any of the banking material compelled by CRA through their audit powers. Respectfully, this position appears to be contrary to the present state of the law. While the privacy interest is reduced in these materials, a small privacy interest remains. As was noted by the Supreme Court of Canada in R. v. Jarvis at paragraph 72,

Generally, an individual has a diminished expectation of privacy in respect of records or documents that he or she produces during the ordinary course of regulated activities….In the particular context of the self-assessment and self-reporting income tax regime, a taxpayer’s privacy interest in records that may be relevant to the filing or his or her tax return is relatively low. [ 31 ] In light of this, in my view MMFL and Mr. Mariani do have a reasonable expectation of privacy in all the documents obtained by Mrs. Voth during her audit.

Was the Primary Purpose of the Audit Oriented Towards Penal Liability? [ 32 ] In R. v. Jarvis , supra, the Supreme Court of Canada was tasked with addressing the issue as to when material gathered during an audit could be used in a trial for an offence under

section 239 of the ITA . In determining whether the CRA can use the fruits of its audit powers during a prosecution under s.239 of the ITA , the court highlighted a number of important factors to consider. These included the need to provide the CRA with sufficient authority and power to conduct meaningful audits and the importance of giving the CRA the freedom to invoke the less onerous option of a civil remedy under

section 163 of the ITA as opposed to a penal remedy under

section 239 of the ITA. [ 33 ] After considering the purpose of the CRA audit and role of the CRA audit powers, the Supreme Court of Canada concluded that that the audit powers (to compel information from the tax payer and from third parties) could not be employed to gather information from tax payers (and/or third parties) if the predominant purpose of the investigation was to determine penal liability. The Supreme Court of Canada held that where the predominant purpose of the CRA’s inquiry is to determine penal liability the CRA officials must relinquish their audit compulsion powers under

section 231.1(1) and 231.1(2) of the ITA and instead resort to search warrants and production orders. [ 34 ] To assist in determining whether or not the focus of the inquiry was penal liability, the court must look at the entire context of the inquiry keeping in mind a number of factors including:

a) Did the authorities have reasonable grounds to lay a charge and does it look like a decision to proceed with a criminal investigation could have been made;

b) Was the general conduct of the authorities such that it was consistent with the pursuit of a criminal investigation;

c) Has the auditor transferred the file to investigations;

d) Was the conduct of the auditor such that he or she was effectively acting as an agent of the investigator;

e) Did the investigators intend to use to use the auditor as their agent;

f) Was the evidence sought relevant to taxpayer liability generally or was it focused on the mens rea of the tax payer? [ 35 ] In the case at bar, counsel for the Applicants argued that as of July 8, 2013 the focus of the inquiry became penal liability and as such all material gathered after July 8, 2013 was obtained in a manner that violated the Applicants’ Charter rights.

Crown counsel argued that the predominant purpose of the inquiry was civil tax liability and it remained as such until the matter was referred to criminal investigations in February, 2014. [ 36 ] While one would have thought that determining the predominant purpose of an inquiry by a CRA officer would be a relatively simple task, in my view it is not. Jarvis motions, as they often called (named after the leading case R. v. Jarvis 2002 SCC 73 ), are sources of great difficulty for trial judges.

The difficulty arises from the simple reality that the ITA and the ETA allow for both civil and penal sanctions for similar acts.

Section 163 of the ITA allows for civil penalties to be imposed on a tax payer who willfully misleads the CRA and does not properly declare his/her income. Section 239(1)(

d) of the ITA and 327(1)(

d) of the ETA also create an offence to willfully evade taxes by providing misleading or false information. There appears to be no clear line between when a CRA auditor will chose to administer a civil penalty as opposed to transferring the matter over to investigations for the laying of actual charges and for the imposition of penal sanctions. There is also no known policy in place that identifies where the line is between civil liability and penal liability. It appears to be at the sole discretion of the CRA auditor whether or not the tax payer’s conduct should be considered for penal penalties.

Given the absence of a clear identification of what conduct will attract penal as opposed to civil liability the analysis really becomes focused on the state of mind and the intentions of the auditor.

a) Did the authorities have reasonable grounds to lay a charge and does it look like a decision to proceed with a criminal investigation could have been made? [ 37 ] In R. v. Jarvis , the court clearly expressed the limited role this factor plays on the overall assessment of the predominant purpose. The court stated at paragraph 89, Even where reasonable grounds to suspect an offence exists, it will not always be true that the predominant purpose of an inquiry is the determination of penal liability.

In this regard, courts must guard against creating procedural shackles on regulatory officials; it would be undesirable to ‘force the regulatory hand” by removing the possibility of seeking the lesser administrative penalties on every occasion in which reasonable grounds existed of more culpable conduct.

This point was clearly stated in McKinley Transport, supra, at p.648, where Wilson J. wrote: “The Minister must be capable of exercising these [broad supervisory] powers whether or not he has reasonable grounds for believing that a particular taxpayer has breached the Act.” While reasonable grounds indeed constitute a necessary condition for the issuance of a search warrant to further a criminal investigation (s.231.3 of the ITA; Criminal Code, s.487 ), and might in certain cases serve to indicate that the audit powers were misused, their existence is not a sufficient indicator that the CCRA is conducting a de facto investigation.

In most cases, if all ingredients of an offence are reasonably thought to have occurred, it is likely that the investigation function is triggered. [ 38 ] This passage, in my view, highlights the degree of discretion that auditors have to seek out civil penalties for willful tax evasion even where grounds exist to refer the file to criminal prosecutions for further investigation. In R. v. Jarvis , for example, the auditor had overwhelming evidence that Mr. Jarvis was intentionally understating his income in his tax filings. The CRA received a tip that Mr. Jarvis had sold his wife’s art for a significant profit.

Mr. Jarvis made no reference to these sales in his income tax filings. The CRA auditor assigned to the file then spoke to various art galleries and confirmed that Mr. Jarvis had sold his wife’s art pieces for significant sums of money. The auditor and his supervisor then met with Mr. Jarvis and asked him questions about his income. They did not mention that they had already received information from the art galleries. The auditor requested that Mr. Jarvis provide documents to him. Mr. Jarvis complied. After reviewing the documents, the auditor concluded that Mr. Jarvis had grossly under-reported his income.

The matter was then sent to criminal investigations. The Supreme Court of Canada held that the predominant purpose of the inquiry prior to handing the matter over to investigations was not for penal liability. In reaching this conclusion the court held that while there was evidence that Mr. Jarvis failed to report a significant amount of income in order to fully assess civil liability, the auditor was entitled to interview Mr. Jarvis to determine if he had a reasonable explanation for not reporting this income. [ 39 ] With this is mind I turn to the facts in this case. [ 40 ] Mrs.

Voth received the MMFL file in April 2013. At the time that she received the file, it was already known that there were oddities with MMFL’s records and issues around tax payer liability. The matter was sent to Mrs. Voth so she could explore areas of concern. By July 8, 2013, the date that Mrs. Voth first met with MMFL staff, Mrs. Voth had a significant amount of information that would cause one to suspect that Mr.

Mariani, the sole shareholder of MMFL, was claiming personal expenses as business expenses, in particular in relation to the building of his personal home and his son’s wedding. [ 41 ] The information in Mrs. Voth’s possession to support this conclusion prior to her first meeting with MMFL on July 8, 2013 included:

a) That significant payments that had been made to Capoferro from the shareholder’s account had been reversed so that MMFL was making these payments;

b) MMFL paid Capoferro a significant amount of money in 2011 and 2012 supposedly for work done;

c) Capoferro’s work was limited to home renovations in the GTA;

d) A Capoferro construction trailer was outside Mr. Mariani’s residence when Mrs. Voth did a google street view search of his residence and this house appeared to be under construction; and,

e) Invoices for activities and events related to Mr. Mariani’s son’s wedding had been declared as business expenses by MMFL. [ 42 ] In my view, by this point in time, any reasonable person would have suspected that MMFL was paying for the work done by Capoferro on Mr. Mariani’s personal residence and that Mr. Mariani was declaring a personal expense as a business expense.

[ 43 ] Mrs. Voth was questioned at length about her state of mind prior to arriving at MMFL on July 8, 2013. After some extensive questioning, Mrs. Voth conceded that she was suspicious that MMFL was claiming the expenses of the renovations at Mr. Mariani’s house. [ 44 ] After meeting with MMFL staff on July 8, 2013, Mrs. Voth attended at Mr. Mariani’s residence and requested further documents from MMFL, in particular the invoices from Capoferro. Upon receipt of these invoices on July 23, 2013, Mrs. Voth found numerous invoices from Capoferro where the sole description of the work done was “Bow Project”.

The other invoices from Capoferro were also sparse in content. Mrs. Voth researched the Bow Project and knew from her research and discussions with Mr. Mariani that the Bow Project was work MMFL was doing for a large sky scraper in Calgary. Given that Capoferro, by its own website, built houses and not large sky scrapers and their work was conducted solely in the GTA, not Alberta, any reasonable person would have grounds to suspect that the invoices did not accurately reflect the work being done by Capoferro. This in turn would have increased Mrs.

Voth’s suspicions that the personal expense of Capoferro working on Mr. Mariani’s residence was being declared as an MMFL business expense. [ 45 ] While Mrs. Voth limited her state of mind to a strong “suspicion” and testified that she did not think she had the grounds to refer this matter to criminal investigations or to lay a charge, in my view the grounds to refer this matter to criminal investigations clearly existed by July 23, 2013. Having said that, this does not end the analysis. This is just one factor to consider. To that end, I note that while Mrs.

Voth could have referred this matter to criminal investigations as early as July 23, 2013, it was not unreasonable for her to wait until February 2014 to do so. Mrs. Voth testified that her state of mind did not rise above a strong suspicion because she was waiting for additional documents including the contract between MMFL and Capoferro. Much like the auditor in R. v. Jarvis , Mrs. Voth testified that she was investigating whether there was an innocent explanation for MMFL declaring Capoferro work expenses as business expenses.

The potential for an innocent explanation is not so far-fetched given the facts in the case at bar. There was some evidence presented during the voir dire that Capoferro’s work on Mr. Mariani’s residence also related to work done for MMFL (albeit this issue was not explored at great length during the voir dire) . [ 46 ] The facts in the case at bar bear some resemblance to the facts in R. v. Posteraro and Dyck, 2014 BCPC 31 . In that case, Mr. Posteraro’s company was audited in 2010. During the initial stages of the audit it was learned that Mr.

Posteraro had previously been warned about improperly claiming personal expenses as business expenses. It was also discovered that some of the invoices paid by the company and declared as business expenses were from companies whose sole business was building homes. By August 27, 2010 the auditor received information from a contractor paid by Mr. Posteraro’s company that the work in issue was related to Mr. Posteraro’s private residence. Additional suspect information was provided in the following weeks.

The auditor testified that by September 7, 2010 he was reasonably certain that he would be making a referral to the criminal investigations unit. Moreover, the trial judge found that by September 7, 2010 it appeared that Mr. Posteraro had repeated the act of declaring personal expenses as business expenses. Despite this fact, the matter was not referred to criminal investigations until two months later after the auditor received additional information.

Applying the test from Jarvis , the trial Judge found that while the matter could have been referred to criminal investigations earlier, he could not conclude that charges could have be laid at this point. This was especially so since the criminal investigation unit conducted further investigations before any charges were laid. [ 47 ] In the case at bar, while Mrs. Voth could have referred this matter to criminal investigations as early as July 23, 2013, I cannot conclude that charges could have been laid at this point in time. To that end, I note that significant additional information was obtained by Mrs.

Voth after this date. Moreover, even after the matter was referred to criminal investigations, charges were not laid immediately. Eighteen months after the referral date, search warrants and production orders were obtained and it took at least another six months after that for the material obtained through these warrants to be reviewed. Given all these facts I am unable to conclude that charges could have been laid prior February 2014.

b) Was the general conduct of the authorities such that it was consistent with the pursuit of a criminal investigation [ 48 ] In the case at bar, counsel for the Applicants argued that Mrs. Voth engaged in covert investigations, that she held back information from the Applicants, and that she generally conducted the investigation as though it was penal in nature as opposed to a general audit. Counsel for the Crown disagreed and argued that Mrs. Voth conducted herself as any auditor would when conducting a civil audit. [ 49 ] Mrs. Voth started this audit in a very typical manner.

She secured the relevant booking documents that were readily available to her, created an audit plan, created a draft

summary of questions to ask the tax payer and set up a meeting with the tax payer. Mrs. Voth then met with Mr. Mariani and MMFL’s bookkeeper and to some degree followed her pre-prepared questions. Mrs. Voth then followed up with further requests for more documents. [ 50 ] In my view, all these actions seem very typical of an audit. Counsel for the Applicants argued that of greater concern were the

following steps taken by Mrs. Voth because they were covert in nature and could be viewed as taking on the flavour of a criminalinvestigation:

a) While Mrs. Voth spoke to Mr. Mariani about Capoferro during the July 8, 2013 meeting, she did not advise him of her suspicionsthat Mr. Mariani was declaring a personal expense as a business expense;

b) Mrs. Voth failed to tell Mr. Mariani that she was planning on driving by his residence on July 8, 2013 to check out his residence;

c) Mrs. Voth did not confront Mr. Mariani about the Bow Project being out of Capoferro’s business model;

d) When Mr. Mariani offered Mrs. Voth proof that he paid Capoferro personally for the work done on his personal residence, Mrs.Voth did not want this information;

e) Mrs. Voth conceded during her evidence that she was looking for information that would confirm her suspicions and neededinformation that prove his innocence. [51] In R. v. Tiffin, 2008 ONCA 306 , [2008] O.J. No. 1525 (C.A.), the Court of Appeal overturned an acquittal for offencesunder

section 239 of the ITA because the trial judge erred in concluding that the predominant purpose of an auditor’s inquiry was penalin nature. In that case, the trial judge found that the hallmark of an audit is that the auditor and the subject meet to discuss the audit andthat the audit is open and transparent. The trial judge held that since the vast majority of the acts of the auditor were covert in natureand that the tax payer was kept in the dark about the investigation, the inquiry was penal in nature.

In overturning the trial judge’sdecision and concluding that the predominant purpose of inquiry was not penal, Juriansz J. stated at paragraph 155, … An examination of the Supreme Court’s characterization of the auditor’s conduct in Jarvis demonstrates that covertness, surreptitionand subterfuge designed to inculpate the tax payer are acceptable conduct in the regulatory enforcement of the ITA.

Despite what wassaid on the CRA webpage, which was not adopted by any witness, CRA officials do not have to establish a cooperative, transparent, andopen relationship with taxpayers in the regulatory enforcement of the ITA. This is especially true for CRA officials working in the SEPwho are inquiring into the unreported income of suspected criminals… [52] Given this description of a civil audit process, it cannot be said that the nature of the inquiry was such that it supports a finding thatthe inquiry was focused on penal liability. In the case at bar, Mrs. Voth met with Mr. Mariani and others from MMFL.

It was open toMrs. Voth to exercise her discretion to explore a civil penalty for intentional nonpayment of taxes as opposed to penal sanctions. Shewas entitled to fully explore the extent of the tax payer’s liability and false statements on the tax filings without advising Mr. Marianiand MMFL of all her suspicions, intentions and plans. In my view, there is nothing about the nature of the investigation that supports theconclusion that it was an investigation oriented towards penal liability. Moreover, there is nothing about the nature of the investigationthat rebuts Mrs.

Voth’s assertion that up until February 2014 she was only exploring civil penalties and civil liability.

c) Has the auditor transferred the file to investigations or was the auditor acting as an agent of the investigator [53] In the case at bar, the file was not transferred to investigations until February of 2014. Moreover, Mrs. Voth had no contact with theinvestigations team until after she made her referral in February of 2014. There is no evidence that Mrs. Voth was acting as an agent forthe criminal investigations team. There is also no suggestion that anyone from investigations even knew about this file prior to thereferral in February, 2014. While Mrs.

Voth, in my view, did have grounds to refer the file to investigations as of July 23, 2013, sheconsistently testified that up until she received the invoices from Capoferro in January, 2014, her focus was on civil penalties forMMFL’s false declarations in its income tax filings. [54] Despite the absence of any engagement by the criminal investigations unit of the CRA, it would still be open for me to find thatMrs. Voth was, on her own, intending to act as an agent for the criminal investigators. In order to reach this conclusion, I would have toeffectively reject Mrs.

Voth’s testimony that up until February, 2014 she was solely exploring civil remedies. To that end, I note thatthere are portions of Mrs. Voth’s evidence that I have some concerns about. In particular, I note that Mrs. Voth attempted to understateher level of suspicion and it appears to me that she did so to strengthen the Crown’s case on this application. I reach this conclusionbecause Mrs. Voth, when interviewed by the criminal investigators for the CRA did not shy away from expressing her suspicion thatMMFL was evading taxes, yet at trial Mrs.

Voth testified that she did not like the word “suspicious” to describe her state of mind. This,on its face, is a complete change in attitude towards the word “suspicious”. The only real explanation for this change in attitude is anactive attempt by Mrs. Voth to bolster the Crown’s case. While this evidence does cast some doubt on the truthfulness of Mrs. Voth’sevidence that the predominant focus of her investigation was not penal liability, I nonetheless do accept her evidence on this point. I doso for the following reasons:

a) Mrs. Voth gained very little new information after July 23, 2013;

b) There was no benefit to her continuing down the audit path because grounds clearly existed by July 23, 2013 to support obtaining search warrants for the remaining documents;

c) Mrs. Voth continued to draft documents outlining the civil penalties to be imposed and continued to explore the presence of an innocent explanation;

d) Mrs. Voth provided a credible explanation for her decision to move this matter to criminal investigations in February, 2014 – that is the receipt of the invoices from Capoferro that looked markedly different from the Capoferro invoices provided by MMFL months earlier. The altered appearance of the invoices effectively removed any potential for an innocent explanation for the Capoferro invoices being declared a business expense;

e) Mrs. Voth had no discussions with any one in investigations about this file; and,

f) Mrs. Voth’s referral letter to the investigations focused on the information that tipped the hat in favour of prosecution – which is the altered invoices.

d) Was the evidence sought relevant to taxpayer liability generally or was it focused on the mens rea of the tax payer [ 55 ] The courts have held that where the focus of the investigation is on the mens rea of the tax payer, then the inquiry has shifted from a general audit and into an exploration of penal liability. As was noted in R. v. Jarvis at paragraph 91 , the active collection of evidence of the tax payer’s mens rea is indicative of a criminal investigation because the state of mind of the tax payer is not relevant to general tax liability. [ 56 ] In the case at bar, Mrs.

Voth’s investigation did not focus on the Applicants’ mens rea . Instead her focus was on determining whether Mr. Mariani was claiming personal expenses as business expenses of MMFL and if so, what amount of taxes was really owed so that civil penalties could be imposed.

e) Conclusion on predominant purpose [ 57 ] As stated above, it is my view that as of July 23, 2013 the grounds existed to refer this matter to criminal investigations. It is also my view, however, that it was not unreasonable for Mrs. Voth to continue to explore the presence of an innocent explanation after this date. While there was evidence that Capoferro was working for Mr. Mariani and there was evidence to support the inference that Capoferro was not doing any work for MMFL, there was no direct evidence that Capoferro was not working for MMFL.

Moreover, none of the other factors relevant to the predominant purpose test support a finding that Mrs. Voth’s audit was focused on assessing penal liability. The totality of the evidence supports a finding that Mrs. Voth’s focus was on determining the full extent of MMFL’s tax liability which included an assessment of whether or not business expenses were properly declared. By December, 2013, Mrs. Voth was relatively confident that personal expenses had been declared as business expenses and intended on imposing civil penalties on MMFL.

It was not until she received the invoices a month later from Capoferro that Mrs. Voth changed her approach and decided to refer the matter to criminal investigations. The reasonable inference to be drawn from all the evidence, is that once she had what she thought was evidence that MMFL had altered invoices (I appreciate that given the evidence heard on the voir dire there is another explanation for the change in invoices) Mrs. Voth was satisfied that there was no innocent explanation and she decided that this was now a criminal investigation deserving of penal consequences as opposed to civil remedies.

Given the wide latitude given to auditors to impose civil penalties as opposed to criminal penalties this was completely proper. I therefore find that the predominant purpose of Mrs. Voth’s inquiry was not penal liability and as such the material obtained by Mrs. Voth through her audit powers were not obtained in a manner that violated the Applicants’ Charter rights. Were there grounds to issue the search warrants [ 58 ] In light of my above finding, nothing would be excised from the ITO’s filed in support of the search warrants and production orders issued in this case.

Defence counsel concedes that if the ITOs remain intact there were sufficient grounds to issue the warrants. I therefore find that there were sufficient grounds to issue the search warrants and the production orders in this case. Were the searches conducted in an unreasonable manner because electronic devices were searched without authorization to do so

and because the investigators searching the electronic data after the time line set out in the search warrant? [ 59 ] The Applicant raised two separate but related issues in relation to the manner of the searches executed at MMFL’s office, Mr. Mariani’s residence and the accountant’s office. While they are separate legal issues, given the nature of the particular facts in the case at bar, it makes most sense to address them together. [ 60 ] The first issue relates to whether or not the warrant itself actually authorized the investigators to search the computers and other digital data storage devices at MMFL, Mr.

Mariani’s residence and the accountant’s office. The second issue is whether the investigators violated the terms of the search, assuming the search was valid, by searching the computers and other digital data storage devices seized from MMFL and Mr. Mariani’s residence outside the time frame of the warrant. [ 61 ] In ordinary search law, once police obtain a warrant to search a residence or business to locate certain items, they do not require an additional warrant to search the cabinets or cupboards located in the residence or business for the items identified in the warrant.

In our legal system, computers and similar digital data storage devices are treated differently than other receptacles. This differential treatment is directly linked to the vast array of personal information stored on computers or similar devices. As a result, it is now well settled law that the police are required to obtain a search warrant prior to searching any electronic storage devices and that a warrant to search a computer or similar device cannot be issued unless there are grounds to believe that any computer they discover will have the items the investigators are looking for stored on it.

If the warrant does not authorize a search of a computer or similar electronic device and a computer is located, the police may seize the computer and then apply for a further warrant prior to searching the computer ( R. v. Vu, 2013 SCC 60 ). [ 62 ] The ITO filed in support of the warrant issued in the case at bar clearly articulated the grounds to believe that the documents the CRA investigators wanted would reasonably be located on the computers housed at MMFL, Mr. Mariani’s residence and the accountant’s offices.

Moreover, the ITO clearly indicated the intention of the CRA to secure the computers found, search them and, if necessary subject them to forensic examination. The ITO stated as follows at paragraph 116f, Dependent on the facts and circumstances, the computer system and computer components may be seized because of technological constraints and barriers. For example, data storage media may contain extraordinary amounts of data, which includes data that may be mislabeled, encrypted stored in hidden directories, deleted or embedded in unused space.

This data may require a specific environment, in order to be accessed or made intelligible, including the use or the presence of a specific computer system, computer component or computer program. From a technical perspective, it may not be feasible to search and process all this information at a search location. Therefore, the recovery of data described in paragraphs 1c, 2e, and 3d of things to be searched or requires a meticulous analysis by an Informatics Investigator in a controlled environment At para 116g the affiant wrote: if a computer system is seized as described in paragraphs 1)d)

i) and 2)f)

i) of Things To Be Searched For, the CRA will conduct the following procedures unless technical constraints exist The computer system will be removed from the premises, secured and transported to the CRA Regional Processing Centre or other secure locations;

i) The original data storage media will be copied, removed from the seized computer system and placed in a CRA evidence room; ii) the data storage media copy will be tested in a CRA computer system to ensure that the data can be properly accessed and processed using compatible equipment; and, iii) when compatible equipment is available at the CRA, the computer system will be returned to the person from whom it was seized together with a copy of the data storage media originally contained in the system, subject to other agreements with the person; [ 63 ] In my view the above portions of the ITO made it clear to the issuing justice that the investigators, upon arrival at the specified premises, would attempt to search all the computers and related data storage devices.

The ITO also indicates that if the computers cannot be properly searched while on the premises, the investigators will need to seize the computers or other digital data storage devices so that they can be properly searched at CRA’s offices.

[ 64 ] Despite the relatively clear wording of the ITO, the warrant that was signed was not as clear and did not allow for the broad ranging search requested in the ITO. The warrant signed in support of the search identified a number of things that could be “searched for”. These included banking records, general ledgers, invoices, contracts, correspondence, tax returns, HST and GST documents and other similar items in relation to MMFL and to Rifram Investments Limited.

The warrant also allowed the investigators to “search for” the presence of and “seize” the following: Data storage media, including disks, tapes, chips or other devices capable of storing data, whether external, attached or not attached to a computer system, containing any data pertaining to the items described in paragraphs

a) and

b) above. [ 65 ] The warrant further states that the investigators can also search for: Items required to access, make intelligible, reproduce, transfer, communicate or receive data contained in the data storage media described in paragraph c) above, including:

i) Computer systems and computer components including hardware, equipment, peripheral components and devices; ii) Computer programs including operating systems, software and drivers; iii) Documentation and data, including manuals, operating instructions, licensing and operating data, whether preserved, stored or retained on any type of support, intelligible or not, inscribed by a person or a computer system.

The warrant then listed the offences in issue and the place to be searched. [ 66 ] In my view, on a plain reading of the warrant, the CRA investigators were authorized to enter the premises, search for bank records legers, spreadsheets, invoices, documents relevant to the purchase and design of 170 Ravendale Court, T2 information and GST information. It also allowed the CRA investigators to seize these items. The warrant also permitted the CRA officers to search for data storage units and computers where the above noted items contained the documents listed above and seize these items.

The warrant does not state that, upon finding computers and other digital data storage devices that the investigators may search those devices. While the warrant does not specify the search of the data storage devices, in my view, given that only the data storage units that contain the documents listed in the warrant may be seized, a cursory view of all the data storage units was also permitted by the warrant as this was a necessary step to ensure compliance with the warrant.

The warrant does not, however, authorize the CRA investigators to conduct a more thorough search of the data storage units. [ 67 ] Crown counsel argued that to fully understand the true scope of the warrant, it must be read in conjunction with the ITO. I disagree. The ITO sets out the grounds for the warrant. The issuing justice may agree with all the requests listed in the ITO or only some of the requests. I cannot assume that the issuing justice intended to grant a broader warrant than was issued. I therefore find that the CRA investigators violated Mr. Mariani’s and MMFL’s

section 8 Charter rights when they conducted a thorough search of the data storage units found in the premises at MMFL and at Mr. Mariani’s residence. [ 68 ] In relation to the allegation that the investigators breached the Applicants’ rights because they continued the search outside the time limits of the warrant, given that there was no authorization to conduct a thorough search of the computers and other storage devices, I cannot find that this is an independent violation. The fact that the search was protracted and spanned months, however, does aggravate the existing breach.

Out of an abundance of caution, however, I will address the issue of whether the search occurred outside the time line of the warrant. To do so, I will assume that the warrant did allow for the full scale search of all the digital data storage devices. [ 69 ] Some of the digital data stored on the computers at MMFL was cloned on site. That is, the investigators made complete copies of the digital data and did not seize the receptacles themselves.

In my view, once the contents of the computer were cloned the contents were much the same as contents in a banker box that could be read at any time outside the frame work of the warrant. That is, the search was completed at the time of the cloning and as such the subsequent review of the cloned data was not in breach of warrant. [ 70 ] Not all the digital data, however, was cloned during the search. Some computers and similar digital data storage devices were seized and examined well outside the time frame outlined in the warrant.

The issue then becomes, had the warrant permitted a search of these devices, would the Applicants’

section 8 rights nonetheless have been violated because the devices were searched outside the permissible time frame outlined in the warrant.

[71] In R. v. Thomas, 2013 ONSC 8032 , [2013] O.J. No. 6444 (S.C.J.), the Superior Court of Justice considered whether or nota

section 8 violation occurs when an officer remains inside a premise and continues to search a premise outside the time permitted on thewarrant. The court held that as long as the officers entered the premise within the time lines of the warrant, the officers were permittedto remain as long as is necessary to complete the search. The court stated at paragraph 31, To hold that the search was required to be completed within the time specified in the warrant would represent a radical departure fromestablished jurisprudence in Ontario.

Such a proposition is also unrealistic and impractical as there would normally be no way for theissuing justice, or the police, prior to entering the place to be searched, to predict the time that would be required to complete the search.In this case, for instance, Detective McDonald testified that the length of time required to complete a search would depend to a largedegree on the conditions found on the premises following entry, including the quantity of property found therein. [72] Crown counsel argued that applying the logic from R. v.

Thomas, supra, the CRA investigators were entitled to search thecomputers and other digital devices whenever they wanted because the time of entry into the specified premises was within the time lineoutlined the warrant. [73] In R. v. Viscomi, 2016 ONSC 5423, the police conducted a forensic examination of a computer one month after it had been seizedby the police. The warrant only allowed entry into the residence to conduct the search for a period of hours on the day of the actualsearch.

Since the forensic examination of the computer took place outside the time specified in the warrant, the Applicants argued thatthe search was unlawful. In finding that the search was lawful, McCombs J. relied upon the contents of the ITO and the reality that thecontemplated search could not possibly have been conducted within the five hour time frame specified in the warrant. In light of this,McComb’s J. held that the time specified on the warrant was for entry into the house and not for forensic examination of the computer. [74] I find the reasoning in Thomas and Viscomi quite compelling.

In my view, while the police or investigators ought not be given anunlimited time frame to remain in a residence or examine computers seized during a search warrant, the full examination of thecomputers need not be conducted during the dates identified in the warrant for the entry into premises to conduct the search. How muchtime beyond the specified time frame in a warrant will be lawful, will depend on the circumstances of the case.

For example, in theThomas case, remaining in the residence for a few hours after the specified time in the warrant may be reasonable, remaining there forfour weeks would in my view become unlawful. This is because it is difficult to imagine that four weeks would be necessary tocomplete the search. Applying this reasoning to the case at bar, given the large volume of digital data seized in the case at bar, it wasreasonable to the investigators to take months to complete the search of computers seized. I therefore find that this breach of

section 8has not been made out. Filings of Returns [75] Pursuant to

section 489.1 of the Criminal Code, those charged with seizing materials during the execution of a search warrant mustfile a report to a justice “as soon as practicable” after the search has been completed. Failure to comply with this provision constitutes aviolation of

section 8 of the Charter (R. v. Garcia-Machado, 2015 ONCA 569). In the case at bar, the report to justice for the December2015 searches were not filed until some 2 months after the searches were completed, on February 3, 2016. Counsel for the Applicantargued that the investigators failed to file the returns to a justice “as soon as practicable”. [76] The CRA officers seized a significant amount of material during the December 2015 searched. 107 boxes of material and sixterabytes of raw data was seized. Numerous CRA investigators were employed to catalogue and review all the material seized.

According to the evidence presented on the voir dire, the CRA investigators worked diligently in reviewing the material and the returnswere filed as soon as all the material was catalogued. This took an extended period of time because of the volume of material that wasseized. [77] The main argument made by counsel for the Applicant was that while the extended time may have been necessary in relation to theseizure from MMFL’s office, as this is where most of the data was seized, the additional time was not necessary for the material seizedfrom Mr. Mariani’s residence and from the accountant’s office.

It was only because the CRA catalogued all the seized material from thethree warrants together that the additional time was required for the latter two searches. [78] In assessing whether or not the filings were filed “as soon as practicable”, the court must assess whether there have been anyunreasonable delays (see R. v. Kift, [2016] O.J. No. 2626 (CA)).

In the case at bar, while the investigators could have taken theapproach suggested by the Applicants, which would have put them in a position to file the returns a few weeks earlier, in my view theapproach taken by the CRA investigators, that is to treat all the searches as one, was not unreasonable. I therefore find that there wereno unreasonable delays in filing the returns to a justice in this case. A significant amount of person power was put into this file. I am

satisfied that the 60 day delay in filing the return was done as soon as practicable. Section 24(2) of the Charter [79] Having found a

section 8 breach, it is now necessary to address section 24(2) of the Charter. Applying the test from R. v. Grant,2009 SCC 32 , [2009] S.C.J. No. 32, admission of the evidence at the Applicants’ trial would not put the administration ofjustice into disrepute and as such the evidence should not be excluded. I reach this conclusion for a number of reasons. Firstly, whileall Charter breaches are serious, the breaches in the case at bar are at the lower end of the continuum.

To that end I note that the ITOfiled in support of the warrant did, in my view, articulate sufficient grounds to support a warrant being issued to search the computers. Moreover, the CRA investigators honestly believed that the warrant permitted the search of the computers and the ability to forensicallyexamine the computers. I further note that the CRA investigators drafted a very detailed and thorough ITO that properly identified allthe grounds for the warrant and also identified information that was in their possession but could not be used to issue the warrant.

TheCRA investigators appeared to have been acting in good faith and were not negligent in their conduct. [80] Secondly, the impact of the Charter breach in my view was minimal. I am mindful of the increased privacy interest in computersgiven the vast amount of personal information stored in digital data storage devices. Having said that, the scope of what the investigatingCRA officers were looking for was limited to material where the privacy interest was arguably reduced.

The CRA officers limited theirsearch to banking records, tax forms, invoices and similar documents. [81] Thirdly, there is a strong societal interest in having these allegations tried on their merits. I am mindful, given some of the questionsposed during the voir dire, that a substantive defence is likely to be launched, but these are serious allegations involving an allegedsignificant fraud on the public purse. Moreover the material seized is all reliable documentary evidence. [82] When I balance all the factors from R. v. Grant, I am satisfied that the evidence should not be excluded.

Released March 8, 2019 _________________________ Justice Mara Greene