R .v. Martin, 2013 NSPC 49

PROVINCIAL COURT OF NOVA SCOTIA Citation: R .v. Martin , 2013 NSPC 49 Date: 20130620 Docket: 2276770-2276795 Registry: Pictou Between: Her Majesty the Queen v. Darren Martin CORRECTED DECISION REGARDING CHARTER MOTION No. 1 Revised judgment: This revised decision of October 1, 2013 corrects para. 8 by changing “ reply ” to “ rely ” , and corrects para. 37 by changing the reference to “

section 327 of the Income Tax Act ” to “

section 239". Judge: The Honourable Judge Del Atwood Heard: 17-21 June 2013 at Pictou, Nova Scotia Written judgment: 25 September 2013 Charge: 4 x sub- s. 239(1) Income Tax Act (Canada) ; 22 x sub- s. 237(1) Excise Tax Act (Canada) 4 x sub- s. 239(1) Income Tax Act (Canada) ; 22 x sub- s. 237(1) Excise Tax Act (Canada) Counsel: Constantin Draghici-Vasilescu, for the Public Prosecution Service of Canada; Darren Martin, on his own behalf Stephen Robertson, Nova Scotia Legal Aid, amicus curiae By the Court : Synopsis

[ 1 ] The Court rendered an oral decision from the bench in this matter on 20 June 2013. I stated at that time that, given the need for a speedy adjudication of the Charter motion brought by the accused, my reasons would necessarily be abbreviated. I reserved the right to put on the record a more expansive written judgment in order to explain in greater detail the outcome as adjudicated by the Court – hence these written reasons, which conform almost entirely to what I said in court, with minor syntactical corrections and an expansion of citations. [ 2 ] This is a tax case. Mr.

Martin is alleged to have failed to have remitted tax or reported income as required by the Income Tax Act and the Excise Tax Act . This alleged illegality was discovered when the Canada Revenue Agency started an audit of the books of Mr. Martin ’ s ornamental ironworks company. The audit evolved eventually into an offence-based investigation. Evidence was collected from Mr. Martin and financial-services entities with whom Mr. Martin did business. Some of the evidence was gathered without warrant during the audit; some was gathered under warrant during the offence-related investigation. Mr.

Martin seeks to have the evidence seized under warrant excluded, as he believes that his rights under ss. 7 and 8 of the Charter have been violated. Central to the outcome of Mr. Martin ’ s application is a determination of when it was the CRA audit became an offence-related investigation. Charter interests at stake [ 3 ] There are two Charter interests that are engaged in Mr. Martin ’ s Charter application. The first is

Section 7 of the Canadian Charter of Rights and Freedoms which provides that “ everyone has the right to life, liberty and security of the person, and the right not to be deprived thereof except in accordance with the principles of fundamental justice. ”

Section 8 of the Canadian Charter of Rights and Freedoms states that “ everyone has the right to be secure against unreasonable search and seizure. ” Crown evidence and findings of fact [ 4 ] The court heard from a number of Crown witnesses: the investigator, Officer Baker; the auditor, Ms. Higgins; there was Ms. MacDonald who was assigned to work development for the audit section. I was impressed by the credibility, candour and professionalism of each of those witnesses. I believe that they described to the court accurately the nature of their jobs.

I believe that they testified truthfully about the work that they conducted. I do not believe that they abused their positions of authority with the Canada Revenue Agency in any way, shape or form, and I believe that each one conducted himself and herself in a completely honest, professional and credible fashion. Being assured of a witness ’ honesty and credibility obviously advances to a considerable extent the fact-finding function of the court. Officers of the state are certainly expected to conduct themselves with integrity as, indeed, is the case here.

However, integrity does not mean necessarily that a Charter right, asserted by an individual whose interests are arrayed against the state, has not been violated, and I do find a constitutional violation here. [ 5 ] The court observes that the leading authority in the case before the court would obviously be R. v.

Jarvis . [1] The opinion of Iacobucci and Major JJ has been followed widely by courts that have had occasion to deal with offences under the Income Tax Act and related statutes; indeed, Jarvis sets out exemplary guidance for trial courts in conducting Charter analyses as to the pivotal issue of when an income tax audit morphs into a criminal investigation, an issue which is at the core of Mr. Martin ’ s case. [ 6 ] First of all, I am satisfied that Mr. Martin was never targeted or singled out by the Canada Revenue Agency. Ms. MacDonald, in the course of performing work-development duties, randomly selected Mr.

Martin as a small business taxpayer to be the subject of a field audit being conducted by members of the Canada Revenue Agency audit team in October and November of 2007. Ms. MacDonald ’ s computer inquiries had identified Mr. Martin ’ s income tax returns over a number of years as demonstrating somewhat anomalous return amounts that raised concerns. Mr. Martin, according to the criteria that was adopted by Ms. MacDonald, was described in her work-development documentation as “ CAAS risk range medium to high ” ; as a result of the array of returns that Ms.

MacDonald was able to generate at her work station, she was able to forward to the audit inventory

section of CRA a dossier with Mr. Martin ’ s documentation, and that audit wound up being taken up by Ms. Higgins. [ 7 ] Ms. Higgins commenced her inquiries on October 9 th , 2007. She telephoned Mr. Martin and spoke with him October 10 th , 2007 and October 23 rd , 2007. She sent an initial-contact letter to Mr. Martin on October 30 th , 2007. She had a face-to-face interview with Mr. Martin on November 5 th , 2007. Ms. Higgins proceeded to obtain from Mr. Martin over the course of several days various financial records, as well as authorization forms granting permission to record holders – that is, accountants and banks that held papers

relating to Mr. Martin’s business–to surrender those records or copies of those records to Ms. Higgins. In acting as she was, Ms Higginswas indeed, in carrying out her audit function, and was acting in accordance with the statutory authority created in

Section 231.1 of theIncome Tax Act, as well as

Section 231.2 of the Income Tax Act. [8] The pivotal issue is this: when, if at all, did Ms. Higgins’ audit inquiry morph into an investigation in which Mr. Martin’spenal interests were engaged in an adversarial relationship between Mr. Martin and the Canada Revenue Agency?

This is important as,once an offence-focussed investigation has begun, the CRA can rely no longer on the statutory audit provisions of their governinglegislation to compel, without warrant, the production of material from a taxpayer. [9] The court recognizes indisputably that governments require the collection of revenue in order to finance their operations andto implement social programs.

The collection of federal income tax is constitutionally valid; Supreme Court of Canada recognizes that,because of the fact that the Income Tax Act controls the manner in which federal income tax is calculated and collected, this function isessentially regulatory in nature. However, the Act is a regulatory statute that does give rise to the potential of penal consequences uponproof that a taxpayer has violated an obligation to report or remit; that is set out in paras. 239(1)(

f) and (

g) of the Act. [10] The court recognizes that the income-tax system is based on voluntary compliance and self-assessment. As decribed in Jarvis: While voluntary compliance and self-assessment comprise the essence of the ITA's regulatory structure, the tax system is equipped with"persuasive inducements to encourage taxpayers to disclose their income": Krishna, supra, at p. 767. In this connection, Krishna writes atp. 772, the "system is 'voluntary' only in the sense that a taxpayer must file income tax returns without being called upon to do so by theMinister".

For example, in promotion of the scheme's self-reporting aspect, s. 162 of the ITA creates monetary penalties for persons whofail to file their income returns. Likewise, to encourage care and accuracy in the self-assessment task, s. 163 of the Act sets up penaltiesof the same sort for persons who repeatedly fail to report required amounts, or who are complicit or grossly negligent in the making of false statements or omissions.[2] Furthermore: Section 239(1) creates a number of additional offences.

It speaks of false or deceptive statements, destruction or alteration of documents, false or deceptive documents, wilful evasion of income tax, and conspiracy to engage in prohibited activities.[3] And I will pause here in quoting from Jarvis, to note that this is the provision of the Income Tax Act under which Mr. Martin is charged. He is also charged under a companion provision of the Excise Act. [11] At paragraph 62 of the Jarvis decision, it is stated: In this measure, the ITA presents no different consideration.

Wilson J. acknowledged as much in McKinlay Transport, supra, at p. 649,where she suggested that greater s. 8 protection would obtain under the ITA if tax officials were to enter onto private property in order toconduct a search or seizure for the purposes of the Act, rather than to compel the same documentation by way of requirement letters (seepara. 53 of these reasons re: s. 231.1(2); see also Baron v. Canada, (SCC), [1993] 1 S.C.R. 416, at pp. 443-44; DelZotto, supra, at paras. 12-13, per Strayer J.A. (dissenting)).

In sum, the ITA is a regulatory statute, but non-compliance with itsmandatory provisions can in some cases lead to criminal charges being laid. In prosecution thereof, the state is pitted against theindividual in an attempt to establish culpability. Stiff jail terms can result from a conviction. To conduct an appropriately contextualCharter analysis in these cases, the various regulatory and penal considerations must all exert some influence. [12] Further, at paragraph 63: At this stage, it is a firmly established principle that the Charter must receive contextual application.

The scope of a particular Charterright or freedom may vary according to the circumstances: Edmonton Journal v. Alberta (Attorney General), (SCC),[1989] 2 S.C.R. 1326, at pp. 1355-56, per Wilson J.; McKinlay Transport, supra, at p. 644; Symes v. Canada, (SCC),[1993] 4 S.C.R. 695, at p. 793, per L'Heureux-Dubé J. (dissenting); 143471 Canada, supra, at p. 347 (per Lamer C.J.) and at pp. 361-62(per La Forest J., dissenting); Comité paritaire, supra, at p. 420, per La Forest J.

[13] At paragraph 64, it is stated: For present purposes, where ss. 7 and 8 of the Charter are at issue, it is instructive to note both that the requirements of fundamentaljustice relevant to the former

section "are not immutable; rather, they vary according to the context in which they are invoked" (R. v.Lyons, (SCC), [1987] 2 S.C.R. 309, at p. 361, per La Forest J.) and that context will determine the expectation ofprivacy that one can reasonably expect the latter

section to protect (Thomson Newspapers, supra, at pp. 495-96, per Wilson J., dissenting,and at p. 506, per La Forest J.; McKinlay Transport, supra, at pp. 645 and 647; Canadian Broadcasting Corp. v. New Brunswick(Attorney General), (SCC), [1991] 3 S.C.R. 459, at p. 478, per Cory J.; Baron, supra, at p. 436, per Sopinka J.; BritishColumbia Securities Commission v. Branch, supra, at para. 51, per Sopinka and Iacobucci JJ.). [14] I will note here that it is obviously the case that

Section 7 of the Charter is engaged. The evidence that was collected fromMr. Martin that afforded the evidence contained in the information to obtain upon which the search warrant was issued, was essentiallyevidence provided by Mr. Martin himself: verbal utterances made by Mr. Martin to the auditor, records that he turned over to the auditor,and records that were turned over to the auditor under the authority of the consent-to-release-of-information form signed by Mr. Martin. Jarvis notes the close interconnection between s. 7 and the para. 11(

c) Charter protection against self-incrimination. [15] In dealing with

Section 7, the Supreme Court of Canada said the following in the Jarvis decision at paragraph 66:

Section 7 of the Charter reads as follows: 7. Everyone has the right to life, liberty and security of the person and the right not to be deprived thereof except in accordance withthe principles of fundamental justice. A court conducting an analysis under s. 7 must first determine whether there exists a real or imminent deprivation of life, liberty, securityof the person, or a combination thereof.

Next, the court must identify the relevant principle or principles of fundamental justice and,finally, determine whether the deprivation is in accordance with this principle or principles. [16] At paragraph 67 of the Jarvis decision, the Supreme Court of Canada stated: It is beyond doubt that the appellant's s. 7 liberty interest is engaged by the introduction of statutorily compelled information at his trialfor the s. 239 offences, owing to the threat of imprisonment on conviction: see Re B.C.

Motor Vehicle Act, (SCC),[1985] 2 S.C.R. 486, at p. 515, per Lamer J. (as he then was); Reference re ss. 193 and 195.1(1)(

c) of the Criminal Code (Man.), (SCC), [1990] 1 S.C.R. 1123. The relevant principle of fundamental justice in the present case is the principle againstself-incrimination, an elemental canon of the Canadian criminal justice system, standing for the notion that individuals should not beconscripted by the state to promote a self-defeating purpose: R. v. S. (R.J.), (SCC), [1995] 1 S.C.R. 451, at para. 81, perIacobucci J. This Court has clearly established that the principle against self-incrimination finds residual expression under s. 7: ThomsonNewspapers, supra; R. v.

P. (M.B.), (SCC), [1994] 1 S.C.R. 555, at p. 577, per Lamer C.J.; R. v. Jones, (SCC), [1994] 2 S.C.R. 229, at p. 256, per Lamer C.J.; S. (R.J.), supra; Branch, supra; R. v. Fitzpatrick, (SCC), [1995] 4S.C.R. 154; R. v.

White, (SCC), [1999] 2 S.C.R. 417. [17] At paragraph 68 of the Jarvis decision, Major and Iacobucci JJ go on to state: In giving expression to this principle, however, s. 7 does not envelop an abstract and absolute rule that would prevent the use ofinformation in all contexts in which it is statutorily compelled: Jones, supra, at p. 257; S. (R.J.), supra, at paras. 96-100; Fitzpatrick,supra, at paras. 21 and 24; White, supra, at para. 45.

A court must begin "on the ground", with a concrete and contextual analysis of allthe circumstances, in order to determine whether or not the principle against self-incrimination is actually engaged: Fitzpatrick, at para.25; White, at para. 46. This analysis necessarily involves a balancing of principles. One must, in assessing the limits on compellability

demanded by the principle against self-incrimination, consider the opposing principle of fundamental justice suggesting that relevantevidence should be available to the trier of fact in a search for truth: S. (R.J.), at para. 108, per Iacobucci J. These competing interestswill often be brought to the foreground in regulatory contexts, where the procedures being challenged have generally been designed (andare employed) as part of an administrative scheme in the public interest: Fitzpatrick, at para. 27.

As the Court stated in White, at para. 48: In some contexts, the factors that favour the importance of the search for truth will outweigh the factors that favour protecting theindividual against undue compulsion by the state. This was the case, for example, in Fitzpatrick, supra, where the Court emphasized therelative absence of true state coercion, and the necessity of acquiring statements in order to maintain the integrity of an entire regulatoryregime. In other contexts, a reverse situation will arise, as was the case, for example, in Thomson Newspapers, supra, S. (R.J.), supra,and Branch, supra.

In every case, the facts must be closely examined to determine whether the principle against self-incrimination hastruly been brought into play by the production or use of the declarant's statement. [18] At paragraph 69 of Jarvis, the Supreme Court of Canada refers to the constitutional protections in

Section 8 of the Charter, and atparagraph 70, the Court declares: In R. v.

Plant, (SCC), [1993] 3 S.C.R. 281, at p. 293, Sopinka J. listed several factors that will determine theparameters of the protection afforded by s. 8 with respect to informational privacy: Consideration of such factors as the nature of the information itself, the nature of the relationship between the party releasingthe information and the party claiming its confidentiality, the place where the information was obtained, the manner in which it wasobtained and the seriousness of the crime being investigated allows for a balancing of the societal interests in protecting individualdignity, integrity and autonomy with effective law enforcement.

Then, at paragraph 72 of the Jarvis decision, the Court goes on to recognize that : Generally, an individual has a diminished expectation of privacy in respect of records and documents that he or she produces during theordinary course of regulated activities: see, e.g., Thomson Newspapers, supra, at p. 507, per La Forest J.; 143471 Canada, supra, at p.378, per Cory J.; Comité paritaire, supra, at pp. 420-21; Fitzpatrick, supra, at para. 49.

In the particular context of the self-assessmentand self-reporting income tax regime, a taxpayer's privacy interest in records that may be relevant to the filing of his or her tax return isrelatively low: McKinlay Transport, supra, at pp. 649-50. [19] At paragraphs 77 and 78 of Jarvis, the Supreme Court of Canada states: Analysis must begin with the words of the Act, and the proper construction of ss. 231.1(1) and 231.2(1).

The approach to statutoryinterpretation can be easily stated: one is to seek the intent of Parliament by reading the words of the provision in context and accordingto their grammatical and ordinary sense, harmoniously with the scheme and the object of the statute (Interpretation Act, R.S.C. 1985, c.I-21, s. 12; Bell ExpressVu Limited Partnership v. Rex, [2002] 2 S.C.R. 559, 2002 SCC 42; Rizzo & Rizzo Shoes Ltd. (Re), (SCC), [1998] 1 S.C.R. 27; R. v. Gladue, (SCC), [1999] 1 S.C.R. 688; E. A. Driedger, Construction of Statutes(2nd ed. 1983), at p. 87).

By their express terms, both ss. 231.1(1) and 231.2(1) are available "for any purpose related to the administration or enforcement" or, inFrench, "pour l'application et l'exécution" of the ITA. Although these terms are, at first glance, extremely broad, we ultimately come tothe conclusion that, in the entire context, they do not include the prosecution of s. 239 offences. [20] At paragraph 84 of Jarvis, the Supreme Court refers to the specific issue of delimiting the boundaries between an audit and acriminal investigation, and the legal ramifications of that boundary being crossed– as Mr.

Martin referred to a crossing of the Rubicon,

which, in fact, is the terminology that the Supreme Court of Canada used in Jarvis at para. 88 . This is what the Supreme Court said in Jarvis at paragraph 84 : Although the taxpayer and the CCRA are in opposing positions during an audit, when the CCRA exercises its investigative function they are in a more traditional adversarial relationship because of the liberty interest that is at stake. In these reasons, we refer to the latter as the adversarial relationship. It follows that there must be some measure of separation between the audit and investigative functions within the CCRA.

Of course, having determined this, it remains for us to determine the bounds between the ITA audit and investigation and then to discuss the legal consequences. To this, we now turn. [ 21 ] At that point, the court engaged in a legal analysis of the bounds between a compliance audit exercise and a criminal investigation.

The court summarized in some respects the inconsistent, or, at least, divergent judicial thinking, that had evolved in Canadian courts attempting to delineate that boundary. [ 22 ] At paragraph 88 of Jarvis we see what might be described as a best-practices approach to evaluating the distinction between a compliance audit and an investigation, expressed in the following terms: 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 under ss. 231.1(1) and 231.2(1).

In essence, officials "cross the Rubicon" when the inquiry in question engages the adversarial relationship between the taxpayer and the state. There is no clear formula that can answer whether or not this is the case.

Rather, to determine whether the predominant purpose of the inquiry in question is the determination of penal liability, one must look to all factors that bear upon the nature of that inquiry. [ 23 ] Further, at para. 89: . . . the mere existence of reasonable grounds that an offence may have occurred is by itself insufficient to support the conclusion that the predominant purpose of an inquiry is the determination of penal liability. Even where reasonable grounds to suspect an offence exist, 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 McKinlay 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. [ 24 ] At paragraph 91, what we see is a contrast of the various approaches taken by Canadian courts in attempting to delineate the audit-versus-criminal-investigation dividing line. [ 25 ] At paragraph 92 of Jarvis , the court states: Whether a matter has been sent to the investigations

section is another factor in determining whether the adversarial relationship exists. Again, though, this, by itself, is not determinative. An auditor's recommendation that investigators look at a file might result in nothing in the way of a criminal investigation since there is always the possibility that the file will be sent back. Still, if, in an auditor's judgment, a matter should be sent to the investigators, a court must examine the following behaviour very closely.

If the file is sent back, does it appear that the investigators have actually declined to take up the case and have returned the matter so that the audit can be completed? Or, does it appear, rather, that they have sent the file back as a matter of expediency, so that the auditor may use ss. 231.1(1) and 231.2(1) to obtain evidence for a prosecution (as was found to be the case in Norway Insulation, supra )? [ 26 ] At paragraph 93:

To reiterate, the determination of when the relationship between the state and the individual has reached the point where it is effectivelyadversarial is a contextual one, which takes account of all relevant factors. In our opinion, the following list of factors will assist inascertaining whether the predominant purpose of an inquiry is the determination of penal liability.

Apart from a clear decision to pursuea criminal investigation, no one factor is necessarily determinative in and of itself, but courts must assess the totality of thecircumstances, and make a determination as to whether the inquiry or question in issue engages the adversarial relationship between thestate and the individual. [27] I will pause here before embarking on my review of para. 94 because I believe it is also provident at this point for the court to refer to R v.

White.[4] That was a decision of the Supreme Court of Canada that dealt with the admissibility of a statutorily compelledmotor-vehicle-accident report in a case involving the prosecution of a motorist for the criminal offence of leaving the scene of anaccident. And, in fact, in the Jarvis decision, the Supreme Court of Canada referred to the White decision at many points.

At paragraph45 of White, the Supreme Court of Canada states: That the principle against self-incrimination does have the status as an overarching principle does not imply that the principle providesabsolute protection for an accused against all uses of information that has been compelled by statute or otherwise. The residualprotections provided by the principle against self-incrimination as contained in s. 7 are specific, and contextually-sensitive.

This pointwas made in Jones, supra, at p. 257, per [page439] Lamer C.J., and in S. (R.J.), supra, at paras. 96-100, per Iacobucci J., where it wasexplained that the parameters of the right to liberty can be affected by the context in which the right is asserted. The principle againstself-incrimination demands different things at different times, with the task in every case being to determine exactly what the principledemands, if anything, within the particular context at issue. See also R. v.

Lyons, (SCC), [1987] 2 S.C.R. 309, at p. 361,per La Forest J. [27] At paragraphs 47-48 of White, the court states: The contextual analysis that is mandated under s. 7 of the Charter is defined and guided by the requirement that a court determinewhether a deprivation of life, liberty, or security of the person has occurred in accordance with the principles of fundamental justice. Asthis Court has stated, the s. 7 analysis involves a balance.

Each principle of fundamental justice must be interpreted in light of those otherindividual and societal interests that are of sufficient importance that they may appropriately be characterized as principles offundamental justice in Canadian society. This analytical approach was applied, for example, in S. (R.J.), supra, at paras. 107-8, perIacobucci J., where it was stated: ... the principle against self-incrimination may mean different things at different times and in different contexts. The principle admits ofmany rules.

What should the rule be in respect of testimonial compulsion? ... [page440] I begin this inquiry by asserting that any rule demanded by the principle against self-incrimination which places a limit oncompellability is in dynamic tension with an opposing principle of fundamental justice. That is the principle which suggests that, in asearch for truth, relevant evidence should be available to the trier of fact... . Obviously, the Charter sanctions deviations from thispositive general rule. Sections 11(

c) and 13 stand as obvious examples. The question is whether we need another exemption, and if so,why? [Emphasis added.] See similarly, e.g., R. v. Seaboyer, (SCC), [1991] 2 S.C.R. 577, at p. 603, per McLachlin J., and Rodriguez v. BritishColumbia (Attorney General), (SCC), [1993] 3 S.C.R. 519, at pp. 590-91, per Sopinka J.

It is the balancing of principles that occurs under s. 7 of the Charter that lends significance to a given factual context in determining whether the principle against self-incrimination has been violated. In some contexts, the factors that favour the importance of the search for truth will outweigh the factors that favour protecting the individual against undue compulsion by the state.

This was the case, for example, in Fitzpatrick , supra, where the Court emphasized the relative absence of true state coercion, and the necessity of acquiring statements in order to maintain the integrity of an entire regulatory regime. In other contexts, a reverse situation will arise, as was the case, for example, in Thomson Newspapers, supra, S. (R.J.), supra , and Branch, supra.

In every case, the facts must be closely examined to determine whether the principle against self-incrimination has truly been brought into play by the production or use of the declarant's statement. [ 28 ] Now is an appropriate point to refer to paragraph 94 of the Jarvis decision, where the Supreme Court of Canada lays out, not an exhaustive inventory, but certainly a comprehensive and highly instructive list of criteria that a trial judge ought to examine in determining whether an audit function has evolved into a criminal investigative function. Those criteria are as follows: (

a) Did the authorities have reasonable grounds to lay charges? Does it appear from the record that 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) Had the auditor transferred his or her files and materials to the investigators? (

d) Was the conduct of the auditor such that he or she was effectively acting as an agent for the investigators? (

e) Does it appear that the investigators intended to use the auditor as their agent in the collection of evidence? (

f) Is the evidence sought relevant to taxpayer liability generally? Or, as is the case with evidence as to the taxpayer's mens rea, is the evidence relevant only to the taxpayer's penal liability? (

g) Are there any other circumstances or factors that can lead the trial judge to the conclusion that the compliance audit had in reality become a criminal investigation? [ 29 ] Applying those criteria to the evidence before me, I conclude as follows: When Ms. Higgins met with Mr. Martin on November 7 th , 2007, she had already obtained from Mr. Martin a number of bank deposit records and invoices, and she had detected a $90,000 discrepancy between the two. This was a substantial discrepancy, in my view, given the nature of Mr.

Martin ’ s small business and given the nature of the income-tax-return information that had been forwarded to Ms. Higgins by Ms. MacDonald; however, that is not, in my view, completely dispositive of the issue because I am satisfied that as of November 6 th , 2007, Ms. Higgins was still performing what was in essence an audit-related function, unencumbered by any belief that Mr. Martin had committed an offence. Significantly, the interview conducted between Ms. Higgins, her team leader and Mr. Martin, held at Mr. Martin ’ s shop on November 7 th – it is referred to as having taken place in 2006 in Ms.

Higgins ’ diary; however, it ’ s clear to the court that the meeting took place in 2007 – is described in Ms. Higgins ’ diary in detail. During that meeting, Mr. Martin disclosed to Ms. Higgins and her team leader that he had a practice of deferring invoices: “ Darren said that if he can ’ t afford to pay the HST in a quarter, he will take out the invoice which he can ’ t afford to pay and pay it later ” . That is the entry in Ms. Higgins ’ diary at page 166 of voir dire Exhibit #3, and Ms. Higgins adopted the accuracy of that record. [ 30 ] Mr.

Martin testified that at that particular point during the meeting, Ms. Higgins ’ team leader reacted physically to this revelation. I make no finding of fact on that point because, in my view, it is immaterial to the court ’ s determination of the constitutional issue. [ 31 ] What I can say is that it is clear that at that particular point in time, Mr.

Martin had essentially admitted to the Canada Revenue Agency auditors the broad outline that he had failed, on at least one if not more than one occasion, to make the proper quarterly remittences of collected HST required of him under the terms of the Excise Tax Act ; flowing inevitably from that, he had admitted submitting intentionally an inaccurate return under that legislation. That, essentially, could well have been taken as an admission of the commission of an offence, an admission of, essentially, all of the essential elements of an offence because Mr. Martin did not claim to have acted with inadvertence.

Mr. Martin said that he did what he did on purpose. [ 32 ] And so, in relation to criterion “ A ” of Jarvis , based on Mr. Martin ’ s admission and based on the information that they had collected from Mr. Martin at that point in time, the CRA authorities certainly had in their hands evidence that would have supported a decision to proceed with a criminal investigation because of the very complete nature of Mr. Martin ’ s admission of improper conduct. Yet the audit continued, including the compelled production of business records. [ 33 ] In considering criterion “ B ” in Jarvis , I inquire into the result of Mr.

Martin ’ s disclosure to Ms. Higgins. Ms. Higgins described her

[ 33 ] In considering criterion “ B ” in Jarvis , I inquire into the result of Mr. Martin ’ s disclosure to Ms. Higgins. Ms. Higgins described her audit function in great detail. She stated that it was often the case that if a taxpayer were to reveal to her that the taxpayer had been carrying out business practices that involved violations of the Income Tax Act , she would engage that taxpayer in an educational function to set the taxpayer straight. There was no evidence that, during the meeting on November 7 th , 2007, Ms. Higgins engaged in that function. In fact, Mr.

Martin testified today – and I do accept his evidence on that point – that Ms. Higgins did, in fact, correct him with respect to the appropriate method of claiming certain business-related expenses, specifically, the fifty-percent limit on meal allowances. However, there is no evidence before the court that Ms. Higgins engaged in that educational function in her interaction with Mr. Martin once Mr. Martin revealed the deferred-invoices practice. It is also noteworthy that, although Ms. Higgins did not acknowledge expressing visible or audible shock to Mr.

Martin ’ s revelation, she did state, on both direct and cross examination, that she had never heard of the practice of deferred invoicing before, and this was clearly a noteworthy fact in Ms. Higgins ’ mind. [ 34 ] There was a great deal of questioning engaged in by Mr. Martin regarding work codes and job descriptions and so forth. In my view, most of that inquiry was of little assistance to the court for the reasons I gave in ruling on the admissibility of those questions. From the court ’ s perspective, the focus of the court must be on the purpose of the investigation. [ 35 ] With that in mind, Mr.

Robertson ’ s questions of Ms. Higgins on cross-examination were particularly pertinent and important. Mr. Robertson asked what I consider to be the key and core question that allows the court to appropriately determine the commencement of the investigation function in this particular case. Ms. Higgins testified that, after meeting with Mr. Martin on November 7 th , she and her team leader returned to their hotel, and it was there they “ discussed the audit at the hotel room.

The first item was to track the invoices for the current year to see if the collected HST was reported in the following year. ” That was Ms. Higgins ’ evidence. Ms. Higgins stated, “ He told me what I was to do as an employee. I was to determine if the invoices were claimed in the following period. ” [ 36 ] In my view, the inquiry that Ms. Higgins was being asked to do by her supervisor had to do with verifying the truthfulness of what she and her supervisor had been told by Mr. Martin. Mr. Martin stated that he would defer invoices and pay the HST in the following quarter.

It is clear to the court that the inquiry that Ms. Higgins had been instructed to undertake by her supervisor was not an inquiry to determine overall taxpayer financial liability over the years that were the subject of the audit, but to determine whether Mr. Martin had told the truth about properly reporting and properly remitting collected HST in the following quarter. Ms.

Higgins continued to gather up records based on the legislative authority compelling production for audit purposes. [ 37 ] A taxpayer ’ s truthfulness, in the court ’ s view, goes to the issue of mens rea , and I observe the significance of that because of the fact that the gist of the offences before the court is the making of false or deceptive statements. That is at the core of para. 239(1) (

a) of the Income Tax Act . It is essentially the Income Tax Act equivalent of

Section 380 of the Criminal Code which deals with fraud, the essence of which is dishonest deprivation. Honesty is a clear component of mens rea in a

Section 239 Income Tax Act offence and in conducting the inquiry as instructed by her supervisor, Ms. Higgins ’ focus was clearly, in my view – and I find this as a fact – to verify whether Mr. Martin was telling the truth. [ 38 ] In my view, the conduct of the authorities was such that it was consistent with the pursuit of a criminal investigation. It is true, looking at criterion “ D ” , the auditor did not transfer her files to the investigators until April of 2008. However,item “ D ” asks whether the conduct of the auditor was such that he or she was effectively acting as an agent for the investigators.

It is important to note that the Supreme Court of Canada uses the adverb “ effectively ” . The Supreme Court does not use the term “ intentionally ” . That is to say, it is not the focus of that fourth factor whether the auditor was intentionally acting as an agent for the investigators. The issue is the effect: what was the effect of the investigation? If the effect of the investigation was to inquire into criminal mens rea, which I find to have been the case here, then the auditor, regardless of her intent – and I accept Ms.

Higgins ’ complete honesty that she believed that she was acting in her capacity as an auditor – was collecting evidence relevant to a criminal investigation. [ 39 ] Paragraph “ E ” of Jarvis : “ Does it appear that the investigators intended to use the auditor as their agent in the collection of evidence? ” [40] I find that that is not the case. There is no evidence before me that would allow me to conclude that Ms. Higgins was acting as a secret or surreptitious agent of the enforcement or the criminal investigation branch. Ms.

Higgins believed sincerely that she was acting as an auditor. [41] Paragraph “ F ” : Is the evidence sought relevant to taxpayer liability generally, or, as is the case with evidence as to the taxpayers ’ mens rea, is the evidence relevant only to the taxpayers ’ penal liability? For the reasons that I have laid out earlier, given that the focus of Ms. Higgins ’ inquiry was to verify the truthfulness of Mr.

Martin ’ s explanation, I find that, indeed, the inquiry was not directed to taxpayer liability generally; it was directed to the issue of honesty and that, in my view, is a mens rea element. [42] Paragraph “ G ” : Are there any other circumstances or factors that can lead the trial judge to the conclusion that the compliance audit had in reality become a criminal investigation? I take into account the instructions that Ms. Higgins had been given by her supervisor after the meeting with Mr. Martin and the nature of those instructions; I take into account the evidence that Ms.

Higgins had already collected as of November 7 th , 2007, particularly, the discovery of the $90,000 discrepancy in the operating account of a small business between banking deposits and invoices; I take into account the information that Ms. Higgins had been provided by Ms. MacDonald regarding the unusual nature of Mr. Martin ’ s returns, including the classification of Mr. Martin ’ s CAAS risk range as medium-high; I note as well that there appear to have been at no point steps taken by Ms. Higgins to instruct or educate Mr.

Martin on the impropriety of the practice of deferring the reporting of invoices and the remittance of collected HST. Considering all of these facts, I find that there are indeed ample other circumstances that lead me to conclude that the compliance audit had, in effect, become a criminal investigation.

[43] Having made that finding, I do find that there has been a

Section 7 violation of Mr. Martin’s Charter rights. That flows essentiallyinto a finding of a

Section 8 violation, given that the

Section 7 violation afforded the evidence upon which the information to obtain waslargely drafted; this, in turn, resulted in the issuance of the search warrant, and it was this search that resulted in the seizure of essentiallythe entirety of the Crown’s criminal case against Mr. Martin. [44]I would have been prepared to have entertained argument from counsel in relation to a Grant analysis regarding subs.-s 24(2)exclusion; however, it has been very fairly conceded by the Crown that, flowing from the finding that there have been

Section 7 andSection 8 violations, the court ought to order exclusion under Section 24(2) of the Criminal Code, and the court so orders; the court willorder the exclusion of evidence collected as a result of the search warrant against Mr. Martin. ORDER ACCORDINGLY ___________________________________ J.P.C. [1]2002 SCC 73. [2]Ibid., para. 50. [3]Ibid., para. 56. [4] (SCC), [1999] 2 S.C.R. 417.