"What we've got here is a failure to communicate."
--Strother Martin in Cool Hand Luke
Statutory Law
Governments pass laws, it's what they do. It is the job of others to interpret the laws that Parliament has made.
Statutory Construction
It is "presume[d] that the legislature avoids superfluous or meaningless words, that it does not pointlessly repeat itself or speak in vain. Every word in a statute is presumed to make sense and to have a specific role to play in advancing the legislative purpose": Tower v. M.N.R., [2004] 1 F.C. 183 (F.C.A.) per MALONE J.A. per curium at para. 15.
Also Communities Economic Development Fund v. Canadian Pickles Corp., [1991] 3 S.C.R. 388, per IACOBUCCI, J. at page 408 Interpretation of the Canadian Income Tax Act ("ITA") in practice is primarily done by the Canada Revenue Agency ("CRA"); followed closely by tax accountants and lawyers with the tying vote going to the Courts.
The Legislative Purpose
To raise money and implement federal policies.
The Accounting/Legal Purpose
To assist taxpayers to legally structure their affairs so as to minimize the taxes they must pay: IRC v. Westminster, [1936] A.C. 1 (H.L.), at p. 19 and Stubart investments Ltd. v. The Queen, [1984] 1 S.C.R. 536 (S.C.C.), at p. 540.
It is not difficult to foresee that the legislative objective and private sector tax adviser will frequently disagree. While CRA wins many such arguments by default (e.g., the taxpayer can't, or won't, fight) for those that do contest a restrictive or erroneous interpretation of the ITA, there is a heartening rate of success.
A caveat should be interjected here, this presumes challenges where have been made thoughtfully; that is, were CRA "got it wrong" and the taxpayer has called them on it. Frivolous challenged or specious arguments (i.e., R. v. Klundert) are not going to succeed.
Legislative Tools
In order to expedite the collection of taxes Parliament has given CRA broad powers to enforce the ITA, some require taxpayers to cooperate under a compulsion of law.
While such compulsion may be permissible in the civil context (R. v. McKinlay Transport Ltd., [1990] 1 S.C.R. 627), the same is not true if the information sought or seized by CRA will be used to prosecute the taxpayer for an offence under the ITA (R. v. Jarvis [2002] 3 S.C.R. 757; s. 7 of the Canadian Charter of Rights and Freedoms).
Thus the following material assumes a CRA civil audit, but if you believe that in your situation CRA abused these provisions while you were under a criminal prosecution (e.g., s. 239(1)(d) ITA for evasion) then obtain immediately legal advice.
S. 230(1) ITA: Books & Records
Every "person" carrying on business or required to pay, or collect, taxes under the ITA is required to keep records and books of account at their place of Business or residence. What books? Enough to enable you to calculate the taxes and for CRA to see that you did it correctly. "Person" includes corporations (s. 248(1) ITA).
This ties into with the obligation on each Canadian taxpayer to estimate the amount of the taxes payable in any taxation year under s. 151 ITA.
S. 231.1(1) ITA: Inspect, Audit & Examine Books
Someone from CRA may, enter your place of Business to inspect, audit or examine your books and records, or those of another taxpayer, to see you fulfilled your obligation under s. 151, above. They may not enter your Home without a search warrant, unless you invite them in.
Although the wording of this provision is broad, it is not unlimited: the person has to be authorized, their approach has to be at a reasonable time(s), the request has to be related to enforcement of the ITA and it is restricted to "inspect[ing], audit[ing] or examination[s]."
If you are subject to such a "compliance audit" you will want to have your accountant involved as soon as possible in the process.
If, however, you are audited and shortly thereafter charged with an offence under the ITA speak with your lawyer as this "audit," it may have violated s. 7 of the Charter and the Jarvis principles.
S. 231.2(1) ITA: Requirements To Provide Information and Documents ("RPIDs")
If CRA wants you (or a third party) to produce (a) information or (b) any document the Minister of National Revenue ("MNR") may, for any purpose related the ITA, give notice served
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