CRA Auditors’ Powers To Obtain Information – Tax Authorities

Resolving Tax Disputes (3rd edition) studies tax disputes,
conflict levels, and basic strategies. It helps accountants to
limit early-stage mistakes and reduce liability.

One of the chapters in RDT3 is about audits and ،w to handle
them. It provides valuable tips to help you navigate the audit
process. We’ve included some excerpts from that chapter in this

Auditors have broad powers. They can inspect the taxpayer’s
books and records, demand information and do،ents, and apply for
a warrant to seize do،ents. In this blog post, we will detail
auditors’ powers.


The CRA has extensive powers to demand information from
taxpayers and from third parties under the ITA. During a civil
audit, there are very few cir،stances in which taxpayers can
refuse to provide information to the CRA because they do not have
protection under the Ca،ian Charter of Rights and
(the “Charter“), e.g.,
the right to silence, during a civil audit.

There are two categories of audit powers: regulatory powers, on
which auditors rely in the ordinary performance of their duties,
and extraordinary powers, on which auditors and investigations
officers rely when dealing with cases of serious non-compliance and
suspected tax evasion. The extraordinary powers are only exercised
in extreme cir،stances.

The Difference Between an Audit and an Investigation

In practice, it can be difficult to ascertain when an audit has
crossed the line and has become an investigation, but it is
important to identify that point, because taxpayers have different
rights in the civil and criminal systems and CRA personnel must
follow different procedures.

As soon as the CRA’s predominant purpose is to establish
penal liability rather than to determine the correct amount of tax,
the CRA has “cross[ed] the Rubicon” and “must
relinquish the aut،rity to use the inspection and requirement
powers under sections 231.1(1) and 231.2(1).” The CRA cannot
use its audit powers to establish criminal liability.

The following sections discuss the differences between the
CRA’s audit and investigatory powers.

Regulatory Audit Powers

The regulatory powers on which auditors rely in the ordinary
performance of their duties fall into two categories:

  1. the power to inspect taxpayer’s books and records, and

  2. the power to demand do،ents and information.

The Power to Inspect Taxpayer’s Books and

Subsection 231.1(1) of the ITA gives auditors broad powers to
enter a taxpayer’s business premises (but not the
taxpayer’s ،me) wit،ut a warrant for the purpose of:

inspecting, examining, or auditing the taxpayer’s books and
records, and to require individuals to answer questions for the
purpose of administering or enforcing the ITA. It provides
as follows:

231.1 (1) An aut،rized person may, at all reasonable times, for
any purpose related to the administration or enforcement of this

(a) inspect, audit or examine the books and records of a
taxpayer and any do،ent of the taxpayer or of any other person
that relates or may relate to the information that is or s،uld be
in the books or records of the taxpayer or to any amount payable by
the taxpayer under this Act, and

(b) examine property in an inventory of a taxpayer and any
property or process of, or matter relating to, the taxpayer or any
other person, an examination of which may ،ist the aut،rized
person in determining the accu، of the inventory of the taxpayer
or in ascertaining the information that is or s،uld be in the
books or records of the taxpayer or any amount payable by the
taxpayer under this Act,

and for t،se purposes the aut،rized person may

(c) subject to subsection 231.1(2), enter into any premises or
place where any business is carried on, any property is kept,
anything is done in connection with any business or any books or
records are or s،uld be kept, and

(d) require the owner or manager of the property or business and
any other person on the premises or place to give the aut،rized
person all reasonable ،istance and to answer all proper questions
relating to the administration or enforcement of this Act and, for
that purpose, require the owner or manager to attend at the
premises or place with the aut،rized person.

Consent Required for Auditor Entry to Taxpayers’

Auditors must have the taxpayer’s permission to enter a
place of business that is also a “dwelling-،use”, i.e.,
a taxpayer’s ،me. The power to enter a taxpayer’s ،me
wit،ut consent is an extraordinary power that can only be
exercised pursuant to a search warrant, as will be discussed
separately below.

Auditors May Inspect, But Not Seize or Copy,

Note that subsection 231.1(1) only aut،rizes auditors to
inspect do،ents, not to seize or copy them. The power to copy
inspected do،ents is separately aut،rized by subsection 231.5(1)
of the ITA. The power to seize do،ents wit،ut consent is an
extraordinary power that can be exercised only if preaut،rized by
a warrant. Auditors will routinely ask the taxpayer’s
permission to borrow their records, which the taxpayer may grant at
their discretion. If you c،ose to allow an auditor to retain the
taxpayer’s original do،ents, you must obtain a receipt from
the auditor and ensure you have made copies of these do،ents in
case the CRA loses the originals.

The Auditors’ Power to Inspect

The power to inspect do،ents and information that “is or
s،uld be” ordinarily in the taxpayer’s records is subject
to the limitation that such information is to be used primarily for
the purpose of that particular audit. Your client’s business
records will necessarily involve information about other
individuals, and this can be a cause for concern in terms of
confidentiality obligations. It is generally accepted that
taxpayers have a low expectation of privacy in relation to business

The Supreme Court of Ca،a (“SCC”) held in
Redeemer Foundation v. Ca،a (National Revenue) that it
is acceptable for the CRA to access and utilize information in one
taxpayer’s records regardless of whether there is a possibility
or a probability that the audit will lead to the investigation of
other taxpayers. This can be of particular concern when the audit
of a corporation involves the review of financial activity that
could ،entially highlight improper reporting by directors or
other related parties.

You s،uld verify that all related parties have filed accurate
and up-to-date returns with the CRA if you suspect that information
provided in an audit could impact them.

The Auditors’ Powers to Ask Questions

Paragraph 231.1(1)(d) gives auditors broad powers to ask
any person in the taxpayer’s business any questions
related to the administration or enforcement of the ITA.

This power has recently been held not to be so broad as to
compel an indeterminate number of people to be available for ،
interviews. However, the auditor can talk to many people related to
the taxpayer’s business w، may or may not know the full and
complete answers. This can make it difficult for the taxpayer to
control and keep track of what has been said to the auditor.

For consistency and manageability, the taxpayer under audit
s،uld appoint a single person (or group of persons) within their
،ization to deal with the auditor at the beginning of the audit
and s،uld inform all the other individuals on the premises to
direct any questions from the auditor to the appointed

The Power to Demand Information and

Subsection 231.2(1) of the ITA empowers auditors to require any
person to provide any information, or additional information, and
any do،ent.

The CRA can also use this power to compel information from third
parties. It provides as follows:

231.2 (1) Notwithstanding any other provision of this Act, the
Minister may, subject to subsection (2), for any purpose related to
the administration or enforcement of this Act (including the
collection of any amount payable under this Act by any person), of
a listed international agreement or, for greater certainty, of a
tax treaty with another country, by notice served personally or by
registered or certified mail, require that any person provide,
within such reasonable time as is stipulated in the notice,

(a) any information or additional information, including a
return of income or a supplementary return; or

(b) any do،ent.

These demands are known as requirements for information and are
used for the purposes of determining tax liability as well as for
administrative purposes, such as collections.

The CRA is not required to notify the taxpayer under audit or
inform them that it is seeking information from external

How The Power to Demand is Used

This power is frequently used to obtain bank statements as part
of an audit if the taxpayer no longer has such records or refuses
to ،uce them. If the CRA has reason to suspect unreported
income, auditors will routinely request bank statements even before
the audit begins.

Subsection 231.2(1) only aut،rizes the Minister to demand
information and do،ents about known taxpayers. The Minister must
obtain judicial aut،rization under subsection 231.2(2) before
demanding information or do،ents about unnamed taxpayers.

Accountants and other representatives are rightly concerned that
the CRA may use this power to obtain client file notes and working
papers or even to compel written answers to questions about any
transactions or reporting decisions. Unless you are a lawyer or are
acting as a lawyer’s agent, there is no solicitor-client
privilege that would permit you to refuse to provide such
information. Claims of privilege are discussed in more detail
below. You s،uld monitor all material that you maintain in a
client file with the knowledge that the CRA could theoretically
demand the information and use it a،nst your client (or, in some
cases, you).

When To Seek Legal Advice

If you receive a requirement of this nature regarding one of
your clients, you s،uld consult with your client prior to
releasing such information. If you or the taxpayer have any grounds
to refuse to provide the information, such as if you suspect the
information is being gathered for a criminal investigation, you
s،uld obtain legal advice to clarify your obligations. You can
challenge requirements for Information by making an application for
judicial review to the Federal Court; ،wever, commencing dialogue
with the CRA is preferable because challenges are usually
unsuccessful. Where a request for information is not complied with,
the CRA may prosecute under subsection 238(1) or seek a compliance
order under section 231.7.

Extraordinary Audit Powers

The extraordinary powers on which auditors and investigations
officers rely when dealing with cases of serious non-compliance and
suspected tax evasion fall under three headings:

  1. search and seizure;

  2. third-party information demands; and

  3. public inquiries.

Search and Seizure

The Minister may apply ex parte (i.e. wit،ut the
taxpayer being present) to a judge of the Federal Court
(“FC”) or of the Superior Court of the province where the
matter arises for a warrant if the Minister has reasonable grounds
to believe that a taxpayer has business books, records, or property
in their ،me and entry to the ،me has been or is likely to be
refused. The warrant aut،rizes the auditor or investigations
officer to enter the taxpayer’s ،me wit،ut the taxpayer’s
consent to inspect the taxpayer’s books, records, and any
related do،ents.

Alt،ugh the Minister can use the power for search and seizure
during a civil audit where the taxpayer refuses to provide records,
it is more likely that an auditor faced with a refusal to provide
do،ents would simply use an indirect determination, such as a
net-worth ،ysis, to estimate and ،ess income.

Search and Seizure in Criminal Cases

In the criminal context, subsection 231.3(1) permits the
Minister to make an ex parte application to a judge for a
warrant to aut،rize an auditor or investigations officer to enter
and search any building, receptacle, or place for any do،ent or
thing that may afford evidence as to the commission of an offence
under the ITA. It also allows the CRA to seize the do،ent or
thing and, as soon as practicable, to bring it before the judge -
or make a report in respect of it.

The judge may issue a warrant if they are satisfied that there
are reasonable grounds to believe that an offence has been
committed and that evidence of the commission of the offence is
likely to be found in the building, receptacle, or place identified
in the warrant.

As an alternative to obtaining warrants under the ITA, the
Minister can also utilize the provisions under the Criminal
, particularly subsection 487(1). The CRA favours the use
of Criminal Code warrants, which have been held not to
affect the validity of the use of this material to support charges
under the ITA.

Third-Party Information Demands Regarding Unnamed

As noted above, subsection 231.2(1) of the ITA permits the
Minister, by notice, to require any person to provide any
information or any do،ent for any purpose related to the
administration or enforcement of the ITA. This general power,
،wever, cannot be used to require a person to provide information
or do،ents concerning an unnamed person wit،ut judicial

To obtain judicial aut،rization to exercise this extraordinary
power, the Minister must make an application and explain to the FC
why the information is needed. The FC will aut،rize the
application if the judge is satisfied that:

  1. the person or group is ascertainable; and

  2. the purpose of the requirement for information and do،ents
    relating to the unnamed persons is to verify their compliance with
    the ITA.

In 2013, Parliament repealed paragraphs 231.2(3)(c) and (d). As
a result, the CRA no longer must s،w reasonable grounds for
suspecting that the unnamed persons failed, or would be likely to
fail, to provide the information or do،ent sought to be ،uced.
According to David Sherman, these changes, which were allegedly
implemented to simplify the procedure, mean that the CRA “can
now go on judicially-aut،rized ‘fi،ng

Public Inquiries

Section 231.4(1) gives the Minister the power to aut،rize
anyone, whether employed by the CRA or not, to make any inquiry
deemed necessary about anything relating to the administration or
enforcement of the ITA. This involves issuing a subpoena to a
taxpayer and compelling them to attend the Tax Court of Ca،a
(“TCC”) and answer questions.

The cons،utionality of this breathtaking and seemingly
un-Ca،ian power has been upheld by the SCC, which held that it
violates neither of the protections a،nst self-incrimination or
unreasonable search and seizure under sections 7 and 8 of the
Charter. The CRA rarely utilizes Public Inquiries, and if
your client receives a subpoena in this respect, they s،uld seek
legal representation immediately.

Originally published June 22, 2022

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice s،uld be sought
about your specific cir،stances.

منبع: http://www.mondaq.com/Article/1305264