Signed, sealed, and delivered, please.

Normally, the CRA comes a knockin’ at business doors to review relevant books and records in an audit. As it turns out, you cannot spurn Her Majesty thrice without paying for it.

In a motion Montana, 2019 FC 900, by Minister of National Revenue for order that documents subject to order in audit be sent to Minister, the Court sided with the Minister because of the egregious lack of audit compliance of the taxpayer.

In this case, the Minister sought an order of the court to order that the taxpayer deliver documents to the Minister’s premises.

Background

CRA had commenced an audit of the taxpayer pursuant to both ITA and ETA. As part of audit, the CRA sought a compliance order, which the court granted. When the taxpayer did not comply with the compliance order, the CRA moved for a contempt order one allowing the taxpayer an additional 10 days to comply.

When the taxpayer still did not comply with the compliance and contempt order, the court made sentencing orders. Instead of simply complying, the taxpayers brought motions to stay the compliance, contempt, and sentencing orders. The court denied the stay motion.

The taxpayer then advised that it could not “provide” the documents requested by the CRA to the auditor’s office; instead, the documents were made available at the accountant representative’s offices.In an odd tug—o-war the CRA demanded that the documents be delivered to its offices.

Pursuant to Jarvis, the Court recognized that the CRA holds broad audit powers under the ITA and that the taxpayer has a long history of non-compliance. Pursuant to Cameco, the Court recognized that there are limits to the CRA’s audit powers and that audits ordinarily take place at the premises of the taxpayer.

The Court ultimately held that the CRA has the power to determine the scope and the manner of an audit, nothing further as follows:

Here, history plays against the Respondents, given the lengthy background of these matters, including the procedural disputes that have arisen at every step along the way, resulting in a particularly acrimonious history in attempting to conduct this audit which is still pending before the CRA due to the Respondents' procedural obstacles. Thus, even if I were to agree with the Respondents' arguments regarding recently having made, and continuing to make, the Material available, Cameco's "tax history" factor weighs heavily in favour of the CRA in this matter. Indeed, the Minister has been requesting the Material since May 2014, and has been unsuccessful in all attempts to even commence the audits of the Respondents. She has thus had no choice but to seek, and obtain the three Orders against the Respondents. Through the course of the proceedings which resulted in the issuance of the Orders, this Court has criticized — in harsh terms — the Respondents' failure to cooperate with the CRA, and their ongoing arguments in defence of their lack of cooperation.

…   Clearly, to say that there has been a history of non-cooperation is an understatement. …

The court noted that CRA auditors can usually be expected to attend at business premises. Indeed, if this were in the ordinary course of an audit, the auditors would be expected to attend at the offices of the taxpayer to inspect and review the documents. “But this case lies in the realm of the extraordinary, at the very opposite end of the ordinary.”

When it comes to audits, don’t stand out. Working with tax advisors and lawyers, comply to the best of your ability to avoid protracted litigation and Court dress-downs.