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Federal Tax - Compliance Orders. Canada (National Revenue) v. Zeifmans LLP
In Canada (National Revenue) v. Zeifmans LLP (Fed CA, 2026) the Federal Court of Appeal considered the issuance of an ITA s.231(7) 'compliance order':[24] A requirement issued under section 231.2 is enforceable under subsection 238(1), which makes failure to comply with any of sections 230 to 232 (among other provisions) an offence. Violations of section 238 are prosecuted before a court of criminal jurisdiction after laying an information or complaint and must be proven beyond a reasonable doubt: Guindon v. Canada, 2015 SCC 41 at para. 67; R. v. Sedhu, 2015 BCCA 92 at para. 37; Ghermezian Compliance (FCA) at paras. 49-51. Section 231.7 was enacted to provide an alternative means of enforcing compliance, without having to go through the quasi-criminal enforcement procedures under section 238: Hon. Paul Martin, Explanatory Notes Relating to Income Tax (Ottawa: Department of Finance, 2001) at p. 574; Income Tax Amendments Act, 2000, S.C. 2001, c. 17, s. 183.
[25] Section 231.7, applicable to demands or requirements issued under section 231.1 and section 231.2, provides that, on summary application by the Minister, "“if the judge is satisfied”" that a person "“was required”" under section 231.1 or 231.2 to provide any access, assistance, information or document sought by the Minister and failed to do so, the judge may issue a compliance order.
[26] At the relevant time, section 231.7 read as follows:"Compliance order"
"Ordonnance"
"231.7 (1) On summary application by the Minister, a judge may, notwithstanding subsection 238(2), order a person to provide any access, assistance, information or document sought by the Minister under section 231.1 or 231.2 if the judge is satisfied that"
"231.7 (1)"" Sur demande sommaire du ministre, un juge peut, malgré le paragraphe 238(2), ordonner à une personne de fournir l’accès, l’aide, les renseignements ou les documents que le ministre cherche à obtenir en vertu des articles 231.1 ou 231.2 s’il est convaincu de ce qui suit :"
"(a) the person was required under section 231.1 or 231.2 to provide the access, assistance, information or document and did not do so; and"
"a)"" la personne n’a pas fourni l’accès, l’aide, les renseignements ou les documents bien qu’elle en soit tenue par les articles 231.1 ou 231.2;"
"(b) in the case of information or a document, the information or document is not protected from disclosure by solicitor-client privilege (within the meaning of subsection 232(1))."
"b)"" s’agissant de renseignements ou de documents, le privilège des communications entre client et avocat, au sens du paragraphe 232(1), ne peut être invoqué à leur égard." ....
[28] For a compliance order to be issued under section 231.7, the application judge must be "“satisfied”" that: (i) the person against whom the order is made was "“required under section 231.1 or 231.2”" to provide the access, assistance, information or document that is the subject of the order; (ii) the person failed to do so; and (iii) in the case of information or a document, it must not be subject to solicitor-client privilege: Miller at paras. 15, 19, 25-27; Canada (National Revenue) v. Lee, 2016 FCA 53 at para. 6 [Lee].
....
[116] Under section 231.7, even if the statutory conditions to issuing a compliance order are satisfied, the application judge "“may”", but need not, issue a compliance order. This discretion ensures that compliance orders respect the privacy interests of respondents under section 8 of the Canadian Charter of Rights and Freedoms, Part I of the Constitution Act, 1982, being Schedule B to the Canada Act 1982 (U.K.), 1982, c. 11 (Charter): Minister of National Revenue v. Carriero, [2017] 5 C.T.C. 95 at para. 12, 2016 CarswellNat 9902 (F.C.) [Carriero], citing M.N.R. v. Derakhshani, 2009 FCA 190 at para. 19 and Baron v. Canada, 1993 CanLII 154 (SCC), [1993] 1 S.C.R. 416 at p. 443 (S.C.C.).
....
[140] A section 231.7 application is a proceeding de novo: Friedman at para. 26. The application judge need not defer to the Minister’s interpretation of the relevant law or findings of fact, and the burden of proof is on the Minister to demonstrate that the order should be granted on a balance of probabilities: Blue Bridge Trust Company Inc. v. Canada (National Revenue), 2021 FCA 62 at para. 50. ....
....
[142] Moreover, serious consequences may flow from the failure to obey a compliance order issued under section 231.7, including a finding of contempt, punishable by fines or imprisonment: ITA, s. 231.7(4); Federal Courts Rules, S.O.R./98-106, r. 466; see e.g. Canada (National Revenue) v. Money Stop Ltd., 2013 FC 133. ....
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