R v McKinlay Transport Limited [1990] 1 S.C.R. 627: Income tax audit -- Demand for information or documents under s. 231(3) of the Income Tax Act -- Whether a demand for information or documents under s. 231(3) constitutes a seizure -- If so, whether seizure under s. 231(3) unreasonable

 Present: Lamer, Wilson, La Forest, L'Heureux-Dubé and Sopinka JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR ONTARIO

Constitutional law -- Charter of Rights -- Unreasonable search and seizure -- Income tax audit -- Demand for information or documents under s. 231(3) of the Income Tax Act -- Whether a demand for information or documents under s. 231(3) constitutes a seizure -- If so, whether seizure under s. 231(3) unreasonable -- Canadian Charter of Rights and Freedoms, s. 8.

Taxation -- Income Tax -- Investigation -- Demand for information or documents under s. 231(3) of the Income Tax Act -- Whether s. 231(3) violates the guarantee against unreasonable search and seizure in s. 8 of the Canadian Charter of Rights and Freedoms.

During an income tax audit of the appellants, Revenue Canada, pursuant to s. 231(3) of the Income Tax Act, served them with letters demanding information and the production of documents. Because the appellants failed to comply with these demands, an information was issued alleging that they had breached s. 238(2) of the Act. A Provincial Court judge quashed the information holding that s. 231(3) violated the guarantee to protection against unreasonable search and seizure in s. 8 of the Canadian Charter of Rights and Freedoms. The Ontario Supreme Court allowed respondent's appeal. The court found that s. 231(3) did not authorize a seizure within the meaning of s. 8. The judgment was upheld by the Court of Appeal.

Held: The appeal should be dismissed.

Per Lamer and Wilson JJ.: A demand for information or documents under s. 231(3) of the Income Tax Act, coupled with its enforcement mechanism in s. 238(2), does not violate s. 8 of the Charter. The purpose of ss. 231(3) and 238(2), when read together, is not to penalize criminal conduct but to enforce compliance with the Act. While a demand under s. 231(3) constitutes a "seizure", for the reasons given in Thomson, it is not an unreasonable one.

The Income Tax Act is essentially a regulatory statute which controls the manner in which income tax is calculated and collected. It is based on the principle of self-reporting and self-assessment. To ensure compliance with the Act, the Minister of National Revenue must be given broad powers to audit taxpayers' returns and inspect all relevant records whether or not he has reasonable grounds for believing that a particular taxpayer has breached the Act. The integrity of the tax system can be maintained only by a system of random monitoring and s. 231(3) provides the least intrusive means by which effective monitoring of compliance with the Act can be effected. A taxpayer's expectation of privacy with regard to the documents in question vis-à-vis the Minister is relatively low. The taxpayer's privacy interest is protected as much as possible by s. 241 of the Act which forbids the disclosure of the taxpayer's records or the information contained therein to other persons or agencies. Therefore, the seizure contemplated by s. 231(3) is reasonable and does not infringe s. 8 of the Charter.

The standard of review of what is "reasonable" in a given context must be flexible if it is to be realistic and meaningful. It is consistent with this approach to draw a distinction between seizures in the criminal or quasi-criminal context to which the full rigours of the Hunter criteria will apply, and seizures in the administrative or regulatory context to which a lesser standard may apply depending upon the legislative scheme under review. In light of the regulatory nature of the legislation and the scheme enacted, it was evident in this case that the Hunter criteria were ill-suited to determine whether a seizure under s. 231(3) of the Act was reasonable.

Per La Forest J.: As in Thomson, the Income Tax Act, though supported by penal sanctions, including imprisonment, is essentially of an administrative nature. For the reasons I gave in Thomson and, subject to these reasons, for those given by Wilson J. in this appeal, s. 231(3) of the Act is reasonable and does not violate s. 8 of the Charter.

Per L'Heureux-Dubé J.: Subject to the reasons I gave in Thomson, s. 231(3) of the Income Tax Act does not violate s. 8 of the Charter. While a demand under s. 231(3) of the Act may be considered a seizure within the meaning of s. 8, such a seizure is reasonable.

Per Sopinka J.: For the reasons I gave in Thomson, neither the letters of demand herein nor s. 231(3) of the Income Tax Act violate s. 8 of the Charter. The letters of demand do not constitute a seizure and s. 231(3) does not authorize a seizure within the meaning of s. 8.

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