The decision of the Federal Court in 3412229 Canada Inc. v. Canada (Revenue Agency), released on December 16, 2020, provides a review of Access to Information and Privacy requests (or “ATIP requests”) made under the federal Access to Information Act (“ATIA”), the exemptions that the CRA may rely on and the discretion CRA may exercise in redacting or withholding information in response to an ATIP request. This case is relevant to charities and not-for-profits seeking to access information held by the CRA by way of an ATIP request submitted in the course of an audit.

In 3412229 Canada Inc. v. Canada (Revenue Agency), the applicants were a group of closely held numbered companies that had been the subject of a CRA audit in relation to their offshore investments. During and following the audit, the applicants made a number of ATIP requests pursuant to the ATIA and, in response, the CRA disclosed a large number of the requested documents to the applicants, while also claiming various exemptions over some of the documents and information disclosed.

After numerous complaints to the Office of the Information Commissioner and judicial proceedings challenging the CRA’s disclosure decisions, with mixed success, the applicants gained access to the previously withheld information under the evidentiary disclosure regime available in civil and tax litigation proceedings. However, the applicants also sought judicial review challenging the CRA’s decisions to exempt various documents and information from disclosure in response to the various ATIP requests and sought an order directing the CRA to conduct further investigation of its records to obtain additional documentation.

Of note to charities and not-for-profits, the CRA had relied on section 16(1)(b) of the ATIA, which states:

16 (1) The head of a government institution may refuse to disclose any record requested under this Part that contains

[…]

(b) information relating to investigative techniques or plans for specific lawful investigations;

In this regard, the applicants acknowledged the CRA’s discretionary ability to exempt records containing information relating to “investigative techniques or plans for specific lawful investigations”, but argued that the CRA’s reliance on this section to exempt “virtually all” records flowing from an audit was contrary to the ATIA because, as established by the Supreme Court of Canada precedent in R v. Jarvis, 2002 SCC 73, there is a distinction between an “audit”, which seeks to impose tax liability, and an “investigation”, which seeks to impose penal liability. As such, the applicants argued that the discretion of the CRA to withhold disclosure of documents and information pursuant to section 16(1)(b) of the ATIA would not be applicable in the case of an audit, only in the case of an investigation.

The Court rejected the applicant’s argument and agreed with the CRA, pointing to subsection 16(4) of the ATIA, which defines the term “investigation” as including an investigation that “pertains to the administration or enforcement of an Act of Parliament”. Since a tax audit pertains to the administration and enforcement of the ITA, which is federal legislation, the Court concluded that a tax audit is caught by the definition of “investigation” and, therefore, the CRA can rely on the exemption in section 16(1)(b) of the ATIA to redact information related to either audit techniques used by the CRA to identify taxpayers or guide its auditors in applying a specific ITA provision or a risk assessment tool used to evaluate and manage the risks of an ongoing audit.

The Court found that the CRA had reasonably exercised its discretion to withhold the information by considering that the negative consequences of disclosure would outweigh the public interest in disclosing the information. The CRA had a legitimate interest in protecting the investigative techniques that could be used in future audits, as well as the risk assessment tool being used for a specific ongoing audit.

In dismissing the application for judicial review, the Court also considered the mandatory prohibitions against disclosure in subsection 24(1) and Schedule II of the ATIA, which make reference to section 241 of the ITA, pursuant to which the CRA is not permitted to disclose third-party taxpayer information. The Court agreed with the CRA and, supported by the precedent of the Supreme Court of Canada in Slattery (Trustee of) v. Slattery, [1993] 3 SCR 430, found that subsection 24(1) of the ATIA provides a mandatory exemption that reflects “the importance of ensuring respect for a taxpayer’s privacy interests” and “[o]nly in exceptional situations does the privacy interest give way to the interest of the state”.