One of the messier areas in tax law tends to be the case where “civil” tax default meets potential “criminal” tax fraud – with the consequences to the taxpayer moving beyond tax assessments and interest, to fines and potential time sentenced in the ‘Crow Bar Hotel’.

In potentially “criminal” cases of tax fraud, one will often see the Canada Revenue Agency (or other provincial tax authority) moving to seize documents and records under the authority of a federal or provincial search warrant. This is often received by the taxpayer and its professional advisors with a degree of uncertainty.

An announcement from the CRA highlighted their enforcement of search warrants in this area, and some of the issues involved when dealing with search warrants in tax cases.

The relase notes that the CRA executed two search warrants in Vancouver in late 2019, as part of its ongoing efforts to combat tax evasion and non-compliance in the real estate sector. The searches were conducted as part of ongoing investigations that identified around $3 million in unreported income, and followed an earlier announcement which outlined the launch of a major operation to search various Vancouver properties for information related to the “Panama Papers” leak.

With all of this in mind, taxpayers and their professional advisors in accounting firms should be mindful of some important tips when on the receiving end of a search warrant:

1 – Have a Plan in Place – Businesses should have policies and procedures in place in the event of the execution of a search warrant by the CRA or a provincial tax authority. This can prevent confusion by laying out who is responsible for liaising directly with the CRA/police and contacting tax and/or criminal counsel.

2 – Contact your Lawyer – Taxpayers should immediately contact legal counsel, and politely ask investigators to delay the execution of the warrants until they arrive! Note: Waiting for Legal Counsel to arrive is a courtesy only, and not a right; the tax authority and police attempting to execute the Search Warrant may opt to proceed with the search immediately, and nothing should be done to attempt to impede that search.

3 – Review the Search Warrant – The taxpayer should ask for a copy of the Search Warrant on first being presented with it. While the search is underway, the taxpayer will have time to review the Search Warrant and should do so. (A copy of the Search Warrant should also be scanned and provided to the Legal Counsel). If there are any obvious ‘defects’ or errors or limitations in the text of the Warrant (wrong address, limits on what rooms or areas may be searched), these should be brought to the attention of the investigators immediately—who still may opt to proceed with the Warrant as issued—but which may be to their subsequent legal jeopardy.

4 – Cooperate – If it is not obvious to this point, it is vital that the taxpayer (and its staff/employees) cooperate with the execution of the Warrant and take no steps to impede, obstruct or interfere with a search (that could result in criminal charges separate from anything related to the alleged tax default!). Even when objecting to the conduct of investigators, the taxpayer or professional advisory must ensure that they remain polite, respectful, and non-obstructionist.

5 – Assert privilege where necessary – Even if Legal Counsel is not yet present, a taxpayer should assert Solicitor-Client Privilege over any and all documents or electronic files which can be reasonably considered to contain legal advice.   Investigators will have to take certain procedures to protect those documents until a Court can consider the matter later.

6 – Make Written Notes – Last, it will be important that defects in the Warrant, objections to improper search or seizures, and all other communications between the taxpayer or its professional advisors, and the investigators, be recorded in writing contemporaneously with the statements. There are constitutional rights against unreasonable search and seizures, but these may only be vindicated after the fact. A comprehensive written record of what was said and done and when those events happened will be critical later!

Do you require assistance in this area?  If so, please click here.

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