R. v. McKinlay Transport Ltd., [1990] 1 S.C.R. 627

McKinlay Transport Limited and C.T. Transport Inc. Appellants

v.

Her Majesty The Queen Respondent

and

The Attorney General for Ontario, the Attorney General of Quebec and the Attorney General for Alberta Interveners

indexed as: r. v. mckinlay transport ltd.

File No.: 20761.

1988: November 2; 1990: March 29.

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.

Cases Cited

By Wilson J.

Distinguished: Hunter v. Southam Inc., [1984] 2 S.C.R. 145; considered: Thomson Newspapers Ltd. v. Canada (Director of Investigation and Research, Restrictive Trade Practices Commission), [1990] 1 S.C.R. 000, aff'g (1986), 57 O.R. (2d) 257 (C.A.); referred to: R. v. Therens, [1985] 1 S.C.R. 613; James Richardson & Sons, Ltd. v. Minister of National Revenue, [1984] 1 S.C.R. 614; Canadian Bank of Commerce v. Attorney General of Canada, [1962] S.C.R. 729; R. v. Grimwood, [1987] 2 S.C.R. 755; R. v. Simmons, [1988] 2 S.C.R. 495; R. v. Hufsky, [1988] 1 S.C.R. 621; Re Alberta Human Rights Commission and Alberta Blue Cross Plan (1983), 1983 ABCA 207, 1 D.L.R. (4th) 301; Re Reich and College of Physicians and Surgeons of Alberta (No. 2) (1984), 8 D.L.R. (4th) 696; Re Belgoma Transportation Ltd. and Director of Employment Standards (1985), 51 O.R. (2d) 509; R. v. Bichel, [1986] 5 W.W.R. 261.

By La Forest J.

Referred to: Thomson Newspapers Ltd. v. Canada (Director of Investigation and Research, Restrictive Trade Practices Commission), [1990] 1 S.C.R. 000.

By L'Heureux-Dubé J.

Referred to: Thomson Newspapers Ltd. v. Canada (Director of Investigation and Research, Restrictive Trade Practices Commission), [1990] 1 S.C.R. 000.

By Sopinka J.

Referred to: Thomson Newspapers Ltd. v. Canada (Director of Investigation and Research, Restrictive Trade Practices Commission), [1990] 1 S.C.R. 000; Stelco Inc. v. Canada (Attorney General), [1990] 1 S.C.R. 000.

Statutes and Regulations Cited

Canadian Charter of Rights and Freedoms, ss. 1, 8.

Combines Investigation Act, R.S.C. 1970, c. C-23, s. 17.

Income Tax Act, R.S.C. 1952, c. 148 [am. 1970-71-72, c. 63, s. 1], ss. 221(1)(d), 231(1) to (5), 238(2) [am. 1973-74, c. 51, s. 21; am. 1975-74-76, c. 71, s. 13], 241 [am. 1978-79, c. 5, s. 9; am. 1980-81-82-83, c. 48, s. 107; am. idem, c. 68, s. 117; am. idem, c. 140, s. 126; am. 1984, c. 19, s. 30].

Income Tax Regulations, C.R.C. 1978, c. 945, Part II.

Authors Cited

Canada. Law Reform Commission. Search and Seizure Under the Income Tax Act. A study paper prepared by Neil Brooks and Judy Fudge, 1985.

Reid, Alan D. and Alison Harvison Young. "Administrative Search and Seizure under the Charter" (1985), 10 Queen's L.J. 392.

APPEAL from a judgment of the Ontario Court of Appeal (1987), 62 O.R. (2d) 757, 26 O.A.C. 352, 48 D.L.R. (4th) 765, [1988] 1 C.T.C. 426, 87 D.T.C. 6314, 40 C.C.C. (3d) 94, dismissing appellants' appeal from a judgment of Trainor J. (1987), 58 O.R. (2d) 310, 37 D.L.R. (4th) 454, [1988] 1 C.T.C. 421, 87 D.T.C. 5051, 32 C.C.C. (3d) 1, 27 C.R.R. 109, allowing an appeal by the Crown by way of stated case from the dismissal of charges for violations of s. 231(3) of the Income Tax Act, [1986] 1 C.T.C. 29, 85 D.T.C. 5537, 22 C.R.R. 219. Appeal dismissed.

Alan Shanoff and Ted Saskin, for the appellants.

S. R. Fainstein, Q.C., and James W. Leising, for the respondent.

Leah Price and Timothy Macklem, for the intervener the Attorney General for Ontario.

Jean Bouchard and Gilles Laporte, for the intervener the Attorney General of Quebec.

Robert C. Maybank, for the intervener the Attorney General for Alberta.

By Wilson J.

The reasons of Lamer and Wilson JJ. were delivered by

WILSON J. -- This appeal raises the question of the constitutional validity of s. 231(3) of the Income Tax Act, R.S.C. 1952, c. 148, in light of s. 8 of the Canadian Charter of Rights and Freedoms.

1. The facts

The appellants, McKinlay Transport Limited and C.T. Transport Inc., are both incorporated under the laws of the province of Ontario and carry on the business of freight transport of general commodities. Central Cartage Company is a parent company of McKinlay and a sister company of C.T. Transport Inc. All these corporations are subsidiaries of Centra Inc.

Although both appellants have nominal head offices in Ontario, the de facto head office of each corporation is in Sterling Heights, Michigan. All books and records of the appellants are kept there.

In 1982 Revenue Canada commenced an income tax audit of both appellants in respect of their 1979-80 tax year. In October, 1983 Revenue Canada, pursuant to s. 231(3) of the Act, served the appellants with letters demanding the production of a wide array of information and documents. The appellants did not comply with these demands and an information was issued on August 9, 1984 alleging that the appellants had breached s. 238(2) of the Income Tax Act because of their failure to comply with the demands made pursuant to s. 231(3).

The appellants brought an application before Langdon Prov. Ct. J. asking that the information be quashed because s. 231(3) coupled with s. 238(2) were in violation of the Charter. Langdon Prov. Ct. J. found that s. 231(3) violated s. 8 of the Charter and quashed the information: [1986] 1 C.T.C. 29.

An appeal was taken by the respondent to the Ontario Supreme Court where Trainor J. found that the section did not violate s. 8 of the Charter. He allowed the appeal: (1987), 58 O.R. (2d) 310. A further appeal by the appellants to the Ontario Court of Appeal was dismissed: (1987), 62 O.R. (2d) 757. Leave to appeal to this Court was granted on June 2, 1988, [1988] 1 S.C.R. xi, and the following constitutional questions were set at a later date:

1. Is section 231(3) of the Income Tax Act, R.S.C. 1952, c. 148, inconsistent with the provisions of s. 8 of the Canadian Charter of Rights and Freedoms?

2. If there is such an inconsistency, does s. 1 of the Canadian Charter of Rights and Freedoms save s. 231(3) from being declared of no force or effect?

2. The Courts Below

(a) Ontario Provincial Court

Langdon Prov. Ct. J., in considering whether the compelled disclosure of information and documents pursuant to s. 231(3) violated s. 8 of the Charter, concluded that there did not have to be a physical intrusion by state authorities for there to be a search or seizure. He stated at p. 38:

If that analysis is correct [that there must be a physical intrusion for there to be a search or seizure], then if the State were unable to obtain a search warrant under section 443 of the Criminal Code, would it be lawful for Parliament in the exercise of its criminal law jurisdiction to authorize the Attorney General of Canada, for any purposes related to the administration or enforcement of the Criminal Code, by registered letter or by a demand served personally, to require from any person that he produce any document or thing. Parliament could couple the failure or refusal of the subject with a penalty of ten years' imprisonment. If the approach to the Charter of Rights is a purposive one, it seems to me that the guarantee against unreasonable search and seizure would then be made meaningless by such a provision. The effect of the hypothetical provision would perhaps be more draconian than a power of unlimited search. In any event, it would seem that any subject having a defence to a charge of failing to answer a requirement would virtually have to permit the search to exculpate himself if charged with failing to answer the requirement. Therefore, followed to its logical conclusion, the unrestricted right to demand coupled with a penalty for failure to comply is very akin to seizure. In appropriate circumstances, the distinction between them would indeed be a distinction without a difference.

Langdon Prov. Ct. J., relying on this Court's decision in Hunter v. Southam Inc., [1984] 2 S.C.R. 145, and R. v. Therens, [1985] 1 S.C.R. 613, also rejected the argument that it was open to the individual who received the demand to refuse to comply and determine his liabilities at a later time. He stated at p. 43:

I agree with Le Dain, J. that it is unrealistic to speak of the recipient of a letter of requirement as being free to refuse to comply. If he is not free to refuse to comply he is subject to compulsion. Thus the service of the requirement is tantamount to a seizure.

Having found that s. 231(3) authorized a seizure within the meaning of s. 8 of the Charter, Langdon Prov. Ct. J. had no difficulty in concluding that the form of seizure authorized was unreasonable. He found that it met none of the criteria espoused by Dickson J. (as he then was) in Hunter. In particular:

(1) The legislation did not provide for a method of prior authorization;

(2) The Minister when acting under s. 231(3) could not be a neutral or impartial arbiter acting judicially;

(3) The legislation provided for no form of review of the Minister's discretion; and

(4) The legislation did not require the establishment of reasonable and probable grounds under oath that an offence had been committed or that there was evidence to be found at the place of the search.

For these reasons Langdon Prov. Ct. J. quashed the information.

(b) Ontario High Court

Trainor J. had the advantage of the Ontario Court of Appeal's decision in Thomson Newspapers Ltd. v. Director of Investigation and Research (1986), 57 O.R. (2d) 257 in preparing his reasons and he relied upon it heavily. Of importance to the Court of Appeal in Thomson was the fact that an individual compelled to produce documents pursuant to s. 17(1) of the Combines Investigation Act, R.S.C. 1970, c. C-23, could, in the court's opinion, effectively challenge the order of the Restrictive Trade Practices Commission prior to producing the documents. The Court of Appeal for this reason felt that s. 17(1) did not authorize a seizure within the meaning of s. 8 of the Charter.

Trainor J. applied similar reasoning to the appeal before him. Relying on this Court's decision in James Richardson & Sons, Ltd. v. Minister of National Revenue, [1984] 1 S.C.R. 614, he found that s. 231(3) had been given a restrictive interpretation by the Court and this allowed a person served with an order for production an opportunity to challenge its validity before producing the material. He stated at p. 317:

The recipient of a demand under s. 231(3) can successfully attack such demand before prosecution for failure to comply on a number of grounds including the following:

(1)That a reasonable time for production has not been afforded: Re Joseph et al. and Minister of National Revenue (1985), 51 O.R. (2d) 658, 20 D.L.R. (4th) 577, [1985] 2 C.T.C. 164.

(2)That the Minister is engaged in a fishing expedition and not a genuine and serious inquiry as to some taxpayer's liability.

(3)That the documents demanded are not germane or relevant to the issues between the parties.

(4)That the documents are privileged.

There are no doubt many other grounds of attack available, dependent on the circumstances. For example, I would think that where a demand is made and where the issues between the parties are not clearly identified, unlike a case where charges have been laid, it would be incumbent on the Minister to set out the grounds for the demand in order that relevance could readily be ascertained, in the first instance by the recipient of the demand and later, if necessary, by the court.

These avenues of attack cannot be said to be illusory. They create substantial defences and are an answer to many of the concerns raised during argument about ministerial excesses and oppressive conduct.

Accordingly, Trainor J. found that s. 231(3) did not authorize a seizure. He therefore allowed the appeal. He noted in obiter, however, that had he found that a seizure was authorized by the section, it would not have been a reasonable one since the criteria enumerated in Hunter were not satisfied.

(c) The Ontario Court of Appeal

Grange J.A. delivered the opinion of the court on behalf of himself, Lacourcière and Goodman JJ.A. Like Trainor J., Grange J.A. saw this case as very similar to the Thomson case. In Grange J.A.'s opinion, the fact that the individual could challenge the requirement to produce was sufficient to dispel the notion that it was a seizure. He stated at p. 760:

As Trainor J. pointed out, the subsection of the Income Tax Act is not unqualified or unlimited. It is subject to certiorari proceedings wherein the requirement will be tested objectively to determine whether it is authorized by the section and whether it is relevant to the tax liability of a specific person. No "fishing expedition" will be permitted: see Canadian Bank of Commerce v. A.-G. Can. (1962), 35 D.L.R. (2d) 49, [1962] S.C.R. 729, 62 D.T.C. 1236, and James Richardson & Sons, Ltd. v. M.N.R. (1984), 9 D.L.R. (4th) 1 at p. 7 et seq., [1984] 1 S.C.R. 614 at p. 623 et seq., [1984] 4 W.W.R. 577. In a system where the tax authorities depend largely on the good faith and integrity of the taxpayer to disclose information relevant to tax liability, it is necessary to give wide investigative powers to those authorities without compelling them to give statements under oath of reasonable and probable grounds for the requirement to produce, particularly where the requirement does not constitute enforced production. The essential consideration in my view is that the requirement to produce is not so intrusive as a search or seizure, that it in no sense resembles a search and cannot be tantamount to a seizure because the person subject to it has a right to take action to circumvent the required production.

Grange J.A. thought that in this case it was even clearer than in Thomson that the provision did not constitute a seizure since, while the Combines Investigation Act provided a mechanism to compel compliance with the order to produce, the Income Tax Act provided only a penalty for disobedience.

Accordingly, the Ontario Court of Appeal dismissed the appeal.

3. The Issues

The issues arising in this appeal are as follows:

1. Does s. 231(3) of the Income Tax Act, R.S.C. 1952, c. 148, violate s. 8 of the Canadian Charter of Rights and Freedoms?

2. If the answer to question 1 is affirmative, can s. 231(3) of the Income Tax Act be sustained as a reasonable limit demonstrably justified in a free and democratic society under s. 1 of the Canadian Charter of Rights and Freedoms or is the provision of no force and effect by virtue of s. 52 of the Constitution Act, 1982?

4. Analysis

A chief source of revenue for the federal government is the collection of income tax. The legislative scheme which has been put in place to regulate the collection of tax is the Income Tax Act. The Act requires taxpayers to file annual returns and estimate their tax payable as a result of calculations made in these returns. Moreover, the Act requires various third parties such as employers, corporations and banks to file information on wages, dividends, interest payments and the like: see s. 221(1)(d) and Part II of the Income Tax Regulations, C.R.C. 1978, c. 945. In essence, the system is a self-reporting and self-assessing one which depends upon the honesty and integrity of the taxpayers for its success: see Search and Seizure Under the Income Tax Act (1985), a study paper prepared for the Law Reform Commission of Canada by Neil Brooks and Judy Fudge. Nonetheless, it would be naive to think that no one attempts to take advantage of the self-reporting system in order to avoid paying his or her full share of the tax burden by violating the rules set forth in the Act. Because of this reality Parliament enacted several provisions, among them s. 231(3), giving the Minister of National Revenue power to investigate and audit taxpayers. Section 231 reads in part as follows:

231. (1) Any person thereunto authorized by the Minister, for any purpose related to the administration or enforcement of this Act, may, at all reasonable times, enter into any premises or place where any business is carried on or any property is kept or anything is done in connection with any business or any books or records are or should be kept, and

(a) audit or examine the books and records and any account, voucher, letter, telegram or other document which relates or may relate to the information that is or should be in the books or records or the amount of tax payable under this Act,

(b) examine property described by an inventory or any property, process or matter an examination of which may, in his opinion, assist him in determining the accuracy of an inventory or in ascertaining the information that is or should be in the books or records or the amount of any tax payable under this Act,

(c) require the owner or manager of the property or business and any other person on the premises or place to give him all reasonable assistance with his audit or examination and to answer all proper questions relating to the audit or examination either orally or, if he so requires, in writing, on oath or by statutory declaration and, for that purpose, require the owner or manager to attend at the premises or place with him, and

(d) if, during the course of an audit or examination, it appears to him that there has been a violation of this Act or a regulation, seize and take away any of the documents, books, records, papers or things that may be required as evidence as to the violation of any provision of this Act or a regulation.

(2) The Minister shall,

(a) within 120 days from the date of seizure of any documents, books, records, papers or things pursuant to paragraph (1)(d), or

(b) if within that time an application is made under this subsection that is, after the expiration of that time, rejected, then forthwith upon the disposition of the application,

return the documents, books, records, papers or things to the person from whom they were seized unless a judge of a superior court or county court, on application made by or on behalf of the Minister, supported by evidence on oath establishing that the Minister has reasonable and probable grounds to believe that there has been a violation of this Act or a regulation and that the seized documents, books, records, papers or things are or may be required as evidence in relation thereto, orders that they be retained by the Minister until they are produced in any court proceedings, which order the judge is hereby empowered to give on ex parte application.

(3) The Minister may, for any purposes related to the administration or enforcement of this Act, by registered letter or by a demand served personally, require from any person

(a) any information or additional information, including a return of income or a supplementary return, or

(b) production, or production on oath, of any books, letters, accounts, invoices, statements (financial or otherwise) or other documents,

within such reasonable time as may be stipulated therein.

(4) Where the Minister has reasonable and probable grounds to believe that a violation of this Act or a regulation has been committed or is likely to be committed, he may, with the approval of a judge of a superior or county court, which approval the judge is hereby empowered to give on ex parte application, authorize in writing any officer of the Department of National Revenue, together with such members of the Royal Canadian Mounted Police or other peace officers as he calls on to assist him and such other persons as may be named therein, to enter and search, if necessary by force, any building, receptacle or place for documents, books, records, papers or things that may afford evidence as to the violation of any provision of this Act or a regulation and to seize and take away any such documents, books, records, papers or things and retain them until they are produced in any court proceedings.

(5) An application to a judge under subsection (4) shall be supported by evidence on oath establishing the facts upon which the application is based.

238. . . .

(2) Every person who has failed to comply with or contravened subsection 116(3), 127(3.1) or (3.2), 153(1), 227(5), 230.1(1) or 230.1(2), or section 230 or 231 is guilty of an offence and, in addition to any penalty otherwise provided, is liable on summary conviction to

(a) a fine of not less than $200 and not exceeding $10,000, or

(b) both the fine described in paragraph (a) and imprisonment for a term not exceeding 6 months.

This Court had occasion to consider s. 231(3) of the Act in James Richardson & Sons, Ltd. v. Minister of National Revenue, [1984] 1 S.C.R. 614. It noted that the wording of the subsection was, on its face, extremely broad. The Court found, however, after reviewing its earlier decision in Canadian Bank of Commerce v. Attorney General of Canada, [1962] S.C.R. 729, that once the appropriate rules of statutory interpretation had been applied to the subsection, it was not to be construed so broadly. The Court found at p. 623 that:

(a)the test of whether the Minister is acting for a purpose specified in the Act is an objective one and has to be decided on the proper interpretation of the subsection and its application to the circumstances disclosed;

(b)the obtaining of information relevant to the tax liability of some specific person or persons whose liability to tax is under investigation is a purpose related to the administration or enforcement of the Act;

(c)it is not necessary that the person from whom the information is sought be one whose liability to tax is under investigation;

(d)the fact that the giving of the information may disclose private transactions involving persons who are not under investigation and may not be liable to tax does not invalidate the requirement.

Notwithstanding that s. 231(3) has been narrowed in scope as a result of the common law rules relating to statutory interpretation, the appellants submit that the provision cannot withstand Charter scrutiny. They submit that the demand for information or documents under s. 231(3), coupled with its enforcement mechanism in s. 238(2), violates s. 8 of the Charter and cannot be saved under s. 1.

Sections 8 and 1 of the Charter provide:

8. Everyone has the right to be secure against unreasonable search or seizure.

9. The Canadian Charter of Rights and Freedoms guarantees the rights and freedoms set out in it subject only to such reasonable limits prescribed by law as can be demonstrably justified in a free and democratic society.

The seminal case on the interpretation to be given to s. 8 of the Charter is this Court's decision in Hunter v. Southam Inc., [1984] 2 S.C.R. 145. In Hunter the Court found that s. 10 of the Combines Investigation Act violated s. 8. In coming to that conclusion the Court determined that one of the purposes underlying the s. 8 right was the protection of an individual's reasonable expectation of privacy.

In Hunter it was clear that a search was contemplated by the legislation and the Court therefore focussed its attention on the question whether the search was reasonable. In the present appeal we must answer the threshold question whether s. 231(3) authorizes a "seizure" within the meaning of s. 8 of the Charter. Section 231(3) has the effect of requiring the individual named in the demand to provide information pursuant to para. (a) or documents pursuant to para. (b). In Thomson Newspapers Ltd. v. Canada (Director of Investigation and Research, Restrictive Trade Practices Commission), [1990] 1 S.C.R. 000 (reasons delivered concurrently herewith), I concluded that a seizure was "the taking hold by a public authority of a thing belonging to a person against that person's will" (p. 000). Thomson, however, involved a seizure in a criminal or quasi-criminal law context and I confined my remarks to that situation. Section 231(3) is not criminal or quasi-criminal legislation. The Income Tax Act is essentially a regulatory statute since it controls the manner in which income tax is calculated and collected. This Court pointed out in R. v. Grimwood, [1987] 2 S.C.R. 755, at p. 756, that "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".

Since s. 231(3) is not legislation in relation to a criminal or quasi-criminal proceeding, the question arises whether a "seizure" within the meaning of s. 8 takes place when the state compels the production of documents in a regulatory context. To answer this question one must, I think, return to the general discussion of Dickson J. in Hunter on the purposes underlying the s. 8 right. One of those purposes, he found, is the protection of the individual's reasonable expectation of privacy. He stated at pp. 159-60:

The guarantee of security from unreasonable search and seizure only protects a reasonable expectation. This limitation on the right guaranteed by s. 8, whether it is expressed negatively as freedom from "unreasonable" search and seizure, or positively as an entitlement to a "reasonable" expectation of privacy, indicates that an assessment must be made as to whether in a particular situation the public's interest in being left alone by government must give way to the government's interest in intruding on the individual's privacy in order to advance its goals, notably those of law enforcement. [Emphasis in original.]

It is apparent from the above that Dickson J. considered that the underlying value to be protected by s. 8 of the Charter was the individual's interest in privacy. However, it was his view that the s. 8 protection was confined to "a reasonable expectation" because of the fact that the words "search or seizure" were qualified by the word "unreasonable": see also R. v. Simmons, [1988] 2 S.C.R. 495. Undoubtedly there will be instances in which an individual will have no privacy interest or expectation in a particular document or article required by the state to be disclosed. Under such circumstances, the state authorized inspection or the state demand for production of documents will not amount to a search or seizure within s. 8: see R. v. Hufsky, [1988] 1 S.C.R. 621, at p. 638. However, I do not think that is so here. I reach that conclusion for two reasons. First, s. 231(3), even construed narrowly in accordance with prior authority, envisages the compelled production of a wide array of documents and not simply those which the state requires the taxpayer to prepare and maintain under the legislation. Second, the legislation contemplates that parties who are not the subject of an investigation or audit can be compelled to produce documents relating to another taxpayer who is the subject of such investigation or audit. Thus, compelled production reaches beyond the strict filing and maintenance requirements of the Act and may well extend to information and documents in which the taxpayer has a privacy interest in need of protection under s. 8 of the Charter although it may not be as vital an interest as that obtaining in a criminal or quasi-criminal context. I would therefore conclude that the application of s. 231(3) of the Income Tax Act to the appellants constitutes a "seizure" since it infringes on their expectations of privacy. It remains to be determined, however, whether the state's intrusion on that privacy interest is unreasonable or, to put it another way, whether it violates the taxpayers' reasonable expectation of privacy.

In Hunter, Dickson J. set forth several criteria which had to be met in order that a search be reasonable. I summarized these criteria in Thomson (at p. 000):

(a)a system of prior authorization, by an entirely neutral and impartial arbiter who is capable of acting judicially in balancing the interests of the State against those of the individual;

(b)a requirement that the impartial arbiter must satisfy himself that the person seeking the authorization has reasonable grounds, established under oath, to believe that an offence has been committed;

(c)a requirement that the impartial arbiter must satisfy himself that the person seeking the authorization has reasonable grounds to believe that something which will afford evidence of the particular offence under investigation will be recovered; and

(d)a requirement that the only documents which are authorized to be seized are those which are strictly relevant to the offence under investigation.

It is important to note that these criteria were enunciated in the context of an appeal concerning the validity of a section which was, in essence, criminal or quasi-criminal in nature. As I stated in Thomson (at p. 000):

Not all seizures violate s. 8 of the Charter; only unreasonable ones. Put another way, an individual is accorded only a reasonable expectation of privacy. At some point the individual's interest in privacy must give way to the broader state interest in having the information or document disclosed. However, the state interest only becomes paramount when care is taken to infringe the privacy interest of the individual as little as possible. It is because of this need for delicate balancing that Dickson J. in Hunter identified several criteria which must be met if a search in a criminal investigation is to meet the test of reasonableness. I think that these criteria were accurately summarized by Holland J. at trial as set out earlier in these reasons. I would agree, however, that these criteria are not hard and fast rules which must be adhered to in all cases under all forms of legislation. What may be reasonable in the regulatory or civil context may not be reasonable in a criminal or quasi-criminal context. What is important is not so much that the strict criteria be mechanically applied in every case but that the legislation respond in a meaningful way to the concerns identified by Dickson J. in Hunter. This having been said, however, it would be my view that the more akin to traditional criminal law the legislation is, the less likely it is that departures from the Hunter criteria will be countenanced. This seems to have been what Dickson C.J. had in mind when he said in R. v. Simmons, [1988] 2 S.C.R. 495, at p. 527, that departures from the Hunter criteria will be exceedingly rare.

In Simmons, supra, this Court departed from the rigidity of the Hunter criteria. In that case the Court found that it was not necessary for the Hunter criteria to be met in the context of customs searches since a person's reasonable expectation of privacy was quite low at border crossings. Dickson C.J. stated at p. 528:

I accept the proposition advanced by the Crown that the degree of personal privacy reasonably expected at customs is lower than in most other situations. People do not expect to be able to cross international borders free from scrutiny. It is commonly accepted that sovereign states have the right to control both who and what enters their boundaries. For the general welfare of the nation the state is expected to perform this role. Without the ability to establish that all persons who seek to cross its borders and their goods are legally entitled to enter the country, the state would be precluded from performing this crucially important function. Consequently, travellers seeking to cross national boundaries fully expect to be subject to a screening process.

In my opinion, flexibility is key to interpreting any constitutional document including the Charter. It would be wrong, I think, for the courts to apply a rigid approach to a particular section of the Charter since that provision must be capable of application in a vast variety of legislative schemes. As Dickson J. stated in Hunter at p. 155:

It is clear that the meaning of "unreasonable" cannot be determined by recourse to a dictionary, nor for that matter, by reference to the rules of statutory construction. The task of expounding a constitution is crucially different from that of construing a statute. A statute defines present rights and obligations. It is easily enacted and as easily repealed. A constitution, by contrast, is drafted with an eye to the future. Its function is to provide a continuing framework for the legitimate exercise of governmental power and, when joined by a Bill or a Charter of Rights, for the unremitting protection of individual rights and liberties.

Since individuals have different expectations of privacy in different contexts and with regard to different kinds of information and documents, it follows that the standard of review of what is "reasonable" in a given context must be flexible if it is to be realistic and meaningful. I think the point is aptly made by A. D. Reid and A. H. Young in "Administrative Search and Seizure under the Charter" (1985), 10 Queen's L.J. 392, at pp. 398-400:

A person's expectations of privacy with respect to administrative search and seizure have been less well defined [than criminal search and seizure]. There are facets of state authority, generically associated with search or seizure, that are so intertwined with the regulated activity as to raise virtually no expectation of privacy whatsoever. Inspections may be blended into product grading functions, and in fact, they may be so integrated into the production process that a refusal to inspect can by law be invoked as a sanction to enforce the maintenance of prescribed sanitary conditions within the plant. Other activities are regulated so routinely that there is virtually no expectation of privacy from state intrusion. Annual filing requirements for banks, corporations, trust companies, loan companies, and the like are inextricably associated with carrying on business under state licence.

There are other situations in which government intrusion cannot be as confidently predicted, yet the range of discretion extended to state officials is so wide as to create in the regulatee an expectation that he may be inspected or requested to provide information at some point in the future. This may arise in the form of an inspection carried out either on a "spot check" basis, or on the strength of suspected non-compliance. The search may be in the form of a request for information that is not prescribed as an annual filing requirement, but is required to be produced on a demand basis. For the most part, there is no requirement that these powers be exercised on belief or suspicion of non-compliance. Rather, they are based on the common sense assumption that the threat of unannounced inspection may be the most effective way to induce compliance. They are based on a view that inspection may be the only means of detecting non-compliance, and that its detection serves an important public purpose. Inspections to determine work place safety, building safety, aviation safety, fire safety, environmental quality, food quality, health standards and the like have been routinely authorized by statute without specifying grounds for intruding upon someone's privacy.

There is, therefore, a large circle of social and business activity in which there is a very low expectation of privacy. The issue is not whether, but rather when, how much, and under what conditions information must be disclosed to satisfy the state's legitimate requirements. Every person who files an annual tax return may be said to enjoy a low expectation of privacy with respect to information about his income. But that is surely tempered by an expectation that demands for information have limits, and will be administered under terms that are fair and reasonable. That is what section 8 of the Charter is all about. [Emphasis added.]

The lower courts, generally speaking, have shown no hesitation in applying s. 8 flexibly in relation to a wide variety of regulatory schemes. A few examples make the point. In Re Alberta Human Rights Commission and Alberta Blue Cross Plan (1983), 1983 ABCA 207, 1 D.L.R. (4th) 301 (Alta. C.A.), the court held that the provisions of the Individual's Rights Protection Act which allowed for the compulsory production of an individual's documents by the Human Rights Commission were not unreasonable. In that case the court did not apply the standard of reasonableness applicable to criminal cases. Rather, the court applied the rough model of reasonableness employed in production of documents in civil cases. The rationale for this was that what is reasonable "depends upon consideration of what is sought, from whom, for what purpose, by whom, and in what circumstances": see p. 307. This approach was followed in Re Reich and College of Physicians and Surgeons of Alberta (No. 2) (1984), 8 D.L.R. (4th) 696 (Alta. Q.B.), wherein McDonald J. held that the provisions of the Medical Profession Act which compelled the production of a doctor's documents and records were reasonable.

In Re Belgoma Transportation Ltd. and Director of Employment Standards (1985), 51 O.R. (2d) 509 (C.A.), the court upheld the validity of the provisions of the Employment Standards Act which allowed an employment standards officer to enter upon business premises and require the production of certain documents and remove them for copying. MacKinnon A.C.J.O. stated at p. 512:

The standards to be applied to the reasonableness of a search or seizure and the necessity for a warrant with respect to criminal investigations cannot be the same as those to be applied to search or seizure within an administrative and regulatory context. . . . The "search or seizure" in the instant case, if such it is, is not aimed at detecting criminal activity, but rather, as indicated, in ensuring and securing compliance with the regulatory provisions of the Act enacted for the purpose of protecting the public interest.

In R. v. Bichel, [1986] 5 W.W.R. 261 (B.C.C.A.), the court considered the validity of a by-law which authorized the entry of a building inspector on property or premises to ascertain whether there had been compliance with the by-law. The court applied the reasoning in Belgoma and ruled that an individual's privacy interests in connection with this type of inspection were much less than those in Hunter.

I refer to these cases not to approve or disapprove the results achieved but rather as evidence of the need to take a flexible and purposive approach to s. 8 of the Charter. It is consistent with this approach, I believe, 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. I do not believe that when the Chief Justice said in Simmons at p. 527 that departures from the Hunter criteria would be rare he was applying his mind to searches or seizures in the context of regulatory legislation. I think he was addressing as in the cases of Hunter and Simmons themselves searches or seizures in a criminal or quasi-criminal context. It is with these considerations in mind that I examine the reasonableness of s. 231(3) of the Income Tax Act.

At the beginning of my analysis I noted that the Income Tax Act was based on the principle of self-reporting and self-assessment. The Act could have provided that each taxpayer submit all his or her records to the Minister and his officials so that they might make the calculations necessary for determining each person's taxable income. The legislation does not so provide, no doubt because it would be extremely expensive and cumbersome to operate such a system. However, a self-reporting system has its drawbacks. Chief among these is that it depends for its success upon the taxpayers' honesty and integrity in preparing their returns. While most taxpayers undoubtedly respect and comply with the system, the facts of life are that certain persons will attempt to take advantage of the system and avoid their full tax liability.

Accordingly, the Minister of National Revenue must be given broad powers in supervising this regulatory scheme to audit taxpayers' returns and inspect all records which may be relevant to the preparation of these returns. The Minister must be capable of exercising these powers whether or not he has reasonable grounds for believing that a particular taxpayer has breached the Act. Often it will be impossible to determine from the face of the return whether any impropriety has occurred in its preparation. A spot check or a system of random monitoring may be the only way in which the integrity of the tax system can be maintained. If this is the case, and I believe that it is, then it is evident that the Hunter criteria are ill-suited to determine whether a seizure under s. 231(3) of the Income Tax Act is reasonable. The regulatory nature of the legislation and the scheme enacted require otherwise. The need for random monitoring is incompatible with the requirement in Hunter that the person seeking authorization for a search or seizure have reasonable and probable grounds, established under oath, to believe that an offence has been committed. If this Hunter criterion is inapplicable, then so too must the remaining Hunter criteria since they all depend for their vitality upon the need to establish reasonable and probable grounds. For example, there is no need for an impartial arbiter capable of acting judicially since his central role under Hunter is to ensure that the person seeking the authorization has reasonable and probable grounds to believe that a particular offence has been committed, that there are reasonable and probable grounds to believe that the authorization will turn up something relating to that particular offence, and that the authorization only goes so far as to allow the seizure of documents relevant to that particular offence.

This is not to say that any and all forms of search and seizure under the Income Tax Act are valid. The state interest in monitoring compliance with the legislation must be weighed against an individual's privacy interest. The greater the intrusion into the privacy interests of an individual, the more likely it will be that safeguards akin to those in Hunter will be required. Thus, when the tax officials seek entry onto the private property of an individual to conduct a search or seizure, the intrusion is much greater than a mere demand for production of documents. The reason for this is that, while a taxpayer may have little expectation of privacy in relation to his business records relevant to the determination of his tax liability, he has a significant privacy interest in the inviolability of his home.

In my opinion, s. 231(3) provides the least intrusive means by which effective monitoring of compliance with the Income Tax Act can be effected. It involves no invasion of a taxpayer's home or business premises. It simply calls for the production of records which may be relevant to the filing of an income tax return. A taxpayer's privacy interest with regard to these documents vis-à-vis the Minister is relatively low. The Minister has no way of knowing whether certain records are relevant until he has had an opportunity to examine them. At the same time, the taxpayer's privacy interest is protected as much as possible since s. 241 of the Act protects the taxpayer from disclosure of his records or the information contained therein to other persons or agencies.

5. Disposition

For these reasons I conclude that the seizure contemplated by s. 231(3) of the Income Tax Act is reasonable and does not violate s. 8 of the Charter. That being so, it is unnecessary for me to consider whether the section is justified under s. 1 of the Charter. I would dismiss the appeal and make no order as to costs.

By La Forest J.

The following are the reasons delivered by

La Forest J. -- I have had the advantage of reading the reasons of my colleague Wilson J., who sets forth the facts, the issues and the judicial history of this appeal. As in Thomson Newspapers Ltd. v. Canada (Director of Investigation and Research, Restrictive Trade Practices Commission), [1990] 1 S.C.R. 000, released concurrently, we are dealing with a statute which, though supported by penal sanctions, including imprisonment, is essentially of an administrative nature. These sanctions, as in Thomson, appear in the Income Tax Act, R.S.C. 1952, c. 148, for strictly instrumental reasons and, as in Thomson, the impugned provision is necessary to ensure compliance with the Act. For the reasons I gave in Thomson and, subject to what I there said, those of Wilson J. in this appeal, I would dispose of the appeal and answer the constitutional question in the manner proposed by her.

By L'Heureux-Dubé J.

The following are the reasons delivered by

L'Heureux Dubé J. -- Subject to the reasons set out in my opinion in the case of Thomson Newspapers Ltd. v. Canada (Director of Investigation and Research, Restrictive Trade Practices Commission), [1990] 1 S.C.R. 000, released concurrently, I concur with Wilson J. in her disposition of the present appeal and I would answer the constitutional questions as she does.

By Sopinka J.

The following are the reasons delivered by

Sopinka J. -- This appeal was heard together with Thomson Newspapers Ltd. v. Canada (Director of Investigation and Research, Restrictive Trade Practices Commission), [1990] 1 S.C.R. 000, and Stelco Inc. v. Canada (Attorney General), [1990] 1 S.C.R. 000, and judgment in the three appeals is being delivered concurrently. The issues in the appeal are set out in the constitutional questions which have been stated:

1. Is section 231(3) of the Income Tax Act, R.S.C. 1952, c. 148, inconsistent with the provisions of s. 8 of the Canadian Charter of Rights and Freedoms?

2. If there is such an inconsistency, does s. 1 of the Canadian Charter of Rights and Freedoms save s. 231(3) from being declared of no force or effect?

I agree with the disposition of this appeal proposed by Justice Wilson but for different reasons. For the reasons which I gave in Thomson, I am of the opinion that neither the letters of demand herein nor s. 231(3) of the Income Tax Act, R.S.C. 1952, c. 148, violate s. 8 of the Canadian Charter of Rights and Freedoms. The letters of demand do not constitute a seizure and s. 231(3) does not authorize a seizure within the meaning of s. 8 of the Charter. The demand authorized by s. 231(3) is less intrusive than an order under s. 17 of the Combines Investigation Act, R.S.C. 1970, c. C-23, and therefore what I said in Thomson applies a fortiori to the demand letters in issue in this appeal.

I would answer the constitutional questions:

1. Is section 231(3) of the Income Tax Act, R.S.C. 1952, c. 148, inconsistent with the provisions of s. 8 of the Canadian Charter of Rights and Freedoms?

Answer: No.

2. If there is such an inconsistency, does s. 1 of the Canadian Charter of Rights and Freedoms save s. 231(3) from being declared of no force or effect?

Answer: Need not be answered.

Appeal dismissed.

Solicitors for the appellants: Goodman & Goodman, Toronto.

Solicitor for the respondent: John C. Tait, Ottawa.

Solicitor for the intervener the Attorney General for Ontario: Richard F. Chaloner, Toronto.

Solicitors for the intervener the Attorney General of Quebec: Jean Bouchard and Gilles Laporte, Ste-Foy.

Solicitor for the intervener the Attorney General for Alberta: The Department of the Attorney General, Edmonton.