SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: 12-9675
DATE: 20150908

RE: R. v. Lawrence Watts

BEFORE: Bale J.

COUNSEL: Erin Carley and Jason Morische, for the Crown

Lawrence Watts, in person

HEARD: July 27 and 28, 2015

ENDORSEMENT

[1] The accused was charged with two counts of fraud pursuant to s. 380(1)(a) of the Criminal Code. The first count related to allegations that he participated in the preparation of false income tax returns for clients; the second related to allegations that he made false or deceptive statements in his own income tax returns. The proceedings in relation to the second count have been stayed, and the Crown has undertaken not to recommence them.

[2] The investigation which led to the charges began on December 15, 2009, as a result of four leads that were provided to the CRA criminal investigations division. Two of the leads were from former clients of the accused, one in British Columbia, and one in Ontario. The other two came from the CRA audit division, and related to large business losses claimed in the accused’s 2007 and 2008 tax returns.

[3] The lead CRA investigator is Frank Menniti. During the course of the investigation, Mr. Menniti obtained production orders pursuant to s. 487.012 of the Criminal Code, and search warrants pursuant to s. 487 of the Code. The production orders and search warrants were obtained in the Ontario Court of Justice.

[4] On this application, the accused requests an order:

• that the production orders and search warrants be quashed;

• that all items seized when the search warrants were executed be returned to him, that all copies of documents seized be destroyed, and that the Crown be precluded from using any such documents in any proceeding against him; and

• that the Crown be precluded from using his 2009 and 2010 tax returns in any proceeding against him.

[5] In support of the application, the accused argues the following grounds:

• that the Crown has not proved that the Income Tax Act received Royal Assent; and, in the absence of such proof, he challenges the jurisdiction of the CRA officers who swore the informations to obtain the production orders and search warrants, and the judges or justices of the peace who issued them;

• that he filed his 2009 and 2010 tax returns after receiving requests from CRA to do so;

• that at the time the requests to file returns were made, he was not informed that he was the subject of a criminal investigation, and that as a result, his rights under ss. 7 and 8 of the Charter of Rights and Freedoms were violated;

• that in the informations to obtain the production orders and search warrants, the persons swearing the informations did not disclose that he had filed his 2009 and 2010 tax returns following requests from CRA; and

• that with respect to the investigation of offences under the Income Tax Act, a search warrant may only be issued by a Superior Court judge or a judge of the Federal Court, and a production order may only be issued by a judge of the Federal Court.

Income Tax Act – Royal Assent

[6] The accused, having conducted his own research, has been unable to confirm that the Income Tax Act ever received Royal Assent. Because he is facing a charge for which he may be imprisoned for up to 14 years, he wants it to be proved to him that the legislation is valid. In particular, he wants the Crown to obtain a certified copy of the Act from the Clerk of the Parliaments, pursuant to s. 7 of the Publication of Statutes Act, and provide it to him. He argues that because he challenges the jurisdiction of the public officers purportedly exercising jurisdiction under the Income Tax Act, the Crown must prove jurisdiction, and that the certified copy he requests is the only acceptable proof. He acknowledges that under s. 18 of the Canada Evidence Act, the court is required to take judicial notice of all Acts of Parliament, but says that in the absence of evidence that it received Royal Assent, the Income Tax Act is not an Act of Parliament of which judicial notice may be taken.

[7] The answer to this question may be found in the Legislation Revision and Consolidation Act which provides as follows in s. 31:

31. (1) Every copy of a consolidated statute or consolidated regulation published by the Minister under this Act in either print or electronic form is evidence of that statute or regulation and of its contents and every copy purporting to be published by the Minister is deemed to be so published, unless the contrary is shown.

(2) In the event of an inconsistency between a consolidated statute published by the Minister under this Act and the original statute or a subsequent amendment as certified by the Clerk of the Parliaments under the Publication of Statute Act, the original statute or amendment prevails to the extent of the inconsistency.

[8] Accordingly, since the contrary has not been shown, the statute entitled “Income Tax Act” published on the Justice Laws Website is “evidence of that statute … and of its contents” (i.e. evidence of both the statute’s existence and its provisions).

[9] I also note that the accused’s position on this issue has been consistently rejected by the courts. A useful summary of the relevant case law may be found in Canada (Attorney General) v. Hanover, 2007 BCSC 1378, at paras. 18ff.

Jurisdiction to issue search warrants and production orders –Income Tax Act offences

[10] The search warrants in question were issued by a judge of the Ontario Court of Justice pursuant to s. 487 of the Criminal Code. Under that section, a search warrant may be issued by a justice. “Justice” is defined, in s. 2 of the Code, to mean “a justice of the peace or a provincial court judge”.

[11] The accused argues that with respect to the investigation of offences under the Income Tax Act, search warrants may only be issued by a Superior Court judge, or a judge of the Federal Court. Although the only charge now facing the accused is a charge of fraud under s. 380(1)(a) of the Code, in the information to obtain the search warrants, offences under s. 239 of the Income Tax Act were also alleged.

[12] The accused acknowledges that CRA had the option of applying for the search warrants under either the Criminal Code or the Income Tax Act, but says that when the offences in relation to which search warrants are sought are under the Income Tax Act, the procedure for obtaining a warrant under the Code is modified to the extent that the Income Tax Act provides for a different procedure. In support of his argument, the accused relies upon s. 231.3 of the Income Tax Act, and s. 34(2) of the Interpretation Act.

[13] Under s. 231.3 of the Income Tax Act, on ex parte application by the Minister, a judge may issue a search warrant. “Judge” is defined, in s. 231 of the Act, to mean “a judge of a superior court having jurisdiction in the province where the matter arises or a judge of the Federal Court.”

[14] Section 34(2) of the Interpretation Act provides that “all the provisions of the Criminal Code relating to indictable offences apply to indictable offences created by an enactment, and all the provisions of that code relating to summary conviction offences apply to all other offences created by an enactment, except to the extent that the enactment otherwise provides.”

[15] The accused argues that the Income Tax Act “otherwise provides”, because it requires search warrants to be issued by a judge of a superior court, or a judge of the Federal Court, and not by a justice of the peace or provincial court judge. On this basis, he argues that, while during the course of investigations of offences under the Income Tax Act, warrants may be issued under the Criminal Code, the procedure under s. 487 of the Code is modified to the extent that the Income Tax Act otherwise provides, and that therefore, in tax cases, a warrant issued under s. 487 of the Code may only be issued by a superior court judge, or a judge of the Federal Court. I do not accept this argument, for the following reasons.

[16] First, the court having jurisdiction to issue a search warrant is only one of the differences between the Income Tax Act procedure, and the Criminal Code procedure, for obtaining a search warrant. If the accused’s argument were to be accepted, then the procedure under the Code would have to be modified in all respects to accord with the procedure under the Act (including the test for obtaining a warrant, the scope of the search & cet.), at which point the modified Code procedure would be identical to the procedure under the Income Tax Act, and could no longer be said to be a warrant issued under the Code.

[17] Second, where an investigation included offences under both the Criminal Code and the Income Tax Act (as it did in the present case), there would be no basis upon which to apply the modified procedure to the investigation of the Code offences, with the result that warrants would have to be obtained from two different courts to carry out essentially the same search, a result that Parliament could not have intended when enacting s. 34 of the Interpretation Act.

[18] Third, although s. 34 of the Interpretation Act provides the Criminal Code procedure to be used (summary conviction or indictment) for the prosecution of offences under enactments other than the Criminal Code, it does not, in my view, apply the investigative provisions of the Criminal Code to the investigation of offences under other enactments. The availability of, and the procedure for obtaining, Criminal Code search warrants to investigate offences under other enactments is provided for in s. 487(1)(a) of the Code, and the availability of, and the procedure for obtaining, Criminal Code production orders to investigate offences under other enactments is provided for in s. 487.012(3)(a) of the Code. In both cases, the procedure to obtain the investigative remedy is available without resort to the Interpretation Act, and is applicable to the offences under the other enactments without qualification (such as the “except to the extent the enactment otherwise provides” qualification contained in s. 34 of the Interpretation Act).

Breach of accused’s Charter rights

[19] The criminal investigation of the accused began in December 2009. The CRA requests that he file his 2009 and 2010 tax returns were made in December of 2010 and August of 2011. The returns (neither of which were signed) were filed in May of 2011 and October of 2011. On these facts, the accused argues that his rights under ss. 7 and 8 of the Charter were breached. He says that because he was not informed of the fact that he was under criminal investigation when CRA requested that he file the returns, the making of the requests violated the principle against self-incrimination, and constituted an unreasonable search and seizure. In support of his position, the accused relies upon R. v. Jarvis, 2002 SCC 73, and the companion case of R. v. Ling, 2002 SCC 74.

[20] In Jarvis, the court held that a distinction must be drawn between the audit function of the CRA, and the investigation of taxpayers for tax evasion. During the course of an audit, CRA officials have recourse to the inspection and requirement powers under ss. 231.1(1) and 231.2(1) of the Income Tax Act. However, where the predominate purpose of an inquiry is the determination of penal liability, those powers are no longer available, and a search warrant must be obtained.

[21] In the present case, the filing requests were made after the start of the criminal investigation. However, the evidence does not support a finding that the predominate purpose of the requests was the determination of penal liability. In requesting that the accused file tax returns for 2009 and 2010, CRA was not exercising its requirement powers under ss. 231.1 or 231.2 of the Income Tax Act. The filing of the returns was overdue, and the filing requests were requests that the accused comply with the requirement under s. 150 of the Act (applicable to all taxpayers) to file a “return of income … without notice or demand for the return, for each taxation year”. The accused was not being asked to provide evidence against himself in relation to offences already under investigation. Until the returns were filed, no false or deceptive statements could have been made, and no question of penal liability could therefore have arisen.

[22] The filing of a tax return will only be incriminating if the return filed contains false or deceptive statements. A taxpayer who makes such statements in a return cannot be heard to complain that he or she was induced by the Minister to do so.

[23] If I am wrong, and the analysis in Jarvis relating to the inspection and requirement powers under ss. 231.1(1) and 231.2(1) of the Income Tax Act should be applied to requests to file tax returns (where the taxpayer is under investigation for filings made in previous tax years), the production orders in question would not be affected, but the search warrants would be.

[24] The production orders were obtained by CRA on April 20, 2011, May 18, 2011 and May 26, 2011, based upon informations to obtain sworn by Frank Mennitti. As of those dates, Mr. Mennitti was not in possession of the accused’s 2009 or 2010 tax returns (there is no mention of the returns in the informations to obtain and his investigative diary records that he received the returns on October 28, 2011). Accordingly, even if the accused should not have been asked to file his 2009 and 2010 returns, the filing of the returns was not a factor in obtaining judicial authorization for the production orders.

[25] However, Mr. Menniti did have possession of the accused’s 2009 and 2010 tax returns when he applied for the search warrants, the returns were referred to in the information to obtain, and the accused was then under investigation for making false or deceptive statements in his 2007, 2008, 2009 and 2010 returns.

[26] While not conceding that the requests made by CRA to file tax returns constituted a breach of the accused’s ss. 7 or 8 Charter rights, the Crown (presumably out of an abundance of caution) has agreed not to use or rely on the 2009 or 2010 returns filed by the accused, and the proceedings in relation to the second count of the indictment, relating to the accused’s own returns, have been stayed. In these circumstances, the Crown agrees that all information relating to the 2009 and 2010 returns must be excised from the information to obtain, but argues that after such excision, reasonable grounds for issuing the warrants will remain.

[27] The accused, however, requests that additional categories of information be excised from the information to obtain, and argues that following the broader excision, reasonable grounds for issuing the warrants will no longer remain.

[28] First, the accused argues that certain paragraphs should be excised that appear under the heading “Things to be Searched For” in the information to obtain. I agree that any items mentioned under that heading that would only be relevant to a prosecution for false or deceptive statements made in the accused’s 2009 and 2010 tax returns should be excised.

[29] Second, the accused argues that any information in the information to obtain that refers to persons under investigation other than the accused should be excised. However, information relating to other persons is either relevant to the charge against him, or not. If such information is relevant, it ought to remain. If it is not relevant, it will not affect my determination of whether reasonable grounds to issue the warrants remain.

[30] Third, the accused argues that certain paragraphs referring to his 2007 and 2008 tax returns should be excised. He says that CRA “pulled him out of the shower” because he didn’t provide documents in response to a request for supporting documents, and that his 2008 tax return has never been assessed. It is difficult to respond to this argument other than to say that he was under investigation for making false or deceptive statements in his 2007 and 2008 tax returns, and that CRA was in possession of the information relating to those returns before requesting that he file returns for 2009 and 2010.

[31] Finally, the accused argues for the excision of any mention of bank transfers, withdrawals or payments, in 2009 or 2010. I disagree because, aside from the question of whether he made false or deceptive statements in his own 2009 and 2010 tax returns, the bank transfers and withdrawals may be evidence that ties him to Fiscal Arbitrators, the business through which it is alleged he made false or deceptive statements in tax returns prepared for his clients.

[32] Following excision of the information relating to the accused’s 2009 and 2010 tax returns, I am satisfied that reasonable grounds for issuing the search warrants remain. The evidence in the information to obtain relating to Fiscal Arbitrators is not affected by the excision and was sufficient to justify a search of the business premises, and the evidence relating to the accused’s 2007 and 2008 tax returns was sufficient to justify a search of his residence.

[33] As I have concluded that the search warrants were validly issued, I need not consider the issue of exclusion of the evidence obtained when the warrants were executed.

Disposition

[34] For the reasons given, the application will be dismissed.

“Bale J.”

September 8, 2015