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Published: September 28, 2020

Last Updated: November 18, 2020

When the Canada Revenue Agency Executes A Search Warrant – A Canadian Tax Lawyer’s Analysis

Introduction-Criminal Tax Investigations Require Search Warrants

The Canadian Income Tax Act gives the Canada Revenue Agency (the “CRA”) a wide range of powers such as auditing or examining certain books and records from a taxpayer, or even enter business premises to carry out its inspection. However, the scope of those powers is limited to a civil tax audit. The moment a criminal tax investigation is commenced, the Canadian Charter of Rights and Freedoms is automatically engaged. In particular, section 7 of the Charter provides protection for the right to life, liberty and security of the person. In R v Jarvis, 2002 SCC 73, the Supreme Court of Canada set out the test to determine when a civil tax audit has become a criminal tax investigation. When dealing with potential criminal cases such as tax evasion or tax fraud, the CRA may not use these powers for criminal tax investigation, instead it must obtain a search warrant from the court.

Under s.231.3(3) of the Income Tax Act, in order for a judge to issue a search warrant, he or she must be satisfied that there are reasonable grounds to believe:

  1. An offence under the Income Tax Act has been committed;
  2. A document or thing that may afford evidence to the commission of the offence is likely to be found; and
  • The building, receptacle or place specified in the application is likely to contain such a document or thing.

CRA Can Examine Seized Items Before the Determination of Whether the Search Warrants Were Valid

A recent decision made by the British Columbia Supreme Court in Canada Revenue Agency v Royal Canadian Mounted police, 2016 BCSC 2275 confirmed that the CRA doesn’t need to wait for the court to decide whether a search warrant is valid before examining the seized items.

Based on the belief that certain persons (the “Persons”) had committed tax criminal offences, the CRA applied for a search warrant that allowed the Royal Canadian Mounted Police to seize certain items from the Persons. The Persons then went to court and made three arguments to prevent the CRA from accessing the seized items. However, the court rejected all three of them.

  1. The Persons first argued that there was a possibility that part or all of the search warrants could be quashed since they had started the process to challenge its validity in the Provincial Court, and the CRA should wait till that decision is rendered. However, the court ruled the warrants were presumptively valid and a mere possibility of the search warrants being quashed was not enough to challenge the validity of the warrants.
  2. The 2nd argument was that the seized items fell outside the CRA’s interest. The court, on the other hand, reached the opposite conclusion: the seized items indeed fell within the interest of the CRA due to the fact that they were relevant to the investigation of potential tax evasion and tax fraud.
  3. The 3rd argument was that restrictions should be placed on the order allowing the CRA to examine any privileged material. The court rejected the argument because it didn’t find it appropriate to restrict the examination.

Best Practice to Prepare For a Tax Search Warrant

  1. Appoint a liaison: always appoint an experienced or senior member as the liaison between the corporation and the tax investigator, and to work with a Canadian tax lawyer.
  2. Review the search warrant: when the investigator first presents the search warranty, you should ask for a copy and immediately retain an experienced Canadian tax lawyer and scan it if possible so you can provide it to your tax counsel. You should ask that execution of the warrant be delayed until your Canadian tax lawyer arrives. Although there is no legal obligation from the investigators to delay the search, sometimes they may agree as a sign of courtesy. Your tax lawyer will read the search warrant carefully to make sure there are no obvious errors such as address, name of the business, and verify whether there are certain restrictions on the areas that can be searched. If your Canadian tax lawyer finds such defect, he or she will bring it to the investigator’s attention immediately and make a note if the investigator continues the search.
  3. Follow the investigator: You should assign specific employees to shadow the investigators so that they only enter areas specified in the search warrants.
  4. Assert all legal privileges: Although the Persons in the previous case were not successful, taxpayers do have the right to assert “solicitor-client privilege” under s.232(1) of the Income Act to refuse to disclose any oral or documentary communication between the taxpayer and his lawyer in a professional capacity. As we live in this modern era, electronic devices such as computers, tablets and smartphone often contain privileged information. Therefore, businesses should adopt the practice of isolating privileged information from non-privileged information and store them in separate electronic devices or folders.
  5. Back up your important documents off-site: Since computers will be seized and held onto by the CRA investigators, it is important to have off-site or cloud server backup prior to the execution of the search warrant. Similarly, if certain paper records are important to the business, they should be routinely backed up off-site because they will also be seized.
  6. Take notes: When the CRA launches a criminal investigation, the Canadian Charter of Rights and Freedoms is engaged. Accordingly, it is crucial to take note of facts that could be useful to challenge unlawful searches. The notes should include at least the following:
    1. Documents and devices seized by the investigators;
    2. Any defect on the search warrants;
    3. Any communication with the investigators such as objections made and how the investigators responded.
  7. Be cooperative: You should always be respectful to the investigators and remain cooperative. In fact, impeding or obstructing with a search could result in a criminal charge separate from the alleged offence being investigated.


Pro tax tips – How to Prepare For Tax Search Warrants

The decision in Canada Revenue Agency v Royal Canadian Mounted police shows that taxpayers are at a disadvantage once items have been seized by criminal tax investigators. Therefore, it is necessary for business owners to implement a set of procedures to be better-prepared and adopt the practice to isolate privileged documents and to back up paper records and computer files off-site or in the cloud. If an unexpected criminal tax investigator has arrived at your business premise with a search warrant to seize your books and records, contact our tax law firm immediately to speak with one of our experienced Canadian tax lawyers to protect your rights.


"This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer."

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