The Canada Revenue Agency (CRA) can compel a third party to divulge information about its customers, according to a decision released earlier this week by the Federal Court of Appeal (FCA).
In Roofmart Ontario Inc. V Canada (National Revenue), the appellant, Roofmart, a supplier of roofing and building materials, lost its appeal of a Federal Court decision granting a request by the CRA to impose an order on Roofmart to disclose customer information. The request is colloquially known as an “unnamed persons requirement” (UPR) under the Income Tax Act (ITA).
In recent years, the CRA has made it a greater priority to target the “hidden economy” by dedicating more resources toward combatting non-compliance. According to an Ontario Ministry of Labour study cited in the decision, 28% of the construction industry’s economic activity was unreported or underreported, and as much as one-fifth of residential construction takes place unreported.
Roofmart itself was not the subject of a tax audit. The CRA made an UPR application targeting Roofmart customers who spent $20,000 or more between 2015 and 2017, and $10,000 or more in the first six months of 2018. The CRA sought customer names, business numbers, transaction details and banking information, among other data.
The Federal Court granted the UPR, determining that the conditions needed under the ITA — that the person or group being targeted is ascertainable and that the UPR is being made to verify compliance within this group — had been satisfied.
The FCA rejected Roofmart’s three arguments: the application was not brought by a person authorized by statute to do so; that the Federal Court erred in its application of the statutory criteria; and that the Federal Court applied the incorrect burden of proof to its assessment of the application.
The FCA agreed with the Federal Court that the UPR did identify an ascertainable group, and further found that “the fact the UPR may target an unspecified or large number of accounts or that a significant amount of financial information may be captured does not affect its validity. The statutory criteria are not altered by the size of the request.”
In 2017, the Federal Court of Appeal ruled against hardware giant Rona in another UPR initiated by the CRA. Rona sought leave to appeal to the Supreme Court of Canada, but the leave was denied.