An Update on Current Tax Issues and Trends in Canada, delivered November 3, 2011

1. An Update on Current Tax
Issues and Trends
Thursday, November 3, 2011
MONTRÉAL OTTAWA TORONTO CALGARY VANCOUVER NEW YORK CHICAGO LONDON BAHRAIN AL-KHOBAR* BEIJING SHANGHAI* blakes.com
*Associated Office Blake,Cassels & Graydon LLP

2. SEMINAR INDEX
AN UPDATE ON CURRENT TAX ISSUES AND TRENDS
Thursday, November 3, 2011
TAB
Presentation Slides .................................................................................................... 1
Dealing with the Canada Revenue Agency
Ed Kroft, Q.C. and Deborah Toaze
Tax Shelter Rules
Kathleen Penny
Tax Risk Management, Corporate Strategy and Reputational Risk
Chris Van Loan
Speakers Profiles ....................................................................................................... 2
Blakes Tax Group Profile........................................................................................... 3
Tax Bulletin and Article ............................................................................................. 4
“Recent Developments in CRA’s Reach for Information – Questions You Want
Answered”, October 2011
“Proposed Foreign Affiliate Amendments Require Review of Current and Past
Transactions”, August 2011
“Procedural Disputes in Canadian Transfer Pricing and Tax Avoidance Cases –
Are You Prepared?”, January 2011

3. Tab 1

4. An Update on Current Tax
Issues and Trends
Ed Kroft, Q.C.
Kathleen Penny
Deborah Toaze
Chris Van Loan
November 3, 2011
Dealing with the Canada
Revenue Agency
Ed Kroft, Q.C.
Deborah Toaze
Current CRA Mindset
• Desire to “win”
– “winning isn’t everything – it’s the only thing”
attitude
– fights about penalties, extending limitation
periods
– absence of proportionality
• Increased demands for information
– domestic
– foreign-based including exchanges of
information with other tax authorities
1

5. Current CRA Mindset (cont’d)
• Move to risk-based audits of large
corporations
• Collaborative audits both domestically and
internationally
• Possible use of ADR mechanisms
especially in transfer pricing disputes?
CRA Hot Buttons
• Tax “avoidance”/aggressive tax planning
– GAAR (surplus stripping, cross-border
arrangements/FAPI, foreign tax credits)
– use of partnerships and trusts
– high net worth individual audits
– transfer pricing (intangibles, fees,
documentation)
– valuation issues
• Income vs. capital (revenue and expense
side)
CRA Hot Buttons (cont’d)
• Financial institutions
– offshore account reviews
• Industry focus
– pharmaceuticals
– financial institutions
– automotive
– oil and gas
2

6. When Does CRA
Require Information?
• Audit
• CRA appeals
• Competent Authority (MAP) or APA
proceedings
• Court
CRA’s Sources of Information
• Taxpayer, including taxpayer’s website,
annual reports, marketing materials,
publications
• Third parties
• Internet search engines
• Newspapers, magazines, journals
Commonly-Used CRA Information –
Gathering Powers
• Section 231.1 – Inspection Powers
• Section 231.2 – Domestic Requirement
• Section 231.6 – Foreign-based Requirement
• Section 231.7 – Compliance Order
• Tax treaty information exchange provisions
3

7. CRA Inspection Powers
• Section 231.1 – Inspection Powers
– to whom does the provision apply?
• taxpayer?
• third parties?
– what powers are available to CRA?
– what may be examined?
– to what extent must a person comply?
CRA Requirements
• Sections 231.2 and 231.6
– who may require the provision of documents
and information?
– what documents and information may be
demanded?
– who can be required to provide documents
and information and when?
– what are the time frames for complying?
CRA Requirements (cont’d)
• Sections 231.2 and 231.6
– trends in case law
• eBay
– abolition of “Richardson” doctrine – 2007?
4

8. CRA Requirements (cont’d)
• Sections 231.2 and 231.6
– more frequent use of foreign-based
requirements
• key cases
– Saipem
– 1144020 Ontario Ltd.
– when does a requirement constitute a “fishing
expedition”?
Federal Court Compliance Orders –
Section 231.7
• Increase in number of CRA threats to seek a
compliance order where taxpayer does not
provide all requested information
• Basis for compliance order – affidavit evidence
• Taxpayer defences:
– previous compliance
– privilege
• Should court provide further relief – redaction?
limited disclosure?
Treaty-Based Information Requests
• CRA can request information from other
revenue authorities under:
– exchange of information articles in tax treaties
(e.g., Canada-U.S. Treaty Article XXVII)
– exchange of information agreements (TIEA)
with non-treaty countries (Bermuda)
5

9. Fight/Comply Considerations
• Is the request for information a “proper
request”?
– done in compliance with the law
– properly served
• How important is it to win the skirmish?
• Cost?
Fight/Comply Considerations (cont’d)
• Risk of compliance order?
• Real risk of prosecution?
• Subsection 231.6(8) consequences (no
use of information in court) – a real risk?
Fight/Comply Considerations (cont’d)
• Sections 231.2 and 231.6 strategies
– comply? is there any downside?
– try to negotiate compliance with CRA with
respect to information that is not privileged
– fight compliance through judicial review
6

10. Privilege Claims in Respect of Tax
and Non-Tax Materials
• Make a privilege claim if appropriate
– court may be required to make a determination
• Types of privilege
– solicitor-client
– litigation or “solicitor’s brief” privilege
– common interest
• Joint retainers and common interest
retainers – differences?
• How is privilege claimed in a tax context?
7

11. Tax Shelter Rules
Kathleen Penny
What Is a “Tax Shelter”?
• Irrelevant whether or not any tax
avoidance motive and whether or not
investment primarily tax motivated
• Only question is whether reasonable to
consider mathematical formula in section
237.1 of the Income Tax Act would be
satisfied, having regard to “statements or
representations”
The “Tax Shelter” Formula
Total tax Cost of Prescribed
deductions/losses/ > –
property benefits
credits in first 4 years
• If an asset being purchased or sold
meets this formula, “tax shelter” issue
must be fully evaluated
• “Prescribed benefit” includes most
limited recourse or demand debt
1

12. Consequences of “Tax
Shelter” Status
• Registration requirements
• Penalties for seller, “promoters”
• Denial of tax deductions/losses/credits
• Substantive tax impact even if registered,
due to “tax shelter investment” rules in
section 143.2 of Income Tax Act
• Reputation issues
• Failed business deals/investment products
Sale of Partnership Interest
• Sale of partnership interest can be sale of
“tax shelter” even if legitimate
business/investment transaction
• Statement regarding availability of tax
deductions such as accelerated CCA or
resource expenditures
• Financial model showing taxable
income/loss projections
Sale of Partnership Interest (cont’d)
• Legal representations in agreement of
purchase and sale
• Common issue in energy and
infrastructure sectors
2

13. Example: Wind Farm
Project Sale Failure
• Limited partnership with general partner
and one related limited partner owns
recently completed wind farm
• Long-term project financing in place (>10
years) with limited partnership as
borrower, determined to be “prescribed
benefit”
Example: Wind Farm
Project Sale Failure (cont’d)
• Materials provided by seller to prospective
buyers (on a private and confidential
basis) indicate expected CRA claims and
interest expense deductions
• Mathematical formula clearly met; only
issue is whether based on “statements or
representations”
Example: Wind Farm
Project Sale Failure (cont’d)
• CRA refused to issue advance ruling or
provide other comfort
• Tax shelter registration would not solve all
tax issues due to section 143.2 rules
3

14. “Tax Shelter” from Interest Expense
• Statements or representations about
interest expense deductibility can cause
sale of an investment to be a “tax shelter”
• In current interest rate environment, total
interest expense over 4 years likely not
greater than cash property
“Tax Shelter” from Interest Expense
(cont’d)
• However, if combined with “prescribed
benefit” of limited recourse debt (including
ordinary demand debt!), more likely to
meet “tax shelter” formula
Sale of Shares of Corporation
• Purchaser of shares does not itself
become entitled to tax
losses/deductions/credits of target
corporation
• Normally not a “tax shelter” issue
• Take care if target corporation has tax
shelter that purchaser can access by
various means
4

15. Tax Risk Management,
Corporate Strategy and
Reputational Risk
Chris Van Loan
Tax Risk Management Today
• No longer limited merely to corporate tax
compliance
• Increased sophistication in corporate
structures, financing arrangements and
hedging arrangements
• Tax planning and compliance has a much
higher profile
Tax Risk Management Today (cont’d)
• Greater interest of regulators and the public
in tax positions taken by companies
• Growth in the volume of cross-border
activity necessarily increases complexity,
risks and opportunities
• An increase in the scrutiny, co-ordination
and enforcement activities by tax authorities
• Changes in tax accounting standards
1

16. Types of Tax Risk
• Transactional risk – the level of
reassessment risk from entering into
specific transactions
• Operational risk – tax risks arising from
ordinary business operations
• Compliance risk – the filing of returns and
other compliance procedures
Types of Tax Risk (cont’d)
• Accounting risk – reporting tax costs and
benefits in the financial statements of the
organization
• Concentration risk – aggregating the tax risk
from different transactions and business
operations
• Reputational risk – wider concept that concerns
the wider public arena (e.g., shareholders,
customers, regulators, suppliers)
Tax Risk Management and
Corporate Profile
• A business entity must turn its mind to how
tax issues fit within its overall business
strategy
• Tax is a cost of business, and a
corporation and its board owe a duty to
shareholders to minimize costs, including
taxes
2

17. Tax Risk Management and
Corporate Profile (cont’d)
• An aggressive tax strategy may attract the
attention of
– tax authorities
– regulators
– analysts and investors
– the public
• A corporation’s reputation may be affected
by its tax planning strategies and tax-
related activities
Tax Risk Management and
Corporate Profile (cont’d)
• Businesses such as financial institutions
also have to consider their involvement in
tax-related transactions with clients and
how such involvement might affect the
institution’s reputation
Moving Goalposts and
Tax-Related Risk
• Incorporating reputational risk and other
concerns that had not previously been
viewed as part of tax review
• Understanding management’s appetite for
tax risk and also its reputational concerns
3

18. Moving Goalposts and
Tax-Related Risk (cont’d)
• Markets are increasingly expecting greater
transparency from corporations as to the
tax risks and the uncertainties that tax
risks may create
• Increasing attention being paid to a
corporation’s tax planning and corporate
responsibility
Challenges Relating to
Tax Risk Management
• Increasingly sophisticated transactions
• Increase in cross-border
transactions/structures
• Increasingly complex and changing
legislation
Challenges Relating to
Tax Risk Management (cont’d)
• Understanding where tax issues stand in
the overall corporate strategy
• Ensuring that information flows smoothly
and completely among the tax department,
management and the business units of the
organization
4

19. Developing a Tax Risk
Management Policy
• Provides a framework and structure that
can incorporate various sometimes
conflicting objectives
– tax minimization
– corporate responsibility
– tax risk identification
– tax risk evaluation and measurement
– compliance responsibilities
Developing a Tax Risk
Management Policy (cont’d)
• Such a framework around tax issues
ensures better corporate governance and
decision-making
– better tax risk measurement
– managing the corporation’s relationships with
tax authorities
– safeguarding the corporation’s reputation
CRA’s Risk Assessment Approach
to Audit Selection
• CRA will now select audit candidates that
the agency considers more likely to pose a
higher tax compliance risk
• This risk-based selection approach will
apply to large taxpayers
• CRA is in the process of completing risk
evaluation
5

20. CRA’s Risk Assessment Approach
to Audit Selection (cont’d)
• CRA’s new approach is part of a global move to
more formal tax risk profiling by tax authorities
• CRA will look at the guidelines and framework
that a taxpayer has put in place to ensure tax
compliance, the resources devoted to managing
tax risk and how a taxpayer manages the
evaluation of tax risks in major transactions in
determining a taxpayer’s tax risk profile
Increased Tax Authority
Co-operation and Enforcement
• Generally, an increase in the level of
disclosure and tax reporting required by
tax authorities
• Greater co-operation and exchange of
information among the tax authorities of
different jurisdictions
Increased Tax Authority
Co-operation and Enforcement (cont’d)
• The entering into of tax information
exchange agreements, competent authority
agreements
• CRA is working together with the other
countries through the Joint International
Tax Shelter Information Centre
• Greater co-ordination of tax authorities as
evidenced by simultaneous tax audits and
even joint tax audits by some jurisdictions
6

21. Increased Tax Authority
Co-operation and Enforcement (cont’d)
• CRA is also working with the OECD in
targeting offshore and marketed tax
structures
• CRA has devoted more resources and
expertise to international audit work in this
regard
Transactional Risk: What Are the Risk
Components Requiring Management?
• Accuracy of technical analysis
• Ensuring that the risk of reassessment is
quantified and the rewards of entering into
the transaction are justified by taking on
such risk
• Ensuring that such risk of reassessment is
within the organization’s tax risk
management objectives
Transactional Risk: What Are the Risk
Components Requiring Management?
• Ensuring that procedures required to
minimize tax risks are in place and monitored
on a going-forward basis
• Ensuring that the appropriate legal
documentation is in place
• Ensuring that the responsibility for required
tax compliance measures, such as the filing
of elections, is appropriately allocated and
followed up
7

22. Transactional Risk: What Are the Risk
Components Requiring Management?
• Ensuring that the transaction is reflected in
the books of the organization as
contemplated and is accounted for
appropriately
• Does the transaction present reputational
risks that must be evaluated?
Identifying the Particular Components
of Transactional Tax Risk
Technical Analysis Issues
• Have all the relevant issues relating to the
transaction been identified?
• What level of uncertainty is there with
respect to the interpretation or application
of the tax provisions to the particular
transaction?
Identifying the Particular Components
of Transactional Tax Risk (cont’d)
Technical Analysis Issues (cont’d)
• What steps have been taken to ensure
that no other technical issues are present?
• What avoidance provisions might be
applicable?
8

23. Assessing the Particular Components
of Transactional Tax Risk
• Given the magnitude of the tax risk and
the size of the transaction, who must
evaluate the tax risk created by the
transaction?
• Is the organization being appropriately
rewarded for undertaking such risk?
• How are business units being
compensated?
Assessing the Particular Components
of Transactional Tax Risk (cont’d)
• Have compliance and other costs been
built into the model?
• Is a provision relating to an uncertain tax
result required?
• Is the interpretation taken with respect to
this transaction inconsistent with positions
taken on other transactions?
Assessing the Particular Components
of Transactional Tax Risk (cont’d)
• What sort of limitations will be put in place as
to the size and/or number of transactions?
• Who evaluates how the tax risk of this
particular transaction fits into the pool of tax
risks that the organization will face?
• Does the resolution of a potential tax risk
exposure have implications for tax
consequences in another jurisdiction?
9

24. Monitoring the Particular Components
of Transactional Tax Risk
• Have responsibilities for ensuring that the
steps necessary for ensuring the tax
results desired been put in place?
• Have sufficient resources and expertise
been devoted to ensuring that such
monitoring will be able to take place?
Monitoring the Particular Components
of Transactional Tax Risk (cont’d)
• Have steps been taken to ensure that the
information required by those monitoring
will be provided by the relevant business
unit?
• What would be the ramifications of a
change in law or a change in the
administrative position of tax authorities?
Monitoring the Particular Components
of Transactional Tax Risk (cont’d)
• Are those responsible for monitoring these
tax risks feeding back their findings to
management and the board?
• What steps are being taken to ensure that
any change in law or administrative
position that could affect the transaction
would be identified?
10

25. Monitoring the Particular Components
of Transactional Tax Risk (cont’d)
• What role will outside advisers and
auditors play in the monitoring function?
• If the transaction will have an impact upon
the ability of the organization to enter into
other transactions, have steps been taken
to ensure that this restriction is known to
the affected business units?
Tax Risk Management: New
Business or Transaction Review
• What sort of taxation department review
sign-off procedures are in place?
• Is the internal expertise available, and
what is the role of outside advisers?
• Who has responsibility for ensuring that
procedures and controls for the business
line/transaction are in place and abided
by?
Tax Risk Management: New
Business or Transaction Review (cont’d)
• Who is responsible for monitoring changes
in law, administrative positions or material
circumstances?
• How are the level and type of tax risks
aggregated with other tax risks of the
organization?
• What limits on the volume of transactions
expected to be carried out have been set,
and how will the volume affect ongoing
monitoring procedures?
11

26. Tab 2

27. Edwin G. Kroft, Q.C.
Partner
Blake, Cassels & Graydon LLP
Direct 416-863-2500
Facsimile 416-863-2653
ed.kroft@blakes.com
Calgary
Direct 403-260-9699
Facsimile 403-260-9700
Vancouver
Direct 604-631-5200
Facsimile 604-631-3309
Profile
Ed Kroft is a Partner in the Tax Group and leader of our Tax Controversy & Litigation Group. He has
appeared on behalf of clients before the Supreme Court of Canada, the Tax Court of Canada, the Federal
Court of Canada, the Federal Court of Appeal and the Supreme Court of British Columbia and has
represented clients frequently in tax disputes involving Canada Revenue Agency (CRA) and other tax
authorities. He is involved in negotiations with "Competent Authority" in major transfer pricing disputes and
has been, and continues to be, involved in a number of tax cases for major Canadian and multinational
corporations.
The following reported cases listed alphabetically highlight some of Ed's experience:
Agazarian v. Her Majesty The Queen, 2003 TCC 952570; 2004 FCA 32 (limitation periods from loss
carrybacks)
Alberta Wheat Pool v. Her Majesty The Queen, 96 DTC 1795 (TCC), 99 DTC 5198 (FCA) (interest
deductibility)
Canadian Forest Products et al. v. The Minister of National Revenue, 96 DTC 6506 (FCTD)
(demands for third party information)
Collins v. Her Majesty The Queen, 1998 TCC 97648 (medical expense for tuition fees)
HSBC Bank Canada v. Her Majesty The Queen, 2011 TCC 37 (transfer pricing)
HSBC Bank Canada v. Her Majesty The Queen, 2010 TCC 462 (transfer pricing)
HSBC Bank Canada v. Her Majesty The Queen, 2010 TCC 291 (transfer pricing)
HSBC Bank Canada v. Her Majesty The Queen, 2007 TCC 307 (transfer pricing)
Husky Oil Limited v. Her Majesty The Queen, 2010 FCA 125 (corporate reorganization-takeover
bid)
Earl Lipson v. Her Majesty The Queen, 2007 FCA 113, 2009 SCC 1 (GAAR)

28. MacKay et al v. Her Majesty The Queen, 2007 TCC 94, 2008 FCA 105 (GAAR)
Markevich v. Canada, 2003 SCC 9 (SCC) (limitation periods for collection of tax debts)
Perfect Fry Company Ltd. v. Her Majesty The Queen, 2007 TCC 133, 2008 FCA 218 (Crown appeal
dismissed) (control for Canadian-controlled private corporations; appeal of SRED claims)
Royal Trust v. Her Majesty The Queen, 2000 TCC 973757 (capital tax for financial institutions)
Saskatchewan Wheat Pool v. Her Majesty The Queen (2008 TCC 8) (deductible losses following
foreclosure)
Similco Mines v. The Minister of Energy, Mines and Resources, 86 BCAC 63 (S.C.B.C. and
B.C.C.A.) (B.C. mining tax)
Southern Railway of British Columbia Ltd. v. Deputy Minister of National Revenue, 91 DTC 5081
(BCSC) (CRA demands for information - solicitor-client privilege)
Stanfield v. Canada (Minister of National Revenue), 2004 FC 584; 2005 FC 1010; 2007 FC 542
(CRA demands for information)
Stowe-Woodward Inc. v. Her Majesty The Queen, 52 F.I.R. 227 (FCTD) (M&P tax credit)
Univar Canada Ltd. v. Her Majesty The Queen, 2005 TCC 723 (GAAR)
Ed is a member of the Rules Committee of the Tax Court of Canada and the Canadian Bar Association
(CBA) (B.C. Tax Section) - CRA Liaison Committee. He is a former governor of the Canadian Tax
Foundation and a former chairperson for the Tax Subsection of the British Columbia branch of the CBA.
Ed was also a research officer for the House of Commons Standing Committee on Finance and Economic
Affairs during the hearings on the income tax portion of the White Paper on Tax Reform in 1987.
Ed has, for many years, been recognized as a leading lawyer in various surveys and, most recently, in the
following publications:
Chambers Global: The World's Leading Lawyers for Business 2011 as a leading lawyer in the area
of tax litigation
International Tax Review's World Tax 2011 in the area of tax litigation
International Tax Review's Tax Controversy Leaders 2011
Legal Media Group's Guide to the World's Leading Transfer Pricing Advisors 2011
The 2011 Lexpert/American Lawyer Guide to the Leading 500 Lawyers in Canada in the areas of
corporate tax and corporate tax litigation
The 2011 Lexpert Guide to the Leading US/Canada Cross-border Corporate Lawyers in Canada in
the areas of corporate tax and corporate tax litigation
PLC Which Lawyer? 2011 in the area of tax litigation
The Canadian Legal Lexpert Directory 2010, a guide to the leading law firms and practitioners in
Canada, as a leading lawyer in the areas of corporate tax and corporate tax litigation

29. The 2010 Lexpert Guide to the Leading US/Canada Cross-border Litigation Lawyers in Canada in
the area of corporate tax litigation
The Best Lawyers in Canada 2012 in the area of tax law
Legal Media Group's Guide to the World's Leading Tax Advisers 2010
Ed was the 2006 recipient of the Canadian Institute of Chartered Accountants Award for Excellence in
Income Tax Practice and Education for outstanding contribution to the profession and the Canadian Tax
Community. In 2002, he was awarded an honorary CGA designation by the Certified General Accountants
Association of British Columbia for outstanding contributions to the Association. He received a Queen's
Counsel designation in January 2009.
Ed has written more than 60 articles and papers on taxation and corporate law subjects for the Canadian
Tax Foundation and other organizations. He has been an adjunct professor for over 20 years in the Law
Faculty at the University of British Columbia (UBC). Since 2008, Ed has been the course director of tax
administration and litigation at Osgoode Hall Law School (LL.M. program). He was the 2006 recipient of
the Adam Albright Award for Outstanding Teaching in the Law Faculty at UBC. For over 20 years, Ed has
taught tax courses for the Canadian Institute of Chartered Accountants, the Institute of Chartered
Accountants of British Columbia and the Certified General Accountants Association of British Columbia.
He is a member of the Trial Lawyers Association of British Columbia.
Education
Admitted to the Ontario Bar - 2010
Admitted to the Alberta Bar - 2010
Admitted to the British Columbia Bar - 1980
LL.M, University of British Columbia - 1980
J.D., Osgoode Hall Law School - 1978

30. Kathleen V. Penny
Partner, Toronto Office
Blake, Cassels & Graydon LLP
Direct 416-863-3898
Facsimile 416-863-2653
kathleen.penny@blakes.com
Profile
Kathleen Penny practises in the income tax field with the Tax Group. Kathleen is involved primarily in
domestic and international corporate taxation, including mergers and acquisitions, corporate
reorganizations, financings and restructurings, income funds and infrastructure projects. Cross-border
financing structures are a significant component of Kathleen's practice, including securitization, lease and
debt financing and derivatives. In the mergers and acquisitions area, Kathleen is experienced with
exchangeable share structures and advising on appropriate structures for inbound and outbound
investments.
Kathleen's international client base involves her in transfer pricing matters, including establishment of tax-
efficient structures for research and development, compliance with transfer-pricing documentation
requirements and dispute resolution. She also assists clients with the resolution of Canadian domestic tax
audits and disputes at all stages.
Kathleen has written various articles and spoken at different venues regarding cross-border tax issues.
She is a member of the Canadian Bar Association, the Canadian Tax Foundation and the tax section of
the American Bar Association. According to World Tax 2009, a comprehensive guide to the world's leading
tax firms, Kathleen is "well-known for cross-border structuring." She is also recognized as a leading tax
practitioner in Chambers Global: The World's Leading Lawyers for Business 2011 and PLC Which
Lawyer? 2011. In the 2011 edition of The Best Lawyers in Canada, she was voted by peers as one of the
leading tax lawyers in Canada.
Education
Admitted to the Ontario Bar - 1989
LL.B., University of Toronto - 1987
B.Sc., University of Toronto - 1984

31. Deborah Toaze
Partner, Vancouver Office
Blake, Cassels & Graydon LLP
Direct 604-631-5210
Facsimile 604-631-3309
deborah.toaze@blakes.com
Profile
Deborah Toaze is a Partner in the Tax Group and the Tax Controversy & Litigation Group. Her practice
focuses on tax dispute resolution and transfer pricing. She represents taxpayers in tax disputes involving
the Canada Revenue Agency (CRA) at the CRA audit and appeals stages and in Tax Court proceedings.
Deborah's transfer pricing practice focuses on advising clients on the resolution of transfer pricing disputes
and the impact of transfer pricing in the context of mergers and acquisitions. She also advises clients on
the avoidance of transfer pricing disputes.
Deborah joined Blakes in June 2010 from another major national law firm. Deborah has extensive
experience in the taxation of financial institutions and financial products. She previously held tax positions
in industry, including the position of vice-president of taxation at Scotiabank.
Deborah regularly writes on tax matters and speaks at various tax conferences and seminars. She is a
chartered accountant and a member of the Canadian Bar Association and the Canadian Tax Foundation.
Education
Admitted to the British Columbia Bar - 2005
J.D., University of Toronto - 2004
LL.M., Osgoode Hall Law School - 2001
M.B.A., McMaster University - 1976
B.A., Queens University - 1974

32. Chris Van Loan
Partner, Toronto Office
Blake, Cassels & Graydon LLP
Direct 416-863-2687
Facsimile 416-863-2653
chris.vanloan@blakes.com
Profile
Chris Van Loan practises income taxation law and provides tax advice on a variety of domestic and cross-
border transactions, including financings, corporate reorganizations, acquisitions and divestitures,
particularly those involving foreign affiliates and outbound structures. He has also acted for numerous
domestic and foreign financial institutions with respect to a wide range of issues, including the taxation of
global trading, derivatives, securities lending and other capital market transactions.
Chris has written numerous articles and spoken at various seminars and conferences concerning domestic
and international tax issues. He is a member of the Canadian Bar Association, the Canadian Tax
Foundation and the International Fiscal Association. He was noted in World Tax 2009, a comprehensive
guide to the world's leading tax firms, for his skills in the taxation of capital market transactions and
financial products. The Best Lawyers in Canada 2011 lists him as one of the leading tax lawyers in
Canada. He is also ranked as a leading tax practitioner in Chambers Global: The World's Leading Lawyers
for Business 2010.
Before joining Blakes, Chris held the position of executive director of corporate finance in the financial
products division at CIBC World Markets. Prior to that, he was also senior in-house counsel in the taxation
division of Canadian Imperial Bank of Commerce. In those roles, he structured various transactions and
provided tax advice concerning derivative products, corporate and structured finance transactions, foreign
affiliates and global trading activities.
Education
Admitted to the Ontario Bar - 1987
LL.B., Osgoode Hall Law School - 1985

33. Tab 3

34. Tax
Overview Caterpillar Financial Services Limited on its Fleet Leasing Receivables Trust in its
Members of the Tax Group are national leaders filing of a base shelf prospectus in all of the C$363-million offering of asset-backed notes
in all areas of tax, including corporate income provinces of Canada to renew its originated by PHH Vehicle Management
tax, international tax, restructuring, corporate C$1.5-billion medium term note program. Services Inc.
finance, structured finance, taxation of Ford Credit Canada Limited on its successful Cliffs Natural Resources in its
investment funds, private equity and resource Québec Court challenge of C$1.2-billion of C$240-million contested acquisition of
taxation. The Blakes Commodity paid-up capital. Freewest Resources Canada Inc. and its
Tax & Customs Group has unparalleled US$54-million contested acquisition of Spider
expertise in customs, sales tax, and goods Telefonaktiebolaget LM Ericsson on its
Resources Inc.
and services tax legislation. The Blakes US$1.13-billion purchase of Nortel Networks
Tax Controversy & Litigation Group has Corporation’s Code Division Multiple Access T&T Supermarkets Inc. and its shareholders
the experience and expertise necessary to business and Longer Term Evolution Access on the acquisition of T&T by Loblaw
effectively represent our clients’ interests assets. Companies Limited for C$225-million.
opposite the tax authorities at all levels, Gateway Casinos & Entertainment Limited P Glatfelter Company on its
.H.
including in the courts. on its C$1-billion restructuring pursuant to US$234-million acquisition of Concert
Blakes represents numerous U.S. and a plan of arrangement under the Canada Industries Corp.
other non-Canadian clients. The Firm’s tax Business Corporations Act.
H&R Real Estate Investment Trust in its
expertise has been instrumental in assisting TransCanada Pipelines Limited in its C$230-million public offering of debentures.
both Canadian and international businesses US$1-billion at the interim stage formation of
as they operate in multiple jurisdictions. C&C Energia Ltd. on its C$211-million
an interim project joint venture and related
Blakes provides comprehensive advice in reorganization and the C$100-million initial
agreements with Exxon.
the most efficient manner to enable our public offering and secondary offering of its
clients to structure and finance their Canadian Genworth Financial Inc. on the initial public common shares.
operations with regard to both domestic offering of its Canadian mortgage insurance
Macquarie Long Term Care LP in its
and international tax considerations. We also business, under which Genworth Financial
approximately C$190-million sale of the
represent multinationals with operations in sold a minority interest in the business for
Leisureworld seniors housing business to
Canada facing cross-border tax controversies C$945-million.
Leisureworld Senior Care Corporation (LSCC)
in their dealings with the Canadian revenue The syndicate of underwriters on each of the in connection with the initial public offering of
authorities. US$750-million and US$700-million cross- LSCC.
border offerings of notes by Teck Resources
Premium Brands Income Fund in its
Representative Matters Limited.
agreement with Premium Brands Holdings
Suncor Energy Inc. on its C$44-billion merger Progress Rail Services on its C$820-million Corporations pursuant to Premium Brands’
with Petro-Canada. acquisition of Electro-Motive Diesel. conversion from an income trust structure to a
corporation for C$175-million.
ConocoPhillips Canada on the Randgold Resources Limited in its
C$4.65-biillion sale of its interest in the C$578-million acquisition of Moto Goldmines Roark Capital Group on its C$144-million
Syncrude oil sands joint venture to Sinopec. Limited. acquisition of Pet Valu, Inc. and Pet Valu
Canada Inc.
Nestlé S.A. on its US$3.7-billion acquisition of CI Financial Corp. on its C$550-million initial
the frozen pizza business from Kraft Foods. public offering of debentures. Mansef Group on its US$135-million
disposition of substantially all of their assets
Citi Cards Canada Inc. in its C$2-billion sale Capital Power Corporation on its initial
as well as the shares of Webexpansion Cyprus
of its Canadian MasterCard business. public offering of C$500-million of common
Ltd. and certain other affiliates to Virage Media
shares to finance the privatization of the power
Citigroup Inc. on its sale of the Diners Club Group.
generation business of EPCOR Utilities Inc.
North American credit card business to Ceres Global Ag Corporation on its
BMO Financial Group. A consortium regarding the C$470-million
US$132-million acquisition of common
financing of the Centre Hospitalier de
Ontario Power Generation (OPG) on its shares of Whitebox Commodities Holdings
l’Université de Montréal project.
C$2.6-billion financing to redevelop existing Corporation.
OPG hydroelectric generating assets on the
Lower Mattagami River in northern Ontario.
Continued on reverse
MONTRÉAL OTTAWA TORONTO CALGARY VANCOUVER
NEW YORK CHICAGO LONDON BAHRAIN AL-KHOBAR* BEIJING SHANGHAI* blakes.com
* Associated Office Blake, Cassels & Graydon LLP | November 2011

35. Blakes tax lawyers are recognized globally as instrumental advisers to Canadian and international businesses. With an emphasis
on practical approaches to complex international tax problems, Blakes has developed a strong platform in all of Canada’s
major business centres. From international tax planning and cross-border mergers and acquisitions to multi-jurisdictional
reorganizations and cross-border tax controversies, Blakes provides ready access to top-tier international tax advice.
Macquarie Power & Infrastructure Income North America Tax Directors Poll, International Canadian Association of Importers and
Fund on its C$130-million acquisition Tax Review, March and May 2011 - Exporters
of SunPower Corp.’s 20-megawatt solar Canadian Finance & Leasing Association
photovoltaic power project in Amherstburg, For the fourth consecutive year, Blakes was Canadian International Trade Tribunal Bench
Ontario. ranked in the top tier for both the transactional and Bar Committee
work and tax planning surveys for Canada. Canadian Institute of Chartered Accountants
Oakville Hydro Corporation on its
US$130-million sale of Blink Communications The Best Lawyers in Canada 2011 - Nine Canadian Petroleum Tax Society
Inc. to Rogers Communications Inc. Blakes tax lawyers listed.
Canadian Tax Foundation
Talison Lithium Limited in connection with The 2011 Lexpert/American Lawyer Guide
its C$47.9-million acquisition and related to the Leading 500 Lawyers in Canada – Committee on Taxation of Business Entities,
C$40-million private placement of Salares Three Blakes tax lawyers named as leading New York City Bar
Lithium Inc., and concurrent TSX listing, to practitioners. Federal Minister’s Advisory Committee on Tax
form a C$327 .4-million TSX-listed lithium Administration
Legal Media Group’s The Best of the Best
producer.
2011 - Blakes tax lawyer listed in the area of International Bar Association
Growthworks Capital Ltd. on its proposed transfer pricing. International Fiscal Association
merger with Seamark Asset Management to
The Canadian Legal Lexpert Directory 2011 - Inter-Pacific Bar Association
create C$3-billion asset manager.
For nine consecutive years, Blakes has been
James Richardson & Sons Ltd. and recognized as a leading law firm in the area of Joint Committee on Taxation, Canadian
Richardson Financial Group on its merger of corporate tax. Bar Association and Canadian Institute of
its wealth management business with Chartered Accountants
PLC Which Lawyer? 2011 - Blakes Tax Group
GMP Capital and its related acquisition of National Association of Stock Plan
has been endorsed as a leading law firm in
GMP Capital public stock. Professionals
the area of tax and tax litigation. Nine Blakes
A consortium in a bid to finance, design and lawyers are listed in the area of tax. One National Tax Section, Canadian Bar Association
construct the new Glen Campus of the McGill Blakes tax lawyer is listed in the area of tax
Quebec Tax Section, Canadian Bar Association
University Health Centre project. litigation.
Ontario Business Advisory Council
Earl Lipson v. Her Majesty The Queen. This International Tax Review’s Tax Controversy
case dealt with the interpretation by the Leaders 2011 – Seven Blakes lawyers have Toronto Centre Canada Revenue Agency &
Supreme Court of Canada of the general anti- been listed as leading tax dispute resolution Professionals Consultation Group
avoidance rule and the deductibility of interest lawyers. Tax Executives Institute
expense.
Law Business Research’s The International Taxation Section, Ontario Bar Association
Husky Oil Limited v. Her Majesty The Queen. Who’s Who of Business Lawyers 2010 - For
This case dealt with the application and the last six years, three Blakes lawyers have
Contact Details
interpretation by the Federal Court of Appeal been selected as leaders in the area of tax.
of certain rollover provisions of the Income Tax For more information on the Blakes Tax Group,
Legal Media Group’s Guide to the World’s
Act in connection with the Husky take-over bid please contact:
Leading Tax Advisers 2010 - Five Blakes tax
of Mohawk.
lawyer listed. TORONTO
Legal Media Group’s The Best of the Best Jeffrey Trossman
Industry Recognition
2010 - Blakes tax lawyer listed in the area of Direct: 416-863-4290
International Tax Review’s Americas Tax tax. jeffrey.trossman@blakes.com
Awards 2010 - For the fourth consecutive year,
Legal Media Group’s Women in Business Law MONTRÉAL
Blakes was named “Tax Firm of the Year”
2010 - Blakes tax lawyers listed.
for Canada. Blakes was also named “North Jean Gagnon
America Tax Disputes Firm of the Year” for the Legal Media Group’s Guide to the World’s Direct: 514-982-5025
first time. Transfer Pricing Advisers 2009 - Two Blakes tax jean.gagnon@blakes.com
lawyers listed.
Chambers Global: The World’s Leading CALGARY
Lawyers for Business 2011 - The Blakes Tax
Group is ranked in Band 1 with 10 lawyers Professional Activities Edward Rowe
listed. Direct: 403-260-9798
Members of the Tax Group have spoken at edward.rowe@blakes.com
World Tax 2011, Supplement to the and held key leadership positions in various
International Tax Review - For the third organizations and committees in the Canadian VANCOUVER
consecutive year, Blakes Tax Group was and international tax field, including: Bruce Sinclair
ranked in Tier 1 for Canada. Direct: 604-631-3382
American Bar Association
bruce.sinclair@blakes.com
MONTRÉAL OTTAWA TORONTO CALGARY VANCOUVER
NEW YORK CHICAGO LONDON BAHRAIN AL-KHOBAR* BEIJING SHANGHAI* blakes.com
* Associated Office

36. Tab 4

37. RECENT DEVELOPMENTS IN CRA’S
REACH FOR INFORMATION
- QUESTIONS YOU WANT ANSWERED
ED KROFT, Q.C.
416-863-2500 (Toronto)
403-260-9699 (Calgary)
604-631-5200 (Vancouver)
ed.kroft@blakes.com

38. TABLE OF CONTENTS
Page
I. INTRODUCTION.............................................................................................................................1
II. BOOKS AND RECORDS: WHAT QUALIFIES AND WHAT DOES NOT FOR
STATUTORY PURPOSES? ...........................................................................................................1
A. General Comments ............................................................................................................1
B. Some Tips for Taxpayers Regarding What Can Be Kept and Discarded..........................2
III. HOW BROAD IS THE SCOPE OF CRA POWERS TO OBTAIN DOMESTIC AND
FOREIGN-BASED INFORMATION FOR INCOME TAX PURPOSES?.........................................3
A. Inspection - Section 231.1 .................................................................................................3
1. Introduction ...........................................................................................................3
2. Who May Enter The Premises? ............................................................................3
3. Where Is This Person Permitted To Enter? ..........................................................4
4. When May The Authorized Person Enter The Premises?....................................4
5. For What Reason May An Authorized Person Enter Premises?-
Administration and Enforcement of the Act ..........................................................4
6. What Are The Powers Available To CRA Under Section 231.1? .........................5
7. What May Be Examined? .....................................................................................6
8. To What Extent Must a Person Comply?..............................................................6
B. Provision of Documents or Information - Sections 231.2 and 231.6 .................................7
1. Introduction ...........................................................................................................7
2. Who May Require the Provision of Documents and Information?........................7
3. What May Be Demanded?....................................................................................7
3.1 “Fishing Expeditions” and Ex-Parte Orders –
Subsection 231.2(3) .................................................................................8
a. Criteria.........................................................................................8
b. Caselaw ......................................................................................9
c. Abolition of “Richardson” Doctrine -2007..................................10
4. Who Can Be Required to Provide Documents and Information? .......................11
5. How Must the Requirement be Made? ...............................................................11
6. To What Extent Must a Person Comply with the Requirement to Provide
Documents or Information?.................................................................................11
7. Judicial Review of Section 231.6 Requirements.................................................12
8. More Frequent Use of Foreign-Based Requirements – Section 231.6...............12
8.1 Saipem ...................................................................................................12
8.2 1144020 Ontario Ltd ..............................................................................14
8.3 Will Anything be “Unreasonable” for Purposes of Subsection
231.6(5)?................................................................................................16
-i-

39. TABLE OF CONTENTS
(continued)
Page
IV. RESISTING THE REACH: WHAT ARE SOME LIMITS ON THE EXERCISE BY CRA OF
ITS POWERS (RELEVANCE, LEGAL PRIVILEGE, NON-COMPLIANCE WITH
PROCEDURAL SAFEGUARDS, THE CHARTER)? ....................................................................17
A. Overview ..........................................................................................................................17
B. Statutory Limitations Within The Act ................................................................................18
1. Exemptions From Reporting and Records Destruction ......................................18
2. Solicitor-Client Privilege ......................................................................................18
C. Statutory Limitations Outside Of The Act - The Canadian Charter of Rights and
Freedoms .........................................................................................................................18
D. Intervention By The Courts ..............................................................................................18
1. Strict Compliance With The Procedural Requirements of the Act ......................19
2. Protection of Privileged Communications ...........................................................19
3. Protection of Correspondence in Contemplation of Settlement – “Without
Prejudice” Communications ................................................................................19
E. Solicitor-Client Privilege ...................................................................................................21
1. What Is Solicitor-Client Privilege?.......................................................................21
2. Legal Professional Privilege................................................................................22
3. Litigation Privilege (also sometimes called “Solicitor’s Brief” privilege) ..............22
3.1 Differences From Solicitor-Client Privilege ............................................22
3.2 What Does Litigation Privilege Cover? ..................................................22
4. Privilege And Confidentiality ...............................................................................23
5. Whose Privilege? ................................................................................................24
6. Where Can Privilege Be Claimed? .....................................................................24
7. Loss Of Privilege .................................................................................................24
8. Common Interest Privilege..................................................................................26
9. Types of Privileged Communications..................................................................28
10. Non-Privileged Communications.........................................................................29
11. How Is Solicitor-Client Privilege Claimed?..........................................................30
12. Precautions to Maintain Privilege........................................................................31
V. HOW DO YOU FORMALLY CONTEST SEEMINGLY ABUSIVE/ILLEGAL
REQUESTS/DEMANDS FOR INFORMATION? ..........................................................................32
A. Overview – Contest or Not?.............................................................................................32
B. Disclosure of Information to be Used in a Criminal Proceeding ......................................32
VI. FACING THE INCREASED THREAT BY THE CRA TO SEEK COMPLIANCE ORDERS
UNDER SUBSECTION 231.7 - WHAT ARE THE PRACTICAL WAYS TO HANDLE
THIS? ............................................................................................................................................33
-ii-

40. TABLE OF CONTENTS
(continued)
Page
A. Process ............................................................................................................................33
B. Some Defences?..............................................................................................................33
VII. DEMANDS FOR THIRD PARTY INFORMATION FROM ACCOUNTANTS – WHAT
CROSSES THE LINE? .................................................................................................................33
A. Request under Section 231.1 As Opposed to a Requirement Under Section
231.2 or 231.6 ..................................................................................................................33
B. Audit Working Paper Requests........................................................................................34
1. CICA Task Force.................................................................................................34
2. CRA Policy Statement – May 31, 2010 – “Acquiring Information From
Taxpayers, Registrants and Third Parties” .........................................................35
3. CICA Response ..................................................................................................36
4. Court Challenges ................................................................................................37
C. Accountants And “Privilege”.............................................................................................37
1. The Common Law...............................................................................................37
2. The “Agent” Doctrine - Susan Hosiery and Southern Railway Decisions...........38
VIII. IN WHAT CIRCUMSTANCES IS THE CRA ENTITLED TO REASSESS BEYOND THE
NORMAL REASSESSMENT PERIOD AND STILL LAWFULLY ASK FOR
INFORMATION? ...........................................................................................................................39
A. General Rule: Limited Right of Reassessment (Subsections 152(4), (4.01) and
(5))....................................................................................................................................39
B. “Normal Reassessment Period”.......................................................................................40
C. Extraordinary Reassessment Periods..............................................................................40
1. Misrepresentation or Fraud: Forever ..................................................................40
1.1 Misrepresentation ..................................................................................41
1.2 Attributable to Neglect, Carelessness or Wilful Default .........................42
1.3 As a Defence, Can You Rely on Hiring Your Accountant to File
the Tax Return? .....................................................................................44
1.4 Summary................................................................................................45
2. Six or Seven Years? ...........................................................................................46
3. Request by Taxpayer - Subsection 152(4.2) ......................................................47
4. Reassessment After The Filing or Resolution of An Appeal – Subsection
152(4.3)...............................................................................................................47
5. Waivers ...............................................................................................................47
5.1 Content...................................................................................................47
5.2 Signature................................................................................................48
5.3 Waivers and The Extended Reassessment Period ...............................48
-iii-

41. TABLE OF CONTENTS
(continued)
Page
5.4 Revocation of Waivers – Subsection 152(4.1).......................................48
5.5 Strategies Regarding Waivers ...............................................................48
6. Tax Shelter Assessments ...................................................................................49
7. Notification That No Tax is Payable - Any Limitation Period? ............................49
8. Reassessment During or Resulting From Objection/Appeal Process ................50
8.1 Reassessment After Objection – Subsection 165(3) .............................50
8.2 Reassessment and Settlement of an Appeal – Subsection 169(3) .......50
9. Continental Bank and Subsection 152(9) ...........................................................50
10. Treaty-Based Limitation Periods.........................................................................51
11. Increase of Tax By The Minister Upon Subsequent Reassessment ..................51
12. Loss Determination (Subsections 152(1.1) and (1.2)) ........................................51
13. Determinations of Refundable Investment Tax Credits (“ITCs”).........................52
IX. IS THERE A LEGAL RIGHT TO RESIST THE PROVISION OF
INFORMATION/DOCUMENTS RELATING TO PERIODS BEYOND THE OTHERWISE
APPLICABLE LIMITATIONS PERIOD FOR REASSESSMENT? ................................................52
-iv-

42. RECENT DEVELOPMENTS IN CRA’S REACH FOR INFORMATION
- QUESTIONS YOU WANT ANSWERED
I. INTRODUCTION
Governments around the world need to finance public expenditures and accordingly need money.
Therefore, more efficient and persistent pursuit of verification and enforcement of tax obligations is
occurring. Canada is no exception. The Canada Revenue Agency (“CRA”) wants information to assess or
reassess and is using a variety of powers to obtain it, and will not hesitate to rely upon court orders to
compel the delivery of it.
This paper addresses the scope of CRA’s powers, the limitations on their exercise and the trends in this
regard. The paper first reviews briefly the scope of “books and records” available to the CRA before
proceeding to discuss the powers and respective limitations.
This paper does not address the means by which information is compelled by the Crown during court
proceedings. Generally, this occurs through the discovery process in the Tax Court of Canada. As a
general comment, one cannot assume that documents or information not obtained during a tax audit will
remain free from compellability should the matter become the subject of Tax Court proceedings. ‘
II. BOOKS AND RECORDS: WHAT QUALIFIES AND WHAT DOES NOT FOR STATUTORY
PURPOSES?
A. General Comments
Taxpayers are required under section 230 of the Income Tax Act (the “Act”) to keep “records” and “books
of account”. A taxpayer’s records and books of account must be in a form, and contain information, that
will enable the taxes payable under the Act, or the taxes or other amounts that should have been
deducted, withheld or collected under the Act, to be determined. This is known as the “tax determination
purpose”. Persons who are subject to these record-keeping requirements must keep books and records,
together with supporting vouchers, for six years (unless a different retention period is specifically
prescribed). This retention obligation does not apply to all books and records, but only to those books and
records that are “referred to in this section” (i.e. section 230). The CRA can require a person to keep
specified records and books of account, but only where it has otherwise failed to keep adequate records.
Regulation 5800 and CRA Information Circulars 78-10R5 and 05-1R1, as well as case law to a limited
extent, have historically provided some guidance on the records that a taxpayer was expected to keep
and retain.
The expression, “Books of Account”, is considered by accountants to refer a book or record in which the
operations and transactions of the business are recorded in monetary terms and which forms part of an
accounting system. “Record” was not defined in the Act until June 18, 1998 (although “document” was
and is) but in one case it was held to be wide enough an expression to embrace “accounting records” as
defined by the CICA, i.e. “the formal books of account and supporting documentary evidence”. Thus
before June 18, 1998, “record” historically included a broad range of documents which furnished detailed
information about transactions, stated the terms of contracts, and served as evidence of the propriety of
accounting entries. Most tax advisors would have excluded tax planning memos from the historical ambit
of “records”.
Legislation in force as of June 18, 1998 created a new statutory definition of a record which includes: an
account, an agreement, a book, a chart or table, a diagram, a form, an image, an invoice, a letter, a map,
a memorandum, a plan, a return, a statement, a telegram, a voucher, and any other thing containing
information, whether in writing or in any other form. The new definition of “records” likely created an
obligation to retain a greater volume of paper, including duplicate or redundant documentation. The
legislation did not impose a positive obligation on taxpayers to create new documentation or require that

43. -2-
tax planning analysis or memoranda be retained. Of significance to all stakeholders in the tax dispute
resolution process is the extent to which documents can be “culled”, and when. This is discussed below.
B. Some Tips for Taxpayers Regarding What Can Be Kept and Discarded
The leading article on the subject of books and records and the related scope of CRA’s powers remains
that of my friend and former partner Michael Quigley written in 1999. See Michael G. Quigley,
“Controlling Tax Information: Limits to Record-Keeping and Disclosure Obligations,” (1999), vol. 47, no. 1
Canadian Tax Journal, 1-48. I have borrowed from and revised some of his tips for taxpayers.
If a taxpayer does not have a formal records retention policy it should establish one NOW, and if
established, the taxpayer should review it carefully and, if possible, control it centrally.
The taxpayer should limit the number of people in its organization who get copies of potentially sensitive
memoranda or documents to the real “need to know” group.
Formal documentation that evidences agreements or implements transactions must be retained but
progressive drafts of documents need not be.
It is the final documentation of agreements or transactions that shows what was done, and which enables
the amount of tax owing to be determined. The taxpayer, and its accountants, lawyers, and other
professional advisors should undertake a formal post-closing records retention review, having regard to
the “records” definition, and discard all items that are not needed to meet the “tax determination” purpose.
Internal tax analysis memoranda must be tested and purged against the “tax determination” purpose. Tax
results stand or fall on what was done, not on what someone may have thought was done, or their
analysis or opinion of what the tax result should be. The taxpayer’s records retention obligation does not
require that the taxpayer do CRA’s job, or let the CRA know what the strong and weak points in the
taxpayer’s position may be.
If the taxpayer’s internal memoranda contain information that you conclude must be retained to meet the
“tax determination” purpose, rather than deleting portions of an existing memo, create a new specific
memo to contain only the required information and exclude all non-required information. Taxpayers
should consider up front what records will need to be retained, and create specific items from the outset
which meet record retention obligations.
Generic tax proposal promotional materials, of the type that many accounting, legal and investment
banking firms generate, are not records that would generally meet the “tax determination” purpose, and
should not be retained in the file.
Taxpayers should recognize that the ability to purge files of non-essential records will cease once CRA
makes any request for information in the course of an audit or issues “requirements”. Taxpayers can
avoid that “death bed repentance” and clean files out as part of their “post-closing” routine.
Taxpayers should work together with lawyers and accountants as much as possible to plan for the
manner in which advice will be sought or received to avoid compellability and enable advice to be subject
to solicitor-client privilege.
For those documents and records subject to solicitor-client privilege, a taxpayer, its accountants and its
lawyers should protect the entitlement to confidentiality by ensuring that documentation likely to be
embraced within the privilege, whether in the taxpayer’s files or those of the accountants or lawyers, is
clearly marked as privileged and confidential and is segregated and held for safekeeping by the
taxpayer’s lawyers. Access to these documents should be restricted to authorized individuals only so as
to maintain the privilege and protect against waiver.

44. -3-
For additional discussion, see also Andrew Kalamut, “Record Retention Policies as a Strategy to Limit
Exposure on Audit”, McCarthy Tétrault on Tax Disputes, Report #58 (March, 2011: CCH); and Robert
Arkin, ““Don’t Shred the Minute Book” and Other Practical Tips for Tax-Compliant Corporate Record
Management,” 2009 Atlantic Provinces Tax Conference, (Halifax: Canadian Tax Foundation, 2009),
6B:1-18.
III. HOW BROAD IS THE SCOPE OF CRA POWERS TO OBTAIN DOMESTIC AND FOREIGN-
BASED INFORMATION FOR INCOME TAX PURPOSES?
The Act gives CRA four investigative powers:
• inspection;
• requirement of domestic and foreign-based documents and information;
• search and seizure; and
• inquiry.
This paper will only discuss the first two powers as they are commonly used in non-criminal tax audits by
the CRA.
A. Inspection - Section 231.1
1. Introduction
Section 231.1 sets out various powers available to CRA that are normally used in the course of a field
audit. Generally speaking, auditors on the staff of the Taxation Services Office visit the offices of
taxpayers to assemble information about the affairs of one or more taxpayers. For simplicity, the analysis
has been broken down into the following categories:
• Who may enter the premises?
• Where is the person permitted to enter?
• When may the authorized person enter the premises?
• For what reason may an authorized person enter premises?
• What are the specific inspection powers available to CRA under section 231.1?
• What may be examined?
• To what extent must a person comply?
2. Who May Enter The Premises?
Any person authorized by the Minister of National Revenue may do so. This includes the Commissioner
of Revenue, who may exercise all powers and perform all duties of the Minister under the Act.
Subsection 220(2.01) permits the Minister to delegate his powers and duties under the Act to an officer or
class of officers in the CRA. This replaces the former requirement under paragraph 221(1)(f) that such
delegation be done by regulation (former Regulation 900).

45. -4-
3. Where Is This Person Permitted To Enter?
An authorized person may only enter premises or places where:
• any business is carried on;
• any property is kept;
• anything is done in connection with any business; or
• any “books or records” (likely those under section 230) are or should be kept.
Yet if any premises or place constitutes a “dwelling-house” (as defined in section 231), an authorized
person may not enter that dwelling-house without the consent of the occupant except under the authority
of a warrant authorizing the person to enter the dwelling-house. Under subsection 231.1(3), a “Judge”
(as defined in section 231) shall issue a warrant following an ex parte application when he is satisfied by
information on oath of the following factors:
• there are reasonable grounds to believe that a dwelling-house is a premises or place
where any business is carried on, any property is kept, anything is done in connection
with any business or any records or books are or should be kept;
• entry into a dwelling-house is necessary for any purpose relating to the “administration or
enforcement of the Act” (see 5 below); and
• entry into the dwelling-house has been refused or there are reasonable grounds for
believing that it will be refused.
Should the Judge refuse to issue a warrant because the Judge believes that entry is not necessary for
any purpose relating to the administration and enforcement of the Act, the Judge may:
• order the occupant to provide reasonable access to CRA to any document or property
that is or should be kept in the dwelling-house; or
• order other things as are appropriate in the circumstances to carry out the purposes of
the Act;
to the extent that access has been or may be expected to be refused and the document is or may be
expected to be kept in the dwelling-house.
4. When May The Authorized Person Enter The Premises?
The authorized person under section 231.1 may do so at all “reasonable” times. Usually an auditor will
contact the taxpayer to arrange a convenient date to commence the field audit. However, there is no
guarantee that an auditor or officer from Investigations (i.e. the “Tax Police”) will not show up at any time
during business hours without warning to examine books and records to obtain information about any
taxpayer.
5. For What Reason May An Authorized Person Enter Premises?- Administration and Enforcement
of the Act
The CRA auditor may do so “for any purpose related to the administration or enforcement of [the] Act”.
This expression has been defined in a number of cases. These cases include:

46. -5-
• Canadian Bank of Commerce v. A-G Canada 62 D.T.C. 1237 (S.C.C.);
• James Richardson & Sons v. The Queen 82 D.T.C. 6204 (F.C.A.);
• R. v. Bruyneel 86 D.T.C. 6119 (B.C.C.A.);
• McKinley Transport 90 D.T.C. 6243 (S.C.C.);
• Canadian Forest Products et al. 96 D.T.C. 6506 (F.C.T.D.);
• AGT Limited 96 D.T.C. 6388 (F.C.T.D.), affirmed 97 D.T.C. 5189 (F.C.A.);
• Federation de Caisse Populaire Desjardins (Sept. 19, 1995, unreported Q. Sup. Ct.); and
• Greater Montreal Real Estate Board 2007 FCA 346.
In brief, these cases establish that the phrase means that the Minister would have to satisfy a Court that
there is an inquiry either to determine the tax liability of a specific person(s) or to verify compliance with
the Act by identifiable persons.
In a recent decision, R. v. He 2011 BCSC 368, the British Columbia Supreme Court confirmed that the
test enunciated in Richardson in the context of section 231.2 of the Act applied equally to section 231.1,
and that the latter provision is only available to the Minister to obtain information relevant to the tax
liability of some specific person or persons if the tax liability of such person or persons is the subject of a
“genuine and serious inquiry”. The person or persons do have to be named, and it is not sufficient if
information is sought about a specific class of persons. The He decision is under appeal to the BC Court
of Appeal which commented, on August 29, 2011, that the future appeal will determine whether the
appeals judge in the first instance was correct in holding that Richardson still has application. The paper
comments later on how the principles in Richardson were found, in 2007 in Greater Montreal Real Estate
Board, to be no longer applicable under section 231.2 because of changes to the wording of that
provision.
6. What Are The Powers Available To CRA Under Section 231.1?
A CRA auditor may exercise the following powers:
• inspect, audit, or examine the books and records of a taxpayer and any document of the
taxpayer or of any other person that relates or may relate to the information that is or
should be in the books or records of the taxpayer or to any amount payable by him under
the Act;
• examine property in an inventory of a taxpayer or any property or process of or matter
relating to the taxpayer or any other person, an examination of which may assist the
authorized person in determining the accuracy of the inventory of the taxpayer;
• examine property in an inventory of a taxpayer or any property or process of or matter
relating to the taxpayer or any other person, an examination of which may assist the
authorized person in ascertaining the information that is or should be in the books or
records of the taxpayer or any amount of any tax payable by the taxpayer under the Act;
• require the owner or manager of the property or business and any other person on the
premises or place (of business) to give the authorized person all reasonable assistance,

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and to answer all proper questions relating to the administration or enforcement of the
Act;
• require the owner or manager of the property or business to attend at the premises or
place with the authorized person; and
• make one or more copies of any document (including print outs of electronic documents),
property in an inventory, or any property or process or matter relating to the taxpayer or
any other person.
7. What May Be Examined?
An auditor may review “books or records” of the taxpayer or “documents” of the taxpayer or any other
person. “Documents” include money, a security and a record. As discussed above, a “record” is defined
by the Act to include “an invoice, account, book, agreement, chart or table, diagram, image, map,
memorandum, plan, return, voucher, letter, telegram, statement (financial or otherwise) and any other
thing containing information (whether in written or any other form)” that relates or may relate to the
information that is or should be in the books or records or that relates or may relate to the amount of tax
payable by the taxpayer under the Act and also includes computerized information. The CRA auditor
may also examine property in an inventory or any property, process or matter relating to the taxpayer or
any other person which may assist in determining the accuracy of inventory of the taxpayer or in
ascertaining the information that should be in the books or records of the taxpayer or any amount payable
by him under the Act.
It is debatable whether documents such as tax planning memoranda fall within any of these categories.
The documents contemplated should be those which permit the taxes payable or the taxes or other
amounts to be collected, withheld or deducted by a person to be determined.
8. To What Extent Must a Person Comply?
A taxpayer or the affected person has certain responsibilities:
• no hindering, interfering or molesting to prevent proper copying, proper audit, proper
examination or proper inspection under section 231.1;
• no prevention of or attempt to prevent these activities; and
• the provision of “all reasonable assistance” and the response to “all proper questions”.
Subsection 231.5(2) provides that a taxpayer shall comply unless he is “unable to do so”. There is no
definition of this phrase in the Act and there has been little discussion in the case law: R. v. Bourassa,
[1968] C.T.C. 412 (B.C.S.C.); R. v. Arvai, [1977] C.T.C. 263 (Ont. Prov. Ct.); Muir v. The Queen, [1979]
C.T.C. 259 (Ont. Co. Ct.). Generally speaking, a duty of confidentiality owed to a client or former client or
employer will not override the obligation to comply (see the discussion of solicitor-client privilege, below).
Physical infirmity or inaccessibility should provide sufficient excuse.
There has been little discussion in the case law of what constitutes “reasonable assistance”. In MNR v.
Potoroyko 83 D.T.C. 5113 (Sask. Prov. Ct. ) and MNR v. Rolbin (1982, unreported) it was interpreted as
such assistance as is reasonable in the circumstances to enable the authorized person to carry out his
task of audit examination. However, it does not mean that the taxpayer has to do the auditor’s job and
prepare new documents. Reasonable assistance may however extend to obtaining records from which to
information may be retrieved or explaining procedures or documents. “Proper” questions should be
relevant and must only relate to the named taxpayer about the administration and enforcement of the Act.

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What constitutes a proper question for the purpose of this provision was in issue in The Queen v.
Marcoux [1985] 2 C.T.C. 254 (Alta. Prov. Ct.).
A failure to comply is an offence under the Act and a person, if guilty, may be liable on summary
conviction for a fine and possibly imprisonment under subsection 238(1).
Failure to comply with a section 231.1 request may result in the issuance of a compliance order by a
court to do so (section 231.7). This is discussed in Section VI below.
B. Provision of Documents or Information - Sections 231.2 and 231.6
1. Introduction
Taxpayers, practitioners or third parties who do not willingly provide information or documents may
receive, by personal service or registered or certified mail, a “requirement” to do so. One or more
requirements may be issued under sections 231.2 or 231.6 of the Act. Requirements are often
exceedingly broad in scope and may relate to both domestic and foreign information. Under
subsection 238(1), failure to comply with such a requirement may constitute an offence under the Act
punishable by fine and possibly imprisonment. See Regina v. Smith (2005 B.C.P.C. 0046 (B.C. Prov.
Ct.)). In the case of foreign-based information, failure to comply substantially may prohibit a taxpayer
from introducing in civil proceedings any information or document covered by that notice
(subsection 231.6(8)). See Glaxo Smith Kline Inc. 2003 D.T.C. 918 (T.C.C.). Failure to comply with a
section 231.2 requirement may result in the issuance of a compliance order by a court to do so
(section 231.7) (see Section VI below) and possible prosecution under section 238 (Regina v. Lemieux
2007 SKPC 135 (Prov. Ct. Sask.) and Iwaschuk 2004 D.T.C. 6371 (F.C.T.D.)).
For reviews of this area, see Patrick Lindsay and Mark R. Robinson, “Requirements To Produce
Documents and Information: Policy and Practice,” Report of Proceedings of Sixtieth Tax Conference,
2008 Tax Conference (Toronto: Canadian Tax Foundation, 2009), 12:1-38; Lisa Heddema and Grant
Russell, “CRA Requests for Information Under the Income Tax Act - A Review of Sections 231.1 and
231.2,” 2008 British Columbia Tax Conference, (Vancouver: Canadian Tax Foundation, 2008), 1:1-18;
Trent Henry and Andrew Kingissepp, “Managing the Confidentiality of Tax Accrual Working Papers,”
Report of Proceedings of Sixty-First Tax Conference, 2009 Tax Conference (Toronto: Canadian Tax
Foundation, 2010), 29:1-28; and Cheryl A. Gibson and Daniel V. Misutka, “The Art of Resolving Tax
Disputes,” 2011 Prairie Provinces Tax Conference, (Toronto: Canadian Tax Foundation, 2011), 5:1-25.
In the Québec decision of Chambre des notaires 2010 QCCS 4215, sections 231.2 and 231.7 were
recently held unconstitutional insofar as they seek disclosure from lawyers and notaries of information
subject to solicitor-client privilege. See Guy Gagnon, “The Ultimate Protection: Solicitor-Client
Communications”, McCarthy Tétrault on Tax Disputes Report #56 (November, 2010: CCH) for a detailed
discussion of the case. The decision is currently under appeal to the Québec Court of Appeal.
2. Who May Require the Provision of Documents and Information?
Only certain parties in addition to the Minister, Deputy and Assistant Deputy Minister may authorize the
issuance of a requirement. One must consider whether the Minister’s authority has been duly delegated
under subsection 220(2.01) to ensure that the requirement has been properly issued. See Murphy 2009
FC 1226.
3. What May Be Demanded?
The “requirement” contemplated by section 231.2 of the Act may seek:

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• “any information or additional information, including a return of income or a
supplementary return”; and
• any “document” (see section 231) which includes money, securities, and any of the
following (whether computerized or not): books, records, letters, telegrams, vouchers,
invoices, accounts and statements (financial or otherwise).
A requirement mandated by section 231.6 of the Act may seek “any information or document that is
available or located outside Canada and that may be relevant to the administration or enforcement” of the
Act. CRA has indicated that it will rely on section 231.6 to obtain foreign-based information or documents
that may be relevant to the administration and enforcement of the Act, notwithstanding that the particular
information may pertain to a taxation year that is prior to the enactment of the provision.
In either case, the information sought must be for “a purpose related to the administration or enforcement
of the Act”. A decision of the Federal Court of Appeal, Tower v. The Queen 2003 D.T.C. 5540,
considered the scope of this phrase as well as the scope of the requirement power to cause taxpayers to
furnish information that did not already exist. The Court found that taxpayers and their accountants were
obliged to do so. Does section 231.2 require a Canadian resident to provide information to which it has
access in Canada but is stored in data facilities owned by another party located outside of Canada? In
eBay Canada Limited and eBay CS Vancouver Inc. v. MNR 2007 FC 930, Hughes, J. determined that the
information cannot truly be said to “reside” only in one place or to be “owned” by only one person. The
reality is that the information is readily and instantaneously available to those within the group of eBay
entities in a variety of places. It was irrelevant where electronically stored information is located or who
as among those entities by agreement or otherwise asserts “ownership” of the information. The use of
the information in Canada was critical as the information could be summoned up in Canada and for the
usual business purposes of eBay Canada. Location of the electronic storage apparatus outside Canada
for corporate efficiency did not assist the taxpayer. The information was considered “Canadian” and not
“foreign”. The eBay litigation has a number of subsequent decisions. See 2008 FC 180, 2008 FCA 141
and 2008 FCA 348. See E. Kroft, “Requirement Letters and Technology” December 4, 2008 Tax Topics
(CCH).
3.1 “Fishing Expeditions” and Ex-Parte Orders – Subsection 231.2(3)
a. Criteria
To avoid problems raised in apparent “fishing expeditions”, the Act permits the provision of information or
documents on unnamed persons in limited circumstances. The Minister, under section 231.2, shall not
impose on any person (third party) a requirement to provide information or any document relating to one
or more unnamed persons unless he first obtains the authorization of a Judge of the provincial superior
court or a Judge of the Federal Court. That authorization may be subject to conditions, and it will be
granted following an ex parte application only if the Judge is satisfied by information on oath that:
• the person or group is ascertainable; and
• the requirement is made to verify compliance by the person or persons in the group with
any duty or obligation under the Act.
For a recent decision discussing the application of the foregoing conditions, see Lordco 2011 FC 209
where the Federal Court permitted the CRA to obtain information from an employer concerning certain
unknown employees who had allegedly received taxable benefits by attending cruises organized and
hosted by their corporate employer.
The judicial authorization in section 231.2 regarding “unnamed persons” may be subject to judicial review
within 15 days after the service of notice and may be cancelled, confirmed or varied depending on certain