The Supreme Court of Canada has released a decision with guidance for auditors who turn over files to the criminal investigations branch at the Canada Customs and Revenue Agency.

In the case of R. v. Jarvis, Alberta resident Warren Jarvis was charged with tax evasion after an investigation into whether he reported income from art donations.

The trial judge held that the audit had effectively become an investigation during a meeting wioth a CCRA auditor, because the auditor failed to caution the taxpayer about the possibility of criminal charges. The judge ruled that the evidence gathered at the meeting were obtained in violation of his rights under the Canadian Charter of Rights and Freedoms. He also threw out evidence discovered under a search warrant.

With the evidence from the searches excluded, the trial judge granted a motion for a directed verdict of acquittal. But the criminal court appeal judge ordered a new trial, holding that only the taxpayer’s statements during the April meeting should have been excluded, but that the search warrant otherwise had been validly issued.

The Court of Appeal of Alberta dismissed a further appeal from Jarvis and affirmed the order for a new trial.

Yesterday, the Supreme Court dismissed a subsequent appeal from Jarvis. The court ruled, “if the CCRA simultaneously conducts an administrative audit and criminal investigation, investigators can avail themselves only of that information obtained pursuant to the audit powers prior to the commencement of the criminal investigation. They cannot avail themselves of information obtained pursuant to such powers subsequent to the commencement of the investigation into penal liability.”

It added that the record in this case does not support a finding that the auditor used misleading tactics to obtain information from the taxpayer or his accountant. The court said that the searches were made with a valid warrant, so the evidence obtained during these searches should be admissible in a new trial.

The court also said that whether an inquiry is in furtherance of an audit or a penal investigation is a question of mixed fact and law and is not immune from appellate review.

In a similar case concerning B.C. farmer, Chee K. Ling, a tax evasion was set aside. But a new trial was ordered to determine whether evidence gathered after a meeting between Ling and the auditor should be excluded. The B.C. Court of Appeal and the Supreme Court confirmed the order for a new trial.