The “Unnamed Persons Requirement” under the Income Tax Act

Mark Feigenbaum

A recent Federal Court decision explained the circumstances in which companies can be forced to reveal customer names and purchase information to the Canada Revenue Agency under the Income Tax Act’s Unnamed Persons Requirement.

What Happened?

The Minister of National Revenue (the “Minister”) brought an application under the Income Tax Act (“ITA”) and the Excise Tax Act (“ETA”) for judicial authorization to require an Ontario roofing supply company to provide information and documents relating to some of its customers (the “Unnamed Persons”).

Specifically, the Minister sought information about residential and commercial construction contractors who had an account with the roofing company. The Minister asked to be provided with the Unnamed Persons’ names and addresses, as well as itemized transaction details (including invoice information, sales amounts, methods and payments and addresses of delivery) and the Unnamed Persons’ bank account information. 

For the period January 1, 2015 to June 30, 2018, the information sought was for the Unnamed Persons whose total annual purchase and/or billed amount was $20,000 or greater. For the period from January 1, 2018 to June 30, 2018, the data sought was for the Unnamed Persons whose total annual purchase and/or billed amount was $10,000 or greater. 

In support of the application, the Minister provided an affidavit stating that it sought to verify whether the Unnamed Persons, who purchased roofing and building supplies and materials from the roofing company, had complied with their duties and obligations under the ITA and the ETA. The affidavit stated that studies have found that an estimated 28% of the residential construction industry’s business is unreported or under-reported.

The Law

The Minister brought the application under subsections 231.2(1), 231.2(2) and 231.2(3) of the ITA, which provide:

Requirement to provide documents or information  231.2 (1) Notwithstanding any other provision of this Act, the Minister may, subject to subsection (2), for any purpose related to the administration or enforcement of this Act (including the collection of any amount payable under this Act by any person), of a listed international agreement or, for greater certainty, of a tax treaty with another country, by notice served personally or by registered or certified mail, require that any person provide, within such reasonable time as is stipulated in the notice, (a) any information or additional information, including a return of income or a supplementary return; or (b) any document.  Marginal note: Unnamed persons  (2) The Minister shall not impose on any person (in this section referred to as a “third party”) a requirement under subsection 231.2(1) to provide information or any document relating to one or more unnamed persons unless the Minister first obtains the authorization of a judge under subsection 231.2(3).  Marginal note: Judicial authorization  (3) A judge of the Federal Court may, on application by the Minister and subject to any conditions that the judge considers appropriate, authorize the Minister to impose on a third party a requirement under subsection (1) relating to an unnamed person or more than one unnamed person (in this section referred to as the “group”) if the judge is satisfied by information on oath that (a) the person or group is ascertainable; and (b) the requirement is made to verify compliance by the person or persons in the group with any duty or obligation under this Act.

Federal Court Decision

The court explained that, as set out in the statute, there are only two requirements that must be met for such an application:

a)  Whether the unnamed persons are ascertainable and,

b)  Whether the requirement is made to verify compliance by the person or persons in the group with any duty or obligation under the ITA.

While the roofing company argued that the Unnamed Persons were not ascertainable and that the Minister had failed to adduce convincing evidence to establish that the target group of residential and commercial roofing contractors could be delineated from the roofing company’s other customers, the court found that the Unnamed Persons in this case were an ascertainable group. It determined that the total annual purchase requirement set out in the Unnamed Persons Requirement was sufficient to establish the target group of residential and commercial contractors among the roofing company’s customers. Further, the court stated that the roofing company maintained records for its customers and their identities were known to the company.

The court was also satisfied that the Minister had met the second criterion, finding that the Minister was attempting to verify whether the roofing company’s commercial customers were compliant with their duties and obligations under the ITA and ETA, namely to: 1) use the requested data to verify whether the Unnamed Persons had filed all of their required income tax returns, payroll remittances and GST/HST returns and 2) to determine whether the Unnamed Persons had properly (a) reported all or any of the income earned on the sale or supply of roofing and building supplies/materials, (b) claimed amounts as business expenses, (c) collected and remitted payroll tax, and, (d) calculated and remitted GST/HST.

As a result, the court concluded that it was appropriate and in the interests of justice to exercise its discretion in favour of the Minister and to authorize the Minister to impose the Unnamed Persons Requirement on the roofing company.

Get Advice 

Mark Feigenbaum brings together many years of litigation experience with a deep knowledge of tax law, corporate law, accounting, finance, and other related practice areas. Mark can help you avoid the biggest risks that may arise in tax disputes.

Prior to founding his law firm, Mark worked in the cross-border tax department of an international Big 4 firm, and held accounting management positions across a variety of sectors in both Canada and the United States.

With tax legislation in constant flux on both sides of the border, Mark takes great care to stay current on all relevant developments in law and policy. He carefully considers all solutions available to craft a response that proactively considers the policies and best practices of a given tax authority.

If you are involved in a tax dispute or related litigation, contact Mark Feigenbaum for exceptional representation and guidance. Mark’s many years of interdisciplinary knowledge in law, tax, accounting, and finance and significant cross-border experience make him uniquely positioned to assist you. Mark offers services to clients in the U.S., Canada and around the world. Contact Mark online or call him at (416) 777-8433 or toll-free at (877) 275-4792 to book a consultation.