CRA Auditors’ Powers to Obtain Information

CRA Auditors’ Powers to Obtain Information

Resolving Tax Disputes (3rd edition) studies tax disputes, conflict levels, and basic strategies. It helps accountants to limit early-stage mistakes and reduce liability.
One of the chapters in RTD3 is about audits and how to handle them. It provides valuable tips to help you navigate the audit process. We’ve included some excerpts from that chapter in this article. 

Auditors have broad powers. They can inspect the taxpayer’s books and records, demand information and documents, and apply for a warrant to seize documents. In this blog post, we will detail auditors’ powers.


The CRA has extensive powers to demand information from taxpayers and from third parties under the ITA. During a civil audit, there are very few circumstances in which taxpayers can refuse to provide information to the CRA because they do not have protection under the Canadian Charter of Rights and Freedoms (the “Charter”), e.g., the right to silence, during a civil audit.

There are two categories of audit powers: regulatory powers, on which auditors rely in the ordinary performance of their duties, and extraordinary powers, on which auditors and investigations officers rely when dealing with cases of serious non-compliance and suspected tax evasion. The extraordinary powers are only exercised in extreme circumstances.

The Difference Between an Audit and an Investigation

In practice, it can be difficult to ascertain when an audit has crossed the line and has become an investigation, but it is important to identify that point, because taxpayers have different rights in the civil and criminal systems and CRA personnel must follow different procedures.

As soon as the CRA’s predominant purpose is to establish penal liability rather than to determine the correct amount of tax, the CRA has “cross[ed] the Rubicon” and “must relinquish the authority to use the inspection and requirement powers under sections 231.1(1) and 231.2(1).” The CRA cannot use its audit powers to establish criminal liability.



The following sections discuss the differences between the CRA’s audit and investigatory powers.

Regulatory Audit Powers

The regulatory powers on which auditors rely in the ordinary performance of their duties fall into two categories:

  1. the power to inspect taxpayer’s books and records, and
  2. the power to demand documents and information.

The Power to Inspect Taxpayer’s Books and Records

Subsection 231.1(1) of the ITA gives auditors broad powers to enter a taxpayer’s business premises (but not the taxpayer’s home) without a warrant for the purpose of:

inspecting, examining, or auditing the taxpayer’s books and records, and to require individuals to answer questions for the purpose of administering or enforcing the ITA. It provides as follows:  

231.1 (1) An authorized person may, at all reasonable times, for any purpose related to the administration or enforcement of this Act,

(a) 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 the taxpayer under this Act, and

(b) examine property in an inventory of a taxpayer and 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 or in ascertaining the information that is or should be in the books or records of the taxpayer or any amount payable by the taxpayer under this Act,

and for those purposes the authorized person may

(c) subject to subsection 231.1(2), enter into any premises or place where any business is carried on, any property is kept, anything is done in connection with any business or any books or records are or should be kept, and

(d) require the owner or manager of the property or business and any other person on the premises or place to give the authorized person all reasonable assistance and to answer all proper questions relating to the administration or enforcement of this Act and, for that purpose, require the owner or manager to attend at the premises or place with the authorized person.

Consent Required for Auditor Entry to Taxpayers’ Homes

Auditors must have the taxpayer’s permission to enter a place of business that is also a “dwelling-house”, i.e., a taxpayer’s home. The power to enter a taxpayer’s home without consent is an extraordinary power that can only be exercised pursuant to a search warrant, as will be discussed separately below.  


Auditors May Inspect, But Not Seize or Copy, Documents

Note that subsection 231.1(1) only authorizes auditors to inspect documents, not to seize or copy them. The power to copy inspected documents is separately authorized by subsection 231.5(1) of the ITA. The power to seize documents without consent is an extraordinary power that can be exercised only if preauthorized by a warrant. Auditors will routinely ask the taxpayer’s permission to borrow their records, which the taxpayer may grant at their discretion. If you choose to allow an auditor to retain the taxpayer’s original documents, you must obtain a receipt from the auditor and ensure you have made copies of these documents in case the CRA loses the originals.

The Auditors’ Power to Inspect Documents

The power to inspect documents and information that “is or should be” ordinarily in the taxpayer’s records is subject to the limitation that such information is to be used primarily for the purpose of that particular audit. Your client’s business records will necessarily involve information about other individuals, and this can be a cause for concern in terms of confidentiality obligations. It is generally accepted that taxpayers have a low expectation of privacy in relation to business records.

The Supreme Court of Canada (“SCC”) held in Redeemer Foundation v. Canada (National Revenue) that it is acceptable for the CRA to access and utilize information in one taxpayer’s records regardless of whether there is a possibility or a probability that the audit will lead to the investigation of other taxpayers. This can be of particular concern when the audit of a corporation involves the review of financial activity that could potentially highlight improper reporting by directors or other related parties.

You should verify that all related parties have filed accurate and up-to-date returns with the CRA if you suspect that information provided in an audit could impact them.


The Auditors' Powers to Ask Questions

Paragraph 231.1(1)(d) gives auditors broad powers to ask any person in the taxpayer’s business any questions related to the administration or enforcement of the ITA.

This power has recently been held not to be so broad as to compel an indeterminate number of people to be available for oral interviews. However, the auditor can talk to many people related to the taxpayer’s business who may or may not know the full and complete answers. This can make it difficult for the taxpayer to control and keep track of what has been said to the auditor.

For consistency and manageability, the taxpayer under audit should appoint a single person (or group of persons) within their organization to deal with the auditor at the beginning of the audit and should inform all the other individuals on the premises to direct any questions from the auditor to the appointed individual(s).

The Power to Demand Information and Documents

Subsection 231.2(1) of the ITA empowers auditors to require any person to provide any information, or additional information, and any document.

The CRA can also use this power to compel information from third parties. It provides as follows:

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.

These demands are known as requirements for information and are used for the purposes of determining tax liability as well as for administrative purposes, such as collections.

The CRA is not required to notify the taxpayer under audit or inform them that it is seeking information from external sources.


How The Power to Demand is Used

This power is frequently used to obtain bank statements as part of an audit if the taxpayer no longer has such records or refuses to produce them. If the CRA has reason to suspect unreported income, auditors will routinely request bank statements even before the audit begins.

Subsection 231.2(1) only authorizes the Minister to demand information and documents about known taxpayers. The Minister must obtain judicial authorization under subsection 231.2(2) before demanding information or documents about unnamed taxpayers.

Accountants and other representatives are rightly concerned that the CRA may use this power to obtain client file notes and working papers or even to compel written answers to questions about any transactions or reporting decisions. Unless you are a lawyer or are acting as a lawyer’s agent, there is no solicitor-client privilege that would permit you to refuse to provide such information. Claims of privilege are discussed in more detail below. You should monitor all material that you maintain in a client file with the knowledge that the CRA could theoretically demand the information and use it against your client (or, in some cases, you).

When To Seek Legal Advice

If you receive a requirement of this nature regarding one of your clients, you should consult with your client prior to releasing such information. If you or the taxpayer have any grounds to refuse to provide the information, such as if you suspect the information is being gathered for a criminal investigation, you should obtain legal advice to clarify your obligations. You can challenge requirements for Information by making an application for judicial review to the Federal Court; however, commencing dialogue with the CRA is preferable because challenges are usually unsuccessful. Where a request for information is not complied with, the CRA may prosecute under subsection 238(1) or seek a compliance order under section 231.7.


Extraordinary Audit Powers

The extraordinary powers on which auditors and investigations officers rely when dealing with cases of serious non-compliance and suspected tax evasion fall under three headings:

  1. search and seizure;
  2. third-party information demands; and
  3. public inquiries.

Search and Seizure

The Minister may apply ex parte (i.e. without the taxpayer being present) to a judge of the Federal Court (“FC”) or of the Superior Court of the province where the matter arises for a warrant if the Minister has reasonable grounds to believe that a taxpayer has business books, records, or property in their home and entry to the home has been or is likely to be refused. The warrant authorizes the auditor or investigations officer to enter the taxpayer’s home without the taxpayer’s consent to inspect the taxpayer’s books, records, and any related documents.

Although the Minister can use the power for search and seizure during a civil audit where the taxpayer refuses to provide records, it is more likely that an auditor faced with a refusal to provide documents would simply use an indirect determination, such as a net-worth analysis, to estimate and assess income.

Search and Seizure in Criminal Cases

In the criminal context, subsection 231.3(1) permits the Minister to make an ex parte application to a judge for a warrant to authorize an auditor or investigations officer to enter and search any building, receptacle, or place for any document or thing that may afford evidence as to the commission of an offence under the ITA. It also allows the CRA to seize the document or thing and, as soon as practicable, to bring it before the judge – or make a report in respect of it.

The judge may issue a warrant if they are satisfied that there are reasonable grounds to believe that an offence has been committed and that evidence of the commission of the offence is likely to be found in the building, receptacle, or place identified in the warrant.


As an alternative to obtaining warrants under the ITA, the Minister can also utilize the provisions under the Criminal Code, particularly subsection 487(1). The CRA favours the use of Criminal Code warrants, which have been held not to affect the validity of the use of this material to support charges under the ITA.

Third-Party Information Demands Regarding Unnamed Persons

As noted above, subsection 231.2(1) of the ITA permits the Minister, by notice, to require any person to provide any information or any document for any purpose related to the administration or enforcement of the ITA. This general power, however, cannot be used to require a person to provide information or documents concerning an unnamed person without judicial preauthorization.

To obtain judicial authorization to exercise this extraordinary power, the Minister must make an application and explain to the FC why the information is needed. The FC will authorize the application if the judge is satisfied that:

  1. the person or group is ascertainable; and
  2. the purpose of the requirement for information and documents relating to the unnamed persons is to verify their compliance with the ITA.

In 2013, Parliament repealed paragraphs 231.2(3)(c) and (d). As a result, the CRA no longer must show reasonable grounds for suspecting that the unnamed persons failed, or would be likely to fail, to provide the information or document sought to be produced. According to David Sherman, these changes, which were allegedly implemented to simplify the procedure, mean that the CRA “can now go on judicially-authorized ‘fishing expeditions’”.


Public Inquiries

Section 231.4(1) gives the Minister the power to authorize anyone, whether employed by the CRA or not, to make any inquiry deemed necessary about anything relating to the administration or enforcement of the ITA. This involves issuing a subpoena to a taxpayer and compelling them to attend the Tax Court of Canada (“TCC”) and answer questions.

The constitutionality of this breathtaking and seemingly un-Canadian power has been upheld by the SCC, which held that it violates neither of the protections against self-incrimination or unreasonable search and seizure under sections 7 and 8 of the Charter. The CRA rarely utilizes Public Inquiries, and if your client receives a subpoena in this respect, they should seek legal representation immediately.


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