Quebec tax authority can demand bank records in Calgary, says SCC

Quebec tax officials are entitled to demand information from the Calgary branch of a national bank where a trust established in Alberta by a Quebec family holds an account, the Supreme Court of Canada ruled today.

Quebec tax authority can demand bank records in Calgary, says SCC
Stéphane Eljarrat represented a trust established in Alberta that was being audited under Quebec’s Taxation Act.

Quebec tax officials are entitled to demand information from the Calgary branch of a national bank where a trust established in Alberta by a Quebec family holds an account, the Supreme Court of Canada ruled today.

The demand by the Agence du revenu du Québec for the trust’s banking records had been made of the National Bank of Canada, which is headquartered in Montreal and operates across the country.

The debate in 068754 Alberta Ltd. v. Québec (Agence du revenu) “revolved around whether or not a requirement for information sent by a provincial authority is a seizure, and to the extent it’s a seizure, whether or not [the authority] can effect that seizure in another province, in this case Alberta,” says Stéphane Eljarrat of Osler, Hoskin & Harcourt LLP in Montreal, who was lead counsel for the appellant trust in the case.

The Agence du revenu du Québec had sought bank documents pertaining to DGGMC, a trust of which 1068754 Alberta Ltd. was the sole trustee. The documents in question were held by a branch of the National Bank of Canada located in Calgary, and the federal Bank Act provides that such a demand must be made of the branch where the account is located. DGGMC was being audited under Quebec’s Taxation Act because the ARQ suspected that it was required to pay taxes in Quebec.

Quebec’s Superior Court dismissed 1068754 Alberta Ltd.’s application to quash the demand for documents made by the ARQ, finding that the demand was not a seizure.

In dismissing 1068754 Alberta Ltd.’s appeal, the Court of Appeal of Quebec held that the demand for documents was, in fact, a seizure, but that the demand did not have extraterritorial effect under the applicable provision of the Bank Act, and that the ARQ had therefore not exceeded its jurisdiction.

A unanimous Supreme Court agreed. The ARQ’s demand did not constitute an extraterritorial act, as the National Bank operated in Quebec, and Quebec tax authorities have power over any entity operating in the province’s territory.

The Bank Act, under s. 462(1), provides that judicial documents such as writs of process and orders or injunctions made by the court “are binding on property belonging to a person and in the possession of a bank … only if the document or a notice of it is served at the branch of the bank that has possession of the property or that is the branch of account in respect of the deposit account, as the case may be.”

Section 462(2) of the Bank Act pertains to “notices,” and provides that “Any notification sent to a bank with respect to a customer of the bank, other than a document referred to in subsection (1) or (3), constitutes notice to the bank and fixes the bank with knowledge of its contents only if sent to and received at the branch of the bank that is the branch of account of an account held in the name of that customer.”

“What we were arguing … was that a seizure, by its effects, is not a mere notification,” Eljarrat explains. “We were proposing a more restrictive interpretation of 462(2), by saying, ‘how can a seizure be a mere notice?’”

Although the Supreme Court agreed with the appellant that the effect of the ARQ’s demand for documents was a seizure, “I see no basis for limiting the scope of s. 462(2) to documents that serve only to notify, and have no other function,” Justice Malcolm Rowe wrote in his reasons, with the other eight Supreme Court justices concurring. “Just because s. 462(2) specifies when a bank will be said to have notice of a certain document does not mean that the effect of those documents is only to provide information — the documents may require further action. …

“The effect of s. 462(2) is to require that a document be sent to the branch of account,” Justice Rowe concluded. “Doing so fixes the bank with notice of the Demand. Thus, in this case, National Bank had notice of the Demand, and the Demand is binding on the bank as a whole.”

The fact of the National Bank operating in Quebec was significant to the Supreme Court’s agreement with the lower courts in Quebec that the ARQ’s demand was not issued extraterritorially; “the ARQ has the jurisdiction to make a Demand of National Bank, a corporate entity operating within its borders,” the court noted in its decision.

“In another case, if a corporate entity had no operations in Quebec, it is not clear whether the ARQ would have the authority to issue a formal demand to that entity. On the facts before us, however, the ARQ had the authority to issue the Demand to National Bank and send the Demand letter via the Calgary Branch.”

Vern Krishna, a Professor of Law and Executive Director of the CGA Tax Research Centre at the University of Ottawa, calls the decision “entirely appropriate, in technical terms and policy terms.”

The legal “person” of the National Bank of Canada has branches across the country, so the issue of extraterritorial jurisdiction does not apply, he notes. “A branch is merely an extension of the one person.” A branch, unlike a subsidiary of a corporation established in a foreign country, is not a separate legal entity from the corporation. “Banks typically have many, many branches,” as do corporations, Krishna notes, so today’s decision will have implications for corporations operating through branches and not subsidiaries.

“It’s a well-reasoned and thoughtful decision,” Krishna says, “and I’m pleased in the sense that there are not a lot of commercial and tax cases that go to the Supreme Court.”

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