R. v. He, 2012 BCCA 318

In R. v. He, The British Columbia Court of Appeal upheld a lower court decision, dismissing charges against the owners of the Sushi Man Japanese Restaurant in North Vancouver, sending a strong message to the Canada Revenue Agency that it cannot use its audit functions to gather evidence for a criminal investigation.

The Canada Revenue Agency suspected the restaurant of using an electronic “zapper” to erase records of certain transactions, thereby evading income and sales taxes on approximately $1,644,000 in revenue over a four-year period. CRA agents proceeded to write to the restaurant, stating that it had been selected for an “evaluation” of its electronic records, and that the evaluation was “not an audit, but rather a limited review of your current recordkeeping practices to determine if they are adequate for purposes of the Income Tax Act and Excise Tax Act.”

When the owners of the restaurant indicated that they did not want to participate, they were told that the evaluation was not optional. At a meeting with the owners shortly thereafter, agents seized 14 diskettes containing sales data over a number of years. The data seized ultimately formed the basis for tax evasion charges against Bo Ping He, Yun Mei He and Yi Ming Jiang.

The Court of Appeal applied the principle from R. v. Jarvis, 2002 SCC 73 to conclude that the CRA could not use its audit powers to prepare a criminal investigation, and that doing so was a violation of an accused person’s right to be free from unreasonable search and seizure pursuant to Section 8 of the Charter. The Court therefore upheld a lower court ruling excluding the evidence seized by the CRA and used against the Sushi Man proprietors.

Decided by the British Columbia Court of Appeal on July 25, 2012.
Click here for the full text of the decision.

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