Hydro-Québec case shows CRA can’t run around demanding taxpayers' personal info from third parties
In a move that is sure to attract the attention of privacy experts across the land, the Canada Revenue Agency recently attempted to obtain a list from Hydro-Québec of the names, addresses and various other pieces of personal information of a group of its electricity customers.
The request, according to the CRA, was part of an attempt "to identify those who seem to be carrying on a business but failed to file all the required income tax returns" and "to determine whether the legal or natural persons who are part of the targeted Group complied with the provisions of the Income Tax Act." This so-called "targeted Group" of Hydro-Québec's customers consisted of its business customers, with the exception of "large-power" customers such as ore mining companies or processing plants, federal, provincial and municipal government agencies and entities that were exempt from federal income tax. It also excluded customers who pay a residential rate for their hydro.
In other words, the CRA was seeking information on businesses that are paying a business rate for their electricity, presumably to ensure that these businesses are fully reporting all their income from their operations. (One also wonders whether businesses that use a large amount of electricity, such as a bitcoin mining farm or a clandestine pot-growing operation, were on the CRA's radar in this targeted request for information.)
Fortunately for taxpayers, the CRA can't simply run around willy-nilly demanding personal information from third-parties about taxpayers it seeks to audit as such demands are covered under the "unnamed persons" rule in the Tax Act. This provision basically states that the CRA cannot require a third party (such as Hydro-Québec) to provide information or any documents relating to "unnamed persons" (in this case, business customers) unless the CRA first obtains permission from a judge. This rule was put into place to limit so-called "fishing expeditions" by the CRA.
As a result, the CRA recently found itself before a judge of the Federal Court seeking judicial authorization to obtain the Hydro-Québec information.
Curiously, Hydro-Québec offered no objection to the CRA's request and intended to comply. On the face of it, this seems to contradict Hydro-Québec's own rules regarding the protection of personal information as indicated on its website, which states that "personal information that is confidential shall not be disclosed to a third party without the consent of the person it concerns" and which also explicitly rules out the disclosure of "customer address lists."
Despite the willingness of Hydro-Québec to co-operate, judicial intervention was still required. As the judge wrote in his June 2018 decision, Hydro-Québec's lack of objection didn't matter: "The persons targeted by the requirement are in no way represented. It is therefore up to the Court to consider their interests."
Under the Tax Act, for the requirement to provide information to succeed, the targeted group must be "ascertainable" and the purpose of the request must involve "verifying compliance" with the Tax Act.
The judge first questioned how ascertainable the group truly was, noting that nowhere in the CRA's request for information did it explain what comprises the "business customers" category other than the fact that they are not "large-power" customers, government entities or customers who pay the residential rate for electricity.
"It might be suspected that anyone running a business from their home may be charged the business rate," the judge commented. "Not only are the characteristics used to define who is a business customer unknown, but there is also no mention of the number of such customers, among the 4.3 million, on the territory served by Hydro-Québec."
Furthermore, nowhere in the CRA's request was there any reference to the CRA having suspicions about Hydro-Québec's group of business customers. Indeed, no financial information relating to Hydro-Québec's customers was requested, merely a list of names, addresses and other customer information. In addition, the request did not provide extensive details as to what the CRA might do with the information collected from Hydro-Québec.
The judge observed that the CRA "clearly sees a virtually unlimited authority ... to obtain information from third parties for use for its own purposes" and noted that it attempted to justify the wide scope of its request due to the principles of "self-reporting and self-assessment, which require broad verification, inquiry and inspection powers."
In other words, the CRA was claiming that for an entire group of taxpayers, vaguely categorized as business customers, "with no limit as to its size, composition or characteristics," the CRA has the power to request information from a third party which it can then use "as it sees fit, passing it along to various sections of the CRA."
As the judge wrote, "This, to me, seems to be the very definition of a fishing expedition."
The CRA's request for judicial authorization "illustrates the danger of the reading of (these provisions)" in the manner that the CRA was proposing. "That reading enables an unlimited invasion of privacy."
While acknowledging that "the government needs to have powerful means by which to enforce the law when a taxpayer self-reports and selfassess own income," the judge could not conclude "that the aggressive use now being advocated by the (CRA) is consistent with Parliament's intent."
The judge therefore denied the CRA's request for information from Hydro-Québec, thus protecting taxpayers'right to privacy.