Docket: T-1321-11
Citation: 2011 FC 1000
[UNREVISED ENGLISH
CERTIFIED TRANSLATION]
Ottawa, Ontario, August 17, 2011
PRESENT:
The Honourable Mr. Justice Shore
IN THE MATTER OF THE INCOME TAX ACT,
and
IN THE MATTER OF NOTICES OF ASSESSMENT BY
THE MINISTER OF NATIONAL REVENUE UNDER THE INCOME TAX ACT,
AGAINST:
Noureddine ARIF
123 DES PERCE-NEIGE STREET
Otterburn Park,
QuEbec J3H 5S3
and
Malika AFSAHI
123 DES PERCE-NEIGE STREET
Otterburn Park,
QuEbec J3H 5S3
REASONS FOR
ORDER AND ORDER
(Authorization for immediate enforcement
and for dispensation from complying with subsections 70(4) and sections
301, 304, et seq 359 and et seq 395 of the Federal Court Rules,
SOR/98-106
(subsection 225.2(2) of the Income
Tax Act, R.S.C., 1985, c. 1 (5th Supp.) and subsection 1(1)
and section 55 of the Federal Courts
Rules))
I. Introduction
[1]
The
Court has before it a motion seeking authorization to take actions forthwith to
collect the amounts owed by Malika Afsahi and Noureddine Arif (the taxpayers)
as tax debts. The notices of reassessment, for the years 2006, 2007 and
2008, and for which the balance was $109,123.92 on June 9, 2011, are based
on a review of the cash flow in N. Arif’s bank accounts and credit cards.
[2]
Malika
Afsahi is jointly and severally liable for her spouse’s tax debts because he
transferred the family home to her without consideration in July 2009, when
he had a tax debt.
[3]
There
are reasonable grounds to believe that granting any additional delays to the
taxpayers to pay the above-noted assessments would jeopardize collection, since
they have already begun liquidating their last known assets, as described
below.
II. Facts
[4]
The
following facts are from the affidavit of Gisele Frezza and the associated exhibits.
[5]
Between
October 30, 2009, and February 21, 2011, Revenu Québec conducted an
audit of Noureddine Arif’s tax file. The audit was based on the review of the
cash flow in his accounts for the years 2006 to 2008.
[6]
Following
this audit, Revenu Québec found that Noureddine Arif had failed to report
income totalling $284,522 for these years.
[7]
On
March 24 and 25, 2011, Revenu Québec issued notices of reassessment
against N. Arif, the balance of which was $114,995.91 on August 4, 2011.
[8]
On
June 9, 2011, based on the audit and the notices of assessment issued by
Revenu Québec, the Canada Revenue Agency (CRA) also issued its own notices of
assessment, totalling $109,753.33.
[9]
On
July 29, 2009, N. Arif transferred the ownership of their family home
to his spouse without consideration.
[10]
Therefore,
the Minister of National Revenue found that Malika Afsahi was jointly and severally liable for her spouse’s tax debt. On August 11, 2011, it issued her a notice of
reassessment for the balance of the debt, in the amount of $110,054.63.
[11]
To meet their tax liabilities, the taxpayers no longer own
anything other than their home in Otterburn Park and two cars for a total value
of approximately $10,000. The balance of the
hypothecary loan is $28,493 and the home is assessed at $205,500. Since April 10, 2011, the home has been up for sale.
[12]
Malika Afsahi has never reported any income. Noureddine Arif reported income of approximately $26,000
for each of the past two years.
[13]
On July 11, 2011, N. Arif sold an immovable on Galilée Street
in Beloeil that he co-owned with his son.
[14]
N. Arif’s bank accounts audited by officer Frezza are virtually
empty.
[15]
During the audit carried out by Revenu Québec, N. Arif stated that
he had kept significant amounts of cash for his brother, Mohammed Arif, claiming
that it was to prevent him from gambling away the money and to allow him to pay
the suppliers for his bar “Au p’tit canot”.
[16]
On February 24, 2008, N. Arif’s brother was arrested in
connection with a major cocaine trafficking case. Among other things, Mohammed Arif was using the bar “Au p’tit canot” to
sell his wares. Since then, the bar has lost
its liquor licence.
[17]
During the audit, N. Arif stated that he did not know anything at
the time about his brother’s criminal activities.
[18]
On April 26, 2011, during a search of Noureddine Arif’s home,
the police officers found 40 grams of cocaine and $5,600 in cash. At that
time, he was charged with drug trafficking and
possession of drugs for the purpose of trafficking. He is liable to imprisonment. His preliminary inquiry
was scheduled for October 31, 2011.
III. Issue
[19]
Are there reasonable grounds to believe that granting the
taxpayers the delay provided under section 225.1 of the Income Tax Act,
R.S.C., 1985, c. 1 (5th Supp.) (ITA), may jeopardize the tax debts owing to Her
Majesty?
[20]
Based on the written submission of the Minister of National
Revenue’s counsel, the Court concurs. This Court agrees
and allows Her Majesty to take collection actions forthwith.
IV. Analysis
Application
of subsection 225.2(2) of the ITA
[21]
For the purposes of this motion, under subsection 225.2(2) of
the ITA, there are reasonable grounds to believe that granting the taxpayers a
delay to pay the debt owed to Her Majesty would jeopardize collection.
|
225.2
(1) In
this section, “judge” means a judge or a local judge of a superior court of a
province or a judge of the Federal Court.
(2) Notwithstanding section 225.1,
where, on ex parte application by the Minister, a judge is satisfied that
there are reasonable grounds to believe that the collection of all or any
part of an amount assessed in respect of a taxpayer would be jeopardized by a
delay in the collection of that amount, the judge shall, on such terms as
the judge considers reasonable in the circumstances, authorize the
Minister to take forthwith any of the actions described in paragraphs
225.1(1)(a) to 225.1(1)(g) with respect to the amount.
[Emphasis
added.]
|
225.2
(1) Au
présent article, « juge » s’entend d’un juge ou d’un juge local d’une cour
supérieure d’une province ou d’un juge de la Cour fédérale.
(2) Malgré l’article 225.1, sur requête
ex parte du Ministre, le juge saisi autorise le Ministre à prendre
immédiatement des mesures visées aux alinéas 225.1(1)a) à g)
à l’égard du montant d’une cotisation établie relativement à un contribuable,
aux conditions qu’il estime raisonnables dans les circonstances, s’il est
convaincu qu’il existe des motifs raisonnables de croire que l’octroi à ce
contribuable d’un délai pour payer le montant compromettrait le recouvrement
de tout ou partie de ce montant.
|
[22]
The delay prescribed by the ITA provides that Her Majesty cannot
commence legal proceedings to collect her debt until 90 days after the day
on which the notice of assessment was sent (subsection 225.1(1) and
paragraph 225.1(1.1)(c) of the ITA).
[23]
If the taxpayers serve a notice of objection to these assessments,
the Minister will not be able to take any collection actions on the debt until
90 days after the day of mailing of the Minister’s decision confirming the
assessments, in whole or in part (subsection 225.1(2) of the ITA).
[24]
Finally, if the taxpayers appeal from the Minister’s decision to
the Tax Court of Canada (TCC), the Minister will not be able to take any
collection actions on the debt before the day of mailing of the TCC’s possible decision
confirming it in whole or in part (subsection 225.1(3) of the ITA).
[25]
Therefore, without the authorization sought, the taxpayers may
enjoy several months, even some years, before the Minister is able to take any
collection actions on the amounts assessed, during which they could easily
dispose of their assets.
[26]
According to the well-established case law in this matter, Her
Majesty demonstrated that because of the mere passage of time resulting from the
delays provided under the ITA and granted to the taxpayers to challenge the
assessments, collection of the debt would be jeopardized (Canada (Minister
of National Revenue – M N.R.) v. Services M.L. Marengère Inc.
(1999), 176 F.T.R. 1, 1999 CanLII 9004 (FC) at para. 63; Canada (Minister
of National Revenue – M N.R.) v. Mulé, 2010 FC 1125 at para. 9).
[27]
This type of remedy is not limited only to cases of fraud or the
equivalent, but also when there are reasonable grounds to believe that a
taxpayer could lose, liquidate, transfer or otherwise dispose of assets to
avoid tax liabilities, or that property could be seized by other creditors,
jeopardizing collection of the tax debt (Services M.L. Marengère Inc.,
above; Mulé, above).
[28]
For the following reasons, Her Majesty is of the view that the
collection of the debt would be jeopardized should the taxpayers be granted the
delay under the ITA.
Taxpayers’
debt
[29]
Revenu Québec conducted the audit of Noureddine Arif’s file by reviewing
the cash flow in his bank accounts and credit cards. Revenu Québec determined that significant amounts had flowed through N.
Arif’s accounts and that he had acquired assets that he could clearly not pay
for with only the income that he had reported.
[30]
As appears from Gisele Frezza’s affidavit and the audit report,
Revenu Québec noted that Noureddine Arif had been the owner of at least three immovables
during the years audited, for which he had to have paid sums both upon purchase
and upon making the hypothec payments.
[31]
In support of its audit, Revenu Québec also calculated the
payments made on the couple’s vehicles and the large disbursements from N. Arif’s
accounts.
[32]
Therefore, Revenu Québec noted that a grand total of $557,438 had flowed
through N. Arif’s bank accounts and credit cards in the years audited. By comparison, he only reported a total of $60,983 in
income for the same years:
|
|
2006
|
2007
|
2008
|
|
Reported income
|
$20,440
|
$14,069
|
$26,474
|
|
Grand total of disbursements
|
$228,099
|
$184,410
|
$144,929
|
|
Income added by
Revenu Québec
|
$51,200
|
$157,325
|
$75,997
|
|
Total adjusted
income
|
$71,640
|
$171,394
|
$102,471
|
|
Percentage of
reported income
|
28.5%
|
8.2%
|
25.8%
|
[33]
It is patently obvious that Noureddine Arif cannot have spent so
much with only the income he reported. Further, after
its calculations, Revenu Québec decided to impose a penalty of $31,043, finding
that he had shown gross negligence in his income tax returns.
[34]
During the audit, N. Arif attempted to explain the discrepancies
by saying that he had only acted as endorser in the purchase of two of the immovables
(on Galilée and Spiller streets). However, Revenu
Québec rejected these explanations because the documents of purchase, sale and
hypothec confirm that he was indeed the co-owner of the two immovables with his
son Wadii.
[35]
Further, on close examination, Noureddine Arif apparently spent “only”
$123,351 on the purchase of the immovables and related hypothec payments,
whereas more than $550,000 apparently flowed through his accounts. Therefore, his explanations, even if they turned out to be
true, would only partly explain the expenses and the marked difference between
them and the returns he filed.
Transfer
of the family home and sale of the remaining assets
[36]
On July 29, 2009, Noureddine Arif transferred ownership of
the family residence to his spouse without consideration. Since she has never reported any income, it is completely
reasonable to believe that N. Arif is paying the hypothec contracted in
2009 himself and that Ms. Afsahi has not paid any amount for the
maintenance or hypothec on the home. In all
likelihood, the sole objective of the transfer of ownership was to protect it
from N. Arif’s possible creditors.
[37]
In addition, the family residence has been up for sale since
April 2011; the asking price has apparently even been reduced by
$10,000 since it was put up for sale.
[38]
In addition, barely one month ago, on July 11, 2011, Noureddine
Arif sold the immovable on Galilée Street that he had until then owned.
[39]
Despite this sale, his bank account at the Beloeil Caisse
populaire is virtually empty.
[40]
Apart from the family residence, the taxpayers only own two cars
for a combined value of approximately $10,000. Thus, if they sold their home, it would be very difficult for Her
Majesty to guarantee payment of the debt.
[41]
Officer Frezza’s research did not uncover what happened to the
proceeds of the sale. Therefore, the
taxpayers may have other accounts and may be able to repay their debts although
the current facts do not support such intent.
[42]
The home seems to be the taxpayers’ last known asset that could cover
their tax debts.
[43]
The sale of the taxpayers’ assets raises great concern as
to their willingness to settle their tax debts. The liquidation of their immovable assets would also easily help shelter
them from taxes and the significant discrepancies between the amounts reported
by Noureddine Arif from 2006 to 2008 and the cash flow in his accounts suggest
that he never intended to settle his debts.
[44]
In light of the transfer of the family home in 2009, of the audit
report by Revenu Québec and of N. Arif’s unconvincing explanations regarding
the significant cash flow in his accounts, there seems to be a clear lack of
willingness in regard to his tax liabilities.
Impact
of the criminal conduct
[45]
Moreover, Noureddine Arif seems to be involved in cocaine trafficking,
which may explain where his income came from during the years audited by Revenu
Québec.
[46]
N. Arif’s criminal conduct must be taken into account in assessing
his willingness to pay his tax debt. Furthermore, N. Arif’s criminal activities
seem to be the cause of his tax debt and it would be surprising if he were to
decide today to pay his tax debts, while all evidence indicates otherwise.
[47]
In addition, Noureddine Arif is subject to life imprisonment if convicted. Although this scenario seems unlikely, the fact remains
that N. Arif may spend some time in prison, during which he will be deprived of
income and will have difficulty in settling his tax debts. Without income, the fact that he is preparing to sell his
house will make collection on his tax debt that much more difficult.
[48]
If the residence is sold, it is unlikely that the taxpayers will
seek to purchase a new residence immediately before knowing the outcome of the
charges against N. Arif, since he faces possible imprisonment in the near
future and that Ms. Afsahi has no source of income.
[49]
Thus, once the assets are liquidated, the result will be a highly
volatile asset that is likely to merely lessen in value, rather than a property
whose value is unlikely to change.
[50]
The sale of the house is clearly pending and it is critical in
these circumstances that the CRA quickly publish a hypothec on the residence in
order to guarantee payment of the debt.
V. Conclusion
[51]
In conclusion, the behaviour of Noureddine Arif in past years with
respect to his tax liabilities raises serious doubts as to his willingness to discharge
his burden.
In fact, according to the CRA’s information, only the
family home would remain to help him settle his debts.
[52]
Although the value of the residence could fully repay the
taxpayers’ tax debt, the Court was informed that:
a) N.
Arif has been involved in a cocaine trafficking case, for which he is awaiting
trial and for which he could serve a long prison sentence if convicted;
b) He
recently liquidated an immovable that he owned;
c) He
transferred the family home to his spouse without consideration and the
residence was recently put up for sale;
d) N.
Arif’s bank accounts are virtually empty;
e) The
taxpayers’ reported incomes are marginal and Malika Afsahi has never reported
any income;
f)
N. Arif has grossly under-reported his income for the years 2006
to 2008, despite the purchase of immovables and cars and significant
disbursements from his bank accounts.
[53]
With this in mind, this Court has already ruled on the factors to
be considered in granting the order as sought:
[6] In other words,
the Court issues an authorization on the basis of evidence demonstrating a bona
fide belief based on credible evidence in a serious possibility that the
granting of a delay to the taxpayer would jeopardize the collection of the
debt, which is a lesser burden of proof than that of the balance of
probabilities.
[7] In this regard,
the case law has determined that the presence of one or more of the following
factors can justify the issuance of an authorization under subsection 225.2(2)
of the ITA:
a) there are
reasonable grounds to believe that the taxpayer has acted fraudulently;
b) the taxpayer has
proceeded to liquidate or transfer his or her assets;
c) the taxpayer is
evading his or her tax liabilities;
d) the
taxpayer has assets that could potentially lessen in value over time,
deteriorate or perish;
e) the
amount of the debt in relation to income and expenses.
[Emphasis added.]
(Canada (Minister of
National Revenue - M N.R) v. Cormier-Imbeault, 2009 FC 499,
179 A.C.W.S. (3d) 1221 at paras. 6 and 7; also, Services M.L. Marengère
Inc., above.)
[54]
Counsel for the Minister of National Revenue has shown at least
three of the five factors listed in Cormier- Imbeault, above, and these
three factors are more than sufficient grounds to justify this Court issuing
the order sought.
[55]
Thus, granting the delays provided under the ITA would seriously
jeopardize the debt to the Minister of National Revenue and would very likely enable
the taxpayers to liquidate their remaining assets, especially the principal
residence that has already been up for sale for quite a few months.
ORDER
THE
COURT grants the motion to take forthwith collection actions to
collect the amounts owed by Malika Afsahi and Noureddine Arif as tax debts.
“Michel
M.J. Shore”
Certified true
translation
Catherine Jones,
Translator
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