Docket: T-1327-15
Citation:
2016 FC 530
Vancouver, British Columbia, May 11, 2016
PRESENT: The
Honourable Mr. Justice Hughes
IN THE MATTER OF 0741449 B.C. LTD.
AND AN APPLICATION BY
THE MINISTER OF NATIONAL REVENUE
UNDER SECTION 164(1.2) OF THE INCOME
TAX ACT
BETWEEN:
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THE MINISTER OF
NATIONAL REVENUE
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Applicant
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and
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0741449 B.C.
LTD.
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Respondent
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JUDGMENT AND REASONS
[1]
The Minister is seeking jeopardy orders under
the provisions of subsection 164(1.2) of the Income Tax Act, RSC 1985, c
1, (5th Supp) permitting funds presently in the hands of the
Minister to be retained, such funds having been paid by the Respondent in
respect of tax owing until all appeals respecting the tax have been determined.
For the reasons that follow, I will issue such an Order.
[2]
The Respondent 0741449 B.C. Ltd. is a British
Columbia corporation of which Mark Consiglio or his wife Nicola Consiglio is
the sole director and shareholder. There are two applications in respect of
this Respondent. The evidence and argument is common to both and both were heard
together. Since those applications were filed, the Respondent has been
amalgamated with another British Columbia corporation is also owned by one of
both of the Consiglios. The resulting corporation continues under the name
0722955 B.C. Ltd.
[3]
Subsection 164(1.2) of the Income Tax Act
permits the Minister to apply to the Court to order that funds in the hands of
the Minister not be repaid to the taxpayer despite a request for repayment, in
circumstances where the 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 the taxpayer would be jeopardized.”
Subsection 164(1.2) provides:
164(1.2) Notwithstanding
subsection 164(1.1), where, on application by the Minister made within 45
days after the receipt by the Minister of a written request by a taxpayer for
repayment of an amount or surrender of a security, 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 the taxpayer would be jeopardized by
the repayment of the amount or the surrender of the security to the taxpayer
under that subsection, the judge shall order that the repayment of the amount
or a part thereof not be made or that the security or part thereof not be
surrendered or make such other order as the judge considers reasonable in the
circumstances.
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164(1.2) Malgré le paragraphe (1.1), le juge saisi peut, sur requête du
ministre faite dans les 45 jours suivant la réception de la demande écrite
d’un contribuable visant le remboursement d’une somme ou la remise d’une
garantie, soit ordonner que tout ou partie de la somme ne soit pas remboursée
au contribuable ou que tout ou partie de la garantie ne lui soit pas remise,
soit rendre toute ordonnance qu’il estime raisonnable dans les circonstances,
s’il est convaincu qu’il existe des motifs raisonnables de croire que le fait
de lui rembourser la somme ou de lui remettre la garantie conformément à ce
paragraphe compromettrait le recouvrement de tout ou partie du montant d’une
cotisation établie à son égard.
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[4]
The present Applications deal with three
requests for refunds made by the Respondent totalling $1,157,568.24. The first
Application deals with two of these requests, the second deals with the third
request which was made after the first Application was initiated. I am advised
that the Respondent has taken proceedings in respect of those assessments in
the Tax Court but that no date for a hearing has yet been set out.
[5]
The Respondent is principally in the real estate
development business. The assets of the Respondent, aside from the refunds
sought from the Minister, is in the form of real estate in the Kelowna, British
Columbia area, much of which is heavily mortgaged. I repeat the description of
those assets as set out in Respondent’s Counsel’s memorandum:
22. The Respondent owns the following real property assets (acquired
from Predecessor 0741 on the amalgamation):
a. #15-4215 Westside Road, Kelowna, B.C. ("Lot 15")
having a fair market value of $400,000 and liabilities secured against title as
follows:
a. two
mortgages registered against title to Lot 15 totalling $563,808;
b. a CRA
judgment in the amount of $530,531.77; and
c. outstanding
strata fees of approximately $10,000; and
b. #20-4215 Westside Road, Kelowna, B.C. ("Lot 20")
having a fair market value of$600,000 and liabilities secured against title as
follows:
i. a registered mortgage having a face value of $800,000 but with
only $431,697 outstanding; and
ii. outstanding
strata fees of approximately $10,000.
23. The Respondent owns the following additional real property assets (acquired
from Predecessor 0722 on the amalgamation):
a. 517 Trumpeter Road, Kelowna, B.C. ("517 Trumpeter") having
an estimated fair market value of $410,000 and mortgages registered against title
totalling approximately $400,000;
b. 521 Trumpeter Road, Kelowna, B.C. ("521 Trumpeter")
having an estimated fair market value of $450,000 and mortgages registered
against title totalling approximately $414,000; and
c. 5171 Chute Lake Road, Kelowna, B.C. (the "Chute Lake Road
Property") having mortgages totaling $4,200,000 registered against title.
[6]
The only asset of real value that could
potentially be realized, is the Chute Lake property. The Minister’s evaluation
places a market value of about $1.5 million on this property, the Respondent’s
evaluation places a value of about $4.85 million as undeveloped property and
about $7.15 million as developed property. The evidence is that there is an
outstanding foreclosure Order of the British Columbia Court against this
property; there is no evidence in the record as to whether that Order has been
satisfied or otherwise resolved. The Respondent says that development plans
respecting this property are underway but a letter from the Department Manager,
Community Planning, City of Kelowna, in the record states that a Preliminary
Layout Review (PRL) letter has been issued but that it could be revoked at any
time and that, in any event if Consiglio were still to be involved, he would not
approve a subdivision application. There is also a suggestion in the evidence
that a sale of the Chute property may be pending.
[7]
The evidence also shows that Mr. Consiglio has
been involved in a number of business ventures in the past, many of which have
failed to pay taxes or gone bankrupt.
[8]
There are only two reported decisions dealing
with subsection 164(1.2) of the Income Tax Act, they are The Minister
of National Revenue v Chabot, 2010 FC 574, a decision of the late Justice
Blanchard of this Court, and Minister of National Revenue v Clarke, 2011
FC 838, a decision of Justice Simpson of this Court. Of these, Chabot is
the more instructive.
[9]
Earlier jurisprudence deals with the provisions
of section 225.2 of the Income Tax Act, which permits the Court to issue
a jeopardy order to speed up a pending assessment where the Minister has not
yet received funds. The jurisprudence, including Canada v Golbeck,
[1990] 2 CTC 438, a decision of the Federal Court of Appeal, and 1853-9049
Quebec Inc v Her Majesty the Queen, [1987] 1 CTC 137, a decision of the
late Justice Rouleau of this Court, speak of cases of fraud and cases where the
taxpayer may waste, liquidate or otherwise transfer property to escape the tax
authorized. I agree with Justice Blanchard where he wrote at paragraph 22 of
his decision in Chabot that the jurisprudence developed under subsection
225.2(2) has little bearing on applications under subsection 164(1.2).
[10]
Justice Blanchard in Chabot established
that in order for a Judge to be satisfied that there are “reasonable grounds to believe” that the collection of
tax would be jeopardized, the Court must assess the taxpayers net worth and
ability to satisfy the tax debt independently of the refund at issue. Factors
such as unorthodox behaviour of the taxpayer and evidence regarding potential
dissipation of assets by the taxpayer may be considered. He wrote at paragraphs
23 to 26 of Chabot:
[23] In interpreting subsection
164(1.2) of the Act, I will apply the so-called “modern rule” of statutory
interpretation mandated by the Supreme Court of Canada in Rizzo & Rizzo
Shoes Ltd. (Re), [1998] 1 S.C.R. 27. The rule provides that:
The words of an Act are to be read
in their entire context and in their grammatical and ordinary sense
harmoniously with the scheme of the Act, the object of the Act and the
intention of Parliament.
[24] The clear language of subsection
164(1.2) provides that the jeopardy to the collection of the taxpayer’s debt
that needs to be established by the Ministers is the jeopardy that would be
caused by the “repayment” of the amount of the refund.
[25] Further, by inserting the
provision in that part of the Act dealing with refunds, Parliament intended to
provide for measures to be available on application by the Minister, where
jeopardy is established, to ensure that such refunds be retained and applied as
a set-off against amounts that are under objection or appeal.
[26] In my view, factors that require
consideration in the circumstances of a subsection 164(1.2) application are the
amount of the debt to be collected relative to the amount of the refund, the
taxpayer’s ability to pay or otherwise satisfy the debt, the value of the
taxpayer’s net assets and whether these are sufficient and available to satisfy
the debt independently of the refund. Where it is established that the taxpayer
is able to repay the debt or that his assets are of sufficient value to satisfy
the debt, then releasing the amount of the refund would not jeopardize the
collection of the amount. It is in the context of assessing the taxpayer’s net
wealth and the taxpayer’s ability to satisfy the debt independently of the
refund that the issue of jeopardy is assessed. This may include considering
factors such as unorthodox behaviour of the taxpayer and any evidence regarding
dissipation of assets by the taxpayer. Upon consideration of such factors, if
there are reasonable grounds to believe, in all of the circumstances, that
release of the refund to the taxpayer would result in that amount not being
available to the Minister for collection against the debt, then collection of
the debt is jeopardized for the purposes of subsection 164(1.2) and a jeopardy
order pursuant to that provision is justified.
[11]
In this case, I am satisfied that there are reasonable
grounds to believe that the funds now in the hands of the Minister would likely
be jeopardized if returned to the Respondent. The only real asset is the Chute
Lake property; it is heavily mortgaged and subject to a foreclosure order. There
is a suggestion that a sale may be imminent. Approval of a subdivision plan is
tentative and may not ever occur. The principal of the Respondent, Consiglio,
or the companies with which he is associated, has a history of non-payment of
taxes and bankruptcy. All of this makes it reasonable for this Court to
conclude that funds in the hands of the Minister may well be in jeopardy if
returned to the taxpayer.
[12]
Counsel for the Respondent points out that the
last few words of subsection 164(1.2) gives the Court a discretion to make “such other order as the judge considers reasonable in the
circumstances.” Counsel suggests that an Order be made that a
portion of the funds in the hands of the Minister be paid to the City of
Kelowna to cover subdivision approval fees and that the balance be secured by a
mortgage or other charge on the Chute Lake property.
[13]
I will decline to make such an Order as it will,
in effect, be making the Minister a business partner of the taxpayer in a
somewhat risky venture. There are already several mortgages on the property and
it is by no means clear as to whether the Respondent still owns the property.
[14]
I will award costs to the Minister fixed in the
sum of $5000.00