Date: 20100903
Docket: T-510-10
Citation: 2010 FC 875
Ottawa,
Ontario, September 3,
2010
PRESENT: The Honourable Mr. Justice Martineau
IN THE MATTER OF BRENT ROBARTS
and an application by the Minister of
National Revenue
under section 225.2 of the Income Tax
Act
BETWEEN:
THE MINISTER
OF NATIONAL REVENUE
Applicant
and
BRENT
ROBARTS
Respondent
REASONS FOR ORDER AND ORDER
[1]
This
is a review of a jeopardy order issued under subsection 225.2(2) of the Income
Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (the Act) by
a judge of this Court on April 12, 2010 (the Order). For the reasons indicated
below, the Order should be set aside.
I – LEGAL FRAMEWORK
[2]
The
general rule, pursuant to subsection 225.1(1) of the Act, is that the Minister
of National Revenue (the Minister) is restricted from collecting amounts owing
by a taxpayer until 90 days after the day on which the notice of assessment is
mailed.
[3]
Nevertheless,
where a judge upon an ex parte application by the Minister is satisfied
that there are reasonable grounds to believe that the collection of all or any
part of the amount assessed in respect of the taxpayer would be jeopardized by
a delay in the collection of that amount, the judge shall authorize the
Minister to take forthwith any of the actions described in paragraphs 215.1(1)(a)
to 225.1(1)(g) of the Act (the collection actions).
[4]
That being
said, the taxpayer may apply to a judge of the Court to review the
authorization. The judge shall determine the question summarily and may
confirm, set aside or vary the authorization and make such other order as the
judge considers appropriate. No appeal lies from such an order. See paragraphs
225.2(8), (9), (11) and (13) of the Act.
[5]
There
is no dispute concerning the guiding factors which are well known relating to
the review of a jeopardy order (see Minister of National Revenue v. Services
M.L. Marengère Inc., [2000] 1 C.T.C. 229, 2000 D.T.C. 6032 at paragraph 63
(Services M.L. Marengère)). A two-stage test governs the review which
involves aspects of an appeal and a hearing de novo.
[6]
First,
the taxpayer must provide evidence that there are reasonable grounds to doubt
that the collection of all or any part of the amount assessed against him would
be jeopardized by a delay in the collection of that amount. However, even where
a taxpayer fails to meet their initial evidentiary burden, it remains open to
the reviewing judge to set aside a jeopardy order where the Minister has not
met the obligation to make a full and frank disclosure.
[7]
Where
the taxpayer has met this initial threshold, the Minister then has the ultimate
burden to show that the jeopardy order was justified. At that latter stage, the
Court will review all the evidence on record and ask itself whether, on the
whole of the evidence submitted by the parties, there are reasonable grounds to
believe that the collection of any part of the assessed amount would be
jeopardized by delay.
II – EX PARTE APPLICATION
MADE BY THE MINISTER
[8]
The
named respondent, Mr. Brent Robarts, who is 64-years-old, is a businessman of
the city of Kelowna,
British
Columbia.
[9]
On
February 1, 2010, the respondent was reassessed for taxes owing in the amount
of $1,265,953.57 (the Tax Debt) for his 2005, 2006 and 2008 tax years as
appears from the notices of reassessments (the Reassessments) mailed at that
time by the Canada Revenue Agency (the CRA).
[10]
On
April 6, 2010, the Minister applied for a jeopardy order with respect to the
Tax Debt.
[11]
A first
affidavit by Ms. Amy Walterhouse, sworn April 7, 2010 (the April affidavit)
containing the main allegations against the respondent, was made in
support of the Minister’s application. There is also a second affidavit by
Ms. Walterhouse, also sworn April 7, 2010, but its relevance for the purpose of
this review is limited (its only object concerns the production of the
Reassessments).
[12]
Ms. Walterhouse
is the CRA officer assigned to Mr. Robarts’ collection file.
[13]
The
Minister’s view, based on the affidavits of Ms. Walterhouse, is that there were
(and continue to be) reasonable grounds to believe that the collection of
the Tax Debt would be jeopardized if delayed.
[14]
Five
grounds were alleged at paragraph 36 of the April affidavit:
(i) The
funds in the respondent’s known bank accounts, which totalled approximately $687,706.62,
were the only known significant asset of the respondent that was sufficient to
pay all or part of the Tax Debt.
(ii) The
respondent was in the position to withdraw the funds before the CRA was
otherwise able to certify the debt and garnish his bank accounts.
(iii) The
respondent had significantly under-reported his income. He had failed to
accurately report business income and rental income in respect to his tax
matters in the past.
(iv) The
90-day statutory stay relating to the Reassessments was still in effect. Thus,
the respondent could file notices of objection to the Reassessments; the
Minister would be unable to collect until the conclusion of any objection or
appeal period.
(v) The
respondent had been conducting his tax affairs in an unorthodox manner.
He appeared to have dissipated two substantial assets immediately after
being notified of the Reassessments.
[15]
As
Ms. Walterhouse explained in her April affidavit, on March 23, 2010, she
conducted searches of various registries in British Columbia and of the
respondent’s known financial accounts held with CIBC, ING Direct and Scotiabank
iTrade in an effort to locate any assets belonging to the respondent. She
found out on this occasion that earlier on, that is, on January 27, 2010, the
respondent had withdrawn $109,000 from one of his Scotiabank iTrade accounts
and that on January 28, 2010 he had transferred his half interest in a property
located in Arizona to Ms. Voll (the Arizona property). This occurred
just days after she had spoken with the respondent about the Reassessments.
[16]
Mr.
Justice Zinn was satisfied that the evidence the Minister put forward in
support of the application showed that there were reasonable grounds to
believe that the collection of the Tax Debt would be jeopardized if delayed,
and as such, granted the Order on April 12, 2010.
[17]
Following
the issuance of the Order, the CRA froze and seized all the respondent’s bank
accounts and assets. Indeed the CRA has seized $147,178.67 from accounts held
with CIBC and ING Direct and has placed a freeze on the Scotiabank iTrade
accounts and the $250,000 RRSP held with the CIBC (collectively the Funds).
III – THE PRESENT MOTION
IN REVIEW
[18]
The
respondent asks this Court to set aside the Order and to order the Minister to
lift the seizure and freeze of the Funds.
[19]
The
respondent has no assets in his name in Canada other than
the Funds. Denying that he had any intention to dissipate his assets or put
them out of reach of the Minister, the respondent submits to the Court that his
bank accounts already included registered plans and guaranteed investment
certificates, which are long-term investments. Indeed, any income that the
respondent has earned recently is from trading securities through his
Scotiabank iTrade account. Otherwise, he is not able to earn income to support
himself.
[20]
The
respondent also stresses that nothing allowed the Minister to conclude that he
had failed to accurately report income and invokes his good faith. Notices of
objection to the Reassessments have been filed. Indeed, whether the respondent
has “significantly under-reported his income” is the very issue for the
determination by the appeals division of the CRA and the Tax Court of
Canada. There were a number of reasons for his belief that such income did not
need to be reported. Moreover, he also points out that he never earned rental income
and that the Minister exaggerated his request for the issuance of a jeopardy
order with unsubstantiated claims.
[21]
The
respondent also challenges the suggestion made by the Minister that he has been
“conducting his tax affairs in an unorthodox manner as he appears to have
dissipated two substantial assets.” Indeed, the Minister has failed to present
relevant evidence with respect to the withdrawal of $109,000 in January 2010.
[22]
In
a nutshell, the respondent submits that the Order was made:
(a) without
the benefit of complete information, which information was readily available to
the Minister;
(b) based
on an incomplete summary of the relevant law;
(c) based
on unsubstantiated facts which were presented in an effort to taint the
respondent’s character; and
(d) based
on misrepresentations with respect to relevant caselaw crucial to the
Minister’s submissions.
[23]
To
support his grounds of attack, the respondent has provided an affidavit and has
also produced an affidavit by Ms. Corina Voll, both sworn on May 5, 2010. Since
1993, Ms. Voll has lived on and off with the respondent. This evidence, which
was not before Mr. Justice Zinn, explains the taxpayer’s basis for challenging
the Reassessments and also clarifies the circumstances and intentions of the
taxpayers with respect to the two transactions which Ms. Walterhouse qualified
in her April affidavit as “unorthodox behaviour” and a “dissipation of assets”.
[24]
On
the other hand, the Minister submits the Order should be upheld on the basis
that:
(a) The
respondent has failed to provide reasonable grounds to doubt that the test for
granting the Order has been met;
(b) The
evidence put forward by the respondent is insufficient to disturb the findings
of Mr. Justice Zinn;
(c) The
Minister made full and frank disclosure to this Court with respect to all
information relevant to the application for the Order known at that time.
[25]
Thus,
the Minister submits that it was reasonable to conclude here that, if the Order
was not granted, the collection of all or any part of the amount assessed would
be jeopardized by a delay in the collection of that amount. In this regard, the
Minister submits that the evidence already produced and the explanations of the
respondent are insufficient to reasonably doubt that the collection of the Tax
Debt would be jeopardized by the granting of a delay.
[26]
In
addition to relying on the April affidavit, the Minister also relies on the third
affidavit of Ms. Walterhouse sworn on July 15, 2010 and appended material (the
July affidavit). The main purpose of the July affidavit is to respond to the allegations
made by the respondent that there was no prompt and frank disclosure at the
time of the making of the application.
[27]
In
her July affidavit, Ms. Walterhouse explains that she provided all relevant
information in the possession of CRA at the time the jeopardy application was
made. First, she did not know that the respondent had deposited $109,000 back
in his Scotiabank iTrade account despite making requests for the most current
information. Second, none of the information proffered to the Court with
respect to the transfer of the half interest of the Arizona property was
known to the CRA and, at the time the application was made, the Minister fully
disclosed that the CRA was intending to raise assessments against Ms. Voll
pursuant to section 160 of the Act.
IV – DETERMINATION AND
FINDINGS BY THE REVIEWING JUDGE
[28]
The
present motion made by the respondent to set aside the Order should be allowed.
[29]
First,
I am not satisfied that the obligation to make a full and frank disclosure has
been met by the Minister.
[30]
Second,
I find the respondent has provided cogent evidence that there are reasonable
grounds to doubt that the collection of all or any part of the Tax Debt would
be jeopardized by a delay.
[31]
Third,
on the whole of the evidence submitted by the parties, the Minister has
not shown to the satisfaction of the Court that the Order and collection
actions taken as a result are justified considering the particular
circumstances of this case.
[32]
Four,
provided that there is not a change of situation and that the respondent
respects all the undertakings mentioned in his affidavit, there is no reason to
maintain the seizure and freeze of the Funds.
V – OBLIGATION TO MAKE A FULL
AND FRANK DISCLOSURE NOT FULFILLED BY THE MINISTER
[33]
The
Minister had the duty to exercise utmost good faith and to insure full and
frank disclosure (Minister of National Revenue v. Services M.L. Marengère
Inc., [2000] 1 C.T.C. 229, 2000 D.T.C. 6032 at paragraph 63). This duty
stems directly from the fact that the hearings for the issuing of jeopardy
orders are necessarily ex parte, and thus the Minister must fairly
present the situation in its entirety, in the respondent’s absence.
[34]
This
duty of disclosure has been described and defined in various ways by the
jurisprudence.
[35]
In
all ex parte matters the applicant is obliged to draw to the attention
of the Court all facts in issue, even those which it considers unhelpful or
inconvenient, and all relevant case law. (Minister of National Revenue v.
Arab, 2005 FC 264, [2005] 2 C.T.C. 107 at paragraph 11). Indeed, full and
frank disclosure requires that the Minister disclose “what might reasonably be
regarded as [known] weaknesses”. (Minister of National Revenue v. 159890
Canada Inc., [1997] 3 C.T.C. 284, 97 D.T.C. 5495 at paragraph 10). Overall,
the disclosure must be “adequate” or “reasonable” as determined by the
circumstances (R. v. Chamas, 2006 FC 1548, [2007] 2 C.T.C. 16 at
paragraph 37).
[36]
First,
it now appears from the new evidence brought to the attention of the Court that
the inquiry made by Ms. Walterhouse on March 23, 2010, was incomplete and that
important material facts (apparently these facts were not known to the
Minister, as explained by Ms. Walterhouse in her July affidavit) were omitted
from the April affidavit and the presentation made by counsel to the Court in
April 2010.
[37]
The
alleged omission to make a full and frank disclosure concerns the withdrawal of
$109,000 on January 27, 2010 from one of the respondent’s Scotia iTrade
accounts two days after he was notified of the Reassessments. In her April
affidavit, Ms. Walterhouse states that she had been unable to further trace the
$109,000. Thus, she believed that the respondent was dissipating his only
remaining assets, which were the Funds that would satisfy the Tax Debt. However, the
respondent’s Scotia iTrade account for March 2010 clearly demonstrates that the
Minister’s representative assumption was based on erroneous information since
the amount of $109,000 was re-deposited on March 10, 2010.
[38]
The respondent argues that the Minister’s failure to report to the
Court that the $109,000 had been credited back to his bank account on March 10,
2010, amounts to a violation of the Minister’s duty of full and frank disclosure.
He contends that the erroneous information that the $109,000 was untraceable
was the central piece of information that the Minister relied on to request the
jeopardy order. Thus, given that the correct information was available to Ms.
Walterhouse prior to signing her April affidavit, the Minister’s omission
directly affected the outcome of the Court’s decision.
[39]
I agree with the respondent. In my opinion, the Minister’s failure
to report the reappearance of the $109,000 in the respondent’s bank account on
March 10, 2010 falls squarely in the category of an omission that was directly relevant
to the authorization of the jeopardy order obtained a month afterwards. Indeed,
apart from the allegation made by Ms. Walterhouse that the respondent had also transferred
his half‑interest in the Arizona property to Ms. Voll, the
disappearance of the $109,000 from the Scotia iTrade account, was the
Minister’s only proof that the respondent was dissipating his sole Canadian assets,
i.e. the Funds.
[40]
Upon signing the April affidavit, Ms. Walterhouse should have
assured herself that all relevant inquiries had been made with respect to
transactions made in March 2010 and that up-to-date information was readily available
from the financial institution or made available by the taxpayer. On March 11,
2010, Ms. Walterhouse was advised by Mr. John De Pompa, Director of Compliance
at Scotia iTrade, that the March statements would be prepared at the
beginning of April 2010, yet she did not subsequently ask that these statements
be provided by the financial institution.
[41]
While the omission to report the March 10, 2010 deposit of
$109,000 was apparently made with no malicious intent, it severely undermines
the ex parte application that was made by the Minister on April
6, 2010. The jeopardy order issued on the basis of these misleading, incomplete
or incorrect facts cannot stand in the circumstances. (Papa, re, 2009 FC 49,
[2009] 4 C.T.C. 93 at paragraphs 21 to 23; Canada (Commissioner of
Competition) v. Air Canada (2000), [2001] 1 F.C.
219 (Fed. T.D.) at paragraph 13).
[42]
While
the omission mentioned above is determinative, the respondent also argues that
there were misrepresentations with respect to relevant caselaw crucial to the
Minister’s submissions.
[43]
The Minister relied heavily on the Minister of National Revenue
v. Cormier-Imbeault, 2009 FC 499, [2009] 6 C.T.C. 45 (Cormier-Imbeault),
as justification for the jeopardy order, suggesting to the Court that the facts
were very similar.
[44]
At paragraph 22 of the Minister’s written submissions, counsel states
that in Cormier‑Imbeault:
The Minister made an application for a jeopardy order on the basis
that the taxpayer’s only remaining asset was money in a bank account. As well, the
taxpayer had transferred his half-interest in a house in which he jointly owned
with his wife upon learning that the CRA was in a position to undertake
collection measures. Shore J. granted the Minister’s application for a jeopardy
order and stated in his reasons that the taxpayer was in a position to withdraw
all or part of the amounts held in the bank account at any moment.
[45]
The respondent now submits that the above recital of the facts in Cormier-Imbeault
is incomplete and that the Minister’s failure to accurately set out the
reasoning of Justice Shore is not in keeping with the standard of the outmost good faith and
disclosure.
[46]
Justice Shore states in Cormier-Imbeault, at paragraph 7, a number
of factors established by case law that can justify a jeopardy order:
(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; and
(d) the
taxpayer has assets that could potentially lessen in value over time,
deteriorate or perish.
[47]
From a reading of Justice Shore’s analysis
found at paragraph 8, we can see that Ms. Cormier-Imbeault’s only assets having
a realizable value were the amounts held in a bank account and half of her
undivided ownership of the family residence. In addition, Justice Shore noted
that in fact, in the past, there had been many withdrawals made in the bank
account. Furthermore, Mr. Imbeault’s previous conduct indicated that “he is not
trustworthy”, namely the taxpayer:
(a) had
already pleaded guilty to tax evasion;
(b) had
transferred his half of the family residence to Ms. Cormier-Imbeault upon
learning that the CRA was in a position to undertake collection measures; and
(c) had
hidden the existence of the bank account and the amount of almost $600,000 from
the CRA.
[48]
Noting that the money in the bank could be withdrawn at any time, Justice Shore concluded
that it was urgent and imperative that the CRA be in a position to seize the
bank account. Besides authorizing the applicant to take forthwith collection
actions, furthermore, in accordance with subsection 225.2(3) of the Act, Justice Shore also
authorized the applicant to serve to the taxpayers the notices of assessment at
the same time as the jeopardy order. It must be remembered that subsection
225.2(3) of the Act further requires that the judge be satisfied that “the
notice of assessment by the taxpayer would likely further jeopardize the
collection of the amount”.
[49]
Given the above, questions could legitimately be raised of whether
the Minister acted in accordance with its duty of utmost good faith in not
bringing to the attention of Justice Zinn that the decision made by Justice
Shore in Cormier-Imbeault and relied upon by the applicant in paragraph
22 of their written submissions, was rendered ex parte, both under
subsections 225.2(2) and (3) of the Act. We can see that very important factual
elements and salient features of the reasoning are omitted by counsel.
[50]
Although good faith must be presumed, again, this
oversimplification in the Minister’s presentation leaves a sour taste. It is
true that the decision rendered in Cormier-Imbeault is included in the
applicant’s book of authorities. However, in view of the urgency of the matter,
it is not generally expected that, at this stage, the Judge will go beyond the
Minister’s presentation. Considering that the application for a jeopardy order
is made ex parte, such important omissions on relevant case law from the
Minister’s written submissions, are certainly not compliant with the spirit of
these extraordinary procedures.
[51]
Be that as it may, there are further reasons to set aside the
Order as discussed below.
VI –
INITIAL BURDEN OF PROOF MET BY THE RESPONDENT
[52]
The
evidence on record consists of the sworn affidavits of Ms. Walterhouse,
Mr. Robarts and Ms. Voll, who have not been cross-examined on their affidavits.
There is no reason to find any one of them not credible.
[53]
At
the hearing of this motion, both counsels indicated to the Court that the
veracity of facts recited in these affidavits was not in issue. What is
challenged by the parties is the weight to be given by the Court to the
evidence respectively filed by the Minister and the respondent, each party
submitting that they have discharged themselves of their burden of proof.
[54]
Having
analyzed the evidence and closely read the parties’ materials in light of their
respective submissions and the principles earlier exposed at paragraphs 5 to 7
of the present reasons for order, the respondent has met the initial burden of
satisfying the reviewing Judge that there are reasonable grounds to doubt that
the collection of all or any part of the amount assessed against him would be
jeopardized by a delay in the collection of that amount.
[55]
As
aforementioned, five grounds were alleged by the Minister in support of its
application to obtain a jeopardy order:
(a)
The funds in the respondent’s known bank accounts, which totalled approximately
$687,706.62, were the only known significant asset of the respondent that was
sufficient to pay all or part of the Tax Debt;
(b)
The respondent was in the position to withdraw the funds before the CRA was
otherwise able to certify the debt and garnish his bank accounts;
(c) The respondent had significantly under-reported
his income. He had failed to accurately report business income and rental
income in respect to his tax matters in the past;
(d)
The 90-day statutory stay relating to the Reassessments was still in effect.
Thus, the respondent could file notices of objection to the Reassessments; the
Minister would be unable to collect until the conclusion of any objection or
appeal period; and
(e)
The respondent had been conducting his tax affairs in an unorthodox manner.
He appeared to have dissipated two substantial assets immediately after
being notified of the Reassessments.
[56]
At
the hearing of the present motion, counsel for the Minister was ready to
concede that taken alone or cumulatively, the four grounds listed at
subparagraphs (i) to (v) of paragraph 36 of the April affidavit of Ms.
Walterhouse may not have been sufficient to allow the issuance of
a jeopardy order. However, the fifth ground listed at paragraph (v) above
was determinative. It concerns the two actions taken by the respondent after he
learned late January 2010 that the Reassessments were coming.
[57]
As
aforesaid, the Minister based himself on the following facts:
(a) On
January 27, 2010, the respondent had withdrawn $109,000 from one of his
Scotiabank iTrade accounts; and
(b) On
January 28, 2010 he had transferred his half-interest in the Arizona property to
Ms. Voll.
[58]
In the case at bar, the Minister has submitted that the above
actions constitute unorthodox behaviour which
raises a reasonable apprehension that it would be difficult to trace funds or
recover them for the Tax Debt. Having considered the explanations given by the
respondent and Ms. Voll (with respect to the Arizona property), there are no
reasonable grounds to believe that the collection of the Tax Debt would be jeopardized
by delay in view of these two isolated actions. Their explanations are
plausible and are not contradicted by other evidence on record. This evidence
shed a new light on the Minister’s fear that the respondent was about to
liquidate the Funds.
[59]
First,
with respect to the withdrawal of $109,000 from his Scotiabank iTrade account
on January 27, 2010, the respondent explains in his affidavit that he
intended on combining that amount with $101,000 in his CIBC account and
purchasing a CIBC money market certificate for $210,000. Market conditions at
that time suggested that a money market certificate could be had at an interest
rate of nearly 3%. However, the rates stayed low (near 1.25%) so he decided not
to purchase the money market certificate and sent the cheque for $109,000 back
to Scotia iTrade to redeposit in his account, which was done on March 10,
2010, as appears from the March statement produced with the respondent’s
affidavit. I find the respondent’s explanations entirely plausible.
[60]
Second,
with respect to the transfer of his half interest in a property in Arizona on
January 28, 2010 to Ms. Voll, the respondent explains that the Arizona property was
purchased with funds that both he and Ms. Voll considered to belong to the
latter. The property was put into both their names on agreement that the
respondent would purchase a condominium in Kelowna in both
their names. As he was unable to fulfill his end of that bargain, he was only
ensuring that the title to the property reflected the true ownership of the
property. Besides, the property was transferred into Ms. Voll’s name after she
made a demand for repayment of debt. Again, while the timing of this transfer
may look suspicious, the explanations provided by the taxpayers are plausible
and should not be discarded by the Court.
[61]
The jurisprudence has not given a definition to the phrase
“unorthodox behaviour”, although it has given many examples of what it considers to be
unorthodox behaviour. A few examples are as follows:
(a) Keeping
large amounts of cash in places such as one’s apartment, safety deposit boxes
and a cold storage depot locker (Minister of National Revenue v. Rouleau,
[1995] 2 C.T.C. 442, 101 F.T.R. 57 at para. 6);
(b) Keeping
large amounts of cash, untraceable through normal banking records, in the trunk
of an automobile (Minister of National Revenue v. Arab, 2005 FC 264,
[2005] 2 C.T.C. 107 at para. 20);
(c) Keeping
double accounts for a restaurant, with one being for entries in the sales
journal, the general ledger and income tax returns, and the other being for
additional sales not reported by the holding company of the restaurant (Delaunière,
re, 2007 FC 636, 2008 D.T.C. 6274 (Eng.) at para. 4);
(d) Keeping
large amounts of cash in a safety deposit box, a filing cabinet in one’s house
and in the pocket of a housecoat (Mann v. Minister of National Revenue,
2006 FC 1358, [2007] 1 C.T.C. 243 at para. 43); and
(e) Advancing
funds to a company about to be dissolved in order to avoid paying income tax (Laquerre,
re, 2008 FC 459, 2009 D.T.C. 5596 (Eng.) at para. 11).
[62]
The respondent’s behaviour is clearly
not in the same category as the above examples. The Minister flagged two
suspicious incidents, namely the transfer of the half ownership in the Arizona property to
Ms. Voll and the withdrawal of the $109,000, and the respondent has provided a
reasonable explanation for each incident. Therefore, there are reasonable
grounds to doubt that the collection of all or any part of the amount assessed
against the respondent would be jeopardized by a delay in the collection of
that amount.
[63]
I
will now examine the rest of the evidence pertaining to the other grounds
raised by the Minister to sustain their allegation that there were (and
continue to be) reasonable grounds to believe that the collection of the Tax
Debt would be jeopardized if delayed.
VII – TEST
ESTABLISHED BY SUBSECTION 225.2(2) OF THE ACT NOT MET BY THE MINISTER
[64]
Subsection 225.2(2) of the Act requires the Minister to
show “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 …” (emphasis mine).
Reasonable grounds to believe in the context of subsection 225.2(2) of the Act
has been held to constitute a standard of proof that “while falling short of a
balance of probabilities, nevertheless connotes a bona fide belief in a serious
possibility based on credible evidence.” (see Canada (Minister of National
Revenue - M.N.R.) v. 514659 B.C. Ltd., 2003 FCT 148, at para. 6; Qu v. Canada (Minister of Citizenship and
Immigration), 2001 FCA 399, at para. 24; Papa, re,
2009 FC 49, [2009] 4 C.T.C. 93 at para. 16 (Papa).
[65]
I have already dismissed the allegation made by the
Minister that the respondent had been conducting his tax affairs in an unorthodox
manner because he appeared to have dissipated two substantial assets
immediately after being notified of the Reassessments. This leaves the other
allegations made by the Minister to the effect that the Funds were the only
known significant asset of the respondent, that he was in the position to
withdraw the Funds before the CRA was otherwise able to certify the Tax Debt
and garnish his bank accounts, that he had failed to accurately report business
income and rental income regarding these tax matters in the past, and that the
90-day statutory stay relating to the Reassessments was still in effect when
the Minister applied for a jeopardy order.
[66]
Ms.
Walterhouse’s April affidavit first explains the basis of the Reassessments.
Following the completion on January 4, 2010 of the internal audit conducted by
the CRA, the Minister considered that the respondent had not accurately reported
business income regarding two properties located in Surrey, as well as capital
gains regarding a third property in Kelowna. These sale transactions occurred
on October 31, 2005, August 31, 2006 and April 29, 2008 respectively. Thus, the
respondent was reassessed for taxes owing in the amount of $1,265,953.57.
Notices of opposition have been filed by the respondent.
[67]
The
respective positions taken by the Minister and the respondent with respect to
the merit of the Reassessments are highly debatable. The general rule established by the jurisprudence is that the correctness
of an assessment is determined in a different forum from that where the
jeopardy order is challenged. At the stage of challenging the jeopardy order,
the validity of the assessments must simply be accepted by the Court (Services
M.L. Marengère Inc., at paras 64 and 73; Minister of National Revenue v.
Reddy, 2008 FC 208, [2008] 3 C.T.C. 10 at para. 30). However,
this does not necessarily mean that the Court should not examine the evidence
submitted contesting the assessment, when evaluating whether or not a jeopardy
order is warranted.
[68]
If the record shows that a good portion of the evidence
used by the Minister to justify the jeopardy order is seriously challenged by
the taxpayer, the Court cannot simply ignore these submissions when determining
whether the jeopardy order should stand. The Minister’s assertions must necessarily
be called into question (see Minister of National Revenue v. Douville,
2009 FC 986, 357 F.T.R. 316 at paras 16 and 20).
[69]
In
the case at bar, Ms. Walterhouse herself, in her April affidavit, has made a
number of factual allegations that go beyond the mere fact that Reassessments were
issued on February 1, 2010. These allegations were made in an effort to taint
the taxpayer’s character and form the basis for the issuance of the Order. Ms.
Walterhouse alleges that the respondent had significantly under-reported his
income and that he had failed to accurately report business income and rental
income in respect to his tax matters in the past.
[70]
It is not challenged that on February 25, 2010, the respondent
informed Ms. Walterhouse that he had retained a tax lawyer to assist him in his
objections to the Reassessments and had asked that all future correspondence
regarding these issues be directed to his lawyer. Ms. Waltherhouse confirms in
her April affidavit that she was aware of the fact that the respondent had
discussed with his lawyer the possibility of making payments in order to reduce
the interest accruing on his Tax Debt. That being said, on March 8, 2010,
respondent’s counsel confirmed to the CRA’s representative in charge of
collection that he would be filing notices of objection to the Reassessments.
[71]
I
can say at this point that the Minister’s evidence, which is contradicted in
many regards by the respondent’s evidence, does not allow me to conclude,
as pressed in Ms. Walterhouse’s affidavit, that the respondent has
“significantly under reported his income” and that he has “failed to
accurately report business income and rental income.” First, the respondent vehemently
denies having ever earned rental income. Second, the respondent may have been
mistaken in reporting some gains and may not have been justified in not
reporting others, but the proper tax treatment of those gains will be
determined in due course. Third, at the hearing, counsel for the respondent
agreed that the Court could not draw a negative inference out of the respondent’s
omissions to report these gains because this litigious question has not been
settled yet.
[72]
From
a reading of Ms. Walterhouse’s affidavit, it also appears that the only assets
in Canada belonging to
the respondent have been constituted of sums of money deposited in various
financial institutions, notably the accounts held with CIBC, ING Direct and
Scotiabank iTrade. On the other hand, as corroborated by the respondent in his
affidavit, this situation has been in existence for a number of years. In the
past three years, he has been trading securities and conducting his trades
through his Scotia iTrade
account. By their very nature, liquid assets may be easily dissipated or put
beyond the reach of the Minister, but this is not, by itself, a reasonable
ground for believing the taxpayer will waste, liquidate or otherwise transfer
such assets so as to make it unavailable to the Minister. (Minister
of National Revenue v. Rouleau, [1995] 2 C.T.C. 442, 101 F.T.R. 57 at para.
9; Mann v. Minister of National Revenue, 2006 FC 1358, [2007] 1 C.T.C.
243 at para. 39; R. v. Paryniuk, 2003 FC 1505, 2004 D.T.C. 6023 at para.
14)
[73]
The question of whether the assets seized are sufficient to
satisfy the alleged Tax Debt is not definitive when evaluating whether a
jeopardy order should be granted. The fact that the taxpayer was unable to pay
the amount assessed at the time of the assessment is not, by itself, conclusive
or determinative (see Danielson v. Canada
(Deputy Attorney General), [1986] 2 C.T.C. 380, 7 F.T.R. 42 at
paras 7 and 15 (Danielson). Evidence that the taxpayer was dissipating
his assets or moving his assets out of the jurisdiction would be required (Danielson,
above, at para. 8). Other factors such as lying about one’s assets, the
disposition made of one’s assets and involvement in nefarious activities would
also be considered (Minister of National Revenue v. Ament, 97 D.T.C.
5033, 124 F.T.R. 135 at para. 23).
[74]
I agree with the respondent that the totality of the actions taken
between the date he learned that the Reassessments were coming (i.e. January
25, 2010) and the date the Minister applied for a jeopardy order (i.e. April 6,
2010) must be considered by the Court. Furthermore, several of the respondent’s
financial characteristics and actions could easily be misinterpreted, when in
fact, they appear to be reasonable where the totality of the evidence is
considered. In the case at bar, the respondent has only had liquid assets for
several years and has not made many withdrawals over the years. In fact, he
undertook in his affidavit to be conservative with his stock activities and to
not withdraw any sums of money until the Tax Debt has been evaluated and
finalized.
[75]
Ms.
Walterhouse volunteered to call the respondent on January 25, 2010, to
tell him that the Reassessments were coming. This was apparently not a case
where the Minister felt that a jeopardy order should be issued before the
notice of assessment was received by the taxpayer because this would likely
further jeopardize the collection of the amount (see paragraph 225.2(3) of the
Act).
[76]
The withdrawal of the $109,000 on January 27, 2010 was the single
most important fact the Minister relied upon when he made an application for a jeopardy
order on April 6, 2010. That fact was incorrect as the money was re-deposited
on March 10, 2010. During the months of February and March 2010, the Funds were
untouched by the respondent who would have had ample time to dispose of said
funds prior to the making of the Minister’s application.
[77]
Mere suspicion or concern is not sufficient to establish
reasonable grounds. The respondent’s explanation that he transferred his half
of the Arizona property to Ms. Voll in late January 2010 to better reflect the
true ownership of the property is plausible, in light of the loans made between
the parties and the state of their relationship at the time. In any event, as
stated at paragraph 31 of Ms. Walterhouse’s April affidavit, Ms. Voll will be
assessed pursuant to section 160 of the Act for the respondent’s Tax Debt.
Thus, the amount assessed, therefore, is not put beyond the reach of the
Minister nor is it jeopardized by delay, further considering that the Arizona property
had been bought a long time before the Reassessments and was always out of the
reach of the Minister.
[78]
In
view of this evidence, as of April 6, 2010, there were certainly no reasonable
grounds for believing the respondent would waste, liquidate or otherwise
transfer property so as to make it unavailable to the Minister. The same
conclusion holds today in view of the totality of the evidence submitted by the
parties.
[79]
In this regard, at paragraphs 62 to 64 of his sworn affidavit
dated May 5, 2010, , the respondent has made a series of undertakings in an
effort to prove to the Court his good faith and his willingness to comply with
the reassessment process, in the absence of a jeopardy order. Indeed, the
respondent has undertaken:
·
Not to waste, liquidate or transfer out of Canada any of his
assets until the resolution of the outstanding tax dispute with the CRA.
·
Not to deplete the capital of any of his investments until the
resolution of the outstanding tax dispute with the CRA.
·
To conduct his financial affairs in a conservative manner until
the resolution of the outstanding tax dispute with the CRA.
[80]
The undertakings above constitute a relevant factor in
deciding whether or not it is appropriate in the circumstances to confirm, set
aside or vary the Order previously made by Justice Zinn on April 12, 2010 (see Danielson,
above; 1853-9049 Qué. Inc. c. R, [1987] 1 C.T.C. 137, 9 F.T.R. 63; Sagman,
re, 2004 FC 1630, [2005] 1 C.T.C. 165; Minister of National Revenue v.
Douville, 2009 FC 986, 357 F.T.R. 316).
[81]
Good faith must be presumed. Acknowledging the undertakings
made by the respondent, I have no indication today that the respondent will not
respect his undertakings or that he is otherwise untrustworthy. Although
certain actions taken by the respondent appeared suspicious to the tax authorities,
I am ready to give him the benefit of the doubt.
[82]
Having
thoroughly reviewed the evidence and relevant case law and applicable legal
principles, overall, I am not satisfied that there are reasonable grounds to
believe that the collection of the Tax Debt would be jeopardized by delay.
VII – CONCLUSION
[83]
In
view of the foregoing, the present motion made by the respondent shall be allowed.
[84]
Consequently,
the Order shall be set aside and the Minister shall be ordered to forthwith
withdraw from taking or pursuing collection actions with respect to the
Tax Debt, including the seizure and freeze of the Funds which must be promptly
lifted by the CRA. This is without prejudice to the Minister’s right to make a
new application if there is a change of situation or if the respondent fails to
comply with the undertakings made to the Court.
[85]
Considering
the result, costs shall be in favour of the respondent.
ORDER
THIS COURT
ORDERS that:
1. The
motion made by the respondent is allowed;
2. The
Order rendered on April 12, 2010 is set aside;
3. The
Minister shall forthwith withdraw from taking or pursuing collection actions
with respect to the Tax Debt, including the seizure and freeze of the Funds
which must be promptly lifted by the CRA;
4. The
present Order is made without prejudice to the Minister’s right to make a new
application if there is a change of situation or if the respondent fails to
comply with the undertakings made to the Court; and
5. Costs
are in favour of the respondent.
“Luc Martineau”
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