Date: 20091002
Docket:
T-178-08
Citation:
2009 FC 986
Ottawa, Ontario, October
2, 2009
PRESENT: The Honourable
Mr. Justice Pinard
In the matter
of the Income Tax Act,
and
In the matter of an assessment and reassessments by the Minister of
National Revenue under the Income Tax Act,
AGAINST:
RAYNALD DOUVILLE
2380 Pierre-Dupuy Avenue
Apartment 701
Montréal, Quebec H3C 6N3
REASONS FOR ORDER
AND ORDER
[1]
This
is an application by Raynald Douville under subsections 225.2(8) and (9) of the
Income Tax Act, R.S.C.
(1985), c. 1 (5th Supp.) (the Act), to set aside the order delivered by
Justice Edmond Blanchard on February 1, 2008.
Facts
[2]
Raynald
Douville (the applicant) is a business person and resident of the city of Montréal. He works in
factoring, mortgage loans and business loans.
[3]
On
May 16, 2005, Yvon Talbot, an auditor with the Montréal Tax Services
Enforcement Division of the Canada Revenue Agency (the Agency), began to audit
the liability of 3479552 Canada Inc. under the Act for taxation years 2000 to 2004.
Mr. Talbot found that the applicant was the director of the said company and the
companies 3123430 Canada Inc., 3479641 Canada Inc., Corporation financière First
Liberty Inc., 3301982 Canada Inc. and La Financière Keybridge Inc., of which
he was the major or sole shareholder. Noticing that the applicant’s reported
income for the years 2000 to 2005 seemed low and that large amounts were spent
during the same period, Mr. Talbot proceeded to audit the applicant’s liability
under the Act for the said years.
[4]
The
audit, which started in May 2005 but did not finish until fall 2007, was subject
to considerable delays. According to the Minister of National Revenue (the
Minister), the applicant and his representatives were the cause of this because
of their lack of cooperation. However, the applicant and his representatives
insist that Mr. Talbot’s [translation]
“belligerent and outrageous attitude” was responsible for the delay.
[5]
Based
on the audit, the following assessments were issued against the applicant:
|
Taxation year
|
Type
|
Assessment date
|
Amounts assessed
|
|
2000
|
Notice of reassessment
|
October 9, 2007
|
$99,456.76
|
|
2001
|
Notice of assessment
|
November 20, 2007
|
$57,059.39
|
|
2002
|
Notice of reassessment
|
October 9, 2007
|
$179,160.25
|
|
2003
|
Notice of reassessment
|
October 9, 2007
|
$82,632.40
|
|
2004
|
Notice of reassessment
|
October 9, 2007
|
$114,320.97
|
|
2005
|
Notice of reassessment
|
October 9, 2007
|
$124,157.15
|
[6]
On
October 24, 2007, notices of objection were filed against the notices of
reassessment and the notice of assessment listed above. As the notice of
assessment was issued only in November 2007, the notice of objection for 2001
was rejected by means of a letter dated November 7, 2007, because it was filed
before the assessment.
[7]
On
January 28, 2008, the Minister filed his ex parte notice of application for
authorization to take forthwith the actions described in paragraphs 225.1(1)(a)
to (g) of the Act. The following reasons were submitted in support
of the application:
1)
Raynald
Douville’s late filing of an income tax return, Raynald Douville’s failure to
pay an undisputed amount and failure to report employment income paid by his
own company;
2)
Raynald
Douville’s lack of cooperation during the tax investigation, long delays,
refusal to provide crucial information and accusations against the auditor;
3)
Mr.
Douville’s categorical refusal to provide documents crucial to the audit of his
companies;
4)
Failure by
Mr. Douville and his representatives to challenge the major part of the net worth
established by the auditor and expenses that were entirely inconsistent with
the reported income;
5)
Notice of
objection without any details;
6)
Raynald
Douville’s use of a nominee to hold one of his main assets and the creation of
a fictitious mortgage on this asset;
7)
Raynald Douville’s
disposition of the condominium at 2380 Pierre-Dupuy, #701 to Fiducie Douville, and
Fiducie Douville’s listing of this asset for sale;
8)
Listing
for sale of the residence at 140
Estérel Road;
9)
Estimated
net value of Raynald Douville’s known assets;
10) Mr. Douville’s tax liability.
[8]
In
an order dated February 1, 2008, the ex parte application was granted by
Justice Edmond Blanchard, who was satisfied that there were reasonable grounds
to believe that the collection of all or any part of the amounts would be
jeopardized by a delay in the collection of the amounts. He ordered service on
the applicant within the following five days to enable him to file an
application to review the authorization.
[9]
On
March 4, 2008, the applicant filed, with the Court, a notice of application
to review the authorization to proceed forthwith.
[10] On March 24,
2009, at the hearing before Justice Sean Harrington, the applicant’s
representative made an oral request to strike Exhibits A, B and C of Minoufa
Jeannot’s statutory declaration dated January 29, 2008, and the references to
Ms. Jeannot’s affidavit in Yvon Talbot’s affidavit, also dated January 29,
2008. The applicant then requested that the seizure be set aside because of
errors in the evidence. In an order dated May 8, 2009, Justice Harrington ruled
that the alleged errors were not fatal errors and rejected the expungement
request made by the applicant.
[11] However,
Justice Harrington did not rule on the merits of the application for review that
is in question here, which concerns the authorization granted on February 1, 2008,
by Justice Blanchard, to Her Majesty the Queen, represented by the Minister, to
take forthwith any of the actions described in paragraphs (a) to (g)
of subsection 225.1(1) of the Act, in order to collect or secure the payment of
the said amounts by the applicant.
Relevant legislation
[12]
The
following provisions of the Act are relevant in this case:
|
225.1 (1) If a taxpayer is liable
for the payment of an amount assessed under this Act, other than an amount
assessed under subsection 152(4.2), 169(3) or 220(3.1), the Minister shall
not, until after the collection-commencement day in respect of the amount, do
any of the following for the purpose of collecting the amount:
(a) commence
legal proceedings in a court,
(b) certify
the amount under section 223,
(c) require a
person to make a payment under subsection 224(1),
(d) require an
institution or a person to make a payment under subsection 224(1.1),
(e) [Repealed,
2006, c. 4, s. 166(1).]
(f) require a
person to turn over moneys under subsection 224.3(1), or
(g) give a
notice, issue a certificate or make a direction under subsection 225(1).
. . .
|
225.1 (1) Si un contribuable est redevable du
montant d’une cotisation établie en vertu des dispositions de la présente
loi, exception faite des paragraphes 152(4.2), 169(3) et 220(3.1), le
ministre, pour recouvrer le montant impayé, ne peut, avant le lendemain du
jour du début du recouvrement du montant, prendre les mesures
suivantes :
a) entamer une poursuite devant un tribunal;
b) attester le montant, conformément à l’article 223;
c) obliger une personne à faire un paiement, conformément au
paragraphe 224(1);
d) obliger une institution ou une personne visée au paragraphe
224(1.1) à faire un paiement, conformément à ce paragraphe;
e) [Abrogé, 2006, chap. 4, art. 166(1).]
f) obliger une personne à remettre des fonds, conformément au
paragraphe 224.3(1);
g) donner un avis, délivrer un certificat ou donner un ordre,
conformément au paragraphe 225(1).
. . .
|
|
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 (g) with respect to the
amount.
. . .
(8) Where a judge of a court has granted an authorization under this
section in respect of a taxpayer, the taxpayer may, on 6 clear days notice to
the Deputy Attorney General of Canada, apply to a judge of the court to review the authorization.
(9) An application under subsection (8)
shall be made
(a) within 30
days from the day on which the authorization was served on the taxpayer in
accordance with this section; or
(b) within
such further time as a judge may allow, on being satisfied that the
application was made as soon as practicable.
. . .
(11) On an application under
subsection (8), 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.
|
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.
. .
.
(8) Dans le cas où le juge saisi accorde
l’autorisation visée au présent article à l’égard d’un contribuable, celui-ci
peut, après avis de six jours francs au sous-procureur général du Canada,
demander à un juge de la cour de réviser l’autorisation.
(9) La requête visée au paragraphe (8)
doit être présentée :
a) dans les 30 jours suivant la date où l’autorisation a été
signifiée au contribuable en application du présent article;
b) dans le délai supplémentaire que le juge peut accorder s’il est
convaincu que le contribuable a présenté la requête dès que matériellement
possible.
. . .
(11) Dans le cas d’une requête
visée au paragraphe (8), le juge statue sur la question de façon sommaire et
peut confirmer, annuler ou modifier l’autorisation et rendre toute autre
ordonnance qu’il juge indiquée.
|
Analysis
[13]
The
principles and the case law applicable to reviewing the authorization granted
in accordance with subsection 225.2(2) of the Act were well summarized by
Justice Lemieux in Canada (Minister of National Revenue) v. Services M.L.
Marengère Inc., [1999] F.C.J. No. 1840 (T.D.) (QL), 2000 D.T.C. 6032 (Services
M.L. Marengère). In particular, on the issue of burden of evidence in an
application for review he points out the following:
[63] . . .
(2) In terms of burden, an
applicant under subsection 225.2(8) has the initial burden to show that there
are reasonable grounds to doubt that the test required by subsection 225.2(2)
has been met, that is, the collection of all or any part of the amounts
assessed would be jeopardized by the delay in the collection. However, the
ultimate burden is on the Crown to justify the jeopardy collection order
granted on an ex parte basis.
(3) The evidence must show, on
a balance of probability, that it is more likely than not that collection would
be jeopardized by delay. The test is not whether the evidence shows beyond all
reasonable doubt that the time allowed to the taxpayer would jeopardize the
Minister's debt.
[14] Under
subsection 225.2(2) of the Act, the Minister may “act . . . to meet any situation
in which the taxpayer’s assets may vanish in thin air because of the passage of
time” (Services M.L. Marengère, at paragraph 63). Nevertheless, an ex
parte collection order is an extraordinary remedy (Canada (Minister of
National Revenue) v. Thériault-Sabourin, [2003] F.C.J. No.
168 (T.D.) (QL), 2003 FCT 124, at paragraph 13; mere suspicion or mere
concern is not sufficient.
[15]
Unlike
Justice Blanchard, I have the advantage of having before me the evidence
submitted by the applicant, which includes the following affidavits:
1.
Affidavit of Raynald Douville dated July 10, 2008;
2.
Affidavit of Jules Brossard, counsel, dated June 27, 2008;
3.
Affidavit of Michel Bernucci, accountant, dated July 3, 2008;
4.
Affidavit of Barbara Bell, real estate agent, dated July 4, 2008;
5.
Affidavit
of Paule Faubert, personal damage insurance broker, dated October 22, 2008;
6.
Affidavit
of Philippe E. Jones, damage insurance broker, dated November 7, 2008;
7.
Affidavit
of Raynald Douville, business person, dated November 4, 2008; and
8.
Affidavit
of Nick Matni, controller of Holand Leasing (1995) Ltd., dated November 4, 2008.
[16] A reading of
the parties’ submissions reveals two things: (1) many aspects of the evidence
are seriously challenged, and (2) a clearly strained relationship exists
between the applicant and his representatives and the auditor, Mr. Talbot.
[17] First, the applicant
systematically challenged the Minister’s allegations in his written submissions.
For example, the applicant explained that the late filing of his 2001 income
tax return was simply through inadvertence, which is corroborated by his
accountant, Mr. Bernucci. Moreover, regarding the unpaid amount for 2006, he
indicated that his accountant had told him that as he was owed money for 2001, he
could ask that this refund be used to offset his debt.
[18] With respect
to his principal residence, the applicant and his representatives denied the claim
that it was purchased by Mr. Douville in 1998, as stated by Mr. Talbot. According
to them, this property was initially bought by Mr. Douville’s former spouse,
Nathalie Fontaine. Following the couple’s split, in 2001 she sold the property
to the applicant, who assumed the existing mortgage and executed a mortgage to secure
the balance of the purchase price. Later, the mortgage was the subject of a
donation by Ms. Fontaine to The Ray Trust. Therefore, according to them, this is
not an issue of using a nominee but rather an allowable transaction.
[19] Regarding the
allegation that the applicant attempted to dissipate his principal asset, his
counsel provided the following explanation in his affidavit dated June 27, 2008:
[translation]
26.
Regarding the
sale of Mr. Douville’s principal residence located at 2380 Pierre Dupuy, Apartment
701 to Fiducie Douville, which took place on May 30, 2007, I emphasize that
this transfer was made as per my recommendation. In fact, I told Mr. Douville
that I systematically recommend to my clients who are in business that their
principal residence and their secondary residence be held by a trust;
[20] The Minister
suggested that this conduct demonstrates a desire on the part of the applicant
to squander his assets. However, faced with the expert sworn statements by the
accountant, Mr. Bernucci, I cannot unreservedly accept the interpretation
of facts put forth by the respondent.
[21] Moreover, the
Minister stated that the applicant refused to cooperate with the auditor and to
provide crucial information. The applicant responded that he did everything to
accommodate the audit and that it was the auditor who acted inexcusably. In
particular, the applicant expressed his dismay that the auditor contacted third
parties during his investigation and informed them of the fact that he was the
subject of a tax audit. Mr. Douville claims that it was partly because of Mr. Talbot’s
[translation] “cavalier” attitude
that he refused to provide him with his clients’ telephone numbers and loan
agreements. According to Mr. Bernucci,
[translation]
33. Mr. Douville never refused to
provide any information whatsoever to the Canada Revenue Agency except for when
it was a matter of submitting cell phone statements and copies of loan
agreements to the auditor because Mr. Talbot had already said that he would
contact the people mentioned in the phone statements and the borrowers for
investigative purposes;
[22] This
emphasizes the above-mentioned tension, which constitutes, in my opinion, an
important element of the factual background. I believe that the words of
Justice Andrew MacKay in Q. v. Satellite Earth Station Technology
Inc., [1989] F.C.J. No. 912 (T.D.) (QL), also apply in
this case:
42. In this case considerable mistrust
appears to have developed between department officers and Brough. Brough may
well have appeared less than open and truthful in his dealings with representatives
of the department and he may well have perceived the officers as less than fair
and cooperative. From the perspective of each their mistrust may appear
warranted, but it is unfortunate. It appears to have generated suspicion on the
part of the taxation officers that Brough was simply seeking to evade payment
of taxes deemed due from the company.
That suspicion might have been inferred from the facts that those responsible
for the company were aware of the audit and subsequent correspondence about
liability of the company for past taxes and that assets of the company, which
was already in some financial difficulty, were distributed between the
principals in less than orthodox fashion. But there is not evidence, in my
view, that would warrant this suspicion as a reasonable conclusion and
suspicion in itself is not a reasonable basis for authorization to avoid delay
in collection which section 225.1 of the Act specifies as the normal case.
(Emphasis
added.)
[23] Therefore, I
am satisfied, despite Ilinca Ghibu’s able presentation for the Agency, that
the applicant met his burden of evidence in establishing that there are
reasonable grounds to believe that the criterion stated in subsection 225.2(2) of
the Act was not respected. Generally, the applicant offered a reasonable
response to the Minister’s allegations, a response supported by his counsel’s
and his accountant’s statements. Moreover, I note that the Minister chose not to
cross‑examine them. The reasons for the Minister’s decision are based mainly
on the applicant’s conduct during the audit and on reasonably challenged facts
in support of his application for authorization to proceed forthwith. In my
view, assessing these facts would be more conclusive within the objection process
in progress. Therefore, I am not satisfied that there is evidence demonstrating
that, on a balance of probability, it is more likely than not that granting a delay
would jeopardize the collection.
[24] Finally, I
note that the applicant, to demonstrate his good will, stated in his affidavit
that if this application is granted, he will undertake to give 30 days’ notice
to the Agency of any important change affecting his asset base; he added that
if the condominium is sold, he will deposit the net profit of the sale in a
trust. Such an undertaking was acknowledged by Justice Johanne Gauthier in
Income Tax Act and Sagman, 2004 FC 1630.
Conclusion
[25] For all of
these reasons, the application to review the order delivered by Justice
Blanchard on February 1, 2008, authorizing Her Majesty the Queen, represented
by the Minister, to take forthwith any of the actions described in paragraphs 225.1(1)(a)
to (g) of the Act, in order to collect or secure the payment by the applicant
of the amounts that are the subject of a notice of assessment, is granted. Consequently,
this order dated February 1, 2008, is set aside and the collection measures
taken under it are declared null and void, with the result that all of the
amounts seized further to these collection measures are to be reimbursed to the
applicant. With costs.
ORDER
The application for review is
granted and the order delivered by Justice Blanchard on February 1, 2008,
authorizing Her Majesty the Queen, represented by the Minister of National
Revenue, to take forthwith any of the actions described in paragraphs 225.1(1)(a)
to (g) of the Act, in order to collect or secure the payment by the applicant
of amounts that are the subject of a notice of assessment, is set aside. Consequently,
the collection measures taken under this order dated February 1, 2008, are
declared null and void, with the result that all of the amounts seized further
to these collection measures are to be reimbursed to the applicant.
With costs.
“Yvon
Pinard”
Certified
true translation
Janine
Anderson, Translator
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