Date: 20080409
Docket:
T-699-07
Citation:
2008 FC 459
Ottawa, Ontario, the 9th
day of April 2008
PRESENT: The Honourable
Mr. Justice Martineau
IN THE MATTER OF the Income Tax Act
AND IN THE MATTER OF assessments by the
Minister
of National Revenue under the Income
Tax Act
AGAINST:
MARIO LAQUERRE
FIDUCIE MARIO LAQUERRE
FIDUCIE ML
FIDUCIE MJ
9122-9831 QUÉBEC INC.
9067-6388 QUÉBEC INC.
1392, 4e avenue
Québec (Québec) G1J 3B6
Respondents
REASONS FOR ORDER AND ORDER
[1]
As a general rule, pursuant to subsection 225.1(1) of the Income
Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (the Act), is that the Minister of
National Revenue (the Minister) is restricted from collecting amounts owing by
a taxpayer to Her Majesty in Right of Canada (Her Majesty or the applicant)
until 90 days after the day on which the notice of assessment is mailed.
Nevertheless, where a judge 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 proceed forthwith.
[2]
Subsection
225.2(2) of the
Act provides as follows:
|
(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.
|
(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.
|
[3]
The
respondents, Mario Laquerre (Laquerre), Fiducie Mario Laquerre (Fiducie
Laquerre), Fiducie ML (ML), Fiducie MJ (MJ), 9122-9831 Québec Inc. (9122) and
9067-6388 Québec Inc. (9067), are seeking to have the court set aside the ex
parte order issued April 26, 2007, authorizing the Minister to
take forthwith any or all of the collection measures described in paragraphs (a)
to (g) of subsection 225.1(1) of the Act, to collect and/or secure
the payment of the assessments made by the Minister on
April 25, 2007, against the respondents (the impugned order).
[4]
On the
return of the ex parte motion in this docket, the Court relied on the
affidavits of André Ferland and Annie Morin in issuing the impugned order, both
sworn April 25, 2007. That said, in docket T-1594-06, in issuing the first
jeopardy collection order, the Court relied on the affidavit of Jeannot Roy,
sworn August 29, 2006, and on the affidavits of André Ferland and
Annie Valois, both sworn August 31, 2006.
[5]
Remember
that the Court already issued a first ex parte order under subsection
225.2(2) of the Act against Laquerre, Fiducie Laquerre and ML, as well as other
entities or companies (most of which are not respondents herein), in docket
T-1594-06, on September 6, 2006, to collect and/or secure the payment of
the assessments made by the Minister on August 31, 2006. Like in docket T‑1594-06,
the Court is satisfied that there are reasonable grounds to believe that
granting a delay to the respondents to pay the total amounts in the assessments
issued August 25, 2007, would jeopardize the collection of all or any part of
those amounts. For both dockets, the Court is of the opinion that the validity
of the two jeopardy collection orders should be upheld.
[6]
I accept
the following from the voluminous evidence submitted by the applicant.
[7]
Laquerre
is a resident of Quebec City. He has been involved in real estate investment
for several years, acquiring (in his own name and through the trusts and
numbered companies he controls) foreclosures and other distress properties. Incidentally, I note that in another ex parte order
issued October 11, 2007, the Court agreed to lift the corporate veil in respect
of some of those entities. This issue is dealt with in a concurrent decision
(2008 FC 460) on a motion by the judgment creditor, in this case Her Majesty,
to issue a charging order absolute on the various immovables belonging to 9067
and/or 9011-1345 Québec Inc. (9011).
[8]
In May
2003, Annie Valois, a Canada Revenue Agency (Agency) auditor, informed Laquerre
that she wanted to conduct an audit for tax years 1998 to 2002, inclusive, of
his business and that of Fiducie Laquerre, ML and 9067, as well as three other
numbered companies, namely, 9075-3153 Québec Inc. (9075); 9015-7769 Québec Inc.
(9015); and 9029-0065 Québec Inc. (9029). I note that 9075, 9015 and 9029 are
also respondents in docket T-1594-06.
[9]
Starting
in August 2003,
she conducted the audit on site. She noted the following:
[TRANSLATION]
Laquerre has been providing incomplete
information to his representatives, to such an extent that several real estate
transactions have not been reported at all, or the reported gain does not
represent the true gain, which means that Laquerre or the trusts of which he is
one of the two trustees and one of the beneficiaries or his non-arm’s length
companies voluntarily evaded the payment of income tax owed to [the Agency…].
[10]
Ms.
Valois determined
that Laquerre and the non-arm’s length companies or the trusts of which he was
one of the beneficiaries were employing a number of tax evasion schemes. On
February 27, 2004, Ms. Valois met with Laquerre and his chartered accountant,
Laurier Edmond. The latter stated that Laquerre [TRANSLATION] “really doesn’t
like paying income tax”.
[11]
Ms.
Valois described
four schemes in her affidavit dated August 31, 2006. One of them is explained
as follows under the heading [TRANSLATION] “B. THE SCHEME OF ADVANCING FUNDS TO
A COMPANY ABOUT TO BE DISSOLVED”:
15.
During my
audit, I discovered that Laquerre had also developed a scheme for diverting
proceeds from the sale of immovables to one of his trusts or companies without
any tax implications;
16.
Through
one of his trusts or non-arm’s length companies, Laquerre would charge the
immovables belonging to his trusts or companies with several hypothecs,
indicating in the hypothecary instruments that these were amounts granted
through cash advances;
17.
However,
the cash advances were in fact much lower than the amounts of the registered
hypothecs;
18.
This means
that when the company or trust sold the immovable to a third party, the
notary—often selected by the buyer—had to ensure that all the debts associated
with the immovable were paid before making any payments to the vendor;
19.
The notary
would therefore discharge the hypothecs in the name of the entities belonging
to Laquerre without having to verify whether the amounts had actually been
advanced;
20.
At that
point, the notary would write a cheque to the holder of the hypothec to obtain
an acquittance for the debt. Usually, the redemption of the hypothec generates
a credit balance with regard to the advances. Normally, in such a transaction,
no benefit is calculated because the entity receiving the money records an
account payable to the entity to which the advances are owed.
21.
In fact,
however, his entities would wind up their companies, cease operations, make no
credit entry offset, stop filing income tax returns and be struck off by the
Inspector General of Financial Institutions, so that the advance owed by the
company or trust that had sold the immovable was never reimbursed;
22.
I consider
the resulting benefits undeclared income amounting to approximately
$1,888,952.67$ for the various entities concerned, as can be seen in Reference
2 of Appendix 2 of the audit report filed as Exhibit “65” in support of my
affidavit;
[12]
On
November 1, 2004,
Ms. Valois transferred Laquerre’s file to the Agency’s Special Investigations
section, which commenced an investigation. Apparently, the investigation is
ongoing. To date, no charges have been laid against the respondents.
[13]
Ms.
Morin’s affidavit of April 25, 2007, filed in support if the second ex
parte motion seeking a jeopardy collection order, describes the audit of
9067 for the 2005 taxation year, undertaking starting in September 2006. Like
Ms. Valois, Ms. Morin noted that many transactions were being
effected among the various entities controlled by Laquerre and that very few of
the tax implications associated with these transactions had been reported to
the Agency. Moreover, the accounting records contained fictitious entries.
Given the income reported by Laquerre’s parents, they could not possibly have
advanced him approximately $1,000,000.00. In light of her own audit,
Ms. Valois’s affidavit of August 31, 2006, and the behaviour of
Laquerre and his non-arm’s length companies and trusts
of which he was a beneficiary, Ms. Morin determined that there was reason
to believe that Laquerre, Fiducie Laquerre, ML, 9122 and 9067 acted with the
purpose of evading the payment of income tax.
[14]
According
to Mr. Ferland’s
affidavit of April 25, 2007,
a) Laquerre owes the Agency a
total of $1,145,686.04 based on four notices of reassessment dated August
31, 2006, for the taxation years 1999 to 2002, inclusive, a notice of
assessment dated November 6, 2006, for the 2005 taxation year and a
notice of reassessment dated April 25, 2007, for the 2005 taxation year;
b) Fiducie Laquerre owes the
Agency $167,784.65 based on an initial assessment dated August 31, 2006,
for the 2001 taxation year, a notice of reassessment dated August 31,
2006, for the 2002 taxation year, and a notice of reassessment dated April 25,
2007, for the 2004 taxation year;
c) ML owes the Agency
$764,945.99 based on five notices of reassessment dated August 31, 2006,
for the taxation years 1998 to 2002, inclusive, and a notice of reassessment
dated April 25, 2007, for the 2004 taxation year;
d) MJ owes the Agency
$30,000 based on a notice of assessment dated April 25, 2007,
for an indirect transfer of property carried out on July 29, 2002;
e) 9122 owes the Agency
$29,070.74 based on two notices of reassessment dated April 25,
2007, for the 2004 and 2005 taxation years;
f)
9067 owes
the Agency $101,386.21 based on a notice of assessment dated April 25, 2007, for the 2005 taxation
year.
[15]
Mr. Ferland
also indicated in an affidavit dated April 25,
2007, that he had reason to believe, inter alia, that,
a) Laquerre or his non-arm’s
length companies or trusts had no more liquid assets;
b) most of their assets were
charged with hypothecs, which meant that this property had practically no
value;
c) Laquerre and his non-arm’s
length companies or trusts were attempting to shield their property from their
creditors; and,
d) the schemes developed by
Laquerre and his non-arm’s length companies and trusts for the purpose of
shielding assets from their creditors indicate that the collection of the debt
owed to Her Majesty would be jeopardized by a delay granted to the respondents
to pay the amounts in the assessments issued to them.
[16]
In
the impugned
order issued on April 26, 2007, the Court
authorized, inter alia,
a) the
applicant to apply paragraphs 225.1(1)(a) to (g) of the Act
against the respondents for the assessments issued April
25, 2007;
b) the
applicant and the serving bailiff to serve the impugned order on the
respondents;
c) the
serving bailiff to appoint a guardian (other than Laquerre) for the property
seized;
d) the
serving bailiff to remove the property seized;
e) the
bailiff charged with the writs of seizure and sale to open the doors to any
location and to open any safe-deposit box and safe; and,
f) the
serving bailiff to have the door opened of any closed or locked safe on the
premises related to Laquerre and his companies and trusts.
[17]
In fact,
on April 27, 2007, after the impugned order was issued, the Agency carried
out immovable seizures in the various places of business of the respondents.
Following the seizures, the agency registered legal hypothecs against
immovables belonging to the respondents. The Agency also sent Requirements to
Pay to Fiducie Laquerre, 9067, 9011, Laquerre’s parents and certain financial
institutions, requiring them to pay the amounts loaned or advanced to the
respondents.
[18]
After
the impugned
order was issued, the respondents confirmed their intention to challenge before
the Tax Court of Canada the notices of reassessment issued April 25, 2007, and subsequently served upon them.
The outcome of their objection or appeal has yet to be determined. That said,
subsection 225.2(8) of the Act allows a taxpayer to apply to the Court by way
of a motion to review the ex parte authorization obtained under
subsection 225.2(2) of the Act. That is what they have done here. The
principles applicable in this case have been well established by this Court.
See, for example, Canada (Minister of National Revenue) v. Services M.L.
Marengère Inc., [2000] 1 C.T.C. 229, [1999] F.C.J. No. 1840 (QL) (Marengère)
and Canada v. Satellite Earth Station Technology Inc., [1989] 2 C.T.C.
291, [1989] F.C.J. No. 912 (QL).
[19]
Mr. Justice
Lemieux explains
the following at para. 63 of Marengère:
(1) The perspective of the jeopardy
collection provision goes to the matter of collection jeopardy by reason of
delay normally attributable to the appeal process. The wording of the provision
indicates that it is necessary to show that because of the passage of time
involved in an appeal, the taxpayer would become less able to pay the amount assessed.
In other words, the issue is not whether the collection per se is in jeopardy
but rather whether the actual jeopardy arises from the likely delay in the
collection.
(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.
(4) The Minister may certainly act not
only in cases of fraud or situations amounting to fraud, but also in cases
where the taxpayer may waste, liquidate or otherwise transfer his property to
escape the tax authorities: in short, to meet any situation in which the
taxpayer’s assets may vanish in thin air because of the passage of time.
However, the mere suspicion or concern that delay may jeopardize collection is
not sufficient per se. As Rouleau J. put it in 1853-9049 Quebec Inc., supra,
the question is whether the Minister had reasonable grounds for believing that
the taxpayer would waste, liquidate or otherwise transfer its assets, so
jeopardizing the Minister’s debt. What the Minister has to show is whether the
taxpayer’s assets can be liquidated in the meantime or be seized by other
creditors and so not available to him.
(5) An ex parte collection order is an
extraordinary remedy. Revenue Canada must exercise utmost good faith and insure
full and frank disclosure. …
[20]
The
respondents submit that there are no reasonable grounds to believe that
granting a delay to pay the amounts set out in the notices of reassessment
would jeopardize the collection of all or any part of those amounts. They also
claim that the Minister failed to fulfill his obligation to disclose to this
Court all the relevant facts on the return of the ex parte motion. Thus,
the affidavits submitted by the applicant in support of the ex parte
motion included allegations that were insufficient, inaccurate or out of
context. Furthermore, Laquerre suffered personally as a result of the seizures
carried out by the Agency.
[21]
At
the hearing
before this Court, counsel for the respondents dwelt at length on a number of
errors and omissions revealed by Mr. Ferland’s examination on affidavit in
particular. Accordingly, he invited the Court to reject all of Mr. Ferland’s
allegations on the basis that he was not credible and that he had failed to
disclose material facts to the Court. The respondents also challenge the
conclusions reached by Ms. Morin and Ms. Valois in their respective affidavits
to the effect that the respondents attempted to evade their income tax
payments. The respondents have much to explain with respect to the transactions
at issue and their failure to report various amounts to the tax authorities for
the taxation years in question.
[22]
In
this case, the
respondents allege that the applicant failed to inform the Court that Laquerre
had been making real estate investments for many years in his own name and
through his trust and companies. These activities constitute his livelihood and
are perfectly legitimate. They do not represent the dissipation of immovable
assets by a taxpayer, but rather the normal activities of buying and selling
immovable property.
[23]
The respondents also claim that Mr. Ferland took no
steps to obtain information about the deposits and withdrawals made on the
accounts of the entities being audited and investigated. Moreover, Mr. Ferland
possessed relevant information [TRANSLATION] “that could have provided
explanations to the Court” on the deposits in question.
[24]
The
respondents
further submit that during his examination on affidavit in docket T-1594-06,
Mr. Ferland was unable to identify from which creditors the liquid assets of
the companies and trusts in question would be shielded.
[25]
The
respondents note that in his affidavit of April 25, 2007,
Mr. Ferland refers to the sale of seven immovables. However, he took no
steps to obtain explanations regarding the reasons for the sales in question.
In this case, the sole purpose of the sales of the immovables was to maximize
the respondents’ profits; in no way did they represent an attempt on Laquerre’s
part to shield the property from his investors.
[26]
Additionally,
according to the
respondents, Mr. Ferland made no attempt to trace the source of the cash
allegedly found in the safe belonging to Laquerre that was stolen in 2003,
which apparently contained CAN$65,000 and between US$12,000 and US$15,999, a
large number of precious jewels, three passports, a will, credit cards and
other pieces of identification.
[27]
The
respondents are critical of Ms. Morin’s “summary” review of the income tax
returns of Laquerre’s non-arm’s length companies and trusts. The limited audit
of these entities was insufficient to conclude [TRANSLATION] “that a large
number of transactions was effected among the respondents and that the tax
implications flowing from these transactions do not all seem to have been
reported.”
[28]
Finally,
they allege that Ms. Morin implies that Laquerre and the companies and
trusts at issue voluntarily evaded income tax payments for several years. That is not the case here. Laquerre has never
voluntarily attempted to evade income tax payments, not have his companies or
trusts.
[29]
Firstly,
I find that the
applicant satisfied his obligation of sufficient disclosure. Secondly, I am of
the opinion that the conditions for issuing a jeopardy collection order are satisfied
in this case. We need only refer to the affidavits filed in support of the ex
parte motion and the written submissions of the applicant. I shall simply
note the following.
[30]
First of
all, Ms. Morin is clear in her affidavit of April 25, 2007, that Laquerre
“has been operating in real estate for several years and that the property
purchased by his non-arm’s length companies and trusts are often foreclosures
acquired from financial institutions”. Mr. Ferland also notes in his
affidavit of April 25, 2007, that Laquerre is a businessman and that the
business activity of 9122 and 9067 is property management.
[31]
The
respondents’
criticisms, including those specifically raised in their written arguments,
focus primarily on the hypothetical, insufficient or decontextualized nature of
certain allegations made by Mr. Ferland and Ms. Morin
and/or Ms. Valois in their respective affidavits. However, I do not find
that these criticisms, even when taken together, allow this Court to conclude
that the applicant failed to satisfy his obligation of full and frank
disclosure. Full and frank disclosure does not require the disclosure of
material that is simply irrelevant to the test for issuance of a jeopardy
collection order (Canada (Minister of National Revenue - M.N.R.) v. Rouleau,
[1995] F.C.J. No. 1209 (QL)).
[32]
In
so deciding, I took into account the fact that the remedy provided by
subsection 225.2(2) of the Act is an exceptional measure and that the standard
of disclosure to which the Minister is subject during the ex parte
hearing is high.
Thus, a motion to strike an order must be granted where it is apparent that the
Minister’s failure to make full and frank disclosure of the facts has misled
the judge. Such is not the case here.
[33]
In
this case, the
respondents have failed to discharge their initial burden of showing that there
are reasonable grounds to doubt that the general test required by subsection
225.2(2) of the Act has been met having regard to the particular facts of the
case. In any event, having had the opportunity to review all the evidence in
dockets T-1594-06 and T-699-07, including the evidence submitted by the
respondents in this case, I find it more likely than not that granting a delay
to the respondents would jeopardize the collection of the amounts owing to Her
Majesty. The evidence as a whole in dockets T-1594-06 and T-699-07 establishes
clearly and objectively that Laquerre is attempting to liquidate various
immovable assets and redistribute the sale proceeds to other companies or
trusts in order to shield those amounts from his creditors, if not from his
principal creditor, Her Majesty (and likely also the tax authorities of the
province of Quebec). Because of the highly precarious financial situation in
which the respondents now find themselves, the collection of the debt owed to
Her Majesty would be jeopardized if the respondents were granted a delay to pay
the amounts set out in the assessments issued to them.
[34]
Incidentally, the respondents emphasize
that they do not have, nor have they ever had, any intention to dissipate their
assets. However, as Lemieux J. points out in Marengère, supra, at
paragraphs 67 and 72 (subparagraph 4),
[67] … This case does not turn on intent
or on tax planning; it calls to be determined looking at the matter objectively
and realistically on the ground so to speak. In other words, it is the effect
or result of the taxpayer’s action in dealing with its assets that is important
and relevant in the assessment of the appropriateness of a collection jeopardy
order. Tax liability is not an issue in such proceedings.
[72] (4) the Minister does not have to
prove fraud or deceit or bad motive.
[35]
Regardless
of the
respondents’ real or presumed intentions, it is clear that in the facts, the
actions taken by the respondents are obstructing the collection measures taken
against 9075, 9015 and 9029, and that granting an additional delay to all of
the respondents would jeopardize the collection of all or part of the income
tax, interest and penalties that the applicant is claiming from the respondents
under the reassessments.
[36]
By
way of example,
the documentary evidence in the record shows that 9075, 9015 and 9029, three
numbered companies controlled by Laquerre, reported very little income. They
were then struck out ex officio on May 7, 2004. In this respect, the
only assets belonging to 9075, 9015 and 9029 today are various amounts owed by
ML or Fiducie Laquerre (of which Laquerre is one of the two beneficiaries).
Despite the collection measures taken following the issuance of the two jeopardy
collection orders on September 28, 2007, the full tax debt owed by Laquerre,
9122, 9075, 9015, 9029, ML, Fiducie Laquerre and MJ amounted to $2,809,313.22
(paragraph 23 of Mr. Ferland’s affidavit dated November 20, 2007, filed in
response to the respondents’ motion to strike).
[37]
Moreover,
without disposing
of the issue, I find that the evidence in the record establishes prima facie
that the applicant also has reasonable grounds to maintain before this Court
that the respondents are attempting to evade income tax. I need only refer to
the affidavits of Mr. Ferland, Ms. Valois and
Ms. Morin, which for the most part are not
seriously disputed by the respondents. Counsel for the respondents recognizes
that the credibility
of Ms. Valois and Ms. Morin is not at issue. In her most recent detailed
affidavit dated November 13, 2007, Ms. Valois reiterates the truth of what she
stated in her previous affidavit of August 31, 2006,
in docket T-1594-06. Ms. Valois also challenges some of the less
credible statements and explanations found in Laquerre’s affidavit. For
example, I accept that Laquerre did not give Ms. Valois his full cooperation
during his audit, which resulted in several delays. I also accept that Laquerre
seems to have employed various schemes to deceive the tax authorities. These
are very well explained, with plenty of examples, at paragraphs 27 and
following of Ms. Valois’s affidavit dated November 13, 2007, filed by the
applicant in response to the respondents’ motion to strike.
[38]
Having
weighed all of
the parties’ written submissions, I also find Laquerre’s explanations highly
improbable and unsatisfactory in the circumstances. Furthermore, Laquerre’s
unorthodox behaviour in managing his affairs is a key factor that the Court may
consider in this case (Mann v. Canada (Minister of National Revenue),
2006 FC 1358, [2006] F.C.J. No. 1697 (QL) at para. 50, Canada v. Paryniuk,
2003 FC 1505, [2003] F.C.J. No. 1924 (QL) at para. 13, and Laframboise v.
The Queen, [1986] 3 FC 521 at para.19). According to those cases, the
business practices of Laquerre and his non-arm’s length companies and trusts
can be described as orthodox, making it easy for Laquerre to dissipate the
assets of his companies and trusts. Furthermore, Laquerre did not deny the fact
that he possessed a safe containing substantial amounts of cash, which he
described as the proceeds of [TRANSLATION] “under-the-table” work (paragraph 90
of Mr. Ferland’s affidavit of April 25, 2007).
According to Ms. Valois, who spoke with investigator Jean Poirier of the Quebec
City police on March 18, 2004, the latter confirmed that the safe had been
found three weeks later, but missing some of the money it contained, according
to Laquerre. The investigator informed Ms. Valois that Laquerre had told him
that the money in the safe was [TRANSLATION] “money earned under the table”
(paragraph 96 of Ms. Valois’s affidavit dated November 13, 2007, filed in
response to the respondents’ motion to strike).
[39]
For
the reasons
mentioned above, the Court dismisses the respondents’ motion with costs. A
concurrent decision dismissing the motion to strike the first jeopardy collection order has been issued in docket
T-1594-06 (2008 FC 458).
ORDER
THE COURT ORDERS that the
respondents’ motion to strike the jeopardy collection order issued April 26, 2007, is dismissed with costs.
“Luc
Martineau”
Certified true
translation
Francie Gow, BCL, LLB
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