Date: 20080619
Docket: T-2059-01
Citation: 2008 FC 768
Ottawa, Ontario, June 19, 2008
PRESENT: The Honourable Mr. Justice Campbell
BETWEEN:
ROCHELLE
MOSS
Plaintiff
and
HER
MAJESTY THE QUEEN
Defendant
REASONS FOR JUDGMENT AND
JUDGMENT
[1]
For
many years, Ms. Moss has been at issue with the
Minister of National Revenue [Minister] respecting the payment of tax. The
present disagreement concerns a jeopardy order obtained by the Minister and its
use to attach funds on deposit in insurance policies belonging to Ms. Moss. Ms.
Moss argues that the actions of the Minister constitute a wrong suffered by her.
For the reasons which follow, I do not agree.
[2]
Ms.
Moss’ entire Statement of Claim dated November 1, 2002, reads as follows:
The Plaintiff is a taxpayer who lives in
the city of Winnipeg in the province of Manitoba and is employed by the
Federal Government:
1.
The
Plaintiff claims:
(a)
Damages
equal to the tax assessments issued to the plaintiff for the years 1998 to
present.
(b)
The cost
of this action; and
(c)
Such further
and other relief that this Honourable Court may allow.
2.
CCRA
caused a
Jeopardy Order to be issued pursuant to the provisions of the Income Tax Act.
This Jeopardy Order was served on the following insurance companies who held
funds to the benefit of the Plaintiff:
(a)
Equitable
Life;
(b)
NN Life
Insurance Company of Canada;
(c)
Manulife
Financial
3.
CCRA
caused the
plaintiff’s insurance policies not only to be frozen but rendering the
plaintiff unable to move the funds to a policy and a vehicle that would not
attract tax liability, which the plaintiff was in the process of doing, thereby
forcing upon her unnecessary tax liability.
4.
By
virtue of the actions of the CCRA, the Plaintiff was unable to transfer assets of the
Plaintiff in the hands of the aforementioned insurance companies to non-taxable
investments and as a result, was prevented from organizing her affairs in a
manner advantageous to the Plaintiff with respect to her tax matters. The
Plaintiff says that as a result of the actions of CCRA, the Plaintiff has been
assessed tax on income which would otherwise attract no tax, further
particulars of which the Plaintiff craves leave to refer to at the trial of
this action.
5.
As a
consequence of the actions of the Defendant, the Plaintiff has suffered damages.
[Emphasis added]
[3]
The
evidence produced at the hearing of the present simplified action by Ms. Moss
and the Minister is only documentary. The evidence includes findings of fact
and law in judicial decisions that have considered Ms. Moss’ various tax
questions, and are accepted on the record of the present action as binding.
[4]
The
essential uncontested facts at the heart of the present claim were summarized
by Justice Dawson in Moss (Applicant) v. The Minister of National Revenue
and Canada Customs and
Revenue Agency, 2001 FCT 49, 2001 DTC 5123 [Moss #1] at paragraphs 2 to 5 and 8 as follows:
In
January of 1997, the applicant was assessed under the provisions of the [Income
Tax] Act and the Excise Tax Act, R.S.C. 1985, c.E-15 both in
her personal capacity and for the tax obligation of her husband arising from a
number of non-arm's-length transactions whereby property was transferred from
her husband to her. The total tax assessed against the applicant was
$301,956.21.
The
Minister of National Revenue ("Minister") obtained what is known as a
"jeopardy order" pursuant to section 225.2 of the Act [dated February
5, 1997]. This order permitted the Minister to pursue collection action against
the applicant prior to the completion of the tax appeals process.
Pursuant
to the jeopardy order, Requirements to Pay were issued by the Minister to three
insurance companies, NN Life, Manulife, and Equitable Life, all of which held
contracts in the applicant's name.
The
applicant applied to this Court pursuant to subsection 225.2(8) of the Act to
review the jeopardy order. By order dated November19, 1997, the Court dismissed
her application and confirmed the original jeopardy order.
[…]
As
to the Requirements to Pay, initially each insurance company took the position
that the contracts were annuities and as such were exempt from seizure or
execution. Each company therefore took the position that it would not pay to
Revenue Canada the amount shown in the Requirement to
Pay served upon it but would instead hold the contract, not allowing the
applicant to withdraw any funds therefrom, pending determination of either the
status of the annuity contracts or the applicant's tax liability.
(Respondent’s Book of
Documents, Tab 8)
[5]
The
perceived wrong which Ms. Moss identifies as actionable is the tax liability
which arose after the Requirements to Pay were issued on the insurance
companies pursuant to the jeopardy order. In fact, four insurance policies were
attached: two NN Life policies (#5037678 and #1119986); a Manulife policy; and
an Equitable Life policy. At the time of the attachments, Ms. Moss believed
that benefits accruing to her under the NN Life policy #1119986 were not
taxable. A central feature of the present action is that Ms. Moss requested to be
allowed to transfer funds from the other policies to the NN Life policy
#1119986 to avoid tax liability. The transfers did not take place, and, as a
result, Ms. Moss claims that she was wrongly taxed on benefits which accrued on
the un-transferred funds. The essential preliminary issue for determination is
whether the Minister caused this tax liability to occur. In my opinion, this
causation has not been proved.
[6]
The
jeopardy order was not issued by the Minister; the Court granted the order ex
parte and later confirmed that the order was warranted on the evidence. There
is no question that the Minister was obliged in law to collect tax from Ms.
Moss. Therefore, I find that no wrong was committed by the Minister in applying
to the Court for the jeopardy order.
[7]
Justice
Muldoon presided over Ms. Moss’ motion to review the ex parte jeopardy
order, and delivered a detailed analysis of the actions which lead to the
granting of that order, and, indeed, confirmed that sufficient evidence was
provided to confirm the order (Canada (Minister of National Revenue) v. Moss
[1997] F.C.J. No. 1583, 98 D.T.C. 6016 ) (Plaintiff’s Evidence, Exhibit 1).
Paragraph 24 of that decision constitutes findings with respect to Ms. Moss’
conduct placed before Justice Tremblay-Lamer who granted the ex parte
order:
The
evidence is clear that the respondent's spouse [Mr. Moss], the transferor, has
made no voluntary payment of tax due since around 1990. The respondent [Ms.
Moss] herself has to be threatened with or subjected to litigation, garnishment
or other attachment procedures before back tax can be realized by the
department. The respondent and her husband evince a willingness to shelter or
hide their assets from legitimate creditors. While Canada's income tax system is based on self-reporting - the honour
system - the respondent always has to be threatened, garnished, proceeded
against. Of course she, in common with all others, is entitled to engage in
lawful avoidance of taxation although there is very little lawful scope to the
avoidance of lawful collection of taxes. In any event, it is a factor, this
proclivity demonstrated by conduct to avoid collection of taxes, which raises a
solid inference that collection is in jeopardy because of delay in invoking
lawful collection enforcement mechanisms.
With respect to attaching the insurance
policies, at paragraph 26, Justice Muldoon made this finding:
So,
it appears that the insurance investments with NN Life, Manulife and Equitable
Life evince one characteristic of a bank chequing account: funds can be withdrawn
from time [sic] for family living expenses or anything else. That fact raises
an inference of jeopardy of collection. Further, these investments which are
like chequing accounts, are held in what the respondent believes is immunity
from garnishment or other seizure pursuant to section 173 of The Insurance Act
of Manitoba, R.S.M. 1987, Chap.I-40. Although the respondent's belief is not
conclusively shown to be correct in law, the inference of the purpose to place
collection in jeopardy is a clear one.
As a result, I find that: it is Ms. Moss’
conduct that caused the jeopardy order to be issued; as stated, no wrong was
committed by the Minister in applying for the order; and no wrong was committed
by the Minister in attaching the insurance policies.
[8]
It
is not contested that after being served, the insurance companies sought an
opinion from the Minister concerning the action that should be taken respecting
the policies attached, and Counsel for the Department of Justice, Winnipeg
Regional Office, responded as Counsel for the Minister. Three such responses
are tendered as part of the Plaintiff’s evidence, and are accepted in the
present action as representative of the Minister’s position with respect to each
of the insurers and the attached policies. The letter of March 25, 1997, to NN
Life sets out the Minister’s general position as follows:
Re: Rochelle Moss
Policy No.: 1119986
Writ of Fieri Facias
dated February 5, 1997
Please be advised that our Department
represents Revenue Canada in the matter listed above.
In response to your letter of March 19, 1997 which enclosed a copy of an
Investment Option Change request and a Change of Beneficiary form, it is
Revenue Canada’s position that the tax
debtor cannot now take steps to change specifics of the investment in a manner
which would be prejudicial to Revenue Canada.
The Writs of Fieri Facias were executed
by a sheriff on February 5, 1997. The sheriff was acting on the instructions
of the creditor of Revenue Canada, and specifically as its
agent. I am now advised that both your client and the policyholder have taken
the position that the assets which were subject of the seizure are exempt
pursuant to the relevant provisions of the Insurance Act.
As you would certainly be aware in
determining if an asset is indeed exempt under the provisions of the Insurance
Act, the specifics of the individual contract are important. Given the
fact that the sheriff as Revenue Canada’s agent has executed the writs on these
assets, and in so doing has asserted control and legal possession on its
behalf, any act or instruction by the debtor which purports change [sic], alter
or affect the nature of the holdings and/or the terms of the contract governing
the asset and which would potentially prejudice Revenue Canada’s claim thereto
would, in our opinion, be void.
I would note, as an example that the
holder has requested a change of beneficiary on policy number 1119986. It is
our understanding that the named beneficiaries as it currently stands, and at
the time of the seizure, is and was the policyholder herself and her spouse.
It would therefore seem that given that one of the beneficiary [sic] is the
policyholder herself, this may bring into question the application or the
extent of any exemption under s. 173(2) of the Insurance Act, even if
one was to assume that it would otherwise apply to this type of contract. The
policyholder cannot purport to have the capacity to make changes to the
contract to better conform with a statutory exemption after the seizure has
taken place.
Given the nature of the assets, and the
fact that they are currently under seizure, it would appear that the
policyholder does not have the capacity to alter the contractual terms under
which these assets are held, particularly if they could potentially have the
effect of prejudicing the creditor.
I
trust this clarifies our position.
(Plaintiff’s
Evidence, Exhibit 3)
The letter of May 16, 1997 to Equitable
Life sets out the Minister’s wish to be consulted respecting any investment
changes:
Re: Moss Equitable Life Policy and
Revenue Canada
Please be advised that our Department
represents Revenue Canada in the matter relating to the
policy listed above. I am writing in response to your letter of April 25,
1997. I can advise that Revenue Canada takes the position that the named
annuitant no longer has the ability to make the changes to the investment
options or beneficiaries given the fact that she is no longer in legal
possession of the asset. I would therefore advise that Revenue Canada takes the
position that it should be consulted with any investment changes which the
annuitant purports to make. In the event that the changes merely related to
the volatility of the stock market, I would suspect that Revenue Canada would
have no difficulty in consenting to any such changes.
I trust this meets with your
satisfaction.
(Plaintiff’s
Evidence, Exhibit 5)
The letter of July 21, 1997, to NN Life,
sets out the Minister’s clarified position:
Re: Rochelle Moss
Policy Nos. 5037678 &
1119986
Further to our past correspondence, this
letter will serve to clarify Revenue Canada’s
position with respect to the investment vehicles which are the subject to the
two policies listed above. Revenue Canada’s position is that the holders
cannot exercise any option under those policies which would have the effect of
prejudicing Revenue Canada’s claim thereto. Of
particular concern is the portion of the contracts referred to as settlement
options which deal with the types of benefits which can be paid to the holder
upon maturity. In our view, the nature of these options are important as to
whether or not an exemption could apply in the circumstances thereby effecting
Revenue Canada’s seizure action.
At this point Revenue Canada is not opposing the movement
of monies within the policy from fund to fund, to address any fluctuations in
the market, and/or to prevent any unnecessary losses in the value of the policy
to the extent that monies actually remain in the policy. Revenue Canada takes this position on a
without prejudice basis, on an interim basis, and will provide you with notice
if and when this position changes.
As indicated in the recent letter from
Gil Desroches, Revenue Canada nevertheless takes the position that the monies
from one of the two plans is to be remitted as per Mr. Desroches [sic] instructions
and pursuant to the Requirement to Pay. Revenue Canada has put you on notice of this position
and will reserve its right to assess NN Life for a refusal pursuant to s.
224(4) for a failure to comply. Obviously its position on the movement between
investment vehicles applies only to the policy and/or portion of the policy for
which no remission is made to Mr. Desroches. I understand that at this point,
he has requested the remission of only one of the policies. The extent of the
remission required would furthermore depend on whether or not Revenue Canada is successful in any other
collection action initiated. I would refer you to Mr. Desroches [sic] letter
dated June 13 and to his request for you to contact him prior to remitting any
monies.
For further clarification this should in
no way be interpreted as a consent allowing the holder to withdraw or transfer
any monies from the policy, or to initiate any change in beneficiaries or to
exercise any settlement options, or any other options, which would affect the
nature of the benefits, or which would otherwise prejudice the position of
Revenue Canada.
If you require any further clarification
or have any questions or concerns, please do not hesitate to contact Mr.
Desroches at (204) 984-5200 or myself at the phone number listed above.
(Plaintiff’s
Evidence, Exhibit 4)
On this evidence, I find that, while
Counsel for the Minister stated opinions with respect to the management of the
policies in question, the Minister had no control over the management of the
policies.
[9]
As
confirmed in the letter of July 21, 1997, pursuant to the Requirements to Pay served,
the Minister demanded that the monies being held in the policies be paid into
Court. As Justice Dawson describes, the insurance companies refused to do so for
a reason:
While
the Requirements to Pay were not in evidence before the Court, it was conceded
that each was validly issued for what was then the amount of the monies
assessed to be owing. The fact that the entire proceeds held in what are
alleged to be annuity contracts were frozen resulted not from any impropriety
in the Requirements to Pay or their issuance, but because in each case the
insurer took the position that the insurance contracts were exempt from seizure
or execution. It is the result of that position that, as noted by the applicant
[Ms. Moss] in her affidavit, the insurers would "not pay over to Revenue
Canada the amount of the Requirements to Pay but would instead hold the
contracts and refuse to permit" any withdrawal of funds.
(Moss # 1, at
para. 15)
There is no question that the proximate
cause of the “freezing” of the policies was based on a decision taken by the insurance
companies to protect themselves from liability.
[10]
Therefore,
on the evidence, on a balance of probabilities, I cannot find: that the “CCRA
caused the plaintiff’s insurance policies not only to be frozen but
rendering the plaintiff unable to move the funds to a policy and a vehicle that
would not attract tax liability”; or that “by virtue of the actions of the
CCRA, the Plaintiff was unable to transfer assets of the Plaintiff in the
hands of the aforementioned insurance companies to non-taxable investments”; or
that “as a consequence of the actions of the Defendant, the Plaintiff
has suffered damages”, as claimed by Ms. Moss.
[11]
In
addition, on the evidence on the record, I am unable to find that NN Life
policy #1119986 is an investment vehicle that would not attract tax liability.
The only direct evidence tendered by Ms. Moss in favour of such a finding is
the following provision from the policy:
EXEMPTION FROM INCOME TAX ON ACCRUAL
FOR THE GENERAL INTEREST OPTION:
For non-RRSP Contracts, we will determine
the tax status of that part of this Contract represented by the General
Interest Option (the “Exempt Portion”) on each anniversary of the Issue Date.
If it is determined that the Exempt Portion would be currently subject to
income taxation in your hands on an accrual basis, we will increase the Sum
Insured (subject to a total maximum increase as determined by us from time to
time) and, if necessary, also provide a surrender of a portion of the Account
Value so as to maintain the Exempt Portion’s accrual income tax exempt status,
provided that it is reasonably possible for us to do so under income tax and
other legislation then in force. Any such increase in the Sum Insured will not
require further evidence of insurability. Any such surrender of a portion of
the Account Value will not result in the reduction of the Amount At Risk. The
Market Value Adjustment and the Surrender Charge will not be applied.
(Plaintiff’s
Evidence, Exhibit 13, pp. LS-39L..6 – LS-39L..7)
As I expressed during the course of the
trial, given the complexity of this “exemption” provision, without expert
evidence, and which was not provided, it is not possible to make the finding
that the policy constitutes an investment vehicle that would not attract tax
liability as claimed by Ms. Moss.
[12]
For
the reasons provided, I find that the claims advanced in the Statement of Claim
have not been proved, and, as a result, I dismiss the present action.
[13]
Given
that Ms. Moss is an unrepresented litigant and the present litigation proceeded
as a simplified action, I find that a fair and just award of costs in favour of
Minister be limited to the all encompassing amount of $1,000.
JUDGMENT
The present
action is dismissed. I award costs in the sum of $1,000 to the Defendant to be
paid by the Plaintiff.
“Douglas
R. Campbell”
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