Docket: T
-1331-12
Citation: 2013 FC 1100
Ottawa, Ontario, October
28, 2013
PRESENT: The Honourable Madam Justice Gleason
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BETWEEN:
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LINO TASSONE AND MARIA TASSONE
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Applicants
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and
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THE MINISTER OF NATIONAL REVENUE
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Respondent
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REASONS FOR JUDGMENT AND JUDGMENT
[1]
In this application, the applicants, Lino and
Maria Tassone, seek to set aside two jeopardy orders granted on an ex parte
basis under subsection 225.2(2) of the Income Tax Act, RSC 1985, c 1
(5th Supp) [the ITA] by my colleague, Justice de Montigny, on May 24, 2012 [the
Jeopardy Orders or the Orders]. These Orders allowed the respondent, the
Minister of National Revenue [the Minister] to commence collection activities
against the applicants without abiding by the notice provisions stipulated in
section 225.1 of the ITA.
[2]
In this application, the applicants argue that
the Jeopardy Orders should be set aside for three reasons:
1. the respondent Minister failed to provide full and frank
disclosure of all relevant facts in the ex parte application;
2. the materials now before the Court raise a reasonable
doubt as to whether the collection of all or part of the tax with which the
applicants have been assessed would have been jeopardised by the delay
associated with the Minister proceeding on notice to the applicants as is
normally required under section 225.1 of the ITA; and
3. the Minister has not demonstrated on the balance of
probabilities that such delay would likely jeopardise the ability of the Canada
Revenue Agency [CRA] to collect the taxes alleged to be owing.
[3]
For the reasons set out below, I have determined
that none of these points has merit and accordingly this application will be
dismissed, with costs.
Background
[4]
The applicants are Canadian residents and have
not filed income tax returns for the taxation years 2004 to 2011, inclusive.
The CRA conducted a net worth assessment of the applicants and in May 2012
issued preliminary Notices of Assessment to them for the 2004 to 2011 taxation
years for a total of $5,659,521.00 in undeclared revenue. Based on these
Notices, the applicants are currently each assessed for $3,602,106.60 (which
the respondent concedes is the total payable but as it is not yet possible to
determine which of the applicants is responsible for that amount, Notices of
Assessment for the full amount claimed were issued to both applicants). They
have both filed Notices of Objection in respect of the each of the Notices of
Assessment. However, neither of the applicants filed an affidavit in support of
this application and thus avoided cross-examination by the respondent.
[5]
The evidence gathered by CRA in its audit
demonstrates that the applicants had indicated in connection with several
applications for financing that each of them earned significant employment
revenues from a group of family-owned companies operating a chain of
restaurants known as “California Sandwiches” in several of the 2004 to 2011
taxation years. More specifically, Lino Tassone claimed to have earned $200,000.00
in 2011 in the application submitted in respect of Questrade and Maria Tassone
claimed to have earned $45,000.00 in 2005, $99,600.00 in 2006 and $50,000 in
2008 in the applications submitted in respect of TD Canada Trust, the Toronto
Real Estate Board and BMW.
[6]
The audit that the CRA conducted also disclosed
that there were significant sums deposited to the Tassones’ Canadian bank
accounts from unexplained sources over the 2004 to 2011 period. The audit
further revealed that in 2007 and 2008 the Tassones controlled a Panamanian
company, Balboa Internacional Associada S.A. [Balboa] and that Balboa had
significant assets that the CRA has not been able to fully trace. The audit,
however, did show that in 2007 Balboa apparently lent $2,000,000.00 to Mr.
Tassone’s uncle, Tony Papa, in respect of whom the CRA also obtained a jeopardy
order (see in this regard Papa, Re, 2009 FC 49, 2009 DTC 5045 [Re
Papa]). Mr. Papa is alleged to owe several million dollars in unpaid taxes
but in 2008 granted to Balboa mortgages on Canadian properties held by
non-arm’s length parties, thereby forestalling the CRA’s ability to realize on
those assets.
[7]
The only asset of value in Canada that the CRA has been able to determine that the applicants own is their home in Toronto, which is in Maria Tassone’s name. As of January 23, 2012, the home was assessed
to be worth $1,210,000.00.
[8]
On the ex parte application, the Minister
argued that the CRA feared that the Tassones might sell or encumber their home
if the CRA were required to proceed with collection activities against the
applicants on the notice required under section 225.1 of the ITA. In the
affidavit filed in support of the Jeopardy Orders, the CRA’s auditor, Bruno
Gagnière, explained the bases for this fear. These included:
• Mr. Tassone denied knowing anything about Balboa when
questioned by Mr. Gagnière, despite being at one point the President of that
company, and, indeed, slammed the door in Mr. Gagnière’s face when he learned
he was a CRA auditor from Québec;
• Balboa had allowed Tony Papa to sign a mortgage on its
behalf, obtaining security over Mr. Papa and his wife’s Canadian real estate property,
thereby frustrating the CRA’s efforts to realize on those properties for the
significant unpaid taxes Mr. Papa owes. Moreover, the funds apparently advanced
by Balboa to Mr. Papa were allegedly advanced well before the mortgages were
granted;
• the applicants have not filed tax returns for any of the
taxation years 2004 to 2011 but had significant net worth and expenses and had
represented several times in connection with obtaining credit that they earned
employment income, as discussed above;
• there were several large unexplained deposits and
withdrawals in the applicants’ Canadian bank and brokerage accounts that Mr.
Gagnière could not trace the source of;
• in 2007 and 2008 the applicants signed several documents
that showed Mr. Tassone as being the President of Balboa and Mrs. Tassone as
being its Secretary;
• the Tassones operated Balboa as something of a sham or
cover as they had Balboa write Mrs. Tassone cheques totalling over $30,000.00,
had several personal restaurant expenses charged to a debit card on one of
Balboa’s Panamanian bank accounts, caused some shares that Mr. Tassone had
purchased to be issued in Balboa’s name and had Balboa sign the lease and in
2007 and 2008 pay the lease payments for premises in Toronto leased to another
Panamanian company that the applicants were associated with, namely Kyoto
Holdings Inc.; and
• the fact that Mr. Tassone had neglected to pay approximately
$9,000.00 in taxes that the CRA had previously assessed until the CRA garnished
one of Mr. Tassone’s brokerage accounts.
[9]
With this background in mind, it is now possible
to examine each of the issues raised by the applicants in this application.
Did the Minister fail to provide full
and frank disclosure of all relevant facts in its ex parte application?
[10]
The case law recognises that the Minister must
make full and frank disclosure in an ex parte application for a jeopardy
order and that failure to do so will result in the order’s being set aside in a
review application made under subsection 225.2(8) of the ITA even if the
evidence before the Court demonstrates that there was a valid case for the
order being issued. Thus, lack of full and frank disclosure is a stand-alone
basis for review of an ex parte jeopardy order (Re Papa at para
21). However, full and frank disclosure does not require the disclosure of
material that is irrelevant to whether or not a jeopardy order should be issued
(Minister of National Revenue v Rouleau (1995), 101 FTR 57, 95 DTC 5597
(Fed TD) at para 10).
[11]
In order to be satisfied that a jeopardy order
is warranted under subsection 225.2(2) of the ITA, the judge hearing the ex
parte application must be 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 jeopardised by a delay in the collection of that amount.
The standard of proof on the ex parte application is not the balance of
probabilities. Rather, what is required is proof that “while falling short of a
balance of probabilities, nevertheless connotes a bona fide belief in a
serious possibility based on credible evidence” (Re Papa at para 16).
Accordingly, all evidence that the Minster is in possession of that is relevant
to whether the collection of taxes might be jeopardised must be disclosed by
the Minister on the ex parte application.
[12]
Here, the applicants argue that the respondent
Minister did not make full and fair disclosure principally because Mr. Gagnière
did not file his working papers nor disclose that a large percentage of the
income attributed to the applicants by the CRA arose from unexplained share
transfers between two accounts of Balboa, which is a non-resident corporation
and thus not subject to Canadian tax. Although not contesting that there was
some evidence that the applicants controlled Balboa (at least between 2006 and
2008), the applicants argue that a mere transfer from one account to another is
not an expenditure and, therefore, that these amounts transferred by Balboa
ought not have been included as expenditures by the CRA in its net worth
assessment of the applicants. The applicants argue that the fact that the CRA’s
Notices of Assessment were based in large part on the transfers made by Balboa
between its own accounts was a material fact that Justice de Montigny ought to
have been made aware of and that failure to disclose this fact should result in
his Orders’ being set aside.
[13]
While it is true that the respondent Minister
did not disclose Mr. Gagnière’s working papers in the materials filed to obtain
the ex parte Orders, contrary to what the applicants claim, Mr. Gagnière
did disclose in his affidavit that a significant part of the
expenditures he attributed to the applicants in the net worth analysis came
from share transfers between two Balboa accounts in Panama. This is made clear
in para 17 of his affidavit, where Mr. Gagnière deposes that between 2006 to
2008, $1,888,963.29 was transferred between two different accounts maintained
by Balboa in Panama. The original French text of the affidavit that was before
Justice de Montigny is clearer on this point than the English translation that
the applicants filed before me. It provides: “En ce qui
concerne les années d’impositions 2006 à 2008 en particulier, la somme de 1 888
963,29 $ a été transférée par Lino et Maria Tassone à partir d’un compte de
courtage détenu par [Balboa] au Panama au compte bancaire # 4010126217, au nom
de Balboa … à la banque Credicorp située au Panama”. Thus,
contrary to what the applicants claim, there was no material non-disclosure by
the Minister on this point.
[14]
The applicants assert that this case is similar
to Minister of National Revenue v Robarts, 2010 FC 875, 2010 DTC 5145 [Robarts],
where my colleague, Justice Martineau, set aside a jeopardy order in
circumstances where the Minister had based the ex parte application
largely on the fact that the taxpayer had withdrawn over $100,000.00 from his
bank account and had transferred half of his property to a third-party.
However, in that case, the Minster had failed to disclose that the taxpayer had
in fact re-deposited the money two months later.
[15]
This case is fundamentally different from the
situation in Robarts. Here, unlike there, the applicants have been
unable to point to any relevant fact that the Minster failed to disclose on the
ex parte application. Moreover, in my view, there is no need for
disclosure of the auditor’s working papers as part of the ex parte
application materials in the circumstances of this case. What is relevant in
respect of a jeopardy order is whether there is a reasonable possibility that
the payment of taxes owing may be in jeopardy, not the amount of the
assessments (see e.g. Minister of National Revenue v Services ML Marengère
Inc, 2000 DTC 6032, 176 FTR 1 at para 64). In this case, the working papers
are only relevant to the amount of taxes assessed and not to the risk that
their collection might be jeopardised. Therefore, contrary to what the applicants
claim, the Minster did not fail to provide full and frank disclosure and the
first ground advanced by the applicants is thus without merit.
Have the applicants raised a
reasonable doubt as to whether the collection of all or part of the tax assessed
would have been jeopardised if the Minister had proceeded on notice?
[16]
The final two issues raised by the applicants
concern the basis for the issuance of the Jeopardy Orders. In this regard, the
case law establishes that the reviewing judge’s inquiry under subsection
225.2(8) of the ITA is governed by the two-stage test laid out by Justice
Lemieux in Minister of National Revenue v Reddy, 2008 FC 208, 329 FTR 13
[Reddy]:
i.
First, the applicant bears the initial burden of
establishing that there are reasonable grounds to doubt that the collection of
all or any part of the amount assessed would be jeopardised by a delay in the
collection of that amount. An applicant may muster this evidence by affidavits
and/or by cross-examination of affiants who signed affidavits filed by the
respondent (Reddy at para 7); and
ii.
If the applicant succeeds at the first stage,
the burdens shifts to the Minister to justify the jeopardy order by
demonstrating that, on a balance of probabilities, it is more likely than not
that the collection of the amount would be jeopardised by delay. The reviewing
Court may consider evidence originally presented on behalf of the Minister in
support of the jeopardy order and “any additional evidence by affidavit or from
cross-examination of affiants, presented by either party in relation to the
motion for review” (Reddy at para 8).
[17]
Here, there is no need to move to the second
stage of the analysis as the applicants have failed to meet their initial
burden of establishing that there are reasonable grounds to doubt that the
collection of the amounts owing might have been jeopardised if the Jeopardy
Orders were not issued. On the contrary, the evidence demonstrates ample
grounds for such doubt, including the applicants’ “unorthodox behaviour” in
failing to report income yet at the same time having claimed to have earned
significant employment income from family-based businesses; their failure to
report income despite having significant assets and expenditures; and their
apparent use of Balboa as a cover to funnel funds to themselves or to another
of their companies. In addition, Balboa was recently the vehicle used by Mr.
Tassone’s uncle, Tony Papa, to shield his Canadian assets from seizure for
unpaid taxes. While, as the applicants argue, there is no proof that the
applicants would leave Canada or necessarily encumber their home to avoid
payment of the taxes with which they might be finally assessed, on a jeopardy
application the Minster need not prove that recovery will be jeopardised. Rather,
the Minister need only establish that there are reasonable grounds to believe
that this may occur. Here, such doubt exists given the applicants’ past
behaviour and the ease with which they and Mr. Papa have in past used Balboa to
achieve their ends.
[18]
This case is somewhat similar to 144945
Canada Inc, Re, 2003 FCT 730, 237 FTR 1 where this Court dismissed an
application to set aside a jeopardy order. There, the applicant failed over
several years to file income tax returns within the timeframes required by the
ITA and what returns that were filed were sorely deficient. The applicant in
that case also failed to comply with a CRA requirement issued pursuant to
section 231.2 of the ITA and the officers of the applicant had serious personal
financial problems and had neglected their obligations as officers. This was
found to be sufficient to have warranted the issuance of a jeopardy order as
the applicants had failed to raise a serious doubt about the correctness of the
order. Here, for the reasons noted, a similar conclusion is warranted.
[19]
Thus, the Minister did make full and frank
disclosure before Justice de Montigny on the ex parte application and
the applicants have failed to discharge their initial burden of raising
reasonable doubt that the test in subsection 225.2(2) of the ITA was met. This
application will accordingly be dismissed.
Costs
[20]
The parties agreed that the costs of this
application should follow the event but differed as to quantum, with the
applicant suggesting a lump sum in the range of $1,500.00 to $2,000.00 and the
respondents suggesting a lump sum of $4,500.00. In the exercise of my
discretion and taking into account the complexity of the issues raised in this
application, I fix costs in the all-inclusive lump sum amount of $2,500.00.
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