Date:
20130131
Docket:
ITA-3466-99
Citation:
2013 FC 110
Vancouver, British Columbia,
January 31, 2013
PRESENT: The
Honourable Mr. Justice Harrington
BETWEEN:
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HER MAJESTY THE QUEEN
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Applicant
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and
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JACK KLUNDERT
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Respondent
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REASONS FOR
ORDER AND ORDER
[1]
In
virtue of a “jeopardy order” obtained ex parte from Madam Justice
Tremblay-Lamer in April 1999, the tax authorities collected the sum of
$871,291.90 between June 1999 and May 2003, and applied it to amounts
owing by Dr. Klundert in virtue of assessments for the 1993 through 1996
taxation years. Liability for taxes owing in those years has not been finally
determined. In virtue of criminal charges against Dr. Klundert, his
Notices of Objection were put on hold. He has now been convicted and
ordered in 2010 by the Ontario Superior Court of Justice to pay a fine of
$522,346.73 with respect to the taxation years 1993 through 1997 and in 2011
was ordered to pay a further $101,393.80 pursuant to a conviction for
income tax evasion for the years 2000 to 2005. His case before the Tax Court
has been reactivated.
[2]
Dr.
Klundert proposes that the monies collected under the jeopardy order be first
applied to his fines arising from his criminal convictions.
[3]
While
he does not directly attack the jeopardy order, which had been subsequently
upheld, he submits that the monies collected in virtue thereof were somehow
held in trust and that he now has the right to allocate payment to the fines
arising from his criminal convictions. As explained to me, the advantage to him
is that if he becomes bankrupt, his civil liability for income tax goes into
his estate, but his liability for payment of the fines does not.
[4]
There
are two aspects to this case. One is the law relating to the allocation of
payments. The other is Dr. Klundert’s submission that the jeopardy order
was obtained in aid of a criminal investigation and that the information so
gathered cannot be used in determining civil liability. He relies upon the
Supreme Court’s decision in R v Jervis, 2002 SCC 73, [2002] 3 S.C.R. 757.
[5]
As
to allocation of payments, at the time the jeopardy order was issued, and at
the time monies were collected in virtue thereof, there was only income tax
debt assessed in the amount of $999,261.78 for the 1993 to 1996 taxation
years. Further, the payment was made under compulsion of law. It was not
voluntary. Thus, the principle that a debtor may allocate payment to one debt,
rather than to another, has no application. As to the submission that there is
no finalized debt as the assessments are now before the Tax Court of Canada,
the assessment is binding on this Court until set aside (see s. 152(8) of the Income
Tax Act, MNR v MacIver, 99 DTC 5524, 172 FTR 273; MNR v
Services ML Marengère, 2000 DTC 6032, 176 FTR 1; and Canada (Minister of
National Revenue – MNR) v Arab, 2005 FC 264, [2005] FCJ No 333 (QL)).
[6]
As
I read it, Jervis drives home the fact that the Income Tax Act is
a regulatory statute, with distinctions between the audit and the
investigative powers granted to the Minister. If the tax officials are not
engaged in the verification of tax liability, but rather in the determination
of penal liability, Charter protections are engaged. Dr. Klundert
submits that the reverse also applies. I disagree. As recently held by
Madam Justice Mactavish in Patry v Canada (AG), 2011 FC 1032, 396 FTR
203, a case involving both a criminal investigation and a civil audit, in light
of Jervis Canada Revenue officials cannot use the coercive powers
available in determining civil tax liability to circumvent the procedural and Charter
protections afforded to those suspected of criminal activity. In this particular
case, assessments had been made and the authorities had every reason to believe
that Dr. Klundert would not voluntarily pay his taxes. Indeed, on his 1993 and
1994 tax returns he wrote “collecting income tax by the government is against
the Constitution of Canada.” While it is quite true that in the ex parte
application the Court was informed that a search warrant had been obtained,
that fact was hardly determinative. As in any ex parte application, the
moving party must make a full and frank disclosure.
[7]
Should
at the end of the day Dr. Klundert be successful before the Tax Court of
Canada, the money collected under the jeopardy order will be applied to other
tax years or returned to him as the case may be.
ORDER
FOR
REASONS GIVEN;
THIS
COURT ORDERS that this motion is dismissed with costs.
“Sean Harrington”
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