Warren J.:
Introduction (L14/R4614/T0/BT0) test_linespace (274>256.00) 1.047 0077_2383_2515
This is an application by the taxpayer, Hing Leung Kung, (the applicant) to rescind the ex parte order of Scarth J. made January 13, 1998 which authorized the Minister of National Revenue (the respondent) to take steps pursuant to s. 225.1 of the Income Tax Act with the result that the taxpayer’s interest in the sale proceeds of a house were frozen. There is a dispute between Mr. Kung and the Tax Department over the issue of income earned “off shore” during the period from 1991 to 1995.
The Affidavit Evidence (L12/R3760/T0/BT0) test_marked_paragraph_end (2428) 1.032 0077_4375_4507
Mr. Kung filed returns during the years 1991 to 1995 describing himself as a resident of British Columbia. He is a landed immigrant in Canada and it is not disputed that his family came to Canada and established a residence here in the early 1990s. Mr. Kung deposes that he never had a residence in this province, visiting only for holidays. He does not deny that he was a landed immigrant nor that he had income from the technical school in Hong Kong. For that matter, he does not dispute the income attributed to him by the Department which is the basis for the claim of $433,000.
The material before Scarth J. filed by the respondent was to the effect that it was learned that the applicant had earned income in Hong Kong “while he was a landed immigrant and resident of Canada during the taxation years 1991 through 1995”; during that time the applicant was a resident of Canada for tax purposes and filed tax returns for those years; the applicant did not report any income from his position as principal of a technical school in Hong Kong; and that the Tax Department made enquiries concerning this income and requested documents and information but the applicant would not provide the information and documentation unless it was agreed that no penalties would be imposed. A further affidavit deposed that a collection officer did not believe either that Mr. Kung had any other assets in Canada or that he intended to return to reside in Canada. As a result, the deponent stated her belief that collection of the amounts in excess of $430,000 will be jeopardized by delay in collection.
In the material filed to set aside the ex parte order, Mr. Kung deposed to the fact that his family had emigrated to Canada from Hong Kong in 1991 but he remained in Hong Kong and only visited during the holidays. In order to defray the family’s living expenses, he directed that certain royalties be paid into his Vancouver bank account and directed his accountants to file the income tax returns for that income. He says that in error his accountants showed his residence as British Columbia which was not and never had been the case. After his family returned to Hong Kong due to the expense of two households, he and his wife sold two pieces of real estate, one in August 1997 for which he filed a return for the Disposition of Property for a Non Resident of Canada and received a Certificate of Compliance. In fact, Mr. Kung received a tax refund well after the investigation began which led to the January order. Approximately two months after negotiations between the applicant and the Tax Department broke down in late October 1997, Mr. Kung sold another house which he and his wife owned. It is the sale proceeds of this house that are the subject of the January order.
Applicant’s Submissions (L6/R3666/T0/BT0) test_marked_paragraph_end (2630) 1.047 0078_4777_4945
Counsel for Mr. Kung submits that there was no evidence before Scarth J. of any attempt to secret (sic) assets or hinder the petitioner from any collection measures and there was no evidence of any jeopardy that any proper assessment would not be made. In fact, the earlier land transaction was dealt with properly by Mr. Kung and when he discovered that Revenue Canada was considering reassessing him, he retained Vancouver counsel to represent him. In the result, he submits that he has dealt with Revenue Canada appropriately and the injunction ought to be set aside.
Counsel for Mr. Kung relies upon Danielson v. Canada (Deputy Attorney General), [1986] 2 C.T.C. 380 (Fed. T.D.); 1853-9049 Québec Inc. c. R. (1986), [1987] 1 C.T.C. 137 (Fed. T.D.); and Minister of National Revenue v. Landru (1992), [1993] 1 C.T.C. 93 (Sask. Q.B.).
Respondent’s Submissions (L14/R3512/T0/BT0) test_marked_paragraph_end (2104) 1.034 0078_7899_8065
In brief, the respondent says that the order was properly made on the material before the court and on the relevant provisions of the Act and the case authorities. It is important that the applicant does not dispute the income attributed to him by the Tax Department, that there were no other assets within Canada and that he had no intention of returning to reside in Canada. Thus, the court is faced with a taxpayer who is cutting his ties with Canada and moving back to Hong Kong and disposing of his assets without showing what has happened to the sale proceeds of the first house. Respondent’s counsel submits that the test to be used is that set out in Danielson, supra, and 1853-9049 Quebec Inc., supra. Mr. Goult says that the words of McNair J. in Danielson at p. 6519 are particularly apt:
The test of “whether it may reasonably be considered’ is susceptible of being reasonably translated into the test of whether the evidence on balance of probability is sufficient to lead to the conclusion that it is more likely than not that collection would be jeopardized by delay.
Cogent evidence on the part of the Minister as to the dissipation of the taxpayer’s assets or the movement of assets out of the jurisdiction beyond the reach of the Department of National Revenue and other potential creditors could be very persuasive and compelling.
In my opinion, 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 thereof.
Further, the following passage from 1853-9049 Québec Inc. sets out the test to be applied:
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 a taxpayer’s assets may vanish into thin air because of the passage of time.
Decision (L8/R4948/T0/BT0) test_marked_paragraph_end (838) 1.017 0079_6047_6177
The sections of the Income Tax Act which are relevant are sections 225.1 and 225.2 which I reproduce here:
225 I (1) Collection restrictions — Where a taxpayer is liable for the payment of an amount assessed under this Act, the Minister shall not, 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) require the retention of the amount by way of deduction or set-off under section 224.1,
(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)
until after the day that is 90 days after the day of the mailing of the notice of assessment.
(2) Idem — Where a taxpayer has served a notice of objection under this Act to an assessment of an amount payable under this Act, the Minister shall not, for the purpose of collecting the amount in controversy, take any of the actions described in paragraphs (1)(a) to (g) until after the day that is 90 days after the day on which notice is mailed to the taxpayer that the Minister has confirmed or varied the assessment.
225 2(2) Authorization to proceed forthwith — 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(a) to (g) with respect to the amount.
In my view, the application of Mr. Kung must fail. The test enunciated in Danielson was met by the respondent. On a balance of probabilities, it may reasonably be considered that collection of the amount assessed would be jeopardized by a delay in the collection of the amount. The applicant does not dispute that he has no intention of returning to Canada and does not dispute that there are no other assets in Canada. This, in my view, brings the circumstances here into the kinds of situations where the Minister may act where a taxpayer “may waste, liquidate or otherwise transfer his property to escape the tax authorities”: 1853-9049 Québec Inc., supra. The application is dismissed.
Application dismissed.
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