Barclay J.:
The taxpayers, Horst Franz Jaeckel and Hildegard Jaeckel (the "Jaeck- els”) apply for a review of the jeopardy order obtained by the Minister of National Revenue (the “Minister”) on November 20, 1997. The Minister obtained the order pursuant to s. 225.2(2) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) as am. (the “Act”). The order was issued by Matheson J. and provides in part as follows:
IT IS HEREBY ORDERED that the Minister of National Revenue be allowed to take forthwith, and from time to time, any or all of the actions described in paragraphs 225.1(1)(b), (d), (e) and (g) of the Income Tax Act as provided by subsection 225.2(2) of the Act.
IT IS FURTHER ORDERED that this Order and the Notices of Assessment be served upon the Respondents, James O’Brien, Birgit O’Brien, Horst Franz Jaeckel and Hildegard Jaeckel, by personal service on the Respondents within six days of the granting of this Order, pursuant to section 225.2(5) and (6) of the Income Tax Act.
The Jaeckels have the right, pursuant to s. 225.2(8), to apply for a review of the jeopardy order and s. 225.2(1 1) states that the judge hearing the review application shall determine the question summarily and may confirm, set aside or vary the authorization and make such orders as the judge considers appropriate.
Facts (L16/R5182/T0/BT0) test_marked_paragraph_end (1210) 1.034 0102_2401_2531
James O’Brien (“O’Brien”), the son-in-law of the Jaeckels, is indebted to the Department of National Revenue (the “Department”) in the amount of $664,203.60 for outstanding personal income tax, penalty and interest for the taxation years 1989, 1990, 1991, 1992, 1993 and 1994, as of November 20, 1997. The amount includes penalties for alleged wilful omission and gross negligence in failing to declare income.
On November 20, 1997, the Department issued a s. 160 income tax notice of assessment regarding O’Brien’s wife, Birgit O’Brien (“Birgit”) in relation to the taxation debt of O’Brien. On the same date, the Department issued as. 160 notice of assessment against the Jaeckels in relation to the income tax liability.
As of November 20, O’Brien and Birgit were residing at 4424 Hobson Road in Kelowna, British Columbia (the “house”) which was purchased for $610,000.00, on May 4, 1994, and was registered in Birgit’s name. The mortgage for the house initially was in the amount of $175,000.00. The mortgagor is Birgit and O’Brien is the guarantor.
On August 1, 1997, the house was sold to Klaus and Lydia Reichwald for $1,250,000.00. O’Brien and Birgit did continue to reside in the house pursuant to a tenancy agreement.
The sale proceeds were paid to Birgit by a cheque in the amount of $821,150.38. Birgit endorsed the cheque and deposited it into the Jaeckel’s joint account in the Bank of Hong Kong, Kelowna, British Columbia, on August 5,1997 and the money was transferred to a bank account in Essen, Germany on the same day.
When the Department effected service of the jeopardy order on the Jaeckels, it was accompanied by a covering letter informing the respondents named in the order of Matheson J. that they had thirty days from the date of service of the court order to apply to the court for a review.
The respondents, O’Brien, Birgit and the Jaeckels were personally served with the order on November 24, 1997.
In response to the material filed by the Department, Horst Jaeckel filed an affidavit in which he deposes that he is a Canadian citizen and has resided in Canada since 1978. He retired in 1996 and is now living in Kelowna, British Columbia. Before he retired he was active as an orchard- ist. The Jaeckels have never been sued and they have no judgments against them except for this judgment of Revenue Canada in the amount of $664,203.60. Horst Jaeckel states that he has no criminal record and has always paid his taxes. He says he transferred the monies to accommodate his daughter and he believed that she did not have any connection with any alleged wrongdoing on the part of O’Brien. Although he was aware that O’Brien had obligations to Revenue Canada, he had no knowledge of the amount Owing.
O’Brien is named as a defendant in a complex legal action involving shareholders of three immigrant investor funds. The single largest project that investor fund money had been committed to was the purchase and refurbishment of the Hotel Saskatchewan located in Regina. Twenty-two million dollars of fund money had been committed to the project and it was alleged that the investors knew very little about it.
The plaintiffs in that action are the immigrant investors. The cause of action which claims damages in excess of $40,000,000.00 alleges breach of contract, professional negligence, breach of fiduciary duty, conspiracy, fraudulent misrepresentation and failure of a duty to warn. The claim pertains to the manner in which the defendants managed and dealt with $49,200,000.00 of investment funds advanced by the plaintiffs pursuant to the Federal Government’s Immigrant Investor Program.
After the jeopardy order was obtained and this application was filed, counsel for the Jaeckels advised the Court that his clients would agree to transfer the funds from their bank account in Germany to be deposited with the Court in Saskatchewan.
However, I was subsequently advised that this was not feasible as the funds, although now under the jurisdiction of the Canadian courts, as a result of the immigrant investor litigation are frozen and are to remain in Germany until further order.
The grounds of the notice of motion are as follows:
• The relief sought is unnecessary to protect the Minister;
• The evidence is insufficient to establish 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 thereof within the meaning of those words in section 225.2 of the Act.
• The order of Matheson J. made November 20, 1997, is a final order; the affidavit of Ron Gilewicz sworn November 20, 1997 and filed to obtain the order proposed to be reviewed, fails to comply with Rule 319 of The Queen s Bench Rules;
• The realization of the tax owing to and properly assessable by the Minister is not in any jeopardy on the basis of admissible evidence and the net worth of Horst and Hildegard Jaeckel;
• The Minister did not have reasonable grounds to believe that the collection of all or any part of the amount assessed would be jeopardized by a delay in the collection thereof;
• The Minister has ample security.
Delay (L6/R5140/T0/BT0) test_marked_paragraph_end (2516) 1.024 0104_4611_4777
Under s. 225.2(8) of the Act the aggrieved taxpayer must make the application for a review of the jeopardy order within thirty days from the date of service of the authorization or within a further time allowed by a judge on being satisfied that the application was made as soon as practicable. Here the application for review was filed on February 13, 1998, which was beyond the thirty days prescribed in s. 225.2(8). However, in my view the Jaeckels gave an explanation for the reason for delay and I am satisfied from all the evidence that the application was made as soon as practicable. Furthermore, the Department has not suffered any prejudice. I therefore extend the time to serve and file the motion to February 13, 1998.
The Law (L6/R4870/T0/BT0) test_marked_paragraph_end (4126) 1.016 0104_7291_7419
On the return date of the application, counsel for the Jaeckels in complete fairness did not seriously argue the alleged non-compliance with Rule 319 as it is clear that this rule has no application to a motion being made under the Income Tax Act which is a federal statute. Furthermore, s. 225.2(4) of the Income Tax Act provides that in affidavits, statements as to information and belief can be used in a jeopardy application which would, in my view, include an application for review of the initial authorization.
The sole issue to determine is whether, on the basis of the material before the Court, there are reasonable grounds for the Minister to believe that the taxpayer would waste, liquidate or transfer assets so as to become less able to pay the amount assessed and thereby jeopardizing the Minister’s debt. (R. v. Golbeck (1990), 90 D.T.C. 6575 (Fed. C.A.)).
In Golbeck, the trial court refused to grant the Minister’s application for a jeopardy order under s. 225.2(2) of the Act. Such order would have permitted the Minister to have instituted collection proceedings prior to the expiration of the ninety-day limit set out in s. 225.1(1) of the Act in respect of taxes assessed as owing by the taxpayer. The Federal Court of Appeal allowed the appeal. At p. 6576 Marceau J.A. stated:
We are of the view that the order of the Associate Chief Justice, made on the 24th day of July 1990 on an application by the appellant for an Order authorizing the Minister of National Revenue to take certain collection action against the respondent pursuant to section 225.2 of the Income Tax Act cannot be allowed to stand [unreported]. It is clear to us that the learned trial judge failed to put his mind to the only question that he had to consider. That question was not whether such an application by the Minister should only be considered after having been served on the taxpayer so as to give the taxpayer an opportunity to make representations. The question was whether, on the basis of the material put before the Court, it appeared that the Minister had reasonable grounds for believing that the taxpayer would waste, liquidate or otherwise transfer his assets so as to become less able to pay the amount assessed and thereby jeopardizing the Minister’s debt. On an affirmative answer to the question, the judge had no alternative but to grant the application (note the use of the word “shall” in the provision).
In Minister Of National Revenue v. Rouleau (1995), 95 D.T.C. 5597 (Fed. T.D.) the Minister obtained jeopardy collection orders against the taxpayer on an ex parte application. The issue for the court to consider is whether the taxpayer’s conduct was sufficiently unorthodox to justify such orders. In that case the taxpayer, in net worth assessments, was reassessed for substantial amounts in respect of his 1989 to 1993 taxation years. Such net worth assessments were developed in part on the basis of information gathered through search warrants obtained by the Minister in May 1994. In the execution of those warrants, it was discovered that the taxpayer was holding substantial amounts of cash in various locations. On May 31, 1994 and on June 3, 1994, the Minister obtained ex parte jeopardy collection orders from a judge of the Federal Court-Trial Division under subsection 225.2(2) of the Act. The taxpayer applied to same Court under subsection 225.2(8) of the Act for a review of those orders. At p. 5598 Gibson J. states:
... These reassessments were based on net worth statements which the applicant alleges are inaccurate. The net worth statements were in part developed on the basis of information garnered through search warrants obtained by the Minister of National Revenue on May 3, 1994 and a later date, also in May, 1994. In the execution of the search warrants, it was discovered that the applicant had $25,000 in cash at his apartment, approximately $92,000 in cash in safety deposit boxes and over $96,000 in cash in a cold storage depot locker maintained by the applicant.
As I indicated earlier, I am not satisfied that the applicant discharged the initial burden on him to show that there are reasonable grounds to doubt that the test for a jeopardy collection order has been met. In Laframboise v. The Queen [1986] 3 F.C. 521, Mr. Justice Joyal stated at page 524:
I find that the nature of the assessment itself raises reasonable apprehensions that the taxpayer had not been conducting his affairs in what might be called an orthodox fashion. There is reasonable apprehension that in placing surplus funds for investment purposes through the hands of a third party instead of directly, there would be difficulty in retracing these funds or in recovering them.
1 find the foregoing quotation apt to the circumstances before me. Certainly, the nature of the reassessments against the applicant indicate a range of income to the applicant quite out of scale with the incomes disclosed by the applicant in his annual returns to the Minister of National Revenue. The way in which he held assets certainly disclosed a conducting of affairs that could be called unorthodox. It also disclosed practises that would have made it very simple for the applicant to spirit away substantial assets if he had been so inclined so that there conceivably could have been difficulty in retracing the assets and in recovering them.
It appears from the case authorities that the fact that the taxpayer is unable to pay the amount assessed at the time of the direction would not by itself be conclusive or determinative. Moreover, the mere suspicion or concern that delay may jeopardize collection would not be sufficient per se. On the other hand, if there is cogent evidence on the part of the Department as to the dissipation of the taxpayer’s assets or the movement of assets out of the jurisdiction beyond the reach of the Department and other potential creditors, this could be very persuasive and compelling (see Danielson v. Canada (Deputy Attorney General), (1986), 86 D.T.C. 6518 (Fed. T.D.)).
Conclusion (L10/R4724/T0/BT0) test_marked_paragraph_end (4664) 1.023 0106_8045_8175
In my view the sale of Birgit’s house, the endorsement of the cheque for the proceeds of the sale into the joint bank account of the Jaeckels and the same-day transfer of the sum of $821,150.38, which is all or substantially all of the proceeds, to a bank account in Germany, give reasonable grounds for the Minister to believe that the taxpayer would waste, liquidate, or transfer assets to jeopardize collection of the debt.
In À. v. Satellite Earth Station Technology Inc., (1989), 89 D.T.C. 5506 (Fed. T.D.) the court held that the fact a taxpayer’s assets are changed or reduced is not in itself indicative that collection is jeopardized unless the transfer of assets, which are not naturally wasting, has been or will be effected to avoid the claims of creditors including Her Majesty.
For all the above reasons the jeopardy order of Matheson J. is confirmed and in all respects, the application by the Jaeckels is dismissed.
Application dismissed.
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