Minister of National Revenue v. Maclver, [1999] 4 CTC 203, 99 DTC 5524

Sharlow J.:

On May 8, 1996, jeopardy orders were made pursuant to subsection 225.2(2) of the Income Tax Act against Donald Neil Maclver and his wife, Pamela Constance Maclver, the applicants in this motion. The applicants applied under subsection 225.2(8) for a review of the jeopardy orders within the statutory time limit. The review application initially was adjourned by consent. It has been set down for hearing because the Minister wishes to rely on the jeopardy orders to sell the applicants’ boat at auction on July 29, 1999. The applicants now seek an order setting aside the jeopardy orders, or alternatively varying them to defer the sale of the applicants’ boat pending the conclusion of Mr. Maclver’s appeal in a criminal case, referred to below.

It is undisputed that both applicants in this motion had tax liabilities when the jeopardy orders were made. Mr. Maclver’s current liability is over $4 million. Mrs. Maclver’s current liability is a lesser amount that has been assessed under section 160 in respect of an alleged non-arm’s length transfer of property to her from Mr. Maclver for less than fair market value consideration. Notices of objection have been filed for all of these assessments and have yet to be resolved.

The jeopardy orders permit the Minister to take the extraordinary action of collecting tax in dispute. But for the jeopardy orders, the Minister would have been unable to take any collection action with respect to the disputed tax until after the resolution of the objections and any subsequent appeals to the Tax Court of Canada. Subsection 225.2(2) reads as follows:

...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 any of the actions in paragraphs 225.1(a) to (g) with respect to the amount.

As a preliminary matter, counsel for the applicants sought a further adjournment of this application. Counsel for the Minister opposed the adjournment on the basis that the hearing of this application had been set down peremptorily after a previous motion by the applicants for an adjournment. I see no justification for a further adjournment.

Mr. Maclver is a lawyer. It appears that his tax liability as assessed arises from certain transactions involving payments made to him by a client. The client sued in the Manitoba courts for return of the funds, and ultimately obtained judgment for all but $1,000,000, the amount payable to him as a fee. Apparently the Minister considers the full amount of the original payment to be income of Mr. Maclver, while Mr. Maclver contends that only $1,000,000 is income.

The tax liability of Mrs. Maclver under section 160 is a vicarious liability for Mr. Maclver’s tax. It appears that Mrs. Maclver’s position is that she has no liability under section 160 because Mr. Maclver did not transfer the property to her for inadequate consideration. Presumably she would also argue that if Mr. Maclver has paid his full tax liability, she has no liability in any event.

The tax dispute will be resolved in another forum. It is beyond my jurisdiction to consider whether or not the assessments are correct. For present purposes, I am bound by section 152(8), which deems the assessments to be valid unless and until they are varied on objection or appeal.

In this application, the applicants have the initial burden of presenting evidence that there are reasonable grounds for concluding that the test established by subsection 225.2(2) for the issuance of a jeopardy order has not been met. However, the ultimate burden of justifying the jeopardy order remains on the Minister: R. v. Satellite Earth Station Technology Inc. (1989), 30 F.T.R. 94 (Fed. T.D.).

In an application by the Minister for a jeopardy order under subsection 225.2(2), the test to be applied is stated as follows in Danielson v. Canada (Deputy Attorney General), [1986] 2 C.T.C. 380 (Fed. T.D.) at page 381: ...the mere suspicion or concern that delay may jeopardize collection would not be sufficient per se. 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.

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.

That case was decided under the pre-1988 version of subsection 225.2(2), but it remains the test under the current version: Deputy Minister of National Revenue v. Atchison (1988), [1989] 1 C.T.C. 342 (B.C. S.C.).

It was argued for the applicants that in this case, any delay in collection was the fault of the Minister, who has not confirmed the assessments despite the fact that objections were filed three years ago. Counsel for the Minister argues that section 225.2 is intended to deal with circumstances where the collection of tax is jeopardized by delays inherent in the objection and appeal process, and there is no basis for trying to assign responsibility for particular delays. I agree with counsel for the Minister on this point. In any event, it seems likely that it was in the interest of both the applicants and the Minister to leave the objections in abeyance while the criminal proceedings described below were in progress. There is no basis in this case for finding any fault on the part of the Minister or the applicants for the delay in dealing with the objections.

The jeopardy orders were based on the affidavit of an official of Revenue Canada indicating that Mr. Maclver had paid $2.6 million to be held in a trust in Switzerland. That payment put the funds out of Mr. Maclver’s control and into the control of a person who is not subject to any collection action that Revenue Canada is empowered to take under the Income Tax Act.

The affidavit also indicated that Mr. Maclver had transferred assets to his wife and other family members, and that the only assets of Mr. Maclver that Revenue Canada could find in Canada were a boat, a registered retirement savings plan worth approximately $39,000, a guaranteed income certificate that had been pledged to a bank, and approximately $9,000 in a bank account.

There is nothing in the material filed by or on behalf of the applicants that casts any doubt on the facts alleged by the Minister in the initial application.

Evidence filed in this review application indicates that after the jeopardy orders were made, Mr. Maclver was charged with tax evasion in respect of the amounts referred to above that were received from his client, as well as perjury in relation to an affidavit filed in the litigation commenced against him by his client. He was tried by a jury and convicted. The conviction is under appeal. Counsel for Mr. Maclver estimates that the appeal may be heard in the early part of the year 2000. Mr. Maclver is confident that the appeal will result in the conviction being overturned.

I have not taken the criminal convictions into account, nor have I attempted to consider the merits of Mr. Maclver’s appeal. I do not consider the criminal proceedings to be relevant to the issue before me. The outcome of the appeal may have some impact on the ultimate determination of the applicants’ tax liabilities, but that is not a question of concern to me in this application.

Mr. Maclver has also adduced evidence to establish that he has paid the full amount of the tax liability arising from the $1,000,000 income inclusion. The Minister disputes that evidence. For present purposes, nothing turns on whether or not Mr. Maclver paid the tax relating to the $1,000,000 income inclusion. What is important is that Mr. Maclver does not deny that the disputed tax remains unpaid. It is only the disputed tax that is the subject of the jeopardy orders.

Mr. Maclver is 67 years old, and there is some evidence that he has not enjoyed good health. He and Mrs. Maclver both filed affidavits stating that they have children and grandchildren in Canada and have no intention of disposing of their assets. It is argued for them that three years have passed since the initial jeopardy orders were made. During that time the Minister voluntarily left Mr. Maclver in physical possession of his boat and took no collection action with respect to that asset, and Mr. Maclver did not attempt to sell his boat or to dissipate any of his assets.

It is argued that Mr. Maclver’s track record over this period, combined with his confidence that he will succeed in the criminal appeal and his confidence that the assessments ultimately will be reversed, are said to be facts that favour the conclusion that he has neither the motive nor the intention to attempt to defeat Revenue Canada’s collection efforts.

In this regard, counsel for the Minister points to evidence filed in the initial application relating to Mr. Maclver’s numerous transfers of property to family members and to the Swiss trust, and also to an affidavit filed in response to this application that indicates that the applicants have been using funds from the Swiss trust fund to pay their credit cards bills, totalling over $1 million since 1995. Counsel for the Minister argues that this is a dissipation of their assets that provides further justification for the jeopardy orders.

The Minister has also adduced evidence that since 1996 collection action has been taken against other assets of the applicants. Charges have been registered against their real property and there has been a forced liquidation of certain investments.

In my view, nothing turns on the fact that the Revenue Canada has not previously tried to sell Mr. Maclver’s boat. On the other hand, nothing turns on the fact that Mr. Maclver has not tried to sell it. It is far from clear that he could have sold it if he had wished to, considering the fact that it had been seized and was in his possession only with the Minister’s indulgence.

The evidence as to the applicants’ use of the Swiss trust funds to pay bills suggests that the applicants have access to those funds. However, it is not possible to determine from the evidence whether their access to the funds is a matter within their discretion or that of the trustee or someone else. Nor is there any evidence on which I determine whether the applicants’ use of the funds is a dissipation of assets or the payment of bona fide debts. Because there are so many unanswered questions relating to the Swiss trust, I have put no weight on the evidence of payments from the trust to the applicants.

At the same time, I note again that there is nothing to contradict the Minister’s evidence that Mr. Maclver originally paid $2.6 million into the Swiss trust, and that Mr. Maclver has represented to the Minister that he has no control over funds in that trust. If that is the case, then Mr. Maclver has in the past transferred valuable assets out of his control. That, together with evidence of other transfers of valuable assets to family members, would justify the issuance of the jeopardy orders in 1996. The belief of Mr. Maclver that his liability ultimately will be reduced is not sufficient to overcome that evidence. I conclude that the test in subsection 225.2(2) has been met. It follows that application to set aside the jeopardy orders must be dismissed.

It remains only to consider whether there is any basis for varying the jeopardy orders to defer the sale of the boat until the conclusion of the criminal appeal. The only justification suggested for such a variation is that the applicants’ circumstances have not changed substantially since 1996, and given the delay in selling the boat that has already occurred, it is unreasonable not to delay a few more months until the criminal proceedings are resolved.

It is argued for the Minister that once a jeopardy order is in place, the Minister cannot be compelled to defer collection on the basis suggested by the applicants. The Minister’s indulgence during the criminal trial did not confer any rights on the applicants to further indulgence.

It is also argued for the Minister that the boat is a depreciating asset, and a delay of a few months is likely to be prejudicial. Counsel for the applicants objects to this argument on the basis that there is no evidence as to the depreciation of boats. I think I am entitled to take judicial notice of the fact that such assets decline in value over time.

I can find no basis for compelling the Minister to defer the sale of the applicants’ boat. The application for a variation of the jeopardy orders will be dismissed.

Application dismissed.