Date: 20050218
Docket: T-2107-04
Citation: 2005 FC 264
BETWEEN:
MINISTER OF NATIONAL REVENUE
Applicant
and
RICKY SINCLAIR ARAB
Respondent
REASONS FOR ORDER
HARRINGTON J.
[1] Last April, Mr. Arab was arrested in Montreal and charged with trafficking in narcotics. His car was searched. There was a suitcase in the trunk. In the suitcase was $373,750 in cash.
[2] According to police reports, Mr. Arab first feigned ignorance that there was money in the car. Later, he acknowledged the money but said it was not his.
[3] The money was kept by the police as potential evidence against Mr. Arab. The Department of National Revenue came to learn that the charges would be dropped. It caused a net worth assessment to be carried out as a result of which Mr. Arab was reassessed for past tax years. The balance owing on federal taxes, provincial taxes, interest and penalties was $283,973. In addition, he was reassessed $78,190.89 in harmonized sales tax under the Excise Tax Act.
[4] The Minister moved ex parte under section 225.2(2) of the Income Tax Act to seize the cash. Blais J. issued the order, commonly known as a jeopardy order, 26 November 2004. Before me is Mr. Arab's motion to have the ex parte order set aside.
[5] The general rule is that the Minister is restricted from collecting amounts owing until 90 days after mailing the notice of assessment, as per section 225.1(1) of the Act. Nevertheless, the Minister may be authorized by a judge to proceed forthwith. Section 225.2(2) of the Act provides:
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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(1)(a) to 225.1(1)(g) with respect to the amount.
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(2) Malgré l'article 225.1, sur requête ex parte du ministre, le juge saisi autorise le ministre à prendre immédiatement des mesures visées aux alinéas 225.1(1)a) à g) à l'égard du montant d'une cotisation établie relativement à un contribuable, aux conditions qu'il estime raisonnables dans les circonstances, s'il est convaincu qu'il existe des motifs raisonnables de croire que l'octroi à ce contribuable d'un délai pour payer le montant compromettrait le recouvrement de tout ou partie de ce montant.
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[6] Section 225.2(8) allows the taxpayer to move the Court to have the ex parte authorization reviewed.
[7] Mr. Arab submits the order should be set aside because the Minister failed to make a full and frank disclosure in his ex parte application, and because there is no evidence that collection delays would put the recovery of the alleged debt in jeopardy. Mr. Arab is well-established in Halifax, has considerable equity in two properties he owns in his own name, and is self-employed in two businesses. There is no evidence that he is a criminal or that he has ever dissipated assets. He declares income, files annual tax returns and pays taxes. Furthermore, the money in question is not his. He was holding it in trust to invest on behalf of friends.
[8] I begin with what is not in issue, which are alleged errors on the net worth assessment and whether the Minister is in fact oversecured, given Mr. Arab's real estate interests.
[9] Mr. Arab intends to object to the assessment, and that is the route for him to follow for a final determination as to what, if anything, he owes. It does not fall upon me to rule on the validity of the assessments. Section 152(8) of the Act provides that an assessment is deemed to be valid and binding notwithstanding any error, defect or omission until it is varied or vacated on objection or appeal (Minister of National Revenue v. MacIver (1999), 99 D.T.C. 5524, at paragraph 7 (Sharlow J., as she then was) and Minister of National Revenue v. Services M.L. Marengére Inc. 2000 D.T.C. 6032, at paragraph 64 (Lemieux J.)).
[10] As to the Minister being oversecured, that issue is not before me. Mr. Arab, at this stage, is contesting the Minister's right to seize, not the amount seized and applied to his account.
FAILURE TO MAKE FULL AND FRANK DISCLOSURE
[11] In all ex parte matters the applicant is obliged to draw to the attention of the Court all facts in issue, even those which it considers unhelpful or inconvenient, and all relevant case law. The ex parte application was supported by an affidavit by Jeff Rafuse, Team Leader of the Investigations Special Enforcement Program with the Halifax Tax Services Office of the Canada Revenue Agency. He stated the facts, gave his sources of information and disclosed that his search of records indicated that Mr. Arab owned two properties within the Halifax regional municipality as well as a seven year-old automobile. The basis of the allegation that there was not a full and frank disclosure derives from his cross-examination in which he said that he personally was not involved in collections and it was the collector assigned to the case who suggests applying for a jeopardy order. How then, it follows, could he personally believe that a delay might put recovery of the debt in jeopardy?
[12] In my opinion, there was a full and frank disclosure. Mr. Arab's past returns were put before the Court. Here was a man of relatively modest means, who was charged with a crime, who first denied that he knew anything about money in the trunk of his car; a person who could not have had that much cash unless he had not been declaring income. These facts speak for themselves and either constitute reasonable grounds that collection would be jeopardized by delay, or do not.
WHO OWNS THE MONEY?
[13] Mr. Arab signed an affidavit in support of his application to have the ex parte order set aside, and was cross-examined thereon. It is well documented that in 1996 he was compensated by the Government of Nova Scotia in the amount of $70,000 in relation to injuries sustained in the Shelburne Boys' School, and in 1998 received some $10,000 as compensation for injuries sustained in an automobile accident.
[14] Mr. Arab demonstrated that he was careful with his money and has parlayed it into what appear to be excellent investments in Halifax real estate. Because of this, some of his friends who were also residents in the Shelburne Boys' School and who had received compensation banded together and gave him the money in question to invest. He was driving through Montreal on the way to Toronto when the money was found in his automobile. The criminal charges laid against him were withdrawn. His opinion is that they were only laid in order to hold the funds to give the Minister enough time to seize them.
[15] The evidence that the money does not belong to Mr. Arab consists of three signed, but unsworn, letters dated after his arrest. One gentleman says he gave him $90,000 to invest, another says he gave him $50,000 and the third says that he won millions of dollars in a lotto in 1997 and gave $165,000 thereof to his nephew who was to invest in a business venture of his choice for his uncle's benefit. There is nothing from the nephew saying he gave the money to Mr. Arab.
[16] The gentlemen in question have not yet come forward to claim the money. There is no paper trail by way of cancelled cheques or bank transfers supporting their unsworn allegations and, based on their own tax returns which were filed in affidavits in reply, one may be a social welfare fraud who heretofore would find it inconvenient for the authorities to know he had money.
[17] To the extent this lack of ownership argument has been put forth to show that the reassessments were wrong, as I said above I am bound by section 152(8) of the Act and must assume for the moment that the reassessments are valid and binding.
[18] The money was in Mr. Arab's possession. Based on the information brought forward so far, Mr. Arab has not rebutted the presumption that the money is his. On the contrary, his settlement with the Shelburne Boys' School and the purchase of his properties is extremely well documented. Mr. Arab cannot be equated with a person who has no business sense, and who hides his money under the mattress. The implication at this stage has to be that the money in the trunk of his car was money he would have rather not have disclosed to the authorities.
WAS THE SEIZURE JUSTIFIED?
[19] The issue is whether, pursuant to the Act, "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". Mr. Justice Blais was so satisfied based on the material before him. Unlike him, I have now had the advantage of hearing Mr. Arab's side of the story, considering the cross-examination of Mr. Rafuse, and the affidavit and cross-examination of the Montreal police officer involved in the "sting" operation which led to Mr. Arab's arrest. Based on this material, I am satisfied that there are reasonable grounds to believe that the collection of the amount assessed in respect of Mr. Arab would be jeopardized by a delay in the collection and uphold the authorization given to the Minister to immediately institute collection proceedings.
[20] It is of no concern whether Mr. Arab was engaged, or intended to become engaged, in criminal activity. The charges have been dropped. Nevertheless, I prefer the evidence of the Montreal detective-sergeant who testified that he and Mr. Arab were engaged in discussions which would have led to an undocumented business transaction. I consider a person who holds a large amount of cash in the trunk of an automobile, cash which is presently untraceable, at least through normal banking records, is engaged in unorthodox behaviour, behaviour which "raises a reasonable apprehension that it would be difficult to trace funds or recover them for the tax debt..." (Deputy Minister of National (Taxation) v. Quesnel, [2001] 2 C.T.C. 75 (B.C.S.C.), Clancy J. at para. 27). In Canada (Minister of National Revenue - MNR) v. Rouleau, [1995] 2 C.T.C. 442, Gibson J. dealt with a reassessment on a net worth basis after the discovery of a large amount of cash during the execution of a search warrant. He said at paragraph 7:
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.
See also R v. Paryniuk, [2004] 2 C.T.C. 236 (von Finckenstein J.).
[21] Certainly, the Minister has overcome the initial burden which lay upon him.
[22] Mr. Arab counters by arguing that apart from this cash, which is not his, he owns real estate, and files tax returns. Since he had equity in two properties, equity which could not be immediately turned into cash, there is no evidence that he was trying to dissipate his assets. However, the point is not that he is content to show the Minister some assets which are not in liquid form, the point is that he appears to have undeclared assets which could disappear in the blink of an eye by simply handing over a suitcase to somebody else.
[23] If I were not to prefer the detective-sergeant's version of events, I would be left with Mr. Arab's story that he was on his way to Toronto to look at the real estate market, without so much as arranging a meeting with a broker. If he did purchase something, was he going to make a $300,000 payment in cash? The story lacks cohesion and credibility.
[24] For these reasons, the application will be dismissed with costs.
"Sean Harrington"
Judge
Ottawa, Ontario
February 18, 2005
FEDERAL COURT
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-2107-04
STYLE OF CAUSE: MINISTER OF NATIONAL REVENUE
AND
RICKY SINCLAIR ARAB
PLACE OF HEARING: HALIFAX, NOVA SCOTIA
DATE OF HEARING: FEBRUARY 10, 2005
REASONS FOR ORDER : HARRINGTON J.
DATED: FEBRUARY 18, 2005
APPEARANCES:
Mark Donohue FOR APPLICANT
Kevin Gilpin FOR RESPONDENT
SOLICITORS OF RECORD:
John H. Sims, Q.C.
Deputy-Attorney General of Canada FOR APPLICANT
Gilpin Law Inc.
Halifax, Nova Scotia FOR RESPONDENT
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