Date: 20110304
Docket: T-349-11
Citation: 2011 FC 263
Vancouver, British Columbia, March 4, 2011
PRESENT: The Honourable Mr. Justice Shore
IN THE MATTER OF SUNG YOUN PARK
and an application by the Minister of
National Revenue
under section 225.2 of the Income Tax
Act
BETWEEN:
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THE MINISTER OF NATIONAL REVENUE
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Applicant
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and
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SUNG YOUN PARK
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Respondent
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REASONS FOR ORDER AND
ORDER
I. Introduction
[1]
Based
on the disclosure of one’s income and its sources which does not constitute a
self-imposed affliction but constitutes a legal imperative, the paying of
taxes, thereby, does not arise of choice, but derives from a legal
obligation.
II. Background
[2]
The
Respondent’s former spouse Doo Chun Park, also known as Don Park (Doo), is indebted
to the Minister for unpaid income tax in the current amount of $1,847,734.66 in
respect of the 2001, 2002, and 2003 taxation years. He last filed a
tax return in 2003 (Affidavit of A. Hamilton, para 7).
[3]
Doo,
now retired, owned and operated a Super 8 Motel and liquor store in Alberta. That property was
sold in 2002 for about $2,700,000. Doo’s tax assessment was relevant to unpaid
tax on capital gains arising from the sale of the Alberta motel business
(Affidavit of A. Hamilton, para 8).
[4]
The
Respondent’s son, Hugo Hyun Park (Hugo), was the registered owner of real
property located at 2088 W. 62nd Ave. S.W. Marine, Vancouver,
British Columbia, and bearing a legal description of 010-292-675 Lot A of Lots
244 to 246 Block B District Lot 325A Plan 8031 (the Subject Property)
(Affidavit of A. Hamilton, para 9, Exhibit “A”).
[5]
This
Property was originally purchased by him in 2004 for $1,030,000. At this time,
Hugo was a student and was studying in Puerto Rico. His reported income
for this year was $7,885. (Affidavit of A. Hamilton, para 10, Exhibit “A”).
[6]
Hugo
obtained the funds relevant to his purchase of the Subject Property from Doo
(the Loan). The Loan was documented by means of a separation agreement
(the Separation Agreement) dated July 31, 2005, between Doo and the Respondent,
Sung Youn Park (Sung). The amount of the Loan was $2,253,558.53 USD
(approximately $2,789,454.75 CDN). The Separation Agreement states that
the Loan occurred in 2004 and that it was to be repaid by Hugo to both Doo
and Sung (Affidavit of A. Hamilton, para 11, Exhibit “B”).
[7]
Hugo
used the funds relevant to the Loan to also make a loan to Sung in the amount
of $196,000. The funds were apparently provided to Sung so that she could
provide them to her children (including Hugo) as down-payments relevant to the
purchase of condos. Her daughter, Hannah, sold her condo on July 31, 2009. Her
sons’, Hugo and Hans, condos remain registered in their names. It is
unclear if Sung retained any interest in these properties (Affidavit of A.
Hamilton, para 12, Exhibits “B” to “E”).
[8]
In
an affidavit filed by him relevant to jeopardy proceedings taken against him by
the Applicant, Hugo deposed that his condo was originally owned by his father,
transferred to his mother, and acquired by him pursuant to his father’s
instructions. He also denied that the Loan was in fact a loan, but verified
that the monies were provided to him by Doo (Affidavit of A. Hamilton, para 13,
Exhibit “C”).
[9]
Relevant
to the remaining $1.5 million (or so) he received from his father pursuant to
the Loan, Hugo deposed that all monies that he received from his father
were, for the most part, returned to Doo. He says also that his father
orchestrated all financial transactions between them, including those relevant
to the Subject Property, and that further to his Korean heritage he did not
question his father’s motives and simply complied with his father’s
instructions (Affidavit of A. Hamilton, para 14, Exhibit “C”).
[10]
Hugo
did not reside in the Subject Property because at all material times, he was
studying or working abroad. He allowed his mother and father to reside at
the Property in exchange for their payment of the expenses relevant to it. Sung
had power of attorney with respect to Hugo’s affairs. This is set out in the
Separation Agreement (Affidavit of A. Hamilton, para 15, Exhibits “B” and “F”).
[11]
The
Separation Agreement also provided for payment of Doo’s tax debt as it was at
that time. Both Sung and Doo were to pay the debt. A ‘Satisfaction Piece’
entered into between Sung and Doo likewise provided for the debt’s repayment.
Notwithstanding this, no payments have been made in respect of Doo’s tax debt.
The CRA does, however, statutorily set-off Doo’s Canada Pension Plan and Old
Age Security payments against his tax debt (Affidavit of A. Hamilton,
para 16, Exhibits “B” and “G”).
[12]
Relevant
to the Subject Property, Hugo obtained a $700,000 mortgage from the Bank of
Montreal (BMO). As with the Loan, Hugo has deposed that this mortgage was
arranged by his father and the funds relevant to it actually went to Doo. This
mortgage is no longer registered against title to the Subject Property and was
either assumed by Sung or a new mortgage was obtained in its stead given that
another mortgage in favour of BMO in the amount of $780,000 was then
registered against title to the Property (the BMO Mortgage). The BMO Mortgage
was guaranteed by Hannah and signed by Sung on her behalf as her power of
attorney (Affidavit of A. Hamilton, para 17, Exhibits “C”, “H”, and “I”).
[13]
A
Requirement to Pay (RTP) was issued to Hugo in 2007 by the Minister under
subsection 224(1) of the ITA relevant to the Loan. Hugo failed to comply with
the RTP and, accordingly, was assessed in respect of this non-compliance
for the amount of $1,639,959.66. The Minister then obtained a jeopardy
order against Hugo in respect of this assessment (Federal Court File
No. T-1035-08). That jeopardy order was reviewed unsuccessfully by
him. Sung paid Hugo’s costs as awarded to the Minister relevant to this
litigation (Affidavit of A. Hamilton, para 18, Exhibits “J” and “K”).
[14]
Hugo
was also assessed pursuant to section 160 of the ITA in respect of deposits to
his bank accounts made by Doo in the total amount of $17,293,548.39. This
included the Loan monies (Affidavit of A. Hamilton, para 19, Exhibit
“L”).
[15]
With
respect to his assets more generally, Hugo has deposed that all assets were
created and placed in his name by his father and all transfers of money
between accounts, including those in Canada, California and Puerto Rico, were done on his father’s instructions.
The only exception to this appears to be with regards to a line of credit
obtained by Hugo from the Toronto-Dominion Bank (TD) so that he could pay out
his student loans relevant to his education, which line of credit is secured by
a mortgage registered against title to Hugo’s condo (in addition to several
other financial encumbrances). It is signed by Sung as power of attorney for
Hugo (Affidavit of A. Hamilton, para 20, Exhibits “C” and “D”).
[16]
Hugo
also appears to imply in his Affidavit that at all material times, both he and
his mother were Doo’s mere nominees with respect to the family assets
generally, including the Subject Property (Affidavit of A. Hamilton, para
21, Exhibit “C”).
[17]
Sung
has likewise deposed in an affidavit, sworn by her relevant to proceedings
initiated by the Minister in respect of her failure to comply with a
Requirement for Information (RFI) (Federal Court No, T-317-06), that she and
Doo maintained a traditional Korean marriage which meant that she primarily
assumed the role of wife and mother. This was notwithstanding that Sung was a
director and shareholder of several of the family corporations (Affidavit of A.
Hamilton, para 22, Exhibit “M”).
[18]
In
2005, Hugo transferred the Subject Property to Sung. Sung paid consideration of
$1. The Subject Property was valued at $1,126,000 at the time of the
transfer (Affidavit of A. Hamilton, para 23, Exhibits “N” and “O”).
[19]
Hugo
has deposed that this transfer was also made on Doo’s instructions (Affidavit
of A. Hamilton, para 24, Exhibit “C”).
[20]
Sung
was assessed on November 18, 2010, relevant to this transfer pursuant to
section 160 of the ITA (the “Assessment”) in the amount of $1,397,999 (the
Debt) (Affidavit of A. Hamilton, para 25, Exhibit “P”).
[21]
The
Assessment concerning the Debt was sent to Sung by ordinary mail at the Subject
Property, being her last known address (Affidavit of A. Hamilton, para 26,
Exhibit “Q”).
[22]
Sung
has made no voluntary payments towards the Debt since the Assessment was issued
(Affidavit of A. Hamilton, para 27).
[23]
Sung
has, through her counsel, filed a Notice of Objection (Objection) to the
Assessment. She is represented by William A. Ruskin (Ruskin) of Clark Wilson
LLP (Clark Wilson). As such, her Debt is subject to the collection restrictions
imposed by the ITA which restrictions will not lift until Sung’s Objection
and/or appeal have concluded (Affidavit of A. Hamilton, para 28).
[24]
Accordingly,
it is not known at this time when the collection restrictions period relevant
to Sung’s Debt will lift (Affidavit of A. Hamilton, para 29).
[25]
Two
of the companies controlled by the Park family — 835667 Alberta Ltd. (835667)
and 214 Holdings Ltd. (214 Holdings) — were/are likewise indebted to the
Minister and, at least relevant to 835667, were the subject of jeopardy
proceedings (Affidavit of A. Hamilton, para 30, Exhibit “R”).
[26]
214
Holdings is indebted to the Minister in the current amount of $74,015.35 for
unpaid capital gains. 214 Holdings was controlled by Doo and owned by Doo and
Sung. It was struck in 2006 (Affidavit of A. Hamilton, para 30, Exhibit “B1”).
[27]
835667
is controlled by Hugo, who is also its sole shareholder. The Applicant issued
two separate section 160 assessments against 835667; one relevant to the
transfer of real property in Alberta from Doo to 214 Holdings and then to
835667; and the second in regards to the transfer of funds from Doo to
835667. Per Federal Court File Number T-1888-07, the assessments were
jeopardized, which Order was not reviewed. Later, the appeals division vacated
the first assessment pertaining to the transfer of the real property in Alberta because adequate
consideration in respect of the transfer had been provided. The second
assessment has been appealed but a decision relevant to it has not yet been
rendered. Both assessments were paid from the proceeds of sale relevant to the Alberta property (Affidavit of
A. Hamilton, para 31, Exhibit “R”).
A. The Assets
[28]
Sung
is believed to have no exigible assets of value in Canada save the sale
proceeds relevant to the Subject Property and shares in 1208922 Alberta Ltd.
(1208922) (Affidavit of A. Hamilton, paras 32 to 33, Exhibits “O”, “S” to
“V”).
[29]
The
Subject Property was recently listed for sale for $1,680,000 and sold in
January 2011. The closing date was on or about February 28, 2011. The sale
price was $2,020,000 (Affidavit of A. Hamilton, para 34, Exhibit “W”).
[30]
Sung
is estimated to have had equity in the Subject Property of $1,232,295.90,
having considered the amount owing by her relevant to the mortgages registered
against title to the Subject Property, and the sale price of the Subject
Property (Affidavit of A. Hamilton, para 35, Exhibits “W” to “A1”).
[31]
In
this regard, and as noted above, the Property was encumbered by the BMO Mortgage.
The balance owing on the BMO mortgage was $687,704.17 (Affidavit of A.
Hamilton, para 35, Exhibit “X”).
[32]
The
Subject Property was also encumbered by a mortgage in favour of TD (the TD
Mortgage). The face value of this mortgage was $100,000. The balance owing on
the TD Mortgage is not known (Affidavit of A. Hamilton, para 35, Exhibit “Z”).
[33]
The
assessed value of the Subject Property is $2,175,000 (Affidavit of A. Hamilton,
para 35, Exhibit “A1”).
[34]
Sung
additionally has shares in 1208922 as noted above. This company operates the
Peace Valley Inn in Peace
River, Alberta. Sung is a 15%
shareholder. The value of these shares is unknown but is estimated to be
$290,994.60. Sung receives annual dividends relevant to these shares, beginning
in 2006. Those dividends have been:
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Year
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Dividend
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2006
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$53,874.81
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2007
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$30,000.00
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2008
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$61,191.95
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2009
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$27,324.23
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(Affidavit of A.
Hamilton, paras 36 to 38, Exhibits “B1” to “C1”)
[35]
Sung
also had shares in 214 Holdings and 1207642 Alberta Ltd. but, because these
companies have been struck, these shares are likely worthless (Affidavit of A.
Hamilton, para 36, Exhibit “B1”).
[36]
Relevant
to 1208922, Sung also received $118,296 in T4 income in 2007. She has received
no other T4 income from the company in other years. Sung also works as a nurse
on a part-time basis. In recent years, her income from her nursing job has
averaged approximately $26,000 (averaged for 2005 to 2009) (Affidavit of A.
Hamilton, para 38).
[37]
Additionally,
Sung was the registered owner of real property located at 1606 - 2979 Glen Drive,
Coquitlam, British Columbia, and bearing a legal description of 027-318-842
Strata Lot 93 District Lot 386 Group 1 New Westminster District Strata Plan
BCS2656 (the Rental Property). This property was rented out by Sung and then
sold by her in 2010 to Mojgan Sheykholeslami (Sheykholeslami), a realtor,
for $398,000. She realized proceeds of $78,489.16. Sung was indebted to the
Minister at this time. No funds were provided to the Minister in respect of
this sale and I am unclear what Sung did with the sale proceeds (Affidavit of A.
Hamilton, para 39, Exhibits “C”, “D1” to “F1”).
[38]
On a
2005 Personal Financial Statement, Sung declared her net worth to be
$2,136,000. This was made up of $30,000 in cash held with TD, a $193,000
GIC also held with TD, her equity in the Subject Property, a $60,000
vehicle, $450,000 in stocks/bonds and $30,000 in household/personal effects.
The current status of these assets (with the exception of her equity position
relevant to the Subject Property) is not known (Affidavit of A. Hamilton, para
42, Exhibit “I1”).
[39]
Also
unknown is the current status of Sung’s bank accounts/investments with Canada
Trust and TD. The Applicant has issued Requirements for Information to these
banking establishments but has not yet received the requested information
(Affidavit of A. Hamilton, paras 35 and 43,
Exhibits “Y” and “J1”).
B. Sale of the Subject Property
[40] As noted, the Subject
Property sold for $2,020,000 and Sung realized proceeds of about $1,232,295.90
(Affidavit of A. Hamilton, para 34, Exhibit “W”).
[41] The notary for Sung
relevant to the handling of the conveyance in respect of the Subject Property
was Wanda Wong Wilson of Vancouver. Given that the sale
relevant to the Subject Property has just closed, the Agency is hopeful that
the sale proceeds remain with her (Affidavit of A. Hamilton, paras 34 and
47, Exhibit “W”).
[42] It is assumed that Sung
will not provide the sales proceeds, or any portion of the sales proceeds, to
the Minister in respect of her Debt, particularly as she failed to do this
relevant to the sale of the Rental Property (Affidavit of A. Hamilton, para
45).
[43] Additionally, because
Doo seemingly controls what occurs with respect to the Subject Property and the
family’s finances generally, it is assumed that Sung will provide the sales
proceeds to him or, because such transfers have traditionally been done through
Hugo, to Hugo who will then give them to Doo (Affidavit of A. Hamilton, para
46).
[44] If the sale proceeds are
provided to Sung, the Agency is hopeful that she will deposit the sale proceeds
into a Canadian bank account in order to effect a transfer to Doo or Hugo
(Affidavit of A. Hamilton, para 47).
C. Offshore Connection
[45]
The
Park family is known to have connections to Asia. Doo is believed to presently reside in South Korea (Affidavit of A.
Hamilton, paras 48 and 49).
[46]
Hugo
had connections to Puerto Rico and now resides in the USA. Both Hannah and Hans
are believed to reside in British Columbia (Affidavit of A. Hamilton, para 50).
[47]
Sung
is said to have received funds from Doo, even when purportedly separated, that
come from offshore sources. She also appears to send money to Korea (Affidavit of A.
Hamilton, para 51, Exhibits “L1” and “M1”).
[48]
Historically,
large sums of cash relevant to the family’s assets including the Subject
Property have been transferred to Hugo outside of Canada and eventually to Doo
(Affidavit of A. Hamilton, para 52).
D. Unorthodox Behaviour
[49]
The
Applicant is of the view that Sung has been conducting her affairs in an
unorthodox fashion (Affidavit of A. Hamilton, para 53).
[50]
For
example, the financial dealings relevant to both the Subject and Rental
Properties, generally, are unorthodox and illustrate that Doo uses both Hugo
and Sung as his nominees. All financial transactions relevant to the
family are orchestrated by Doo and Doo appears to ultimately be the recipient
of much of the family’s monies (Affidavit of A. Hamilton, para 54).
[51]
Sung
acquired the Subject Property from Hugo for no consideration and Hugo acquired
it by means of money provided to him by his father. Additional funds
provided to Hugo by Doo were eventually returned to Doo by Hugo. Some of
the funds from Doo to Hugo were also provided to Sung who gave them back
to Hugo, and to Hans and Hannah, to purchase condos. Funds borrowed by Hugo
relevant to the Subject Property were also given by Hugo to Doo (Affidavit of
A. Hamilton, para 55).
[52]
Both
Hugo and Sung have sworn affidavits that suggest that they are mere nominees of
Doo (Affidavit of A. Hamilton, para 56).
[53]
Accordingly,
and given that Doo is believed to be in South Korea, it seems likely that the
sale proceeds relevant to the Subject Property will be transferred outside of Canada to him. They may also
be provided to Hugo in New
York, who
will then provide the funds to his father in Korea (Affidavit of A. Hamilton, para 57).
[54]
As
well, when Sung sold the Rental Property, and notwithstanding that she was
indebted to the Minister at this time, she failed to pay the sales proceeds, or
any portion thereof, to the Minister (Affidavit of A. Hamilton, para 58).
[55]
Given
its nature, Sung’s Assessment is itself unorthodox. Likewise are the
assessments relevant to Hugo, 214 Holdings and 835667, some of which were the
subject of jeopardy orders (Affidavit of A. Hamilton, para 59).
[56]
Sung
and Doo continue to intertwine their finances despite being separated. For
example, in her 2005 personal financial statement, Doo is identified as being
Sung’s spouse, notwithstanding the Separation Agreement (Affidavit of A.
Hamilton, para 60, Exhibit “I1”).
E. Service/Intended Collection Action
[57]
From
a review of the records of the Canada Revenue Agency (CRA) concerning Sung,
her last known mailing address is at the Subject Property (Affidavit of A.
Hamilton, para 62, Exhibit “Q”).
[58]
Additionally,
Sung is represented by Mr. William Ruskin at Clark Wilson in respect of her tax
affairs (Affidavit of A. Hamilton, para 63).
[59]
As
such, the intention of the Applicant, if permitted, is to effect service of the
Jeopardy Order on her by personally serving her; or by sending a copy of the
Order to her by ordinary mail to the Subject Property; and in care of Mr.
Ruskin at Clark Wilson (Affidavit of A. Hamilton, para 64).
[60]
Historically,
attempts to make direct contact with the family have been difficult. The CRA
last made contact with Doo in 2004 and direct contact with Hugo has never been
made. Sung last contacted the Agency in November 2010 to confirm that the
amount owing relevant to her Assessment was an amount due (Affidavit of A.
Hamilton, para 65).
[61]
It
is also the intention of the Applicant to issue Requirements to Pay pursuant to
subsections 224(1) or 224(1.1) of the ITA to Sung’s notary relevant to the
conveyance of the Subject Property, Ms. Wanda Wong Wilson, as well as to her
known banking establishments, so that it can attach any proceeds generated from
the sale of the Subject Property. The CRA would, however, like to take any of
the collection measures available under section 225.1 of the ITA, if permitted
(Affidavit of A. Hamilton, para 66).
C. Issue
[62]
Do
reasonable grounds exist to believe that the collection of all or any part of
the $1,397,999 in income tax assessed in respect of the Respondent would be
jeopardized by a delay in the collection of that amount?
D. Analysis
[63]
The
Court fully agrees with the position of the Applicant. Therefore, the following
reasons demonstrate why the Court has answered to the affirmative in regard to
the issue in question.
A. Collection Restrictions
[64]
Section
225.1 of the ITA limits, with certain exceptions, the Minister’s right to
recover unpaid taxes where the taxpayer disputes his or her assessed amounts
and an impartial hearing has not concluded (Income Tax Act, section
225.1, Brief of Authorities, Tab 1).
[65]
Section 225.1(1) of the
ITA provides that, with certain exceptions, the Minister shall not take any of
the listed collection actions against a taxpayer until after the day that is 90
days after the day that a Notice of Assessment (or Reassessment) is mailed to
the taxpayer, or if the taxpayer files a notice of objection or an appeal of
the assessment, until the objection or appeal has been dealt with finally (Income
Tax Act, section 225.1, Brief of Authorities, Tab 1).
B. Authorization to Proceed Forthwith
[66]
Section
225.2 of the ITA provides that, notwithstanding section 225.1, a judge of this
Court, on an ex parte application by the Minister, may grant an order (a
Jeopardy Order) authorizing the Minister to take collection action forthwith if
the 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.” (Income
Tax Act, section 225.2, Brief of Authorities, Tab 2).
[67]
A
review of the legislative intent and history is found in the case of 1853-9049
Quebec v The
Queen
a decision of Justice Paul Rouleau of this Court. At page 5095, Justice Rouleau
refers to the following extracts from a speech to the House of Commons by the
parliamentary secretary to the Minister of Finance. The extracts are taken from
the House of Commons debates for September 24, 1985:
In addition, the proposed Bill includes
safety features against possible abuses of the new system. Where there are
reasons to believe that the granting of a delay could jeopardize the collection
of the amounts in controversy, the Bill allows Revenue Canada
to take forthwith recovery action. On the other hand, the taxpayer has a right
to ask a Judge to review the opinion of Revenue Canada
that the collection of the amount in controversy would be jeopardized by such a
delay.
(1853-9049 Quebec Inc. v The Queen (1986), 87 DTC 5093
(FCTD) at 5095, Brief of Authorities, Tab 3)
[68]
In
Laframboise v The Queen, Justice Marcel Joyal of this Court commented on
the specific wording of paragraph 225.2(1) of the ITA [with reference to the
phrase “…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”] and stated (at pages 6398 to 6399):
The
expression has sufficiently liberal qualifications to it that its ambit
appears to me of far greater scope than that found in Mareva injunctions.
The word “may” and the expression “reasonably considered”, when read
together, provide considerable latitude to the Minister, a latitude which I
believe is not found whenever one deals with a seizure before judgment
(Laframboise
v The Queen (1986), 86 DTC 6396 (FCTD) at 6398 to6399, Brief of
Authorities, Tab 4)
[69]
In
1988, the provisions of the ITA were once again revisited and section 225.2 was
amended to require prior authorization by a Court before such jeopardy
collection procedures could be initiated. It is due to this amendment that the
Minister is required to avail himself of the special collection provisions
contained in section 225.2 of the ITA.
C. Test for Granting an Order under
Section 225.2
[70]
This
Court has held that the test on an application by the Minister under section
225.2 of the ITA (a Jeopardy Application) is whether the evidence before the
Court on a balance of probabilities or a “standard of proof that ‘while falling
short of a balance of probabilities, nevertheless connotes a bona fide
belief in a serious possibility based on credible evidence’” (the Standard of
Proof) is sufficient to lead to the conclusion that collection would
jeopardized by delay. This Court has also held that the issue is not whether
the collection per se is in jeopardy but whether the actual jeopardy
arises from the likely delay in the collection (Canada (Minister of National
Revenue – MNR) v 514659 B.C. Ltd. [2003] FCJ No. 207 (TD) at para 6, Brief
of Authorities, Tab 5; Danielson v Minister of National Revenue, [1986]
86 D.T.C. 6518 (FCTD), at 6519, Brief of Authorities, Tab 6).
[71]
Therefore, in
order for a Jeopardy Application to succeed, the onus is on the Minister
to prove that collection will be in jeopardy as a result of a delay in the
collection efforts of the Minister. Justice John McNair in Danielson,
above, held (at page 6519):
In my judgment, the issue goes to the
matter of collection jeopardy by reason of the delay normally attributable to
the appeal process. The wording of subsection 225.1(1) would seem to indicate
that it is necessary to show that because of the passage of time involved in an
appeal the taxpayer would become less able to pay the amount assessed.
…
…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 is more likely than not the
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.
(Danielson, above, at 6519, Brief of Authorities, Tab
6)
[72]
In
making its application for jeopardy order, the Minister has an obligation to
make full and frank disclosure and to exercise the utmost good faith both in
respect of the relevant facts, and the applicable jurisprudence (Canada
(National Revenue) v Robarts, 2010 FC 875 (Sept 3, 2010), at paras 33
to 35, Brief of Authorities, Tab 7).
[73]
Lack of income is not, in
and of itself, a sufficient justification for the granting of a jeopardy order.
Nor is the fact that the taxpayer’s assets are entirely liquid in nature and so
can be easily wasted, liquidated or transferred (Danielson, above, at
6519, Brief of Authorities, Tab 6; Robarts, above, at paras 72 and 73,
Brief of Authorities, Tab 7).
[74]
As
well, where a taxpayer has sold real estate that is the only asset available to
satisfy the debt and the cash received on the sale is still available to
satisfy that debt, the sale in and of itself does not constitute grounds for a
jeopardy order (Canada (Minister of National Revenue) v Landru, [1993] 1
CTC 93 (Sask QB), Brief of Authorities, Tab 8).
[75]
Further,
where there are additional collections avenues available to the Minister which
would see the debt paid notwithstanding the collections restrictions period, a
jeopardy order is not warranted (Steele (Re) [1995] SJ No 784 (SKQB)
[QL], at para 12, Brief of Authorities, Tab 9).
[76]
If
there is compelling evidence on the part of the Minister as to dissipation of
the taxpayer’s assets or the movement of assets out of the jurisdiction beyond
the reach of the Minister and other potential creditors, this is persuasive.
Speaking of the evidence that must be adduced by the Minister, Justice McNair
in Danielson, above, stated (at page 6519):
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 Minister and other potential
creditors, could be very persuasive and compelling. A more difficult borderline
case might be the situation where the taxpayer’s assets are of a wasting
nature, or likely to decline in value with the mere passage of time.
(Brief of Authorities,
Tab 6)
[77]
Unorthodox
behaviour which raises a reasonable apprehension that it would be difficult to
trace funds or recover them for the tax debt may provide reasonable grounds
that a jeopardy order is warranted (Deputy Minister of National Revenue v
Quesnel, 2001 BCSC 267, Brief of Authorities, Tab 10).
[78]
As
set out by Justice Luc Martineau of this Court in Robarts, above, (at
para 61) ‘unorthodox behaviour’ has not been specifically defined by the
jurisprudence, although it has given examples of what it considers to be
unorthodox behaviour:
(a) Keeping large
amounts of cash in places such as one’s apartment, safety deposit boxes, and a
cold storage depot locker (Rouleau, above);
(b) Keeping large
amounts of cash, untraceable through normal banking records, in the trunk of an
automobile (Minister of National Revenue v Arab, 2005 FC 264, [2005] 2
CTC 107 at para 20);
(c) Keeping double
accounts for a restaurant, with one being for entries in the sales ledger and
income tax returns, and the other being for additional sales not reported by
the holding company of the restaurant (Delaunière, re, 2007 FC 636, 2008
DTC 6274 (Eng) at para 4);
(d) Keeping large
amounts of cash in a safety deposit box, a filing cabinet in one’s house and in
the pocket of a housecoat (Mann v Minister of National Revenue, 2006 FC
1358, [2007] 1 CTC 243 at para 43); and
(e) Advancing funds to
a company about to be dissolved in order to avoid paying income tax (Laquerre,
re, 2008 FC 459, 2009 DTC 5596 (Eng) at para 11; Robarts, at para
61, Brief of Authorities, Tab 7).
[79]
Also,
in Laquerre, re, the Court considered the Respondent’s unorthodox
behaviour, in addition to that of his non-arm’s length companies and family
trusts (Laquerre, re, 2008 FC 459 (Can LII) at para 38, Brief of
Authorities, Tab 11).
[80]
Similarly,
in Canada (Minister of National Revenue) v Services M.L. Marengère, the
Court considered the unorthodox behaviour of the Respondent and its affiliated
corporations, and director, in rendering its decision as to whether the
Jeopardy Order was appropriate (Canada (Minister of National Revenue) v
Services M.L. Marengère, [1999] Can LII 9004 (Can LL), Brief of
Authorities, Tab 12).
[81]
A
summary of the principles relevant to the making of a Jeopardy Order was set
out by Justice Clancy of the Supreme Court of British Columbia in Deputy
Minister of National Revenue v Quesnel at para 27:
Jeopardy
orders have been considered in a number of authorities. A useful summary of the
principles that emerge from those authorities was provided by counsel for Ms.
Quesnel. The principles relevant to the circumstances before me are:
i. the facts must provide reasonable
grounds for believing the taxpayer will waste, liquidate or otherwise transfer
property so as to make it unavailable to the Minister: Canada v. Golbeck (1990),
90 DTC 6575 (F.C.A.);
ii. it must be more likely than not
that collection will be jeopardized by delay: Danielson v. Minister of
National Revenue (1986), 86 DTC 6495 (F.C.T.D.); Satellite Earth Station, supra;
iii. mere suspicion or concern is not
sufficient to establish reasonable grounds: Danielson, supra, Satellite Earth Station, supra;
iv. where a taxpayer has never taken
any steps to hinder collection proceedings, it suggests that collection will
not be jeopardized: Danielson, supra;
v. where a taxpayer has sold real
estate that is the only asset to satisfy the cash debt and the cash received on
the sale is still available to satisfy the debt, the sale itself does not
constitute grounds for a jeopardy order: Canada (Minister of National Revenue) v. Landru, [1993] 1 C.T.C. 93 (Sask. Q.B.);
vi. unorthodox behaviour which raises a
reasonable apprehension that it would be difficult to trace funds or recover
them for the tax debt may provide reasonable grounds: Laframboise, supra; Rouleau, supra.
(Quesnel, above at para 27, Brief of Authorities, Tab 10; see also Minister of National Revenue
v Thériault-Sabourin, CarswellNat 172, 2003 FCT 124 at paras 13 and 14, Brief of
Authorities, Tab 13)
[82]
In
Minister of National Revenue v Cormier-Imbeault (at para 7) cited were
factors that can justify a jeopardy order:
(a)
there are reasonable grounds to believe that the
taxpayer has acted fraudulently;
(b)
the taxpayer has proceeded to liquidate or
transfer his or her assets;
(c)
the taxpayer is evading his or her tax
liabilities;
(d)
the taxpayer has assets that could potentially
lessen in value over time, deteriorate or perish; and
(e)
the amount of the debt in relation to income and
expenses.
(Minister of National Revenue v
Cormier-Imbeault, 2009 FC 499, [2009] 6 CTC 45, at para 7, Brief of
Authorities, Tab14)
[83]
The
raising of the assessments may itself raise reasonable apprehension that the
taxpayer has not been conducting his or her affairs in an orthodox
fashion. In Minister of National Revenue v Rouleau, Judge
Frederick Gibson held (at pages 2 to 4):
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 in May 1994 and a later
date, also in May, 1994. In the execution of the search warrants, it was
discovered that the applicant had $25,000.00 in cash in his apartment,
approximately $92,000.00 in cash in safety deposit boxes and over $96,000.00 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
Reassessments itself raises reasonable apprehensions that the taxpayer had not
been conducting his affairs in what might be called unorthodox fashion. There
is reasonable apprehension that in placing surplus funds or investment purposes
through the hands of a third party instead of directly, there would be
difficulty in retracing these funds or in recovering them.
I
find the foregoing quotation apt to the circumstances before me. Certainly the
nature of the Reassessments against the applicant indicates 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 practices 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.
(Minister of National Revenue v Rouleau, [1995] FCJ No 1209 at
pages 2 to 4,
Brief of Authorities, Tab 9)
[84]
In
Canada (Minister of
National Revenue) v MacIver et al, Justice Karen Sharlow heard
the Respondents’ application for a review of the jeopardy orders that had
been made pursuant to subsection 225.2(2) of the ITA, and stated
(at paragraph 7):
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.
(Canada (Minister of National Revenue) v MacIver et
al, [1999]
99 DTC 5524 (FCTD) at para 7, Brief of Authorities, Tab 16)
[85]
Likewise, in Marengère,
above, (at paragraphs 67 and 72 (subparagraph 4)), Justice François Lemieux
said:
[67]…This case does not
turn on intent or on tax planning; it calls to be determined looking at the
matter objectively and realistically on the ground so to speak. In other words,
it is the effect or result of the taxpayer’s action in dealing with its assets
that is important and relevant in the assessment of the appropriateness of a
collection jeopardy order. Tax liability is not an issue in such proceedings.
[72](4) the Minister does
not have to prove fraud or deceit or bad motive.
(Marengère, above, at paras 67 and 72, Brief of Authorities,
Tab 12)
D. Evidence in the Present Case
[86]
In
the present case, the Court fully agrees with the Applicant that the evidence
before the Court is sufficient on the Standard of Proof that collection of the
Debt of the Respondent would be jeopardized by delay.
[87]
The
collections restrictions period relevant to the debt will not expire until the
objections and/or any appeals taken relevant to the Respondent’s Assessment
have concluded. It is not known when this will occur (Affidavit of A. Hamilton,
para 61).
[88]
There
is cogent evidence before the Court of jeopardy in this case, as follows:
a) Sung’s only known exigible
assets available to satisfy the Debt are the sale proceeds relevant to the
Subject Property and her shares in 1208922;
b) The Subject Property has sold in
January, 2011 and its closing date was on or about February 28, 2011;
c) Sung has objected to her
Assessment. As such, the Minister is subject to collection restrictions until a
decision is made concerning her Objection, or longer if the Assessment is
appealed by her. That date is unlikely to be any time soon;
d) Sung has been conducting her
affairs in an unorthodox manner;
e) Sung’s Assessment itself is
unorthodox as are the assessments concerning Hugo, 214 Holdings and 835667,
some of which were the subject of jeopardy orders;
f) The Park Family has offshore
connections and is known to move significant funds offshore presumably for
Doo’s benefit;
g) Hugo and Sung appear to be used
by Doo as nominees. Doo seemingly controls all financial transactions
relevant to the family and all of the family’s assets and financial affairs;
h) Accordingly, it seems more
likely than not that Sung will provide the sale proceeds relevant to the
Subject Property to Doo. These sale proceeds are in or about $1,232,295.90;
i) Relevant to the Rental
Property, Sung provided none of the sales proceeds to the Minister despite
being indebted to him then;
j) Doo and Sung appear to continue
to intertwine their finances despite the Separation Agreement;
k) Doo is believed to reside in South Korea. Therefore, it is more
reasonable than not to assume that the sale proceeds will be transferred
outside of Canada to him there;
l) It is a likely possibility that
Sung will deposit the sale proceeds into a Canadian bank account before
effecting their transfer to Doo or Hugo;
m) It remains a possibility that the
sale proceeds still remain with Sung’s notary, Ms. Wanda Wong Wilson of Vancouver;
n) Traditionally, Doo has used Hugo
as a nominee with respect to the family’s assets. Accordingly, the proceeds
from the sale of the Subject Property could be transferred from Sung to Hugo
and eventually to Doo;
o) Hugo resides in New York, USA. Therefore, the
sale proceeds would be transferred outside of Canada to the USA and then to Doo in South Korea;
p) It appears unlikely, therefore,
that Sung will willingly provide any sale proceeds to the Minister in
respect of the Subject Property in payment of her Debt now;
q) The sale proceeds relevant to
the Subject Property may by their very nature, possibly be spirited away by
Sung, placed outside of Canada, or be otherwise placed beyond the reach of the
Minister; and
r) Sung’s shares and income are
possibly insufficient to satisfy the debt in any timely way. In any event, she
can possibly sell or transfer her shares or any proceeds in respect of her
shares away from the Minister.
(Affidavit of A.
Hamilton, para 61)
[89]
For these reasons, the
Court agrees with the Minister that there are reasonable grounds to believe
that the collection of all or any part of the $1,397,999 in income tax assessed
in respect of the Respondent would be jeopardized by a delay in the
collection of that amount.
ORDER
THIS COURT ORDERS:
1. That a Jeopardy
Order be issued under section 225.2(2) of the Income Tax Act authorizing
the Applicant to take forthwith the actions described in paragraphs 225.1(1)(a)
to (g) with respect to the amounts assessed in respect of the Respondent;
and
2. That the Applicant
be authorized to effect service of the Jeopardy Order on the Respondent
pursuant to Rule 128 of the Federal Court Rules and subsections 225.2(5)
and (6) of the Income Tax Act by personally serving her, if possible; or
by sending a copy of the Order to her by ordinary mail at: 2088 62nd
Avenue W., Vancouver, British Columbia, V6P 2G6 (the Address), being her last
known address; and by sending a copy of the Order to the care of her counsel,
William A. Ruskin of Clark Wilson LLP.
THIS
COURT FURTHER ORDERS
that the Respondent:
TAKE
NOTICE that an ex parte application, filed under Court File No.
T-349-11, for a jeopardy order was commenced against you pursuant to subsection
225.2 of the Income Tax Act. The Court Order authorizes the Minister of
National Revenue to take forthwith any of the actions described in paragraphs
225.1(1)(a) through (g) of the Income Tax Act with respect to your
assessed tax debt.
Pursuant
to subsection 225.2(8), you may, upon six (6) clear days’ notice to the Deputy
Attorney General of Canada, apply to a Judge of the Federal
Court to review the Court Order.
Pursuant
to subsection 225.2(9), your application must be brought within 30 days from
the date that the Court Order was deemed to be served on your, or within such
further time as a Judge may allow, provided that you can satisfy the Judge that
your application was made as soon as practicable.
“Michel M.J. Shore”
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