Date: 20030204
Docket: T-2019-02
Neutral citation: 2003 FCT 124
BETWEEN:
THE MINISTER OF NATIONAL REVENUE,
Applicant,
- and -
MARIE THÉRIAULT-SABOURIN,
Respondent.
[1] On December 9, 2002, a jeopardy order was made pursuant to subsection 225.2(2) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (the Act) against the respondent Marie Thériault-
Sabourin who now applies under subsection 225.2(8) for a review of that order and requests that it be set aside or varied. I will, for ease of reference, refer to the moving party as the respondent.
[2] The respondent's tax liability is in the amount of $353,170.53 and arises from a section 160 assessment under the Act, issued by the applicant on December 6, 2002, regarding alleged non-arm's length transfers. The respondent filed a Notice of Objection dated December 19, 2002.
[3] The respondent is the spouse of Léo Sabourin who was the sole shareholder and director of LJS Accounting Services (LJS), a business that specialized in bookkeeping, tax preparation and tax planning for individuals, family trusts and corporations. Mr. Sabourin operated LJS as a sole proprietor from 1990 until 1997 when he transferred the business assets and clientele to a numbered company. From 1997 to 1999, a portion of the business activity remained in the proprietorship. The respondent was involved in the operations of LJS as director of administration, human resources and computers. In 1998 and 1999, she subcontracted with the business and in 2000, was added to its payroll.
[4] In May, 2000, the Canada Customs and Revenue Agency (CCRA) initiated audits respecting Mr. Sabourin, the respondent and the company. On August 22, 2000, the files of Mr. Sabourin and the company were referred to the criminal investigations program of the investigations division of CCRA for special investigation. In February, 2001, as part of this investigation and pursuant to a warrant, CCRA seized documents from LJS. The respondent alleges that as a result of the seizure of documents, it was impossible for LJS to operate and consequently, the business was forced to close. LJS ceased its operations in February, 2001.
[5] Mr. Sabourin and the corporation were reassessed under the Excise Tax Act, R.S.C. 1985, c. E-15 and the Act. The GST reassessments resulted in a total owing, for both Mr. Sabourin and the company, of $134,156.08, including penalties and interest. On May 3, 2002, Mr. Sabourin was personally reassessed for the 1993 and 1996 to 1999 taxation years and was assessed for the year 2000. The result was a tax liability of $679,891.65 Mr. Sabourin has filed Notices of Objection with respect to the reassessments and the assessment.
[6] On April 17, 2002, Léo Sabourin presented a proposal to his creditors under the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3. On May 7, 2002, at the creditors' meeting, his proposal was rejected and Léo Sabourin was deemed bankrupt as of that date. He is presently under investigation for tax evasion under the Act and is aware of the investigation.
[7] During the relevant taxation years, the applicant alleges that Mr. Sabourin made several non-arm's length transfers to the respondent, including the transfer of his interest in their principal residence in January, 1997. The respondent has since sold that property and acquired property at 1651 Marronier Court in the regional municipality of Ottawa-Carleton where a home was built at a construction cost of $637,000.00. On October 15, 2002, the respondent entered an agreement of purchase and sale respecting the sale of 1651 Marronier Court. The agreement appears to stipulate the purchase price as being $550,000. The respondent deposes in her affidavit that she has also entered an agreement of purchase and sale for the purchase of a home at 1410 Inge Crescent, the purchase price being $305,000.
[8] As stated previously, on December 6, 2002, a section 160 assessment in the amount of $357,170.53 was issued to the respondent with respect to various non-arm's length transfers. On December 9, 2002, the applicant obtained, ex parte, the authorization to take forthwith the actions described in paragraphs 225.1(1)(a) to (g) of the Act against the respondent respecting the section 160 assessment (the jeopardy order). The affidavits of CCRA collections and investigations officers were filed in support of the Minister's application in the first instance and have been filed again in relation to this motion. As a consequence of the jeopardy order, there is a writ of execution in favour of CCRA registered on the 1651 Marronier Court residence. CCRA has additionally forwarded requirements to pay to the respondent's employer and her various financial institutions. Not surprisingly, the solicitor for the purchaser of 1651 Marronier Court has insisted that the writ of execution be lifted prior to closing. At one point, the closing had been extended to January 22, 2003 and I assume that it has been further extended. Negotiations between the applicant and the respondent to arrive at a mutually acceptable resolution have met with failure.
[9] Section 225.1 of the Act prohibits the Minister, while an amount assessed under the Act is in dispute, from taking any of the collection actions that are delineated in paragraphs 225.1(1)(a) to (g). The effect of this restriction is to prevent the Minister from taking collection action on the account until such time as the objection and/or appeal from the assessment has been determined, or the relevant time period within which to file such objection and/or appeal has expired. Subsection 225.2(2) constitutes an exception to the prohibition in section 225.1. Where, on ex parte application by the Minster, 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 collection of that amount, the judge shall authorize the Minister to proceed with collection. The taxpayer may seek a review of the authorization under paragraph 225.2(8) and the judge who hears the review shall determine the question summarily and may confirm, set aside or vary the authorization and make such other order as the judge considers appropriate.
[10] The other relevant sections of the Act are section 160, which imposes joint and several liability on a transferor and transferee for the tax owing by a transferor for transfers described in sections 74 to 75.1, and subsection 152(8), which speaks to the validity of the section 160 assessment. Subsection 152(8) deems an assessment to be valid and binding unless it is varied or vacated on an objection or appeal. The latter provision is of particular importance in relation to this proceeding because the merits of the assessment are not adjudicated here. This court lacks jurisdiction to deal with the assessment and is bound by the deeming provisions of subsection 152(8): Canada (Minister of National Revenue) v. MacIver (1999), 172 F.T.R. 273.
[11] The respondent's affidavit in support of the motion is devoted primarily to the merits of the section 160 assessment. The respondent's argument is that the Minister failed to establish reasonable grounds at the ex parte hearing or alternatively, the evidence in the within motion record, coupled with the transcripts of the cross-examinations, now cast doubt on the Minister's claim of reasonable grounds. The respondent submits that even if doubt is not established, the order, as it presently stands, is not appropriate.
[12] In relation to "reasonable grounds", the respondent contends that the standard is a high one because it is not statutory, but constitutional. It is incumbent on the Minister, says the respondent, to establish evidence of the respondent's waste, liquidation or transfer of assets so as to make funds unavailable to the Minister. The behaviour and conduct of the respondent's spouse is irrelevant. The question to be asked with respect to this taxpayer is whether she exhibits an intention to avoid payment of tax. The respondent argues that this is a forward looking exercise and that future frustration of collection is the essential element. The proceeds of sale from the Marronier Court residence will be transferred into assets and the Minister will be able to collect at the end of the day. The respondent, unlike her spouse, is solvent and has sufficient assets to pay. There is no evidence, submits the respondent, of inability to pay.
[13] The law regarding review of a jeopardy order was summarized by Lemieux J. in Canada (Minister of National Revenue) v. Services M.L. Marengère Inc. (1999), 176 F.T.R. 1:
62. The current jeopardy collection provisions in the Income Tax Act were introduced in 1988 and are a refinement to what previously existed in that the authorization and supervision of this Court is provided for. The legal principles applicable to a section 225.2(8) review of an ex parte jeopardy order are clearly established by this Court as illustrated in Danielson v. Canada (Deputy Attorney General), [1987] 1 F.C. 335 (T.D.), 1853-9049 Québec Inc. v. The Queen, [1987] 1 C.T.C. 137 (T.D.), Canada v. Satellite Earth Station Technology Inc., [1989] 2 C.T.C. 201 (T.D.) and Her Majesty the Queen v. Robert Duncan, [1992] 1 F.C. 713 (T.D.).
63. From this jurisprudence, I take the following principles:
(1) The perspective of the jeopardy collection provision goes to the matter of collection jeopardy by reason of delay normally attributable to the appeal process. The wording of the provision indicates 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. In other words, 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.
(2) In terms of burden, an applicant under subsection 225.2(8) has the initial burden to show that there are reasonable grounds to doubt that the test required by subsection 225.2(2) has been met, that is, the collection of all or any part of the amounts assessed would be jeopardized by the delay in the collection. However, the ultimate burden is on the Crown to justify the jeopardy collection order granted on an ex parte basis.
(3) The evidence must show, on a balance of probability, that it is more likely than not that collection would be jeopardized by delay. The test is not whether the evidence shows beyond all reasonable doubt that the time allowed to the taxpayer would jeopardize the Minister's debt.
(4) 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 the taxpayer's assets may vanish in thin air because of the passage of time. However, the mere suspicion or concern that delay may jeopardize collection is not sufficient per se. As Rouleau J. put it in 1853-9049 Québec Inc., supra, the question is whether the Minister had reasonable grounds for believing that the taxpayer would waste, liquidate or otherwise transfer its assets, so jeopardizing the Minister's debt. What the Minister has to show is whether the taxpayer's assets can be liquidated in the meantime or be seized by other creditors and so not available to him.
(5) An ex parte collection order is an extraordinary remedy. Revenue Canada must exercise utmost good faith and insure full and frank disclosure. On this point, Joyal J. in Peter Laframboise v. The Queen, [1986] 3 F.C. 521 at 528 said this:
The taxpayer's counsel might have an arguable point were the evidence before me limited exclusively to that particular affidavit. As Counsel for the Crown reminded me, however, I am entitled to look at all the evidence contained in the other affidavits. These affidavits might also be submitted to theological dissection by anyone who is dialectically inclined but I find on the whole that those essential elements in these affidavits and in the evidence which they contain pass the well-known tests and are sufficiently demonstrated to justify the Minister's action.
In Duncan, supra, Jerome A.C.J., after quoting Joyal J. in Laframboise, supra, viewed the level of disclosure required by the Minister as one of adequate (reasonable) disclosure.
[14] I would add to the principles articulated by Lemieux J., the propositions that follow:
(a) The sale of assets alone does not justify a jeopardy order: Canada (Minister of National Revenue) v. Landru (1993), 1 C.T.C. 93 (Sask. Q.B.).
(b) The taxpayer's inability to pay the amount assessed at the time of the direction is not by itself conclusive or determinative: Danielson, supra.
(c) The nature of the assessment itself may raise a reasonable apprehension that the taxpayer had not been conducting [her] affairs in what might be called an orthodox fashion and can therefore contribute to the reasonable grounds to believe that the collection of the amount assessed would be jeopardized by delay: Canada (Minister of National Revenue) v. Laframboise, [1986] 3 F.C. 521 (T.D.); Canada (Minister of National Revenue) v. Rouleau, [1995] 2 C.T.C. 42 (F.C.T.D.).
[15] The position taken by the Minister, at the ex parte hearing, was that the respondent and her spouse were involved in a scheme to defraud the fisc of its lawful money. Over the years, Léo Sabourin divested himself of assets by transferring them to the respondent while, at the same time, maintaining a beneficial interest in them. Although Mr. Sabourin was the directing mind in the scheme, the respondent played an important role and was also instrumental.
[16] The Minister submits that the court granted a jeopardy order where a taxpayer was the registered owner of property purchased with money transferred to her by her spouse. The Minister's chances of collecting the CCRA debt would therefore be jeopardized if the sale proceeds were not intercepted. The applicant contends that this constitutes the Minister's only avenue of collection. Mr. Sabourin's bankruptcy shields him. The only significant asset is about to be disposed of and if the Minister does not act on the section 160 assessment, CCRA may never recover. Delay, says the applicant, will jeopardize the Minister's chance of recovery.
[17] I agree with the respondent that the essential question relates to the future. However, it is impossible for the court, or the respondent for that matter, to predict the future. It is reasonable to look to past conduct when assessing the positions of the parties as to what is more likely than not to happen to the Minister's debt.
[18] It is unreasonable to conclude that the respondent did not have any knowledge of impropriety. She participated in the LJS business and she had knowledge of and participated in the transfers. While the allegation that she knowingly falsified the books and records of LJS is speculative, there is evidence that the respondent provided inaccurate financial information to financial institutions on more than one occasion. In June, 2001, when she applied for refinancing, the respondent listed her spouse's gross annual income as $300,000. and provided a copy of Mr. Sabourin's 1999 T1 Form, wherein his net income was stated to be $182,498, as confirmation. The T4 tax return for Mr. Sabourin in 1999 listed his net income as $24,734. In September, 2002, the respondent registered an additional charge against the Marronier Court property as security for funds purportedly to be injected into LJS, which had discontinued operations 6 months prior. The lifestyle, which included a residence appraised in excess of $600,000 and a $50,000 vehicle for the respondent, could not be supported on the incomes of the respondent and her spouse. The respondent, if she did not know this, was wilfully blind to it. Additionally, all financial loan documentation bore the signature of Mr. Sabourin as either a co-signee or guarantor.
[19] There was also the deposit of some $77,600 into a savings account held in trust for the respondent's daughter. More will be said about this later. For the moment, it is not disputed that this occurred and it was evidence before the judge who issued the jeopardy order. Finally, there is the issue of the unrecoverable costs associated with the sale of one residence and the purchase of another. There will be real estate fees, lawyers' fees, transfer tax, moving costs and a reduction in the equity. These monies will be lost to the Minister.
[20] All of this information was before the judge who issued the jeopardy order. The Minister disclosed this evidence and in my view, did establish reasonable grounds to obtain the order. The respondent has not denied the allegations (other than the alleged error with respect to the daughter's trust account) and has therefore failed to persuade me that the Minister did not meet the test of disclosure of reasonable grounds on the ex parte hearing.
[21] The respondent's counsel placed much emphasis on the fact that the respondent, on cross-examination, disclosed that the $77,600 deposit to her daughter's trust account was an error. The representation was that, once discovered, it was transferred back to the respondent's account. In part, this is true. There was a transfer of $43,000 into the respondent's account on June 18, 2001. From the transfer, it appears that 5 cheques were issued, one in the amount of $35,000 for "lawyer". There were additional transfers on June 27th in the amount of $6,500 and on July 3rd in the amount of $2,500. The remaining $25,000 was apparently used or will be used to meet various financial commitments. The fact remains that the money was shielded until required and accessed when required.
[22] The most difficult issue is the proposed purchase, by the respondent, of the residence at 1410 Inge Crescent for $305,000. The respondent deposes that she has been approved for a mortgage by President's Choice Financial for an amount not to exceed $208,750. The respondent's counsel spent a considerable amount of time arguing that the Minister's writ of execution could simply be transferred to the new property and that the Minister would be none the worse for the wear. The Minister views it differently. The Minister insists that its recovery will be diminished as a result of the associated costs with the sale of one residence and the purchase of another. There is no evidence to the contrary. Again, I emphasize, that with the exception of the $77,600 deposit to the trust account, the respondent's evidence did not dispute any of the grounds advanced by the Minister in support of the jeopardy order. Nor did the respondent provide, in her affidavit, any of the assurances presented by her counsel in argument. While counsel passionately argued that the respondent had no intention of avoiding or evading her tax liability, I have no statement in this regard from the respondent. Legal argument does not constitute evidence. It was open to the respondent to provide evidence of such assurances to counter the Minister's evidence and position relating to the reasonable grounds. On the totality of the evidence, I am not persuaded that the jeopardy order should be set aside or varied.
[23] On the basis of the material put before the court, it appears that, on the ex parte hearing, the Minister had reasonable grounds for believing that the taxpayer would transfer an asset so as to become less able to pay the amount assessed and thereby jeopardize the Minister's debt. On an affirmative answer to the question, the judge had no alternative but to grant the application: Canada v. Goldbeck, [1990] 2 C.T.C. 438 (C.A.). For the reasons given, the jeopardy order is confirmed.
___________________________________
Judge
Ottawa, Ontario
February 4, 2003
FEDERAL COURT OF CANADA
TRIAL DIVISION
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-2019-02
STYLE OF CAUSE: The Minister of National Revenue
v. Marie Thériault-Sabourin
PLACE OF HEARING: Ottawa, Ontario
DATE OF HEARING: February 3, 2003
REASONS FOR ORDER BY: The Honourable Madam Justice Layden-Stevenson
DATED: February 4, 2003
APPEARANCES:
Ms. Carole Benoît FOR APPLICANT
Ms. Joanna Hill
Mr. Emilio Binavince FOR RESPONDENT
Ms. Sandrine Guénette
SOLICITORS OF RECORD:
Mr. Morris Rosenberg FOR APPLICANT
Deputy Attorney General of Canada
Ottawa, Ontario
Binavince Smith FOR RESPONDENT
Ottawa, Ontario