T-667-86
Peter S. Laframboise (Applicant)
v.
The Queen (Respondent)
INDEXED AS: LAFRAMBOISE v. R
Trial Division, Joyal J.—Toronto, May 22;
Ottawa, July 2, 1986.
Income tax — Seizures — Act amendment containing new
rule restricting Minister's right to collect taxes owing —
Exception providing Minister may take immediate action when
collection might be jeopardized by delay — Extent of Minis
ter's discretion — Onus on Minister to justify taking immedi
ate action — Income Tax Act, S.C. 1970-71-72, c. 63, ss. 225
(as am. by S.C. 1985, c. 45, s. 115), 225.1 (as added idem, s.
116), 225.2 (as added idem), 226.
Apparently unemployed, the taxpayer was assessed on Feb-
ruary 18, 1985 in the amount of $85,129.06 on an income
calculated on a net worth basis of $184,929. An investigation
by the Special Investigations Division of Revenue Canada
disclosed that the taxpayer had purchased a car for $13,700
and a pleasure boat for $15,500, had transferred $65,000 to a
friend or associate and had tried to transport $14,000, con
cealed under his car, to the United States. He also had $13,000
in a bank account. On January 28, 1986, the taxpayer was
arrested on charges of conspiracy to traffic in narcotics.
In February 1986, the Minister, considering that the collec
tion of the taxes owing might be jeopardized by delay, made a
direction pursuant to subsection 225.2(1) of the Act, ordering
an immediate seizure of some of the taxpayer's assets.
This is an application under subsection 225.2(3) of the Act to
have that direction vacated.
Held, the application should be dismissed.
The power to take immediate collecting action is an excep
tion to a recent amendment to the Income Tax Act (section
225.1) limiting the authority of the Minister to enforce pay
ment of taxes owing on an assessment until there has been a
final determination of the tax payable. This amendment repre
sents a considerable departure from a long-standing provision
in the Act.
Subsection 225.2(3) provides for a kind of show cause hear
ing where the Minister has the burden of justifying his
direction.
The Minister had sufficient grounds to give the direction.
The nature of the assessment itself raises reasonable apprehen
sions that the taxpayer had not been conducting his affairs in
orthodox fashion. The following circumstances, taken together,
constituted sufficient grounds for the Minister to have exer
cised his power: the attempt to smuggle money into the United
States, the withdrawal of cash from a bank, the taxpayer's
statement to a police constable that he had hidden that money
and that the police would never find it, and the exchange of
cash for tangible assets.
Subsection 225.2(1) is couched in liberal terms that provide
considerable latitude to the Minister, a greater latitude than
when one deals with a seizure before judgment: subsection
225.2(1) provides that the Minister may take immediate action
when "it may reasonably be considered that collection of an
amount assessed ... would be jeopardized by a delay". The
scope of the Minister's power was broader than that found in
Mareva injunction cases so that the tests discussed in those
cases were not determinative in dealing with the Minister's
direction.
CASES JUDICIALLY CONSIDERED
DISTINGUISHED:
Erie Mfg. Co. (Can.) Ltd. v. Rogers (1981), 24 C.P.C.
132 (H.C. Ont.); Chitel et al. v. Rothbart et al. (1982),
39 O.R. (2d) 513 (C.A.).
COUNSEL:
John I. Laskin and C. Medland for applicant.
P. A. Vita, Q.C. and M. J. B. Wood for
respondent.
SOLICITORS:
Davies, Ward & Beck, Toronto, for applicant.
Deputy Attorney General of Canada for
respondent.
The following are the reasons for order ren
dered in English by
JOYAL J.: This is an application to vacate a
direction by the Minister of National Revenue
made pursuant to subsection 225.2(1) [as added
by S.C. 1985, c. 45, s. 116] of the Income Tax
Act, R.S.C. 1952, c. 148 (as am. by S.C. 1970-71-
72, c. 63, s. 1). It arises from the enactment by
Parliament in 1985 of certain amendments to the
Income Tax Act limiting the authority of the
Minister of National Revenue to enforce payment
of taxes owing on an assessment until there has
been a final determination of the tax payable.
These amendments are found in section 225 of
the Income Tax Act and were enacted [sections
225.1 and 225.2] in S.C. 1985, c. 45, section 116.
Subsection 225.1(1) contains detailed rules
restricting the right of the Minister to collect taxes
owing. These rules represent a considerable depar
ture from a long-standing provision in the Income
Tax Act and are meant to dampen considerably
the right of the Minister to collect a tax until
various avenues of appeal have been exhausted.
The full text of the subsection is as follows:
225.1 (1) Where a taxpayer is liable for the payment of an
amount assessed under this Act (in this subsection referred to
as the "unpaid amount"), other than an amount payable under
subsection 227(9), the Minister shall not, for the purpose of
collecting the unpaid amount,
(a) commence legal proceedings in a court,
(b) certify the unpaid amount under subsection 223(1),
(c) require a person to make a payment under subsection
224(1),
(d) require an institution or person to make a payment under
subsection 224(1.1),
(e) require the retention of the unpaid amount by way of
deduction or set-off under section 224.1,
(/) require a person to turn over moneys under subsection
224.3(1), or
(g) give a notice, issue a certificate or make a direction under
subsection 225(1)
before the day that is 90 days after the day of mailing of the
notice of assessment.
Notwithstanding these limitations, however, the
new amendments provide an exception. This
exception is found in subsection 225.2(1) and
authorizes the Minister to take immediate action
to collect when it may reasonably be considered
that the collection of an amount assessed might be
jeopardized by delay.
The full text of subsection 225.2(1) reads as
follows:
225.2 (1) Notwithstanding section 225.1, where it may rea
sonably be considered that collection of an amount assessed in
respect of a taxpayer would be jeopardized by a delay in the
collection thereof, and the Minister has, by notice served
personally or by registered letter addressed to the taxpayer at
his latest known address, so advised the taxpayer and directed
the taxpayer to pay forthwith the amount assessed or any part
thereof, the Minister may forthwith take any of the actions
described in paragraphs 225.1(1)(a) to (g) with respect to that
amount or that part thereof.
By direction, therefore, the Minister in such
circumstances may demand immediate payment of
the amount assessed and take such procedures to
enforce payment as would otherwise be denied
him.
The taxpayer, however, is not without recourse.
Pursuant to subsection 225.2(3), he may file an
application to a Superior Court or Federal Court
judge to have the direction varied or vacated. It is
a kind of show cause hearing where the Minister
has the burden of justifying his direction. The
judge may then dispose of the application by con
firming the direction, by vacating it or varying it
and may make such other order as he considers
appropriate. In effect, a judge may look at the
grounds on which the Minister has made his direc
tion and decide whether or not they are of a nature
to justify the exceptional measure the Minister has
taken. In effect, the procedure is a check on the
Minister's authority which would otherwise be
substantially unfettered.
The applicant before me is a taxpayer who was
assessed on February 18, 1985. He was assessed in
the amount of $85,129.06 on an income calculated
on a net worth basis of $184,929. This assessment
was the result of an investigation by the Special
Investigations Division of the Windsor District
Taxation Office of Revenue Canada. The investi
gation disclosed that although the taxpayer
appeared unemployed, there was evidence of some
affluent pursuits in which the taxpayer had been
engaged, namely the purchase of a car for
$13,700, the purchase of a pleasure boat for
$15,500, the transfer of $65,000 to a friend or
associate and the transportation to the United
States of some $14,000 concealed underneath his
automobile. The taxpayer also held some $13,000
in a bank account.
Law enforcement agencies as well had reasons
to be concerned with the taxpayer. Drug section
officers of the Royal Canadian Mounted Police
became interested in the taxpayer's activities and
suspected that the taxpayer's source of income was
from trafficking in drugs. This interest was in
tandem with Revenue Canada which always takes
the position that notwithstanding the source of any
income, a taxpayer should pay his fair share of
taxes on it.
The result of the investigations by law enforce
ment agencies was to arrest the taxpayer on Janu-
ary 28, 1986 on charges of conspiracy to traffic in
narcotics. He was released on bail. The result of
the investigation by Revenue Canada was to
submit to the Minister a lengthy telex message
dated February 14, 1984 outlining the following:
1. The proposed assessment in the amount I have
stated;
2. The grounds for assessment;
3. The fact of the criminal charges laid against
him;
4. The grounds for the application of the jeopardy
provisions I have previously explained;
5. A statement of the assets to be seized or pro
posed collection action to be taken.
The grounds for the application of the jeopardy
provisions are summarized in four affidavits filed
on behalf of the Minister.
The first affidavit is by Mr. H. A. Diguer, an
Assistant Deputy Minister of Revenue Canada
who states that his decision to make a direction
was based on information in the statement con
tained in the telex of February 14, 1986. The
direction he did make was communicated to the
taxpayer by registered mail on February 18, 1986
and copy of that letter together with copy of the
Notice of Assessment and of the telex are attached
as exhibits to the affidavit.
The next affidavit is from Constable R. Reyn-
olds of the Royal Canadian Mounted Police who
states that on January 10, 1986, he had proceeded
to the international border at the Ambassador
Bridge linking Windsor, Ontario to Detroit,
Michigan, where he observed that the U.S. Cus
toms Service had taken the taxpayer into custody
and had seized the equivalent of some $14,000 in
Canadian funds which the U.S. authorities had
discovered concealed underneath the taxpayer's
car.
The third affidavit is from another RCMP con
stable, N. Wentoniuk, who stated he had obtained
a copy of a withdrawal receipt from the Toronto-
Dominion Bank dated February 10, 1986 in the
amount of $11,000 and signed by the taxpayer. He
also stated that on or about February 10, 1986, he
had questioned the taxpayer about the withdrawal
and he had replied as follows: "I have it, I stashed
it and you will never find it."
The last affidavit on behalf of the Minister is
from G. Hooft of the Special Investigations Divi
sion of Revenue Canada. It is in this affidavit that
the various assets of the taxpayer are disclosed
with copies of documents witnessing the various
transactions attached as exhibits. Included in these
documents is a deed of sale from the taxpayer to
his parents of property at 1419 Prince Road in
Windsor for nominal consideration and the
assumption of a $21,000 mortgage as well as
copies of I.O.U's in the total amount of $65,000
paid to an associate of the taxpayer for investment
purposes.
The case for the taxpayer against what appears,
prima facie, to be reasonable grounds for the
direction is set out in the taxpayer's affidavit dated
May 16, 1986. The material elements in the
affidavit are that:
1. the taxpayer has strong roots in the community
of Windsor;
2. he owns a house, his wife is gainfully
employed, his parents live in Windsor and since
an industrial accident on June 30, 1984, has
been in receipt of Workmen's Compensation
benefits of $412 per week;
3. on or about May 6, 1986, he filed a Notice of
Objection to the assessment;
4. upon his release pending trial on the criminal
charges, bail was set at $10,000 cash and
$60,000 securities together with the condition
that he remain in the County of Essex as well
as sign in at the local police station every
Sunday.
The taxpayer further states that the bail condi
tions imposed on him have not been breached to
date and that he has no intention of breaching
them prior to his criminal trial.
The taxpayer's Notice of Objection is attached
to his affidavit. The grounds stated are that no
reason was advanced to him to explain or justify
the amount of tax assessed nor to justify jeopardy
procedures against him.
On the basis of the evidence before me, I have
no hesitation in concluding that the Minister, on
February 18, 1986, had sufficient grounds to make
his direction. I find that the nature of the assess
ment itself raises reasonable apprehensions that
the taxpayer had not been conducting his affairs in
what might be called 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.
Discounting for the moment the real apprehen
sion that the taxpayer's income might have come
from criminal pursuits, the incident at the Ambas
sador Bridge, the withdrawal of cash from the
Toronto-Dominion Bank, the taxpayer's statement
to a police constable, the exchange of cash for
tangible assets, all of these factors taken together
provide, in my opinion, sufficient grounds for the
Minister to have exercised his power at that par
ticular time.
Counsel for the taxpayer urged the Court to find
that there were serious deficiencies in the affidavit
evidence submitted on behalf of the Minister.
Relying on Erie Mfg. Co. (Can.) Ltd. v. Rogers
(1981), 24 C.P.C. 132 (H.C. Ont.) and Chitel et
al. v. Rothbart et al. (1982), 39 O.R. (2d) 513
(C.A.), and other cases dealing with the well-
known Mareva injunction procedures, counsel for
the taxpayer ably and articulately pleaded that the
burden on the Minister to justify his actions is a
very heavy one and that such action should not be
endorsed by this Court except on unassailable
grounds. The rules of evidence when submitted in
affidavit form must be strictly construed, he said,
and particularly in the case of H. A. Diguer's
evidence, did the affidavit fail to state that he
"believed" in the information communicated to
him in telex form by the district investigator, G.
Hooft.
The taxpayer's counsel might have an arguable
point were the evidence before me limited exclu
sively 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 submit
ted 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.
I would further observe that the Minister's au
thority under subsection 225.2(1) is exercisable
when "it may reasonably be considered that collec
tion of an amount assessed ... would be jeopard
ized by a delay". 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, pro
vide considerable latitude to the Minister, a lati
tude which I believe is not found whenever one
deals with a seizure before judgment.
Logic and good sense tell me that it should be
so. The institution of an action by a private litigant
against another private litigant cannot be equated
with a Notice of Assessment under the Income
Tax Act. The balances which a Court must main
tain are not the same. Between private parties, it is
necessary for a plaintiff to establish a strong prima
facie case. By a Notice of Assessment, however,
the case is made as far as the Minister is con
cerned and the burden rests on the taxpayer to
disprove or vary it through appeal procedures. It is
the kind of presumption which is not found when
dealing with actions on contract or in tort. The
uncertainties when dealing with the latter cases
are ever present and the consequential damages
when a Mareva order is granted too generously
may be incalculable or at least be extremely
vexatious.
I should also observe that the subsection
225.2(1) refers to the "collection of an amount
assessed [which] would be jeopardized by a delay
in the collection thereof' (my underlining), a
wording which establishes the presumption that
the amount is a "collectible" amount, collectible
forthwith, were it not for the delays which subsec
tion 225.1 contemplates. I conclude that, although
indicative of the tests which might be applied by a
Court in dealing with a Minister's direction, the
tests found in Mareva proceedings are far from
being determinative or conclusive.
A further argument advanced by counsel for the
taxpayer is with respect to another notice sent by
Revenue Canada dated February 18, 1986, where
a demand is made for immediate payment of the
tax assessed. This notice is pursuant to subsection
226(1) and authorizes the Minister to demand
payment when he suspects that a taxpayer is about
to leave Canada. I was urged to find that there
were no grounds for this suspicion. The evidence in
the taxpayer's affidavit as to his family roots in
Windsor, his wife's employment, a home which he
owns, all of this quells any reasonable suspicion
the Minister might have had. Furthermore, coun
sel argued, the conditions of the taxpayer's bail
requiring him to stay in Essex County and to
report regularly to the local authorities had not
been breached and the taxpayer had no intention
of breaking them.
Perhaps a case could be made on this were it not
for a fact that I should doubt that a Minister's
decision under section 226 is reviewable by a
Court. It appears to be independent of the powers
conferred under paragraph 225.2(1) and as such is
not reviewable under paragraph 225.2(2). Wheth
er this is by reason of legislative policy or legisla
tive oversight is not for me to decide. I can only
declare that the leaving Canada issue is not before
me nor do I have the necessary jurisdiction to
determine whether or not the Minister had reason-
able grounds to suspect that the taxpayer would
depart our shores.
The statute provides that on an application of
this nature, a judge may confirm, vacate or vary
the direction of the Minister. According to the
taxpayer's affidavit, the Minister's direction has to
date caused the seizure of an amount of $1,700 in
the Toronto-Dominion Bank, the seizure of a 1975
Mustang automobile, the filing of a lien on the
taxpayer's house which has a net value of some
$35,000 and a lien on the property transferred by
the taxpayer to his parents allegedly for a nominal
consideration. The affidavit of the taxpayer,
although traversing at length the issue of his leav
ing Canada and denying that the transfer of real
estate to his parents was otherwise than at arm's
length, provides the Court with little guidance as
to the degree of impediment to his current finan
cial needs which the exercise of some of the execu-
tory processes under paragraphs 225.1(1)(a) to (g)
might have caused.
Similarly, the record is silent as to any garnish-
ment proceedings having been taken with respect
to the large amount of funds entrusted by the
taxpayer to a third person.
I would think that it is incumbent on the Minis
ter in exercising his executory powers under sub
section 225.1(1) to limit the freeze to those assets
which roughly equal the amount at risk. Again,
the record is silent on this point.
In such circumstances, I should very much hesi
tate at this stage to vary the Minister's direction,
leaving it to the parties to make such adjustments
as may be necessary so that the essential purposes
of the jeopardy provisions are maintained and that
the taxpayer, qua taxpayer, be otherwise capable
of managing his affairs, whatever those affairs
may be.
I am informed by counsel that to their knowl
edge, the new jeopardy provisions under the
Income Tax Act have not previously been subject-
ed to a judicial test. In such circumstances, a
Court is often tempted to stray further afield than
the strict requirements of the case and end up with
musings of doubtful value. Perhaps, I have not
sufficiently resisted that temptation. I will only
concede that as a response to the wide-ranging and
interesting debate provided to me by counsel on
both sides, the temptation was strong.
The Minister's direction is confirmed. Pursuant
to the provisions of subsection 225.2(8), there are
no costs.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.