T-1508-89
Her Majesty the Queen (Applicant)
v .
Robert Duncan (Respondent)
T-1509-89
Her Majesty the Queen (Applicant)
v.
Stephen Petroff (Respondent)
INDEXED AS: CANADA V. DUNCAN (TD)
Trial Division, Jerome A.C.J.—Toronto, January 15,
19 and April 2, 1990; Ottawa, November 1, 1991.
Income tax — Enforcement — "Jeopardy collection order"
— Application under Income Tax Act, s. 225.2(8) to review ex
parte order authorizing Minister to take collection proceedings
immediately — Respondents charged with drug trafficking in
U.S.A. — Each posting $750,000 bail, consenting to judgment
paying U.S. Government over $1 million seized upon arrest —
Minister registering cautions against properties — Respon
dents alleging order made upon no evidence or credibly based
probability actions required to prevent tax evasion — S. 225.2
requiring Minister to satisfy judge reasonable grounds to
believe collection of tax debt could be jeopardized by delay —
Test whether actual jeopardy arising from likely delay — Min
ister having ultimate burden of justifying decision — Mere sus
picion collection jeopardized insufficient — Respondent not
establishing failure to adhere to standard of disclosure —
Nature of assessment may raise reasonable apprehension of
jeopardy — Substantial drug-related income — On balance of
probabilities, delay may jeopardize collection — Disclosure
adequate.
Constitutional law — Charter of Rights — Life, liberty and
security — Respondents charged with drug trafficking in
U.S.A. — Bail set at $750,000 — Required to pay U.S. Govern
ment $1 million in possession at time of arrest — M.N.R.
obtaining ex parte order pursuant to Income Tax Act, s. 225.2
authorizing immediate collection of tax debt — M.N.R. regis
tering cautions against properties — Respondents arguing
order contrary to Charter, s. 7 as could be incarcerated if
defence inadequate because assets frozen, and as interference
authorized on ex parte application not in accordance with
principles of fundamental justice — As provisions of Act not
attacked and could not be attacked on originating motion,
Charter argument unsuccessful.
Constitutional law — Charter of Rights — Criminal process
— M.N.R. obtaining ex parte order pursuant to Income Tax
Act, s. 225.2 authorizing immediate collection of tax debt —
M.N.R. registering cautions against properties — Administra
tive enforcement procedures freezing taxpayer's assets not a
"seizure" — Argument order contrary to Charter, ss. 8 and 12
could not succeed as provisions of Act neither attacked nor
subject to attack on motion.
These were applications pursuant to Income Tax Act, subsec
tion 225.2(8) to review a `jeopardy collection order". The
respondents were charged with drug trafficking offences in the
United States. Each posted a cash bond of $750,000 (U.S.)
(raised by mortgaging their Canadian real property) and were
released on bail. They also signed consent judgment for the
payment to the American Government of an amount exceeding
$1 million which had been in their possession at the time of
their arrest. By notices of assessment and reassessments, they
were informed of their respective unpaid tax liabilities exceed
ing $.5 million each. The Minister obtained an ex parte order
pursuant to Income Tax Act, subsection 225.2(2) authorizing
collection of the tax debt without delay. That subsection pro
vides that where a judge is satisfied that there are reasonable
grounds to believe that collection of a tax debt could be jeop
ardized by a delay in the collection thereof, he shall authorize
the Minister to take any of the actions described in paragraphs
225.1(1)(a) to (g). Further to the order, the M.N.R. caused
registrations to be made on the title of certain properties. In
moving to set aside the charging order to show cause, the
respondents alleged that proper disclosure had not been made.
They further submitted that the order was contrary to Charter,
section 7 (denial of right to life, liberty and security of the per
son) as the "freezing" of their assets could result in their
mounting an inadequate defence to the criminal charges which
could in turn result in incarceration. Additionally, it was
argued that to authorize interference on an ex parte application
was not in accordance with the principles of fundamental jus
tice. They submitted that the order contravened Charter, sec
tion 8 as an unreasonable seizure not in compliance with the
requirements set out in Hunter et al. v. Southam Inc. in that it
was made upon virtually no evidence or credibly based
probability that such actions were required to prevent tax eva
sion. Subsection 225.2(2) itself was not under attack. The
applicant submitted that if the evidence, on the balance of
probabilities, leads to a conclusion that it is more likely than
not that the collection would be jeopardized by a delay then the
order should be allowed to stand. The issues were whether the
order was contrary to the Charter; whether there were reasona
ble grounds to believe that the collection of a tax debt would
be jeopardized by a delay in collection; and whether the Minis
ter failed to observe the high standard of disclosure to the
Court that is required on ex parte applications.
Held, the applications should be dismissed.
The Charter arguments could not succeed. The relevant sec
tions of the Income Tax Act were not constitutionally chal
lenged, and could not be attacked on an originating motion.
The Supreme Court of Ontario has found that section 225.2
does not provide for a seizure and this Court has determined
that other administrative enforcement mechanisms in the
Income Tax Act are not contrary to Charter, section 8. Finally,
the Charter does not in specific terms directly affect property
rights. It was doubtful that this was a "seizure". The taxpayer's
assets were not altered and there was no transfer of title. While
the filing of a caution on title may restrict the disposition of
property, it is not a seizure. Activities pursued by the Minister
in accordance with the administrative enforcement mecha
nisms of a regulatory statute that effectively "freeze" a taxpay
er's assets do not constitute a "seizure" in the sense required to
bring these activities within Hunter et al. v. Southam Inc.
The test to be met with respect to subsection 225.2(1) is
whether the actual jeopardy arises from the likely delay in the
collection thereof. In a subsection 225.2(8) review of a jeop
ardy collection order, the taxpayer has the initial burden of
showing that there are reasonable grounds to doubt that the test
required by subsection 225.2(2) has been met, and the Minister
has the ultimate burden of justifying the decision. Mere suspi
cion that collection will be jeopardized by the delay is not suf
ficient. The Minister can rely on the exceptional provisions in
subsection 225.2(1) whenever, on a balance of probability, the
time allowed by the taxpayer by subsection 225.1(1) would
jeopardize his debt. The Minister may act in cases where the
taxpayer may waste, liquidate or otherwise transfer his prop
erty to escape the tax authorities. The present provision has a
greater safeguard than its predecessor in that it now requires
authorization by a court before "jeopardy collection" proce
dures can be initiated.
The respondents must establish a failure to adhere to the
standard of disclosure. On an ex parte application, an applicant
must exercise utmost good faith and ensure full and frank dis-
closure. The Court must ensure that the same standard is
applied to all taxpayers, regardless of their wealth or whether
they have broken the law. However, the nature of the assess
ment may itself raise a reasonable apprehension of jeopardy.
The evidence verified that there had been substantial income
and that it was drug-related. On the balance of probabilities,
delay may jeopardize the collection of the taxpayers' debt. In
light of other factual confirmation, the alleged deficiencies in
the evidence presented by the Minister upon the ex parte
motion would not appear to warrant setting aside the order.
The level of disclosure by the Minister was adequate, particu
larly since nothing was taken from the taxpayers until they had
been notified of these registrations on title by the Minister.
STATUTES AND REGULATIONS JUDICIALLY
CONSIDERED
Canadian Charter of Rights and Freedoms, being Part I
of the Constitution Act, 1982, Schedule B, Canada Act
1982, 1982, c. 11 (U.K.) [R.S.C., 1985, Appendix II,
No. 44], ss. 7, 8, 12.
Income Tax Act, S.C. 1970-71-72, c. 63, ss. 158, 222, 223
(as am. by S.C. 1988, c. 55, s. 168), 225.1 (as enacted
by S.C. 1985, c. 45, s. 116; as am. by S.C. 1986, c. 24,
s. 2; 1988, c. 55, s. 169), 225.2 (as enacted by S.C.
1985, c. 45, s. 116; as am. by S.C. 1988, c. 55, s. 170).
CASES JUDICIALLY CONSIDERED
APPLIED:
Rothmans of Pall Mall Canada Limited v. Minister of
National Revenue (No. 2), [1976] 2 F.C. 512; [1976] CTC
347 (C.A.); Turmel v. Canadian Radio-Television and
Telecommunications Commission (1985), 16 C.R.R. 9
(F.C.T.D.); Berendt v. The Queen, Eberle J., S.C.O., not
reported; Danielson v. Canada (Deputy Attorney Gen
eral), [1987] 1 F.C. 335; [1986] 2 C.T.C. 380; (1986), 86
DTC 6518; 7 F.T.R. 42 (T.D.); Canada v. Satellite Earth
Station Technology Inc., [1989] 2 C.T.C. 291; (1989), 89
DTC 5506; 30 F.T.R. 94 (F.C.T.D.); 1853-9049 Québec
Inc. v. The Queen, [1987] 1 C.T.C. 137 (Eng.); [1986] 2
C.T.C. 486 (Fr.); (1986), 87 DTC 5093 (Eng.); 87 DTC
5031 (Fr.); 9 F.T.R. 63 (F.C.T.D.); D.M.N.R. v. Atchison,
V. and W. (1988), 89 DTC 5088 (B.C.S.C.); Laframboise
v. R., [1986] 3 F.C. 521; [1986] 2 C.T.C. 274; (1986), 86
DTC 6396; 5 F.T.R. 161 (T.D.); Re McLeod and Minister
of National Revenue et al. (1983), 146 D.L.R. (3d) 561;
[1983] CTC 168; 83 DTC 5212 (F.C.T.D.).
DISTINGUISHED:
Hunter et al. v. Southam Inc., [1984] 2 S.C.R. 145;
(1984), 55 A.R. 291; 11 D.L.R. (4th) 641; [1984] 6
W.W.R. 577; 33 Alta. L.R. (2d) 193; 27 B.L.R. 297; 14
C.C.C. (3d) 97; 2 C.P.R. (3d) 1; 41 C.R. (3d) 97; 9 C.R.R.
355; 84 DTC 6467; 55 N.R. 241; Baron v. Canada,
[1991] 1 F.C. 688; (1991), DTC 5055 (C.A.).
COUNSEL:
Peter A. Vita, Q. C., Kevin R. Wilson and Diane
Winters for applicant.
Milton A. Davis and Alan D. Gold for respon
dent Duncan.
L. David Roebuck for respondent Pctroff.
SOLICITORS:
Deputy Attorney General of Canada for appli
cant.
Bresver, Grossman, Scheininger & Davis,
Toronto, Gold & Fuerst, Toronto, for respondent
Duncan.
Roebuck & Garbig, Toronto, for respondent
Petroff.
The following are the reasons for order rendered in
English by
JEROME A.C.J.: The respondents' applications by
way of originating notice of motion for a review, pur
suant to subsection 225.2(8) of the Income Tax Act
[S.C. 1970-71-72, c. 63 (as am. by S.C. 1988, c. 55,
s. 170)], of my order dated July 18, 1989 were heard
together at Toronto, Ontario on January 15, 1990,
January 19, 1990 and on April 2, 1990. The order,
commonly referred to as a "jeopardy collection
order", was granted on an ex parte application pursu
ant to subsection 225.2(2) [as am. idem] and author
ized the Minister of National Revenue (the "Minis-
ter") to forthwith take any of the collection actions
described in paragraphs 225.1(1)(a) to (g) [as am.
idem, s. 169] of the Income Tax Act with respect to
the respondents' tax debt. On August 21, 1990 at
Toronto, Ontario, I dismissed the respondents' appli
cations for reasons given orally from the Bench and
indicated that these written reasons would follow.
BACKGROUND:
By notices of assessment and reassessments dated
June 15, 1989 the respondent Duncan was assessed
and reassessed with respect to his 1985, 1986 and
1987 taxation years and the respondent Petroff was
reassessed with respect to his 1984, 1985, 1986 and
1987 taxation years. This resulted in an unpaid
income tax liability of $511,621.41 for the respon
dent Duncan and an unpaid income tax liability of
$583,512.27 for the respondent Petroff.
On February 11, 1988 the respondents were appre
hended in the United States of America and charged
with drug trafficking offences. The respondents were
subsequently released on bail upon each posting a
cash bond with the United States Court in the amount
of $750,000 (U.S.). On October 3, 1989 the respon
dents pleaded guilty to a charge of conspiracy to dis
tribute a narcotic substance and agreements were
reached between the Assistant United States Attorney
and the respondents, subject to judicial approval, that
the sentence to be imposed would be 121 months in
jail. The respondents signed consent judgments
directing payment to the United States Government
of money in the amount of $1,021,010 which was in
their possession and seized by the United States
authorities at the time of their arrest.
By originating notice of motion dated July 17,
1989 the applicant made an ex parte motion pursuant
to subsection 225.2(2) of the Income Tax Act for an
order authorizing the Minister to proceed without
delay on collection proceedings with respect to the
respondents' tax debt. Upon hearing counsel for the
applicant and upon reading the affidavits of Terry
Hale, Chief of Collections, Mississauga District
Office of Revenue Canada, sworn July 14 and July
18, 1989, by order dated July 18, 1989 I authorized
the Minister to take forthwith any of the actions
described in paragraphs 225.1(1)(a) to (g) of the
Income Tax Act. I also directed that service of the
order be effected by sending a photostatic copy to the
respondents by registered mail on or before July 21,
1989.
On July 18, 1989, certificates were registered in
the Federal Court of Canada pursuant to section 223
[as am. idem, s. 168] of the Income Tax Act certifying
that the respondents were in arrears with respect to
taxes. As a result of the order, the Minister caused
registrations to be made on the title of certain proper
ties of the respondents. By notice of motion dated
July 26, 1989 the applicant sought an order that,
unless sufficient cause to the contrary be shown, the
respondent Duncan's lands described in Instrument
No. CT 847090 registered in the Land Registry
Office in Toronto be charged with the judgment in
favour of the applicant in the amount of $517,456.47,
together with interest as specified in the certificate
dated July 18, 1989. A "Charging Order to Show
Cause" was issued on July 27, 1989.
By notice of motion dated August 18, 1989, the
respondents apply pursuant to subsection 225.2(8) of
the Act for a review of the order of July 18, 1989
and, by supplementary notice of motion dated August
24, 1989, the respondent Duncan seeks inter alia to
set aside the charging order to show cause dated July
27, 1989, on the basis that proper disclosure had not
been made. They also allege that both section 225.2
of the Act and the order and directions thereto are an
unreasonable seizure contrary to section 8 of the
Canadian Charter of Rights and Freedoms [being
Part I of the Constitution Act, 1982, Schedule B,
Canada Act 1982, 1982, c. 11 (U.K.) [R.S.C., 1985,
Appendix II, No. 44]] (the "Charter"), that they deny
the respondents' right to life, liberty and security of
the person contrary to section 7 of the Charter, and
that they constitute cruel and unusual treatment or
punishment contrary to section 12 of the Charter.
RELEVANT STATUTORY PROVISIONS:
The relevant statutory provisions are sections
225.1 and 225.2 1 of the Income Tax Act, as amended
by S.C. 1986, c. 24, s. 2; 1988, c. 55, ss. 169 and 170:
1 Section 225.2 was originally added by S.C. 1985, c. 45, s.
116(1) and it formerly read:
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
(Continued on next page)
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
Part VIII or 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 section 223,
(c) require a person to make a payment under subsection
224(1),
(d) require an institution or a 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,
(f 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.
225.2 (1) In this section, `judge" means a judge or a local
judge of a superior court of a province or a judge of the Fed
eral Court of Canada.
(Continued from previous page)
personally or by registered letter addressed to the taxpayer at
his latest known address, so advised the taxpayer and direc
ted 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 res
pect to that amount or that part thereof.
(2) Where the Minister has under subsection (1) directed a
taxpayer to pay an amount forthwith, the taxpayer may
(a) upon 3 days notice of motion to the Deputy Attorney
General of Canada, apply to a judge of a superior court
having jurisdiction in the province in which the taxpayer
resides or to a judge of the Federal Court of Canada for an
order fixing a day (not earlier than 14 days nor later than
28 days after the date of the order) and place for the deter
mination of the question whether the direction was justi
fied in the circumstances;
(b) serve a copy of the order on the Deputy Attorney
General of Canada within 6 days after the day on which it
was made; and
(c) if he has proceeded as authorized by paragraph (b),
apply at the appointed time and place for an order deter
mining the question.
(5) On the hearing of an application under paragraph (2)(c)
the burden of justifying the direction is on the Minister.
(2) Notwithstanding section 225.1, where, on ex parte appli
cation by the Minister, a judge is satisfied that there are rea
sonable grounds to believe that the collection of all or any part
of an amount assessed in respect of a taxpayer would be jeop
ardized by a delay in the collection thereof, he shall, on such
terms as he considers reasonable in the circumstances, author
ize the Minister to take forthwith any of the actions described
in paragraphs 225.1(1)(a) to (g) with respect to the amount.
(4) Statements contained in an affidavit filed in the context
of an application under this section may be based on belief
with the grounds therefor.
(5) An authorization granted under this section in respect of
a taxpayer shall be served by the Minister on the taxpayer
within 72 hours after it is granted, except where the judge
orders the authorization to be served at some other time speci
fied in the authorization, and, where a notice of assessment has
not been sent to the taxpayer at or before the time of the appli
cation, the notice of assessment shall be served together with
the authorization.
(6) For the purposes of subsection (5), service on a taxpayer
shall be effected by
(a) personal service on the taxpayer; or
(b) service in accordance with directions, if any, of a judge.
(8) Where a judge of a court has granted an authorization
under this section in respect of a taxpayer, the taxpayer may,
upon 6 clear days notice to the Deputy Attorney General of
Canada, apply to a judge of the court to review the authoriza
tion.
(9) An application under subsection (8) shall be made
(a) within 30 days from the day on which the authorization
was served on the taxpayer in accordance with this section;
or
(b) within such further time as a judge may allow, upon
being satisfied that the application was made as soon as
practicable.
(11) On an application under subsection (8), the judge shall
determine the question summarily and may confirm, set aside
or vary the authorization and may make such other order as he
considers appropriate.
(13) No appeal lies from an order of a judge made pursuant
to subsection (11).
ISSUES:
The issues may be summarized as follows:
1. The application and effect of the Charter with
respect to the order dated July 18, 1989; and
2. Has the test required by section 225.2 of the
Income Tax Act been met? Were there reasonable
grounds to consider that the collection of the amounts
assessed in respect of the respondents would be jeop
ardized by a delay in the collection thereof and was
there full and frank disclosure on the ex parte appli
cation?
ARGUMENT:
The Charter Issue:
The respondents submit that the ex parte order
dated July 18, 1989 pursuant to subsection 225.2(2)
of the Income Tax Act is contrary to sections 7 and 8
of the Charter although they concede that the statu
tory provision itself is not under attack in this pro
ceeding. They suggest, however, that the deficiencies
contained in section 225.2 can be "read down" for
our present purposes and that the order should be
measured against the statutory provisions as properly
interpreted in accordance with the Charter. In the
alternative, the respondents submit that the order con
stitutes an unreasonable seizure in that it does not
comply with the stringent requirements for a reasona
ble search and seizure enunciated by the Supreme
Court of Canada in Hunter et al. v. Southam Inc.,
[1984] 2 S.C.R. 145. The order authorizing immedi
ate collection action is an unreasonable seizure
because it was made upon virtually no evidence or
credibly-based probability that such actions were
required to prevent evasion of the payment of the
assessed taxes such as to prevail over the respon
dents' rights to be "left alone".
The respondents further submit that in this
instance, the deprivation of their property by the
Minister affects the respondents' right to life, liberty
and security of the person contrary to section 7 of the
Charter. The "freezing" or "seizure" of their assets
while facing serious criminal charges and other legal
proceedings that may result in incarceration if unsuc
cessfully or inadequately defended, is an infringe
ment of their section 7 Charter rights. In addition, the
interference, authorized on an ex parte application, is
not in accordance with the principles of fundamental
justice.
The applicant submits, however, that an enactment
that provides for a judicial prior authorization of a
search does not necessarily offend section 8 of the
Charter. Furthermore, the applicant suggests that the
only appropriate forum for constitutional challenges
or declaratory judgments is that involving a trial and
not a motion or summary proceeding. In any event,
the applicant suggests that the respondents' argu
ments are misdirected in view of the fact that an
order under section 225.2 and the directions thereto
do not constitute a "seizure" for the purposes of sec
tion 8 of the Charter. Furthermore, section 8 does not
relate to real property rights and section 7 does not
extend to protect property and pure economic rights.
Finally, the effect of section 225.2 is not a punish
ment as that term is used in section 12 of the Charter.
Has the test required by section 225.2 of the Income
Tax Act been met?
The essential elements of the respondents' argu
ments are summarized as follows. The respondents
state that mortgages were placed or renewed on their
real property in Canada and that assets were encum
bered or sold only in an effort to raise funds to cover
bail-related and living expenses and for no improper
purpose. The respondents explained that in California
they were required to satisfy the court that no drug-
related funds were used as bail, so mortgage funds
were obtained.
The respondents state that although the notices of
reassessment were dated June 15, 1989, they were
not mailed until July 17, 1989 and they suggest that
at least a genuine attempt to give notice of the reas
sessments was a condition precedent to the relief
granted in the order. Furthermore, they suggest that
material facts were not disclosed and that misleading
evidence was presented at the ex parte hearing. They
suggest that Mr. Hale's affidavits intimate that they
were selling or encumbering their assets in breach of
the conditions of bail. They state that there was no
evidence that they had disposed of or attempted to
dispose of assets subsequent to the dates of the
notices and that there is no evidence that they were
attempting to avoid their tax obligations. Rather, the
respondents state that assets were dealt with in the
ordinary course of utilization and they submit that the
applicant has failed to show that the collection of
moneys owing for taxes would be "jeopardized by a
delay in the collection thereof'.
The applicant submits that if the evidence on the
balance of probabilities leads to a conclusion that it is
more likely than not that the collection would be
jeopardized by a delay then the order should be
allowed to stand. Relying on the decision of Joyal J.
in Laframboise v. R., [1986] 3 F.C. 521 (T.D.), the
applicant submits that the nature of the assessment
itself raises reasonable apprehension that the order is
justified.
ANALYSIS:
The Charter Issue:
After carefully considering the extensive argument
put forth by the parties I find that the Charter should
not form a part of the judgment in this matter for the
following reasons. First, the parties acknowledge that
the relevant sections of the Income Tax Act are not
under attack in this application and they cannot be
attacked in a proceeding of this nature. In Rothmans
of Pall Mall Canada Limited v. Minister of National
Revenue (No. 2), [1976] 2 F.C. 512 (C.A.), at page
515, Le Damn J.A. (as he then was), on behalf of the
Court, held that "under the Rules declaratory relief
cannot be sought by originating motion but only by
an action". More recently, in Turmel v. Canadian
Radio-Television and Telecommunications Commis-
sion (1985), 16 C.R.R. 9 (F.C.T.D.), Dubé J.
explained this requirement, at page 11:
I appreciate that time was and still is of the essence ... but
constitutional matters cannot be solved on such a summary
proceeding. The solution is for the applicant to proceed by way
of a declaratory action that would allow for pleadings and dis
covery. The Court, apprised of all the relevant facts and with
the benefit of legal arguments, would then be in a position to
adjudge whether or not the equitable basis principle as inter
preted by the Court is now in violation of s. 15 of the Charter.
Also, I note that in Berendt v. The Queen, an unre-
ported decision of the Supreme Court of Ontario,
Eberle J. expressed similar concerns:
The notice of motion attacks s. 225.2 of the Income Tax Act. I
believe that it is misdirected. That section does not provide for
anything even resembling a seizure of the money, nor even for
the institution of collection procedures. It provides only for a
decision of the Minister to override the 90 day delay of collec
tion procedures imposed by s. 225.1. As a result of the decision
taken under s. 225.2, it only becomes open to the Minister to
take immediate collection actions as authorized elsewhere in
the Act, if he so desires.
Thus, [the] attack on s. 225.2 is in my view quite misdirected
and fails because of its misconception of what that section
does. In spite of that conclusion, it is evident that the applicant
really seeks to attack the collection powers statutorily given to
the Minister by ss. 222, 223 and 224 of the Act.
The constitutional validity of other sections of the
Income Tax Act related to administrative enforcement
mechanisms has also been considered by this Court.
In Re McLeod and Minister of National Revenue et
al. (1983), 146 D.L.R. (3d) 561 (F.C.T.D.), Dubé J.
determined that sections 222, 223(2) and 158(1) of
the Income Tax Act, S.C. 1970-71-72, c. 63, 2 were not
contrary to section 8 of the Charter. In that case there
was no allegation that the collection proceedings
2 Essentially, s. 222 provided that all unpaid taxes are debts
recoverable in the Federal Court or any other court of compe
tent jurisdiction, s. 223(2) provided that a certificate of such
debt registered in the Federal Court has the same force and
effect as a judgment and all proceedings may be taken thereon,
and s. 158 provided that the taxpayer shall pay his assessed tax
(Continued on next page)
were not carried out according to the provisions set
out in the Act. However, the applicant in effect
sought a declaration that these provisions were con
trary to section 8 of the Charter. Dubé J. commented
(at page 564):
The applicant offers no jurisprudence to support such a
sweeping demand. The crux of his argument, as I understand
it, is that the common shares in his company ought not to be
seized pending his appeal as "at the present time I am not in a
position to provide payment of the assessed amounts". That is
surely not evidence of a breach of the applicant's rights to be
secure against seizure.
As I pointed out at the hearing, the Income Tax Act is a rig
orous document. Parliament has ruled that taxes be paid within
30 days from assessment, whether the taxpayer files an appeal
or not. The obvious purpose of such an imposition is to prevent
a massive wave of taxpayers' appeals launched for the sole
purpose of delaying the payment of taxes.
Finally, as acknowledged by counsel for the
respondents, the Charter does not in specific terms
directly affect property rights and I have grave doubts
that what took place here constitutes a "seizure". The
result of the application was not a seizure in the true
sense of the word. Indeed, the taxpayers' assets were
not altered in any way and there was no transfer of
title. While the filing of a caution on title may pre
vent or otherwise restrict the disposition of the prop
erty, it is far from certain that it constitutes a seizure.
I do not believe that activities pursued by the Minis
ter in accordance with the administrative enforce
ment mechanisms of a regulatory statute that effec
tively "freeze" a taxpayer's assets constitute a
"seizure" in the sense required to bring these activi
ties within the scrutiny of the standards set by the
Supreme Court in Hunter et al. v. Southam Inc.
A constitutional attack has clearly not been made
with respect to the provisions of the Income Tax Act
and the respondents' Charter arguments cannot suc
ceed.
(Continued from previous page)
within 30 days from assessment, whether or not an objection
or an appeal from the assessment is outstanding.
Has the test required by section 225.2 of the Income
Tax Act been met?
In reviewing the authorization granted under sub
section 225.2(2), it is necessary to consider whether
there are reasonable grounds to believe that the col
lection of all or any part of an amount assessed in
respect of a taxpayer would be jeopardized by the
delay in the collection thereof. McNair J. in Daniel-
son v. Canada (Deputy Attorney General), [1987] 1
F.C. 335 (T.D.), at page 337, enunciated the test to be
met with respect to the previous subsection 225.2(1):
... 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.
This test continues to be appropriate despite the
1985 amendments: Canada v. Satellite Earth Station
Technology Inc., [1989] 2 C.T.C. 291 (F.C.T.D.). In
Satellite Earth, MacKay J. reviewed the factors to be
considered by a court on a subsection 225.2(8)
review of a jeopardy collection order. After consider
ing the case law dealing with the former version of
section 225.2 he concluded (at page 296) that in a
subsection 225.2(8) application the Minister has the
ultimate burden of justifying the decision despite the
fact that section 225.2 as amended no longer includes
the former paragraph (5) that specifically stated that
"[O]n the hearing of an application under paragraph
(2)(c) the burden of justifying the direction is on the
Minister." However, the initial burden is on the tax
payer to show that there are reasonable grounds to
doubt that the test has been met [at pages 296-297].
In an application to review a `jeopardy order" originally
granted under subsection 225.2(2) the issue will be whether
that order will now be set aside or varied. In this, an applicant
under subsection 225.2(8) has the initial burden to muster evi
dence, whether by affidavits, by cross-examination of affiants
on behalf of the Crown, or both, that there are reasonable
grounds to doubt that the test required by subsection 225.2(2)
has been met. Thus the ultimate burden on the Crown estab
lished by subsection 225.2(2) continues when an order granted
by the Court is reviewed under subsection 225.2(8).
Occasionally there may be concern about whether the order
should have been made initially, but I expect that this will not
often be the principal focus, unless there appears to have been
a serious procedural flaw in the original application.
The evidence must be considered in relation to the test estab
lished by subsection 225.2(2) itself and by relevant cases, that
is, whether on a balance of probability the evidence leads to
the conclusion that it is more likely than not that collection
would be jeopardized by delay.
Mere suspicion that collection will be jeopardized
by the delay is not sufficient: 1853-9049 Québec Inc.
v. The Queen, [1987] 1 C.T.C. 137 (F.C.T.D.). In
1853-9049 Québec Inc., Rouleau J. [at pages 142-
143] provided additional guidance with respect to the
test set out in the former section 225.2 which contin
ues to be appropriate today:
I agree with McNair, J. [in Danielson] when he says that the
Minister can require payment of the assessment forthwith if a
taxpayer may not be in a position to pay simply because of the
passage of time allowed by the Act. The amount of money
involved is not significant: what the Minister has to know is
whether the taxpayer's assets can be liquidated in the
meantime or be seized by other creditors and so not available
to him.
In my opinion, this latitude allows the Minister to rely on the
exceptional provisions contained in subsection 225.2(1) when
ever, on a balance of probability, the time allowed the taxpayer
by subsection 225.1(1) would jeopardize his debt. I emphasize
on a balance of probability, not beyond all reasonable doubt.
The Minister may certainly act not only in cases of fraud or
situations amounting to fraud, but also in cases where the tax
payer may waste, liquidate or otherwise transfer his property to
escape the tax authorities: in short, to meet any situation in
which a taxpayer's assets may vanish into thin air because of
the passage of time. [Underlining added.]
The issue before me then is whether the rights of
the respondents have been offended by the manner in
which the Minister availed himself of these rather
extraordinary provisions and alternatively, whether
the order should be struck because the Minister has
failed to observe and respect the high standard of dis
closure to the court that is required on ex parte appli
cations.
There have been cases in our Court in which the
right to seizure, the right to enter premises, the right
to affect a number of draconian measures under the
Income Tax Act have been found to be invalid. Note
worthy is the Federal Court of Appeal's decision in
Baron v. Canada, [1991] 1 F.C. 688 that Revenue
Canada's use of search warrants obtained under sec
tion 231.3 of the Income Tax Act violates the right to
be secure against unreasonable search and seizure.
The Court (at pages 694-695) found that the use of
the term "shall" deprived the issuing officer of any
residual discretion and for that reason alone the pro
vision ran afoul of sections 7 and 8 of the Charter.
Important for our purposes is that unlike section
225.2, the Court found [at page 694] that section
231.3 was concerned with the detection and prosecu
tion of crime and, therefore, "nothing less than the
full panoply of Charter protection is appropriate".
Furthermore, the constitutional validity of a particu
lar statutory provision was in question in Baron and
other similar cases.
Nor can I overlook the fact that the provision as it
now stands has a greater safeguard than its predeces
sor. Under the Income Tax Act as amended, sections
222 to 228 set out a variety of procedures for the col
lection of moneys owed to Her Majesty for taxes,
interest, penalties or other charges under the Act. In
1985 the Act was amended and section 225.1 was
added to postpone these collection processes during
the time allowed for a taxpayer to file a notice of
objection with respect to the assessment or reassess
ment of his taxes. However, in exceptional circum
stances where "it [could] reasonably be considered
that collection of an amount assessed... would be
jeopardized by the delay", the Minister under the for
mer section 225.2 could institute collection proceed
ings. In 1988, the provisions were once again revised
and section 225.2 was amended to require prior
authorization by a court before "jeopardy collection"
procedures could be initiated. Although previously
not required, the present provision requires the Min
ister to appear in court to avail himself of these spe
cial collection provisions if he wishes to do so before
the period for filing notices of objection has expired.
To succeed, therefore, the respondents must estab
lish the failure of the Minister to adhere to and
respect the standard of disclosure. Clearly, an appli
cant, on an ex parte application, must exercise utmost
good faith and ensure full and frank disclosure to be
successful. In D.M.N.R. v. Atchison, V. and W.
(1988), 89 DTC 5088 (B.C.S.C.), Sheppard L.J.S.C.
allowed the taxpayer's application to have a jeopardy
collection order set aside because the Minister had
not made full disclosure with respect to the allega
tions in its ex parte application.
The court must always be careful to ensure that the
same standard is applied to all taxpayers irrespective
of their relative wealth and irrespective of whether
the taxpayer has run afoul of the law. However, as
Joyal J. observed in Laframboise v. R., [1986] 3 F.C.
521 (T.D.), the nature of the assessment itself may
raise a reasonable apprehension of jeopardy.
In the present case the concern expressed by the
Minister was that there has been substantial income
and that the income was drug-related. This turns out
to have been entirely verified by cross-examination,
by reply material and by subsequent events. On the
balance of probabilities, delay may jeopardize the
collection of the taxpayers' tax debt.
Finally in the light of other factual confirmation,
the alleged deficiencies in the evidence presented by
the Minister at the ex parte motion would not appear
to warrant setting the order aside. In Laframboise,
Joyal J. dealt with the taxpayer's argument that there
were serious deficiencies in the affidavit evidence
submitted on behalf of the Minister and the argument
that evidence, when submitted in affidavit form, must
be strictly construed. He commented [at page 528]:
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 theologi
cal 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
actions.
Accordingly, I conclude that the level of disclosure
by the Minister , was adequate, particularly since noth
ing was taken from the taxpayers until they had been
notified of these registrations on title by the Minister.
CONCLUSION:
The respondents' applications are dismissed for the
reasons outlined above. There will be no order as to
costs.
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