Double the Jeopardy

Normally, the CRA cannot collect any amount of reassessed income tax, interest or penalties while the reassessment is under objection or appeal (although CRA can collect half the reassessed amount, if the taxpayer is a large corporation). However, if there are reasonable grounds to believe that tax collection is at risk, the CRA can move for a jeopardy collection order and, if successful, then take immediate steps to collect the full reassessed amount. Jeopardy collection orders can be made on an ex parte basis, i.e. by the CRA to a judge of the Federal Court, without notice to the taxpayer.

In the Federal Court’s October 28, 2013 decision in Tassone v. Canada (National Revenue), a husband and wife sought to overturn jeopardy collection orders made against them on the basis, among others, that CRA had not fully disclosed all material facts in obtaining the orders. Material non-disclosure is a stand-alone ground for overturning a jeopardy collection order even if the facts otherwise support the CRA’s position. In addition, the CRA had doubled up on the reassessments, whereby the same income was assessed to both husband and wife because the CRA was not certain who should report it.

The Court rejected the taxpayers’ position, finding that the CRA had fully disclosed all material facts. There was some evidence that the taxpayers had funnelled assets through an offshore jurisdiction, using the same company that the husband’s uncle had utilized for the same purpose a few years earlier.

However, the Court does not focus on the impact of a jeopardy collection order in the context of the relatively recent, and all-too-frequent, practice of the CRA in raising alternative and mutually exclusive reassessments. Here, both husband and wife were reassessed to tax on the same income inclusions, each totalling about $3.6 million in tax, interest and penalties. The CRA conceded that the same income had been assessed to both husband and wife, such that the total owing under the two sets of reassessments was twice what would ultimately be owed, even on a worst-case scenario for the taxpayers. The CRA was effectively seeking to immediately collect twice the tax owing.

Unfortunately, for the purposes of overturning a jeopardy collection order, the current legal test presumes that the reassessed tax is properly owed even when, as in this case, at least half the amount of the reassessments clearly cannot be upheld on any possible version of events.