If a taxpayer disagrees with an income tax assessment from the Canada Revenue Agency (“CRA”) he or she can file a Notice of Objection and then can also appeal to the Tax Court of Canada and to higher courts. If the assessment indicates that the taxpayer owes taxes to the CRA, the taxpayer, under normal circumstances, is entitled not to pay the amount in dispute until the assessment has been appealed and all appeals resolved. If the taxpayer has already paid all or some of the amount in dispute he or she is entitled to a refund of that amount until the appeal has been disposed of by the Tax Court.
However, if the CRA feels that a delay in proceedings regarding the assessment will jeopardize the collection of the tax owing in dispute it can apply to the Federal Court of Canada, without any notice to the taxpayer, to approve the collection of the tax debts at issue prior to the outcome of the appeal. If successful, the CRA will obtain a jeopardy (or collection) order authorizing the collection of the outstanding tax debt regardless of the progress of the appeal. In fact, a jeopardy order can be issued despite the fact that a notice of assessment has not yet been sent to the taxpayer if the court is of the opinion that the notice “would likely further jeopardize the collection of the amount…” When the Minister obtains a jeopardy order, the taxpayer through a Canadian Tax Lawyer can later apply to the Federal Court to review and reconsider the order.
A court will issue a jeopardy or collection order if “there are reasonable grounds to believe that the collection of all or any part of any amount assessed in respect of a taxpayer would be jeopardized by a delay in the collection of that amount…” When determining if CRA has reasonable grounds, a court may consider the amount of the debt relative to the taxpayer’s ability to pay; for instance whether the taxpayer’s net assets are insufficient to cover the liability. Also, the court may look at the past behavior of the taxpayer. For example, has the taxpayer recently sold or transferred property? Does the past conduct of the taxpayer reflect a potential inability or reluctance to pay? Is fraud an issue in the proceedings? Essentially the behavior of the taxpayer is canvassed for characteristics that suggest that the debt will become uncollectible as a result of the delay.
A jeopardy order authorizes the CRA to take various collection actions including but not limited to: the commencement of legal proceedings to recover the outstanding amount; the garnishment of the taxpayer’s bank accounts or wages; the seizure of the taxpayers property; even going so far as to seize any illegal income attributed to the taxpayer and in the possession of the police.
With the help of an experienced Canadian tax lawyer, and within 30 days of receipt of the notice of authorization of the order, a taxpayer can challenge the jeopardy order before a court. (The 30 day time limit can be extended at the court’s discretion). Based on the circumstances, the court can confirm, vary, or set the order aside. When reassessing a jeopardy order the court relies on a two-part test to determine whether the order can be successfully challenged by the taxpayer. First, has the taxpayer advanced reasonable grounds to lay doubt to the Minister’s assertion that collection would be jeopardized by a delay? Second, has the Minister advanced reasonable grounds that collection would be jeopardized by the delay? Ultimately, the Minister has to support its position with convincing facts demonstrating that the taxpayer’s activities and behaviors warrant a jeopardy order.
The mere doubt or apprehension that the delay may jeopardize collection is not sufficient to uphold a jeopardy order.