Maher, J: —In these matters three applications are made for a determination as to whether the actions by The Minister of National Revenue (hereinafter referred to as "the Minister”), directing that the applicant taxpayers forthwith pay the amounts of certain assessments of income tax were justified in the circumstances. The applications are pursuant to subsection 225.2(2) of the Income Tax Act, R.S.C. 1952, c. 148, as amended by S.C. 1970-71-72, c. 63 and subsequent amendments. Following an order fixing a day and place for the determination of the question, the applications were heard together by agreement of counsel and reserved for decision.
The section under which the applications are made was recently enacted, along with other amendments to the Income Tax Act that limit the authority of the Minister to enforce payment of taxes owing on an assessment until there had been a final determination as to the amount of tax payable. S.C. 1985 c. 45, s. 116.
By these amendments the right of the Minister to take steps to collect a tax assessed under the Act is restricted in various ways. No enforcement proceedings may be commenced for a period of 90 days following the mailing of a notice of an assessment. Where the taxpayer serves a notice of objection to the assessment no enforcement proceedings may be taken until 90 days following the confirmation or variation of the assessment. In the event of an appeal enforcement proceedings are prohibited until the appeal has been decided.
Notwithstanding these limitations "where it may reasonably be considered" that collection of an amount assessed in respect of a taxpayer would be jeopardized by a delay in the collection thereof, the Minister may, by notice in writing, direct the taxpayer to forthwith pay the amount assessed. The taxpayer, in turn, following receipt of such notice, may apply to the Court for the determination of the question whether the direction was justified in the circumstances.
While I have outlined in general terms the steps that may be taken by the Minister and a taxpayer it may be of assistance to set out in full the provisions of section 225.2. It reads as follows:
225.2(1) Collection in jeopardy. —
Notwithstanding section 225.1, where it may reasonably 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.
(2) Application to vacate direction. —
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 determination of the question whether the direction was justified 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 determining the question.
(3) Time for application. —
An application to a judge under paragraph (2)(a) shall be made
(a) within 30 days after the day on which the notice under subsection (1) was served or mailed; or
(b) within such further time as the judge, upon being satisfied that the application was made as soon as circumstances permitted, may allow.
(4) Hearing in camera.—
An application under paragraph (2)(c) may, on the application of the taxpayer, be heard in camera, if the taxpayer establishes to the satisfaction of the judge that the circumstances of the case justify in camera proceedings.
(5) Burden to justify direction. —
On the hearing of an application under paragraph (2)(c) the burden of justifying the direction is on the Minister.
(6) Disposition of application. —
On an application under paragraph 2(c) the judge shall determine the question summarily and may confirm, vacate or vary the direction and make such other order as he considers appropriate.
(7) Continuation by another judge. —
Where the judge to whom an application has been made under paragraph (2)(a) cannot for any reason act or continue to act in the application under paragraph (2)(c), the application under paragraph (2)(c) may be made to another judge.
(8) Costs.
Costs shall not be awarded upon the disposition of an application under subsection (2).
It should be noted that two of the applicants are individuals and the third is a corporation. The position of the Minister is that because the individuals are related, being a father and son, and that the corporation R. & L. Investments Ltd., together with at least three other corporations, are controlled by members of the same family, both the individuals and the corporations are “related persons" as defined by section 251 of the Act. Accordingly, they are deemed not to deal with each other at arm's length. The relationships are not disputed by the applicants.
Extensive investigations were conducted into the activities of both the individuals and the related corporations. The results of such investigations are set out in reports prepared for the purpose of recommending jeopardy assessments in each of the three cases, and copies of such reports with respect to each application have been filed and were made available to the applicants.
It is not my intention to review the reports in detail but I consider it necessary to summarize the facts as they are set forth in the reports, not only in so far as they relate to the taxpayers assessed, but also to other members of the family and to corporations that are not the subject of these proceedings but are related and not deemed to be at arm's length.
Involved in various transactions that have taken place over a number of years are four members of the Minshull family, Robert Minshull, his wife Marion, and their two sons, Lawrence and Raymond Minshull. The corporations involved are the applicant R. & L. Investments Ltd., Bridge City Properties Ltd., Marion Minshull Enterprises Ltd; and, to a lesser extent, Sunset Bay Resorts Inc. All the corporations would appear to be solely owned and controlled by the four members of the Minshull family.
It is not disputed that the first three corporations have failed to file income tax returns for a number of years. The last return filed on behalf of R. & L. Investments Ltd. was for the taxation year 1982, for Bridge City Properties Ltd., for the taxation year 1980, and for Marion Minshull Enterprises Ltd., for the taxation year 1979.
The assessments of income tax against the applicants are for substantial amounts. They include assessments made pursuant to section 160 of the Act, whereby both the transferor and the transferee of property by persons or corporations not dealing at arm's length are equally liable for any tax liability arising by reason of any such transaction. The assessments made against the applicants and for which the Minister seeks the right to enforce payment forthwith are as follows:
Robert R. Minshull
Section 160 Assessment.
Transfers from Marion
Minshull Enterprises Ltd.
in the year 1983
$92,265.00
Section 160 Assessment.
Transfers from R. & L.
Investments Ltd. in the
year 1986
$96,612.93
Lawrence R. Minshull
Section 160 Assessment.
Transfers from Bridge
City Properties Ltd.
in the year 1984
$25,194.08
Section 160 Assessment.
Transfer from Marion
Minshull Enterprises Ltd.
in the year 1984
$39,000.00
R. & L. Investments Ltd.
Section 160 Assessment.
Property transfers from
Bridge City Properties
Ltd. in the year 1984
$25,194.08
Income Tax Assessment
for the taxation year 1984
$94,294.89
Income Tax Assessment
for the taxation year 1985
$99,004.27
In addition to the foregoing, arbitrary assessments were previously made against both R. & L. Investments Ltd. and Bridge City Properties Ltd. in the year 1985, likely by reason of the fact that both corporations had ceased to file income tax returns. Probably for the same reason, along with the fact that the amounts assessed had not been paid, the Minister, in the summer of 1986, served Requests for Information on a number of brokerage firms in the City of Saskatoon, and also served Requirements to Pay on several financial institutions. These demands for information and payment were made with respect to all three of the applicants.
The service of these documents triggered acts on the part of the applicants that are not without significance. Apparently, the investment account of R. & L. Investments Ltd. with Midland Doherty Limited was not attached by the Minister, but within five days' service of the documents on other financial institutions, the entire balance to the credit of the R. & L. Investments Ltd. account totalling $41,900 was withdrawn by cheques payable to Robert Minshull personally. The requests for information also revealed that the account of R. & L. Investments Ltd. with the Bank of Nova Scotia has not been used by that company since it was attached by the Minister and no new banking source for the company has been ascertained.
Additional information received by the Minister following service of the requirements for information revealed that in March 1986 the sum of $22,719.33 was withdrawn from the investment account of R. & L. Investments Ltd. with Midland Doherty Limited by Robert Minshull and transferred to the credit of a coin auction company in London, England. This was preceded by a withdrawal of $92,265.00 from the investment account of Marion Minshull Enterprises Ltd. with Midland Doherty Limited in the year 1983. It is admitted by the applicants that both these sums were used for the puchase of rare Canadian sovereigns in the name of a syndicate owned and controlled by members of the late [sic] Minshull family, the various companies operated by the Minshull family, and four other arm's length investors.
While Marion Minshull Enterprises Ltd. is not one of the applicants herein, there are outstanding tax assessments against that corporation for the taxation years 1980-1982, that are in excess of $300,000. Moreover, the information obtained by the Minister following service of the requests for information reveal that on April 25, 1984, the sum of $73,000 in cash was withdrawn by Robert Minshull from the account of Marion Minshull Enterprises Ltd. with the Royal Bank of Canada. On June 7, 1984, the sum of $39,000 was transferred from Marion Minshull Enterprises Ltd. to Lawrence Minshull.
Bridge City Properties Ltd., another of the corporations controlled by the Minshull family, is indebted to the Minister in the sum of $25,194.08 for outstanding taxes assessed in 1985, and covering the taxation years 1981-1983. Further arbitrary assessments were issued against the company in 1985 totalling $22,972.79. Early in the year 1984, Bridge City Properties Ltd. transferred a 30-unit apartment to R. & L. Investments Ltd. for a stated price of $502,577. On the same date, Lawrence Minshull personally transferred $71,000 to Bridge City Properties Ltd., and these funds were apparently used by R. & L. Investments Ltd. to complete payment of the purchase price of the apartment building. In the same year up to December 1984, a total of $27,932.11 was transferred from Bridge City Properties Ltd. to R. & L. Maintenance, an unincorporated business owned and operated by Lawrence Minshull.
While the inability of the taxpayer to pay the amount of assessments made by the Minister is not a factor that should be considered in determining the question of jeopardy, the actions of the taxpayer may reveal circumstances that are relevant to such determination. In the case of Robert Minshull, enforcement proceedings were taken with respect to unpaid income taxes in the amount of approximately $10,000 assessed in the year 1972. Following the issuance of demands on third parties and the filing of writs of execution, payment arrangements supported by guarantees were obtained from Marion Minshull Enterprises Ltd. and Bridge City Enterprises Ltd. These arrangements were not kept, and full recovery was not obtained until August 1980 as a result of caveats filed against real property owned by the corporations. In 1984 and 1985 arbitrary assessments were issued against Marion Minshull Enterprises Ltd., R. & L. Investments Ltd., and Bridge City Properties Ltd. The position of the Minister is that none of these corporations have filed corporate returns going back to the years 1979-1982. Corporate assets have been placed beyond reach of the Department through the actions of Robert Minshull, An example of such action is to be found in the affidavit of Robert Minshull filed in support of his application and that of R. & L. Investments Ltd., where he deposes that the sum of $41,900, previously noted as having been withdrawn from the investment account of R. & L. Investments Ltd. with Midland Doherty Limited, was done pursuant to a loan agreement between R. & L. Investments Ltd. and Sunset Bay Resort Inc., a company operating a resort at Emma Lake, Saskatchewan, and controlled by the Minshull family.
Robert Minshull also provided information with respect to the purchase of the Canadian gold sovereigns by Marion Minshull Enterprises Ltd. for the sum of $94,265 in 1983. He states in his affidavit that the investment group is purchasing such coins in order to deface them, thereby increasing the value of the remaining coins held by the investors. He says further that the sum of $22,719.33 was moneys that R. & L. Investments Ltd. had available to purchase another gold sovereign. The money was transferred to Robert Minshull personally, as the auction company in London, England preferred personal bids as opposed to corporate bids, and he personally made up the difference when he found that the purchase price of the coin exceeded the amount available from R. & L. Investments Ltd.
Lawrence R. Minshull filed an affidavit objecting to the assessments, and attempted to explain the reasons for the transfers of funds between himself and Bridge City Properties Ltd.
He says that the sum of $71,000 transferred to the company in 1984 represented part of the purchase price of the 30-unit apartment building. It was drawn out of the Credit Union account for R. & L. Maintenance, an unincorporated company owned and operated by Lawrence R. Minshull and the payment was regarded as a shareholder's loan from Lawrence R. Minshull to R. & L. Investments Ltd. It is not known whether this transaction was documented and recorded by company minutes, but it was obviously not information that was available to the Minister.
With respect to the advances totalling $27,932.81, paid to R. & L. Maintenance by Bridge City Properties Ltd., Lawrence Minshull says that of this amount, $12,882.80 represented janitorial and other services rendered by himself to the company, and $13,140 was for services performed by another unincorporated body, operated by him and known as Bridge City Construction. Lawrence Minshull's explanations with respect to these payments are puzzling. The cheque in the first case was only made payable to R. & L. Maintenance because of the fact that the Royal Bank of Canada had originally refused to honour a cheque issued to himself. The cheque was depos ited in the R. & L. Maintenance account at the Credit Union so that Lawrence Minshull could receive the funds to which he was entitled. The second cheque for $13,140 represented renovations for which a cheque from an insurance company was received and was payable to Bridge City Construction. While this unincorporated company was operated by Lawrence Minshull personally, he says that Robert Minshull deposited the proceeds of the cheque into the bank account of Bridge City Properties Ltd. as a favour, and then made out a cheque for the like amount in favour of R. & L. Maintenance, which was deposited into its account at the Credit Union.
The only other matter to which reference should be made is the explanation given by Robert Minshull and Lawrence R. Minshull in an attempt to account for the failure to file income tax returns on behalf of the family corporations. Lawrence R. Minshull says that it was agreed among all the officers and shareholders of the companies that Robert Minshull along with the companies' accountants were to prepare and file the returns. Robert Minshull deposes that a significant portion of the business records for these companies went missing, and that while he has endeavored to rebuild such records, he has been unable to do so to date due to personal circumstances. I have difficulty in accepting this explanation, particularly when the failure to file returns goes back to the taxation year 1979 in one case. I find it difficult to envisage “personal circumstances" of such magnitude as would justify the inability to prepare and file returns for such a lengthy period of time.
Assistance from court decisions as to the meaning and effect of the applicable sections of the Income Tax Act is limited as the provisions were only recently enacted. Counsel have provided me with three decisions, all by the Trial Division of the Federal Court of Canada, where section 225.2 has been considered, and in all likelihood, these are the only cases to date in which reasons for judgment have been delivered. The cases are Laframboise v. The Queen, [1986] 2 C.T.C. 274; 86 D.T.C. 6396; Danielson v. Deputy A-G Canada and M.N.R., [1986] 2 C.T.C. 380; 86 D.T.C. 6518; and 1853-9049 Quebec Inc v. The Queen, [1986] 2 C.T.C. 486; 87 D.T.C. 5031, decision of the trial division of the Federal Court by Rouleau, J. dated November 18, 1986.
In the latter case, 7853-9049 Quebec Inc., Mr. Justice Rouleau reviewed the history of the legislation, quoting extracts from a speech to the House of Commons by the parliamentary secretary to the Minister of Finance reported in the House of Commons debates on September 24, 1985. Therein, the purpose of the amendments, namely, collection restrictions, payment of contested taxes, and preventative measures against abuses of the new system were reviewed at some length.
Following the quoting of these extracts from the speech of the parliamentary secretary, Rouleau, J. expressed his agreement with the observation of Joyal J. in Laframboise to the effect that the new rules represented a considerable departure from a long-standing provision in the Income Tax Act and were meant to dampen considerably the right of the Minister to collect a tax until various avenues of appeal had been exhausted. These new rules require that the judge look at the grounds on which the Minister has made a direction and decide whether the exceptional steps taken by the Minister are justified.
In Danielson v. Deputy A-G Canada and M.N.R., McNair, J. at page 381 (D.T.C. 6519) sets out the test that should be applied in making such determination in the following words:
In my judgment, the issue goes to the matter of collection jeopardy by reason of the delay normally attributable to the appeal process. The wording of subsection 225.1(1) would seem to indicate 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 my opinion, the fact that the taxpayer was unable to pay the amount assessed at the time of the direction would not, by itself, be conclusive or determinative. Moreover, the mere suspicion or concern that delay may jeopardize collection would not be sufficient per se. The test of "whether it may reasonably be considered" is susceptible of being reasonably translated into the test of whether the evidence on balance of probability is sufficient to lead to the conclusion that it is more likely than not that collection would be jeopardized by delay.
Applying these principles to the facts before me, I have no hesitation in concluding that the Minister has satisfied the burden of justifying the directions that were made.
The only reasonable conclusion to be drawn from the uncontradicted evidence of transfers of substantial sums of money following shortly upon service of requests to pay and notices requiring information on the applicants is that the majority of such transfers were carried out to avoid efforts by officers of the tax department to enforce payment of outstanding taxes.
The fact that moneys deposited with related corporations were transferred to individual family members for the purchase of gold sovereigns outside Canada suggest that steps were being taken to place assets of the corporation beyond reach of the Minister.
The failure to file tax returns on behalf of the corporations for a number of years and the unsatisfactory explanation for such failure is further evidence of conduct on the part of the taxpayers designed to interfere with and obstruct the efforts of officers of the department to review the activities of these corporations and make proper assessments with respect to a tax liability.
If the financial activities of these individuals and their related corporations are permitted to continue in the manner they have in the past, and it is extremely likely this will occur, the ability of the Minister to effect collection of the assessments presently outstanding is bound to be seriously jeopardized in the same manner as it has been to date.
The evidence satisfies me that the directions of the Minister were justified in the circumstances. The applications to review such directions in each of the three cases are without merit and are dismissed.
As provided by subsection 225.2(8) of the Act, there will be no order as to costs.
Applications dismissed.