http://decisions.fct-cf.gc.ca/site/fc-cf/decisions/en/item/64488/index.do 
Tassone et al. v. Canada (National Revenue)[1] (October 28, 2013) involved an application to set aside two large ($3.6 million) jeopardy assessments against Lino and Mario Tassone relating to $5.7 million of undeclared revenue for the years 2004 to 2011.
The court explained the operation of jeopardy assessments:
[1] In this application, the applicants, Lino and Maria Tassone, seek to set aside two jeopardy orders granted on an
ex parte basis under subsection 225.2(2) of the
Income Tax Act, RSC 1985, c 1 (5th Supp) [the ITA] by my colleague, Justice de Montigny, on May 24, 2012 [the Jeopardy Orders or the Orders]. These Orders allowed the respondent, the Minister of National Revenue [the Minister] to commence collection activities against the applicants without abiding by the notice provisions stipulated in section 225.1 of the ITA.
The actual language of the statute is as follows:
Authorization to proceed forthwith
(2) Notwithstanding section 225.1, where, on ex parte application by the Minister, a judge is satisfied that there are reasonable grounds to believe that the collection of all or any part of an amount assessed in respect of a taxpayer would be jeopardized by a delay in the collection of that amount, the judge shall, on such terms as the judge considers reasonable in the circumstances, authorize the Minister to take forthwith any of the actions described in paragraphs 225.1(1)(a) to 225.1(1)(g) with respect to the amount.
The Minister’s case for jeopardy was compelling:
[8] On the ex parte application, the Minister argued that the CRA feared that the Tassones might sell or encumber their home if the CRA were required to proceed with collection activities against the applicants on the notice required under section 225.1 of the ITA. In the affidavit filed in support of the Jeopardy Orders, the CRA’s auditor, Bruno Gagnière, explained the bases for this fear. These included:
- Mr. Tassone denied knowing anything about Balboa when questioned by Mr. Gagnière, despite being at one point the President of that company, and, indeed, slammed the door in Mr. Gagnière’s face when he learned he was a CRA auditor from Québec;
- Balboa had allowed Tony Papa to sign a mortgage on its behalf, obtaining security over Mr. Papa and his wife’s Canadian real estate property, thereby frustrating the CRA’s efforts to realize on those properties for the significant unpaid taxes Mr. Papa owes. Moreover, the funds apparently advanced by Balboa to Mr. Papa were allegedly advanced well before the mortgages were granted;
- the applicants have not filed tax returns for any of the taxation years 2004 to 2011 but had significant net worth and expenses and had represented several times in connection with obtaining credit that they earned employment income, as discussed above;
- there were several large unexplained deposits and withdrawals in the applicants’ Canadian bank and brokerage accounts that Mr. Gagnière could not trace the source of;
- in 2007 and 2008 the applicants signed several documents that showed Mr. Tassone as being the President of Balboa and Mrs. Tassone as being its Secretary;
- the Tassones operated Balboa as something of a sham or cover as they had Balboa write Mrs. Tassone cheques totalling over $30,000.00, had several personal restaurant expenses charged to a debit card on one of Balboa’s Panamanian bank accounts, caused some shares that Mr. Tassone had purchased to be issued in Balboa’s name and had Balboa sign the lease and in 2007 and 2008 pay the lease payments for premises in Toronto leased to another Panamanian company that the applicants were associated with, namely Kyoto Holdings Inc.; and
- the fact that Mr. Tassone had neglected to pay approximately $9,000.00 in taxes that the CRA had previously assessed until the CRA garnished one of Mr. Tassone’s brokerage accounts.
The taxpayers moved to set aside the jeopardy assessments on the basis that the Minister had failed to make full and fair disclosure on the
ex parte application:
[12] Here, the applicants argue that the respondent Minister did not make full and fair disclosure principally because Mr. Gagnière did not file his working papers nor disclose that a large percentage of the income attributed to the applicants by the CRA arose from unexplained share transfers between two accounts of Balboa, which is a non-resident corporation and thus not subject to Canadian tax. Although not contesting that there was some evidence that the applicants controlled Balboa (at least between 2006 and 2008), the applicants argue that a mere transfer from one account to another is not an expenditure and, therefore, that these amounts transferred by Balboa ought not have been included as expenditures by the CRA in its net worth assessment of the applicants. The applicants argue that the fact that the CRA’s Notices of Assessment were based in large part on the transfers made by Balboa between its own accounts was a material fact that Justice de Montigny ought to have been made aware of and that failure to disclose this fact should result in his Orders’ being set aside.
The court rejected the material non-disclosure argument:
[15] This case is fundamentally different from the situation in Robarts. Here, unlike there, the applicants have been unable to point to any relevant fact that the Minster failed to disclose on the
ex parte application. Moreover, in my view, there is no need for disclosure of the auditor’s working papers as part of the
ex parte application materials in the circumstances of this case. What is relevant in respect of a jeopardy order is whether there is a reasonable possibility that the payment of taxes owing may be in jeopardy, not the amount of the assessments (see e.g.
Minister of National Revenue v Services ML Marengère Inc, 2000 DTC 6032, 176 FTR 1 at para 64). In this case, the working papers are only relevant to the amount of taxes assessed and not to the risk that their collection might be jeopardised. Therefore, contrary to what the applicants claim, the Minster did not fail to provide full and frank disclosure and the first ground advanced by the applicants is thus without merit.
Likewise the court rejected the taxpayers’ argument that the Minister had not proven that a state of jeopardy existed:
[16] The final two issues raised by the applicants concern the basis for the issuance of the Jeopardy Orders. In this regard, the case law establishes that the reviewing judge’s inquiry under subsection 225.2(8) of the ITA is governed by the two-stage test laid out by Justice Lemieux in
Minister of National Revenue v Reddy, 2008 FC 208, 329 FTR 13 [Reddy]:
i. First, the applicant bears the initial burden of establishing that there are reasonable grounds to doubt that the collection of all or any part of the amount assessed would be jeopardised by a delay in the collection of that amount. An applicant may muster this evidence by affidavits and/or by cross-examination of affiants who signed affidavits filed by the respondent (
Reddy at para 7); and
ii. If the applicant succeeds at the first stage, the burdens shifts to the Minister to justify the jeopardy order by demonstrating that, on a balance of probabilities, it is more likely than not that the collection of the amount would be jeopardised by delay. The reviewing Court may consider evidence originally presented on behalf of the Minister in support of the jeopardy order and “any additional evidence by affidavit or from cross-examination of affiants, presented by either party in relation to the motion for review” (
Reddy at para 8).
[17] Here, there is no need to move to the second stage of the analysis as the applicants have failed to meet their initial burden of establishing that there are reasonable grounds to doubt that the collection of the amounts owing might have been jeopardised if the Jeopardy Orders were not issued. On the contrary, the evidence demonstrates ample grounds for such doubt, including the applicants’ “unorthodox behaviour” in failing to report income yet at the same time having claimed to have earned significant employment income from family-based businesses; their failure to report income despite having significant assets and expenditures; and their apparent use of Balboa as a cover to funnel funds to themselves or to another of their companies. In addition, Balboa was recently the vehicle used by Mr. Tassone’s uncle, Tony Papa, to shield his Canadian assets from seizure for unpaid taxes. While, as the applicants argue, there is no proof that the applicants would leave Canada or necessarily encumber their home to avoid payment of the taxes with which they might be finally assessed, on a jeopardy application the Minster need not prove that recovery will be jeopardised. Rather, the Minister need only establish that there are reasonable grounds to believe that this may occur. Here, such doubt exists given the applicants’ past behaviour and the ease with which they and Mr. Papa have in past used Balboa to achieve their ends.
Accordingly the application was dismissed with costs fixed at $2,500.
[1] 2013 FC 1100.