http://decisions.fct-cf.gc.ca/fc-cf/decisions/en/item/119861/index.do
Canada (National Revenue) v. Grenon (September 9, 2015 – 2015 FC 1050, Diner J.).
Précis: In 2013 CRA obtained a jeopardy order against the CIBC RRSP Trust of Mr. Grenon. After being given leave to be added as an intervenor Mr. Grenon moved to set aside the order. (A jeopardy order made against him personally was set aside on consent.) Mr. Grenon moved to New Zealand in October of 2012. He withdrew a large amount ($55 million) from his RRSP in February of 2013 and transferred it to New Zealand. He also withdrew another $15 million and placed it in a high interest account (presumably in Canada). Subsequently CRA issued two sequential proposal letters against the Trust and Mr. Grenon, issued assessments (against the Trust for $283 million and against Mr. Grenon personally for $205 million) and in March of 2012 applied for a jeopardy order against both.
The Federal Court set aside the jeopardy order against the Trust, holding that the evidence did not establish that there was a real danger that the Trust would be hollowed out and the assessment against it left unpaid. The presence of CIBC as trustee of the Trust offered ample security to CRA. Costs were awarded to both the Trust and Mr. Grenon.
Decision: This decision boiled down to the simple fact that the evidence did not demonstrate that collection of the assessment against the Trust was in jeopardy:
[24] As argued at the hearing, what the MNR observed when the application for the ex parte jeopardy order was filed were substantial assets were being withdrawn in a relatively short time frame from the Trust, some of it moving to overseas accounts.
[25] Accompanying these transfers was evidence that Mr. Grenon’s driver’s license had been cancelled because he no longer lived in Canada and his Canadian home had been sold. When jeopardy orders have been upheld, the factual circumstances frequently contain an element of criminality or otherwise questionable or nefarious behaviour. For example, this Court has shown concern when the facts point to allegations of fraud (Canada (Minister of National Revenue) v Thériault-Sabourin, 2003 FCT 124 at para 15), connection to organized criminal activity (Canada v Laframboise, [1986] 3 FC 521 at para 9) and history of non-compliance with tax authorities (Canada (Customs and Revenue Agency) v 144 945 Canada Inc, 2003 FCT 730 at para 18).
[26] While the transfers from the Trust and the relocation of Mr. Grenon may have provided an initial impression that the Trust had the potential to be hollowed out before an opportunity for collection arose, upon hearing submissions from all the parties and reviewing their evidence, I do not believe that the MNR has shown reasonable grounds to believe that the assets of the taxpayer are currently in danger of debt collection.
[27] Informing my view is not only that the Trustee would be jointly liable if the assets of the taxpayer were distributed such that the assets left would be less than the tax debt (section 159(1)(a)), but also that pursuant to section 159(2), the Trustee would need to obtain a “clearance certificate” prior to distributing assets for a tax debt which it may be reasonably expected to become liable:
159(2). Every legal representative (other than a trustee in bankruptcy) of a taxpayer shall, before distributing to one or more persons any property in the possession or control of the legal representative acting in that capacity, obtain a certificate from the Minister, by applying for one in prescribed form, certifying that all amounts
(a) for which the taxpayer is or can reasonably be expected to become liable under this Act at or before the time the distribution is made, and
(b) for the payment of which the legal representative is or can reasonably be expected to become liable in that capacity
[28] If the Trustee does not obtain a clearance certificate, section 159(3)(a) dictates that it would become personally liable for the amounts owing to the extent of the value of the distributed property:
159(3). If a legal representative (other than a trustee in bankruptcy) of a taxpayer distributes to one or more persons property in the possession or control of the legal representative, acting in that capacity, without obtaining a certificate under subsection (2) in respect of the amounts referred to in that subsection,
(a) the legal representative is personally liable for the payment of those amounts to the extent of the value of the property distributed;
[29] As a result, both the Trust and its Trustee have particularly strong compliance and monetary incentives going forward to refrain from distributing the assets of the taxpayer in a manner which would hinder debt collection by the MNR. Indeed, the $55 million and $15 million transactions of concern noted above were both requests received by the Trust prior to the issuance of CRA’s reassessments (IMR, Vol II, Tab 6, pp. 11, 16).
As a result the Federal Court set aside the jeopardy order and awarded costs to both the Trust and Mr. Grenon.