Generally speaking, the CRA cannot collect an income tax debt from a taxpayer while the taxpayer disputes the assessment from which the debt is derived before the Tax Court renders a judgment on the assessment. The CRA, however, can apply to a court for a jeopardy collection order “ex parte” (without the taxpayer having the right to appear to contest the application) that will allow the CRA to proceed to take collection action. The taxpayer can then apply to have the ex parte order set aside. In Alexander (Re), 2008 FC 902, the taxpayer succeeded in having the order overturned by the Federal Court.The CRA in effect attempted to argue that the collection order should be upheld because the taxpayer was a shady character. According to the CRA, the taxpayer had a net worth that couldn’t be explained by his declared income. He had been charged with telemarketing fraud in the U.S. He had sold property immediately before the assessments were issued against him.
The Court, in setting the order aside, found that these facts by themselves did not suggest that the taxpayer was trying to avoid paying his tax debts. The proceeds of the property sold were used to pay the taxpayer’s already-existing debts. There was some evidence that the taxpayer had inherited money. And the taxpayer was innocent until proven guilty of the fraud charges. On the other hand, the Court found that there was no evidence that the taxpayer was trying to leave the country without paying his tax debts. As a result, the Court quashed the jeopardy collection order.
