Grenon v. R. - FCt: Taxpayer not entitled to interest on funds seized under jeopardy assessment

Grenon v. R. - FCt:  Taxpayer not entitled to interest on funds seized under jeopardy assessment

Grenon v. Canada (National Revenue)  (May 31, 2016 – 2016 FC 604, O’Reilly J.).

Précis:   CRA collected $12.75 million from Mr Grenon in March 2014.  In August 2014 the jeopardy order was set aside on the consent of the parties.  In March 2015 the $12.75 million was returned to Mr Grenon.  Mr. Grenon asked CRA for interest on the funds from the date of seizure and CRA refused.  Mr. Grenon brought an application before the Federal Court to judicially review that decision.  The Federal Court denied the application for judicial review holding that the Minister’s decision was reasonable.  Costs were awarded to CRA.

Decision:   Mr. Grenon relied, in part, on subsection 164(1.1) of the Income Tax Act dealing with repayments on objections and appeals.  The Court rejected his argument because the provision expressly excludes amounts collected under jeopardy orders:

[6]               When a taxpayer receives a tax assessment, he or she can object to it or appeal it. However, interest will be added to the assessment unless the taxpayer makes a voluntary payment while pursuing the remedies available. During that process, the taxpayer can ask for the voluntary payment to be returned (eg, while his or her appeal to the Tax Court of Canada is pending) according to s 164(1.1). That provision states that where a person has applied to the Minister for a return of a payment, “the Minister shall, where no authorization has been granted under subsection 225.2(2) in respect of the amount assessed, with all due dispatch repay all amounts paid on account of that amount . . . .”. Interest is payable to the taxpayer on the amount returned (according to s 164(3)).

[11]           It is clear that s 164(1.1) simply does not apply to funds collected under a jeopardy order. The fact that Mr Grenon has filed an objection and an appeal of his tax assessment does not necessarily bring him within the terms of that provision given its stipulation that it does not apply where a jeopardy order has been granted in respect of the amounts assessed. Therefore, the corresponding obligation to pay interest on amounts repaid under s 164(1.1) does not apply to Mr Grenon, either. Nor does the provision (s 164(4)) requiring unsuccessful appellants to pay interest on payments and interest under s 164(1.1) apply. Contrary to Mr Grenon’s submission, the provision is not redundant; it is simply irrelevant to his circumstances.

The Court found that the Minister’s refusal to pay interest was reasonable under the circumstances:

[16]           The Minister concedes that Mr Grenon was entitled to a return of the funds. The Minister was also willing to convert the funds into voluntary payments. Had the funds been returned to Mr Grenon and he then made a voluntary payment towards his taxes, he would have been entitled to interest on them while they were in the Minister’s possession. Alternatively, had Mr Grenon delivered an unequivocal direction to make voluntary payments, the Minister would have been in a position to accept those payments. But those are not the facts. After execution of the jeopardy order, the funds remained with the Minister until they were returned to Mr Grenon in March 2015. Mr Grenon never made a voluntary payment that would have triggered the statutory obligation to pay interest under s 164(3) of the Act. In my view, the funds seized under a jeopardy order could not be treated as if they had been paid by Mr Grenon voluntarily, even though Mr Grenon might have voluntarily left them in the Minister’s hands.

[17]           Therefore, I cannot conclude that the Minister’s decision was unreasonable.

As a result Mr. Grenon’s application for judicial review was dismissed with costs.