Published: May 5, 2025
What is a Jeopardy Order?
A jeopardy order is a court-issued order under section 225.2 of the Income Tax Act (Tax Act) that authorizes the Canada Revenue Agency (CRA) to take immediate collection actions against a taxpayer’s assets, even if the tax assessment is under dispute or a Notice of Assessment has not yet been issued. This is an exception to the general rule that the CRA cannot collect disputed tax amounts until the dispute (e.g., through a Notice of Objection or Tax Court appeal) is resolved.
The CRA seeks a jeopardy order when it believes there are reasonable grounds that delaying collection would jeopardize its ability to recover the tax debt. This might occur if CRA can prove that the taxpayer is likely to dispose of assets, transfer funds offshore, or otherwise make the debt uncollectible.
The CRA applies to the Federal Court or a provincial superior court for a jeopardy order on an ex parte basis, meaning without notifying the taxpayer. This allows the CRA to present its case to a judge without the taxpayer’s presence. The court evaluates evidence to determine if there’s a risk to collection.
A jeopardy order authorizes the CRA to take various collection actions, including but not limited to: the commencement of legal proceedings to recover the outstanding amount, the garnishee of the taxpayer’s bank accounts or wages, the seizure of the taxpayer’s property, even going so far as to seize any illegal income attributed to the taxpayer and in the possession of the police.
In issuing a jeopardy order, the court may consider factors such as:
- The taxpayer’s net assets relative to the debt (e.g., insufficient assets to cover the liability);
- Recent sales or transfers of property;
- Past behaviour indicating reluctance or inability to pay (e.g., unfiled returns, insolvency, or fraud);
- High tax debt-to-income ratio or flight risk.
Mere suspicion or doubt is insufficient. The CRA must provide convincing evidence of risk. Taxpayers can challenge a jeopardy order by applying to the Federal Court for a review within 30 days of receipt of notice of authorization of the order.
Canada (National Revenue) v. Ne’eman Foundation Canada, 2024 FC 1932
Facts of the Case
The CRA applied for an ex parte jeopardy order to commence collections actions against the Respondent, the Ne’eman Foundation Canada, a registered charity in Canada. The Respondent’s activity involves raising funds that are transferred to a network of agents for work in other countries for carrying out activities of various sorts. There was no indication that any of the Respondent’s funds were distributed to organizations or individuals in Canada.
The CRA initiated an audit in 2019 and found that the Respondent was not compliant with various aspects of the Tax Act. The tax audit report was completed in 2022, concluding that the Respondent failed to meet the requirements for registration as a charity under the Tax Act, and recommending the revocation of the Respondent’s charitable registration. On August 10, 2024, the Minister revoked the Respondent’s charitable registration and reassessed the Respondent as owing about $2.5 million in taxes.
To support its application for a jeopardy order, the CRA cited the following:
- Outbound electronic funds transfers in excess of $10,000, many of which were to Ne’eman Foundation POB, Israel;
- Decreasing balances in the Respondent’s bank accounts;
- A credit card still being used by the Respondent’s CEO after its charitable status was revoked;
- No record of real or other property owned by the Respondent in Canada;
- The Respondent’s conduct during the tax audit and revocation process, where the Respondent transferred assets to a fund involved with the CEO.
The Law
The tax court listed the following factors as discussed by the tax court in Re Cormier-Imbeault, where it was stated that the presence of one or more of the following factors can justify the issuance of a jeopardy order under subsection 225.2(2) of the Tax Act:
- a) there are reasonable grounds to believe that the taxpayer has acted fraudulently;
- b) the taxpayer has proceeded to liquidate or transfer his or her assets;
- c) the taxpayer is evading his or her tax liabilities;
- d) the taxpayer has assets that could potentially lessen in value over time, deteriorate or perish;
- e) the amount of the debt in relation to income and expenses.
The court quoted Danielson v. Canada, stating “[i]f there is cogent evidence on the part of the Minister as to dissipation of the taxpayer’s assets or the movement of assets out of the jurisdiction beyond the reach of the Minister and other potential creditors, this could be very persuasive and compelling evidence in an application for a jeopardy order.”
The court concluded that the ultimate question is whether the Minister has discharged the onus to establish “reasonable grounds to believe the taxpayer… would waste, liquidate or otherwise transfer [their] assets so as not to be available to the Minister” (Canada (Minister of National Revenue) v Reddy, 2008 FC 208 at para 29). The focus is on the evidence of jeopardy associated with any delay in collecting the taxes owed.
Application of the Law to the Facts
The court noted that “the Respondent’s primary activities have involved the transfer of funds outside of Canada, and transfers from its bank account, including transfers since its charitable status was revoked. These transfers have substantially depleted its most fungible asset”.
The CEO remained in control of all of the significant assets of the Respondent, with many of those assets depleted after the Respondent lost its charitable status. There was evidence of a significant reduction in the Respondent’s bank accounts, including outbound transfers that occurred following the revocation of its charitable status. The primary asset of the Respondent was securities, which could also be easily liquidated.
The Respondent also did not keep proper records as required under the Tax Act and transferred assets to a different fund involved with the Respondent’s CEO during the audit process. These facts together warranted granting the CRA’s jeopardy order in the eyes of the judge.
Pro Tax Tip: Maintain Complete Financial Records to Reduce the Risk of a Jeopardy Order
To avoid or mitigate the risk of a jeopardy order, maintain comprehensive and transparent financial records, especially for significant transactions. Ensure all assets, such as bank accounts, securities, or cryptocurrency holdings, are well-documented.
For example, keep detailed logs of all transactions, including dates, amounts, and counterparties, and store these records in an organized, accessible format. If audited, avoid actions that could be perceived as asset dissipation, such as large outbound transfers or liquidating assets. If you suspect a jeopardy order risk (e.g., due to a large tax debt from an audit), engage a top Canadian tax lawyer to discuss your options, including, in particular, a judicial challenge of the jeopardy order.
FAQ
How does the CRA obtain a jeopardy order?
The CRA applies to the Federal Court or a provincial superior court on an ex parte basis, meaning without notifying the taxpayer. The CRA presents evidence to a judge showing a risk to collection, such as asset transfers or non-compliance. The court evaluates whether there are reasonable grounds to believe the taxpayer would waste, liquidate, or transfer assets beyond the CRA’s reach.
Are jeopardy orders common?
Jeopardy orders are rare but aggressive, typically used in cases of suspected tax evasion, fraud, or significant asset dissipation. They are more likely in high-stakes cases with a large tax bill or when taxpayers transfer assets offshore during audits.
Can a taxpayer challenge a jeopardy order?
Yes, taxpayers can challenge a jeopardy order by applying to the Federal Court for a review within 30 days of receipt of notice of authorization of the order. When reassessing a jeopardy order, the court relies on a two-part test to determine whether the order can be successfully challenged by the taxpayer:
- First, has the taxpayer advanced reasonable grounds to lay doubt to the CRA’s assertion that collection would be jeopardized by a delay?
- Second, has the CRA advanced reasonable grounds that collection would be jeopardized by the delay?
The order remains in effect during the review, and the CRA can continue collection actions. The chances of successfully challenging a jeopardy order increase significantly with the help of an experienced Canadian tax lawyer.
DISCLAIMER: This article just provides broad information. It is only up to date as of the posting date. It has not been updated and may be out of date. It does not give legal advice and should not be relied on. Every tax scenario is unique to its circumstances and will differ from the instances described in the article. If you have specific legal questions, you should seek the advice of a Canadian tax lawyer.
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