Case Commentary: Court-Ordered "Jeopardy Orders" Allow CRA to Immediately Seize Taxpayer Assets When it Suspects Fraud, Tax Evasion – Canada v Ne'eman Foundation Canada, 2024 FC 1932

Jeopardy Order: What You Need to Know

A jeopardy order is a court order under section 225.2 of the Income Tax Act (Tax Act) allowing the Canada Revenue Agency (CRA) immediate collection actions against a taxpayer’s assets, even if the tax assessment is still under dispute or a Notice of Assessment has not yet been formally issued. This serves as an exception to the general rule that the CRA cannot enforce collection while a Notice of Objection or Tax Court appeal is ongoing.

The CRA will seek a jeopardy order if it has reasonable grounds to believe that delaying collection would put tax recovery at risk—for example, if a taxpayer is likely to sell assets, move funds offshore, or otherwise make the debt uncollectible.

These applications are brought ex parte, meaning the taxpayer is not notified in advance. A judge of the Federal Court or a provincial superior court reviews the CRA’s evidence to decide whether the risk justifies granting the order.

A jeopardy order empowers the CRA to take immediate collection measures, which may include but are not limited to initiating legal proceedings, garnishing wages or bank accounts, seizing property, and even confiscating illegal income held by law enforcement if it has been attributed to the taxpayer.

When deciding whether to grant a jeopardy order, the court may review several factors, such as:

• Taxpayer’s net assets compared to the outstanding debt (e.g., insufficient assets to cover the liability);
• Recent transfers or sales of property;
• A history of non-compliance or financial misconduct (such as unfiled returns, insolvency, or fraud);
• Poses a flight risk or carries a high debt-to-income ratio

Suspicion or doubt alone is not enough. The CRA must present compelling evidence that collection is at risk. Taxpayers, however, have the right to challenge a jeopardy order by applying to the Federal Court for a review, provided the application is filed within 30 days of receiving notice of the order’s authorization.

Case Brief: Canada (National Revenue) v. Ne’eman Foundation Canada (2024 FC 1932)

Case Facts

The CRA applied for an ex parte jeopardy order to begin collection actions against the Ne’eman Foundation Canada, a registered Canadian charity. The Foundation’s operations primarily involved raising funds and transferring them to a network of agents abroad to carry out various activities. The CRA noted that none of the funds appeared to be distributed to organizations or individuals within Canada.

An audit initiated in 2019 revealed several areas of non-compliance with the Tax Act. By 2022, the tax audit report concluded that the Foundation had failed to meet the statutory requirements for charitable registration and recommended its revocation. On August 10, 2024, the Minister formally revoked the Foundation’s charitable status and reassessed its tax liability at approximately $2.5 million.

In seeking the jeopardy order, the CRA relied on several key findings:

• Outbound electronic funds transfers exceeding $10,000, many directed to Ne’eman Foundation POB, Israel;
• Declining balances across the Foundation’s Canadian bank accounts;
• Continued use of a corporate credit card by the Foundation’s CEO after revocation of charitable status;
• No evidence that the Foundation held any real estate or other tangible property in Canada;
• Asset transfers by the Foundation during the audit and revocation process to a fund associated with its CEO.

The Legal Context

In Re Cormier-Imbeault, the Tax Court identified several factors that may justify the issuance of a jeopardy order under subsection 225.2(2) of the Income Tax Act. The presence of one or more of the following may be sufficient:

1. Reasonable grounds to believe the taxpayer has engaged in fraudulent conduct;

2. Liquidation or transfer of assets by the taxpayer;

3. Evidence that the taxpayer is evading tax obligations;

4. Assets at risk of depreciation, deterioration, or perishing over time;

5. The size of the tax debt relative to the taxpayer’s income and expenses.

The Court in Danielson v. Canada emphasized that:

“If 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.”

Ultimately, as noted in Canada (Minister of National Revenue) v. Reddy, 2008 FC 208 at para. 29, the critical issue is whether the Minister has shown reasonable grounds to believe that the taxpayer would waste, liquidate, or transfer assets in a manner that prevents collection. The inquiry focuses on whether a delay in the collection of taxes owed would create a genuine risk to recovery.

Applying the Law to the Facts

The court observed that “the Respondent’s primary activities involved transferring funds outside Canada, including transactions made after its charitable status was revoked. These transfers significantly depleted its most liquid assets.”

It was further noted that the Respondent’s CEO retained control over its major assets, many of which were diminished following the loss of charitable status. Evidence showed a sharp decline in the Respondent’s bank balances, with continued outbound transfers after the revocation. The Respondent’s primary asset—securities—was also highly liquid and easily disposable.

Additionally, the Respondent failed to maintain proper records as required by the Tax Act and moved assets into another fund connected to its CEO during the tax audit process. Taken together, these factors led the judge to conclude that issuing the CRA’s jeopardy order was justified.

Tax Pro Tip: Proper Financial Record-Keeping Can Help Protect You from a Jeopardy Order

To reduce the likelihood of a jeopardy order, it is essential to maintain complete and transparent financial records, particularly for major transactions. All assets—such as bank accounts, securities, or cryptocurrency holdings—should be carefully tracked and documented.

This includes keeping detailed records of every transaction, noting dates, amounts, and counterparties, and organizing them for easy access. During an audit, avoid actions that could appear as asset dissipation, such as large transfers or rapid liquidation of holdings. If you believe you may be at risk of a jeopardy order—for example, due to a significant tax debt uncovered in an audit—consult with experienced Canadian tax lawyers. They can advise you on available strategies, if necessary, to pursue a judicial challenge of the jeopardy order.

Frequently Asked Questions (FAQs)

What process does the CRA follow to obtain a jeopardy order?

To obtain a jeopardy order, the CRA makes an application to the Federal Court or a provincial superior court on an ex parte basis, meaning the taxpayer is not notified in advance. In its application, the CRA must present evidence demonstrating a risk to tax collection—for example, the transfer of assets, signs of dissipation, or patterns of non-compliance. The court then decides whether there are reasonable grounds to believe that the taxpayer may waste, liquidate, or move assets beyond the CRA’s reach, justifying the issuance of the order.

Are jeopardy orders often issued by the CRA?

Jeopardy orders are uncommon and represent one of the CRA’s most aggressive collection tools. They are generally reserved for situations involving suspected tax evasion, fraud, or substantial risk of asset dissipation. Such orders are more likely to be pursued in high-value cases—particularly where large tax debts are at stake or where taxpayers have moved assets offshore during an audit.

Is it possible for a taxpayer to contest a jeopardy order?

Yes. A taxpayer may challenge a jeopardy order by filing an application for review with the Federal Court within 30 days of receiving notice of the order’s authorization. In evaluating the challenge, the court applies a two-step test:

• Has the taxpayer presented reasonable grounds to cast doubt on the CRA’s claim that delaying collection would place recovery at risk?
• Has the CRA, in turn, provided reasonable grounds to support its position that collection would indeed be jeopardized by the delay?

While the review is pending, the jeopardy order remains in force, and the CRA may continue with collection measures. Securing the assistance of a knowledgeable Canadian tax lawyer can greatly improve the likelihood of successfully contesting such an order.

DISCLAIMER: This article is intended for general informational purposes only and reflects the law as of the date of posting. It has not been updated and may no longer be current. The content does not constitute legal advice and should not be relied upon as such. Each tax situation is unique and may differ from the examples discussed. For advice tailored to your circumstances, you should consult a Canadian tax lawyer.

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