Saran (Re), 2018 ONSC 6045

Court File and Parties

COURT FILE NO.: BK-33-1919315 DATE: 2018/10/11 ONTARIO SUPERIOR COURT OF JUSTICE IN BANKRUPTCY and INSOLVENCY

IN THE MATTER OF THE BANKRUPTCY OF BALDEEP KAUR SARAN OF THE CITY OF OTTAWA IN THE PROVINCE OF ONTARIO

BEFORE: Mr. Justice Stanley J. Kershman HEARD IN OTTAWA: May 29, June 19, and July 19, 2018

APPEARANCE: Paul Salewski, Doyle Salewski Inc., Trustee in Bankruptcy for the Estate of Baldeep Kaur Saran Stephanie Lauriault, for the Canada Revenue Agency D. Kenneth Gibson and Boyd Aitken, Counsel for the Bankrupt

Reasons for Decision

Introduction

1Dr. Baldeep Kaur Saran, the Bankrupt, (the “Bankrupt”) applies for a discharge from her bankruptcy. The discharge is opposed by two parties:

1. Doyle Salewski Inc., the Trustee in Bankruptcy (“Trustee”); and
2. the Attorney General of Canada acting on behalf of the Canada Revenue Agency (“CRA”).

2The reasons for the opposition are set out later on in the decision.

Factual Background

3The Bankrupt is 49 years of age, and has been practicing dentistry since 1995. Lakhwinder Saran is the Bankrupt’s spouse. Mr. Saran operates several corporations which manage dental clinics, including the Jeanne D’Arc Dental Clinic, Gateway Dental Clinic, and McArthur Dental Clinic.

4The Bankrupt is a mother of three children, one of whom is in university out of town, and two of whom are still in school and living at home.

5The Bankrupt filed her income tax returns over the years claiming large deductions for various items. She claimed to the CRA that she was a “natural person”. This doctrine is premised on the notion that “natural persons” are entities that perform labour to earn income, while “legal persons” are artificially created by the government. Only “legal persons” are required to file income tax returns, while “natural persons” are not.

6The CRA did not accept that the Bankrupt was a “natural person”, and she was reassessed for the years 2003-2011. The amount of tax unpaid during those years, inclusive of interest and penalties, was $2,897,287.06. The Bankrupt paid taxes in 2012 and 2013, however, failed to pay income tax for the years 2014 to 2015 for which she was assessed $213,049.78. To the end of 2015, the tax debt inclusive of penalties and interest totalled $3,112,180.55.

7Prior to her bankruptcy, the Bankrupt operated two dental offices: McArthur Dental Clinic and Kanata Dental Clinic.

8The Bankrupt presently works at Jeanne D’Arc Dental Clinic, Gateway Dental Clinic, and continues to manage the McArthur Dental Clinic.

9As a result of her tax debt, on October 8, 2014, the Bankrupt filed a Notice of Intention to Make a Proposal (“NOI”). The Bankrupt retained Doyle Salewski Inc. (“DSI”) as the Proposal Trustee.

10The Bankrupt filed her Proposal on December 22, 2014. In her sworn Statement of Affairs, she estimated the realized full net value of her assets to be $622,775, and listed her liabilities of $2,990,455.54. Other than the CRA, the Ministry of Finance and VW Credit were the only other creditors for amounts totaling less than $15,000.

11A meeting of the Proposal creditors was held on February 3, 2015, at which time the CRA raised a concern that the sale of McArthur Dental Clinic to Mr. Saran’s company, 2207762 Ontario Inc. (“220”), was not a sale for proper value. The meeting of creditors was adjourned.

12The CRA subsequently rejected the Proposal, and on March 25, 2015, the Bankrupt was deemed to have made an assignment in bankruptcy. DSI was appointed as the Trustee in Bankruptcy (“Trustee”).

13The CRA reassessed the Bankrupt for outstanding taxes for the years 2003-2015, as follows:

Assessment Date	TAXATION YEAR	TAX	PENALTIES & INTEREST	TOTAL
05/22/2014	2003	$105,529.30	$212,284.56	$317,813.86
05/22/2014	2004	$98,813.85	$189,802.70	$288,616.55
05/22/2014	2005	$71,962.64	$122,476.44	$194,439.08
05/22/2014	2006	$135,852.32	$206,769.28	$342,621.60
05/22/2014	2007	$149,553.51	$245,050.21	$394,603.72
05/22/2014	2008	$215,232.23	$218,750.83	$433,983.06
05/22/2014	2009	$219,997.62	$202,457.48	$422,455.10
05/22/2014	2010	$213,899.90	$47,319.97	$261,219.87
05/27/2015	2011	$198,548.29	$42,985.93	$241,534.22
07/25/2013	2012	$7.21		$7.21
10/23/2014	2013	$1,836.50		$1,836.50
10/08/2015	2014	$181,178.39	$11,410.66	$192,589.05
08/02/2016	2015	$20,460.73		$20,460.73
TOTAL		$1,611,028.78	$1,501,151.77	$3,112,180.55

McArthur Dental Clinic

14The Bankrupt originally acquired the McArthur Dental Clinic in 1996.

15On or about January 1, 2014, the Bankrupt entered into an Agreement of Purchase and Sale (“APS”) with 220 and Mr. Saran to sell the McArthur Dental Clinic. This transaction took place approximately nine months prior to the Bankrupt filing her NOI.

16An estimate of fair market value of the McArthur Dental Clinic was obtained from Steve Pittman, a certified business valuator at Raymond Chabot, to determine the estimated fair market value as of December 31, 2012. The Raymond Chabot Report concluded the McArthur Dental Clinic fair market value as between $170,000 and $200,000.

17The purchase price for the McArthur Dental Clinic was set at $185,000, with $50,000 to be paid by 220 upon execution of the APS; and the remaining $135,000 as set out in a promissory note delivered to the Bankrupt on closing with a term of five years, interest at 5% per annum, with a five year amortization, payable monthly, and personally guaranteed by Mr. Saran.

18The Bankrupt continued to work at the McArthur Dental Clinic following the sale, including managing the dental procedural aspects of the clinic. Her management role has continued until the present time.

19After its appointment as Trustee in Bankruptcy, DSI retained ROI Corporation (“ROI”), which claims to possess a particular expertise in valuating dental clinics, to provide a report as to the fair market value of McArthur Dental Clinic as of December 31, 2012. ROI prepared a report, dated January 23, 2017, which concluded the fair market value of the clinic as of December 31, 2012, to be approximately $470,000.

20The McArthur Dental Clinic was sold on January 1, 2014. DSI obtained a further report from ROI in order to establish the fair market value as of January 1, 2014. The further ROI report provided a conservative estimate of $500,000 for the clinic as of January 1, 2014.

21The Trustee brought a motion claiming that the fair market value of the McArthur Dental Clinic was much greater than it was sold for on the basis that under s. 96(2) of the Bankruptcy and Insolvency Act, R.S.C., 1985, c. B-3 (“BIA”), the Trustee’s opinion of the fair market value of the practice as of January 1, 2014, was $500,000.

22Prior to the motion being completely argued, the parties settled the issue with 220 paying an additional $150,000 to DSI at the rate of $2,650 per month inclusive of interest over a period of five years.

Kanata Dental Clinic

23The Bankrupt was the owner of the Kanata Dental Clinic which was a tenant at the Kanata Centrum Shopping Centre. By Notice dated June 24, 2014, the Bankrupt exercised her option to renew the lease and extended it to December 22, 2019.

24On September 5, 2014, approximately one month prior to filing of her NOI, the Bankrupt assigned the lease in the clinic to 2425157 Ontario Inc. (“242”) – a company controlled by Mr. Saran – for $10 effective August 1, 2014.

25On November 28, 2014, Collins Barrow Brown Inc. provided a valuation for the Kanata Dental Clinic as of September 30, 2014, as per the Bankrupt’s request. The value ranged from $717,900 to $793,500.

26In the context of her amended Proposal, the Bankrupt offered $500,000 for the Kanata Dental Clinic.

27After a meeting of inspectors, the Trustee retained ROI who provided a letter of opinion valuing the goodwill between $675,000 to $825,000 and tangible assets at $250,000, for a total of between $925,000 and $1,075,000 as of June 30, 2015. The opinion provided assumed that the patient data was available, and assumed that there was an assignable lease to a new owner for a period of 10 years or more.

28ROI further specified that should the lease and goodwill not be assignable, the value of the clinic would be $125,000.

29On July 28, 2015, the Trustee brought a motion attacking the validity of the lease extension agreement and assignment agreement dated September 5, 2014, between Kanata Entertainment Holdings Ltd. (“Landlord”), the Bankrupt, and 242 in order to have it declared void as against the Trustee.

30After various discussions and negotiations, and before the hearing of the motion, the Trustee received a Notice of Default as of February 4, 2016, from counsel for the Landlord. The Notice indicated that the Kanata Dental Clinic location was closing and the practice was being moved to another location.

31The Bankrupt relocated the Kanata Dental Clinic practice to Gateway Dentistry located approximately 5 kilometers from the Kanata Centrum Shopping Centre, the clinic’s original location.

32Gateway Dentistry is owned by 2429042 Ontario Inc. which is controlled and administered by Mr. Saran. This corporation is different from “242”.

33The Trustee was able to sell the remaining equipment and negotiate the lease to a third party for $325,000, which was paid to the Estate.

34The Trustee claims that the amount that it was able to realize in the administration of the Bankrupt’s Estate was reduced by $600,000 to $750,000 because of the actions of the Bankrupt and Mr. Saran in moving to the Gateway Clinic.

Oppositions to Discharge

35Two oppositions to discharge were filed.

Position of the Trustee

36The Trustee filed an opposition in this matter on the ground that the Bankrupt had high income tax debt pursuant to s. 172.1 of the BIA.

37The Trustee argues that the Bankrupt should receive a suspended discharge for a period of three years and that there should be a monetary condition that the discharge be conditional upon the Bankrupt at minimum paying surplus income of $5,500 a month for a period of 36 months for a total of $198,000 to the Trustee, in addition to the monies already paid or to be paid to the Trustee.

Opposition to Discharge by the CRA

38The Canada Revenue Agency opposes the discharge of Dr. Saran from her bankruptcy on the following grounds:

i. s. 172.1(i) - tax debt over $200,000 which represented 75% more of the Bankrupt’s total unsecured claims; ii. s. 173(1)(a) - assets are less the value of $0.50 on the dollar of the unsecured liabilities; iii. s. 173(1)(d) – Bankrupt failed to account satisfactorily for any losses of assets or for deficiency of assets over liabilities; iv. s. 173(1)(e) – Bankrupt has brought on or contributed to bankruptcy by unjustifiable extravagance in living; v. s. 173(1)(f) – Bankrupt has put creditors to unnecessary expense by a frivolous or vexatious defence to any action properly brought against the Bankrupt; and, vi. s. 173(1)(o) – Bankrupt has failed to perform the duties imposed under the BIA or comply with any court order;

39The CRA seeks the following order that:

(a) The Bankrupt’s discharge be suspended for 84 months; (b) The Bankrupt’s discharge be conditional upon the following; i. the Bankrupt pay $896,112.88 to the Trustee in Bankruptcy by monthly payments of $10,666.72 for a period of 84 months with the right to pre-pay the whole or part of it without notice or bonus; ii. the Bankrupt to supply monthly income expense statements to the Trustee until she obtains her discharge; iii. that the Bankrupt file complete and accurate income tax returns as and when required to do so pursuant to the Income Tax Act, R.S.C., 1985, c. 1(5th Supp.), the Excise Tax Act, R.S.C., 1985, c. E-15, the Canada Pension Plan, the Employment Insurance Act, S.C. 1996, c. 23, and remit all amounts due to the Receiver General as required by the Income Tax Act, the Excise Tax Act, the Canada Pension Plan and the Employment Insurance Act, including all taxes, installments, interest and penalties assessed by the Canada Revenue Agency as and when required and, furthermore, that she shall not be discharged unless the bankrupt is current with all of her obligations with the Canada Revenue Agency.

Position of the Bankrupt

40At the time of the discharge hearing, it had been 38 months since the date of the bankruptcy. The Bankrupt’s counsel recommends that the Bankrupt receive an absolute discharge. He argues that the Estate has or will have received the sum of $715,061.83 from the following sources:

Particulars	Amount
Surplus income	$114,410.94
Payments or payable under promissory note	$104,338.84
McArthur Dental Clinic – Transfer under value	$159,000
Kanata Dental Clinic	$325,000
Proceeds from Motor Vehicle	$1,850
Post-bankruptcy income tax refund	$10,316.12
Total:	$715,061.83

41The Bankrupt argues that the $715,061.83 already paid or to be paid to the Trustee is more than the 15% of the $1,600,000 that she owed in income tax to the CRA. She further argues that if the amount to be paid was 30% of $1,600,000 that there is sufficient funds in the Estate to cover this amount.

42The Bankrupt also argues that her practice hours have been reduced, her health is deteriorating, and due to family responsibilities she should be given an absolute discharge.

43The Bankrupt argues that she was duped into a Paradigm Education Group tax scheme by others, including her mentor Dr. T. Kovaluk, and the promoters of the scheme, which included Dr. Kovaluk’s husband.

44Therefore, under the circumstances, the Bankrupt argues that she has already provided a contribution to the Estate that would otherwise have been ordered as a condition of her discharge and, as such, no further conditions should apply.

45As to the question of the suspension, the Bankrupt is prepared to accept a short suspension of her discharge as an appropriate remedy.

Issues

1. Is this a Tax Driven bankruptcy pursuant to s. 172.1 of the BIA?
2. Should there be findings under s. 173(1)(a), s. 173(1)(d), s. 173(1)(e), s. 173(1)(f), and s. 173(1)(o) of the BIA?
3. What type of discharge should the Bankrupt receive?

Issue #1: Is this a Tax Driven Bankruptcy pursuant to s. 172.1 of the BIA?

The Four Factors in a Tax Driven Bankruptcy

46Section 172.1(4) of the BIA sets out the four factors that are to be considered by the Court in a tax driven bankruptcy:

(a) the circumstances of the Bankrupt at the time the personal income tax debt was incurred; (b) the efforts, if any, made by the Bankrupt to pay the personal income tax debt; (c) whether the Bankrupt made payments in respect of other debts while failing to make reasonable efforts to pay the personal income tax debt; and (d) the Bankrupt’s financial prospects for the future.

(a) The circumstances of the Bankrupt at the time the personal income tax debt was incurred

CRA’s Position

47The CRA claims that the Bankrupt is a successful, university educated business woman who had been in dental practice since 1995, and who owned two dental clinics.

48At the time her personal income tax debt was incurred, the CRA alleges that the Bankrupt had been involved in a detaxing scheme from 2003 to 2011, as well as a charitable giving scheme from 2003 to 2004.

49The Bankrupt had attended five to seven Paradigm Education Group sessions to seek advice with respect to the reduction of her income tax, and was aware that the promoters were not professional advisors.

50The CRA relies on the case of Meads v. Meads, 2012 ABQB 571, 74 Alta. L.R. (5th) 1, which deals with the concept of Organized Pseudo-legal Commercial Arguments (“OPCA”) and the various schemes that they are involved with, including “detaxing”.

Bankrupt’s Position

51The Bankrupt argues that she did not object to paying taxes. She attended multiple seminars given by the Paradigm Education Group and found them to be slick and persuasive. She followed the lead of her mentor, Dr. Kovaluk, and maintains that she did nothing wrong in taking the position that she did. The Bankrupt alleges that, like many other professionals, she was ensnared by the Paradigm Education Group.

52The Bankrupt also argues that the CRA imposed interest and penalties that doubled the amount of money that was owing to it.

53The Bankrupt states that the amount either paid or to be collected by the Trustee exceeds what courts have ordered other bankrupts to pay. She bases this argument on the Re Baran, 2013 ONSC 7501, 7 C.B.R. (6th) 1 decision where the court concluded at paragraph 23 that requiring a payment of 1% of tax debt principal as a condition of discharge was sufficient to satisfy the policy objectives of the BIA.

54The Bankrupt also claims that she was not treated fairly in accordance with the CRA’s Taxpayer Bill of Rights, and that the CRA did not warn her of the Paradigm scheme. In addition, the Bankrupt also claims that the CRA has been complicit in its handling of the matter. She argues that this type of situation could have been avoided if the CRA employed a “meaningful early warning system”, as mentioned in Wynter v. Canada, 2016 TCC 103, [2016] A.C.I. no 78 at para 43.

55The Bankrupt objected to the reassessments of income tax as originally issued. In May of 2014, her income tax debt was reduced by approximately $1,000,000.

56The Bankrupt did not appeal to the Tax Court of Canada.

Analysis

57The Bankrupt is 49 years of age. Between 2003 and 2015 she was a practicing dentist who ran two dental clinics at the same time. The Bankrupt earned a good income during that period. Based on the calculations, her income from 2003 to 2015 was $5,318,452.00, or an average of $354,563.00 per year.

58Based on the CRA calculations, the taxes owing for those years totalled $1,611,028.78 exclusive of interest and penalties.

59The Bankrupt did not remit over $1.6 million dollars in tax debt and at the same time retained this amount in addition to her income during 2003 to 2015 timeframe. That would have been a time when other taxpayers were paying their taxes as and when they were due. The Bankrupt walked away with the 1.6 million in tax money and used it however she saw fit, thereby depriving the Government of Canada of that money.

60The Court finds that during the years that the tax debt was being incurred and not paid, the Bankrupt was earning a very good income. The Court finds that the unpaid taxes from 2003 to 2011, in addition to those from 2014 to 2015 totalled $1,611,028.78 exclusive of interest and penalties, and $3,112,180.55 including interest and penalties.

(b) The efforts, if any, made by the Bankrupt to pay the personal income tax debt

CRA’s Position

61After reassessment was issued in 2014, the Bankrupt did not make any voluntary payments towards her tax debt. Instead, she (1) sold the McArthur Dental Clinic and received a promissory note; and (2) assigned the Kanata Dental Clinic lease to her husband’s company and then filed her Proposal.

62In her Proposal, the Bankrupt only wanted to pay the approximate $500,000 value of the Kanata Dental Clinic into her Proposal, as well as the McArthur Dental Clinic promissory note of approximately $135,000. The Bankrupt refused to make any payments to her creditors. At this time, the Bankrupt’s monthly net after-tax income was approximately $11,375 per month.

63CRA argues that the Trustee had to bring the two motions: one in relation to the Kanata Dental Clinic, and a second in relation to the McArthur Dental Clinic in order to recover any proceeds.

Bankrupt’s Position

64The Bankrupt argues that she objected to the assessment of her income tax from 2003 to 2011, which ended up reducing the tax debt by $1,000,000. She chose not to appeal to the Tax Court, but rather sought protection from the BIA.

65According to the Bankrupt, she will have paid approximately $715,000 when all of the money is collected in her bankruptcy.

66The Bankrupt compares the impugned transaction concerning the McArthur Dental Clinic to a witch hunt. She maintains that she did everything right. She obtained a valuation report prepared by Mr. Pittman and closed the transaction based on that a valuation. The Bankrupt states that the Trustee did not agree with the valuation and brought a motion which was subsequently settled prior to court determination.

67In relation to the Kanata Dental Clinic, the Bankrupt contends had she renewed the lease and the Proposal was accepted, her Landlord would have had a legal basis to terminate the lease leaving her unable to fund the Proposal. In order to deal with this situation, the Bankrupt renewed the lease and then assigned it to Mr. Saran’s company.

68Further litigation was commenced by the Trustee in relation to the Kanata Dental Clinic. The lease was offered to the Trustee for $1 which was refused. The Trustee was left to deal with the Landlord.

69The Bankrupt argues that from the date of bankruptcy on March 25, 2015, she filed her income tax returns and paid the outstanding amounts. There was an overpayment in 2015 which resulted in the excess being transferred to the Trustee. It was agreed that any excess of overpayment occurring in 2016 would be applied to Mr. Saran’s income tax liability.

Analysis

70The evidence is that between 2003 and 2011 the Bankrupt made little effort to pay the debt she owed. She did pay her tax debt during the years 2012 and 2013.

71Prior to her deemed bankruptcy, for the years 2014 and that part of 2015, the Bankrupt relapsed, reverted to her previous behavior, and did not pay her taxes.

72It was not until the CRA reassessed her taxes that she filed a Proposal under the BIA offering to pay a portion of the debt.

73The Court finds that the Bankrupt has made very little effort to voluntarily pay any of her personal income tax debt during the time period in question.

(c) Whether the Bankrupt made payments in respect of other debts while failing to make reasonable efforts to pay the personal income tax debt

CRA’s Position

74It is the CRA’s position that its debt accounts for 99% of the total unsecured debt and that the Bankrupt paid all of her other creditors from 2003 onwards, but made little or no effort to pay the CRA debt.

Bankrupt’s Position

75The Bankrupt’s position is that there is no evidence that she made payments on other debts while failing to make payments towards her income tax debt.

Analysis

76On the Bankrupt’s sworn Statement of Affairs she lists four creditors, of which CRA is listed three times:

1. for the years 2003-2013;
2. 2001; and

77There are only two other creditors listed: (1) VW Credit Canada Inc., which relates to a leased vehicle; and (2) the Ministry of Finance for a combined debt of approximately $15,000.

78From 2003 to 2015, with $4,961,832 being earned by the Bankrupt, there were only a maximum of three creditors. This means that from 2003 to 2015, over a period of 12 years, she paid each and every other creditor and supplier every penny of what was owing.

79The Court finds that between 2003 and 2015, the Bankrupt paid all of her creditors and suppliers with the exception of the CRA, Ministry of Finance, and VW Credit. The Court notes that VW Credit was in relation to a motor vehicle lease and that lease was retained. Therefore, there were actually only two creditors.

80The Court finds that the Bankrupt did not make reasonable efforts to pay the CRA. The position she took as a “natural person”, who was not liable to follow the Income Tax Act, is illogical and wrong.

81Therefore, in relation to this factor, the Court finds that at the time of bankruptcy, the Bankrupt was paying all of her other debts and expenses, while failing to make reasonable efforts to pay her tax debt.

(d) The Bankrupt’s financial prospects for the future

CRA’s Position

82The CRA asserts that the Bankrupt is 49 years of age and continues to practice dentistry – she therefore has an excellent earning capacity. Despite this, however, there is a significant and unexplained decline in the Bankrupt’s income, despite her testimony that she works more hours now than she did before the bankruptcy. The CRA points to an artificial decline in the Bankrupt’s income with a corresponding increase in Mr. Saran’s income with no logical reason to explain its occurrence.

83The CRA states that between 2003 and 2017, the Bankrupt was earning an average annual income of approximately $359,000, and that Mr. Saran also earned significant income.

84The CRA further states that the family spends over $20,000 per month totaling $240,000 per year. The CRA acknowledges that the Bankrupt’s portion of family income is 53%, but argues that the family has large surpluses in their monthly budget.

Bankrupt’s Position

85The Bankrupt agrees that she continues to practice dentistry on a regular basis; however, she no longer owns either of the clinics. The Bankrupt finds the process very stressful and has health issues that have compromised her ability to work.

86The Bankrupt asserts that her income has been significantly reduced in the past years and yet, in her counsel’s words, she “soldiers on at the expense of her health”.

87It is the Bankrupt’s position that her after-tax income in 2016 was $108,652, and in 2017 was $112,974. She argues that this income will decline further in the future.

Analysis

88The Bankrupt is 49 years of age and has over 20 years of experience as a dentist. She has a very good reputation and earns a very good income post-bankruptcy, whether it be for herself and/or for the dental clinics which are owned by her husband, Mr. Saran.

89The Court finds that her prospects are very good such that she can repay monies ordered by the Court for the general benefit of creditors.

90The Court does not accept the Bankrupt’s evidence about how her medical situation may impact her future earning capacity because her counsel attempted to enter evidence during the argument portion of the discharge hearing, and not during the evidence portion of the hearing.

Conclusion re: s. 172.1

91Having reviewed four factors under s. 172.1 the Court finds that this is a tax driven bankruptcy pursuant to the BIA.

92Even if the Court’s reasoning under s. 172.1 of the BIA is flawed, the Bankrupt’s counsel acknowledged that this was a tax-driven bankruptcy within the meaning of s. 172.1 of the BIA.

Issue #2: Should there be findings under s. 173(1)(a), 173(1)(d), 173(1)(e), 173(1)(f), and 173(1)(o) of the BIA?

s. 173(1)(a) - Assets are less the value of $0.50 on the dollar of the unsecured liabilities

CRA’s Position

93It is the CRA’s position that the 3.1 million dollars owing to it, inclusive of penalties and interest, is evidence of the Bankrupt’s good income since 1995. The CRA argues that it would not be possible to end up with this size of a tax debt absent a good income. Therefore, the CRA contends, the onus on the Bankrupt under s. 173(1)(a) of the BIA has not been satisfied.

Bankrupt’s Position

94The Bankrupt argues that CRA forced her into bankruptcy and claims that her assets do not exceed 50% of what they call an “inflated tax debt”.

95The Bankrupt maintains that the value of the McArthur Dental Clinic and the Kanata Dental Clinic were in excess of 1.4 million dollars, while the principal of the tax debt was $1,611,000.

96Relying on Munro v. Cedar II Mortgage Corp., 2016 ABQB 274 at para 8, the Bankrupt argues that the appropriate time for valuation may be at the time of the application for discharge, and in doubtful or borderline cases the Court should use the comparative value most favourable to the Bankrupt.

97Further, the Bankrupt argues that she took no steps which adversely effected the value of the McArthur Dental Clinic.

98Finally, the Bankrupt contends that it is open to the Court to conclude that her assets are deemed to be valued at $0.50 on the dollar on the amount of her unsecured liabilities on the basis of the property, in accordance with s. 174 of the BIA, “with due care and realization, might have realized an amount equal to $0.50 on the dollar on her unsecured liabilities”.

Analysis

99In the Trustee’s Report dated May 17, 2018, the Question and Answer 6(b) reads as follows:

“(b) Can the Bankrupt be justly held responsible for any of the facts referred pursuant to section 173 of the Act? – YES

i) Section 173(1)(a) – the assets of the Bankrupt are not of a value equal to fifty cents on the dollar on the amount of the Bankrupt’s unsecured liabilities; ii) Section 173(1)(e) – the Bankrupt has brought on, or contributed to, the bankruptcy by rash and hazardous speculation.”

100It is clear to the Trustee that the Bankrupt can be justly held responsible for s. 173(1)(a).

101It is equally clear to the Court that the Bankrupt’s assets are not to a value of 50% of her unsecured liabilities, and that this was caused by her failure to pay her taxes as and when they were due in accordance with the Income Tax Act.

102To now argue that it is open to the Court to conclude that the Bankrupt’s assets are deemed to be of a value of $0.50 on the dollar would be inappropriate in these circumstances.

103The Court finds that the tactics used by the Bankrupt to deal with the Kanata Dental Clinic were inappropriate. She did not just close down the clinic. Rather, she relocated the clinic to a nearby location, set up under a different clinic name owned by Mr. Saran and retained the patient list and goodwill – which had value. The Court has found in previous cases that goodwill is an asset of a bankrupt (Friefield c. Industries Raymond Payer Ltee. et al., [1979] C.A. 486 at para. 13).

104The Court finds that the Bankrupt took positive steps to avoid paying income tax. In this case, the Bankrupt cannot lay fault on another party as to why the assets are less than $0.50 on the dollar. That responsibility rests on her shoulders, and she is the author of her own misfortune.

105Accordingly, the Court makes a finding under s. 173(1)(a) of the BIA.

s. 173(1)(d) – Bankrupt failed to account satisfactorily for any losses of assets or for deficiency of assets over liabilities

CRA’s Position

106The CRA argues that the Bankrupt failed to satisfactorily account for any loss of assets or deficiency of assets to meet the Bankrupt’s liabilities. As per the s. 163 BIA examination conducted by the Office of the Superintendent, the Bankrupt claimed the money went to pregnancies, business, and private schools.

Bankrupt’s Position

107The Bankrupt maintains that there is no evidence of a loss or a deficiency of assets to which the Bankrupt must account for.

108In support of their position, the Bankrupt argues that the decrease in value of the Kanata Dental Clinic was driven by the Trustee’s misguided motion to set aside the assignment of lease, which would have led to the closing of the clinic. Furthermore, the Trustee refused the Bankrupt’s proposal to preserve the value by offering to purchase the assets.

109The Bankrupt asserts that there is no evidence that any other assets were depleted.

110Furthermore, the Bankrupt points out that the Trustee, the CRA, and the Bankrupt agreed that the fair market value of the McArthur Dental Clinic was $335,000 at the date of the transfer.

Analysis

111The Court finds that while there may be some evidence, there is insufficient evidence to make a finding under s. 173(1)(d) of the BIA on a balance of probabilities.

s. 173(1)(e) - Bankrupt has brought on, or contributed to bankruptcy by unjustifiable extravagance in living

CRA’s Position

112The CRA claims that the Bankrupt and her family have lived in several luxury homes. The first home on 104 Beachvale Lane, Ottawa, Ontario, was 5,900 square feet and had five bedrooms, five full bathrooms, one half bathroom, four fireplaces, and many other luxurious amenities.

113The second home at 24 Whernside Terrace, Ottawa, Ontario, was smaller at 3,000 square feet, with a basement of an additional 1,000 square feet. Like the first home, this home also had many luxurious elements.

114In addition, the CRA claims that based on her family budget, the Bankrupt and her family are spending very large sums of money on things like food, liquor and beer, and entertainment. Between April 2015 and September 2016, the total household expenses were on average over $20,000 per month. The CRA argues that it is unjustifiable to spend over $20,000 per month while not having paid taxes, interest and penalties of over $3.1 million.

Bankrupt’s Position

115The Bankrupt argues that there is no evidence that her bankruptcy was brought on by gambling or culpable neglect of her business affairs or unjustifiable extravagance in living as outlined in s. 173(1)(e) of the BIA. Instead, the alleged rash and hazard speculations relate solely to her participation in the Paradigm Education Group program.

116It is the Bankrupt’s position that in order to meet the definition in s. 173(1)(e) of the BIA, conduct must not only be speculative, but also rash and hazardous. The Bankrupt argues that this test does not apply in this case.

117To support their position, the Bankrupt relies on the case of Alexander (Re), 2007 BCSC 564, 34 C.B.R. (5th) 139 at para 15, where the court found that an investment in a tax driven shelter based on advice received was not rash and hazardous speculation within the meaning of s. 173(1)(e) of the BIA.

118In this case, the Bankrupt argues that she enrolled in the Paradigm Education Group based on a recommendation from her mentor, Dr. Kovaluk. An important distinction between the advice received by the Bankrupt in this situation, and that which the court in Alexander (Re) refers, is that unlike the Bankrupt in this situation, Mr. Alexander relied on legal advice when making an investment decision. As the Bankrupt has stated, she enrolled in the Paradigm Education Group at the recommendation of her mentor. She testified that no tax advice or legal advice was given by Paradigm.

Analysis

119The Trustee’s Report of May 17, 2018, states that the Bankrupt has brought on, or contributed to her bankruptcy by hazardous speculation.

120The issue in s. 173(1)(e) is not related to gambling, culpable neglect of business affairs, or rash and hazardous speculation. Rather, it relates to unjustifiable extravagance in living.

121In 2010, the parties were living at the Beachvale Lane house, which as described by the CRA, was luxurious to say the least. Then the Beachvale Lane house was sold and the Saran’s moved into the Whernside Terrace property which was a four bedroom house with three full baths, one half bath, a three car garage, a full finished basement. As previously described, the home was 3,000 square feet plus 1,000 square feet in the basement.

122The Court is fully aware that the houses may not have been owned by the Bankrupt. The reality is that they were either owned by a member of her family, or Mr. Saran’s family at a time when both sets of parents were not working, were elderly and who, at least in the Mr. Saran’s situation, his parents had little or no assets based on the evidence provided.

123The total family income was over $22,000 per month based on the budgets provided during bankruptcy, with expenses in excess of $20,000 per month. The Court finds that the family’s post-bankruptcy spending was at the same level of consumption as pre-bankruptcy. On this that basis, the Court finds that the Bankrupt and her family spent and lived extravagantly.

124The Court is fully aware that Mr. Saran also contributed to the family’s income, however, the Court finds that the funds for the extravagant lifestyle came to some extent from the Bankrupt’s personal income taxes, which were not paid.

125Therefore, there will be a finding under s. 173(1)(e).

s. 173(1)(f) - Bankrupt has put creditors to unnecessary expense by a frivolous or vexatious defence to any action properly brought against the Bankrupt

CRA’s Position

126The CRA takes the position that it was put to an unnecessary expense by a frivolous or vexatious defence to an action properly brought. The CRA states that when they were conducting an audit on the detaxing and natural persons schemes, the Bankrupt did not cooperate and forced them to issue requirements to produce information to banks in order to collect the information. Once the information was collected, the Bankrupt again refused to correspond unless it was with the Commissioner of the Canada Revenue Agency.

Bankrupt’s Position

127The Bankrupt argues that she has not put any of her creditors to unnecessary expense by a frivolous or vexatious defence to any action properly brought against her. It is the Bankrupt’s position that these defences must relate to defences raised prior to the bankruptcy, and that any motions brought post-bankruptcy should not be considered.

Analysis

128In this case, the action complained of by the CRA related to an audit of the scheme that the Bankrupt was involved with.

129The Court does not find that there was any frivolous or vexatious defence to the CRA assessments. Those assessments were successfully challenged by the Bankrupt, resulting in a reduction of the amount of tax owing by approximately $1,000,000. Therefore, the Court finds that the assessments were not frivolous.

130In addition, the defences were not vexatious because they were not intended to annoy or embarrass the creditor. See: Paskauskas (Re), (1995), 36 C.B.R. (3d) 288 (Ont. Gen. Div.). Although having assessments reduced by $1,000,000 may be taken by a Creditor to be annoying and/or embarrassing, in this case, the Court does not believe the defences were intended as such.

131The Court notes that the Bankrupt did not apply to Tax Court for relief.

132Therefore, the Court makes no finding under s. 173(1)(f).

s. 173(1)(o) - Bankrupt has failed to perform the duties imposed under the BIA or comply with any court order

CRA’s Position

133The CRA argues that s. 158(k) of the BIA imposed a duty on the Bankrupt to aid the Trustee in the realization of the property. It is the CRA’s position that the Bankrupt failed to assist the Trustee in realization of the Kanata Dental Clinic.

Bankrupt’s Position

134The Bankrupt maintains that there is no evidence of non-compliance with her duties. Mr. Salewski confirmed that the Bankrupt complied with every requirement and request made of her by the Trustee, as well as making the surplus income payments.

Analysis

135In relation to the Kanata Dental Clinic, the Court does not find sufficient evidence on the balance of probabilities of non-compliance with the duties imposed on the Bankrupt under the BIA. Therefore, there will be no finding under s. 173(1)(o).

136In conclusion, there will be findings under s. 172.1, s. 173(1)(a) and (e) of the BIA.

Issue #3: What type of discharge should the Bankrupt receive?

CRA’s Position

137The CRA seeks the following:

(a) The Bankrupt’s discharge be suspended for 84 months; (b) The Bankrupt’s discharge be conditional upon the following; i. the Bankrupt pay $896,112.88 to the Trustee in Bankruptcy by monthly payments of $10,666.72 for a period of 84 months with the right to pre-pay the whole or part of it without notice or bonus; ii. the Bankrupt’s discharge be suspended for a period of 84 months; iii. the Bankrupt to supply monthly income expense statements to the Trustee until she obtains her discharge; iv. that the Bankrupt file complete accurate income tax returns as and when required to do so pursuant to the Income Tax Act, the Excise Tax Act, the Canada Pension Plan, the Employment Insurance Act, and remit all amounts due to the Receiver General as required by the Income Tax Act, the Excise Tax Act, the Canada Pension Plan, and the Employment Insurance Act, including all taxes, installments, interest and penalties assessed by the Canada Revenue Agency as and when required and, furthermore, that she shall not be discharged unless the Bankrupt is current with all of her obligations with the Canada Revenue Agency.

Trustee’s Position

138The Trustee argues that the Bankrupt should receive a suspended discharge for a period of three years and that there should be a monetary condition that the discharge be conditional upon the Bankrupt at minimum paying surplus income of $5,500 a month for a period of 36 months for a total of $198,000 to the Trustee, in addition to the monies already paid, or to be paid to the Trustee.

Bankrupt’s Position

139As stated previously, the Bankrupt argues that there should be no conditions based on the amount of money currently existing in the Estate either from surplus income payments and/or derived from other areas. The Bankrupt argues that she should receive a short suspension of her discharge.

Analysis

140Meads is the leading case involving detaxers, and deals with the concept of OPCA litigants. Commencing at para. 87 of the Meads decision, the Court specifically addresses the Paradigm Education Group. At para. 89, the Court explains how Ronald Porisky operated the Paradigm Education Group:

89Porisky operated a business, named “The Paradigm Education Group”, that advanced a concept that it was possible for a potential taxpayer to:

... structure their affairs so that they were a “natural person, working in his own capacity, under a private contract, for his own benefit”. Paradigm taught that money earned under this arrangement was exempt from income tax.

90Porisky claimed this was in response to a banking conspiracy:

He founded what he eventually called The Paradigm Education Group to “create a structure that everyone could work together in to save the country from a foreign parasite”. The foreign parasites were the international bankers who were, directly or indirectly, responsible for the income tax system.

91Porisky taught that the Canada Revenue Agency had tricked persons into believing there was an obligation to pay tax, and further that taxation is slavery, serfdom, and contrary to the Canadian Bill of Rights … [Citations omitted.]

141In Meads, the Court concluded that none of the OPCA arguments had any meaning or effect in Canadian law.

142Case law was advanced by both parties to establish their positions in relation to the discharge in this matter.

CRA’s Case Law Regarding Conditions of Discharge

143The CRA relied on various cases concerning the conditions of discharge, some of which are summarized below.

144In Crischuk (Re), 2013 BCSC, [2013] 6 C.T.C. 65, the bankrupt was 64 years of age, married, and was a self-employed accountant who earned a substantially good income. The discharge was opposed by the Trustee and the Crown. This was a second time bankruptcy. The bankrupt had been convicted of offences under the Income Tax Act.

145The Court refused to grant the discharge on the basis that the bankrupt was knowledgeable of the Income Tax Act as a self-employed accountant. The Court found that the bankrupt had made no efforts to pay the tax debt and continued to pay the mortgage at his wife’s house, rather than pay the income tax debt. He was allowed to reapply for his discharge after three years.

146In Cupello (Re), 2016 ONSC 6765, the bankrupt was a 58-year-old lawyer who declared bankruptcy after he had accrued an excess of $969,000 in tax arrears. The bankrupt had complied with all BIA requirements, including paying $82,500 in surplus income. He sought transition to semi-retirement. The Trustee recommended a discharge following payment a further $222,700, or posting sufficient security.

147The Canada Revenue Canada sought a condition of payment of a further $550,000.

148The Court ordered that the bankrupt be discharged upon payment of an additional $221,640 representing 25% of the outstanding tax debt. The Court ordered that this was required to balance the need for rehabilitation with denunciation of the applicant’s conduct. The Court notes that the $969,000 of tax arrears appears to include interest and penalties.

149Haibek (Re), 2016 BCSC 2166, 2016 D.T.C. 5125 was an application for discharge from bankruptcy by a second time bankrupt following an unsuccessful proposal. The bankrupt’s sole creditor was the CRA with a claim of in excess of $1,007,288.80 arising from unpaid personal income taxes, penalties and interest. The bankrupt was 65 years of age and worked as a consultant.

150The average yearly household income by the bankrupt over 11 years was in excess of $568,000. The bankrupt’s income for the three months prior to discharge was between $7,000 and $9,185 per month.

151The Court found that the bankruptcy arose from a persistent and ongoing ignoring of the bankrupt’s tax obligation and that the purpose of the bankruptcy was to escape that tax obligation.

152In that case, the bankrupt was ordered to pay $273,000 for the benefit of its creditors, a sum which represented approximately 27% of the total tax debt, inclusive of interest and penalties.

153In Hardtke (Re), 2012 ONSC 4662, 91 C.B.R. (5th) 237 the bankrupt was a 59-year-old practicing chiropractor who applied for a discharge. He owed taxes, penalties, and interests totalling $918,946.75.

154The Court determined that it was a s. 172.1 tax-driven bankruptcy and additionally held that there was a finding under s. 173(1)(a) of the BIA.

155Among other things, the Court ordered that he pay the sum of $75,000 to the Trustee with minimum monthly installments of $1,000 per month.

Bankrupt’s Case Law Regarding Conditions of Discharge

156The bankrupt relied on a number of cases to support their position, some of which are summarized below.

157Baran (Re), 2013 ONSC 7501, 7 C.B.R. (6th) 1 involved a s. 172.1 BIA bankruptcy. The bankrupt was 34 years of age. The CRA had conducted an audit of her business and assessed her for $854,518.28, inclusive of interest and penalties. At the discharge hearing. The bankrupt’s discharge was suspended for one day. On appeal to the Ontario Superior Court, Brown J., as he then was, stated at para. 19, “[t]he survey of the case law filed by the applicant disclosed that in the last four years courts most usually imposed, as a condition of discharge, payment in the range of 5 to 15% of the tax debt, with only two cases resulting in payments of 50% or more of the tax debt”. The Court held that the bankrupt was required to pay $8,000, or 1% of the tax debt principal.

158The case of Desai (Re), 2014 ONSC 136, [2014] 3 C.T.C. 85 dealt with a second-time bankrupt who was in his late 40s. He owed the CRA over $800,000, of which $150,000 was for unpaid taxes, and the balance of which was for disallowance of tax shelters. The court required the bankrupt to pay 2% of the principal amount or $7,903.

159In Re Schnare, 2015 NSSC 219, 29 C.B.R. (6th) 86, the bankrupt was a clinical therapist in her late 50s. She was involved in a lengthy divorce which left her with significant financial difficulties and unable to sell her home. She was additionally responsible for her mother’s care, and was also involved in an automobile accident. Her total unsecured debts were $144,322 of which $37,000 was owed to the CRA. She had made a proposal of $250 for 16 months and, in addition, the contribution of certain other assets. According to the evidence the CRA frustrated the proposal, the debtor withdrew the proposal and filed for bankruptcy. The Court made a determination that she had surplus income and ordered her to pay surplus income of $250 a month for 21 months for a total of $5,280.

160In Rivers (Re), 2013 BCSC 324, 2013 D.T.C. 5072, the first-time bankrupt was 61 years of age and trained as a millwright, although was earning a modest income as a safety supervisor. This was a s. 172.1 BIA tax driven bankruptcy. The financial circumstances involved in RRSP stripping scheme. Income was attributed to the bankrupt under s. 56(2) of the Income Tax Act. The principal amount was $1,264,364. Together with interest, the amount increased to $2,186,345. The court found that Mr. Rivers took a casual approach to dealing with his financial situation in the bankruptcy, including transferring his half-interest in the family home to the wife. Mr. Rivers claimed that he was separated, though despite the separation, lived in the house. He claimed to live in the basement. He was ordered to pay $200,000 to pay and file his income tax returns as required and pay all income tax. He was also granted a two-year suspension.

161In Gelpke (Re), 2012 BCSC 1770, 100 C.B.R. (5th) 146, the bankrupt was 76 years of age. She was married and had an income of approximately $1,400 per month, which would not increase. She lived with her husband in a house owned by him and he paid the majority of the household expenses. She had no surplus income as defined by the BIA. The bankrupt had one creditor, being CRA, with a proven claim of $793,220.21, and realized assets of $2,209.69. The court found that the bankrupt had a modest income, but there was little prospect of it increasing. The court found that there was no real prospect of payment on a conditional order, given her current and likely future circumstances. However, the court found that the bankrupt knew of her income tax debt when she sold her interest in the matrimonial home for $362,500, and made no effort to either pay her tax debt or appeal the reassessment. The court also found that she had the significant advantage of minimum living expenses and enjoyed an enviable standard of living, thanks to the circumstances of her husband. The court ordered that she be discharged on the condition of payment of $150,000 and provided that she was an undischarged bankrupt, she was required to file all returns of income as required by law and pay all taxes due as a result of those filings.

Analysis (continued)

162Based on the findings set out under s. 172.1 of the BIA, the Court can order a discharge in accordance with 172.1(3) as follows:

172.1 (3) On the hearing of an application for a discharge referred to in subsection (1), the court shall, subject to subsection (4),

(a) refuse the discharge; (b) suspend the discharge for any period that the court thinks proper; or (c) require the bankrupt, as a condition of his or her discharge, to perform any acts, pay any moneys, consent to any judgments or comply with any other terms that the court may direct.

163The Court is aware that the Trustee will have realized approximately $715,000 in this estate. What, in part, distinguishes this case from those cited by the Bankrupt is the fact that she participated in a detaxing scheme over a number of years and a charitable giving scheme. While the Bankrupt claims to have been duped by her mentor, Dr. Kovaluk, and Paradigm Education Group; the Court rejects this argument. The Bankrupt admitted attending five or six meetings of the Paradigm Education Group from 2013 to 2011 and followed the scheme during that time. It was not limited to a one-time meeting for which she signed and followed the scheme.

164The Bankrupt continued to receive advice from Paradigm Education Group over the years. When she was reassessed, she sent a letter to the CRA dated July 29, 2011, which is attached hereto as Schedule “A”. The Court has considered this letter and the allegations and suggestions made in it. The following are some of the excerpts from the letter:

“I would like to clarify that I, free will adult flesh and blood woman, commonly called Baldeep of the Saran family, has not and does not consent to be identified by any name, especially not the fictional entity, BALDEEP SARAN.

Please provide a contract whereupon I, flesh and blood human being, have voluntarily affixed my signature agreeing to a contract to be surety for any alleged debts of the agent in commerce, BALDEEP SARAN to CRA.

Secondly, if any human with full liability status of free will who works for CRA can produce a contract or a requirement for contract, between the principal and the man acting in the fictional role of Minister of National Revenue, then please do so.

I will correspond with yourself or someone from your office only, not any other subordinate based upon the condition that:

1. I would require the attached, ‘Public Servant’s Questionnaire’, filled out, so that my rights are protected under section 126(1) of the Criminal Code of Canada.
2. I require to be financially compensated for the time spent to assist you.
3. The fee will be based on $1500.00 (fifteen hundred dollars) in Canadian currency per hour with a minimum of 30 hours.
4. Any other miscellaneous expenses that arise”.

165The Bankrupt’s counsel argued that the letter was not prepared by the Bankrupt, but by someone else. The Bankrupt acknowledges that she signed the letter. The Court finds that notwithstanding who wrote the letter, the Bankrupt signed it, thereby acknowledging that the contents of the letter were from her and thereby taking responsibility for the statements made in the letter. The statements made in the letter are outlandish, incredible, and defy logic. The Court finds that the Bankrupt was the author of the letter, and is therefore responsible for the situation and no one else.

166In a further effort to claim that she has an inability to pay any more money to the Trustee, the Bankrupt argues that she is personally responsible for the $150,000 that has to be repaid by her husband, Mr. Saran, to the Trustee in relation to the sale for undervalue of the McArthur Dental Clinic. The Bankrupt also claims to be responsible for other debts related to dental clinics that she was involved with. The Court categorically rejects that argument. The dental clinics are owned by Mr. Saran’s companies only. The Bankrupt is not a shareholder of any of those companies, and is therefore not obligated to pay those debts. The Bankrupt’s argument in relation to these monetary obligations defies logic and is rejected.

167A review of the Bankrupt and Mr. Saran’s income shows that her income has been decreasing without reason. The Bankrupt claims that she has health problems which will reduce her earning power. At the same time, Mr. Saran’s income has been increasing.

168The difference in their incomes is shown in the following chart:

	Mr. Saran’s income	The Bankrupt’s income
2003	$95,263	$280,311
2004	$62,723	$251,840
2005	$60,678	$184,844
2006	$52,180	$323,283
2007	$47,388	$395,560
2008	$63,279	$524,971
2009	$24,052	$541,708
2010	$46,132	$522,107
2011	$112,886	$516,441
2012	$126,652	$230,285
2013	$90,457	$440,730
2014	$180,767	$469,052
2015	$211,302	$280,698
2016	$259,300	$171,344
2017	unknown	$185,276

169The Bankrupt works for her husband, who manages the business and has the ability to attribute income in whatever way he wishes. The Court finds that he is attributing more income to himself than to the Bankrupt, even though based on her own testimony, she is working a similar amount or more hours than those worked prior to her insolvency.

170The Court finds that when individuals work for relatives, or if their income is controlled by the relatives, the Court has the ability to impute income to the Bankrupt. In this case, the Bankrupt worked for her husband’s companies and her income has been decreasing while Mr. Saran’s income has been increasing. Therefore, the Court exercises its authority and imputes income to the Bankrupt even though she is working the same number or more hours. Accordingly, based on her past earnings, the Court imputes income to the Bankrupt of $280,000 per year.

Family Budget

171The Court has reviewed the family budget over the months April 2015 to September 2016, and has prepared a chart that is attached hereto as Schedule “B”.

172A review of Schedule “B” shows that during the 18-month period from April 2015 to September 2016:

i. the average monthly food expense was $2,251; ii. the average monthly liquor and beer expense was $282; iii. the average monthly entertainment expense was $605; iv. the average monthly miscellaneous expense was $2,050; and v. the average monthly cost of children’s activities and sports was $736.

173The family expenses total over $20,000 per month, or $240,000 per year.

174The Court finds that the “miscellaneous expense” used in the calculations prepared by the Bankrupt is merely a way of balancing the expense side of the equation absent any rationale. The Court finds that the average “miscellaneous expense” of $2,050 per month is excessive.

175There are currently two children living at home, and a third child attending university out of town.

176The Bankrupt’s evidence is that she does most of the cooking and the average expense of the food is approximately $2,251 per month. The Court notes that her mother-in-law lives in the house as well.

177The Court finds that the monthly food budget is excessive.

178The Court also finds that the monthly liquor and beer budget of $282 per month is excessive.

179From the Court’s perspective, the Bankrupt’s spending in light of this very serious financial situation mocks a system that is supposed to help honest, but unfortunate debtors. The integrity of the bankruptcy system must be safeguarded from people who attempt to use the system to get away with inappropriate conduct such as in this case.

180The Court finds that the Bankrupt is not an honest debtor by virtue of the tax schemes that she became involved with. Furthermore, the Court finds that she is not an unfortunate debtor because she did not pay the income tax which she was obliged to do.

181The Court finds that the Bankrupt has the ability to pay monies to the Trustee for the benefit of her creditors based on her age and her ability to earn income in the future.

182The Court is aware of the current case law as argued by the Bankrupt’s counsel, however, it is not evident in some of these cases is what amount was received by the Trustee prior to the Opposition to Discharge. Notwithstanding what the Trustee has received in this case, the Court, while taking guidance from the case law, must look at all of the factors in this case.

183The Court takes note that the income of the spouse of the Bankrupt, in this case, Mr. Saran, is a factor to be considered in directing if a conditional discharge should be made and for how much. See: McCamley (Re) (1982), 43 C.B.R. N.S. 66 (Ont. H. Ct. J.); Baum (Re) (1988), 70 C.B.R. N.S. 263 (Ont. H. Ct. J.). In this case, the combined income of the Bankrupt and her spouse is in excess of $400,000 per year.

184The Court finds that there is a need to rehabilitate the Bankrupt and to denounce her past conduct.

185Based on the Bankrupt’s income, the family income, the non-payment of $3,100,000 in income tax, interest and penalties, the non-payment of taxes in 2014 and 2015 and her being a first time Bankrupt, the Court finds that it is appropriate to order the Bankrupt to pay an additional $200,000 as a condition of her discharge.

186While at first glance this condition may appear harsh, however, the Court considers it appropriate given the circumstances of this case.

187In a case such as this, the Court must determine on the basis of the Bankrupt’s lifestyle of living what his or her real income is. In coming to an amount to be paid by the Bankrupt as a condition of discharge, the Trustee’s recommendation should be given considerable weight, since the Trustee is the party who is most familiar with the Bankrupt’s situation. See: Gillespie (Re), 1999 ABQB 1034, 9 C.B.R. (4th) 280.

188In this case, the Trustee’s recommendation is that there should be a conditional discharge upon the Bankrupt paying $198,000. The Trustee is extremely familiar with the situation and, therefore, the Court places considerable weight on their position.

189Based on the aforesaid analysis and the recommendations of the Trustee, the Court orders:

(a) that the Bankrupt be granted a conditional discharge upon her paying the sum of $200,000 to the Trustee for the general benefit of creditors, with minimum monthly payments of $4,000 per month commencing November 1, 2018; (b) that the Bankrupt file complete and accurate income tax returns as and when required to do so pursuant to the Income Tax Act, the Excise Tax Act, the Canada Pension Plan, the Employment Insurance Act and remit all amounts due to the Receiver General as required by the Income Tax Act, the Excise Tax Act, the Canada Pension Plan and the Employment Insurance Act, including all taxes, installments, interest and penalties assessed by the Canada Revenue Agency as and when required and, furthermore, that she shall not be discharged unless the Bankrupt is current with all of her obligations with the Canada Revenue Agency. (c) that the Bankrupt is required to remain current with all of her obligations to the Canada Revenue Agency, including filing of her income tax returns on time, and making at least quarterly installments on account of her income tax obligations and her obligations under all under acts, including for GST and HST; (d) due to the circumstances of this case, that payments under a conditional order of discharge cannot be converted into a consent to judgment to pay the outstanding amounts; (e) that the Bankrupt’s discharge is suspended for a minimum of 36-months, or until all of the payments under the conditional order are paid; (f) in the event that the Bankrupt seeks protection from creditors in the future, whether under the BIA or similar legislation, she shall seek leave of the court prior to filing for such protection; and (g) provided that the Bankrupt makes the payments as set out above, no interest will be payable. In the event that payments are not paid or are missed, interest will accrue on the outstanding balance at the rate of 5% per annum.

Costs

190The CRA was successful in opposition to the discharge. The Court orders that if the CRA is seeking costs, that it provide a letter setting out the amount claimed for costs, if any, on a partial indemnity basis and a substantial indemnity basis within two weeks of the release of this decision. This letter shall be no more than two pages in length and shall include a costs outline as an addendum. The Bankrupt and the Trustee shall each have 10 days to respond, if they wish to do so. Thereafter, the Court will assess CRA’s costs. These shall be paid out of the Estate in priority to all creditors. To be clear, these costs will not be payable as an additional amount by the Bankrupt.

191Order to issue accordingly.