SUPERIOR COURT OF JUSTICE

IN BANKRUPTCY AND INSOLVENCY

ESTATE NO.: 31-454668
HEARD: 20130726
RELEASED: 20140108

In the Matter of the Bankruptcy of Nadir Desai operating as Nasir Desai
of the City of Toronto, in the
Province of Ontario,
Insurance Agent

APPEARANCES:
Philip Gertler Fax: 416-485-7307
-for the Bankrupt

Maria Vujnovic Fax: 416-973-0810
-for Department of Justice,
(CRA opposing creditor)

Cyril Sapiro Fax: 416-486-8024
-Trustee

BEFORE: MASTER D. E. SHORT,
Registrar in Bankruptcy

HEARD: June 7 and 13, July 26, 2013

REASONS FOR DECISIOn

I. Overview

[1] Nadir Desai (the “Bankrupt”) made an application for his discharge from bankruptcy pursuant to the provisions of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (“BIA”) having gone into bankruptcy on April 3, 2008. At the time of his bankruptcy he had been operating an insurance agency in North Toronto for a number of years. He previously was bankrupt in 1991, and received an Absolute Discharge in June of 1992.

[2] Once again, in this case, I am required to deal with a contested discharge that presents some degree of difficulty to me as a result of the interaction of Bankruptcy Law, Family Law and Canada’s Income Tax laws.

[3] The bankrupt originally made a proposal to his creditors which was approved on July 5, 2007. The Canada Revenue Agency (“CRA”), which was the largest creditor by far, voted in favour that proposal which would have seen more than $150,000 being paid over a period of five years.

[4] Regrettably, shortly after the proposal was approved, the Bankrupt’s circumstances changed, with the result that ultimately this bankruptcy occurred.

II. Background

[5] The bankrupt is now in his late 40s. He holds an MBA from Duke University and has clearly been involved in a number of entrepreneurial ventures over the years.

[6] He was one of the early operators of a Canadian dial-up internet company. That led, in the late 1990’s, to the bankrupt becoming CEO of PSINet Ltd., a wholly-owned subsidiary of PSINet Inc. which was one of the first commercial Internet service providers (ISPs) and was involved in the commercialization of the Internet, until that company's bankruptcy in 2001 during the dot-com bubble.

[7] In recognition of his services to the company he was given a grant of stock options. He exercised the options in 1999 following his departure from the company, having been given an opportunity to run another publicly traded company.

[8] Mr. Desai was fortunate that he was able to exercise his options and generate significant income prior to the bursting of the “tech bubble”. He turns out however, to also have been unfortunate, as a consequence of receiving advice from the chief financial officer of the parent company to purchase “Art Tax Shelters”. Mr. Desai’s evidence was that he relied upon an understanding that “there was even a favourable tax ruling from, Canada Revenue Agency.” While his liability was appealed (and the appeal ultimately lost or abandoned) the Trustee’s 2007 Report to the creditors with respect to his ill-fated proposal, still noted that the bankrupt had nevertheless “paid CRA close to $500,000 plus another $100,000 which amount was automatically deducted from his monthly income”

[9] The Trustee’s Report goes on to note that at the time of the proposal:

“Currently the debtor owes hundreds of thousands of dollars in interest and has concluded that continuing the appeal process will only result in failure. His income is no longer significant enough to pay for legal and accounting costs. All of his savings are gone. He has used the money for living expenses and settlements with his ex-wife from whom he has been divorced for several years.”

[10] At the time of filing his proposal the debtor was 42 years of age he had developed health problems (type II diabetes) and had a new family and young daughter. He was a State Farm agent and sought to enter into a settlement with his creditors. He indicated that it was his intention that the proposal would enable him to continue to live a peaceful life and spend time with his family. He intended “to better manage his life and finances and continue to be a reputable business person and a well-regarded employer.”

[11] CRA now opposes his discharge asserting a total claim of just over $800,000 of which more than $650,000 relates to the 1999 year flowing from the disallowance of the tax shelter of principal in excess of $267,000 and interest and penalties totalling a further $391,000. Put another way it would seem that the total principal claims for unpaid taxes since 2001 while still sizeable, total less than $150,000.

[12] At the hearings before me, CRA submitted that the discharge ought to be refused or in the alternative, that it should be made subject to significant financial conditions.

[13] The bankrupt has suffered a number of health consequences from his significant financial difficulties. Dealing with the numerous problems that he has encountered, a few of which will be discussed below, is in part, his explanation for why his tax returns for the period following his going into bankruptcy had not been filed on a timely basis.

[14] It is my understanding that in the months prior to the hearing before me, the bankrupt arranged for the filing of his tax returns for the previous three years. Prior to notices of assessment being issued with respect to those returns it would appear that the tax payable for those post-bankruptcy years is in the order of $125,000 plus interest and penalties.

III. Family matters

[15] The Bankrupt has now been married to his present spouse for about 10 years. They presently are living in a relatively modest rental accommodation. As a result of the financial difficulties encountered by her spouse, I understood at the hearing that his wife had also recently filed for bankruptcy.

[16] Mr. Desai obtained a divorce from his first wife in early 2001. He describes that process as “acrimonious and extremely costly”.

[17] Ultimately a separation agreement was entered into which require the payment of $1000 per month for each of the two children (then in their teenage years) together with $1000 per month which was payable towards support arrears that approximated $25,000 and had accrued prior to the settlement being reached.

[18] The significant change in his net worth and income position has meant that he believes that he should be entitled to obtain some relief by way of a judicial amendment to the support obligations presently in existence.

[19] However, the alteration of support obligations can be a timely and expensive process. He has not been in a position to seek an adjustment as he cannot afford the services of a matrimonial lawyer.

[20] While there is no proceeding in place to alter the amount payable, his existing obligations to the Family Responsibility Office (“FRO”) continue. The FRO payment enforcement powers permit escalation from suspension of a driver’s license, to seizing a passport and ultimately to incarceration.

[21] The bankrupt indicated that he was facing a choice as to whether or not to pay his obligations to CRA while trying to continue his business so as to be able to continue paying his employees their wages. Clearly he hoped would generate enough money to pay his support obligations as well as contributing to the support of his present wife and child. He understood that a further failure to use his available funds to pay the obligations owed FRO which could well result in his going to jail.

[22] One of the results from the inability to have a passport negatively impacted upon his previous income situation. A significant part of his income in the past had been generated by foreign consulting with respect to mining projects. Apparently his passport has been seized by virtue of the inability to pay the support that has been ordered. As a consequence, he asserts that he has been unable to properly perform the consulting services which might allow him to generate more income that could potentially go towards his present income tax debt, paying legal fees in the matrimonial matter and dealing with keeping his business going.

[23] I note that in 2011 the bankrupt did pay CRA $50,000 towards his tax debt. This money I believe had been generated by his, now lost, consulting work

IV. A Fresh Start

[24] Taking a retrospective look at how we got to this point, I observe that when he returned to Canada Mr. Desai owned a home north of Toronto. During that time he was “going back and forth to lawyers with respect to assets, access to his children and other issues” and was “paying a lot of accountants and lawyers with respect to the tax shelter issue.”

[25] He determined that he wanted to become involved with a more traditional business which would not expose him to the highs and lows in his previous business ventures. He therefore determined to set up an insurance agency business and undertook research as to a desirable company to represent.

[26] He testified that about 10 years ago he was accepted for the State Farm Insurance agent program. He spent 18 months in training and then opened his first office. He put his own money into it. He was extremely successful for a number of years. He was recognized as being amongst the top 150 agents of 15,000 within the organization.

[27] In order to start and attempt to grow his insurance business he took out a second mortgage on his home in the amount of $75,000 and a bridge loan for $50,000 “in order to staff up” and also spent a lot of money on advertising in order to bring in business.

[28] He noted that in Independent Agent arrangements such as his, the business model is 100% commission with no base salary or expense allowance. He noted as well 80% of his income was derived from auto premiums and 20% from home insurance

[29] He also observed that the insurance business is very cyclical. Changes in the Ontario market and tough price competition for new business led to a decline in the portfolio of his agency from a high of 1473 clients to a low by April 2013, when he had less than 500.

[30] Understandably this resulted in significant declines in his gross and net commission income. In 2012 his net income had fallen by 50%. As a consequence he was down to two employees and was under pressure with the result that, amongst other things, he didn’t file his tax returns. More importantly he fell behind in his employee source deduction remittances to CRA.

V. Long Distance Collection Activities

[31] From time to time clients would deliver premium cheques payable to State Farm to Mr. Desai’s office. Rather than forwarding the cheque by mail, the company had directed that such cheques should be deposited into a trust account at the bank branch used by Mr. Desai’s agency.

[32] State Farm then would be in a position to withdraw the monies from the trust account by way of an Electronic Funds Transfer (“EFT”). Mr. Desai had no entitlement to those funds. He had no ability to draw against the monies deposited however his name was associated with the account as the trustee.

[33] From time to time a cheque provided by a client would not be honoured by the client’s bank. This resulted in State Farm generating a “non-pay EFT” notice to Mr. Desai’s office so that they could follow up on a replacement payment from the client.

[34] In February 2012, CRA issued a requirement to pay to TD bank apparently in an attempt to recover monies owed by Mr. Desai. When Mr. Desai attended at the bank branch to investigate what had been reported to him as a non-pay ETF, he learned that the proceeds from customers deposited into the trust account had been remitted to CRA by the bank. This of course meant the funds were not transferred to the beneficial owner, State Farm.

[35] State Farm regarded as a serious breach of trust by Mr. Desai. He endeavoured to explain the matter to the company and endeavoured to have the monies returned by CRA as they did not belong to him.

[36] Mr. Desai says that when he tried to contact the collection agent whose name appeared on the notice to pay he discovered that she worked in British Columbia, on British Columbia time and did not work on Mondays. As a consequence Mr. Desai testified that he could not obtain a prompt rectification of this problem from CRA.

[37] There seem to be a great deal of difficulty in understanding the nature of the bank account from which less than $1700 had been seized.

[38] Apparently it took seven months for the monies to be returned to the account and then paid onward to State Farm.

[39] Attempts to work with supervisors of the initial collection agent did not seem to be very productive either. A request that had to have the matter dealt with by someone in Toronto seems to have not been acceptable to CRA.

[40] Mr. Desai indicated that at least one collector took the position that since Mr. Desai held the employee withholding amounts “in trust” for CRA, the agency’s trust should take priority over the State Farm trust interest, notwithstanding that the bankrupt never had any entitlement to the deposited funds.

[41] State Farm was extremely dissatisfied with the events that had taken place with respect to the ETF funds, but perhaps having regard to the previous success of the bankrupt in his business, agreed to give him one “last chance”.

[42] The Bankrupt continued to operate his business for about another year when in March 2013, the same collection agent in British Columbia again issued a notice to pay to the same TD Bank branch. Once again the bank honoured the request and remitted the funds.

[43] It is disappointing that given the history of the matter, the same problem was generated this time over $3200 seized from the ETF account.

[44] Mr. Desai had a personal account at the bank as well. That bank account was seized with the result that the premiums were not paid on time with regard to his personal health insurance. That action had the result that he lost his health and drug insurance and testified that could not get it back or replaced because of his declining health condition.

[45] As a result of the second seizure State Farm escalated the matter to the United States Head Office. State Farm apparently asked if he was “thinking about leaving as a State Farm agent.”

[46] A letter was then sent dated April 9, 2013 to the bank advising that CRA had cancelled the Requirement to Pay dated March 8, 2013 and advising that “if you have made deductions but have not yet sent them to us please return them to NADIR DESAI”.

[47] Next the CRA collection agent issued a replacement Requirement To Pay that the bank appears to have received on April 15, 2013 which indicated that all amounts held for Mr. Desai up to $35,236.30 were to be paid to CRA but the notice now bore an annotation exempting the ETF account: “excluding premium fund account number 1952…”.

[48] Understandably the collection activities of CRA were putting the continued operation of Mr. Desai’s business at risk.

[49] The final straw was another Notice to Pay, also issued April 9, 2013 but this time directed to State Farm. This notice effectively was a garnishment issued to State Farm Canada for the 100% of his then payable commission earnings. Exhibit 3 before me, reflects receipt of this notice on April 10 by the State Farm agency compensation office in Canada and a subsequent April 11 receipt stamp from the US office.

[50] Mr Desai attempted to convince the collector’s supervisor that if the RTP was not rescinded he couldn’t pay his rent or staff. He left voice mail and sent a fax package to the CRA supervisor with whom he had dealt in the past; stressing that otherwise he was going to lose all his business.

[51] No prompt resolution of the position of CRA appears to have been possible.

[52] State Farm’s reaction was swift and irreversible.

[53] The agency was ended. All corporate signage was quickly removed. All existing customers were given notice that their accounts had been re-assigned to other agents. The landlord seized his office premises. As if a tsunami had broken over him, the bankrupt’s business and his 10 year career in the insurance were gone. His reputation was severely impacted and any hope of working out of the challenging circumstances he admittedly had been facing, was lost.

[54] Mr Desai has lost his home, his job and based on his appearance in the witness box, his good health.

VI. The Discharge Process and CRA’s Objection to Discharge

[55] On April 3, 2008 Mr. Desai became bankrupt.

[56] I have relied upon Trustee’s Section 170 Report which outlines the procedural history of this matter that I outlined in the paragraphs that follow.

[57] The Court initially scheduled November 17, 2009, to hear the bankrupt's application for discharge. On October 23, 2009, upon consent of the Trustee and the bankrupt to the CRA's request for an adjournment, the Registrar adjourned the matter sine die to a long matter list.

[58] On December 3, 2009, the Department of Justice Canada, counsel for the opposing creditor, expressed their intention to examine the bankrupt pursuant to subsection 163(2) of the BIA.

[59] It appears that it was not until the Court scheduled the adjourned hearing for a return date of March 23, 2011

[60] On March 22, 2011, after a telephone conversation between the Department of Justice and counsel for the bankrupt, it was agreed upon that the bankrupt consented to an adjournment of the hearing on March 23, 2011 as well as to an order being issued for an examination.

[61] Nine months later, on December 14, 2011, “the bankrupt sent an email to the Trustee informing him that he was experiencing a dramatic drop in his insurance business and that he had fallen behind on his child support payments. The bankrupt also made reference to his mistake of becoming involved with a tax shelter that was the cause of his financial troubles.”

[62] Almost a year later on November 12, 2012, the Trustee's office submitted to the Court office a request for a hearing date for this “long matter”. The Court ultimately scheduled the bankrupt's discharge hearing for June 7, 2013.

[63] While awaiting that date, the bankrupt provided the Trustee with copies of the Notice of Assessment for his 2008 Post bankruptcy tax return and 2009 income tax return, and also submitted copies of his 2010 and 2011 income tax returns. All show tax liabilities owing.

[64] The trustee notes that on April 9, 2013, Canada Revenue Agency issued the Requirement to Pay, “against the bankrupt's wages for unpaid post-bankruptcy tax liabilities.” This was the pivotal document discussed earlier in these reasons.

[65] On April 24, 2013, the Trustee's office sent a request to the bankrupt for a sworn Statement of Income and Expenses. That document was filed before me and not surprisingly reflects no excess funds.

[66] The hearing of this discharge commenced as scheduled on June 7, 2013 before me.

[67] The only objecting creditor at the hearing was CRA. They relied upon their filed notice of objection dated January 13, 2009 to the discharge of the bankrupt and the grounds stated were:

“(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;

(b) the bankrupt has on a previous occasion been bankrupt or made a proposal to his creditors;

(c) such further and other grounds as counsel may advise or have the court permit.”

[68] No additional grounds were raised before me. There was no real attempt by CRA to prove any wrongdoing by the bankrupt other than his failure to pay the amounts owed for unpaid taxes interest and penalties. Clearly he ought to have not used the funds payable for employee withholding but his motivation is to a degree understandable.

[69] In his report the trustee acknowledged having receipts totalling $6688.06 in the estate.

[70] The report concludes with a recommendation from the Trustee “that the bankrupt be given a SUSPENDED ORDER OF DISCHARGE.”

VII. Statutory Environment: Tax Debt Discharges

[71] In this section of my reasons I examine and place emphasis on the Discharge process applicable in this case. Section 172 of the BIA is of general application and reads:

(1) On the hearing of an application of a bankrupt for a discharge, other than a bankrupt referred to in section 172.1, the court may

(a) grant or refuse an absolute order of discharge;

(b) suspend the operation of an absolute order of discharge for a specified time; or

(c) grant an order of discharge subject to any terms or conditions with respect to any earnings or income that may afterwards become due to the bankrupt or with respect to the bankrupt’s after-acquired property.

[72] Parliament amended these provisions in 2005 to add section 172.1. The portions of that section applicable to Mr. Desai, as a second time bankrupt, with a substantial tax claim against him, read as follows:

172.1

(1) In the case of a bankrupt who has $200,000 or more of personal income tax debt and whose personal income tax debt represents 75% or more of the bankrupt’s total unsecured proven claims, the hearing of an application for a discharge may not be held before the expiry of …

(b) if the bankrupt has been bankrupt one time before under the laws of Canada or of any prescribed jurisdiction,

(i) 24 months after the date of bankruptcy if the bankrupt has not been required to make payments under section 68 to the estate of the bankrupt at any time during those 24 months, or

(ii) 36 months after the date of bankruptcy, in any other case;

[73] Subsection 3 delineates the alternatives available to me at this discharge hearing:

(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.

[74] The factors to be considered on such an application are enumerated as follows:

(4) In making a decision in respect of the application, the court must take into account

(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.

[75] While this subsection defines matters which must be taken into account, I do not interpret it as limiting the matters that I may consider in determining appropriate conditions.

[76] Lastly, if a discharge is suspended certain additional requirements are imposed by section 172.1:

(5) If the court makes an order suspending the discharge, the court shall, in the order, require the bankrupt to file income and expense statements with the trustee each month and to file all returns of income required by law to be filed.

[77] In Baran, 2013 ONSC 240, I had occasion to comment on my frustration with the apparent lack of connection between the assessment arm of CRA and the collection division.

[78] One does not appear to have ready access to the information of the other when presenting a case on the discharge of a bankrupt.

[79] Here we have issues raised with respect to the alleged activities of the Collection department dealing with post-bankruptcy obligations. The bankrupt’s uncontradicted evidence is that a Trust Account at the TD Bank was the subject of two garnishments by CRA against funds that did not belong to the bankrupt but rather were premiums paid by insureds to the insurer he represented.

[80] Understandably the insurer was extremely upset when these funds were seized.

[81] Collections raison d’être is to collect money owed. But where bankrupt is trying to work his way out of bankruptcy, collection recovery activities might be enhanced if the two divisions and the trustee were all involved.

[82] Certainly it is my view that in this case the activities of CRA combined with the systemic delays in the discharge process in Toronto resulted in a situation long removed from what I believe to be the goal of Canada’s bankruptcy and insolvency legislation.

[83] In allowing the appeal from my earlier decision in Baran, Justice D.M. Brown in Tatiana Baran (Re) 2013 ONSC 7501 recently considered cases where large amounts of unpaid taxes were outstanding and provided provided this analysis and guidance:

“…, in the more recent case of Re Rivers, Master Baker quoted from Bennett on Bankrupty:

Most of the cases provide that a tax avoider should not be able to use the bankruptcy system as a means to escape payment. A bankrupt who does not pay taxes is not an honest and unfortunate debtor. Where the sole or principal creditor is the Canada Revenue Agency, the court has made orders requiring payment somewhere between 40 and 65 per cent of the claims as a deterrent. [2013 BCSC 324, para. 26.]

[84] As I have come to expect counsel for CRA filed a professional and comprehensive brief of cases in support of the position before me. I anticipate that many of the same cases were placed before Justice Brown in Baran who observed:

The survey of the case law filed by the appellant disclosed that in the last four years courts most usually impose, as a condition of discharge, payments 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.

[85] In Re Martino, (2004),2004 17978 (ON SC), 50 C.B.R. (4th) 132, Lane J. stated that a condition of discharge imposed by the court should be sufficiently burdensome to make the point that the bankrupt's conduct cannot be tolerated, but should not be unduly hard to the bankrupt to bear once she decides to return to employment.

[86] Justice Brown’s approach in appropriate CRA cases is to a large extent summarized in the following extracts:

[20] Taking into account the factors set out in BIA s. 172.1 (4) the evidence disclosed no reason why the general requirement of a payment of some portion of the tax debt as a condition of the discharge should not have been followed in this case. The tax debt principal of just under $800,000 called for some amount of payment as a condition of discharge.

[22] The appellant sought the imposition of a payment in the range of 5% to 10% of the tax debt. In the circumstances of this case I conclude that such an amount would be unduly burdensome and inconsistent with the rehabilitative goals of the bankruptcy regime. Ms. Baran recently had her third child, whom she brought to court. Her other children are under 10 years of age. At present she cares for them at home. Her husband grosses about $50,000 a year. While Ms. Baran is young - 34 years old - and no doubt will work in the future, her present circumstances would only justify the imposition of a payment below the 4% low end of the general range found in the case law.

[23] I conclude that requiring a payment of $8,000 (or 1% of the tax debt principal) as a condition of discharge would satisfy the policy objectives of BIA s. 172.1. I have no doubt that the bankrupt will perceive this amount as burdensome, but the amount probably will not be unduly hard once she decides to return to employment.”

[87] Section 12 of the Interpretation Act, R.S.C., 1985, c. I-21 guides the interpretation of all the statutes raised before me on this matter:

“Every enactment is deemed remedial, and shall be given such fair, large and liberal construction and interpretation as best ensures the attainment of its objects.”

[88] Section 172.1 (4) is the portion of the legislative landscape which most clearly addresses the individual before this court. Under that subsection I was required to consider four factors. In reaching my determination I have considered all the evidence before me and in particular the matters described in these reasons. My consideration has focused on all of these four factors:

(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.

[89] In every discharge case I am required to take a hard look at the personal circumstances of each bankrupt individual. I am obliged to consider the evidence put before me and to determine a just result in all the circumstances.

[90] I continue to believe that my statutory discretion is broad, but that it must be exercised both in, not only a judicial, but also in a caring and compassionate manner, seeking to rehabilitate the unfortunate victims and to punish the rogues appropriately.

VIII. Disposition

[91] Here most of the debt arises from a tax shelter that was thought by hundreds of Canadians to have been of a nature acceptable to CRA.

[92] The bankrupt tried to address his debts by way of a proposal and when that failed he went bankrupt more than five years ago. The systemic delays and the “perfect storm” in which he appears to have found himself, have now placed him in a position where he needs to start over.

[93] Nothing would be gained by refusing a discharge at this point. A conditional discharge is clearly appropriate.

[94] The conditions of that discharge imposed by the court should be sufficiently burdensome to make the point that the bankrupt's conduct cannot be tolerated, but should not be unduly hard to the bankrupt to bear on a “go forward” basis.

[95] Cyril Sapiro was the trustee in bankruptcy for Mr. Desai. He has had a long and distinguished career as a trustee in bankruptcy and has been a leader in establishing educational material for individuals confronting the world of insolvency. His recommendation was simply a suspension without conditions.

[96] Given the facts found by me as set out above I might have been inclined to lean that way; however one of the advantages of my position is that I am guided by the decisions of those above me in the judicial hierarchy.

[97] In part my decision has been influenced by the fact that in this case I am not in a position to deal with Mr. Desai’s post-bankruptcy tax debt. Those obligations will remain and are owed to the same creditor that opposes his discharge.

[98] Nevertheless it seems to me that the circumstances of this case dictate a similar approach to that used by Justice Brown in establishing an appropriate condition.

[99] The total tax debt claimed appears to be $807,264.23. The principal component of that debt is only $395,170.20.

[100] Here the bankrupt clearly owed taxes for a number of years and in light of the resolution of the tax shelter issues, he did have an actual debt that was payable to CRA on account of the deductions taken by him in reliance on what turned out to be only a “purported” tax shelter.

[101] Take into account all the circumstances it seems to me that a discharge conditional on the payment of 2% of the principal amount of tax debt, being a further sum of $7903.40 is appropriate in this case.

[102] I have no doubt that the bankrupt will still perceive this amount as burdensome, but the amount probably will not be unduly hard once he again establishes himself in a business.

[103] Because that process may take some time I am not providing any timetable with respect to payment of the amount.

[104] Until it is paid the bankrupt shall “file income and expense statements with the trustee each month and to file all returns of income required by law to be filed.”

[105] Having regard to the decision in Tatiana Baran, supra, but also taking into account the systemic delays in the completion of the discharge process in this 2008 bankruptcy and the existence of a prior bankruptcy, I am suspending the discharge for three months to run concurrently with the other terms of my Order.

Master D. E. Short
Registrar in Bankruptcy

B. 16

January 8, 2014