SUPERIOR COURT OF JUSTICE
IN BANKRUPTCY AND INSOLVENCY
ESTATE NO. : 31-1408475
HEARD: 20130327
RELEASED: 20140220
In the Matter of the Bankruptcy of
HOWARD LAWRENCE USHER,
of The Town of Caledon, in the Regional Municipality of Peel,
In The Province of Ontario
Appearances
Howard Usher
- the Bankrupt
Maria Vujnovic Fax: 416-973-0810
- for Department of Justice,
(CRA opposing creditor)
Russell Cosby Fax: 705-722-9993
- For Trustee
John F.Delo Fax: 905-272-3690
- Trustee
BEFORE: MASTER D. E. SHORT, Registrar in Bankruptcy
HEARD: March 27, 2013
REASONS FOR DECISION
I. Contested Discharge: Section 172.1
[1] A Discharge hearing was scheduled by the Trustee in this case pursuant to the mandatory requirement of Section 172.1 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (“BIA”).
[2] This is another case where the application of the provisions of that section created difficulties in light of the evidence presented before me in this case.
[3] This is a Summary Administration matter. In the Trustee’s representative’s submissions before me, it was suggested that, but for the existence of Section 172.1, it would be probable that this case would have likely been processed as an automatic discharge.
[4] Conversely counsel for the Canada Revenue Agency (“CRA”) vigorously argued that in this case a significant payment by the bankrupt ought to be ordered as a condition of any discharge.
[5] I was thus required to weigh, not only the facts presented before me, but also to consider the possible evidence that was not lead together with any applicable statutory constraints on the discretion which I would otherwise be entitled to exercise.
II Background
[6] The bankrupt, Howard Usher filed a Division 1 Proposal on October 15. 2010. CRA was his only significant creditor. The proposal was refused by creditors on September 8, 2011 and the debtor was deemed to be bankrupt.
[7] The Bankrupt was self-represented on his discharge hearing. He had prepared a lengthy written autobiographical outline of the unfortunate events that led to his bankruptcy and his current situation. I found the entire presentation most helpful in my efforts to determine if he could properly be considered an “honest but unfortunate debtor”.
[8] While it does some disservice to the author, I have endeavoured to abbreviate the contents while trying to preserve its substance and flavour. It begins:
“The years 1989 through 1992 I lived a very peaceful no stress simple lifestyle in Muskoka two hours north of Toronto. For income I was renovating and renting cottages, always filing on time and always paying my taxes. Life was good. Fishing was great.”
[9] Sometime in late 1991 or early 1992 his brother began calling and requesting that I join him in the wholesale distribution business as his business was having difficulty. They were basically in the wholesale low price discount business, operating in Toronto. “Sales for his business were about $6.5 million with very little profitability.”
[10] Ushers Wholesale Grocers, as they were called at the time were buying deals, clear outs and overstocks and selling them to the grocery and discount retail trade.
[11] Howard really did not want to give up “my stress-free country living but eventually and reluctantly decided to do so to help my brother.” He joined the company in late 1992 and formed an opinion as the state of the business:
“The clear-out and deal business was hand to mouth and good opportunities were always in short supply and when those limited deals sold out you could not purchase more. What the company needed was an exciting mix of continuity of supply product. Product that could offer substantial savings and would be in stock all of the time for retail stores to place repeat orders on. Continuity product would create a base of foundational offerings that would generate repeat orders.”
[12] He determined there was a definite window of opportunity in the industry for a company that would offer a continuity mix plus an exciting supply of over and above clear-out deals:
“The business environment at the time was ideal for this concept, although the company required a metamorphosis of sorts.”
“The clear-out end of the business offered an unstable and uncertain future where continuity gave the business substance and solid foundation. What we needed was to build a creditable and legitimate long term business.”
[13] He quickly realized they would have to create their own brands of product to sell:
“We would have to be innovative, creative and in the process find a way to differentiate ourselves. Sameness had no value.”
III. The New Venture
[14] The company as well needed an aggressive and accountable sales team to market those new brands. This would require time and training. Ultimately Howard found myself in the position of having to take on the responsibility as well of interviewing, hiring and training sales reps. This was an ongoing process over a number of years, and a learning process. He worked seven days a week, “most every waking hour”. He hired a graphic designer to design labels and packaging. He researched retailers of every variety all over North America for ideas. New items, new flavours, new scents, new tastes, new sizes. New, different and affordable was what he was after. His evidence about the development of this business displayed an entrepreneurial passion:
“I sourced out manufacturers by the dozens and negotiated heavily to ensure best prices to offer savings, value and quality to our retail customers and the end user. We created more than 15 different brands with over 200 different products. Many of the products were well accepted in the marketplace and consumers loved and appreciated the savings they offered. We received dozens of letters from consumers telling us how appreciative they were that we were putting in the market new, different and very affordable products. We had created a family of product that had differentiated us from all traditional wholesalers. This of course made us unique. We had created a competitive edge.”
[15] By 1995 the company employed about 80 people and sales were growing. Howard states that the staff were well trained, generously paid and treated with respect and equality:
“I learned early in my business career that a happy employee is a productive and loyal employee. The daily attitude was always positive and reinforcing. People enjoyed coming to work each morning. An appreciative gesture we adopted was to offer when needed interest free loans to employees if someone were in a financial bind.
This benefit and assistance was very much appreciated and reciprocated fully with loyalty, devotion and hard work.”
[16] Mr Usher’s narrative continues:
“At this time our go forward strategies were working well and new initiatives were showing a healthy and exciting bottom line.
The retail discount sector was strong at that time and the introduction of the dollar stores helped our growth dramatically as the product we developed was ideal for them. We had come a long way in a few short years and things were looking up.
I had a regular income and I always filed on time and always paid my taxes.”
[17] What could possibly go wrong?
IV. Taking Advice on Shelters
[18] In about 1994/95 the company's chartered accountant suggested to Howard that he invest in a number of tax shelter funds, “and that they would be beneficial to me in future.”
[19] His uncontradicted evidence before me, with respect to his participation in these shelters outlines the trust he placed in professional advice in this regard:
“I knew nothing of shelters although I took his advice believing that he knew of what he spoke. He was a professional licensed chartered accountant using the best lawyers and advisers. (So he claimed). Unfortunately listening to him and taking involvement in those shelter funds was eventually to become the beginning of my horrific tax problems.
In future years I was to find out that these tax shelter problems would cause me serious health stress, emotional anxiety and financial burdens that have been unimaginable.
Never would I have imagined that I would have to have my guard up with our own accountant. Are we not supposed to trust and rely on our company Chartered Accountants? I trusted and relied on them and this is where I am today.”
V. Bankrupt’s Relationship with the Business
[20] It is important to note that at this stage Mr. Usher was an employee of the company, not an owner, with a salary “of about $90K”.
“I worked like an owner and treated the company as it was my own, although I was not entitled to any profit sharing or bonus structure. I made my brother a very wealthy man. One year we actually had sales in the $50 million range.
I was still working seven days a week in attempt to sustain the business at healthy levels. Things were good although it was always an uphill battle as new competitors were now arriving in the business and competition was to become a cause for concern. Business remained relatively steady during this period although sales had dropped as did profitability.”
[21] In early 1997 his brother experienced serious health issues. He advised Howard that as a consequence he could not handle the stress of the business and would sell the business.
[22] Apparently he advised the bankrupt that a family had offered him an all cash pay-out:
“He also advised me that when the deal would transpire with them that most of our employee's would lose their jobs as the new potential owners had many family members that would be involved and replace them.
[23] Howard testified that such a result was totally unacceptable to him as so many of our staff had been with the company many years:
“They, in many ways were responsible for much of the success the company had previously achieved. It wasn't right and I could not let it happen. All of this was happening very quickly and I was put into a position of total uncertainty.”
VI. Trying to do the ‘Right Thing’
[24] As a consequence Howard suggested to his brother that he would try to purchase the business himself. However his suggestion of a pay-out over five years, which he refused. Howard believed that five year pay-out would have been manageable and sustainable for the business, however his brother insisted on an all cash pay-out similar to the other offer.
[25] The Bankrupt describes the course of action he then pursued:
“I was forced into a position to purchase 60% of the business for $2.5 million dollars which I obviously did not have. I raised 500 K using all that I owned, my life savings, and borrowed $2,000,000. He would accept nothing less than all cash. Part of the arrangement with my brother was that after the deal transpired that he would continue to work and help me with the business. He did not. He worked part days, accomplishing very little, travelling and enjoying his new wealth. I not only made him (and many others) a lot of money during those growth years. I had also just paid him $2.5 million dollars for a business that I had actually built myself and which I had to borrow most of, and now here I was cast alone floating in the ocean with no help.
VII. Tough Times
[26] He described the next few years the servicing of the $2 million loan as a nightmare:
“Business became tight, competition was at our heels…. The monthly payments for the loan and the business line of credit were strangling us. Things were beginning to deteriorate. There was a period of time of about a year that I did not take any salary. I was forced into a position that I had to draw and substantially deplete my RRSP's to meet household and family expenses and obligations. I have always believed that sacrifices in business have to start at the top, so I took no pay. The bottom was falling out and my efforts were in trying to keep the business afloat.
I was in a position where I had no-one to really turn to and did not know in which direction to go.
I could not go forward as I had no idea which way I was even facing.”
[27] Trying to keep the business going was obviously very stressful for him. He candidly described the impact on his health and well-being:
Personally, this was a very traumatic and miserable time for me. I found myself in a deep depression for months not being able to smile, hold a conversation or just be myself. I have been told that I would actually say that "I wished at times I would not wake up in the morning". Fortunately with strong family support I dusted myself off to get back in the game. If I did not it would have become a self-inflicted weapon of self-destruction. I had to find the way to function with a level of stress that would be life enhancing, rather than life threatening.
VIII. Trying to Save the Business
[28] He eventually determined to hire a CFO to help raise badly needed financing. “Traditional banks were not at all receptive and the noose was getting tighter.” The new CFO strongly suggested that the company give up its existing, rented “self-operating warehouse” and instead move the inventory into a public storage facility.
[29] Howard took his advice and they moved into a facility operated by a company that was to handle all the warehousing and logistics for the company. Regrettably the evidence before me was that:
“They could not. Their service levels were terrible. Deliveries were late, product was misplaced and we were rapidly losing credibility with our customers. Over a 12 month period at [the new logistics facility] the company took a devastating loss of over $2 million. We moved back in to a rented facility ... We took [the new logistics facility] to court and were awarded $900K, which my brother took claim to in lieu of retained earnings owing to him previously. The awarded funds were of no use to the company with my brother taking claim to them.”
IX. Fiasco Financing
[30] During this period the CFO sourced borrowed funds from a lender “that loaned to companies in difficulty at interest rates of up to 22%”. That lender ultimately put the company into receivership, did a restructuring and re-opened the business under a new name (UWG Global) with Howard Usher as a part owner.
[31] He now faced a new reality:
“I was drastically reduced to a minority shareholder (30%). I was now working for them. At this time I had no choice or input in the new set-up of the company. My frame of mind was one that "I will have to pass failure on the way to success" ...
It was unfortunately not to be. My hope that there would be opportunity within all this difficulty was misguided. The constant flow of bad news continued.”
X. Shelter from the Storm?
[32] While all this was taking place on or about 2002 Mr Usher was advised by Revenue Canada that the tax shelter funds that were purchased for him by their (previous) accountant years before were being disallowed:
“… putting me personally in a very precarious tax position with compounded interest rates being accrued. The timing could not have been worse. I found myself once again reduced in to a serious state of depression which obviously was draining and having negative effect on family life as well.
My savings were totally gone as I had paid my brother all cash with my life savings. I had lost the majority ownership of the company I had purchased a few years back and I was accruing an enormous tax liability that was unjustified and unfair.”
[33] The table provided by CRA outlining the nature of is claim reflects that the 1994 tax year was assessed in 1999. The years 1995, 1996 and 1997 were assessed in 2001 and it seems 1998 may not have been assessed until ten years later in 2008.
[34] The dates of the assessment may be affected by appeals that were filed with respect to some shelters. It was somewhat unclear at the argument of this matter as to whether there might be appeals with respect to some shelters in which Mr. Usher placed fund, still working their way through the courts.
[35] Regardless of the precise calculations and amounts it is clear that the bankrupt has a very large continuing tax debt from years when the business was doing well.
[36] This table which formed part of the CRA claim reflects an indebtedness of over 1.2 million dollars when compounding interest and penalties are added. I have endeavoured to reproduce the chart below but apologize in advance for the extent the columns may be distorted in future reproduction:
Assessment date tax year tax interest + penalty total
JULY 30, 0,1999 1999
1999
1994
81,468.48
216,262.32
297,730.90
MARCH 22,
2001
1995
90,606.09
204,898.39
295,504.48
MARCH 22,
2001
1996
64,703.57
144,152.44
209,856.01
SEPT. 26. 2622626,
2001
1997
00.00
38,448.08
38,448.08
APRIL 14,
2008
1998
00.00
71,045.45
71,045.45
APRIL 14,
2008
2003
13,594.96
32,710.59
46,305.55
JUNE 13,
2005
2004
88,769.38
103,974.33
192,743.71
MAY 26, 2006
2006
2005
29,889.91
15,521.25
45,411.16
MAY 22,
2007
2006
17,953.08
7,204.40
25,157.48
MAY 23,
2008
2007
12,184.56
3,456.06
15,640.62
NOV. 29,
2010
2009
2,031.59
142.83
2,174.42
MAY 27,
2011
2011
2010
2,732.89
49.48
2,782.37
ADMINISTRATIVE CHARGE
45.00
45.00
TOTAL
$403,979.51
$937,865.62
$1,241,845.13
[37] It is this debt that resulted in the CRA opposition to this bankrupt’s discharge. Based on previous cases it is my belief that years reflecting a zero principal balance are those where no appeal is outstanding and a subsequent payment received by CRA is applied to the oldest, then uncontested, principal component of the tax debt.
XI. The Light at the end of the Tunnel…
[38] The bankrupt now had a business that was still paying “huge interest rates” to the lender. That enterprise was facing a new challenge to show growth and profitability while paying these impossible high interest rates. “Profit margins in our business were slim, expenses had to be cut and volumes increased.”
[39] Surprisingly Mr Usher reported in his submissions before me:
“Challenges are to be overcome and limits may be for redefining, but this one required magic. It took over a year and we did finally once again turn a small profit although it did us no good.”
XII. …May be an Oncoming Train.
[40] Mr Usher’s evidence was that while this rebuilding was underway, their secured lender had also invested heavily into a general merchandise wholesaler called Encore Sales and that entity was faltering.
[41] Mr Usher was approached by the lender with the idea to merge the two businesses. It was his understanding that the lender believed that by merging the two companies Mr Usher would be able to help them pull the other business out of its difficulty.
[42] He refused. His understanding was that the other business was owned by two families with seven working family individuals running the business. He observed before me that:
“It was logical and totally obvious to assume that under any and all interpretations it would be an absolute nightmare for me dealing with seven individuals who would never give up any control in the operating of their business. They were most certainly not going to accept me entering the fold trying to fix things.”
XIII. “Do or Die”
[43] At this point the lender advised him that if he did not agree to the proposal,
“…they would pull the plug on financing and put us out of business. I was given a do or die ultimatum. The continuation of our company was incidental to them. They were secured.”
[44] The bankrupt’s evidence was that without “any choice or option” he was forced into the new venture. He describes his attempts to mitigate the situation as follows:
“I did all that was conceivably possible to negotiate and secure positions for a number of our senior employees but so many were put out of work. It was a heartbreaking time for me. Employees I trained myself, put faith and confidence in. They were exceptional. Now they were out of work because [the lender] had made a bad investment in Encore Sales.”
[45] Mr. Usher then reports that, “Just prior to the so called merger between the two companies I took a two week well needed break.” What could possibly go wrong in that short period? His admittedly personal perspective is reflected in his written submission to this court which continues:
In my absence [the lender] bankrupted UWG Global and did a quick asset purchase sale to the other company. This was a total surprise to me. All I had worked to build for so many years was obliterated in an instant.
Upon my return I joined Encore Sales. I made every possible attempt to retrain their sales force of twenty five exactly as I did years before at Ushers Wholesale Grocers, although with no support from the owners of Encore Sales. Their sales representatives were not accountable for their sales, their hours or accomplishments, or lack of. The first priority in the training of sales people is that they are willing and able to take full accountability for their performance, or lack of and accountability did not exist at Encore Sales. It was an uphill daily battle and a challenge that could not be overcome without the support of the owners. I never did receive that support in any fashion whatsoever.
I lasted eleven months at Encore Sales before they let me go. I could have re-built that company given time and support from the owners.
Twelve months later Encore Sales went bankrupt.
XIV. Statutory Environment: Discharges
[46] I turn now to a consideration of the Discharge process applicable in this case. Section 172 of the BIA is of general application and reads in part:
(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.
(2) The court shall, on proof of any of the facts referred to in section 173, which proof may be given orally under oath, by affidavit or otherwise,
(a) refuse the discharge of a bankrupt;
(b) suspend the discharge for such period as the court thinks proper; or
(c) require the bankrupt, as a condition of his discharge, to perform such acts, pay such moneys, consent to such judgments or comply with such other terms as the court may direct.
[47] Parliament amended these provisions in 2005 to add Section 172.1. Leaving aside whether debt arising before the enactment of the section is within its purview, I will treat these portions of that section as applicable to Mr Usher, as a first time bankrupt, with a substantial tax claim against him. The provisions 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
(a) if the bankrupt has never before been bankrupt under the laws of Canada or of any prescribed jurisdiction,
(i) 9 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 9 months, or
(ii) 21 months after the date of bankruptcy, in any other case;
[48] The reason that a hearing was mandatory in this case is set out in Section 172.1(2):
(2) Before proceeding to the trustee’s discharge and before the first day that the hearing could be held in respect of a bankrupt referred to in subsection (1), the trustee must, on five days notice to the bankrupt, apply to the court for an appointment for a hearing of the application for the bankrupt’s discharge.
[49] 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.
[50] 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.
[51] While this subsection defines matters which must be taken into account, I do not interpret it as limiting the matters that I can consider in determining appropriate conditions.
[52] Lastly, if a discharge is suspended in the circumstances certain additional requirements are imposed by statute:
(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.
XV. Notice of Objection under Income Tax Act
[53] Following receipt of the original audit results, and notice of assessment, understandably, the bankrupt believes he filed a notice of objection.
[54] It was unclear at the time of the hearing which of any appeals with respect to the re-assessments of these shelters may have been resolved, allowed or abandoned.
[55] I appreciate that I am bound by final assessments. However, I am unsure as at the date of writing which assessments are now final.
[56] For the present purposes I will treat them all as if they are now all final but acknowledge that Mr Ushers actual total debt owed to CRA might well be less.
[57] His non-CRA debt, as at the date of bankruptcy, totalled less than $30,000. He was found by the trustee to have no surplus income; as a result Mr. Usher would normally have been entitled to a discharge in early July of 2012.
XVI. Life Goes On
[58] As at the date of his discharge hearing Mr Usher was attempting to build a small sales and marketing company representing a number of product lines. He was working from a small home office to keep expenses to a minimum. He was working with one other individual. The company was paying me a very small salary, still leaving the family in a household deficit position each month. He commented that:
Unfortunately the Canadian retail market has suffered with the monopolization of the industry and the constant U.S. invasion of retailers it has been very tough.
I will continue to hopefully build this new small business. Developing new product as I did years before is not in the cards at this time and probably will not be in future. That is all history.
[59] He concluded his saga with a reflection on his past and future corporate activities:
“Possibly during those years I was too generous, naive or trusting. I worked many years with honest integrity, enthusiasm and real ambition. I have now found myself in this position that has aged me, tired me, depressed me, stressed me, and put unimaginable unsettledness and worry on my family. Starting again at this stage in my life will certainly be a challenge. University costs, life insurance costs and just basic everyday living expenses will be my motivator. Showing my wife and children that I am capable of dusting myself off and eventually one day being able to possibly retire with some sense of pride is as well a major priority.”
[60] I am fully convinced that this is the quintessential, “honest but unfortunate debtor”. He paid his taxes, he ran up no scandalous amount of debt, he relied on tax shelters recommended by trusted professionals and in particular created business operations the generated jobs for a large number of taxpaying employees.
[61] Tax shelters were not an illegal entity. Rather many types of tax shelters were encouraged by successive governments seeking to encourage investments in such areas as MURB’s, scientific research, mineral exploration and the film industry.
[62] It would seem that years later, as a result of problems not created by debtors such as Mr. Usher, enormous tax liabilities together with interest and penalties were established. There is no question that schemes that were contrary to the spirit of the tax shelter concepts were put forward by those seeking to perhaps stretch claims well beyond the limits, contemplated when shelters in an area were permitted by the government.
[63] There is no doubt that many shaky shelters were created. The rogues deserved to be punished. I see nothing to be gained however from seeking an enormous amounts from individuals who participated in investments of a category that seem to have, not only the tolerance of the government, but seemingly to have been facilitated by the existence of regulations encouraging investments in the area.
[64] Based on the evidence before me this debtor did not knowingly do anything that was improper when he followed his accountant’s advice to invest in various shelters.
[65] Certainly I fail to see any basis for an outright denial of his discharge in a situation where it is apparent to me that any “tax savings” or going into trying to keep a Canadian employer afloat.
[66] That however does not mean that the debtor but not to pay something towards this tax debt.
XVII. Recent Jurisprudence
[67] While this decision was under reserve, in Baran (Re); [2013 ONSC 7501, 7 C.B.R. (6th) 1; 2013 CarswellOnt 16766] Justice D.M. Brown clarified the approach to be taken in cases where there is substantial tax debt but no real culpability for that debt on the part of the bankrupt. The salient portions of his carefully reasoned decision read:
18 The general approach on discharge applications taken by courts in tax-driven bankruptcies can be gleaned from two sources. In Re Johnson Saunders J. stated:
The remarkable feature of this particular application is the failure by the bankrupt to pay any significant amount towards income tax for the years 1983 and 1984 notwithstanding the substantial income earned in those years. While it is proper to arrange one's affairs to attract the minimum amount of tax, once tax has been assessed it is the duty of all Canadian taxpayers to pay the tax imposed. While family responsibilities are, of course, important, there is, apart from emergency medical expenses, no debt more important than the payment of taxes by persons enjoying a good income. If a taxpayer does not pay his fair share, the burden arising from that failure falls on the other members of the community. Most Canadians have their tax collected at source or pay what is owing when they file their return. [(1987), 62 C.B.R. (N.S.) 108, para 11]
Also, in the more recent case of Re Rivers, Master Baker quoted from Bennett on Bankruptcy:
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]
19 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.
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.
21 In Re Martino 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. Re Martino, (2004), [2004 17978 (ON SC)](https://www.canlii.org/en/on/onsc/doc/2004/2004canlii17978/2004canlii17978.html), 50 C.B.R. (4th) 132, para. [40]
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.
[68] Obviously every case is different but I find this decision of instructive value in approaching the present fact situation.
XVIII. Disposition
[69] Here I have taken into account the efforts made by the bankrupt to generate income in the past for numbers of individuals as well as making available low-cost items to members of the community who were thus able to better provide for their families on their low incomes. Mr. Usher is again running a start-up business trying to get back on his feet. My disposition of this case should not be unduly hard to the bankrupt to bear.
[70] Had he been able to proceed with his proposal, it seems to me that he might well have had a sizable capital loss that would have potentially resulted in overall tax reductions. CRA chose not to support his proposal and it may well be that any benefits flowing from his business losses have now been permanently erased.
[71] I have carefully considered the factors set out in Section 172.1 (4) and believe that my decision meets the dictates of that section.
[72] In the circumstances I feel even the 4% level mentioned by Justice Brown may well be too high. Taking into account the overall circumstances and the existing caselaw I am satisfied that a payment equal to 4% of the total principal tax debt should be sufficiently burdensome to make the point that a failure to pay the confirmed unpaid tax debt cannot be tolerated without consequences. Nevertheless the amount established should not be unduly hard to the bankrupt to bear.
[73] Based on the principal claim of $403,979.51 I calculate the amount to be paid as $16,159. This is just over 1.3% of the total CRA claim inclusive of interest and penalties.
[74] By virtue of Section 172.1, I am obliged to impose a suspension in this case. The Bankrupt would otherwise have qualified for his discharge almost two years ago. I see no purpose to imposing a long suspension. His discharge shall be suspended for one month, that period to run on a concurrent basis.
[75] It may well take an extended period of time to complete payment of the sum I have established. Until it is paid in full the Bankrupt shall comply fully with section 172.1 (5) which obligates him to file income and expense statements with the trustee each month and to file all returns of income required by law to be filed.
[76] While in all the circumstances of this case these requirements may be onerous for a family unit that the trustee established could not generate any surplus income liability. I am firm in my conviction that, given his undeniable display of gumption and dedication over the years, Mr Usher will find a way to move forward and to once again reach a situation like that earlier time when, “ Life was good”.
Master D. E. Short
Registrar in Bankruptcy
February 20, 2014
DS/ B. 32