Federal Court Decisions

Date: 20040525

Docket: T-218-04

Citation: 2004 FC 763

Vancouver, British Columbia, Tuesday, the 25^th day of May, 2004

Present:           THE HONOURABLE MR. JUSTICE BLAIS                                

BETWEEN:

                                       THE MINISTER OF NATIONAL REVENUE

                                                                                                                                            Applicant

                                                                         - and -

                                                            GERALD L. STERN

                                                                                                                                        Respondent

                                            REASONS FOR ORDER AND ORDER

UPON application dated January 28, 2004, on behalf of the Applicant, for:

1)          A compliance order under section 231.7 of the Income Tax Act, R.S.C. 1985, c. 1 (5^th Supp.) as amended (the "Act"), regarding a requirement for information issued by the Minister of National Revenue (the "Minister") to the Respondent on November 19, 2003 (the "RFI"), requiring the Respondent to provide the following information and documents pursuant to subsection 231.2(1) of the Act:

1.          The book or books of and records recording day to day business transactions of Gerald L. Stern for the period January 01, 1995 to November 01, 2003, including but not limited to: cash receipts, cash disbursements, billing statements, cancelled cheques, bank statements, cheque registers, journal entries, synoptics, loan accounts and deposit books;

2.          A complete list, including source names and addresses and amounts, of all income for Gerald L. Stern for the period January 01, 1995 to December 31, 1995;

3.          A complete list, including source names and addresses and amounts, of all income for Gerald L. Stern for the period January 01, 1996 to December 31, 1996;

4.          A complete list, including source names and addresses and amounts, of all income for Gerald L. Stern for the period January 01, 1997 to December 31, 1997;

5.          A complete list, including source names and addresses and amounts, of all income for Gerald L. Stern for the period January 01, 1998 to December 31, 1998;

6.          A complete list, including source names and addresses and amounts, of all income for Gerald L. Stern for the period January 01, 1999 to December 31, 1999;

7.          A complete list, including source names and addresses and amounts, of all income for Gerald L. Stern for the period January 01, 2000 to December 31, 2000;

8.          A complete list, including source names and addresses and amounts, of all income for Gerald L. Stern for the period January 01, 2001 to December 31, 2001;

9.          A complete list, including source names and addresses and amounts, of all income for Gerald L. Stern for the period January 01, 2002 to December 31, 2002;

2)          An order for costs under Rule 400 of the Federal Court Rules, 1998; and

3)          Such further and other relief as this Court deems appropriate.

[1]                The Applicant provided evidence that the Respondent Gerald L. Stern owes CCRA more than $1,800,000.00, and that the tax debt has been under collection action since 1985.

[2]                The Applicant issued a letter pursuant to section 231.2 of the Act (the Requirement of Information) to Mr. Stern requiring him to provide certain information and documents to the Minister, which letter was served upon Mr. Stern on November 19, 2003.

[3]                Pursuant to subsection 231.2(1) and 231.7(1) of the Act, the Applicant has to meet three requirements before a judge of this Court can exercise his discretion under section 231.7 of the Act.

[4]                In my view, the requirements for a compliance order have been met in this case. Indeed, (1) Mr. Stern was given 30 days to provide the Minister with the information and documents which are relevant to the collection of amounts payable under the Act; (2) the information and documents requested have not been provided; (3) the solicitor-client privilege was not involved in this case.

[5]                The Applicant failed to convince the Court that he has provided the information and documents that were requested, even if some documents were provided. In fact, after 19 years, the Applicant has no precise knowledge of what the Respondent does for living and what is his precise source of income.

[6]                The Respondent suggests that, given the effect of section 69.3 of the Bankruptcy and Insolvency Act, sources of income of Mr. Stern in the pre-bankruptcy period could not possibly be relevant to the Minister's enforcement or collection of his tax liability.

[7]                With all due respect, I disagree. In my view, the Minister is entitled to issue a letter pursuant to section 231.2 of the Act even if the taxpayer has filed a proposal under the Bankruptcy and Insolvency Act.

[8]                Beaudry J., in Carrefour Langelier Inc. v. Canada (Customs and Revenue Agency) 2003 FC 1403, wrote at paragraph [9]:

The applicant urges that the requirement letter is a proceeding and therefore there is a serious issue to be tried. I share the respondent's view that section 231.2 of the Act is a power to investigate, which is devolved to the Minister and it is not a "proceeding" within the meaning of section 69.3 of the Bankruptcy and Insolvency Act. Once the information is obtained, the respondent will be in a position to establish the fair market value of Mr. Glassman's shares and may share the information with the trustee for the benefit of the other creditors in the bankruptcy.

[9]              In the present case, the Minister is exercising his power to investigate under 231.2 of the Act, and the lack of co-operation by the taxpayer over the years justifies this investigation. The Respondent admits in his affidavit that the CCRA provable claim is substantial. The effect of subsection 69.3(1) is to impede independent action by any creditor against the debtor or his property, now vested in the trustee. It has no effect on the right of the Minister under section 231.2 of the Act to obtain further information relevant to the tax debt of the Respondent. As stated by Justice Nadon in Vancouver Trade Mart Inc. (Trustee of) v. Canada (Minister of National Revenue - M.N.R.), [1997] F.C.J. No. 1467 (paragraph 28):

Section 231.2(1) of the Act simply allows the Minister, in proper circumstances, to obtain production of relevant information and documents so as to properly administer and enforce the provisions of the Income Tax Act.

[10]       I have no sympathy for the taxpayer in this case who has done whatever he could to elude his legal obligations.               

                                               ORDER

THEREFORE, THIS COURT ORDERS, pursuant to section 231.7 of the Income Tax Act, that:

1)          The Respondent shall comply with the notice issued by the Minister and shall forthwith, and in any event no later than 30 days after being served with this Order, provide the documents to a Canada Customs and Revenue Agency officer acting under the authority conferred by the Income Tax Act or any other person designated by the Commissioner of Customs and Revenue.

2)          Costs in favour of the Minister are established at $700.00 payable forthwith.

(Sgd.) "Pierre Blais"

Judge

                                                             FEDERAL COURT

                            NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET:                   T-218-04

APPLICATION for a compliance order under section 231.7 of the Income Tax Act.

STYLE OF CAUSE:                           THE MINISTER OF NATIONAL REVENUE

and GERALD L. STERN.

PLACE OF HEARING:                     VANCOUVER, B.C.

DATE OF HEARING:                       17-MAY-2004

REASONS FOR ORDER:                MR. JUSTICE BLAIS

DATED:                                              25-MAY-2004

APPEARANCES:

SOLICITORS OF RECORD: