Date: 20011120
Docket: 2001-2415-IT-I
BETWEEN:
ROBERT CHRISTOPHER EDWARD ARNEW,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Motion heard on November 20, 2001 at Sudbury, Ontario by
the Honourable Judge D. W. Beaubier
Appearances
For the Appellant: The Appellant himself
Counsel for the Respondent: Roger Leclair
Orderand Reasons for Order
Beaubier, J.T.C.C.
[1] This motion to quash the appeal launched under the Informal Procedure was heard at Sudbury, Ontario on November 20, 2001. The Appellant was the only witness to testify. The Respondent filed the affidavit of David Young in support if its motion.
[2] The grounds for the motion are that the Appellant has not requested that the assessment upon him be vacated or varied and referred to the Minister pursuant to section 171 of the Income Tax Act (the "Act").
[3] The chronology of the facts in this matter is as follows:
1. On February 17, 1998 Mr. Arnew filed an assignment in bankruptcy. Starkman Kraft Inc. was named the Trustee in Bankruptcy ("Trustee").
2. On February 20, 1998 Mr. Arnew and his wife, Elizabeth, received a judgment ordering Mr. Arnew to pay support for the two children in the amount of $800.00 per month commencing January 15, 1998 (Exhibit R-1).
3. On November 17, 1998 Mr. Arnew is discharged from bankruptcy (Exhibit A-4). (There is no evidence of the date when the Trustee was discharged.)
4. On March 22, 1999 the Trustee delivered a 1998 income tax return for Mr. Arnew for all of 1998 (Exhibit A-1) to Canada Customs and Revenue Agency ("CCRA") which Mr. Arnew did not sign or know about. It was prepared by the Trustee pursuant to Mr. Arnew's authorization (Exhibit A-2). That income tax return stated incorrectly that Mr. Arnew had made support payments in 1998 of $13,650. As a result it claimed a refund of $1,924.56.
5. CCRA paid the refund of $1,924.56 to the Trustee.
6. Thereupon the Trustee distributed a dividend from funds (including the $1,924.56) to Mr. Arnew's creditors, including CCRA which received $277.53 on a claim of $7,704.51 (Exhibit A-3).
7. On March 13, 2001 CCRA reassessed Mr. Arnew for 1998 for the "post bankruptcy period" (paragraph 8, affidavit of David Young). Upon Objection CCRA confirmed that the claim by the Trustee of $13,650 in support payments did not meet the requirements of section 60.1 or paragraph 60(b) of the Act.
8. The Appellant appealed and testified that he knew this, but that the Trustee had filed the 1998 income tax return incorrectly and without the Appellant's knowledge.
[4] As a result, by implication in this Informal Notice of Appeal, the Appellant wants his appeal allowed on the basis that either:
1. The Trustee is liable for any taxes due to the extent of the assets under administration since the Trustee filed the incorrect return and received and distributed the rebate, or
2. The Minister, as a creditor, for $7,704.31 in the bankruptcy, should have exercised a right of set-off and not paid anything to the Trustee, (or is estopped from this assessment) thereby reducing the liability now assessed by the Minister.
Finally, there remains a question as to whether the reassessment itself should have been levied on the bankruptcy estate in any event. These questions may be legitimate subjects of a finding of the Tax Court of Canada whereby an appeal should be allowed and referred to the Minister of National Revenue for reconsideration and reassessment for the reasons stated hereafter.
[5] Dealing with the Appellant's argument in subparagraph [4] 2., Exhibit A-1 is the Appellant's 1998 income tax return filed by the Trustee. It,
1. Does not refer to the bankruptcy or to the Trustee.
2. Appears to be for the entire 1998 calendar year.
Exhibit A-2 is the Appellant's "Authorization and Direction letter" which specifies that the Trustee can complete and file the 1998 income tax return and receive any refund. The refund was paid to the Trustee. Therefore, Exhibit A-2 must have been sent to CCRA. Exhibit A-2 does notify the Respondent of the bankruptcy. In these circumstances the Respondent may have been entitled to retain the $1,924.56 as set-off against the Appellant's liability for income tax in
the bankruptcy. Subsection 97(3) of the Bankruptcy and Insolvency Act states that:
97 (3) The law of set-off applies to all claims made against the estate of the bankrupt and also to all actions instituted by the trustee for the recovery of debts due to the bankrupt in the same manner and to the same extent as if the bankrupt were plaintiff or defendant, as the case may be, except in so far as any claim for set-off is affected by the provisions of this Act respecting frauds or fraudulent preferences.
However, in the text The Law of Set-Off in Canada, (Aurora: Canada Law Book Inc., 1993), author Kelly R. Palmer makes the following statement at page 186 regarding set-off in the context of bankruptcy when one claim is due after the date of bankruptcy:
This case, as in receivership, is fairly straightforward. The assignment of the bankrupt's property to the trustee results in a change of mutuality. Accordingly, any claim which arises after the assignment will be between the claimant and the trustee and not the claimant and the bankrupt. Mutual debts will not be present and set-off will not be allowed.
In the case Re Krysin (1981), 131 D.L.R. (3d) 239, a doctor owed money to the provincial health plan (OHIP) as a result of overbilling. The doctor became bankrupt but continued practising and submitted further bills to OHIP. OHIP attempted to set-off the amounts due under these later invoices from the overbilling owed to it. The set-off was disallowed, the court stating:
I am of the opinion that in law there is no applicable set-off because the debts owing by OHIP to the bankrupt are subsequent to the bankruptcy. The contract relates to the method of payment of debts prior to bankruptcy. The one relates to personal post receiving order income of the bankrupt while the other relates to a debt of the estate. There is no mutuality.
Accordingly, more evidence than what was presented at this motion is required to determine whether the Respondent was able to set-off the $1,924.56 against the Appellant's liability for income tax in the bankruptcy. In particular, the evidence must be clear as to whose name both the income tax return and the rebate cheque were in and whose name they should have been in.
[6] As to the Appellant's argument in subparagraph [4] 1., the Trustee may be liable to the extent of the assets under administration in the ratio of claims for the remaining amount owed to the Respondent in the bankruptcy. This would require an adjustment of the dividends already paid by the Trustee in the bankruptcy. That may be outside of this Court's jurisdiction.
[7] There remains the question as to whether this assessment should have been levied on the bankruptcy estate and not on the Appellant personally. That question was not argued in detail and will require more evidence than was submitted respecting this motion.
[8] For these reasons, the Notice of Appeal is not quashed. In the event that the Notice of Appeal should not be quashed, the Respondent applied for an extension of 60 days from the date of this Order in which to file and serve a Reply to the Notice of Appeal. Respecting this alternative application:
1. The Notice of Appeal was filed on June 22, 2001.
2. The Respondent's motion was filed on August 30, 2001.
3. Subsection 18.16(1) of the Tax Court of Canada Act requires that a Reply to a Notice of Appeal under the Informal Procedure be filed within 60 days after the date on which the TCC transmits that to the Minister.
4. That transmission occurred on July 4, 2001. Thus the Notice of Motion was filed within the 60 day period.
[9] Since the Notice of Motion was brought within the 60 day period, the Respondent is granted 60 days from this date in which to file and serve a Reply to the Notice of Appeal.
[10] In view of these findings the Appellant may have to call a representative of the Trustee to give evidence in this appeal. For this reason the Appellant may wish the appeal to be heard in Toronto rather than Sudbury, since that may be more economical. If the Appellant wishes to have the appeal heard in Toronto he should contact the Registrar of the Court.
Signed at Ottawa, Canada, this 27th day of November, 2001.
"D. W. Beaubier"
J.T.C.C.
COURT FILE NO.: 2001-2415(IT)I
STYLE OF CAUSE: Robert Christopher Edward Arnew v.
Her Majesty the Queen
PLACE OF MOTION: Sudbury, Ontario
DATE OF MOTION: November 20, 2001
ORDER AND
REASONS FOR ORDER BY: The Honourable Judge Beaubier
DATE OF ORDER: November 27, 2001
APPEARANCES:
For the Appellant: The Appellant himself
Counsel for the Respondent: Roger Leclair
COUNSEL OF RECORD:
For the Appellant:
Name:
Firm:
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada