6 May 2010 Internal T.I. 2010-0360191I7 - Criminal/Bankruptcy Proceedings against a Taxpayer

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether case law exists to support the prosecution and bankruptcy of a delinquent tax debtor.

Position: Yes.

Reasons: The Minister may resort to a court of competent jurisdiction to institute civil proceedings to collect a tax debt.

									May 6, 2010

	Barrie Tax Services Office				HEADQUARTERS
	 								Income Tax Rulings
	    				 				  Directorate
									Lindsay Frank
	Attention: Mike Walker, Assistant Director	(613) 948 - 2227
	                  Revenue Collections and
	                  Taxpayer Services Division 	2010-036019

Criminal and Bankruptcy Proceedings against a Tax Debtor

This is in reply to an email from Sandy Deevy who has inquired as to whether there was case law to support the prosecution and bankruptcy of a habitually delinquent tax debtor.

The taxpayer is a XXXXXXXXXX lawyer who is XXXXXXXXXX years old. He is indebted for income tax in the amount of $XXXXXXXXXX , and for GST the sum of which is $XXXXXXXXXX . His total liability to the fisc is $XXXXXXXXXX .

He filed income tax returns for the 1991 and 1992 taxation years and paid the amounts due voluntarily. However, for the 1993 and subsequent years up to 2006, he filed such returns but is in arrears. The return for 2007 was assessed arbitrarily pursuant to subsection 152(7) of the Income Tax Act ("ITA"). The amount recovered to date is in the amount of $XXXXXXXXXX , consisting of $XXXXXXXXXX paid voluntarily, and $XXXXXXXXXX collected by enforcement. With regard to GST, he has filed GST returns for the 1995 to 2004 reporting periods. Since 2004, the returns have been arbitrarily assessed pursuant to subsection 299(1) of the Excise Tax Act ("ETA").

Any prosecution in this case would likely be under the provisions of paragraphs 239(1)(d) of the ITA, and 327(1)(c) of the ETA. However, it should be noted that criminal proceedings may not be used to collect civil debts, see Jack Walker & Harvey J. Ash, "Criminal Law May Not Be Used To Collect Civil Debts" in Debtor-Creditor Relations: Cases and Materials (Toronto: Butterworths, 1978), at pp. 1-36::1-38 wherein the authors caution against a possible infraction of what are now sections 141 and 346 of the Criminal Code, R.S.C. 1985, C-46. The proposed course of action needs to be discussed with officials of the Taxpayer Services and Debt Management Branch, and were they to concur, the file would then have to be referred to the Enforcement Division at the North York TSO. Should the Enforcement Division subsequently agree to take on the file, any collections action would need to be maintained at arm's length from the enforcement investigation.

Before bankruptcy proceedings can be initiated, the matter would also need to be discussed with officials of the Taxpayer Services and Debt Management Branch as well as with the Department of Justice. Under subsection 222(2) of the ITA and subsection 313(1.1) of the ETA, the Minister may resort to a court of competent jurisdiction to institute civil proceedings to collect a tax debt. Accordingly, the Minister may seek a bankruptcy order, under subsection 43(1) of the BIA, to collect a tax debt, see Slattery (Trustee of) v. Slattery, [1993] 2 C.T.C. 243 (S.C.R.). In order to obtain a bankruptcy order, the Minister would first need to prove that the taxpayer had an outstanding debt of at least $1,000.00, which clearly is the case here. The second requirement would be to prove that the taxpayer had committed an act of bankruptcy within the six months preceding the filing of the application. In this regard, it should be noted that subsection 42(1) of the BIA provides a list of actions that would prove that a debtor has committed an act of bankruptcy. Of significance to the Minister is paragraph 42(1)(e), which requires the obtaining of a nulla bona return on a writ.

Should you need for clarification or additional information, please do not hesitate to contact Lindsay Frank at the number provided above.

B.J. Skulski
Manager
Insolvency and Administrative Law Section
Ontario Corporate Tax Division
Income Tax Rulings Directorate

c.c. Lynn Livingston
Director, Accounts Receivable Division
Taxpayer Services and debt Management Branch

Jean-Marc Raymond
Senior General Counsel
Legal Services

Sandy Deevy
Revenue Collections Section
Barrie Tax Services Office