Slattery (Trustee of) v. Slattery, 93 DTC 5443, [1993] 3 SCR 430, [1993] 2 CTC 243

lacobucci, J.:— This appeal concerns the interpretation to be given to subsection 241(3) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act"), which permits in certain circumstances the disclosure of otherwise confidential information obtained from a taxpayer by officials of the Department of National Revenue. More specifically, the appeal concerns an action by a trustee in bankruptcy under the Bankruptcy Act, R.S.C., 1985, c. B-3, for a declaration that certain property is the property of a taxpayer bankrupt's estate. The issue is whether such an action is a proceeding “relating to the administration or enforcement of" the Income Tax Act.

I. Facts

Raymond Slattery, who is not a party to this action, fell into arrears in paying income tax, resulting in a lengthy investigation by Revenue Canada. Unable to collect the taxes owing, Revenue Canada petitioned Slattery into bankruptcy. The respondent, Doane Raymond Ltd. (the trustee), was appointed as trustee in bankruptcy of the Raymond Slattery estate. In the bankruptcy, Revenue Canada proved a claim of just over $1 million and other creditors proved claims of over $3 million; however, since Revenue Canada is the only preferred creditor, it appears that the assets of the estate will not be sufficient to satisfy the claims of any other creditors.

The trustee commenced an action against the appellant, Marguerite Slattery, who is the wife of the bankrupt Slattery. The action sought a declaration that certain assets registered in Marguerite Slattery's name were, in fact, the property of the bankrupt's estate or were held in trust for that estate.

At trial, the trustee sought to introduce testimony from two Revenue Canada officials who had participated in the investigation into Raymond Slattery's affairs. Counsel for Marguerite Slattery objected on the ground that such testimony was barred by section 241 of the Income Tax Act, which prohibits Revenue Canada officials from disclosing information which has been obtained from a taxpayer for the purposes of the Income Tax Act. The trial judge ruled that the testimony was not barred by section 241 because it fell within the exception contained in subsection 241(3), which exception provides that the prohibition does not apply “in respect of proceedings relating to the administration or enforcement of" the Income Tax Act. Both officials testified, and the New Brunswick Court of Queen's Bench granted the declaration sought in part.

Marguerite Slattery appealed. She argued that the trial judge had erred in permitting the Revenue Canada officials to testify. The New Brunswick Court of Appeal agreed with the trial judge's interpretation of section 241 of the Income Tax Act, and dismissed the appeal.

II. Relevant statutory provisions

Income Tax Act, section 241:

241.(1) Except as authorized by this section, no official or authorized person shall

(a) knowingly communicate or knowingly allow to be communicated to any person any information obtained by or on behalf of the Minister for the purposes of this Act or the Petroleum and Gas Revenue Tax Act,

(b) knowingly allow any person to inspect or to have access to any book, record, writing, return or other document obtained by or on behalf of the Minister for the purposes of this Act or the Petroleum and Gas Revenue Tax Act, or

(c) knowingly use, other than in the course of his duties in connection with the administration or enforcement of this Act or the Petroleum and Gas Revenue Tax Act, any information obtained by or on behalf of the Minister for the purposes of this Act or the Petroleum and Gas Revenue Tax Act.

(2) Notwithstanding any other Act or law, no official or authorized person shall be required, in connection with any legal proceedings,

(a) to give evidence relating to any information obtained by or on behalf of the Minister for the purposes of this Act or the Petroleum and Gas Revenue Tax Act, or

(b) to produce any book, record, writing, return or other document obtained by or on behalf of the Minister for the purposes of this Act or the Petroleum and Gas Revenue Tax Act.

(3) Subsections (1) and (2) do not apply in respect of criminal proceedings, either by indictment or on summary conviction, that have been commenced by the laying of an information, under an Act of the Parliament of Canada, or in respect of proceedings relating to the administration or enforcement of this Act or the Petroleum and Gas Revenue Tax Act.

(4) An official or authorized person may. . . .

(c) communicate or allow to be communicated information obtained under this Act or the Petroleum and Gas Revenue Tax Act, or allow inspection of or access to any book, record, writing, return or other document obtained by or on behalf of the Minister for the purposes of this Act or the Petroleum and Gas Revenue Tax Act, to or by any person otherwise legally entitled thereto, or. . . .

III. Judgments below

1. New Brunswick Court of Queen's Bench (Jones, J.)

The judgment of the New Brunswick Court of Queen's Bench consists of an oral ruling during the trial on the admissibility of testimony from the Revenue Canada officials. Jones, J. held that the proceedings in the case at bar fell within the exception in subsection 241(3) of the Income Tax Act. In interpreting the phrase "in respect of proceedings relating to the . . . enforcement of this Act", the trial judge commented upon two possible approaches, namely, the one set out in Glover v. M.N.R., [1981] 2 S.C.R. 561, [1982] C.T.C. 29, 82 D.T.C. 6035, in which the exception in subsection 241(3) was held not to apply in any legal proceedings of a civil character, and a second approach taken in Canadian Pacific Tobacco Co. v. Stapleton (1952), 86 C.L.R. 1 (Aust. H.C.), which was more supportive of the trustee's position.

The trial judge held that “relating to" in subsection 241(3) has a broad meaning. He suggested that, although subsection 241(3) does not apply to civil proceedings unrelated to the Income Tax Act, some civil proceedings nonetheless fall within the exemption. He concluded that the action by the trustee was of this latter kind, stating:

Now I know there can be civil legal proceedings strictly under the Income Tax Act, nevertheless, it is my finding that on the interpretation that I make of the words “relating to the enforcement of the Act that — and bearing in mind the circumstances in this case, the fact that it is — this is a civil action by trustee in bankruptcy, major — while the primary creditor is Revenue Canada, and the purpose for which — came out in evidence before me yesterday morning, this action is pursued, I would find, that it comes within the meaning of section 241.3 and I would, therefore allow the plaintiff to continue with questions along that — along the line which he was pursuing, or at least I would say that sections 241.1 and 241.2 would not apply in this proceeding.

Accordingly, the trial judge permitted the Revenue Canada officials to testify.

2. New Brunswick Court of Appeal (1991), 120 N.B.R. (2d) 4 (Hoyt, Ayles and Ryan, JJ.A.)

The reasons of the Court were delivered by Hoyt, J.A. (as he then was). During a brief review of the facts, Hoyt, J.A. noted the importance of the testimony given by the Revenue Canada officials to the decision reached by the trial judge. He also noted that the purpose of the trustee's action was to ensure that the assets of the estate were collected, so that the bankrupt's creditors, including Revenue Canada, could be paid. In determining whether such proceedings were "'proceedings relating to the administration or enforcement of this Act", Hoyt, J.A. held at pages 11-12:

A taxpayer who, like Mr. Slattery, circumvents tax collection procedures found in the Act is not thereby immune from other proceedings that the Minister may take to collect unpaid taxes and thus enforce the Act. Although Mr. Slattery is not a defendant in this proceeding, the trial judge has found, correctly in my view, that this situation arose because Mr. Slattery attempted to avoid paying outstanding taxes owed to Revenue Canada by implicating Mrs. Slattery with, it must be noted, her acquiescence.

Hoyt, J.A. held at page 12 that to "accept the appellant's submission could prevent the Minister from enforcing the Income Tax Act in proceedings other than those brought specifically under that Act". He distinguished Glover, supra, by stating that the present action could not be characterized as a non-/ncome Tax Act legal proceeding. Although this proceeding was not instituted under the Income Tax Act, he found it to be related to the enforcement of that Act.

As a result, the Court of Appeal held that the Revenue Canada officials had properly been permitted to testify and the appeal was dismissed.

IV. Issue

The question raised by this appeal is whether a civil action commenced by the trustee for a declaration that certain property is property of the bankrupt's estate is a proceeding" relating to the . . . enforcement of" the Income Tax Act within the meaning of subsection 241(3) of that Act. If it is, the prohibitions contained in section 241 of the Income Tax Act against Revenue Canada officials communicating or giving evidence of information obtained from the taxpayer do not apply. The respondent trustee in its factum also argues that the disclosure could be permitted by the exception contained in paragraph 241(4)(c), supra, by suggesting that a bankruptcy judge is a "person otherwise legally entitled” to such information. As a result of my conclusion, I need not discuss this argument further.

An analysis of the history of section 241, its underlying purposes and policy, its text and context, applicable judicial authority, and the nature of the proceedings involved herein, leads me to conclude that the courts below were correct in their holdings and that this appeal should be dismissed.

V. Analysis

1. History of section 241

At the outset, it is worth noting that the taxation of income in Canada has been and is based on a self assessment and self reporting system. Confidentiality of taxpayer information has been an important part of our income tax collection system.

Legislated confidentiality of information obtained from taxpayers has moved through two distinct stages in Canada. The first stage began with section 11 of the Income War Tax Act, 1917, c. 28. That section was a simple prohibition against disclosure by a person employed in the service of the Crown to a person, not legally entitled thereto, of any information obtained under the Act. Section 11 read as follows:

11. No person employed in the service of His Majesty shall communicate or allow to be communicated to any person not legally entitled thereto, any information obtained under the provisions of this Act, or allow such person to inspect or have access to and written statement furnished under the provisions of this Act. Any person violating any of the provisions of this section shall be liable on summary conviction to a penalty not exceeding $200.

Section 11 was re-enacted as section 81 of the 1927 Income War Tax Act, R.S.C. 1927, c. 97, with the only modification being that the section was divided into two subsections, with the penalty portion becoming subsection 81(2). In 1948, section 81 became section 121 of the Income Tax Act, slight changes in wording took place, and the subsections reverted to a consolidated form once more (S.C. 1948, c. 52). In 1952, the last change of the first stage occurred, and section 121 became section 133 in the Income Tax Act, R.S.C. 1952, c. 148. Viewed as a whole, this stage of legislative history is distinguishable because the extent of confidentiality protection afforded to taxpayers by the plain language of the statute had two features. First, the prohibition against disclosure was directed only at persons in the service of the Crown. Second, the success of that prohibition depended almost entirely upon the meaning ascribed to the statutory phrase “a person, not legally entitled thereto”, which phrase offered the only exception to the otherwise blanket statutory prohibition.

The second legislative stage began in 1966 when the confidentiality section was entirely modified by two amendments (S.C. 1966-67, c. 47, section 17, and S.C. 1966-67, c. 91, section 22). These amendments extended the general rule of non-disclosure to everyone, and at the same time spelled out specific exceptions for prescribed situations. (See Stephen J. Toope and Alison L. Young, "The Confidentiality of Tax Returns under Canadian Law" (1982), 27 McGill L.J. 479.) The following is a succinct summary of the 1966 amendments at page 489:

The general effect of these provisions is to make the section easier to apply. There is now a general prohibition against release of tax information to anyone. The subsections which follow the general prohibition set up exceptions to the rule, and the circumstances in which ministerial discretion may operate seem to be clear. The organization of the section is, in this respect, more amenable to application by common law courts as it resembles a set of rules rather than an abstract principle.

As will be noted again below, the 1966 amendments were described by the Ontario Court of Appeal as "a comprehensive code designed to protect the confidentiality of all information given to the Minister for the purposes of the Income Tax Act’: Glover v. Glover (No. 1), [1980] C.T.C. 531, 80 D.T.C. 6262 at page 396. The amendments were initially embodied in section 1.33, but in 1970, section 133 became section 241 of the Income Tax Act, as it remains today. Since then, the section has been only slightly modified.

2. Purposes and policy underlying section 241

In my view, section 241 involves a balancing of competing interests: the privacy interest of the taxpayer with respect to his or her financial information, and the interest of the Minister in being allowed to disclose taxpayer information to the extent necessary for the effective administration and enforcement of the Income Tax Act and other federal statutes referred to in subsection 241(4).

Section 241 reflects the importance of ensuring respect for a taxpayer's privacy interests, particularly as that interest relates to a taxpayer's finances. Therefore, access to financial and related information about taxpayers is to be taken seriously, and such information can only be disclosed in prescribed situations. Only in those exceptional situations does the privacy interest give way to the interest of the state.

As alluded to already, Parliament recognized that to maintain the confidentiality of income tax returns and other obtained information is to encourage the voluntary tax reporting upon which our tax system is based. Taxpayers are responsible for reporting their incomes and expenses and for calculating the tax owed to Revenue Canada. By instilling confidence in taxpayers that the personal information they disclose will not be communicated in other contexts, Parliament encourages voluntary disclosure of this information. The opposite is also true: if taxpayers lack this confidence, they may be reluctant to disclose voluntarily all of the required information (Edwin C. Harris, Canadian Income Taxation (4th ed. 1986), at pages 26-27).

Parliament has also recognized, however, that if personal information obtained cannot be used to assist in tax collection when required, including tax collection by way of judicial enforcement, the possession of such information will be useless. Disclosure of information obtained through tax returns or collected in the course of tax investigations may be necessary during litigation in order to ensure that all relevant information is before the court, and thereby to assist in the correct disposition of litigation. But this necessity is sanctioned by Parliament in a very limited number of situations. Disclosure is authorized in criminal proceedings and other proceedings as set out in subsection 241(3). Certain other situations are specified in subsection 241(4), which have been described by the Ontario Court of Appeal as being" largely of an administrative nature” (Glover v. Glover (No. 17), supra, at page 397).

3. The text and context of subsection 241(3)

As already noted, subsection 241(3) provides, inter alia, that the confidentiality provisions in subsections 241(1) and (2) do not apply “in respect of proceedings relating to the administration or enforcement of” the Income Tax Act. The appellant argues that the only proceedings covered by this exception are those which are expressly provided for in Part XV of the Act, entitled “Administration and Enforcement". The appellant's argument would require the words in subsection 241(3) to be read as meaning that the confidentiality provisions do not apply “in respect of proceedings taken pursuant to the administration or enforcement provisions" of the Income Tax Act. Neither the text nor context of section 241 supports this argument.

The connecting phrases used by Parliament in subsection 241(3) are very broad. The confidentiality provisions are stated not to apply in respect of proceedings relating to the administration or enforcement of the Income Tax Act.

The phrase "in respect of” was considered by this Court in Nowegijick v. The Queen, [1983] 1 S.C.R. 29, [1983] C.T.C. 20, 83 D.T.C. 5041, at page 39 (C.T.C. 25, D.T.C. 5045):

The words “in respect of” are, in my opinion, words of the widest possible scope. They import such meanings as "in relation to”, "with reference to" or "in connection with". The phrase “in respect of” is probably the widest of any expression intended to convey some connection between two related subject matters.

[Emphasis added.]

In my view, these comments are equally applicable to the phrase relating to". The Pocket Oxford Dictionary (1984) defines the word relation” as follows:

. . . what one person or thing has to do with another, way in which one stands or is related to another, kind of connection or correspondence or contrast or feeling that prevails between persons or things. . . .

So, both the connecting phrases of subsection 241(3) suggest that a wide rather than narrow view should be taken when considering whether a proposed disclosure is in respect of proceedings relating to the administration or enforcement of the Income Tax Act.

This breadth of meaning is confirmed when one examines the French version of the section. The French version of subsection 241(3) reads as follows:

241(3) Les paragraphes (1) et (2) ne s'appliquent ni aux poursuites au criminel, sur acte d’accusation ou sur déclaration sommaire de culpabilité, engagées par le dépôt d'une dénonciation, en vertu d'une loi fédérale, ni aux poursuites ayant trait à l'application ou a l'exécution de la présente loi. . . .

[Emphasis added.]

The phrase“ ayant trait à" is defined in the Larousse dictionary Dictionnaire de la langue française (1988) as: "Avoir trait à : avoir un rapport avec". The dictionary Le Robert Méthodique (1988) defines the phrase as: "Avoir trait à : Se rapporter à . . . V. Rapport". And the same dictionary defines the word "rapport" as meaning “Lien, relation”. Consequently, the French version of subsection 241(3) is as broad as the English version.

The next question to ask considers what type of administration or enforcement proceedings, are contemplated by subsection 241(3): only proceedings brought under the Income Tax Act itself, or both such proceedings and others? To answer this question, one must look first to the wording of subsection 241(3). That provision contains no language which confines the concept of proceedings relating to administration or enforcement to the boundaries of the Income Tax Act. This conclusion is buttressed when one considers the context of section 241.

Section 241 is found in Part XV of the Income Tax Act, which deals with administration and enforcement as previously noted. It is obvious, but the fact must nonetheless be highlighted, that the collection of money owing to Revenue Canada is an important part of the Act's enforcement. This proposition is confirmed by section 222 of the Act which reads as follow:

222. All taxes, interest, penalties, costs and other amounts payable under this Act are debts due to Her Majesty and recoverable as such in the Federal Court of Canada or any other court of competent jurisdiction or in any other manner provided by this Act.

[Emphasis added.]

Section 222 is a clear statement that, in addition to the procedures specified in the Income Tax Act, the Minister may resort generally to the courts to institute civil proceedings to collect taxes as debts. But, in order to take full advantage of this power, the Minister must be able to disclose in court otherwise confidential information in order to prove the cause of action in debt. It must therefore be possible to disclose such information to establish the amount owed and to prove related matters. Absent the ability to disclose as required to prove a debt, section 222 would be deprived of part of its meaning. The absurdity of such a result strongly suggests that the collection proceedings specified in section 222 are proceedings relating to the . . . enforcement" of the Income Tax Act within the meaning of subsection 241(3).

This legislative interpretation accords with the necessary balancing of privacy and state interests which takes place in section 241. Confidentiality of tax information is necessary in order to promote the privacy interests of taxpayers and the success of voluntary tax reporting. But the success of the voluntary tax reporting system will be of no import if Revenue Canada cannot effectively collect taxes owed by taxpayers. In order to collect taxes owed, Revenue Canada should be able to resort to various procedures and proceedings to pursue the amounts owed and in doing so should also be able to disclose in court the information necessary to prove a cause of action in debt. As Décary, J.A. said in Diversified Holdings Ltd. v. Canada, [1991] 1 F.C. 595 (C.A.), at page 599:

In the instant case, the documents are part of a process, the collection proceedings, which is in itself in the public domain and which involves by its very nature the publication of information that would otherwise have remained confidential. One cannot seize a property pursuant to a certificate which has the force and effect of a judgment (see subsection 223(2) of the Act) without revealing to some extent information given to the Minister.

4. Judicial interpretation of section 241

I do not find it necessary to discuss all the cases which were decided under section 241’s predecessor sections or which deal with actions related to those predecessor sections. However, both the appellant and respondent cited, in support of their respective positions, the decision of the Ontario Court of Appeal in Glover v. Glover (No. 1), supra, which was affirmed by this Court in a short judgment (Glover v. M.N.R., [1981] 2 S.C.R. 561, [1982] C.T.C. 29, 82 D.T.C. 6035). Accordingly, some comment on this case is required.

In Glover, a trial judge ordered Revenue Canada to disclose the address of a taxpayer who had abducted his children in violation of a court order which granted custody to the children's mother. The question was whether the judge who ordered disclosure of the information was a person “legally entitled thereto". That phrase had been carried over from section 241’s predecessor provision and was restated in paragraph 241(4)(c) as an enumerated exception. The Ontario Court of Appeal set aside the trial judge's order, holding that the judge did not come within the paragraph 241(4)(c) exception.

In the course of his reasons, MacKinnon, A.C.J.O. on behalf of a unanimous court made some general comments on the interpretation of section 241. He stated at page 396 that "[s]ection 241, in my view, is a comprehensive code designed to protect the confidentiality of all information given to the Minister for the purposes of the Income Tax Act”. In his opinion, at page 397, subsection 241(3) was:

. . . a clear statement of parliamentary policy that no information obtained for the purpose of the Act shall be communicated and no official or authorized person shall be required to give evidence relating to such information in any non-/ncome Tax Act civil legal proceedings.

The mother appealed the decision of the Ontario Court of Appeal to this Court, which dismissed the appeal with brief reasons in which Laskin, C.J. said at page 562:

Sympathetic though one is inclined to be to the appellant's plight, the statutory provisions above-mentioned for non-disclosure, in connection with any legal proceedings of a civil character, do not give any power to a court to qualify them nor do the exceptions set out in paragraph 241(4)(c) assist the appellant.

I agree with the respondent that, in Glover, the proceedings in question had no connection whatsoever with the administration or enforcement of the Income Tax Act. As a result, this Court's decision must be read to mean that the confidentiality provisions apply to any legal proceeding of a civil character which is not covered by the exception provided in subsection 241(3). In other words, subsections 241(1) and (2) apply to civil proceedings which are not related to the administration or enforcement of the Income Tax Act. In my view, Glover does not inform the issue already set out: the essential question is whether or not the bankruptcy proceedings taken herein are related to the administration or enforcement of the Income Tax Act. As I will now discuss, I think they are.

V. Are the present proceedings covered by subsection 241(3)?

In determining whether the present bankruptcy proceedings are covered by the exception in subsection 241(3) of the Income Tax Act, I think it worthwhile to note briefly some of the features of the bankruptcy process.

It has been stated that among the purposes of the Bankruptcy Act are a desire to permit an effective and fair distribution of the assets of a bankrupt person, and a desire to protect creditors of insolvent persons. See Houlden and Morawetz, Bankruptcy and Insolvency Law of Canada (3rd ed. 1993), at pages 1-3, 1-4; see also Marc Chabot, Faillite et Insolvabilité (1987), at page 8. Indeed, it has been asserted that not only are the interests of debtors and creditors protected under the Bankruptcy Act, but so is the public interest. See Professor Albert Bohimier, Faillite et Insolvabilité, volume 1 (1992) at pages 48-56. Thus, there are many who would advocate resort to bankruptcy proceedings as an effective and fair means of debt collection. I need not join the debate as to whether or to what extent these assertions are true. I will simply note that the bankruptcy process is aimed at the proper protection of debtor, creditor and public interests.

In the case on appeal, the Minister of National Revenue petitioned Raymond Slattery into bankruptcy. Mr. Slattery filed a statement of affairs stating that he had virtually no assets. The trustee then commenced the present action in the Court of Queen's Bench of New Brunswick seeking a declaration that certain assets held in, the name of the appellant, Marguerite Slattery, were in reality property of the bankrupt's estate.

The appellant admits that, if the Minister through Revenue Canada had instituted proceedings under the Income Tax Act, such proceedings would be enforcement proceedings covered by the exception in subsection 241(3). However, the appellant argues that because the proceedings herein were taken by the trustee, they cannot qualify as such. In my view, this argument fails for several reasons.

First, the appellant's argument is not supported by the wording of subsection 241(3). As mentioned earlier, in my opinion the exception authorizing Revenue Canada to disclose tax related information in proceedings is very broad; that is, it operates in respect of proceedings relating to the enforcement of the Income Tax Act. The practical purpose and result of the present proceedings will be to increase the estate of the bankrupt taxpayer, Raymond Slattery. The ultimate purpose and result of these same proceedings will be the payment of taxes owed, inasmuch as Revenue Canada is a preferred beneficiary under the scheme of distribution established by section 136 of the Bankruptcy Act, R.S.C., 1985, c. B-3. I find it quite clear that, under the terms of subsection 241(3), such a proceeding has a" relation” or“ connection” with the enforcement of the Income Tax Act. Neither the fact that the bankruptcy proceedings involve other creditors of the bankrupt, nor the fact that the proceedings were commenced by the trustee, detracts from the “relation” or "connection" between the proceedings and the enforcement of the Income Tax Act.

Second, the appellant's argument is also somewhat inconsistent with the power given to creditors in subsection 38(1) of the Bankruptcy Act. Subsection 38(1) provides for the following:

38(1) . . . Where a creditor requests the trustee to take any proceeding that in his opinion would be for the benefit of the estate of a bankrupt and the trustee refuses or neglects to take the proceeding, the creditor may obtain from the court an order authorizing him to take the proceeding in his own name and at his own expense and risk. . . .

If we accept the appellant's proposition, a potential contradiction obviously results. That is, if a trustee initiated proceedings, confidential information obtained by Revenue Canada could not be disclosed in order to prove the fraudulent scheme, whereas if the trustee refused to act and Revenue Canada took the same proceedings, the information could arguably be disclosed. This result makes no sense since, in either case, the proceedings would be under the Bankruptcy Act and would be taken in furtherance of enforcing the Income Tax Act. The intervention of the trustee does not change the character of the bankruptcy proceedings, in so far as that character relates to the enforcement of the Income Tax Act.

Third, at the level of policy, I see no valid reason why the Minister should be inhibited from recourse to the bankruptcy process in light of the advantages and protection that this process can entail. If the Minister cannot disclose confidential information in bankruptcy to prove a claim asserted, the bankruptcy procedure will in many cases not be available for income tax enforcement. Again, the sense of this result is not apparent.

Without wishing to rule in any way on the matter, it is alleged that Revenue Canada had and still has at its disposal some Income Tax Act remedies against the appellant, which are unaffected by the stay of proceedings provided for by section 69 of the Bankruptcy Act, which reads as follows:

69(1) On the filing of a proposal made by an insolvent person or on the bankruptcy of any debtor, no creditor with a claim provable in bankruptcy shall have any remedy against the debtor or his property or shall commence or continue any action, execution or other proceedings for the recovery of a claim provable in bankruptcy until the trustee has been discharged or until the proposal has been refused, unless with the leave of the court and on such terms as the court may impose.

(See D. Scott Brown, "Bankruptcy and Income Tax: A Revenue Canada Perspective" in 1990 Conference Report: Report of the Proceedings of the Forty- Second Tax Conference, at page 18:11).

One of these allegedly unaffected remedies is found in section 160 of the Income Tax Act which provides:

160(1) Where a person has, on or after the 1st day of May, 1951, transferred property, either directly or indirectly, by means of a trust or by any other means whatever, to

(a) his spouse or a person who has since become his spouse,

the following rules apply:

(e) the transferee and transferor are jointly and severally liable to pay under this Act an amount equal to the lesser of

(i) the amount, if any, by which the fair market value of the property at the time it was transferred exceeds the fair market value at that time of the consideration given for the property, and

(ii) the aggregate of all amounts each of which is an amount that the transferor is liable to pay under this Act in or in respect of the taxation year in which the property was transferred or any preceding taxation year.

D. Scott Brown, in the article cited above, comments on the scope of section 160 as follows (at page 18:13):

The provisions of section 160 enable the Minister to assess a transferee in respect of a transfer of property that, but for that provision, would require recourse under the settlement provisions of sections 91, 92 or 93 of the Bankruptcy Act, or alternatively under a provincial fraudulent conveyance statute. Generally, section 160 provides a very effective remedy against this type of transfer. In fact, the result of any direct or indirect transfer to a spouse . . . will be that the transferee and the transferor will be held jointly and severally liable under section 160 to pay the lesser of (1) the difference between the fair market value of the property and the amount paid for the property, and (2) the amount of the tax due by the transferor in the year of the transfer or any prior year.

It was apparently acknowledged by the appellant that the Minister could have used section 160 in an attempt to recover some of the taxes owed by Raymond Slattery, but did not do so. The appellant agrees that, in the context of section 160, the Minister could have disclosed the confidential tax information, but the appellant argues that the bankruptcy proceedings are different in nature. However, whether or not they are different in nature is beside the point. The important point is whether or not the disclosure within the bankruptcy proceedings occurred "in respect of proceedings relating to the administration or enforcement of" the Income Tax Act. The possible existence of an alternative enforcement procedure which would clearly permit disclosure is further support for the respondent's position. Although the Minister chose to collect taxes by petitioning the taxpayer into bankruptcy, in my view, this did not disentitle Revenue Canada from disclosing the confidential information. The disclosure occurred in respect of proceedings which can be clearly characterized as relating to the enforcement of the Income Tax Act within the meaning of subsection 241(3) of that Act.

Finally, counsel for the respondent argued that to characterize the bankruptcy proceedings as "proceedings relating to the . . . enforcement of" the Income Tax Act would open up difficult questions relating to competence and compellability as those issues might affect Revenue Canada in a variety of possible actions. I find this argument unpersuasive, particularly in light of the circumstances of this case. Those circumstances include Revenue Canada's act of petitioning the taxpayer into bankruptcy, the active involvement of Revenue Canada in the bankruptcy proceedings, the collaboration between officials and the trustee, and the reality that Revenue Canada was entitled to volunteer and did, in fact, volunteer to disclose the otherwise confidential information in order to enforce the Income Tax Act.

VI. Conclusion

For the foregoing reasons, I conclude that the proceedings taken by the trustee are "proceedings relating to the administration or enforcement" of the Income Tax Act as set out in subsection 241(3). Accordingly, I would dismiss the appeal with costs.

McLachlin, J.:— I have had the benefit of reading the reasons of my colleague, Justice lacobucci. I respectfully disagree with his conclusion regarding the scope of the subsection 241(3) exemption from non-disclosure of information obtained by the Minister of Revenue for the purposes of the Income Tax Act.

Subsection 241(3) provides that the general prohibition on disclosure of such information, as set out in subsections 241(1) and (2), does not apply, inter alia, "in respect of proceedings relating to the administration or enforcement of this Act. . . .” The sole question on this appeal is whether the proceedings at issue are of this type.

These proceedings should be carefully described. Raymond Slattery fell into arrears paying income taxes. Revenue Canada conducted a lengthy investigation into his affairs. They petitioned Mr. Slattery into bankruptcy. In bankruptcy proceedings Revenue Canada proved a claim against Mr. Slattery of over $1,000,000. At a subsequent trial to determine title between the appellant and the bankrupt's estate, the trustee in bankruptcy sought to introduce testimony from two Revenue Canada officials who had participated in the earlier investigation of Mr. Slattery's affairs. This testimony was admitted on the ground that the trial was a proceeding relating to the administration or enforcement of the Income Tax Act. The ruling was upheld on appeal.

My colleague lacobucci, J. would uphold these decisions. Focusing in part on the fact that the trial would ultimately result in the collection of unpaid taxes, he finds that the trial was a proceeding "relating to” the administration or enforcement of the Act.

In my view, the subsection 241(3) exemption applies only in the case of proceedings specifically provided for in the Income Tax Act. These proceedings are, for the most part, set out in Part XV of the Act which, as the title of the Part indicates, establishes "administration and enforcement" provisions. A trial to determine title between an individual and a trustee in bankruptcy is not a proceeding provided for in Part XV, or elsewhere in the Act. Accordingly, in my view, Revenue Canada officials should have been barred from disclosing information obtained in the course of their investigation of the bankrupt's affairs.

The scope of section 241

lacobucci, J. has discussed the character of the provisions which govern the disclosure of information obtained for the purposes of the Act. He notes that [o]nly in those exceptional situations does the privacy interest [of citizens] give way to the interest of the state". These words, as my colleague notes, reflect the balance which Parliament has established between the competing interests at play: the interest in ensuring voluntary disclosure to the Minister of Revenue, which is served by the general rule of confidentiality, and the state's interest the collection of tax debts.

But having noted the primacy of privacy concerns under the Income Tax Act, lacobucci, J. goes on to interpret the disclosure clause of section 241 broadly. He finds that the connecting phrases used in subsection 241(3) are "very broad”. Relying on Nowegijick v. The Queen, supra, he interprets these connecting phrases to encompass proceedings which have any connection with the administration of the Act.

I do not share the view that Nowegijick informs the issue. That case does not concern section 241 or any of its predecessor sections. Rather, Nowegijick discusses the phrase "in respect of” as it is employed in section 87 of the Indian Act, R.S.C. 1970, c. I-6, in relation to taxation of personal property. Giving the phrase the" widest possible scope" in that context is not determinative of its application in subsection 241(3). Instead, the context of subsection 241(3), and jurisprudence of this Court treating the section, suggests that the phrase should be construed narrowly, not broadly. As Wilson, J. noted in R. v. McKinlay Transport Ltd., [1990] 1 S.C.R. 627, [1990] 2 C.T.C. 103, 90 D.T.C. 6243, at page 650 (C.T.C. 114, D.T.C. 6251):

. . . the taxpayer's privacy interest is protected as much as possible since section 241 of the Act protects the taxpayer from disclosure of his records or the information contained therein to other persons or agencies.

[Emphasis added.]

See also Glover v. M.N.R., supra, at page 562 (C.T.C. 30, D.T.C. 6035), per Laskin, J. (as he then was).

The structure of section 241 subsequent to its 1966 amendment (S.C. 1966-67, c. 47, section 17 and S.C. 1966-67, c. 91, section 22) bears out the interpretation given the section by Wilson, J. Prior to 1966, the Minister of Revenue was barred from disclosing information obtained under the Act to persons "not legally entitled thereto. . . ." This phrase did not constitute a serious hurdle to disclosure. As noted by Stephen J. Toope and Alison L. Young, in“ "The Confidentiality of Tax Returns Under Canadian Law" (1982), 27 McGill L.J. 479, at page 487, "the [former] section created a carte blanche for the Minister to consider almost anyone to be'legally entitled' to the information as long as they could show some vague need". After 1966, the prohibition was extended to "any person”, unless a specific exemption had been provided. The exemptions are few, and are set out in subsections 241(3) and (4). Disclosure is permitted in specific criminal proceedings, in proceedings relating to the administration or enforcement of the Act, and, by virtue of subsection 241(4), as might be required to facilitate specific government programs and the internal working of the Ministry of specific features of the Act. In paragraph 241(4)(c), disclosure to persons "otherwise legally entitled thereto. . .” is again permitted, but the phrase is no longer the animating concern of the section. Rather, it must be understood as one element in a group of narrow and particular exemptions largely administrative in nature: see Glover v. Glover (No.1) (1980), 29 O.R. (2d) 392, at page 398.

The appellant submits that the proceedings at issue on this appeal are not proceedings relating to the administration of the Act in which the Minister can disclose information obtained for the purposes of the Act since they are not specifically provided for in Part XV of the Act. I agree with the substance of this submission. We are not here concerned with the capacity of the Ministry to undertake, or to involve itself in, proceedings which may bear some connection to the enforcement of the Act. The concern is whether these are the sort of proceedings which are so connected to the administration of the Act that they fall within the contemplation of the exemption in subsection 241(3) and thereby allow the Ministry to disclose information which it has only by virtue of special investigative powers provided for in the Act (see sections 231.1 to 231.5).

Part XV of the Act provides the Minister of Revenue with a system of debt collection proceedings that mirrors ordinary creditors’ remedies. Taxes owing may be recovered by registering the amount in Court and enforcing it as a judgment (subsection 223(3)), registering the amount as a charge on land (subsection 223(5)), garnishing sums destined to the tax debtor from third parties (subsection 224(1)), deducting the amount from or setting it off against other sums payable by the Crown to the tax debtor (section 224.1), seizing and selling the debtor's chattels (subsection 225(1)) and prosecuting the tax debtor for offences under the Act and obtaining compliance orders (sections 238 and 239). But Part XV does not deal with bankruptcy, except to the extent of providing the Minister the power to collect money owed to a secured creditor by a trustee in bankruptcy, notwithstanding the Bankruptcy Act, R.S.C., 1985,

c. B-3: see Income Tax Act, subsection 224(1.2) (added by S.C. 1987, c. 46, section 66).

In the context of Part XV this legislative silence is significant. Bankruptcy is a particular process with specific and salutary aims. Above all, however, bank- ruptcy is a process that involves all of the creditors of a particular debtor. Concern for the confidentiality of information that is not public is very much at issue.

My colleague is of the view that the bankruptcy process is available to the Minister by virtue of section 222 of the Act, which provides that the Minister may resort to a court of competent jurisdiction to collect tax debts. I concur in this interpretation of the plain wording of section 222, but I am not persuaded that the proceeding that is at issue here is an action under section 222.

In the first place, the action is not brought by Her Majesty, as the section appears to contemplate. It is brought by a trustee in bankruptcy, lacobucci, J. is of the view that this does not take the proceedings out of the subsection 241(3) exemption. I disagree. Under section 69 of the Bankruptcy Act, all collection proceedings are stayed once the debtor is declared bankrupt. Until that point the Minister arguably may prove its debt by disclosure of information obtained for the purposes of the Act. But once a debtor is declared bankrupt, and a trustee in bankruptcy has been put in place to pursue the bankruptcy, the proceeding is no longer capable of being accurately characterized as a proceeding relating to the administration of the Act. The stay operates until the trustee in bankruptcy is discharged. The trustee has a statutory duty to take possession of the bankrupt's property. It has a statutory power to institute legal proceedings. Persons in possession of a bankrupt's property have a statutory duty to deliver it to the trustee. (See Bankruptcy Act, subsections 16(3), 16(4), 19(1), (2), and 17(1).) The trustee is a fiduciary of the estate of the bankrupt and institutes an action to the benefit of the state as a whole. The trustee does not act as mere agent of the creditors, or as an agent of particular creditors. In such a legal context, I do not think that it can be said that the fact that the practical effect of the proceedings will permit the Minister to realize on an outstanding debt suffices to make the proceeding one that relates to the administration of the Act.

The fact that Part XV of the Act makes no specific provision for disclosure in the context of bankruptcy suggests that when the Minister has recourse to this procedure, its actions are governed by the Bankruptcy Act and no longer by the Income Tax Act. In so proceeding the Minister loses the capacity to deploy the special information gathering techniques, which accrue only by virtue of the Income Tax Act, either to its own advantage, or to those of its fellow creditors. The broad powers to compel appearance and disclosure which are exercisable by the trustee in bankruptcy under the Bankruptcy Act (see sections 163 through 167) should be interpreted in light of this fact. Information available from public sources is not unavailable in such proceedings simply because it has passed through the hands of Revenue Canada. But information that issues from the Minister, by virtue of any special investigative powers, must remain confidential.

Paragraph 241 (4) (c)

The respondent also argues that the Minister was permitted to disclose confidential information in the case at bar since a superior court judge is a person, as provided in paragraph 241(4)(c), “legally entitled" to the information. In my view the decisions of this Court and of the Ontario Court of Appeal in Glover, supra dispense with this argument. The issue in those cases was whether the judge in child custody proceedings was a "person . . . legally entitled” to the information. The Ontario Court of Appeal, in a decision that was affirmed in this Court, held (at page 397) that the subsection 241(4) exemptions were administrative in nature, and that if a court could at any time by its own order entitle itself to receive otherwise confidential taxpayer information it would emasculate the effect of subsection 241(2) and render subsection 241(3) unnecessary”. The point of these judgments is that a party should not be able to avail itself of the paragraph 241 (4)(c) exemption if it cannot bring the proceeding within the terms of subsection 241(3). I have found above that this respondent cannot.

Disposition

The Court of Appeal found that the trial judge's findings in declaring some of the property of the appellant to be the property of the bankrupt's estate depended largely upon the testimony and evidence of the Revenue Canada officials. This information was gathered in the course of an investigation undertaken according to special investigatory powers available to Revenue Canada under the Act. Section 241 forbade its disclosure in the bankruptcy proceedings. I would allow the appeal and set aside the judgments below. I would grant costs to the appellant.

Appeal dismissed.