Date: 20070509
Docket: T-525-07
Citation: 2007
FC 503
Vancouver, British
Columbia,
May 9, 2007
PRESENT: The Honourable Barry Strayer, Deputy Judge
BETWEEN:
THE
MINISTER OF NATIONAL REVENUE
Applicant
and
DAVID
MORTON
Respondent
REASONS FOR ORDER AND ORDER
I. Introduction
[1]
This is a
motion under subsection 231.7(1) of the Income Tax Act, R.S.C. 1985, c.
1 (5th Supp.) seeking an Order requiring the Respondent to comply
with a request made by the Minister of National Revenue under subsection
231.2(1) of that Act for certain information and documents.
II. Facts
[2]
The
Respondent was a director and officer of Intelligent Software Engineering
(1997) Ltd. who resigned from that position effective February 2, 1999. It is
not in dispute that the company was dissolved on September 14, 2001, pursuant
to section 257 of the provincial Company Act, R.S.B.C. 1996, c. 62.
[3]
The
company had been assessed for income tax and goods and services tax owing, such
amounts now being respectively $65,544 and $22,597.73. The income tax debt
relates to the tax year 1998.
[4]
Section
231.2(1) of the Income Tax Act provides as follows:
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231.2. (1)
Notwithstanding any other provision of this Act, the Minister may, subject to
subsection (2), for any purpose related to the administration or enforcement
of this Act, including the collection of any amount payable under this Act by
any person, by notice served personally or by registered or certified mail,
require that any person provide, within such reasonable time as is stipulated
in the notice,
(a) any information or
additional information, including a return of income or a supplementary
return; or
(b) any document.
(2) The Minister shall not
impose on any person (in this section referred to as a "third
party") a requirement under subsection 231.2(1) to provide information
or any document relating to one or more unnamed persons unless the Minister
first obtains the authorization of a judge under subsection 231.2(3).
(3) On ex parte application by
the Minister, a judge may, subject to such conditions as the judge considers
appropriate, authorize the Minister to impose on a third party a requirement
under subsection 231.2(1) relating to an unnamed person or more than one
unnamed person (in this section referred to as the "group") where
the judge is satisfied by information on oath that
(a) the person or group
is ascertainable; and
(b) the requirement is
made to verify compliance by the person or persons in the group with any duty
or obligation under this Act.
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231.2. (1) Malgré les autres dispositions de la présente loi, le
ministre peut, sous réserve du paragraphe (2) et, pour l'application et
l'exécution de la présente loi, y compris la perception d'un montant payable
par une personne en vertu de la présente loi, par avis signifié à personne ou
envoyé par courrier recommandé ou certifié, exiger d'une personne, dans le
délai raisonnable que précise l'avis:
a) qu'elle fournisse tout renseignement ou tout renseignement
supplémentaire, y compris une déclaration de revenu ou une déclaration supplémentaire;
b) qu'elle produise des documents.
(2) Le
ministre ne peut exiger de quiconque -- appelé "tiers" au présent
article -- la fourniture de renseignements ou production de documents prévue
au paragraphe (1) concernant une ou plusieurs personnes non désignées
nommément, sans y être au préalable autorisé par un juge en vertu du
paragraphe (3).
(3) Sur
requête ex parte du ministre, un juge peut, aux conditions qu'il estime
indiquées, autoriser le ministre à exiger d'un tiers la fourniture de renseignements
ou production de documents prévue au paragraphe (1) concernant une personne
non désignée nommément ou plus d'une personne non désignée nommément --
appelée "groupe" au présent article --, s'il est convaincu, sur
dénonciation sous serment, de ce qui suit:
a) cette personne ou ce groupe est identifiable;
b) la fourniture ou la production est exigée pour vérifier si cette
personne ou les personnes de ce groupe ont respecté quelque devoir ou
obligation prévu par la présente loi;
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[5]
The Canada
Revenue Agency (CRA) served a notice by registered mail on the Respondent on or
about January 10, 2007, pursuant to subsection 231.2(1). The "Requirement
to Provide Documents and Information" bore the heading 'The Tax Liability
of Intelligent Software Engineering (1997) Ltd.' and referred to the company's
financial statement dated June 30, 1998, which had the following item listed
under "assets": "Due from related parties… $66,927." The
notice requested as follows:
1. Please provide
detailed particulars as to the identity of the mentioned "Related
Parties".
2. Please provide
documentation and explanation as to the disposition of the $66,927 due to the
company.
The only response
which the Respondent made to this was the following message:
Intelligent Software Engineering (1997)
Ltd. was dissolved on September 14, 2001. The books and records are no longer
available.
As the requirement required production within 30 days of the
date of the receipt by the Respondent of the notice, and the response given did
not provide the information required, the Minister brings this motion under
subsection 231.7(1) for a compliance order.
[6]
The
Respondent raises two objections. First, he contends that the notice given
under subsection 231.2(1) cannot be valid because the information is not
required "for any purpose related to the administration or enforcement of
this Act…." as required by that subsection. He says that there is no debt
because the company no longer exists and it cannot either owe income tax nor
can money be owed to it by "related parties". Second, he contends
that the notice is invalid because under subsection 231.2(2) the Minister was first
required to obtain the authorization of the Court to issue such a request because
the Minister purported to impose on a "third party" (namely himself)
information relating to one or more "unnamed persons".
[7]
The
Applicant contends that the collection of unpaid taxes, and steps relevant to
that purpose, are related to the administration or enforcement of the Income
Tax Act as required in subsection 231.2(1). The requirement notice for
information is not, as such, the collection of a debt but may assist in such
future collection which would be possible if, for example, the Minister applied
to have the company reinstated, in which case now by subsection 364(4) of the Business
Corporations Act, S.B.C. c. 57, the company would be deemed to have
continued in existence as if it had not been dissolved. With respect to the
Respondent's contention that prior judicial authorization of the information
requirement was necessary pursuant to subsection 231.2(2) because information
about "unnamed persons" was being required of a "third
party", the Applicant contends that this is inapplicable where the unnamed
persons are not being investigated in respect of their tax liability.
III. Analysis
[8]
With
respect to the Respondent's first point, I do not think the powers of the
Minister to require information under subsection 231.2 cease simply because a
taxpayer company is dissolved. It appears to me that, to prepare for future
collection action, it is legitimate for the Minister to gather information
about the dissolved company's assets in case it should be thought worthwhile
for the Minister to have the company reinstated. If it were reinstated, as I
understand it, any assets that had reverted to the provincial government as bona
vacantia might be restored under section 368 of the Business
Corporations Act, above. In any event, if the company were reinstated and
if there are "related parties" who owe it money as indicated in the
company's own balance sheet of 1998, those parties could be garnisheed. Much of
the Respondent's argument is based on writings and jurisprudence, much of it
old and from other jurisdictions, on the broad proposition that a dissolved company
cannot either owe or be owed debts and that its assets become bona vacantia.
For Canadian tax jurisprudence, he relies mainly on Thomas v. Minister of
National Revenue, (1990) 90 D.T.C. 1806, a decision of the Tax Court of
Canada. That case, however, did not involve information requirements under
section 231.2(1) but rather the legal inability of the Minister to garnishee, pursuant
to subsection 224(1) of the Income Tax Act, the debtors of a company
which was dissolved. That was a clear attempt by the Minister to collect a debt
owed to a defunct company. In the present case, the information requested
relates to the identification of assets which had belonged to a defunct company
that owed unpaid taxes and might be revived in the future for purposes of collection.
[9]
With
respect to the Respondent's second proposition that the Minister was seeking
information from a "third party" about "unnamed persons",
and therefore should have obtained prior judicial authorization under section
231.2(2), I find this unconvincing. The two principal cases, in my view, are
decisions of the Federal Court of Appeal, namely, Canada (Minister of
National Revenue) v. Toronto Dominion Bank, [2004] F.C.J. No. 1779, and Artistic
Ideas Inc. v. Canada (Customs and Revenue Agency), [2005] F.C.J. No. 350. I
must confess to some difficulty in reconciling the two cases. In the Toronto
Dominion Bank case, the Court held that the Minister could not require from
the bank the name of the owner of an account into which he had reason to
believe the tax debtor had transferred money to conceal his assets. In that
case, there was no debate that the bank was a "third party". The
Minister said he was not investigating the owner of the bank account. He argued
that subsection 231.2(2) only protected "unnamed persons" if they
were the subject of tax investigation. The Court, however, stated as follows:
The very purpose of subsections 231.(2)
and (3) is to protect unidentified persons who are not being investigated while
making it possible in the interests of justice, and subject to judicial review,
for information to be obtained on persons who are in fact under investigation.
[10]
The Artistic
Ideas case involved Artistic Ideas, an art dealer that arranged for the
sale of art to individuals who then donated artwork to registered charities, having
obtained a generous appraisal of the value of the art for income tax
deductibility. The Minister requested Artistic Ideas to provide the names of
the charities and the donors. The Court there held that Artistic Ideas was
required to provide the names of the charities because they were not under
investigation, but not the names of the donors who were under tax
investigation. At paragraph 11, the Court said:
However, where unnamed persons are not
themselves under investigation, subsections 231.2(2) and (3) do not apply.
Presumably, in such cases the names of unnamed persons are necessary solely for
the Minister's investigation of the third party. In such cases a third party
served with a requirement to provide information and documents under subsection
231.2(1) must provide all the relevant information and documents including the
names of unnamed persons….
[11]
With
respect, in my view the Artistic Ideas case, which was decided
subsequent to the Toronto Dominion Bank case, indicates more clearly the
intention of subsection 231.2(2). The result in that case is quite clear in
distinguishing between the charities which were not under investigation and
whose names were therefore required to be produced, and the donors who were under
investigation and who therefore were not required to be identified.
[12]
In the
present case, I find some difficulty in even portraying the Respondent as a
"third party". He was a former director and officer of the company in
taxation year 1998 when the "balance sheet", particulars of which are
being sought, was prepared and filed with the tax return. The purpose of
seeking this information is to help identify possible assets of the
Respondent's former corporation for purposes of possible collection of its former
tax liability. In short, information is being requested about the Respondent's
own former company: it is not being requested of a "third party". The
fact that information about its assets as described in the balance sheet may
reveal the names of persons then indebted to the company does not make it an
investigation into their tax liability.
IV. Disposition
[13]
I will
therefore issue a compliance order, with costs, in the form requested by the
Applicant.
ORDER
UPON the application of the
Minister of National Revenue (the Minister) coming on for hearing on Monday, May
7, 2007, at the Courthouse located at 701 West Georgia Street, Vancouver,
British Columbia;
AND UPON reviewing the materials filed by the Minister and hearing
the submissions of counsel for the Minister and for the Respondent;
AND UPON BEING SATISFIED THAT:
1)
The requirements have been met for granting an order against the
Respondent under section 231.7 of the Income Tax Act to provide
information or documents sought by the Minister under subsection 231.2(1) of
the Income Tax Act, such requirements being:
a)
the Respondent was required under subsection 231.2(1) of the Income
Tax Act to provide the information and documents sought by the Minister;
b)
the Respondent has failed to provide the information and documents
sought by the Minister; and
c)
the information and documents sought by the Minister are not protected
from disclosure by solicitor-client privilege.
THIS COURT ORDERS that the Respondent is to provide the following
information and documents sought by the Minister pursuant to subsection
231.2(1) of the Income Tax Act:
a) Detailed
particulars as to the identity of the mentioned “related parties” as referenced
in the financial statements of Intelligent Software Engineering (1997) Ltd. as
of June 30, 1998; and
b) Documentation and explanation as to the disposition of the
$66,927 due to the company, Intelligent Software Engineering (1997) Ltd.
THIS COURT FURTHER ORDERS that the Respondent shall forthwith, and
in any event not later than 30 days after being served with this Order, provide
the Income Tax Act information and documents sought to a Canada Customs
and Revenue Agency officer acting under the authority conferred by the Income
Tax Act or other person designated by the Commissioner of Customs and
Revenue.
THIS COURT FURTHER ORDERS that the Minister is authorized
to effect service of this Order on the Respondent by personal service.
THIS COURT FURTHER ORDERS that costs are awarded to the Minister
in the amount of $450.
"Barry
Strayer"
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