



COURT OF APPEAL FOR ONTARIO

CITATION: Schnier v. Canada (Attorney General), 2016 ONCA 5

DATE: 20160106

DOCKET: C59790

Gillese, Blair and Brown JJ.A.

In the
    Matter of the Bankruptcy of Paul Lorne Schnier, of the City of Toronto, in the
    Province of Ontario

BETWEEN

Paul Lorne Schnier

Applicant (Respondent)

and

The Attorney General of Canada

Respondent (Appellant)

Kevin Dias and Maria Vujnovic, for the appellant

Fred Tayar, for the respondent

Heard: October 21, 2015

On appeal from the order of Justice Thomas J. McEwen of the
    Superior Court of Justice, dated December 8, 2014.

Brown J.A.:


I.

OVERVIEW

[1]

Special rules govern discharge hearings in
    income tax-driven personal bankruptcies. Section 172.1 of the
Bankruptcy
    and Insolvency Act
, R.S.C. 1985, c. B-3 (the 
BIA
), provides
    that where the bankrupt has $200,000 or more of personal income tax debt and
    that personal income tax debt represents 75% or more of the bankrupts total
    unsecured proven claims, the timing of the discharge hearing, the discharge
    orders available to the court to make, and the factors the court must take into
    account in deciding the discharge application differ from those applied in a standard
    bankruptcy.

[2]

At the time of his discharge hearing, the
    respondent bankrupt, Paul Schnier, had unpaid income tax assessments totaling
    approximately $4.478 million. About $4.424 million of that amount was subject
    to outstanding appeals he had filed in the Tax Court of Canada. If the full
    assessed amount was considered part of his personal income tax debt, s. 172.1
    of the
BIA
would apply to his bankruptcy; if
    the appealed amounts were excluded, s. 172.1 would not apply.

[3]

The Registrar in Bankruptcy held that s. 172.1
    of the
BIA
did not apply to Mr. Schniers application for discharge.
    Her order of July 18, 2014 (the Discharge Order) discharged Mr. Schnier,
    subject to the condition that he remit to the trustee the remaining surplus
    income payable, up to a maximum of $10,000.

[4]

By order dated December 8, 2014 (the Appeal
    Order), the motion judge dismissed the Attorney Generals motion by way of
    appeal from the Discharge Order. The Attorney General now appeals to this court.

[5]

Although the Attorney General asks that the
    Appeal Order be set aside, if it is, the Attorney General does not seek to vary
    the conditions of the Discharge Order made by the Registrar. The relief sought
    by the Attorney General on this appeal is limited to a determination that s.
    172.1 of the
BIA
applied to Mr. Schniers discharge hearing.

[6]

The issue, then, on this appeal is a narrow one:
    In calculating Mr. Schniers personal income tax debt under
BIA
s.
    172.1(1), should the assessed amounts of personal income tax that were under
    appeal at the time of his discharge hearing be included?

[7]

For the reasons set out below, I conclude the
    answer is no, and I would dismiss the appeal. Both the motion judge and the
    Registrar correctly concluded that until the Tax Court of Canada had disposed
    of Mr. Schniers appeals of the Canada Revenue Agency (CRA) assessments, the
    portion of the CRAs claim for the assessed amounts under appeal was a
    contingent one that the trustee could refuse to admit as a proven claim.
    Accordingly, the motion judge and the Registrar correctly held that s. 172.1 of
    the
BIA
did not apply to Mr. Schniers discharge hearing.


II.

BACKGROUND

[8]

Mr. Schnier is a tax lawyer. His bankruptcy was
    driven by investments he made in two types of tax shelters. Between 1985 and
    1991, Mr. Schnier invested in two yacht tax shelters. In the 1990s and early
    2000s, he invested in four computer software tax shelters. Mr. Schnier claimed
    deductions from his income on those investments for either interest expenses or
    business losses. At the time Mr. Schnier made these investments, he believed
    that the tax shelters were permitted under the
Income Tax Act
(
ITA
)
; he had made the investments
    after receiving opinions from independent tax lawyers and accountants.

[9]

Beginning in 1989, Mr. Schnier received notices
    of reassessment in relation to the yacht tax shelters going back to the 1985
    taxation year. He immediately served on the Minister of National Revenue
    notices of objection to all of the CRA reassessments.

[10]

Section 165(3) of the
ITA
provides that
    upon receipt of a notice of objection, the Minister shall, with all due
    dispatch, reconsider the assessment and vacate, confirm or vary the assessment
    or reassess. That did not occur in this case. Inexplicably, the Minister
    allowed Mr. Schniers objections to languish for over two decades. During that
    time, Mr. Schnier repeatedly asked the CRA to deal with his file, to no avail. It
    was not until October 2011 that the Minister confirmed the reassessments for
    the yacht tax shelters. Mr. Schnier promptly filed notices of appeal to the Tax
    Court of Canada in November 2011.

[11]

The following month, Mr. Schnier made a proposal
    to his creditors under the
BIA
. At that time, he had been assessed
    $1,278,519.62 in income tax, plus penalties and interest, for a total of
    $4,478,703.19. Although Mr. Schnier increased the amount of his proposal to
    creditors over the course of the following creditors meetings, the CRA
    rejected the proposal, resulting in his deemed assignment into bankruptcy on
    January 19, 2012.

[12]

On February 1, 2012, the CRA filed a proof of
    claim in the bankruptcy in the amount of $4,478,703.19 (the Claim). The CRA
    disclosed that of the amount claimed, $4,424,558.19 was under appeal.

[13]

In January 2013, the Minister confirmed the
    assessments for the computer software tax shelters. Mr. Schnier filed appeals
    from those assessments in April 2013.

[14]

In its February 4, 2014 Report on the Bankrupts
    Application for Discharge, the trustee noted that the Tax Court had not yet
    determined Mr. Schniers appeals of the CRA assessments. As a result, the
    trustee reported that it was unable to value the claim and has not admitted
    CRAs claim for the assessed amounts under appeal as it is contingent.  Consequently,
    the trustees July 9, 2014 Claims Register admitted only $71,170.40 of the
    Claim, and recorded the remaining $4.424 million of the Claim as a contingent
    claim which was not admitted by the trustee.

[15]

The CRA opposed Mr. Schniers application to be
    discharged from bankruptcy.

[16]

The Registrar was required to consider whether
    the rules governing tax-driven personal bankruptcies set out in
BIA
s.
    172.1 applied to Mr. Schniers bankruptcy. The reason is that important
    differences exist in the discharge procedures for individual bankrupts who fall
    within s. 172.1 and those who do not:


(i)

in a standard personal bankruptcy, the passage
    of time may result in the automatic discharge of a bankrupt; under s. 172.1, an
    application to the court for a discharge hearing must be made;


(ii)

in a standard personal bankruptcy, the court may
    grant an absolute order of discharge; such an order is not available if s.
    172.1 applies;


(iii)

if a court suspends the discharge in a s. 172.1
    bankruptcy, the court must require the bankrupt to file income and expense
    statements with the trustee each month and to file all returns of income
    required by law to be filed; and


(iv)

a court must take into account the following
    factors in considering a s. 172.1 discharge application:
the
    circumstances of the bankrupt at the time the personal income tax debt was
    incurred; the efforts, if any, made by the bankrupt to pay the personal income
    tax debt; whether the bankrupt made payments in respect of other debts while
    failing to make reasonable efforts to pay the personal income tax debt; and the
    bankrupts financial prospects.

[17]

In her July 18, 2014 reasons, the Registrar considered
    that the CRA was a proven creditor to the extent of the claims admitted by the
    trustee  about $71,170.  The balance of the CRAs claim consisted of assessed
    amounts of tax that were subject to appeals pending in the Tax Court of Canada
    and constituted a contingent claim.  The Registrar concluded that at present,
    the CRA has a contingent liability that cannot support the applicability of s.
    172.1 of the
BIA
. On appeal, the motion judge agreed with the
    Registrar.


III.

ISSUE ON THE APPEAL

[18]

At issue on this appeal is whether s. 172.1(1)
    of the
BIA
applied to Mr. Schniers discharge hearing.  The
    section
provides that the special income tax-driven bankruptcy
    discharge rules apply [i]n
the case of a bankrupt who has
    $200,000 or more of personal income tax debt and whose personal income tax debt
    represents 75% or more of the bankrupts total unsecured proven claims.


[19]

The parties offer competing interpretations of
    what constitutes personal income tax debt for purposes of s. 172.1. The
    Attorney General argues that personal income tax debt includes unpaid
    assessed tax, notwithstanding any right the taxpayer has to file an objection
    or appeal. The Attorney General submits that in this case, all of the $4.4
    million CRA claimed in its proof of claim were amounts payable as of the dates
    of assessment, and remained payable under the
ITA
notwithstanding Mr. Schniers subsequent appeals.

[20]

The Attorney General submits that its
    interpretation is consistent with the express language of the
ITA
, which I discuss in detail below. It acknowledges a pair of cases
    that take the contrary view:
Re Port Chevrolet Oldsmobile Ltd.
, 2002 BCSC 1874, 49 C.B.R. (4th) 127, affd 2004 BCCA 37, and
Re
    2713250 Canada Inc.
, 2011 QCCS 6119. The Attorney General
    submits that those cases were wrongly decided and should not be followed by
    this court.

[21]

For his part, Mr. Schnier argues
that on a proper interpretation of the
ITA
, his unpaid
    assessed amounts of tax that were subject to appeal were contingent claims
    which the trustee in bankruptcy did not accept as proven claims and, therefore,
    did not constitute personal income tax debt for the purposes of
BIA
s.
    172.1(1). Mr. Schnier submits that
Re
Port
    Chevrolet
and
Re 2713250 Canada Inc.
were correctly decided and should be followed by this court.


IV.

STANDARD OF REVIEW

[22]

The applicable standard of review was set out by
    this court in
Murphy v. Sally Creek Environs Corp. (Trustee of)
, 2010
    ONCA 312, 67 C.B.R. (5th) 161, at paras. 68, 70 and 72. On an appeal of a
    discharge order made by a registrar in bankruptcy, the reviewing motion judge
    may only set aside the order if the r
egistrar erred in principle or in
    law, failed to take into account a proper factor, took into account an improper
    factor that demonstrably led to a wrong conclusion, or made a palpable and
    overriding error in respect of a finding of fact. The same standard of review
    applies to a further appeal to this court, although the decision under appeal
    is that of the motion judge, not the registrar. A motion judge will commit an
    error of law if he or she does not adhere to the correct standard when
    reviewing the registrars decision
.


V.

ANALYSIS

[23]

Since the issue on this appeal concerns the
    interpretation of a statutory provision, I start by considering the legislative
    context in which s. 172.1 of the
BIA
is situated.
I then outline and analyze the Attorney Generals arguments regarding
    the proper interpretation of personal income tax debt that draw upon the language
    of the
ITA
. Next, I consider the Attorney Generals argument that this
    court should decline to follow
Re Port Chevrolet
and
Re 2713250 Canada Inc.
I then address the
    Attorney Generals concern that upholding the motion judges decision could
    invite abuse of the bankruptcy process. Finally, I consider the Attorney
    Generals argument that the trustee in this case failed to determine whether or
    not CRAs claim was provable
.

A.

The legislative context for the analysis

[24]

Applying the basic principle of statutory
    interpretation, the words personal income tax debt in
BIA
s.
    172.1(1) must be read in their entire context and in their grammatical and
    ordinary sense harmoniously with the scheme of the
BIA
, its object,
    and the intention of Parliament:
Re Rizzo & Rizzo Shoes Ltd.
,
    [1998] 1 S.C.R. 27, at
para. 21.

[25]

A bankruptcy under the
BIA
follows a
    single proceeding model. In general terms, the property of the bankrupt not
    subject to security interests is realized and collected by the trustee in
    bankruptcy and then distributed to creditors with proven claims in accordance
    with the priorities set out in the scheme of distribution found in
BIA
s. 136(1).

[26]

At the heart of this distribution scheme lies
    the concept of creditor claims provable in bankruptcy.  Section 121(1) of the
BIA
describes what claims are provable in a bankruptcy:

121.
(1) All
    debts and liabilities, present or future, to which the bankrupt is subject on
    the day on which the bankrupt becomes bankrupt or to which the bankrupt may
    become subject before the bankrupts discharge by reason of any obligation
    incurred before the day on which the bankrupt becomes bankrupt shall be deemed
    to be claims provable in proceedings under this Act.

[27]

Liquidated claims are not the only ones provable
    in a bankruptcy. Section 121(2) of the
BIA
specifically recognizes
    contingent claims as provable in a bankruptcy by providing that [t]he
determination whether a contingent or unliquidated claim is a provable
    claim and the valuation of such a claim shall be made in accordance with
    section 135.

[28]

In each bankruptcy, the trustee must examine and
    classify the claims filed by the bankrupts creditors:
BIA
, s. 135. As
    part of that process, the trustee must consider whether the characteristics of
    a debt claimed by a creditor are those of a liquidated claim, future claim, or
    contingent claim. If a trustee concludes that the debt claimed has the character
    of a contingent claim, the trustee must then determine whether the contingent
    claim is a provable claim. As
BIA
s. 135(1.1) states:

135. (1.1) The trustee shall
    determine whether any contingent claim or unliquidated claim is a provable
    claim, and, if a provable claim, the trustee shall value it, and the claim is
    thereafter, subject to this section, deemed a proved claim to the amount of its
    valuation.

[29]

As explained by the Supreme Court of Canada in

Newfoundland
    and Labrador v. AbitibiBowater,
2012 SCC 67, [2012]
    3 S.C.R. 443, at paras. 34 and 36, a claim may be asserted in insolvency
    proceedings even if it is contingent on an event that has not yet occurred,
    and [t]he criterion used by courts to determine whether a contingent claim
    will be included in the insolvency process is whether the event that has not
    yet occurred is too remote or speculative.

[30]

This general legislative scheme for the
    examination and determination of creditor claims in a bankruptcy provides the
    critical context in which to determine the narrow issue raised by this appeal 
    i.e. whether the assessed amounts of income tax that were under appeal at the
    time of Mr. Schniers discharge hearing should be included when calculating his
    personal income tax debt under
BIA
s. 172.1(1). That is so because
    whether s. 172.1 applies to a bankruptcy turns on how the trustee classifies a
    claim by the CRA for the payment of assessed amounts of income tax which remain
    subject to an appeal by the bankrupt taxpayer at the time of his discharge
    hearing. The arguments advanced by the parties about the proper interpretation
    of personal income tax debt in s. 172.1(1) must be assessed within the larger
    context of this legislative scheme.

B.

Amounts payable within the meaning of
ITA
s. 223(1)

[31]

As noted, s. 172.1(1) of the
BIA
provides that the special discharge hearing rules apply [i]n the
    case of a bankrupt who has $200,000 or more of personal income tax debt and
    whose personal income tax debt represents 75% or more of the bankrupts total
    unsecured proven claims.

[32]

Section 172.1(8) of the
BIA
defines personal income tax debt to mean the amount payable,
    within the meaning of subsection 223(1) of the
Income Tax Act
by an individual.

[33]

Section 223(1) of the
ITA
defines an
    amount payable by a person as any or all of an amount payable under this Act
    by the person.


[34]

What are the fundamental characteristics of an
    amount payable under the
ITA
?  The Attorney
    General argues that there are two. First, s. 158 of the
ITA
provides:

158. Where the Minister mails a
    notice of assessment of any amount payable by a taxpayer, that part of the
    amount assessed then remaining unpaid is payable forthwith by the taxpayer to
    the Receiver General.

[35]

Second, s. 152(8) of the
ITA
deems an assessment to be valid and binding.  According to the
    Attorney General, when combined together these two characteristics of an unpaid
    assessed personal income tax debt are determinative of the analysis in this
    appeal. Even if a taxpayer appeals an assessment, the character of the tax debt
    remains one that is payable forthwith (s. 158) and valid and binding (s.
    152(8)): in effect, a liquidated claim. As a result, the Attorney General
    submits, personal income tax debt within the meaning of
BIA
s.
    172.1(1) includes unpaid assessed amounts of income tax that are under appeal.

[36]

I do not find that argument persuasive, for two
    reasons.

[37]

First, the roles played by ss. 152(8) and 158 of
    the
ITA
in the characterization of an assessed
    tax debt must take into account the right of a taxpayer to appeal a notice of
    assessment to the Tax Court of Canada under Part I, Division J of the
ITA.

[38]

Section 152(8) of the
ITA
expressly provides that the valid and binding effect of an
    assessment is made subject to a taxpayers right to appeal an assessment.  The
    section states:

152(8). An assessment shall,
subject to being varied or vacated on an objection or appeal
under
this Part and subject to a
    reassessment
, be deemed to be valid and binding
    notwithstanding any error, defect or omission in the assessment or in any
    proceeding under this Act relating thereto. [Emphasis added.]

[39]

As put by the Federal Court of Appeal in
Wesbrook
    Management Ltd. v. R.,

[1997] 1 C.T.C. 124, at p. 129
, when commenting on the effect of what is now s. 152(8): Once  an
    assessment can no longer be varied or vacated on objection or appeal  the last
    assessment is deemed valid and binding on both the taxpayer and the Minister.
[1]

[40]

Section 248(2) of the
ITA
is to the
    same effect. It states that
the tax payable by a taxpayer
    under any Part of this Act by or under which provision is made for the
    assessment of tax means the tax payable by the taxpayer as fixed by assessment
    or reassessment
subject to variation on objection
    or on appeal
, if any, in accordance with the provisions of
    that Part (emphasis added).

[41]

Both ss. 152(8) and 248(2) indicate that until
    the objection or appeal process is concluded, the amount of tax the Minister
    can compel a taxpayer to pay cannot be known. The assessed amount can change
    from time to time by virtue of judicial decisions or new assessments:
Terra
    Nova Properties Ltd. v. Minister of National Revenue
, [1967] 2 Ex. C.R. 46
    (Exch. Ct. Canada), at p. 51.

[42]

The stipulation in s. 158 of the
ITA

that any unpaid amount assessed is payable forthwith upon
    the mailing of a notice of assessment must be understood within the larger
    context of the taxpayers right under the
ITA

to
    object to an assessment and to appeal a Ministers confirmation of an
    assessment to the Tax Court of Canada.

[43]

Second, Part XV of the
ITA
places
    significant restrictions on the Ministers ability to collect assessed amounts
    that are payable forthwith where a taxpayer has objected to or appealed those
    amounts.

[44]

Usually, where an amount is payable under the
ITA
,
    s. 223(2) authorizes the Minister to certify an amount payable that has not
    been paid as an amount payable by the debtor. A certificate of an amount
    payable under
ITA
s. 223(2) can be registered in the Federal Court
    and, when registered, has the same effect as if the certificate were a judgment
    obtained in the Federal Court against the tax debtor. Sections 223 through 225
    then describe the different enforcement steps available to the Minister to
    collect the amount payable: commencing legal proceedings in court; certifying
    the amount due under s. 223; using statutory garnishment remedies; and seizing
    the tax debtors goods and chattels.

[45]

However, when a taxpayer files an objection to
    or appeals an assessment, s. 225.1 places limits on the Ministers ability to
    take steps to collect the assessed amounts. If a taxpayer has served a notice
    of objection to an assessment, the Minister cannot take any of the statutory
    enforcement steps until 90 days after the Minister has sent his notice of
    confirmation to the taxpayer (s. 225.1(2)). Similarly, if a taxpayer has
    appealed from an assessment to the Tax Court of Canada, the Minister cannot
    take any of those steps before the day of mailing of a copy of the decision of
    that court to the taxpayer (s. 225.1(3)).
[2]

[46]

The rationale behind the limits s. 225.1 places
    on the Ministers ability to collect is that it would be unfair to allow the
    Minister to collect an assessed amount of tax until there is a final determination
    of the ultimate amount the taxpayer must pay.
[3]


[47]

In my view, the Attorney General takes far too
    narrow an approach to what constitutes an amount payable under
ITA
s. 223(1), and therefore personal income tax debt in
BIA
s. 172.1.  The Attorney Generals submission focuses on only some
    of the characteristics of an assessed income tax debt  payable forthwith and
    valid and binding notwithstanding any error, defect, or omission. It ignores
    the critical effect of sections 152(8), 225.1 and 248(2) of the
ITA
that enable a taxpayer to appeal an assessment and limit the
    collectability of that tax debt by the Minister until the courts dispose of the
    appeal.

[48]

When the provisions of the
ITA
are considered as a whole, the meaning of amount payable as used
    in
ITA
s. 223(1) and
BIA
s. 172.1(8), must take into account
    that where a taxpayer has appealed an assessment to the Tax Court of Canada,
    the actual amount of tax that the Minister can compel the taxpayer to pay will
    not be known until the occurrence of a future event  i.e. the determination of
    the taxpayers appeal from the assessment. This is a hallmark of a contingent
    claim.

[49]

Further, a creditors inability to enforce a
    claim bears directly on the creditors ability to prove its claim under the
BIA.
In order to be a provable claim within the meaning of
BIA
s. 121, a
    claim must be one recoverable by legal process:
Re Central Capital Corp.
(1996), 27 O.R. (3d) 494 (C.A.), at pp. 532-533. The restraints placed by
ITA
s. 225.1 on the enforceability of an assessed amount of tax that is
    under appeal are strong indicators that a claim based on those amounts would
    not be provable in a bankruptcy.

[50]

Consequently, where amounts of income tax
    assessed against an individual bankrupt taxpayer remain under appeal at the
    time of his discharge hearing, the existence of the outstanding appeal entitles
    the trustee to classify the claim based on the unpaid assessed amounts as a contingent,
    unprovable one.

C.

The jurisprudence

[51]

Turning to the jurisprudence, the Attorney
    General advances two arguments: (i) support for its position can be found in
    the decision of this court in
Re Norris
(1989), 69 O.R. (2d) 285
    (C.A.); and (ii) the British Columbia and Quebec courts were wrong to conclude in
Re
Port Chevrolet
and
Re 2713250

Canada Inc.
, respectively,

that an unpaid assessed amount of tax under appeal is a contingent
    claim.

The decision in
Re Norris

[52]

The Attorney General submits that
Re Norris
stands for the principle that in carrying out its duties under the
BIA
,
    a trustee cannot ignore what Parliament has legislated with respect to tax
    debts. Applying that principle to the present case, the Attorney General argues
    that the trustee must give full recognition to assessed amounts under appeal
    because under the
ITA
a taxpayer becomes liable for an unpaid portion
    of an assessment when the notice of assessment is sent. That liability
    continues to exist until the assessment is varied or vacated on an objection or
    appeal.

[53]

In my view, the principle in
Re Norris
does not extend as far as the Attorney General submits. That case involved the
    bankruptcy of an individual against whom an assessment had been issued under
    the
ITA
. Critically, unlike in the present case, the bankrupt had not
    filed a notice of objection to the assessment. The Crown filed a proof of claim
    in the bankruptcy for the assessed amount and provided the trustee with the
    notice of assessment. The trustee disallowed the claim. This court held, at p.
    287, that the trustees request for evidence to support the proof of claim was
    fully answered by the notice of assessment, and if the trustee in bankruptcy
    wished to question the validity of an assessment against the bankrupt, it was
    required to seek its remedy within the
ITA
by filing a notice of
    objection.

[54]

In the present case, the trustee did not look
    behind the notice of assessment in order to ascertain the amount of Mr.
    Schniers personal income tax debt. Instead, the trustee gave effect to the
    appeal and enforcement provisions of the
ITA
. Whether the tax debt was
    liquidated or contingent for purposes of the
BIA
depended upon whether
    the taxpayer had exercised the appeal rights granted by the
ITA
and,
    if he had, whether s. 225.1 of the
ITA
restrained the Minister from
    taking steps to enforce and collect the assessed amount. The trustee took into
    account that no final determination of Mr. Schniers appeal had been made under
    the
ITA
, with the result that it was unable to value the CRAs claim.

The decisions in
Re Port Chevrolet
and
Re 2713250
    Canada Inc
.

[55]

More relevant to the facts of this case are two
    decisions dealing with the power of the chair of a meeting of creditors under
    s. 108 of the
BIA

to admit or reject a proof
    of claim for the purpose of voting:
Re
Port
    Chevrolet
and
Re 2713250 Canada Inc.

[56]

In the
Re
Port
    Chevrolet
case, the Canada Customs Revenue Agency
    (CCRA) had issued an assessment under the
Excise Tax Act
,
    R.S.C. 1985, c. E-15,
to Port Chevrolet for about $16.4
    million. The company filed a notice of intention to make a proposal under the
BIA
.
    The company also filed a notice of objection to the assessment. The CCRA filed
    a proof of claim in the amount of about $15.8 million the day before the
    meeting of creditors to vote on the companys proposal. The trustee disallowed
    CCRAs claim and valued it at nil, taking the view that it was unproven because
    it was based on an unresolved appeal and notice of objection. Relying on the
    trustees disallowance, the chair of the creditors meeting concluded that the
    CCRA claim was contingent and valued it at nil for voting purposes.

[57]

The CCRA appealed the trustees disallowance of
    its claim and the chairs decision that it had no right to vote at the meeting.
    The chambers judge dismissed the appeal on two grounds. First, the CCRA had
    failed to file a proof of claim in proper form: at para. 25. Second, the court
    rejected the CCRAs argument that provisions in the
Excise Tax Act
analogous to ss. 152(8) and 158 of the
ITA
created a valid and binding
    debt due from the moment of assessment regardless of the pending objection and
    appeal process: at paras. 35-36. The court stated, at para. 43:

[I]
f CCRA wishes to participate in
    concurrent proceedings under the
Bankruptcy and Insolvency Act
,
    then it is bound to comply with the
Bankruptcy and Insolvency Act
process
    with respect to proving its claim, and that compliance includes recognition of
    the trustee's powers to determine a claim is contingent and value it
    accordingly. I do not read
Re Norris
as precluding a trustee
    from exercising his discretion under
s. 135(1.1)
.

[58]

The British Columbia Court of Appeal affirmed
    the decision, but only in respect of the finding that the CCRA had failed to
    file a proof of claim in proper form. The BCCA specifically declined to
    consider the trustees disallowance of the CCRAs contingent claim.

[59]

A similar issue arose in a Quebec case involving
    a proposal made by 2713250 Canada Inc. under the
BIA
. The Agence du
    revenue du Québec (ARQ) had issued two notices of assessment to the debtor
    company for which the company had filed notices of objection. The ARQ filed
    proofs of claim in the proposal proceedings based upon the full amount of the
    assessments. At two meetings of creditors, the proposal trustee held that the
    ARQs claims were contingent and impossible to value because of the pending
    appeal of the notices of assessment. Therefore, the ARQ was ineligible to vote.
    The ARQ appealed the trustees decisions.

[60]

Gascon J., as he then was, dismissed the appeal,
    applying the reasoning of the chambers judge in the
Re
Port Chevrolet
case. He held that in
    exercising the power conferred on it by
BIA
s. 108(1), the trustee
    could conclude that the ARQs claims were in fact contingent, unliquidated, and
    not provable claims, due to the impossibility of valuing them with any
    certainty: at para. 86. Gascon J. then considered, and rejected, the ARQs
    argument about the validity and binding nature of its notices of assessment, at
    paras. 88 through 94:

Contrary to what the ARQ argues, the Court
    believes that in exercising the power ascribed to it by section 108(1), the
    Trustee was not legally bound to consider as valid, regardless of the
    situation, the notices of assessment on which the disputed proofs of claims are
    based.

On the one hand, if the relevant tax laws
    establish a presumption of validity of those notices of assessment, that
    presumption is not irrebuttable. The objection process such tax laws authorize
    surely demonstrates this.

On the other hand, the presumptions of
    validity established by tax laws are not incompatible with the exercise of the
    jurisdiction which the
BIA
confers on the Trustee pursuant to sections
    108, 121 or 135 of the BIA.

As the Court of Appeal for British Columbia
    points out in its analysis of the problem in
Port Chevrolet
, there are
    two possible solutions under such circumstances.

The first is that in terms of a proof of claim
    filed under the
BIA
, one must give, without reservation, full faith
    and credit to any notice of assessment by the tax authorities, regardless
    whether it may eventually be set aside.

The second is that we can reconcile the
BIA
and tax laws by drawing a distinction between, on the one hand,
    business judgment and a trustees practice in exercising its powers under the
BIA
and, on the other hand, the rebuttable presumptions of validity of tax
    laws which subsist notwithstanding the prescribed objection and appeal processes.

For its part, the Court prefers the second
    solution, which is much more respectful of the objectives of the
BIA
. [Translation from French.]

[61]

Although the
Re
Port Chevrolet
and
Re
2713250 Canada

Inc
. cases both involved the exercise by trustees of their discretion
    in the context of admitting or rejecting proofs of claim for the purposes of
    voting under
BIA
s. 108(1), in my view the reasoning in
Re
Port Chevrolet
, as adopted by
Re
2713250 Canada Inc.
, applies
    equally to the exercise of the trustees general power to determine whether a
    contingent claim is a provable claim under ss. 121 and 135 of the
BIA
. Where a bankrupt taxpayer has appealed assessed amounts of income
    tax, it is open to a trustee to characterize a CRA proof of claim based on
    those assessments as a contingent claim. If the claim cannot be valued with any
    certainty prior to the disposition of the appeal, the trustee may treat the
    contingent claim as not provable in the bankruptcy.

[62]

Such a result gives full recognition to the provisions of the
ITA
discussed earlier dealing with the calculation and enforcement of
    assessed amounts of income tax, while treating a proof of claim based on an
    appealed assessment in a manner harmonious with the general scheme of the
BIA
concerning creditors proofs of claim.

[63]

Such an interpretation is also consistent with the language of s.
    172.1(1) of the
BIA
,
which provides that the
    special discharge rules for tax-driven personal bankruptcies apply in
the case of a bankrupt who has $200,000 or more of personal income tax
    debt and whose personal income tax debt
represents
75% or more of the bankrupts total unsecured proven claims (emphasis
    added). The use of the word represents signifies that in order for personal
    income tax debt to be capable of representing 75% of a bankrupts unsecured
    proven claims, the personal income tax debt must possess the
    characteristics of a provable claim in bankruptcy. Put another way, to qualify
    as personal income tax debt within the meaning of s. 172.1(1), the tax debt
    must be a proven claim.

[64]

To hold otherwise would give unfair,
    preferential treatment to CRA proofs of claim based on assessed income tax
    amounts that remain under appeal at the time of a discharge hearing. If the
    full amount of the assessed amount under appeal was recognized as a claim
    provable in the bankruptcy, and the taxpayers appeal of the assessment was
    later allowed and the assessed amount reduced or eliminated, the CRA would have
    obtained an unjustified advantage over other creditors in the bankruptcy
    proceeding.

D.

Potential abuse of the bankruptcy process

[65]

Against that conclusion, the Attorney General
    argues that to treat CRA claims for unpaid assessed income tax under appeal as
    contingent ones that may not be provable would render meaningless s. 172.1 of
    the
BIA
. A taxpayer who was subject to
    significant income tax assessments could abuse the bankruptcy process by
    appealing his assessment, then make an assignment in bankruptcy and fail to
    expedite the hearing of his tax appeal. That would allow a bankrupt to avoid
    the special discharge rules created by s. 172.1 for tax-driven bankruptcies.

[66]

In my view, the motion judge correctly addressed
    this argument when he held that an adjournment could have been sought before
    the [Registrar] so the appeal could be heard and no attempt was made in this
    case. Indeed, had the CRA sought a brief adjournment of Mr. Schniers
    discharge hearing, no dispute could have arisen about the applicability of s.
    172.1 to his bankruptcy, as the following chronology of events discloses.

[67]

Section 225.1(5) of the
ITA
states that
    where a taxpayer who has appealed to the Tax Court of Canada has agreed to
    delay his appeal until the court has decided related test cases, then the
    Minister may take actions to enforce the assessments against the taxpayer at
    any time after the Minister gives written notice to the taxpayer that the
    decision of the Tax Court of Canada in the test case has been mailed to the
    Minister.

[68]

In February 2012, Mr. Schnier had filed with the
    Tax Court of Canada his agreement to be bound in the lead test cases before
    that court concerning the deductibility of expenses relating to the yacht tax
    shelters. The Tax Court of Canada confirmed that it would hold his appeal in
    abeyance pending the resolution of the three lead test cases. The lead cases
    concerning the yacht tax shelters were dismissed on January 7, 2014 and an
    appeal from that dismissal to the Federal Court of Appeal was withdrawn on
    March 19, 2014. Both those events took place before Mr. Schniers bankruptcy
    hearing.

[69]

However, the Tax Court of Canada did not
    formally dismiss Mr. Schniers appeal from the yacht tax shelter assessments
    until August 18, 2014, slightly more than a month after his discharge hearing was
    held. The record does not explain when the Tax Court of Canada mailed the
    Minister the decision dismissing the lead test appeals concerning the yacht tax
    shelters or why the Minister did not send a written notice of the decision to
    Mr. Schnier prior to his discharge hearing. From the transcript of the
    discharge hearing, it is apparent that the parties were aware the test cases
    had been resolved in favour of the CRA: Appeal Book, p. 56. Why, given those
    circumstances, the CRA did not ask for a short adjournment of the discharge
    hearing pending formal notice to Mr. Schnier of the dismissal of the lead test
    appeals pursuant to
ITA
s. 225.1(5) was not
    explained in the record before us.

E.

Whether the trustee disallowed any part of the
    Claim

[70]

Finally, in her factum, the Attorney General
    argued that the trustee had failed to determine whether or not the CRAs Claim
    was provable. I disagree.

[71]

Although the appeal record did not contain a
    notice of disallowance issued by the trustee under
BIA
s. 135(3) in
    respect of the Claim, appellants counsel candidly conceded that there was no
    evidence before the court about what, if anything, the trustee did under s.
    135.

[72]

In any event, the evidence showed that the CRA
    was aware well before the discharge hearing that the trustee had disallowed
    that part of its Claim covering the assessed amounts under appeal. The
    trustees Report under s. 170(1) on the bankrupts application for discharge
    was dated February 4, 2014, some five months prior to the discharge hearing,
    and was signed by the inspectors, including one of the inspectors who was an
    employee of the CRA. The Report clearly stated that the trustee was unable to
    value most of the CRAs Claim and had not admitted the portion concerning the
    assessed amounts under appeal as it was contingent. The Trustees July 9, 2014
    Claims Register also recorded that $4.385 million of the CRA Claim had been
    classified as contingent and had not been admitted for dividend. Accordingly,
    the evidence before the Registrar at the time of the discharge hearing was that
    the trustee had determined that only $71,170 of the CRA Claim was provable in
    the bankruptcy.

F.

Conclusion

[73]

For the reasons set out above, I conclude that
    both the motion judge and the Registrar were correct in concluding that until
    the Tax Court of Canada disposed of Mr. Schniers appeals of the CRAs
    assessments, the CRAs claim in the bankruptcy for the assessed amount under
    appeal was a contingent one which the trustee could refuse to admit as a proven
    claim. Consequently, the motion judge and the Registrar correctly concluded
    that s. 172.1 of the
BIA
did not apply to Mr. Schniers discharge
    hearing.


VI.

DISPOSITION

[74]

I would dismiss the appeal. The parties agreed
    that the successful party would be entitled to costs of the appeal on a partial
    indemnity basis in the amount of $15,000. I would therefore order the Attorney
    General of Canada to pay Mr. Schnier costs of $15,000, inclusive of HST and
    disbursements.

Released: January 6, 2016 (EEG)

David
    Brown J.A.

I
    agree E.E. Gillese J.A.

I
    agree R.A. Blair J.A.





[1]

Moreover,
    the case law interpreting s. 152(8) treats the sections purpose as a modest
    one, operating as a curative provision ensuring the validity of an
    administratively-issued assessment despite any errors, defects or omissions:
Regina
    Shoppers Mall Ltd. v. Canada
, [1991] 1 C.T.C. 297 (F.C.A.), at p. 301;
Leung
    (J.) v. M.N.R.
, [1993] 2 C.T.C. 284 (F.C.T.D.), at p. 302.



[2]
Although
ITA
s. 225.1 provides for certain
    exceptions to these bars to collection, none apply to the facts of the present
    case.



[3]
If reasonable grounds exist to believe that the
    collection of an assessed amount would be jeopardized by a delay in collection,
ITA
s. 225.2 authorizes the Minister to apply
ex parte
to the
    court for an order allowing him to take enforcement steps.


