Vancouver, British Columbia, May 9, 2007
PRESENT: The Honourable Barry Strayer, Deputy Judge
BETWEEN:
THE MINISTER OF NATIONAL REVENUE
and
REASONS FOR ORDER AND ORDER
[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.
FEDERAL COURT
SOLICITORS OF RECORD
DOCKET: T-525-07
STYLE OF CAUSE: MNR v. DAVID MORTON
PLACE OF HEARING: Vancouver, BC
REASONS FOR ORDER AND ORDER: STRAYER D.J.
APPEARANCES:
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Ms. Elizabeth (Lisa) McDonald
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Mr. Alastair Wade
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SOLICITORS OF RECORD:
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John H. Sims, Q.C. Deputy Attorney General of Canada
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Gourlay Spencer Wade LLP Vancouver, BC
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