A high tax debtor owing over $238,000 was discharged from his bankruptcy with a conditional discharge order requiring him to pay just $25,000.
In the recent BC Supreme Court decision in the bankruptcy of Daniel Joseph Annand, it was found that in view of his age, health and employment prospects, a minimum monthly payment of only $100 was deemed to be appropriate while still upholding the integrity of the bankruptcy system.
CRA Assessment for Unpaid Taxes
Mr. Annand received an assessment of $238,841 from Canada Revenue Agency (CRA) for unpaid income tax, penalties and interest related to his 2006 – 2009 and 2011 tax years which related to employment income and a capital gains assessment. The court was advised of Mr. Annand’s challenges during that time in dealing with his daughters suffering from drug abuse. Mr. Annand paid tens of thousands of dollars for institutionalized treatment for his daughter. He also took possession of his daughters home in order to hold off foreclosure action. He eventually repaired the home and sold it while not contemplating a capital gain on the sale. He apparently also had to deal with his wife suffering a mental breakdown during this period. As a result, tax filings and remittances were not kept up leading to the tax debt problem.
Factors in Determining Conditions of Discharge
It was his first assignment into bankruptcy, he complied with his duties and the bankruptcy trustee was not opposed to an absolute discharge. However CRA wanted a payment of $50,000 into the bankruptcy estate (approximately 20% of the debt) as a condition of discharge. The court did find that there was no deliberateness in his failing to file his returns and that he lived modestly with limited income.
However, under section 172.1 of the Bankruptcy and Insolvency Act, he is viewed as a high tax debtor and is therefore not entitled to an automatic discharge from bankruptcy.
The court decision stated:
“In determining the appropriate payment or conditions, the bankruptcy court takes into account various factors including:
1) whether the bankruptcy arose as the result of an accident, or whether there was a persistent ignoring of the tax obligation;
2) whether the purpose of bankruptcy was to escape the tax obligation;
3) the bankrupt’s ability to contribute towards a conditional order;
4) whether the bankrupt was maintaining a high standard of living at the expense of the creditors;
5) whether the bankrupt has continued to ignore tax obligations since bankruptcy.”
The court decision also required Mr. Annand to file his income tax returns on time until the $25,000 conditional amount was paid.