Deveau (Re)

Deveau (Re) Court Supreme Court Date 2019-08-26 Citation 2019 NSSC 256 Docket No. 41896 Judge/Registrar/Adjudicator Balmanoukian, Raffi (Registrar) Document Type Decision Decision Content SUPREME COURT OF Nova Scotia IN BANKRUPTCY AND INSOLVENCY Citation: Deveau (Re), 2019 NSSC 256 Date: 20190826 Docket: No. 41896 Registry: Halifax IN THE MATTER OF: The bankruptcy of Tonia Michelle Deveau Judge: Raffi A. Balmanoukian, Registrar Heard: July 26, 2019, in Halifax, Nova Scotia Counsel: Kimberley A. Burke, for the Trustee, BDO Canada Limited Tonia Michelle Deveau, appearing personally Balmanoukian, Registrar: Conclusion [1] This case involves a return visit to what, if any, disability tax credits (“DTC”) are considered “property of the bankrupt” for the purposes of s. 67 of the Bankruptcy and Insolvency Act, RSC 1985, c. B-3, as amended (the “BIA”). [2] Ms. Deveau, now 40, suffered a stroke in 2015, resulting in the end of her career with the Armed Forces. As a result, she ultimately received disability tax credits which are the subject of this decision. These are for the 2014, 2015, and 2016 taxation years. It is unclear how the 2014 credit was generated as it appears to antedate her illness, but that issue is not before me. [3] The Trustee holds the resultant tax refund (which are generated by a combination of CPP overpayments, interest, penalty reversals, and the DTC) pending direction from this Court. [4] Perhaps predictably, Ms. Deveau takes the position that these are her funds; the Trustee indicated at the hearing that “we go by the OSB guidelines.” [5] A timeline is helpful to this analysis: 1. July 2015 – Ms. Deveau’s stroke 2. June 24, 2016 – Assignment in bankruptcy (Ms. Deveau’s first) 3. April 20, 2018 – Registrar Morse issued a conditional order for payment of $1200 (substantially less than the calculated s. 68 income balance of $13,052.51 that would otherwise have been due to the estate), and vesting of non-exempt HST credits as an offset (there were presumably no such non-exempt amounts, given that the other estate receipts appear to be sufficient to generate a dividend) 4. September 7, 2018 – Notices of Assessment were issued by CRA for 2014, 2015, and 2016 resulting in the refunds at issue in this case. These total $4819.99. $945.42 of this is for the 2016 tax year, to which I shall return. The balance pertains to 2014 and 2015. 5. September 27, 2018 – the refunds are deposited by the Trustee to the appropriate estate account. 6. May 2, 2019 – Ms. Deveau receives her absolute discharge, having paid the amount due under the conditional order. 7. May 30, 2019 – Trustee applies for directions respecting the $4819.99. [6] The Trustee is currently not discharged. [7] I considered a similar situation in Re Rafter, 2018 NSSC 331. I concluded, with several caveats, that the OSB position that DTCs generated in “the year of bankruptcy or a prior year” (my emphasis) are vested in the trustee is over-inclusive. At least, it is overinclusive in the absence of the caveats I discussed in that case. [8] I believe that is the case here, as well. I expressed concerns in Rafter in which a lack of bona fides in the timeline, or a Court’s s. 172 discretion, or other factors. could affect entitlement to the DTC-generated refunds. None of those apply here. [9] I also explicitly excluded from the scope of Rafter whether the fact and quantum of receipts could affect the Court’s discretion in formulating a s. 172 order. Certainly Ms. Deveau received a substantial abatement from what she “should” have paid under s. 68 in her conditional order (I note in passing that Ms. Deveau appears to have received a substantial “payout package,” which was excluded from the estate; this appears to have been of a capital nature relating to her illness, and if so that exclusion was quite appropriate). [10] I could quite possibly have come to a different conclusion on whether Ms. Deveau should have paid a further amount pursuant to s. 68; however, I was not asked to vary or adjust Registrar Morse’s order. In fact I was asked by the Trustee in May 2019 to effect the absolute order that resulted from the conditional order’s performance. [11] It would be inappropriate to “Monday morning quarterback” those orders now on the Court’s own initiative, particularly when the Trustee was or should have been aware at the time of the conditional order that DTCs were a factor in the estate, and was in fact so aware at the time it sought the absolute order. [12] Therefore, for the reasons (while reiterating the same caveats) in Rafter, I exclude the refunds for the 2014 and 2015 years from the property of the bankrupt; that leaves only the $945.42 pertaining to the 2016 taxation year. [13] I was not asked to consider whether any of these amounts are “income” within the meaning of s. 68. I could well have done so here as they were “earned or received by the bankrupt between the date of the bankruptcy and the date of the bankrupt’s discharge.” In Rafter, the bankrupt was discharged before the funds flowed. That is not the case here. [14] However, the proper time for a consideration of whether an amount is included or excluded in s. 68 “total income” is at the time of the application for discharge; a consideration of Ms. Deveau’s income and how it should be treated was what was before Registrar Morse in April 2018. That decision was not appealed, nor as I have said was I asked to vary it. I therefore do not do so. [15] That leaves only the issue of the 2016 amount, namely $945.42. [16] In this respect, s. 67 of the BIA is clear. Post-assignment refunds generated in the calendar (or fiscal) year of bankruptcy are included in “property of the bankrupt.” With respect to pre-assignment refunds, I again adopt the reasoning and conclusion of Master Robertson in Re Chomistek, 2018 ABQB 434, at least insofar as it pertains to the case at bar. [17] Ms. Deveau argues that the DTC, in and of itself, is an excluded asset as it is of a capital nature, ie a receipt intended to “make one whole.” Respectfully, that is incorrect on at least two grounds: 1. The DTC is not a compensatory regime, but instead a tax credit generated as a result of a qualifying disability. It is not intended to “make one whole,” as a payment for an act or loss, but a tax mechanism provided by a compassionate society as a recognition of the increased costs and potential limitations confronted by those who face qualifying disabilities, of a wide variety of origins; and 2. Regardless of the policy or social reasons for the DTC, it like any other receipt is subject to the clear inclusionary or exclusionary language of the relevant statute. Such is the case here. [18] It is not, however, clearly before me how much if any of the $945.42 pertains to either the pre- or post-June 24, 2016. I direct the Trustee to clarify this in correspondence with the Court, and copied to Ms. Deveau. She will have 30 days after the date of such communication to reply to the Court with any resulting submissions. [19] Finally, Ms. Deveau requests costs, and submitted several accounts as prepared by counsel. That counsel was not on the record but, quite appropriately and apparently ably, assisted in advising Ms. Deveau. By this, I assume she seeks solicitor-client costs. [20] An award of solicitor-client costs is reserved for the most egregious and high-handed conduct. There was no such activity in this file. [21] Further, although I have some concern with what appears to have been a rote position by the trustee – “we go by what the OSB says” – the trustee was perhaps in an untenable position with conflicting authorities and positions, and on an area of law which is not always straightforward. Seeking the direction of the Court was certainly appropriate and was done so with all due dispatch. According to the Trustee, it was also a mechanism agreed to by the parties. Whatever the case, there is no default or malfeasance by the Trustee in this matter. [22] To that end, and in exercise of my discretion, I decline to award costs in favour of or against any party. The Trustee’s fees, as always with summary administration estates, shall be governed by BIA Rule 128. [23] The Trustee shall prepare the draft order for my review. Balmanoukian, R.