IN THE SUPREME COURT OF BRITISH COLUMBIA

Date: 20120709

Docket: 46073

Registry:
Vernon

In
Bankruptcy and Insolvency

In
the Matter of the Bankruptcy of Kristian Eric Ole Tjelta

(Summary
Administration)

Before:
Master B.M. Young
(As Registrar)

Reasons for Decision

[1]            
The bankrupt, Mr. Tjelta, applies for discharge from bankruptcy.
His discharge is opposed by the Trustee and by Her Majesty the Queen in Right
of Canada. He made a voluntary assignment on July 20, 2009. This is Mr. Tjelta’s
first bankruptcy. Mr. Tjelta is 42 years old. For ten years prior to
bankruptcy, he was a self-employed construction foreman. He is separated from
his wife and has an ongoing maintenance obligation to his 16-year-old child. Mr. Tjelta
is in a new partnership now, and he and his new partner have two small children.
His new partner is unable to work outside the home.

[2]            
Mr. Tjelta is indebted to Her Majesty the Queen for unpaid personal
income tax, interest and penalties for the taxation years 1998 to 2008
inclusive. The total owing to Her Majesty the Queen as of the date of
bankruptcy was $985,977.97 comprised of $575,248.92 in tax, $2,638 in goods and
services tax credits to which he was not entitled, and $408,091.05 in penalty
interest in administration costs.

[3]            
The total debt owing in this bankruptcy is $1,019,064.94 making this
bankruptcy 98 percent of the total debt. Mr. Tjelta’s income tax returns
for 1999, 2000, 2001, 2002, 2003 and 2004 taxation years were all reassessed.
He has a history of late filing of his income tax returns. Some of his tax
returns were filed three or four years late. When he assigned himself into
bankruptcy, the Trustee filed his 2005, 2006 and 2007 income tax returns in
2010. On the date of the first hearing for his discharge in January 2012, Mr. Tjelta
had not yet filed his 2010 income tax return. By the date of the second hearing,
he did file his 2011 income tax return but had still not attended to his 2010
income tax return. The Canada Revenue Agency (the “CRA”) has been making
efforts to collect taxes from Mr. Tjelta since 2003.

[4]            
Mr. Tjelta’s explanation for the late filing of his tax returns and
failure to pay his taxes is worth noting. First of all, he denies that he owes
$1 million in tax debt. He said that these numbers do not take into account his
labor costs and business expenses. He suffered a serious injury in 1998, and it
was three years before he realized that he had not submitted tax returns or
paid taxes. By then, there was a notice that he owed $600,000 in taxes. His
wife was responsible for the bookkeeping, and he did not know that she was not
attending to those obligations. Now they are separated and he cannot seek her
co-operation. He does not believe that he owes this money because the
assessments did not take into account his business expenses. After receiving a
$600,000 assessment, he did not bother filing tax returns because he owed Revenue
Canada so much money already. He decided instead that he should just assign
himself into bankruptcy.

[5]            
It was Mr. Tjelta’s evidence that he did not file an appeal of the
reassessments because it was too late to do so. There is no evidence that he
made any efforts to obtain an extension of time to appeal the reassessments.
When he assigned himself into bankruptcy, no business records were available.
The Trustee was advised that the documents had burned. Mr. Tjelta was
questioned about proving that he filed his 2010 income tax return, but he said
it could not be printed off because his computer crashed.

[6]            
Fortunately now Mr. Tjelta is working as an employee for a construction
company and receives T-4 income. He earned $76,406.36 in 2011.

[7]            
It is clear to me from the evidence above and demeanor adopted by Mr. Tjelta
on the witness stand that he does not accept personal responsibility for any of
this financial disorder. It is the fault of the CRA or his ex-wife or a fire or
a computer hard drive failure, but not his fault for completely ignoring his
financial obligations.

[8]            
As this is a high personal tax bankruptcy pursuant to s. 172.1 of
the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3. Mr. Tjelta
is not entitled to an absolute discharge from bankruptcy, and his discharge must
be subject to conditions and the period of suspension. I am required by
s. 172.1(4) to consider the following factors in making my decision:

(a) the circumstances of the bankrupt at the time the
personal income tax debt was incurred;

(b) the efforts, if any, made by the bankrupt to pay
the personal income tax debt;

(c) whether the
bankrupt made payments in respect of other debts while failing to make
reasonable efforts to pay the personal income tax debt; and

(d) the bankrupt’s
financial prospects for the future.

[9]            
At the time the bulk of the tax debt was incurred, Mr. Tjelta’s
business was earning substantial gross income. It is his evidence that after
expenses, he was not making significant personal income. However, I am
cautioned by the CRA’s representative that I am to take the reassessment
notices at face value and not look behind them. She directs me to s. 152(8)
of Stikeman’s Income Tax Act Annotated 2010, 48th ed., which says:

(8) Assessment deemed valid
and binding – 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, deficits or omission in the
assessment or in any proceeding under this Act relating thereto…

[10]        
Much like a court order, an assessment is valid until set aside. Mr. Tjelta
could have taken steps to set aside the assessment but did not.

[11]        
Once Mr. Tjelta assigned himself into bankruptcy, Mr. Rennie
prepared his tax returns for 2005, 2006 and 2007 and no tax was owing for these
three years. Mr. Tjelta has made no effort whatsoever to pay these
outstanding debts. He has not made any payment in preference to other
creditors.

[12]        
Mr. Tjelta’s future prospects are reasonable. He has good T-4
employment now, although he has now taken on the new financial obligation of
supporting three dependents.

[13]        
Counsel for Her Majesty the Queen in Right of Canada has referred me to
the following authorities which I have reviewed:

1.     Steward
v. (Re) (1991), 53 B.C.L.R. (2d) 190 (B.C.C.A.)

2.     Toal
(Re) (1993), 22 C.B.R. (3d) 209, aff’d (1996), 39 C.B.R. (3d) 39 (Alta.Q.B.)

3.     Ginther
(Re), [2003] A.J. No. 532 (Q.B.)

4.     Kalenuik
(Re) (7 July 2004), Vancouver 220612 VA 01 (B.C.S.C.)

5.     Bankruptcy
of Nigel Ashley Williams, 2005 BCSC 289

6.     Bankruptcy
of Pinc, 2007 BCSC 380

7.     Lebeau
(Re), 2012 BCSC 638

8.     Paine
(Re), 2011 BCSC 309

[14]        
In each of these cases, the court has noted that the bankrupt who
persistently ignores tax obligations is not a bankrupt who has suffered through
an unhappy accident or unfortunate event which overtook him, but he or she is
one who is indifferent to sharing the tax responsibility with other Canadians
and who scoffs at the tax system, leaving other Canadians to pay for the
benefits that this bankrupt also enjoys. This indifference towards tax
obligations is considered misconduct, and in each case, the courts have imposed
an obligation on the bankrupt to pay a percentage of the outstanding debt as a
condition of discharge of bankruptcy.

[15]        
In this case, counsel for Her Majesty the Queen in Right of Canada, as
represented by the Minister of National Revenue, submits that I should make a
conditional discharge order requiring the bankrupt to pay $100,000 into the
estate at the rate of $20,000 per year and that he be ordered to file his
income tax returns for 2010 to and including 2014 and pay any taxes owing
thereon. Counsel for her Majesty the Queen also seeks costs of $2,000 pursuant
to s. 197 of the Bankruptcy and Insolvency Act.

[16]        
In the cases cited above, the courts have ordered payment between 40 and
65 percent of the outstanding debts. Counsel points out that the Queen in Right
of Canada is only seeking 10 percent of the total debt, given the magnitude of
the total debt in this case. Again, she urges me not to take into consideration
the fact that the reassessed amount may not have been the actual amount Mr. Tjelta
would have been required to pay had he filed his tax returns.

[17]        
The Trustee is seeking a condition that the bankrupt pay $10,000 into
the estate over five years. Mr. Rennie bases this condition on the fact
that the bankrupt has only had modest earnings since 2004, and he does not
believe that the bankrupt has any ability to pay $100,000 in tax debts.

[18]        
As far as I know, the bankrupt does not have any assets to speak of. He
now has three children to support. He has an income of $76,000. In exercising
my discretion, I have no sympathy for the bankrupt who has ignored his
obligations for over 10 years, but I need to set a condition that he has some
reasonable prospect of meeting. I find that $100,000 in payment is more than he
could hope to accomplish in five years, given the other obligations he has
assumed.

[19]        
I therefore order that the bankrupt shall pay to the Trustee for the
general benefit of his creditors the sum of $50,000, which he is to pay in
installments of $1,000 per month until that amount is paid in full.

[20]        
The bankrupt is to submit to the Trustee income and expense statements
on a monthly basis, and pay to the Trustee for the general benefit of its
creditors any additional surplus income based on the Superintendent standard
for the calendar years 2010, 2011, 2012, 2013 and 2014 on or before June 30th
of the subsequent year.

[21]        
A further condition is that the bankrupt is to file his personal income
tax returns and, if applicable, goods and services/harmonized sales tax returns
for the calendar years 2010, 2011, 2012, 2013 and 2014 and pay all taxes,
interest and penalties owing thereunder, and provide copies of the returns and
assessments to the Trustee.

[22]        
Upon the registrar being satisfied that the conditions set forth in this
order have been complied with, the registrar shall grant the bankrupt an
absolute discharge.

[23]        
The opposing creditor has requested $2,000 in costs for its court
appearances.

[24]        
Holden, Morawetz & Sarra, The 2011 Annotated Bankruptcy and
Insolvency Act, (Toronto: Carswell, 2011), p. 888 says:

I§
104 – Costs on Application for Discharge

Ordinarily costs are not awarded
on an application for discharge. If a conditional order is made, it is
customary for the court to order that the costs of the opposing creditor be
paid out of the money to be received by the trustee, and usually the court will
fix the amount of the costs

[25]        
Costs were awarded at a discharge hearing in Ginther (Re).

[26]        
I find that it is appropriate in this case to order that the bankrupt
pay an additional $2,000 to the Trustee as a further condition of his
discharge, and that the Trustee pay those fees to the CRA as its costs of
appearing on two occasions to complete this discharge hearing.

“B.M.
Young”

Master
B.M. Young