The Ontario Superior Court’s decision in Re Shaw, 2025 ONSC 6385 clarifies judicial interpretation of “total income” in section 68 of the Bankruptcy and Insolvency Act (“BIA”). While the surplus income regime is a familiar feature of Canadian bankruptcy law, the treatment of loans advanced during bankruptcy has remained surprisingly underdeveloped in jurisprudence. In Re Shaw, the Court addresses this gap by drawing a principled distinction between true loans and income, and underscoring the importance of fairness and the trustee’s advisory role in the bankruptcy process.
Background
Mr. Shaw filed an assignment in bankruptcy on April 5, 2024 and BDO Canada Limited was appointed as the trustee in bankruptcy (the “Trustee”). As part of the filing process, Mr. Shaw reported his monthly income and expenses in a Form 65. Based on this information, the Trustee determined that Mr. Shaw was not required to make any surplus income payments. As a first-time bankrupt with no surplus income to be paid, Mr. Shaw was eligible to receive an automatic discharge from bankruptcy after nine months.
In his statement of affairs, Mr. Shaw identified himself as a self‑employed real estate consultant and disclosed that he provided consulting services to Thomasfield Homes Limited (“Thomasfield”). He also disclosed that he received advances from Thomasfield. In the months following his bankruptcy, Mr. Shaw continued to receive monthly advances from Thomasfield by way of promissory notes. The amounts advanced were not included as income in the monthly income and expense statements he submitted to the Trustee.
Mr. Shaw maintained that these advances were loans, rather than payments for future services or amounts tied to invoiced work. He explained that repayment was uncertain as it would depend on whether he could secure viable real estate opportunities for Thomasfield, which were not guaranteed to come into fruition.
In November 2024, the Trustee advised Mr. Shaw that it had reclassified the Thomasfield advances as income. The Trustee notified the Office of the Superintendent of Bankruptcy and Mr. Shaw’s creditors that, in light of this reclassification, Mr. Shaw now owed surplus income and his automatic discharge period would be extended from nine months to twenty‑one months. Mr. Shaw disputed the Trustee’s characterization of the loans as income, and when the parties were unable to resolve the matter, it was brought before Associate Justice Rappos for determination.