Citation: 2010 TCC 203
Date: 20100415
Docket: 2008-941(IT)G
BETWEEN:
AGATHE LÉTOURNEAU,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Favreau J.
[1]
This is an appeal from
an assessment dated May 4, 2006, and bearing the number 43718. The
assessment was made by the Minister of National Revenue (the Minister)
under subsection 227(10) and section 227.1 of the Income Tax Act,
R.S.C. 1985, c. 1 (5th Supp.), as amended (the ITA) and sections
82 and 83 of the Employment Insurance Act, S.C. 1996, c. 23
(the EIA) following two unpaid assessments against 9034‑1751 Québec Inc. One
of the unpaid assessments is dated March 5, 2002, and is in the
amount of $824.65, and the other is dated March 6, 2002, and is in
the amount of $70,023.76. Both unpaid assessments are on account of unremitted
source deductions.
[2]
The only issue is
whether the appellant can be held solidarily liable, along with 9034‑1751
Québec Inc. for the total of $70,848.41 in source deductions (and interest and
penalties thereon) which the company was required to deduct, withhold and remit
to the Receiver General for Canada.
[3]
In making the
assessment in issue, the Minister relied on the following facts:
[TRANSLATION]
a.
9034‑1751 Québec Inc. (hereinafter 9034) operated
from April 1996 to April 18, 2002.
b.
The appellant was a director of 9034 starting on
January 4, 1999.
c.
On March 5, 2002, the Minister issued an
assessment against 9034 in relation to unpaid source deductions for 2002.
d.
On March 6, 2002, the Minister issued an
assessment against 9034 in relation to unpaid source deductions for 2001.
e.
On April 18, 2002, 9034 made an assignment of
its property.
f.
On March 31, 2003, the Minister asked 9034’s
trustee in bankruptcy for the minute book of 9034, among other things.
g.
On June 16, 2003, the Minister received a
copy of the register of directors contained in 9034’s minute book.
h.
On December 19, 2003, the Minister asked 9034’s
trustee in bankruptcy, under paragraphs 231.2(1)(a) and (b) of
the ITA, to send him 9034’s original minute book.
i.
On January 21, 2004, the Minister consulted
9034’s original minute book, including the register of directors.
j.
9034’s register of directors was falsified in
such a way as to make it appear as though the appellant had resigned from her
directorship on December 9, 1999.
k.
In fact, the appellant was a director until at least
as recently as January 3, 2002.
l.
On May 7, 2004, 9034 was dissolved.
m.
The appellant has not shows that she has exercised
the degree of care, diligence and skill to prevent the failure that a
reasonably prudent person would have exercised in comparable circumstances.
[4]
The dispute centres on
the date the appellant resigned as director of 9034‑1751 Québec Inc. The
company’s register of directors says that she resigned on
December 9, 1999. The problem is that her mandate’s termination date
was corrected. A new date was entered on top of an old one using correction tape.
Despite this correction, the original date, January 3, 2002, is
legible. Counsel for the appellant acknowledged at the hearing that the
register was corrected, but stated that his client did not know who made the
alteration or when it was made. He also noted that other corrections were made
to the 9034‑1751 Québec Inc. minute book and that the respondent adduced
no expert report.
[5]
9034‑1751 Québec Inc.
was incorporated on April 23, 1996, under Part 1A of the Quebec
Companies Act. Its activities were those of a management company that
operated six convenience stores under the banner “Pétroles Sonerco”, including
the Saint-Hyacinthe location, which operated as “Accommodation Grandmaître.”
[6]
According to the
company’s register of shareholders, the following individuals held Class “A”
shares of the company.
|
Name
|
Period in which shares held
|
|
Jean Fontaine
|
1996-04-23 to 1996-02-12
|
|
Roger Tardif
|
1996-02-12 to 1997-05-12
|
|
Jean Fontaine
|
1997-05-12 to 1999-01-04
|
|
Agathe Hébert Létourneau
|
1999-01-04 to 2001-01-03
|
|
Jean Fontaine
|
2001-01-03 to [unspecified]
|
[7]
On April 23, 1996, Jean
Fontaine became a shareholder of 9034‑1751 Québec Inc. by
subscribing for 100 Class “A” shares in consideration for $1.00 per share.
On December 2, 1996, Jean Fontaine transferred ownership of his
100 Class “A” shares to Roger Tardif for an undisclosed consideration. On
May 12, 1997, Roger Tardif transferred ownership of his 100 Class “A”
shares Jean Fontaine for an undisclosed consideration. On
January 4, 1999, Jean Fontaine transferred ownership of his
100 Class “A” shares to the appellant for an undisclosed
consideration. On January 3, 2001, the appellant transferred
ownership of her 100 Class “A” shares of the company back to Jean Fontaine,
for an undisclosed consideration. With respect to that last transfer, the Court
noted that the date of the endorsement of share certificate A-4 for transfer
and proxy purposes has also been altered, and that the transfer year originally
entered on the certificate was 2002, not 2001. The Court was not given
the reasons for these multiple share transfers. The Court also noted that
the shareholder register of 9034‑1751 Québec Inc. was corrected as well. The year
2002 appears to have corrected to read 2001 with respect to the year the appellant
ceased to be a shareholder of the company, and the year Jean Fontaine acquired the appellant’s
shares.
[8]
According to the
register of directors, the following individuals were directors of 9034‑1751
Québec Inc. from the time of its incorporation onward:
|
Name
|
Period in which office held
|
|
David Saltzman
|
1996-04-23 to 1996-04-23
|
|
Alan Schauber
|
1996-04-23 to 1996-04-23
|
|
James Smith
|
1996-04-23 to 1996-04-23
|
|
Jean Fontaine
|
1996-04-23 to 1996-12-02
|
|
Roger Tardif
|
1996-12-02 to 1997-05-12
|
|
Jean Fontaine
|
1997-05-12 to 1999-01-04
|
|
Agathe Hébert Létourneau
|
1999-01-04 to 1999-12-09
|
|
Jean Fontaine
|
1999-12-09 to [unspecified]
|
The Court was not given the reasons for these multiple
changes of directors.
[9]
Jean Fontaine testified
at the hearing. He was employed by 9034‑1751 Québec Inc. from 1998 to
2002. He was the gas pump attendant and the manager at the Saint‑Hyacinthe
convenience store. He managed his employees and purchased gasoline and various
supplies. His management mentor was Marcel Létourneau, the appellant’s
spouse. Marcel Létourneau offered him the position at the Saint‑Hyacinthe
convenience store. Mr. Fontaine trusted him blindly and followed his
advice to the letter. He testified that he never refused to sign documents that
Marcel Létourneau placed in front of him, even if he did not understand the
nature and consequences of the document that he was signing, and that, more
often than not, the documents were signed hastily, in between serving two gas
pump customers, without having been read. He has a Grade 10 education.
[10]
The documents signed by
the witness as director and/or officer of 9034‑1751 Québec Inc. include (a) corporate
resolutions; (b) an application to open an account at Caisse populaire
Bourg-Joli dated January 24, 2000, on which he and company
comptroller Guylaine Lemay were to be the two cheque signing officers; (c) cheques
payable to Marco Dumond and dated March 30, 2001, and April 20, 24 and
25, 2001; (d) cheques payable to Marcel Létourneau and dated
March 26, 28 and 30, 2001 and April 10 and 24, 2001; and (e) annual information
returns by a legal person for the years 1998, 2000 and 2001.
[11]
On cross-examination,
the witness admitted the he had not prepared the documents that he signed, and
that he signed them at Marcel Létourneau’s request. He also acknowledged
that he never the saw minute book of 9034‑1751 Québec Inc. or share
certificate A-1, and yet he signed the latter document on
April 23, 1996, as president and secretary of the company. Lastly, he
said that he did not know Ginette Lambert, whose name is entered in the
convenience store’s payroll journal, and that he did not know whether 9034‑1751
Québec Inc. owed $150,000 to Gestion Aghmana Inc. at the time that it went
bankrupt.
[12]
The appellant also
testified at the hearing. She said that she has been married to Marcel
Létourneau since 1966. She confirmed that she was briefly a shareholder and
director of 9034‑1751 Québec Inc. Specifically, she said that she was a
shareholder from January 4, 1999, to January 3, 2001, and
she was a director from January 4, 1999, to
December 9, 1999. She also confirmed that she was a shareholder of Gestion
Aghmana Inc. which was, among other things, the owner of a Rouyn‑Noranda commercial
building in which 9034‑1751 Québec Inc. operated a convenience store.
She did not explain why she became a shareholder and director of 9034‑1751
Québec Inc. and did not want to confirm that her spouse managed all the six
convenience stores. Moreover, her spouse did not testify at the hearing.
[13]
The appellant did
not recall the number of shares of 9034‑1751 Québec Inc. that she
acquired and was unable to confirm whether she was the sole shareholder of that
company. The purchase and sale price of the 100 shares that she acquired was
$100, and she was unaware of their actual value. She said that she did not have
the minute book of 9034‑1751 Québec Inc. in her possession.
[14]
Upon being questioned
about the $158,000 loan that Gestion Aghmana Inc. advanced to 9034‑1751
Québec Inc. in 1999, she acknowledged that she signed a proof of unsecured claim
that was submitted to Roy Mercier Roberge, trustee in bankruptcy, on
May 6, 2002, for a $158,000 loan granted to 9034‑1751
Québec Inc., which was not a related person within the meaning of section 4 of
the Bankruptcy and Insolvency Act. The appellant was unable to
explain why Gestion Aghmana Inc. did not demand security for its loan when
it ceased to be a director and/or shareholder of 9034‑1751 Québec Inc.
[15]
In her testimony, the appellant
stated that, as director of 9034‑1751 Québec Inc., she was not
involved in the day-to-day operations of the company, because it was managed in
Victoriaville by Ms. Lemay, who did the bookkeeping and accounting. She
was unable to confirm whether she signed cheques of 9034‑1751 Québec Inc.
and whether she signed bank resolutions to that effect.
[16]
The appellant also
confirmed that she knew Ginette Lambert, a person who lent money to her
husband, but she did not recall whether Ms. Lambert was on the payroll of 9034‑1751
Québec Inc. in 2001 and 2002, when she was not working there. She also
confirmed that she received a salary from 9034‑1751 Québec Inc. in
2001 ($16,900) and 2002 ($8,000) even though there were no source deductions
from her salary in 2001 on account of Canada Pension Plan and Employment
Insurance, and even though she had ceased to be a shareholder of 9034‑1751
Québec Inc. in January 2001 according to the information contained in that
company’s minute book.
[17]
Daniel Thibeault, a
collections officer for the Canada Revenue Agency (CRA), testified at the
hearing. His involvement in the case began with the receipt of the notice of
bankruptcy and first creditors meeting for 9034‑1751 Québec Inc., dated
April 25, 2002. Prior to his involvement, an audit of the source
deductions made by 9034‑1751 Québec Inc. for the period from January 1,
2001, to January 31, 2002, was done by Nicole Villeneuve, and the
total arrears, penalties, and interest was $81,216.19. The appellant does not dispute
this amount.
[18]
Mr. Thibeault also testified
about how the minute book of 9034‑1751 Québec Inc., which was
then in the possession of the trustee in bankruptcy, came to be obtained.
Following telephone conversations with the trustee, a formal letter requesting
the company’s minute book was sent to the trustee on March 31, 2003. In
response, on June 16, 2003, the trustee provided a photocopy of
excerpts from the company’s minute book, including the register of directors
and registered shareholders. However, the right‑hand column of each
register was missing from the photocopied excerpts. In the case of the register
of directors, that column contained the end of each director’s mandate, and in
the case of the register of shareholders, it contained the date that each
shareholder cased to hold the shares. After the CRA received the incomplete
documents, it sent the trustee a demand letter dated December 19, 2003,
instructing the trustee to provide it with 9034‑1751 Québec Inc.’s minute
book no later than January 24, 2004. On January 21, 2004,
the trustee let the CRA consult the minute book on its premises. Finally, the
CRA received the original of the company’s minute book in October 2005.
[19]
Mr. Thibeault explained
that two proposed assessments were submitted in October 2005 and that there was
no response to these proposed assessments, and no representations by the appellant
with regard to them. There were two meetings with Jean Fontaine, one in
May 2005 and the other in October 2005. At these meetings, Mr. Fontaine
said that he agreed to be a shareholder and director of 9034‑1751 Québec Inc.
at the request of Marcel Létourneau, and he acknowledged that he signed
the documents without having more than a cursory look at them. Based on the
information obtained at these meetings, Jean Fontaine never paid the price of
his shares in 9034‑1751 Québec Inc., and did not know it had a $158,000
debt.
[20]
Mr. Thibeault told
the court that a meeting was held with Ginette Lambert in February 2006. She
explained that Ms. Lambert had a mortgage on a Florida condominium
registered under the appellant’s name, and granted the appellant a release
from her mortgage in 2002 without being paid. Ms. Lambert acknowledged
that she was paid out of false wages coming from companies related to Marcel Létourneau’s
group, including 9034-1751 Québec Inc. Her total income for the years 1998
through 2002 was roughly the same as the amount of her mortgage claim.
Analysis
[21]
The reassessment
against the appellant is dated May 4, 2006. That is more than two years after the appellant
ceased, for the last time, to be a shareholder of 9034‑1751 Québec Inc., whether
that date was December 9, 1999, or January 3, 2002. It is also
more than two years after the CRA first consulted the original minute book of 9034‑1751
Québec Inc. on January 24, 2004, and more than two years after 9034‑1751
Québec Inc. made an assignment of its property on April 18, 2002.
However, it is within the two-year period that began on the date that Quebec’s Registraire
des entreprises cancelled 9034‑1751 Québec Inc.’s registration, because
that cancellation took place on May 7, 2004.
[22]
The liability of
directors for a failure to make source deductions is defined in subsection 227.1(1)
of the ITA, which reads:
227.1 (1) Where a corporation has failed to deduct or
withhold an amount as required by subsection 135(3) or 135.1(7) or section 153
or 215, has failed to remit such an amount or has failed to pay an amount of
tax for a taxation year as required under Part VII or VIII, the directors of
the corporation at the time the corporation was required to deduct, withhold,
remit or pay the amount are jointly and severally, or solidarily, liable, together
with the corporation, to pay that amount and any interest or penalties relating
to it.
[23]
Subsection 227.1(4)
of the ITA grants a two-year window, after a director has last ceased to be a
director of a corporation, to commence proceedings to recover an amount payable
by a director under subsection 227.1(1). Subsection 227.1(4) of the ITA
reads:
(4) Limitation period. No action or
proceedings to recover any amount payable by a director of a corporation under
subsection 227.1(1) shall be commenced more than two years after the director
last ceased to be a director of that corporation.
[24]
However, under
subsection 227(10) of the ITA, the Minister has the power to assess,
at any time, any amount payable by a person under section 227.1 of the ITA. Subsection
227(10) reads as follows:
(10) The Minister may at any time assess any amount
payable under
(a) subsection 227(8), 227(8.1), 227(8.2), 227(8.3) or
227(8.4) or 224(4) or 224(4.1) or section 227.1 or 235 by a person,
(b) subsection 237.1(7.4) by a person or partnership,
(c) subsection 227(10.2) by a person as a consequence of a
failure of a non‑resident person to deduct or withhold any amount, or
(d) Part XIII by a person resident in Canada,
and, where the Minister sends a notice of assessment to that person
or partnership, Divisions I and J of Part I apply with any modifications that
the circumstances require.
[25]
Under the above-cited
statutory provisions, the Minister is under no time limit to assess an
amount payable by a person under section 227.1 of the ITA, but the recovery
proceedings are subject to a two-year limitation period which starts on the
date that the person ceases for the last time to be a director of the
corporation.
[26]
Hence, it is imperative
to determine the date that the appellant last ceased to be a director of 9034‑1751
Québec Inc.
[27]
In the light of the
evidence adduced, this Court believes that it was only on May 7, 2004,
the date that the corporation was officially struck off the enterprise register,
that the appellant ceased to be a director of 9034‑1751 Québec Inc.
[28]
In view of the
evidence, it is clear that the minute book of 9034‑1751 Québec Inc.
was inexplicably corrected in order to replace the date the appellant ceased to
be a director of that company so that it would read December 9, 1999,
instead of January 3, 2002. Consequently, the appellant’s true
date of resignation from her directorship is unknown, and her letter of
resignation dated December 9, 1999, cannot be recognized as valid and effective.
Since the appellant produced no subsequent letter of resignation, she must be
considered never to have resigned from position as director, and to have
remained in office until the date that 9034‑1751 Québec Inc. was
struck off the register. Indeed, it bears mentioning that no form reporting a
change of directors was filed with the Registraire des entreprises to give
notice of the appellant’s resignation.
[29]
Section 123.876 of
the Companies Act, R.S.Q., c. C‑38, provides as follows with
respect to the termination of a director’s office:
123.76 Notwithstanding the expiry of his term, a director remains in
office until he is re-elected, replaced, or removed.
A director may resign from office by giving notice to that effect.
[30]
The other situations
that terminate a director’s mandate include death, personal bankruptcy,
inability to perform duties, institution of protective supervision, and the
voluntary or court-ordered liquidation of a company incorporated under the laws
of Quebec.
[31]
Since the evidence does
not reveal that the appellant resigned from her position as director, went
bankrupt, was unable to perform her duties, or availed herself of protective
supervision, or that the company was liquidated before its registration was
struck off, the appellant must be deemed never to have lost her status as
director until the company was struck off the register.
[32]
In addition, the
Federal Court of Appeal held, in Kalef, 96 D.T.C. 6132, that a corporation’s
bankruptcy or cessation of commercial activity does not put an end to the
directors’ liability for the purposes of subsection 227.1(4) of the ITA.
[33]
No explanations about the
falsification of the register of directors, or the reasons therefor, have been provided.
Obviously, the only person that it could benefit from it was the appellant
herself. The register of directors was altered with the appellant’s full
knowledge, in order to limit her liability following the CRA’s audit of the
affairs of 9034‑1571 Québec Inc. during the years 2001 and 2002 and in anticipation
of the filing of a notice of bankruptcy by 9034‑1751 Québec Inc. It should
be recalled that the company filed a notice of intent to make a proposal in
bankruptcy on February 1, 2002, that no such proposal was ultimately
filed, and that the company declared bankruptcy on April 25, 2002. The appellant
undoubtedly knew that 9034‑1751 Québec Inc. was operating in the red and
that bankruptcy was imminent. In fact, she was familiar with the bankruptcy
rules because she personally went bankrupt in 1997 and her spouse did so in
1996.
[34]
The appellant cannot
successfully raise any legal or factual presumption that she was not a director
of 9034‑1751 Québec Inc. in 2001 and 2002, even if, on the face of it,
she does not appear to have carried out any duties of administration during
those years. Many parts of the company’s minute book, including the
register of directors and the register of shareholders, were altered.
Consequently, the book absolutely cannot be used as the foundation of any
presumption concerning the appellant’s status as a director. The evidence does
not show that the appellant performed more duties as a director in 1999 than
she did in 2001 and 2002.
[35]
The corrections to the
register of directors cannot be attributed to a mere clerical error, and are
very unusual given the more than 24-month gap between the two dates.
[36]
It is also difficult to
imagine that the appellant abandoned her duties as director of 9034‑1751
Québec Inc. in 1999 when that company had a $158,000 unsecured liability to
Gestion Aghmana Inc., a company of which she was the only manager. In her
testimony, the appellant provided no explanations about the subject, not
even what supposedly caused her to resign from her directorship in 1999.
[37]
The appellant’s
testimony at the hearing was not credible and lacked detail. Among other
things, she had no recollection, or merely vague recollections, of the $158,000
loan advanced by Gestion Aghmana Inc., of Ms. Lambert’s mortgage
on her Florida condominium, of the reasons for her resignation as a
director of 9034‑1751 Québec Inc., or of that company’s fake
wage payments to Ms. Lambert to repay her personal mortgage debt.
[38]
Jean Fontaine’s
testimony at the hearing clearly showed that he was merely used as a proxy for
the appellant’s spouse. The evidence is that he signed the documents that
Marcel Létourneau placed before him. In actual fact, Jean Fontaine was never a
director of 9034‑1751 Québec Inc. and never did any accounting or
bookkeeping. The administration of 9034‑1751 Québec Inc. was done from Victoriaville,
not from Saint‑Hyacinthe. In addition, Mr. Fontaine had no
knowledge of the business of the other five convenience stores managed by 9034‑1751 Québec Inc.,
with the exception of the information obtained during the yearly rounds of the
stores with Marcel Létourneau. His claim that he could become the owner of
a convenience store by virtue of his overtime is not realistic and cannot be
accepted. No price for the store, and no terms and conditions of acquisition,
were agreed upon with Marcel Létourneau. The purchases and sales of the shares
in 9034‑1751 Québec Inc. were done with no regard for their actual value.
Indeed, Mr. Fontaine’s memory faltered when it came to explaining why the shares
of 9034‑1751 Québec Inc. were transferred so often and why EI source
deductions were made from the salary that 9034‑1751 Québec Inc. paid him
in 2002, when he was a shareholder of the company and was therefore not
entitled to EI.
[39]
The assessment against
the appellant was made beyond the normal reassessment period. Subsection 227(10)
of the ITA authorizes the Minister to assess a person for an amount
contemplated by section 227.1 of the ITA at any time, in which case
Divisions I and J of Part I of the ITA apply to the assessment.
Those divisions encompass subsection 152(4), which restricts the
Minister’s power to reassess beyond the regular reassessment period to the situations
contemplated in paragraphs (a) and (b) of that subsection. The situation
contemplated in subparagraph 152(4)(a)(i) is one where the taxpayer
or person filing the return has made a misrepresentation that is attributable
to neglect, carelessness or wilful default or has committed any fraud in filing
the return or in supplying any information under the ITA.
[40]
Where a reassessment is
made beyond the normal period, the burden of proof is on the respondent. In the
instant case, the respondent has met her burden of proof by showing that the
minute book of 9034‑1751 Québec Inc., and, in particular, the register of
directors, was improperly altered, and that these alterations prevented the
Minister from making a reassessment during the normal period contemplated by
the ITA. In addition, the evidence has clearly shown that the appellant was
aware of the scheme by signing documents, including a letter of resignation
dated December 9, 1999.
[41]
For these reasons, the appellant’s
appeal is dismissed, with costs.
Signed at Ottawa,
Canada, this 15th day of April 2010.
“Réal Favreau”
Translation certified true
On this 20th day of June 2010
François Brunet, Revisor
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