Citation: 2011 TCC 91
Date: 20110303
Docket: 2007-3055(IT)G
BETWEEN:
741290 ONTARIO INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
AMENDED REASONS FOR JUDGMENT
Bowie J.
[1] These appeals were begun under the informal procedure
of this Court, to challenge the correctness of some 94 unspecified assessments
made under the provisions of the Income Tax Act (the Act), the Employment Insurance
Act
and the Canada Pension Plan
in respect of amounts required by those statutes to be withheld from wages paid
to employees of the appellant between April 1992 and July 1999.
[2] By the Order of
Rossiter J., as he then was, made on October 23, 2007, the appeals were quashed
insofar as they related to assessments under the Employment Insurance Act and
the Canada Pension Plan. On June 19, 2008, at the request of the
appellant, McArthur J. ordered that the remaining appeals proceed pursuant to
the general procedure.
[3] The appeals from
the assessments under the Income Tax Act came on for hearing before me
on December 9, 2009, and it quickly became apparent that the only issue that
the appellant sought to pursue was not revealed by the Notice of Appeal. I
granted leave to the appellant to file a Fresh As Amended Notice of Appeal, and
that was done.
[4] By the amended
pleading the appellant has limited the issue to the validity of the penalties
assessed under subsection 227(9) of the Income Tax Act. Specifically, it
is asserted that those penalties are subject to a defence of due diligence, and
that the question of due diligence has been resolved in the appellant’s favour
by a judgment of O’Connor, J of this Court. By that judgment O’Connor, J.
allowed the appeals of Stella Pinnock and Stainton Pinnock from assessments
made against them as the directors of 741290 Ontario Inc. under section 227.1
of the Income Tax Act in respect of amounts that should have been, but
were not, remitted as withholdings from the wages paid by it to its employees. The relevant part of
paragraph 153(1)(a) and sections 227 and 227.1 are attached as Appendix
“A”.
[5] Stella Pinnock
and her husband, Stainton Pinnock, have been the directors of the appellant
since its inception in 1987. From then until November 1998 the appellant
operated Van Del Manor Nursing Home in Toronto under a license granted by the province of Ontario under the Nursing Homes Act. In November 1998
the Ontario Ministry of Health determined that the building could no longer be
operated as a nursing home. After that Ms. Pinnock operated it as a retirement
home for a brief period. Since September 1999, the premises have been leased to
the City of Toronto, which operates it as a seniors’ home. The nursing
home license was sold by the appellant’s bank.
[6] Mrs. Pinnock gave evidence for the appellant. From the outset the Pinnock’s had difficulty meeting
their payroll. Mrs. Pinnock blamed this on a number of factors. The
payroll was substantially higher than they had expected, based on the financial
statements that they had seen prior to buying the business. The Ministry of
Health required them to make substantial repairs, renovations and upgrades to
the building, at considerable cost, in order to continue to use it as a nursing
home. They also were required to increase the number of staff employed beyond
the level that they had expected and that the income would support. The
appellant was paid on a per patient basis by the Ministry of Health, and
according to Ms. Pinnock’s evidence the payments were always made after the
month end, when the money was required to pay current expenses. In short, the
expenses of operating the business were higher than the Pinnock’s had foreseen,
and there was an acute shortage of working capital from the outset.
[7] The appellant’s
major income source was the monthly payments made to it by the Ontario Ministry
of Health. These, Ms. Pinnock said, were amounts paid for specific purposes or
activities such as patient care or nutrition, and they had to be applied to
those purposes. The appellant’s employees were paid every second Thursday. For
reasons that Ms. Pinnock attributed to delays by the Ministry of Health in
making its payments, the appellant was frequently in the position of being
unable to meet its gross payroll, which is to say the payroll including the
statutory deductions that an employer is required to make for income tax,
employment insurance premiums and Canada Pension Plan contributions. Frequently
it did have sufficient funds, however, to meet the net payroll only, and on
these occasions it did so by paying the employees their net pay for the period,
but it did not remit the income tax and other deductions to the Receiver
General within the time fixed by section 108 of the Income Tax Regulations (the Regulations)
for doing so.
[8] In January 2000,
the Minister assessed Stainton Pinnock and Stella Pinnock pursuant to
subsection 227.1(1) of the Act for the unremitted withholdings, interest
and penalties. They appealed from those assessments to this Court, relying on
the saving provision found in subsection 227.1(3), which reads:
227.1(3) A director is
not liable for a failure under subsection 227.1(1) where the director
exercised the degree of care, diligence and skill to prevent the failure that a
reasonably prudent person would have exercised in comparable circumstances.
[9] Those appeals
were heard by O’Connor J on September 29, 2004, and he gave judgment orally at
the conclusion of the hearing allowing the appeals. His Reasons for Judgment
are brief. He refers to the extent to which decisions made by the Ministry of
Health affected the appellant’s profitability by imposing requirements to spend
money on the maintenance of the building and by limiting the number of
patients that could be accommodated, and to the financial problems caused by
union demands. He found Mr. and Mrs. Pinnock to be credible witnesses, and to
have attempted in good faith to resolve their financial difficulties by
negotiating with the Revenue Agency officials, and by liquidating their
personal savings to invest in the business.
[10] Schedule B to the
Reply to the Notice of Appeal filed by the respondent lists some 93 assessments
issued by the Minister between April 13, 1992 and July 14, 1999 in respect of
withholdings either not remitted at all, or remitted late. By the time of the
hearing the appellant no longer disputed the particulars of any of these
assessments, either as to its failure to remit withholdings or as to the
computation of the interest and penalties under the Act. It contested
only the penalties for late remittance of the withholdings, on the basis that
Stainton and Stella Pinnock were, at the material times, the alter ego
of the appellant as they were the only directors, and so theirs were the
controlling minds of the corporation. The appellant argues that if they, the
only directors, exercised the degree of care, diligence and skill that a
reasonably prudent person would, in comparable circumstances, have exercised to
prevent the failure to remit on time, then it must follow that the corporation
exercised sufficient diligence to be exculpated from the penal provisions of
subsection 227(9). This submission, of course, necessarily depends upon the
proposition that failure to remit the statutorily required withholdings is a
strict liability offence rather than an absolute liability offence, and that
the degree of diligence required of directors by subsection 227.1(3) is at
least as great as that required to exculpate the company under subsection
227(9).
[11] The appellant
argues that it would be incongruent and lacking in consistency for Parliament
to have provided a defence of due diligence for directors from their potential
vicarious liability under section 227.1 for the failure of a corporation to
remit amounts withheld under section 153, and yet not provide a similar defence
for the corporation from its potential liability to a penalty under subsection
227(9). The argument is that since the directors are the directing mind of the
corporation the legislation must be presumed to require the same standard of
conduct from the corporation itself as is required from the directors.
[12] In my view the
matter is not so simple as that. The reasons of the majority of the Supreme
Court of Canada in Toronto (City) v. C.U.P.E. Local 79 were
written by Arbour J. At paragraph 23 she notes that there are three conditions
that must be met for issue estoppel to apply:
(i) the issue to be decided
must be the same as that which was decided in the prior case;
(ii) the earlier decision must have been a
final one; and
(iii) the parties to both proceedings must be
the same, or their privies.
While
abuse of process by litigation is a more flexible doctrine than issue estoppel,
it is clear from Arbour J.’s discussion of it at paragraphs 35 to 54 that the
requirement of identity of issue in the two proceedings is as necessary to abuse
of process as it is to issue estoppel.
[13] The rationale
underlying both doctrines includes avoiding unnecessary expense to the parties
to relitigate a matter that has already been decided, conserving judicial
resources, avoiding the possibility of collateral attack on a prior judgment
that would otherwise be final, and protecting the integrity of the judicial
system from the harm to public confidence in it that would be occasioned by
inconsistent judgments in respect of the identical issue. None of these
concerns arise if the issues in the first and second proceedings are not
identical.
[14] The appellant’s
argument in this case assumes that if failure to remit amounts deducted is not
an absolute offence, admitting of no defence whatsoever, then the degree of
care that a corporation must show in order to establish a defence for purposes
of the penalty imposed by subsection 227(9) of the Act must be identical
to the degree of care that a director must show in order to avoid vicarious
liability for the default of the corporation under subsection 227.1(3). I
understand this proposition to be founded on the basis that subsection 227.1(3)
uses the expression “due diligence” and that phrase has been used from time to
time to describe the defence available to those charged with a strict liability
offence.
[15] I know of only
one case in which the question whether the failure to remit as and when
required is an absolute or a strict liability offence has arisen. That is Weisz,
Rocchi & Scholes v The Queen,
a decision of Bowman, A.C.J., as he then was. His conclusion was that the
offence of late remitting had not been established by the evidence, and so
there was no need to decide whether, if it had been established, the appellant
would have been entitled to avoid liability for the penalty by proof of due
diligence. He did, however, add in obiter that although the question was
one for another day, if he had been required to decide it he would have found
that a due diligence defence was available.
[16] For purposes of
this appeal, I am prepared to assume that a “due diligence” defence is
available. Nevertheless, for the reasons that follow, I conclude that neither res
judicata nor abuse of process by relitigation based on the judgment of
O’Connor J. is available to the appellant, and that the defence of due
diligence, assuming it is available at all, has not been established.
[17] Assuming that
failure to remit as and when required is not an absolute but a strict liability
offence, it nevertheless requires a greater degree of “due diligence” than does
subsection 227.1(3). The words of that subsection are precisely the same as
those found in paragraph 122(1)(b) of the Canada
Business Corporations Act, and were considered by the
Supreme Court of Canada in Peoples Department Stores Inc. v. Wise. That Court’s
conclusion as to the standard of conduct that these words mandate is found in
paragraph 67 of the unanimous judgment:
67 Directors and officers
will not be held to be in breach of the duty of care under s. 122(1)(b)
of the CBCA if they Act prudently and on a reasonably informed basis.
The decisions they make must be reasonable business decisions in light
of all the circumstances about which the directors or officers knew or ought to
have known. In determining whether directors have acted in a manner that
breached the duty of care, it is worth repeating that perfection is not
demanded. Courts are ill-suited and should be reluctant to second-guess
the application of business expertise to the considerations that are involved
in corporate decision making, but they are capable, on the facts of any case,
of determining whether an appropriate degree of prudence and diligence was
brought to bear in reaching what is claimed to be a reasonable business
decision at the time it was made. (emphasis
added)
Can
this be said to be the same standard that applies to the obligation of an
employer to remit to the Receiver General the amounts that it has withheld from
its employees’ earnings for their income tax liability as required under
section 153? I think not.
[18] There is a marked contrast between the standard of conduct required by
the “reasonable business decision” test under subsection 227.1(3) on the one
hand and what is required by section 227 on the other. Subsection 227(4)
creates a trust in favour of the Crown, whereby the employer holds the amounts
deducted for income tax from payments of remuneration “… in trust for Her
Majesty and for payment to Her Majesty in the manner and at the time provided
under this Act.”
[19] It is
certainly reasonable that an employer should not be penalized under subsection
227(9) where the failure to remit in time is caused by an event beyond the
employer’s control, such as a failure of the post office to deliver a
remittance mailed in time, or an error made by a bank clerk in transferring
funds. However, subsection 227(4) does not permit the employer, in any
circumstances, to make a business decision to use the funds for some purpose of
its own, no matter how dire its financial plight may be or how brief the period
for which it intends to use the funds. The funds belong to the employees, not
to the employer. In my view, any failure to remit withholdings when they are
due that results from a deliberate decision of the employer, whether that
decision is made by a director or by an employee, would necessarily be
culpable. Consequently, the issues that arise under subsection 227.1(3) and
subsection 227(9) are different. Neither issue estoppel nor abuse of process by
relitigation can apply in this case.
[20] Was the
failure of the appellant to remit its withholdings as and when prescribed under
the Act the result of an event beyond the control of the corporation, or
did it result from a deliberate decision? Mrs. Pinnock certainly tried by her
evidence to paint a picture of a corporation that was in default only because
of unforeseeable problems caused by the actions of others. The expenses were
greater than she and her husband had anticipated because they were not properly
revealed to them before they purchased the business, and because the Department
of Health made too many demands on them to spend money on upgrades and repairs.
Labour costs were inflated by staffing requirements that were imposed on the
appellant by the Department of Health, and by the demands of unionized workers.
The payments from the Department of Health always came after the month end,
when the money was required before that in order to meet the payroll and the
accounts payable. Their attempts to raise additional capital were thwarted by
the banks that would not extend additional credit to the appellant after its
line of credit was exhausted, and by the refusal of the Department of Health to
approve a prospective investor.
[21] It is clear
from the evidence of both Mrs. Pinnock and Ms. Ebanks, a CRA Collections
Officer, as well as from the Amended Notice of Appeal, that the appellant
habitually failed to remit the payroll withholdings as and when required under
the Act, and that its failure to do so was caused entirely by the fact
that it did not have the necessary funds to meet the gross payroll, and so
elected to pay the net payroll to the employees and not pay the withholdings.
This practice was the subject of adverse comment by the Supreme Court of Canada
in Royal Bank of Canada v. Sparrow Electric Corp.:
(B) The Nature of Section 227(4) and
(5) Statutory Trusts
25 Section
153(1)(a) ITA places an affirmative duty upon employers to deduct
and withhold amounts from their employees' pay cheques, and remit those
withholdings to the Receiver General on account of the employees' tax
payable. By virtue of s. 153(3) ITA, these withholdings are
deemed to become the property of the employee:
153 ...
(3) When an amount has been deducted or
withheld under subsection (1), it shall, for all the purposes of this Act,
be deemed to have been received at that time by the person to whom the
remuneration, benefit, payment, fees, commissions or other amounts were paid.
In a perfect world, these deductions would be made, a cash fund would
be set aside by the employer, and the withheld amounts would be promptly
remitted to the Receiver General when due. The deducted amounts, lawfully
the property of the employee, would in this way be transferred to Her Majesty
to be set against his overall tax payable.
26 As
a practical reality, however, these deductions are often not remitted as
required under the ITA. Instead, the withholdings are commonly
made solely as a book entry, and therefore the deduction of taxes from wages
becomes merely a notional transaction; no cash is actually set aside for
remittance and, often, the deductions are not transferred to the Receiver
General: see, e.g., Re Deslauriers Construction Products Ltd.,
[1970] 3 O.R. 599 (C.A.), at p. 601. It is at this point which a business
becomes indebted to Her Majesty for the amount of moneys only fictionally
deducted. I hasten to add, however, that while it can be said
Her Majesty at this point becomes de facto, if not de jure,
a creditor of the non-remitting employer, the arrangement is dissimilar to an
ordinary debtor-creditor situation in two fundamental respects. First, in
contrast to usual negotiated credit arrangements, this transaction is of
manifestly a non-consensual nature. Second, by virtue of s. 153(3),
the debtor can in law be considered to be utilizing an asset which is the
property of its employees. In this sense, it is not inaccurate to
characterize the non-remittance of payroll deductions as a “misappropriation”
of the property of another. Indeed, the authorities, correctly in my
view, commonly refer to the conduct of the tax debtor in this manner: Roynat,
supra, at p. 646, per Twaddle J.A.; and Pembina on
the Red Development Corp. Ltd. v. Triman Industries Ltd. (1991), 85 D.L.R.
(4th) 29 (Man. C.A.), at p. 48, per Lyon J.A. dissenting.
27 The
economic reality of this sort of misappropriation of statutory deductions is
artificially to increase the working capital of the tax debtor. By
foregoing a cash payment to Her Majesty in the amount of the payroll
deductions, the tax debtor is able to utilize the freed resources elsewhere in
its business. The effect of non-remittance was summarized by
Lyon J.A. in his dissenting reasons in Pembina on the Red Development,
supra, at p. 48:
... either the tax debtor used the misappropriated deductions for its
own purposes or the pool of moneys available for distribution to the tax
debtor's creditors ... has been increased by the amount which the tax debtor
failed to remit to the Receiver-General.
28 It
is against the backdrop of this unfortunate factual scenario that the
provisions of s. 227(4) and (5) can be seen to have been enacted.
While it can be said that at the point of withholding the employer becomes the
trustee of a fund which is in law the property of its employee, s. 227(4)
has the effect of making Her Majesty the beneficiary under that
trust. I agree with the observation of the mechanics of s. 227(4)
made by Twaddle J.A. in Roynat, supra, at p. 646, where he
states:
Although [s. 227(4)] calls the trust created by it a deemed one,
the trust is in truth a real one. The employer is required to deduct from
his employees' wages the amounts due by the employees under the statute.
This money does not belong to the employer anymore. It belongs to the
employees. The employer holds it in a statutory trust to satisfy their
obligations.
The conceptual difficulty arises, of course, when the tax debtor fails
to set aside moneys which are to be remitted. At this point, the subject
of Her Majesty's beneficial interest becomes intermingled with the general
assets of the tax debtor. As Twaddle J.A. rightly observed in Roynat,
supra, at p. 646, “Her Majesty's claim ... then be[comes] that of a
beneficiary under a non-existent trust”. In short, the misappropriation
of statutory deductions conceptually problematizes the legal vehicle -- the
concept of the trust -- which Parliament has invoked in order to regain the
moneys lawfully owed to Her Majesty.
[22] Faced with a
chronic insufficiency of working capital, and unable to meet its gross payroll
in full from time to time, the appellant chose to solve the problem by
appropriating the withholdings rather than by resorting to the mechanisms
available under the statutes designed to deal with the problems of insolvent
corporations. This misappropriation is surely conduct beyond the threshold of
culpability under subsection 227(9) of the Act, no matter whether the
offence be considered “strict liability” or something else. For this reason,
like Bowman C.J., I need not decide whether the offence is one of absolute
liability or not. Certainly, the appellant in this case has no basis on which
to claim that it used all reasonable means, or even its best efforts, to avoid
the failure to remit on time.
[23] The appeals
are dismissed, with costs to the respondent.
Signed at Ottawa, Canada, this 3rd
day of March, 2011.
“E.A. Bowie”
APPENDIX ‘A’
153(1) Every person paying at any
time in a taxation year
(a)
salary, wages or other
remuneration,
…
shall deduct or withhold therefrom
such amounts as determined in accordance with prescribed rules and shall, at
such time as is prescribed, remit that amount to the Receiver General on
account of the payee’s tax for the year under this Part or Part XI.3 as the
case may be,
227(1) No action lies against any
person for withholding or deducting any sum of money in compliance or intended
compliance with this Act.
(2) Where a person (in
this subsection referred to as the “payor”) is required by regulations made
under subsection 153(1) to deduct or withhold from a payment to another person
an amount on account of that other person’s tax for the year, that other person
shall, from time to time as prescribed, file a return with the payor in
prescribed form.
(3) Every person who
fails to file a return as required by subsection (2) is liable to have the
deduction or withholding under section 153 on account of his tax made as though
he were an unmarried person with dependants.
(4) Every person who
deducts or withholds any amount under this Act shall be deemed to hold
the amount so deducted or withheld in trust for Her Majesty.
(5) Notwithstanding any
provision of the Bankruptcy Act, in the event of any liquidation,
assignment, receivership or bankruptcy of or by a person, an amount equal to
any amount
(a) deemed by
subsection (4) to be held in trust for Her Majesty, or
(b) deducted
or withheld under an Act of a province with which the Minister of
Finance has entered into an agreement for the collection of taxes payable to
the province under that Act that is deemed under that Act to be
held in trust for Her Majesty in right of the province
shall be deemed to be separate from and
form no part of the estate in liquidation, assignment, receivership or
bankruptcy, whether or not that amount has in fact been kept separate and apart
from the person’s own moneys or from the assets of the estate.
(6) Where a person on
whose behalf an amount has been paid to the Receiver General after having been
deducted or withheld under Part XIII was not liable to pay any tax under that
Part or where the amount so paid to the Receiver General on his behalf is in
excess of the tax that he was liable to pay, the Minister shall, upon
application in writing made within two years from the end of the calendar year
in which the amount was pad, pay to him the amount so paid or such part thereof
as he was not liable to pay, unless he is otherwise liable or about to become
liable to make a payment under this Act, in which case the Minister may
apply the amount otherwise payable under this subsection to that payment and
notify him of that fact.
(7) Where, upon
application by or on behalf of a person to the Minister pursuant to subsection
(6) in respect of an amount paid to the Receiver General that was deducted or
withheld under Part XIII, the Minister is not satisfied
(a) that the
person was not liable to pay any tax under that Part, or
(b) that the
amount paid to the Receiver General was in excess of the tax that the person
was liable to pay
the Minister shall assess that person for
any amount payable by him under Part XIII and send a notice of assessment to
that person, whereupon sections 150 to 167 (except subsections 164(1.1) to
(1.3)) and Division J of Part I are applicable with such modifications as the
circumstances require.
(8) Subject to subsection
(8.5), every person who in a calendar year has failed to deduct or withhold any
amount as required by subsection 153(1) or section 215 is liable to a penalty
of
(a) 10% of
the amount that should have been deducted or withheld;
or
(b) where
the person had at the time of the failure been assessed a penalty under this
subsection in respect of an amount that should have been deducted or withheld
during the year, 20% of the amount that should have been deducted or withheld.
(8.1) Where a particular
person has failed to deduct or withhold an amount as required under subsection
153(1) or section 215 in respect of an amount that has been paid to a
non-resident person, the non-resident person is jointly and severally liable
with the particular person to pay any interest payable by the particular person
pursuant to subsection (8.3) in respect thereof.
(8.2) Where a person has
failed to deduct or withhold any amount as required under subsection 153(1) in
respect of a contribution under a retirement compensation arrangement, that
person is liable to pay to Her Majesty an amount equal to the amount of the
contribution, and each payment on account of that amount is deemed to be, in
the year in which the payment is made,
(a) for the
purposes of paragraph 20(1)(r), a contribution by the person to the
arrangement; and
(b) an
amount on account of tax payable by the custodian under Part XI.3.
(8.3) A person who has
failed to deduct or withhold any amount as required by subsection 135(3) or
153(1) or section 215 shall pay to the Receiver General interest on the amount
at the prescribed rate, computed
(a) in the
case of an amount required by subsection 153(1) to be deducted or withheld from
a payment to another person, from the fifteenth day of the month immediately
following the month in which the amount was required to be deducted or
withheld, or from such earlier day as may be prescribed for the purposes of
subsection 153(1), to,
(i) where that
other person is not resident in Canada, the day of
payment of the amount to the Receiver General, and
(ii) where that
other person is resident in Canada, the earlier of the day of payment of the
amount to the Receiver General and April 30 of the year immediately following
the year in which the amount was required to be deducted or withheld; and
(b) in the
case of an amount required by subsection 135(3) or section 215 to be deducted
or withheld, from the day on which the amount was required to be deducted or
withheld to the day of repayment of the amount to the Receiver General.
(8.4) A person who has
failed to deduct or withhold any amount as required under
(a) subsection
135(3) in respect of a payment made to another person, or
(b) subsection
153(1) in respect of an amount paid to another person who is non-resident or
who is resident in Canada by reason only of paragraph 250(1)(a)
is liable to pay as tax under this Act
on behalf of the other person the whole of the amount that should have been
so deducted or withheld and is entitled to deduct or withhold from any amount
paid or credited by the person to the other person or otherwise to
recover from the other person any amount paid by the person as tax under this
Part on behalf of the other person.
(8.5) Where a person has
failed to deduct or withhold any amount in respect of a payment described in
paragraph 153(1)(a), subsection (8) shall be read as follows:
“(8) Every person who
in a calendar year has failed to deduct or withhold a particular amount as
required by paragraph 153(1)(a) in respect of a payment made by the
person is liable to a penalty of
(a) 10 % of
the particular amount that should have been deducted or withheld; or
(b) where
the person had at the time of the failure been assessed a penalty under this
subsection for failing to deduct or withhold during the year another amount so
required to be deducted or withheld in respect of a payment made by the person
from the same establishment of the person, 20% of the particular amount that
should have been deducted or withheld.”
(9) Subject to
subsection (9.5), every person who in a calendar year has failed to remit or
pay as and when required by this Act or a regulation an amount deducted
or withheld as required by this Act or a regulation or an amount of tax
that he is, by section 116 or by a regulation made under subsection 215(4),
required to pay is liable to a penalty of
(a) 10% of
that amount; or
(b) 20% of
that amount, where the person had at the time of the failure been assessed a
penalty under this subsection in respect of a previous failure during the year.
(9.1) Notwithstanding any
other provision of this Act, any other enactment of Canada, any other
enactment of a province or any law, the penalty for failure to remit an amount
required to be remitted by a person or before a prescribed date under
subsection 153(1), subsection 22(1) of the Canada Pension Plan and
subsection 68(1) of the Unemployment Insurance Act, 1971 shall, unless
the person required to remit the amount has wilfully delayed in remitting the
amount or wilfully remitted an amount less than the amount required, apply only
to the amount by which the aggregate of all amounts each of which is an amount
so required to be remitted on or before that date exceeds $500.
(9.2) Where a person has
failed to remit as and when required by this Act or a regulation an
amount deducted or withheld as required by this Act or a regulation, he shall
pay t the Receiver General interest on the amount at the prescribed rate
computed from the day on which he was so required to remit the amount to the
day of remittance of the amount to the Receiver General.
(9.3) Where a person has
failed to pay an amount of tax that he is, by section 116 or a regulation made
under subsection 215(4), required to pay, as and when he was so required to pay
it, he shall pay to the Receiver General interest on the amount at the
prescribed rate computed from the day on or before which the amount was
required t be paid to the day of payment of the amount to the Receiver General.
(9.4) A person who has
failed to remit as and when required by this Act or a regulation an
amount deducted or withheld from a payment to another person as required by
this Act or a regulation is liable to pay as tax under this Act on
behalf of the other person the amount so deducted or withheld.
(9.5) Where a person has
failed to remit or pay an amount deducted or withheld in respect of a payment
described in paragraph 153(1)(a), subsection (9) shall be read as
follows:
“(9) Every person who
in a calendar year has failed to remit or pay as and when required by this
Act or a regulation a particular amount deducted or withheld as required by
paragraph 153(1)(a) in respect of a payment made by the person from an
establishment of the person is liable to a penalty of
(a) 10% of
the particular amount that should have been remitted or paid; or
(b) where
the person had at the time of the failure been assessed a penalty under this
subsection for failure to remit or pay during the year another amount so
required to be remitted or paid in respect of an amount so deducted or withheld
by the person in respect of a payment made by the person from the same establishment
of the person, 20% of the amount that should have been remitted or paid.”
(10) The Minister may assess
(a) any
person for any amount payable by that person under subsection (8), (8.1),
(8.2), (8.3), (8.4) or 224(4) or (4.1) or section 227.1 or 235, and
(b) any
person resident in Canada for any amount payable by that person
under Part XIII,
and, where he sends a notice of
assessment to that person, Divisions I and J of Part I are applicable with such
modifications as the circumstances require.
(10.1) The Minister may assess
(a) any person for
any amount payable by that person under subsection (9), (9.2), (9,3) or (9.4),
and
(b) any
non-resident person for any amount payable by that person under Part XIII,
and, where he sends a notice of
assessment to that person, sections 150 to 167 (except subsections 164(1.1) to
(1.3)) and Division J of Part I are applicable with such modifications as the
circumstances require.
(11) Provisions of this
Act requiring a person to deduct or withhold an amount in respect of taxes
from amounts payable to a taxpayer are applicable to Her Majesty in right of Canada or a province.
(12) Where this Act requires
an amount to be deducted or withheld, an agreement by the person on whom that
obligation is imposed not to deduct or withhold is void.
(13) The receipt of the
Minister for an amount withheld or deducted by any person as required by or
under this Act is a good and sufficient discharge of the liability of
any debtor to his creditor with respect thereto to the extent of the amount
referred to in the receipt.
(14) Parts IV, IV.1, VI
and VI.1 are not applicable to any corporation for any period throughout which
it is exempt from tax under section 149.
(15) In this section a
reference to “person” with respect to any amount or any tax deducted or
withheld from an amount under Part XIII shall be deemed to include a
partnership that is with respect to that amount deemed for the purposes of that
Part to be a person resident in Canada or a non-resident
person.
(16) A corporation that
at any time during the taxation year would be a corporation described in
paragraph 149(1)(d) but for a provision of an Appropriation Act shall
be deemed not to be a private corporation for the purposes of Part IV.
227.1(1) Where a
corporation has failed to deduct or withhold an amount as required by
subsection 135(3) 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
liable, together with the corporation, to pay that amount and any interest or
penalties relating thereto.
(2) A director is not
liable under subsection (1), unless
(a) a
certificate for the amount of the corporation’s liability referred to in that
subsection has been registered in the Federal Court of Canada under section 223
and execution for such amount has been returned unsatisfied in while or in
part;
(b) the
corporation has commenced liquidation or dissolution proceedings or has been
dissolved and a claim for the amount of the corporation’s liability referred to
in that subsection has been proved within six months after the earlier of the
date of commencement of the proceedings and the date of dissolution; or
(c) the
corporation has made an assignment or a receiving order has been made against
it under the Bankruptcy Act and a claim for the amount of the
corporation’s liability referred to in that subsection has been proved within
six months after the date of the assignment or receiving order.
(3) A director
is not liable for a failure under subsection (1) where he exercised the degree
of care, diligence and skill to prevent the failure that a reasonably prudent
person would have exercised in comparable circumstances.
(4) No action or
proceedings to recover any amount payable by a director of a corporation under
subsection (1) shall be commenced more than two years after he last ceased to
be a director of that corporation.
(5) Where
execution referred to in paragraph (2)(a) has issued, the amount
recoverable from a director is the amount remaining unsatisfied after
execution.
(6) Where a director
pays an amount in respect of a corporation’s liability referred to in
subsection (1) that is proved in liquidation, dissolution or bankruptcy
proceedings, he is entitled to any preference that Her Majesty in right of
Canada would have been entitled to had such amount not been so paid and, where
a certificate that relates to such amount has been registered, he is entitled
to an assignment of the certificate to the extent of his payment, which
assignment the Minister is hereby empowered to make.
(7) A director
who has satisfied a claim under this section is entitled to contribution from
the other directors who were liable for the claim.
CITATION: 2011 TCC 91
COURT FILE NO.: 2007-3055(IT)G
STYLE OF CAUSE: 741290 ONTARIO INC. and
HER
MAJESTY THE QUEEN
PLACE OF HEARING: Toronto,
Ontario
DATE OF HEARING: December 10, 2009
REASONS FOR JUDGMENT BY: The Honourable Justice E.A. Bowie
DATE OF JUDGMENT: February 14, 2011
DATE OF AMENDED REASONS: March 3, 2011
APPEARANCES:
|
Counsel for the Appellant:
|
Osborne G. Barmwell
|
|
Counsel for the Respondent:
|
Samantha Hurst
|
COUNSEL OF RECORD:
For the Appellant:
Name: Osborne G. Barmwell
Firm:
For the Respondent: Myles J.
Kirvan
Deputy
Attorney General of Canada
Ottawa, Canada
R.S. 1996, c.23, as amended.
R.S. 1985, c. C-8, as amended.
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