Citation: 2011 TCC 201
Date: 20110406
Docket: 2010-1520(IT)I
BETWEEN:
LEONA MADISON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Margeson J.
[1]
This is an appeal from
the assessment No. 719199 by which the Minister of National Revenue (the
“Minister”) assessed the Appellant as a director of Canfleur Mining Inc.
(“Canfleur”) for $43,241.88 representing unpaid deductions by Canfleur.
Evidence
[2]
The Appellant testified
that she resigned as a director on December 31, 2002.
[3]
She called the
directors frequently and told them about their duty to make remittances to
Canada Revenue Agency (CRA). In the year 2002, she remembered seeing a credit
balance in the account. This can be seen in Exhibit A‑1 which was
admitted by consent. She was never a “de facto” director. She was never
involved in the day-to-day operations of Canfleur. She had no control over how
the money of Canfleur was collected or spent. When she advised them about the
required deductions, they were rude to her.
[4]
She was unable to pay
the bills. She had no authority with the banks, so she could not set up any
accounts for paying the CRA deductions. The directors would not give her the
cash or set up any bank accounts.
[5]
When she was first
asked to put her name on the incorporating documents she refused but then she
agreed to go on the list of directors for the first year which was 2001.
[6]
The incorporator of Canfleur
recruited others to go on the list of directors. He agreed to remove her name
from the list but did not do so. She believed that he would. They paid off some
debts but otherwise would not listen to her. They told her that they were
taking care of it.
[7]
She tried to do things
that a director was supposed to do but there was nothing that she could do. She
was not a part of Canfleur’s operations except that she put much money into it.
“She was hung out to dry”.
[8]
She never hired or
fired anyone in Canfleur. She gave them the reports, told them what had to be
paid and gave them the calculations for the source deductions that had to be
paid. It was totally out of her control.
[9]
Canfleur was dissolved
more than two years before she was assessed.
[10]
Exhibits A-2 to A-16
were admitted by consent, including the Certificate of Dissolution, Notice of
Intent to Dissolve, Order Nisi and Order Absolute. She said that all assets of
Canfleur went to one individual. The 2006 Order Nisi and Order Absolute
rendered the company insolvent.
[11]
The annual returns
filed for 2002 and 2003 were not filed by her and were filed without her consent.
These documents show that Michel Filion was making the decisions alone.
[12]
Exhibit A-14 shows that
the Appellant was sending reports to others at Canfleur about the outstanding
accounts.
[13]
In cross-examination,
she said that she had received one share in Canfleur. She was appointed a
director on November 1, 2000. She was also Canfleur’s accountant. They
gave her the banking information and she was asked to keep up the bank
accounts. She was to look after the financial records, produce any financial reports
and set up the records for the new shareholders. In addition, she ran Canfleur’s
payroll; filed income tax returns; did the annual and interim financial
statements; acted as corporate secretary; completed the share register and
issued new share certificates.
[14]
She was involved in opening
Canfleur’s first bank account. She was unaware that CRA expected a separate
bank account. She told the others that the remittances were trust funds and had
to be paid to the CRA. They were deducted and remitted in 2001.
[15]
In the year 2002, she
was aware that CRA had said that the remittances were not being made. She
reminded the others and they said that they were making them. She was aware
that Canfleur was still carrying on transactions and taking in money.
[16]
She resigned as a director
on December 31, 2002. She handed her resignation to the other directors. She
did not file it with the Registrar.
[17]
After that her work did
not change much. She did the financial statements and returns for 2003 and 2004
and worked on the Minute book and share register. She is listed on the
documents as a director but she did not file them and they were not filed with
her permission.
[18]
Exhibit R-2 was an
Alberta Corporation/Non-Profit Search and showed the Appellant listed as a
director. This was dated April 15, 2009.
[19]
Canfleur was struck off
the registry on May 2, 2007.
[20]
She was not consulted
in March of 2005 about opening a new bank account. She was asked to re-open the
old account.
[21]
She was asked why she
continued to be involved in Canfleur as late as 2004 and she said that she felt
intimidated by the others. She was still listed as a director, her home address
was still listed as the address of Canfleur and she billed Canfleur for
$39,500.
[22]
In reply, she said that
the documents show that she was not a “de facto” director.
[23]
The Respondent called
Susan Bernice Rousseau who was a Collections Officer for CRA. She was
involved in collecting amounts from Canfleur.
[24]
Ms. Rousseau sent out
the pre-assessment letters. She was involved in certifying the debt, raising
the assessments and sending them out and she received back the nil returns after
a writ of search and seizure was issued and enforced by a civil agency.
[25]
Exhibit “A” to the
Amended Reply to the Notice of Appeal accurately reflects the assessment
against the Appellant. The numbers set out in Exhibit A‑1 are not
correct.
Argument of the Appellant
[26]
In written argument,
the Appellant maintained that she was a director in name only. She did not
participate in making decisions for Canfleur nor in the day-to-day operations
of it.
[27]
Her name was to be
removed from the list of directors during the 2002 mining season.
[28]
During the
incorporation process, she explained to Michel Filion the need for remitting
source deductions to the Receiver General. He undertook to take care of that.
Her only responsibility was to take care of the books and report to the other
directors.
[29]
In 2001, she conveyed
to Michel Filion and “his friend” that her name should be removed from the
records in accordance with their agreements.
[30]
Canfleur did in fact
remit source deductions for March, April and June of 2001. She never ran a
payroll after October of 2002 in accordance with Michel Filion’s directions.
[31]
CRA made an arbitrary
assessment in 2003 which had nothing to do with her. She received the
assessment after May 2, 2009 for $19,414.91.
[32]
On December 31, 2002,
she submitted a letter of resignation to the management of Canfleur, which was
a formality only as the management recognized that she was not a director.
[33]
Exhibits A-14 and A-15
show that CRA was on the list for source deductions and she informed the
management. Every time CRA contacted her, she informed the management who told
her that they were looking after that obligation.
[34]
She believes that
because she communicated information regarding source deductions to CRA that
she was being diligent in her duties as external bookkeeper and secretary. She
had no duties as a director, no control over finances and no authority over the
bank account.
[35]
She did resign as a
director and the Respondent has a copy of that resignation. She should not be
held to due diligence as a director because she was not a “director” by
definition.
[36]
Only one cheque bearing
the date of February 28, 2002, bears her signature. Michel Filion brought it to
her and demanded that she sign it as two signatures were required. All other
cheques were drawn without her knowledge or influence.
[37]
CRA has not complied
with the requirements of paragraph 227.1(2)(b) of the Income Tax Act (the
“Act”) since they did not commence action within six months of the date
of intention to dissolve (October 14, 2006)(Exhibit A-3) and the date of
dissolution (May 2, 2007)(Exhibit A-3). They did not take action
until March 26, 2009 (Exhibits R-7 and R-8).
[38]
A copy of her
resignation was not permitted to be filed in Court.
[39]
She was never told by
any agent from CRA that she was a director or asked if she was. She told the
CRA agents that she had no authority over the bank account and she told them
that she would pass along their request to Michel Filion and/or Doug Olson.
[40]
Attempts were made to reach
a settlement in this matter by way of payments starting on March 18, 2003.
Michel Filion said that he would take care of it.
Argument on behalf of the Respondent
[41]
The Respondent took the
position that the Appellant was a director at all relevant times since her
appointment on November 1, 2000 and that she was not “duly diligent” in preventing
Canfleur’s failure to remit source deductions.
[42]
The Appellant only
ceased to be a director on May 2, 2007, the date that Canfleur was dissolved
and struck from the corporate registry. Subsection 227.1(4) of the Act
provides that the directors must be assessed within two years of their ceasing
to be a director. She was assessed on April 30, 2009, within the two-year
period.
[43]
The Court should reject
the Appellant’s claim that she resigned as a director in December of 2002
because there is no corroborating evidence that she resigned at that time; the
taxpayer had not previously informed the Minister that she had resigned and she
continued to act as a director after allegedly resigning.
[44]
There was no written
evidence of her resignation, none of the evidence before the Court mentions her
resigning; no witnesses were called to corroborate her position that she had
resigned and the Alberta Corporate Registry lists her as a director as of the Strike
Date and lists her home as Canfleur’s registered office and records address.
[45]
The Appellant did not
tell CRA that she had resigned as a director during conversations in 2003 and
2004. It would have been reasonable for her to do so.
[46]
The Appellant admitted
that she continued performing the same duties at Canfleur as she did before her
alleged resignation.
[47]
The Appellant should be
held to a high standard of care on the “due diligence” issue. She had in-depth
knowledge of accounting concepts and financial matters. She has been a
certified management accountant since 1992. She admitted that it was part
of her training as a CMA to know the responsibilities associated with being a
director. She knew that source deductions were trust funds of the Crown that
had to be remitted to CRA.
[48]
She did not take positive
steps to prevent the failure that she should have when she became aware of the
non-remittances. Even though she informed the directors that CRA was demanding
money she did not indicate any actions taken by her to remedy the failure to
remit.
[49]
The appeal should be
dismissed.
Analysis and Decision
[50]
The Court must first
comment upon certain arguments made by the Appellant in her written
submissions.
[51]
She indicated that her
attempt to introduce written evidence of her resignation as a director was
prohibited because of time constraints during the trial. This is not correct.
[52]
Such evidence was
prohibited because counsel for the Respondent objected to the document that was
sought to be introduced and the Court indicated that it would have to inquire
as to whether the document met the requirements of the Rules of Evidence. The
Appellant then decided not to attempt to enter the document in evidence.
Further, even though it was late in the day, the Court was prepared to stay as
long as it had to in order to allow all of the evidence to be presented. The
only matter that was to be delayed, was the presentation of written arguments
by both parties, rather than oral arguments, to which both parties agreed.
[53]
Further, the Court made
no indication that it would not accept the Appellant’s husband’s testimony, and
the decision not to call the husband was that of the Appellant alone.
[54]
Further, the Court did
not rule as to the admissibility of a purported copy of the Appellant’s
resignation, which was purportedly in the hands of CRA. It was not presented to
the Court for admission.
[55]
Further, the Court made
no ruling with respect to an alleged Canfleur document regarding the names of
management, and it was not presented for admission into evidence.
[56]
With respect to the
Appellant’s attempts to introduce the telephone bills into evidence, the
Respondent objected to their admission and the matter was not pursued. It had
nothing to do with time constraints. The same is true with respect to any
actual bills, telephone journals, fax messages, cleared cheques (from the
Appellant’s working papers), and any document allegedly in the possession of
CRA that would corroborates any attempt by the Appellant to reach an agreement
with CRA.
[57]
The Court will deal
firstly with the Appellant’s argument that the assessment shall be vacated
because the Respondent did not comply with the provisions of paragraph
227.1(2)(b) of the Act. That section provides as follows:
A director is not liable under subsection 227.1(1),
unless
[…]
(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; […]
[58]
The Appellant argues
that attempts by CRA to collect were not approved by the Court until March 26,
2009, long after the six-month window.
[59]
However, it is clear
from the pleadings and the evidence, that the Respondent was proceeding under
the provisions of paragraph 227.1(2)(a) of the Act which provides
as follows:
A director is not liable under subsection 227.1(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 under section 223 and execution for that amount has been
returned unsatisfied in whole or in part; […]
[60]
A reference to paragraph
4 of the Reply indicates that this was done on March 26, 2009. There was no
evidence given to rebut this provision.
[61]
The Court is satisfied
that the Respondent has complied with this provision.
[62]
The Appellant argues
that she was a director in name only for incorporation purposes and not a real
director or an acting director. However, the evidence establishes that the
Appellant was appointed a director on November 1, 2000. She was given a share
of Canfleur in exchange for her assistance starting and incorporating Canfleur.
She ceased being a director on May 2, 2007, the date that Canfleur was
dissolved and struck off the registry.
[63]
The Court is satisfied
that she was a de jure director and a de facto director during this
period of time.
[64]
The Court does not
accept the Appellant’s position that she resigned as a director in December of
2002. There was no corroborating evidence to support her claim either by
documentation or viva voce evidence.
[65]
The
Court is satisfied that she did not inform the Minister about any resignation
and it would have been reasonable for her to do so as soon as she was
confronted with the assessment. The Court is further satisfied that she
continued to act as a director after her alleged resignation. As pointed out by
counsel for the Respondent, an Alberta Corporate Registry report lists her as a
director of Canfleur at the date the name was struck from the corporate
registry. Her home was listed as Canfleur’s registered office and records
address. Again, as argued by counsel for the Respondent, and indicated in her
cross-examination, in 2003 and 2004 she continued to perform the same duties
for Canfleur that she had done before her alleged resignation.
[66]
The
Appellant argued that if she were a director of Canfleur at any time relevant
to this assessment she should not be held liable for the assessment because she
has met the due diligence test under subsection 227.1(3) of the Act.
[67]
The
Court is satisfied that the Appellant should be held to a high standard of care
because of her knowledge, experience in business and her business training and
acumen. She has been a certified management accountant since 1992 and has a
high degree of knowledge of accounting concepts and financial matters.
[68]
She
advised the Court in her evidence that she was aware that source deductions
were trust funds and had to be submitted to the CRA. She was aware that those
deductions and remittances were not being made. The only action she took, even
by her own evidence, was to advise the other directors that those deductions
and remittances were in arrears.
[69]
She
said that she had no power to prevent the failures. Yet she continued to run
Canfleur’s payroll, prepare and file its financial statements and income tax
returns. She continued to update the Minute book and was aware that Canfleur
was still taking in money and disbursing it. She continued on Canfleur’s
payroll.
[70]
The
Court is satisfied that the Appellant took no positive steps to prevent the failure
as required under the reasonable care doctrine.
[71]
The
best that one can say about her actions is that she advised the other directors
about the failure but this was after it had occurred.
[72]
The
appeal is dismissed and the Minister’s assessment is confirmed.
Signed at Kamloops, British Columbia, this 6th day of April 2011.
“T.E. Margeson”
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