Citation: 2011 TCC 215
Date: April 18, 2011
Docket: 2010-261(GST)I
BETWEEN:
RAYMOND F. WISEMAN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Little J.
A. FACTS
[1]
Microtax Consultants
Limited (“Microtax”) was incorporated under the laws of the Province of British Columbia on March 3, 1981.
[2]
The business of
Microtax was to provide bookkeeping and financial consulting services.
[3]
On January 30, 2006,
Microtax was dissolved from the B.C. Register of Companies.
[4]
On May 15, 2007,
Microtax was restored to the B.C. Register of Companies.
[5]
The Appellant is the
President and the sole Director of Microtax.
[6]
Microtax was registered
under Part IX of the Excise Tax Act (the “ET Act”) effective
January 1, 1991.
[7]
At all material times,
Microtax was required to file quarterly GST returns.
[8]
The supplies and
services of Micotax were taxable at the rate of 7 percent.
[9]
The period in issue is
the period from May 1, 1997 to July 31, 2003 (the “Period”).
[10]
On December 5, 2001,
Microtax filed a “batch” of returns for the following periods, as set out in
Schedule “A” to the Reply. Schedule “A” reads as follows:
[11]
In filing its tax returns
for the Period, Microtax reported GST collectible in the amount of $20,617.98
and claimed input tax credits (“ITCs”) of $12,349.44 for a total net tax amount
of $8,268.54.
[12]
For the Period, Microtax
failed to remit net tax ($8,268.54 - $792.11) or $7,476.43.
[13]
For the Period, Microtax
was liable for unremitted net tax as well as related penalties and interest of
$15,943.72 (the “Debt”).
[14]
The debt of $14,739.68
(the total as of October 26, 2007) was certified in the Federal Court on
November 9, 2007.
[15]
The Minister attempted
to collect the Debt and was unable to realize any amount of the Debt.
[16]
By Notice of Assessment
issued on October 24, 2008, the Minister assessed the Appellant for a net tax
of $7,476.43, a penalty of $4,328.87 and interest of $4,138.42 in respect of a failure
by Microtax to remit GST for the period from May 1, 1997 to July 31, 2003.
[17]
The Appellant filed an
appeal to the Tax Court.
B. ISSUES
[18]
Did the Minister
properly assess the Appellant as a Director of Microtax for the failure by
Microtax to remit GST?
[19]
Did the Appellant
exercise due diligence as a Director to prevent the failure by Microtax to
remit the net GST?
C. ANALYSIS AND DECISION
[20]
Subsection 323(3) of
the ET Act provides as follows:
(3) Diligence - A director of a
corporation is not liable for a failure under subsection (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.
[21]
During the hearing, the
Appellant said that he and his wife, Ellen Troobitscoff (the “wife”), were the
only two principals of Microtax. The Appellant said that there were no other
employees. He also said that his wife handled the administration of Microtax
and carried out all of the bookkeeping and reporting requirements. He said that
the last GST filing that she prepared for Microtax was for the period ending
July 31, 2001.
[22]
The Appellant stated
that, shortly thereafter, his wife became very ill with brain cancer which
resulted in the GST reporting requirements for Microtax becoming overlooked.
[23]
The Appellant said that,
during his wife’s illness and since her death on October 29, 2002, he has suffered
from depression and anxiety which made it very difficult for him to take over
the tasks and procedures formerly handled by his wife.
[24]
The Appellant also said
that Microtax has suffered severe financial setbacks due to his wife’s illness
and due to the fact that he had to restrict his work because he had to maintain
his home and also provide care‑giving services to his wife while she was
ill. (See Exhibit A‑1.)
[25]
Counsel for the
Respondent said:
… the power to tax means very little without the
power to collect that tax. Because of this, Parliament has chosen to make
directors liable for the net tax owed by their corporation in certain
situations. Parliament did so to encourage directors to actively ensure the
corporation's timely collection and remittance of GST, and where the directors
fail in that responsibility, to aid in the collection of those amounts.
Section
3.3 [sic, read section
323] of the Excise Tax Act
establishes that liability. It makes directors jointly and severally liable to
pay amounts of unremitted GST payable by their corporation. This amount is
determined by the corporate assessment.
In
this case, the appellant was a director of Microtax Consultants Limited, a business
that provided accounting services, and a business which in fact specialized in
providing tax advice.
…
For
the GST reporting periods between May 1st, 1997 and July 31st,
2003, Microtax failed to remit its quarterly GST returns as required under the Act.
These returns were eventually filed but in two batches, and sometimes up to
four years late.
Microtax
did not include payment of the positive amount of GST that was owed. The
Minister assessed the GST returns by Microtax, again in two batches, the first
being … March 21st, 2002 and April 15th, 2005. The net
tax included in those assessments was $7,476.43. It is noteworthy that this
amount of net tax is the amount that was reported and calculated by the
corporation itself in filing its own returns. [Emphasis added]
Despite
these assessments for the amount of net tax and interest and penalties, because
they were late-filed, Microtax did not pay the assessments when they were
issued in 2002 and 2005, nor did Microtax object to the assessments and dispute
them. Indeed, there would be no basis, because they were on their own
figures.
After
a number of years, the delinquent account finally found its way to the
collections officer, who pursued various remedies for collection against the
corporation without success. The collections officer then registered
certificates, certified the amount of the debt, and obtained the services of
court-appointed bailiffs to execute a writ of seizure and sale, which came back
unsatisfied. As a consequence of all these actions, the Minister had no choice
but to pursue the collection of the appellant personally as a director.
Now, essentially there are two issues, as I understand, that have been
raised by the appellant in this appeal. And the first is whether the appellant
is liable as a director for the unremitted net tax of the corporation. Second
is whether the appellant exercised the degree of care, diligence and skill to
prevent the failure to remit the GST that a reasonably prudent person would
have exercised in comparable circumstances.
(Transcript, page 15, line 16 to page
17, line 22)
[26]
I have reviewed the
situation in some detail and I have reached the following conclusions:
1.
The Appellant is liable
under subsection 323(2) of the ET Act as the sole Director of Microtax
for the unremitted net GST of Microtax.
2.
I do not believe that
the Appellant exercised the degree of care, diligence and skill to prevent the
failure to remit the GST that a reasonably prudent person would have exercised
in comparable circumstances. From my analysis of the evidence I have concluded
that the Appellant did nothing to prevent the failure by Microtax to remit the
GST.
[27]
The appeal is
dismissed, without costs.
[28]
In Exhibit A-1, the
Appellant referred to his wife’s illness and subsequent death and his personal
health problems of depression and anxiety and said:
As a result of these issues I am requesting a waiver of the
application of penalties and interest due to the unintentional late filing of
these returns.
[29]
As a Judge of the Tax
Court of Canada, I do not have the authority to waive the penalties and
interest.
[30]
Subsection 281.1(1) of
the Income Tax Act (the “IT Act”) provides as follows:
281.1(1) Waiving or cancelling
interest - The
Minister may, on or before the day that is 10 calendar years after the end of a
reporting period of a person, or on application by the person on or before that
day, waive or cancel interest payable by the person under section 280 on an
amount that is required to be remitted or paid by the person under this Part in
respect of the reporting period.
[31]
Subsection 281.1(2) of
the Act provides as follows:
281.1(2) Waiving or
cancelling penalties - The Minister may, on or before the day that is 10
calendar years after the end of a reporting period of a person, or on
application by the person on or before that day, waive or cancel all or any
portion of any
(a) penalty that became payable by
the person under section 280 before April 1, 2007, in respect of the reporting
period; and
(b) penalty payable by the person under section
280.1 in respect of a return for the reporting period.
[32]
It will be noted that
the Minister of National Revenue has the authority to waive penalties and
interest. It appears that the extreme health problems suffered by the Appellant
and his wife may be sufficient to convince the Minister to waive the
penalties and interest. I strongly recommend that the
Appellant discuss this waiver of penalties and interest with officials of the
CRA.
Signed at Vancouver, British Columbia, this 18th day of April 2011.
“L.M. Little”
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