Citation: 2010 TCC 190
Date: 20100408
Docket: 2008-2496(GST)I
BETWEEN:
RALPH DONCASTER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Margeson J.
[1]
This appeal is from the Minister of National
Revenue’s assessment of the Appellant for the period January 1, 1999 to June 6,
2005 under section 323 of the Excise Tax Act, Part IX, (the “Act”),
for the failure of Doncaster Consulting Inc. (the “Company”) to remit to the
Receiver General of Canada the amount of net G.S.T. as required by subsection
228(2) of the Act, with penalties and interest thereon.
Evidence
[2]
The Appellant testified that towards the end of
2003 he sent a copy of his resignation letter from the Company to the Minister.
A copy of this letter was referred to in Exhibit R-1, Tab 8, at page 2.
[3]
He also said that he gave a box of documents to
the Minister which has not been returned to him. The documents would have
shown that G.S.T. input tax credits were not credited to him. These amounts
could have affected the amount owed. These documents consisted of invoices from
Bell Canada to the Company for
internet-related services.
[4]
He explained that to Mr. Chartrand from Canada
Revenue Agency (“CRA”) and he said that he would examine them, but they
did not take them into account then or at the objection stage. He asked
for copies of the documents but was told that the documents were no longer in
the Minister’s possession.
[5]
The Minister prepared the returns as seen at Tab
12 of Exhibit R-1, but the Appellant was not given any chance to review them. The
certificate was registered against him on October 16, 2006 but he was not
assessed until January of 2007, or at least after the certificate was
issued.
[6]
He could not object to the assessment issued on
September 16, 2006 because he did not receive a copy of it until one year
later.
[7]
According to the Appellant, the material at Tab
13 of Exhibit R-1 shows that he was sent a copy of the Notice of Assessment in Ontario although he had moved to Nova Scotia. They did not wait for 90 days
to enter judgment against him.
[8]
From about October 1998 until almost 1999, he
was not ordinarily resident in Canada but in the United
States. He may have ceased to be a director under Part 4
of the Ontario
Business Corporations Act. He had a driver’s license
in the United States and
resided at that address in North Carolina.
[9]
In cross-examination he was referred to the
Reply at paragraph 10(h) and said that there was no net tax due. He denied
the allegations found in paragraphs 10(h) to (o) inclusive.
[10]
He never notified CRA that his address had
changed, even though he moved on July 4, 2006. He did not know when he
received the pre-assessment letter found at Tab 4 of Exhibit R-1.
[11]
He did not contact the Minister at any time to
locate the records.
[12]
Regarding his educational background, he was a
high school graduate in 1988, had a Bachelor of Computer Science degree
from Acadia University and had
completed a one-week computer course in Ottawa for which he received a certificate. He worked in the IT
industry and was a senior software architect by times.
[13]
He was a business owner for a number of
different businesses as a proprietor and as a shareholder, director and officer
of 6042147 Canada Inc. He was also the President.
[14]
He was the sole shareholder of the Company up to
January 1, 2003. It was incorporated on December 30, 1992. After January 1,
2003, the sole shareholder of the Company was 6042147 Canada Inc. but he
remained as President.
[15]
Between 1987 and 1988 he was the sole proprietor
of Computers Plus which sold disks and computer accessories. This business
ceased in April of 1992. He was also a shareholder with his brother in a
family trust.
[16]
At various times his wife had been involved in
the Company as a Vice President.
[17]
He resigned as a director of the Company in
December 2002, and was last involved with 6042147 Canada Inc. as President in
September of 2005.
[18]
He was also President and director of another
company where all of the shares were held by a family trust until sometime in
2006.
[19]
He confirmed the information found at Tab 1 of
Exhibit R-1. In 1988 he had a visitor’s visa to the United
States. He was married in September of 1998. He had a
bank account in Canada and a
credit card. He went back and forth to the United States. He received mail in both places. His wife visited the United
States and he visited Canada. He
did not have a job in Canada.
[20]
He admitted that he had sworn the affidavit seen
at Tab 9 of Exhibit R-1 on May 31, 2005. This document indicated that he was
the controlling mind of the Company. He identified the proposal in
bankruptcy as seen at Tab 2 of Exhibit R‑1, which was rejected by the
auditors. He also identified the certificate in bankruptcy at Tab 3 of Exhibit
R-1.
[21]
After January 6, 2005, the date of the
certificate in bankruptcy, his position was adverse to that of the Trustee in bankruptcy.
He reiterated that after January 1, 2003, all of the shares in the
Company were held by the numbered company.
[22]
He resigned in December of 2002 but did not have
a copy of his resignation. He gave the letter of resignation to his wife. She
is not here. He did not know who he sent it to in 2003 but it was the woman that
he spoke to on the telephone. He did not bring his wife to testify because he
did not want to “expose her to the system”.
[23]
He could not remember speaking to Greg Bright
about the contents of the examiner’s comments as found at Tab 7 of Exhibit R-1.
[24]
Some of the nineteen returns that were not filed
were due to a clerical error and some were not filed due to there being no
taxes owing.
[25]
The information was contained in the box that he
gave to Mr. Chartrand who said that he gave it to the Trustee.
[26]
He did not list CRA as a creditor because he did
not know that any amount was owed to them even though CRA had issued a “requirement
to pay” against the Company. He thought that CRA would make any claim against
the Trustee.
[27]
The Respondent called Greg Scott Wright who has
been a trust examiner for twelve years and before that was a collections
officer for seven years. He attempted to do an examination of the
business of the Company without success. The Appellant would not meet with him.
[28]
A computer-generated notional assessment was
recommended. The file was then sent to collections. In cross-examination he
said that when notional assessments are done no input tax credits are given as
it is up to the taxpayer to prove them. He was responsible for the spreadsheet.
[29]
Gilles Jules Chartrand was a trust account
examiner with Canada Revenue Agency. He had twenty-five years experience. He
did the bankruptcy examination for the Company here. This can be seen at Tab 8
of Exhibit R-1.
[30]
There were nineteen outstanding returns for
G.S.T. by the Company from January 6, 1985 to January 1, 1999. He received five
of the returns from the Trustee. The remainder were “nil returns”.
[31]
He went to the Trustee’s office and then to the
Appellant’s residence. He received one box of supposed records. These were
mostly invoices dealing with cost of goods sold to the Company and had nothing
to do with the Company’s G.S.T. collected on sales. He gave these documents to
the Trustee in September of 2005. He picked up five returns and gave the
information to the Trustee to prepare the returns as seen in Tab 12 of
Exhibit R-1. They processed the fourteen remaining returns as zero. Collections
filed a Proof of Claim with the Trustee on the basis of his results.
[32]
In cross-examination he said that he examined
the bank statements provided by the Trustee. The sales were based upon the bank
deposits. There was no other information provided.
[33]
Paul James Lynch was formerly employed by Canada
Revenue Agency as a collections officer. He was assigned the file in this
case. He identified the document at Tab 4 of Exhibit R-1. This was a pre-assessment
letter that he sent out. He did not know if he received any response to
it.
[34]
He signed the Proof of Claim at Tab 5 of Exhibit
R-1 which was filed in the bankruptcy of the Company. He also signed the
amended Proof of Claim at Tab 6 of Exhibit R-1 which was completed after the trust
examination was completed. The claim was for $93,550.67. None of the claim was
rejected. He issued the Notice of Assessment, Third Party, at Tab 10 of Exhibit
R-1. This amount was the same as in the Amended Proof of Claim.
[35]
He did not recall receiving a letter of
resignation as a director from the Appellant.
[36]
In cross-examination he said that he saw the
information in Tab 7 of Exhibit R-1. It was in their system. He saw
Mr. Chartrand’s examination results and following that he filed the
Amended Proof of Claim.
[37]
W.D. Morrison was an appeals officer in this
matter and had twenty-five years experience in such matters. He identified his
report on the objection as can be seen in Exhibit R-1 at Tab 13. The issues
raised in the objection were that the amount of the assessment was incorrect
and that the sum of $10,000 was more reasonable. Further, he was told that the Trustee
should have paid the amount. Further, the Appellant said that he had resigned
as a director of the Company.
[38]
He determined that the amount of the assessment
was correct and there were no documents that showed it to be incorrect. There
were no documents presented to show that the $10,000 figure was correct.
[39]
No dividend was paid from the Estate of the
bankrupt. He was shown no documents to confirm the resignation of the
Appellant.
[40]
He identified the pre-assessment letter that was
sent to the Appellant. There was no response to it.
[41]
The Appellant was the director and controlling
mind of the Company and when it filed a proposal it was completed by the
Appellant. The document at Tab 9 of Exhibit R-1 shows that the Appellant was
the controlling mind of the Company.
[42]
Tab 12 of Exhibit R-1 was a letter he sent to
the Appellant in which he responded to every issue raised by the Appellant. There
was no evidence offered in proof of any of his allegations.
[43]
Canada Revenue Agency was not on the list of
preferred creditors.
[44]
He identified the Proof of Loss at Tab 5 of
Exhibit R-1 as the initial Proof of Claim filed two months after the bankruptcy
and the Amended Proof of Claim for $93,550.67 filed six months after the
bankruptcy.
[45]
In cross-examination he said that the Proof of
Claim was not rejected.
[46]
The Appellant always had the option of filing
amended returns to claim G.S.T. credits.
Argument on Behalf of the Respondent
[47]
Counsel for the Respondent argued that there is
only one issue: is the Appellant liable as a director for the Company’s failure
to remit the requisite Goods and Services Tax for the relevant reporting
periods between January 1, 1999 and June 6, 2005?
(1)
In particular, has the
Minister met the technical requirements of the Act?
(2)
Has the Appellant
successfully challenged the assessment, notice of which was dated September 12,
2006?
(3)
Was the Appellant a
director during the appropriate periods?
(4)
If he was a director,
has he shown “due diligence”?
[48]
The six-month requirement has been met as can be
seen from the documents at Tab 5 of Exhibit R-1 which show that the claim
was made within six months of the assignment. Further, the amended claim was
filed on March 22, 2006 and since the original claim was filed within six months,
this amended claim is valid (see Moriyama v. Her Majesty the
Queen, 2005 FCA 207).
[49]
Therefore, the technical requirements of the Act
have been met.
[50]
The claim cannot be made against him if it was
made more than two years after he ceased to be a director. The evidence indicates
that he was a director on June 6, 2006, the date of bankruptcy.
[51]
Exhibit R-1, Tab 11, shows that the certificate
was returned unsatisfied. The evidence is clear that the Appellant was
assessed. There is no question about the correctness of the assessment. The
Company failed to file a return for nineteen different periods as required by
the Act (see Exhibit R-1, Tab 8). Fourteen notional assessments
were created.
[52]
The Appellant has not produced any evidence to
substantiate his position. Jarrold v. R., 2009 TCC 164, is applicable
here. As there, the Appellant failed to back up his claim. His position amounts
to nothing more than an assertion without proof. Scragg v. R., 2008
D.T.C. 4511, is also applicable.
[53]
The assessment should stand.
[54]
On the issue of whether or not he was a
director, he was at all relevant times. If he was not, he was a de facto
director.
[55]
He said that he resigned in December of 2002,
giving a letter of resignation to his wife but he did not bring her to testify.
The only evidence is his own.
[56]
The Company was incorporated in Ontario so one must look to the Ontario legislation. Under Part IX,
subsection 4, he is deemed to be a director because he was still managing the
Company. He signed the document at Tab 1 of Exhibit R-1 on May 13, 2005. He
also completed the affidavit found at Tab 9 of Exhibit R-1 on May 31, 2005. If
he did resign, then he was still a de facto director at the appropriate
times.
[57]
The two-year limitation period as required by
subsection 323(5) does not apply here.
[58]
On the question of due diligence, it is obvious
that the Appellant had a considerable amount of experience. He was
educated. He was intelligent and yet he did nothing to prevent the default. The
evidence shows that the Appellant did nothing to file the missing returns and
notional returns had to be filed.
[59]
As early as May 6, 2003, the Appellant knew that
the Company had not filed its returns (see Exhibit R-1, Tab 7, page 2). He took
no positive steps to see that the returns were filed according to the evidence.
Any reasonably prudent person would have taken steps to file the returns. He
merely blames the Trustee but the Trustee had nothing to do with this. It was
not his responsibility to file the returns and ensure that the tax was
remitted.
[60]
The assessment was completed up to the time of
the bankruptcy. The Minister has met all of the technical requirements of
the Act. The Appellant has not successfully challenged the assessments and
has not shown that he was not a director at all material times.
[61]
Further, the Appellant has not met the “due
diligence test”.
[62]
The appeal should be dismissed and the
Minister’s assessment confirmed.
Argument on Behalf of the Appellant
[63]
The Appellant argued that the Respondent has not
refuted the reliability of his evidence that he resigned in December of
2002. The only matter left is whether he was a de facto director. He
argued that he was involved with the Company but it was controlled by 6042147
Canada Inc. and not him. It owned all of the shares and controlled it from
January 1, 2003.
[64]
On the question of due diligence, he considered
in his own mind that since the input tax credits from Bell Canada to the
numbered company would offset the tax bill, there would be no Goods and
Services Taxes owing. The documents that he gave to Mr. Chartrand were relevant
to this issue.
[65]
He was prepared to admit that perhaps $10,000
was owing up to January 1, 2003.
[66]
Mr. Chartrand in his evidence indicated that he
would not take into account any input tax credits unless they were calculated.
If there was a de facto director it was the numbered company.
[67]
After the bankruptcy, he had no power over the Trustee,
had no further input and could not correct the assessments. He took the
position that the Minister did not show that the claim was proven within six
months after the bankruptcy. Further, he argued that he was not assessed before
collection proceedings commenced.
[68]
In rebuttal, counsel for the Respondent said
that the Appellant controlled the numbered company and therefore he controlled
the Company (Doncaster) at the relevant times. See Wheeliker v. Canada,
[1998] 1 C.T.C. 2021.
[69]
The Appellant acted as a de facto
director. This term means all kinds of directors.
Analysis and Decision
[70]
The Court must first comment on the Appellant’s
apparent belief that once he has given testimony that it is up to the Minister
to disprove what he has said. To that end, he apparently concluded that
because he stated in testimony that he had resigned in December of 2002 that
the Minister must show that this was not correct or that other evidence that he
gave has to be proven to be wrong.
[71]
The rule, of course, is that any evidence given
can be accepted or rejected either in whole or in part by the Court. The weight
to be given to any evidence is for the trial judge after weighing and
considering all of the evidence, the conduct and demeanour of any witness, and
any evidence that corroborates or conflicts with such evidence.
[72]
In this case, the Minister has pleaded certain
facts which he is entitled to rely upon until such time as these presumptions
have been destroyed. This was pointed out to the Appellant at the time of the
trial.
[73]
In this case, the Minister does have the burden
of proving that the technical requirements of the Excise Tax Act have been
met. Apart from the Minister’s presumptions contained in the Reply, the Court
is satisfied on the basis of credible evidence, given by competent and informed
witnesses, that all of the technical requirements of the Act have been
met.
[74]
The Appellant merely stated that these
requirements have not been met, but such inferences are incapable of
overturning the evidence that showed otherwise.
[75]
The second issue is whether the Appellant has
successfully challenged the assessments. The only evidence given on this issue
by the Appellant was that there should have been no tax owing because there
were enough input tax credits available to the Company which, if properly
credited to the account, would have been sufficient to reduce the amount to
zero.
[76]
However,
the Court must also consider the Appellant’s own admission that there probably
was at least $10,000 in taxes still lowing. There was no credible evidence
given as to how this figure was arrived at, no documents tendered to show that
the amount claimed was wrong, and no other attempt made to discredit the assessments.
[77]
Sufficient acceptable evidence was given to verify the assessments and
they must stand.
[78]
Another issue that must be addressed is whether
or not the Appellant was a director at all relevant times.
[79]
The Appellant stated in evidence that he
resigned as a director in December of 2002. He said that he gave the
resignation letter to his wife but he did not call his wife to testify to that
fact.
[80]
He said that he did not want to subject his wife
to the Court process. It may very well be more likely that he did not want to
subject her to the rigours of cross‑examination. But in any event she was
not called and the Court does not accept the Appellant’s explanation as to why
she did not testify. It is more likely that the evidence that she would have
given on this very important point would not have confirmed his own position in
that regard. The Court draws an unfavourable inference against the Appellant as
a result of the wife’s failure to appear.
[81]
Further, it would appear to be very unlikely
that if the Appellant had resigned as a director that he would have continued
to be the controlling mind of the Company as he indicated that he was,
even up to the date of the bankruptcy, as he made a proposal that was rejected.
Further, he signed an affidavit on May 31, 2005 that indicated
anything but his position that he had resigned as a director.
[82]
His evidence that he was acting on behalf of the
numbered company, who was the sole shareholder of the Company when he signed
the affidavit, is not borne out by the contents of the affidavit and this
proposition would appear to be more of an afterthought rather than reflecting
the real situation at that time.
[83]
Even if the Court were to accept the Appellant’s
position that he had resigned as a director when he said he did, it would
accept the Respondent’s argument that under the Ontario legislation he was still a de facto director up to the date
of the bankruptcy.
[84]
On the question of “due diligence”, there is no
evidence whatsoever that he did anything to prevent the failure that a
reasonable and prudent director would have done.
[85]
Any such action was prevented by his erroneous
belief that there was no tax owing and his position that he had already
resigned as a director.
[86]
He erroneously believed that the documents that
he gave to Mr. Chartrand were sufficient to support his position. On the clear
evidence of Mr. Chartrand, he had no such documents.
[87]
The Court is satisfied that the Appellant has
failed to show that the Minister’s assessment as made was invalid as against
him.
[88]
The appeal is dismissed and the Minister’s
assessment is confirmed.
Signed at Ottawa, Canada, this 8th day of April 2010.
“T.E. Margeson”
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