Docket: 2008-3026(IT)I
BETWEEN:
CHERIE FERRARI,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Appeal
heard on January 14, 2010, at Toronto, Ontario
Before: The Honourable Justice L.M.
Little
Appearances:
|
Agent for the Appellant:
|
Silverio
Ferrari
|
|
Counsel for the Respondent:
|
Nathalie Hamam
|
____________________________________________________________________
JUDGMENT
The appeal from the reassessment made under the Income
Tax Act, Notice of Reassessment Number 43079, dated April 22, 2008, is
dismissed, without costs.
Signed at Vancouver, British Columbia, this 21st day of January 2010.
“L.M. Little”
Citation: 2010 TCC 40
Date: 20100121
Docket: 2008-3026(IT)I
BETWEEN:
CHERIE FERRARI,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Little J.
A.
Facts:
[1]
Cherie Ferrari Inc.
(the “Company”) was incorporated under the laws of the Ontario Business
Corporations Act on March 20, 1998.
[2]
The Appellant was the
sole officer, sole director and sole shareholder of the Company.
[3]
The Company was in the
business of web design and internet consulting services.
[4]
The Company had one
employee, namely K. McMurdo.
[5]
According to records
filed by the Respondent with the Court, the Company failed to withhold and
remit employment insurance and Canada Pension Plan payments to the Canada Revenue
Agency (the “CRA”) for the 1998, 1999 and 2000 taxation years.
[6]
Officials of the CRA
issued a Notice of Assessment against the Company with respect to the taxes,
interest and penalties owing for the 1998, 1999 and 2000 taxation years.
The Company did not pay the taxes that were imposed.
[7]
By Notice of Assessment
dated the 22nd day of August, 2006, the CRA assessed the Appellant for the
taxes that were not paid by the Company. The Assessment was issued pursuant to
section 227.1 of the Income Tax Act (the “Act”). (This Assessment is referred to as the
“First Assessment”.) The amount assessed against the Appellant was $18,581.19.
[8]
By Notice of Assessment
dated the 22nd day of April, 2008, the Minister of National Revenue reassessed
the Appellant to impose tax in the amount of $13,702.62. (This Assessment is
referred to as the “Second Assessment”.) The Second Assessment eliminated the
tax, interest and penalty assessed for the 2000 taxation year.
[9]
The Appellant filed a
Notice of Objection to the Second Assessment. In the Notice of Objection, the
Appellant maintains that she was not subject to the tax that was imposed.
B.
Issues:
[10]
The issues to be
decided are:
(a)
whether the Appellant
is liable under subsection 227.1(1) of the Act for failure by the
Company to remit to the Receiver General the unpaid source deductions,
penalties and interest relating thereto; and
(b)
whether the Appellant exercised
the degree of care, diligence and skill to prevent the failure on part of the
Company to remit source deductions that a reasonably prudent person would have
exercised in comparable circumstances.
C. Analysis and Decision:
[11]
Mr. Ferrari, the Appellant’s
husband, acted as the Appellant’s agent. Although invited by the Court to
testify, the Appellant declined. Mr. Ferrari testified himself on behalf of the
Appellant.
[12]
Mr. Ferrari said that
he believes that the Appellant resigned as a Director of the Company. However,
Mr. Ferrari did not produce any written evidence that the Appellant had signed
in which she resigned as a Director. I am not convinced on the evidence
presented that the Appellant had resigned or even attempted to resign as a
Director of the Company.
[13]
Subsection 227.1(3) of
the Act provides as follows:
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.
[14]
Mr. Ferrari said that
the Appellant dealt with the Company’s accountant with respect to all
accounting and tax questions. However, there was no evidence provided to
indicate that the Appellant attempted to ensure that the Company’s tax
liability was satisfied.
[15]
Subsection 227.1(1) has
been considered by Canadian Courts on a number of occasions.
[16]
In The Queen v.
Kalef, 96 D.T.C. 6132, Mr. Justice McDonald said:
Subsection 227.1(1) makes a director of a
company vicariously liable for any failure by the company to withhold, deduct
or remit source deductions. The section reads as follows:
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.
The justification for the imposition of
vicarious liability is simple. The directors of a company are its directing
mind. They are the persons responsible for insuring that the corporation
fulfils its financial obligations.
The vicarious liability imposed by subsection
227.1(1) is not indefinite. A time limit on the liability of a director is
found in subsection 227.1(4):
227.1 (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 the director last ceased to be a director of that
corporation.
(In this case, the evidence does not support the suggestion by Mr.
Ferrari that the Appellant resigned as a director of the Company.)
[17]
Based on a careful
analysis of all the evidence that was presented, I have concluded that the
Appellant did not exercise the degree of care, diligence and skill that a
reasonable, prudent person would have exercised in comparable circumstances to
prevent the Company’s failure to remit the unpaid source deductions with
interest and penalties as provided for in the Act.
[18]
I have therefore
concluded that the Appellant was liable for the unpaid source deductions,
penalties and interest that were assessed by the Second Assessment issued under
section 227.1 of the Act.
[19]
The appeal is
dismissed, without costs.
Signed at Vancouver, British Columbia, this 21st day of January 2010.
“L.M. Little”
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