Citation: 2007TCC105
Date: 20070219
Docket: 2004-4382(GST)G
BETWEEN:
DANIEL BEAUCHEMIN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Bédard J.
[1] This is an appeal
under the general procedure in respect of an assessment made under subsection
323(l) of the Excise Tax Act (the “Act”) by the Minister of
National Revenue, through the Quebec Minister of Revenue (the
“Minister”), against the Appellant.
[2] In assessing the
Appellant, the Minister relied on the following findings and assumptions of
fact, set out at paragraph 25 of the Reply to the Notice of Appeal.
[TRANSLATION]
(a) The Company is a corporation incorporated
under the Companies Act, Part IA (R.S.Q. c. C-38); (admitted)
(b) The Company is registered for the
purposes of Part IX of the ETA
and its registration number is 141399683; (admitted)
(c) On February 25, 2002, the Minister
assessed the Company for the amount of $37,992.75 representing the unpaid net
tax for the period between February 1, 1998, and October 31, 2001,
including interest and penalties; (admitted)
(d) On May 8, 2002, the Minister assessed the
Company for the amount of $597,18 representing the unpaid net tax for the
period from December 1, 2001, to December 31, 2001, including
interest and penalties; (admitted)
(e) The Company did not file any notice of
objection against the notices of assessment of February 25, 2002, and May 8,
2002; (admitted)
(f) On November 19, 2002, in accordance with
section 316 of Part IX of the ETA, the Minister filed in the Federal
Court a certificate of taxes, penalties and interest due and payable by the
Company in the amount of $40,829.74; (admitted)
(g) The Minister’s certificate was duly
registered in the Federal Court and as a result, the Company was sentenced to
pay $40,829.74 to the Minister; (admitted)
(h) On January 27, 2003, a writ of
seizure and sale was issued by the Federal Court to
levy on the personal property of the Company the amount of $40,829.74 with
interest, penalties and costs; (admitted)
(i) The writ of execution was
not wholly executed and therefore, execution for the amount mentioned in the
certificate was returned unsatisfied in part; (admitted)
(j) The Appellant was a de facto director of
the Company during the periods it was required to pay the net tax to the
Respondent; (denied)
(k) During the periods the Company was
required to pay the net tax to the Respondent, Suzanne Blanchard, the
Appellant’s spouse, acted as president and sole director of the Company in
accordance with the corporate records; (admitted)
(l) As a de facto director of the Company,
the Appellant did not exercise the degree of care, diligence and skill
to prevent the failure that a reasonably prudent person would have exercised in
comparable circumstances; (denied)
(m) In particular, the Appellant took no
concrete and positive steps to prevent the failures of the Company;
(denied)
(n) The bank signature card of the Company
demonstrates that the Appellant was authorized to sign the cheques and bank
documents of the company from the Caisse populaire Desjardins; (denied)
(o) In fact, the Appellant signed a number of
the Company’s cheques and he also signed tax returns, source deduction
remittances, summaries of source deductions, as well as a declaration of the
Company on form CO-17 for the period ending January 31, 1999; (admitted)
(p) In his answers to a questionnaire
completed at the request of the Centre de perception fiscale of the
Ministère du Revenu du Québec, the Appellant indicated that he received a
salary from the Company as manager and that his main duties were to oversee
daily operations; (admitted)
(q) The Appellant
identified himself as the head of the company and signed an
Amended Declaration – Legal Person filed with the Inspecteur général des
institutions financières on or around August 20, 1998; (denied)
(r) The Appellant
also identified himself as the head of the Company on the Annual Declaration –
Legal Person for 2001 filed with the Inspecteur générales
institutions financières; (denied)
(s) The Company
was audited for the period from February 1, 1998, to October 31, 2001, for the
retail businesses located at 45, 49 and 51 De l'Église, Lacolle,
including a convenience store with a bakery counter, a restaurant and a bar;
(admitted)
(t) The
Appellant was present throughout the entire audit process; he identified
himself as the person responsible for the businesses, and stated that he was in
charge of the administration and accounting activities of the company and that
he was the head; (denied)
(u) The Appellant
described himself as the director of the Company in the draft assessments
entitled [translation] “statement of adjustments from the GST/HST audit”
and “statement of adjustments from the QST audit” which he signed on
December 17, 2001; (denied)
(v) The Appellant
identified himself as the owner of the Company in lease agreements signed with
Richelieu Amusement Ltée; (admitted)
(w) The Appellant
introduced himself to an investigator with the Ministère du
Revenu du Québec as a director of the Company; (denied)
(x) The Company
ceased its activities on March 26, 2003, day of the sale under execution of the
personal property of the Company and the Appellant acted as a de facto
director of the Company until that date; (denied)
(y) Furthermore,
the convenience store and the restaurant were formerly operating under the
company name 2629-8349 QUÉBEC INC., of which the Appellant was the sole
director and majority shareholder; (denied)
(z) 2629-8349
QUÉBEC INC. made an assignment of its property on February 27, 1996, and
its sole director, Daniel Beauchemin, the Appellant, also made an assignment of
his property on March 4, 1996; (admitted)
(aa) 9038-1765
QUÉBEC INC., was incorporated on July 11, 1996, and the Appellant’s spouse,
Suzanne Blanchard, was appointed director of the new company; (admitted)
(bb) 9038-1765
QUÉBEC INC. resumed the operations of the convenience store previously operated
by 2629-7349 QUÉBEC INC. where the Appellant continued to work; (denied)
(cc) The Appellant
did not take the appropriate measures to ensure the implementation of an
effective system aimed at ensuring payment by the Company of the amounts due to
the Minister under the ETA; (denied)
Issue
[3] The sole issue is
whether the Appellant was a de facto director of 9038-1765 Québec
Inc. (the “company”) during the period between August 31, 1999, and
December 31, 2001 (the “relevant period”) as the Appellant
chose not to avail himself of the due diligence defence.
Testimony of Suzanne Blanchard
[4] The evidence and
testimony of Suzanne Blanchard, the Appellant’s spouse (the “spouse”), whose
credibility need not be doubted in this case, revealed that
(i) 2629-8349 Québec
Inc. of which the Appellant was the sole director and majority shareholder,
operated a convenience store and a restaurant until February 27, 1996, date on
which it made an assignment of its property. She also stated that the Appellant
also made an assignment of his property on March 4, 1996;
(ii) in order to secure
employment for her spouse, she incorporated the company in July 1996;
(iii) the company
purchased the ongoing business of 2629-8349 Québec Inc.,
including the inventory and equipment related to the operation of the
restaurant and the convenience store, from the trustee;
(iv) therefore, in July
1996, the company resumed the operations of the restaurant and convenience
store that were previously operated by 2629‑8349 Québec Inc. and the
Appellant continued to work there;
(v) she managed the company herself. She
explained that she exercised all the rights associated with the company’s cash
flow. The Appellant had to wait for her instructions before paying the
company’s creditors. She stated that the Appellant had no control over the
remission of amounts due and owing under tax legislation. At the very most, the
Appellant prepared declarations respecting the remission of amounts due and
owing under tax legislation, signed them and filed them but not without
obtaining her authorization;
(vi) she regularly met with the company’s
external auditors in preparing balance sheets and tax returns that were
approved and signed by her;
(vii) she negotiated bank arrangements with
the company’s banker. She was the only person authorized to communicate with
the company’s bankers;
(viii) as director of the company, she put
her spouse in charge of the company’s daily operations. Accordingly, the
Appellant managed staff, the supply of warehouse stock, relations with
suppliers, government relations and the company’s bookkeeping, but always under
her supervision and direction;
(ix) not only did she supervise her
spouse’s daily management activities but she was also responsible for important
company records. She also stated that she took steps to obtain a licence to
sell beverages and to operate video lottery terminals.
Appellant’s testimony
[5] The Appellant
basically repeated his spouse’s testimony with respect to the work and
responsibilities she assigned to him within the company. He explained that he
had no decision-making power in terms of managing the company and that he was
always supervised by his spouse. He also indicated that he was present
throughout the entire time the company was audited. He also acknowledged that
he was the only one who had discussions and negotiations with the Minister’s
delegate as part of the audit.
[6] The Appellant also
testified that
(i) he signed a number
of cheques;
(ii) he signed tax returns, source deduction remittances, summaries
of source deductions, as well as a declaration of the Company on form
CO-17 for the period ending January 31, 1999 (Exhibits 1-6, 1‑7);
(iii) he identified himself as the head of
the company on an Amended Declaration – Legal Person which
he signed and filed with the Inspecteur général des institutions financières on
or around August 20, 1998 (Exhibit
1-2);
(iv) he also identified himself as the head of
the company on the Annual Declaration – Legal Person for 2001 (Exhibit 1-3) which he signed and filed
with the Inspecteur général des institutions financières;
(v) he co-signed by mistake with his spouse
the company’s tax return for its fiscal year ending January 31, 1999 (Exhibit
1-4);
(vi) he signed the application to register
the company for the purposes of the Act (Exhibit 1-10). It is important to note
that the application was accompanied by a power of attorney signed by Ms.
Blanchard as director of the company, authorizing the Appellant to sign the
form and take all steps necessary to obtain a registration number for the
purposes of the Act.
(vii) he answered, in a questionnaire
completed at the request of the Centre de perception fiscale of the Ministère
du Revenu du Québec (Exhibit 1-8), that he received, as manager, a salary from
the company and that his main duties were to oversee daily operations; it
should be noted that the Appellant stated in the questionnaire that he never
signed, as a guarantor or co-signer, a loan on behalf of the company. I would
also like to note that in the questionnaire the Appellant stated that he was
not a director of the company.
(viii) he received the draft assessment
(Exhibit 1-9) as an authorized representative of the company and not as a
director as submitted by the Respondent. He explained that when he signed the
document, he did not notice that the Minister’s delegate wrote by his own hand
in the box entitled “Title” (which is not where the Appellant signed the
document) the word “director.”
(ix) he signed a few lease agreements for
game equipment with Richelieu Amusements Ltée on behalf of the company (Exhibit
1-5). It is important to note that the lease form used by the lessor was not
suitable in the case where the lessor was a company. In fact, the word “owner”
appeared below the line where the lessor had to sign the lease agreement. What
is more, in the two lease agreements filed as Exhibit 1-5, the Appellant
signed his name on the line in questions without indicating that he was acting
on behalf of the company. Furthermore, in the other lease agreements adduced in
evidence, the Appellant signed his name on the line in question adding however
that he was acting on behalf of the company.
Testimony of Serge Samson
[7] The testimony of
Serge Samson, the company’s banker during the relevant period, basically
revealed that Ms. Blanchard represented the company in all discussions,
meetings and negotiations related to the company’s banking affairs. Mr. Samson
clearly indicated that the Appellant was in no way responsible for managing the
company’s banking affairs.
Testimony of Danielle Rivest
[8] Danielle Rivest,
the financial management officer for the Ministère du
Revenu du Québec who audited the company’s goods and services tax filings for
the relevant period, testified that she had never seen or met
Ms. Blanchard, nor did she have discussions with her during the audit. She only
spoke with the Appellant.
Testimony of Claude Paradis
[9] Claude Paradis, the
collection officer for the Ministère du
Revenu du Québec, testified that, in 2002, he went to the company’s place of
business to collect the debt owed by the company, a debt related to the
unremitted goods and services tax for the relevant period. He stated that
seeing as there was no one to speak to at the company’s place of business, he
left a written note on the premises addressed to Ms. Blanchard asking her to
telephone him. He explained that it was the Appellant who telephoned him and
that at the time he identified himself as director of the company. Mr. Paradis
added that he met with the Appellant and the company’s accountant on one
occasion as part of his collection mandate. He stated that during that meeting
the parties were unable to reach an agreement on the payment of the unpaid
taxes.
Testimony of Nathalie
Phoenix
[10] According to the
testimony of Ms. Phoenix, the collection officer for Revenu Québec who was
in charge of collecting the company’s tax debt, that the Appellant met with Ms.
Phoenix and spoke with her on several occasions in 2002 and 2003 to try to
settle the company’s tax debt and take back its property which was to be sold
under execution. I would like to point out that at no time did Ms. Phoenix suggest
during her testimony that the Appellant introduced himself as a director of the
company. Although Ms. Blanchard told Ms. Phoenix from the very beginning that
it was the Appellant who was in charge of the corporation, it is however
important to note that it was Ms. Blanchard, accompanied by the accountant of
the company, who made the first settlement proposal for the company’s tax debt
to Ms. Phoenix. Also according to the testimony of Ms. Phoenix, on February 13,
2003, the Appellant submitted to her a power of attorney, provided by Ms.
Blanchard, authorizing him to represent the company in discussions about the
collection of the company’s tax debt.
Analysis and conclusion
[11] The notion of de
facto direction was definitely recognized by the Federal Court of
Appeal in Wheeliker.
[12] What are the factors
that allow us to determine whether a person is a de facto director of a
corporation? In my opinion, a person shall be considered as such if
(i) he or she usurps that function by
taking actions normally required of or reserved for the directors of a
corporation under the incorporating legislation of the corporation concerned:
for instance, participating in board of directors meetings, signing board
resolutions, etc.
(ii) he or she introduces himself or
herself to third parties as a director of the corporation concerned.
[13] I think one ought to
be careful about applying the concept of de facto director. I do not believe
this concept encompasses all those who exercise powers within a corporation.
For instance, the signing of a corporation’s bank account cheques or of reports
addressed to government authorities and negotiating on behalf of the company a
settlement with tax authorities or an acquisition contract or a contract sale
of assets cannot, in my opinion, be regarded as establishing a presumption that
the person undertaking those actions does so as a de
facto director. If that were the case, any person authorized to perform such
actions under the supervision of a corporation’s board of directors or under
the powers delegated by the board would automatically be a de facto director to
third parties. I am of the opinion that a person who takes such actions can be
considered a de facto director by third parties only if he or she introduces
himself or herself as the director of the corporation or clearly suggests that
he or she performs such actions as the director of the corporation. It appears
to me that this position is consistent with directive RCD 95-12 established by
the Minister on the subject even though it does not have the force of law. In
his directive, the Minister stated as follows:
Caution should
be exercised prior to assessing an alleged “de facto” director. It is not
sufficient that a person be signing cheques for the corporation for him or her
to be considered a “de facto” director. The general rule is that it is not
appropriate to assess an alleged “de facto” director if there are legally
appointed directors in office at the relevant times. The assessment of a de
facto director should be considered only in cases where a person is
representing himself or herself as a director. There should be written evidence
of such behavior available.
[14] In the case at bar,
the Appellant convinced me that he was not a de facto
director. The Appellant was merely a manager who exercised his functions under
the direction and supervision of the sole director of the company, his spouse,
Ms. Bertrand. Ms. Bertrand convinced me that she alone had control of the
company. Her testimony, supported by that of Mr. Samson, the banker of the
company, regarding her management of the company’s finances, was very eloquent
with respect to her role within the company. Ms. Bertrand persuaded me that she
exercised all the powers relating to the company’s cash flow. She met with the
external accountant to prepare the company’s balance sheets and income tax
returns. She signed the balance sheets and income tax returns. She reviewed
government reports prepared by the Appellant before he signed them and sent
them to the authorities concerned. She also took steps to obtain a licence to sell alcoholic beverages and
to operate video lottery terminals. She met with Ms. Phoenix along with the company’s
accountant. Furthermore, the powers of attorney signed by Ms. Bertrand
authorizing the Appellant to represent the company are equally eloquent
examples demonstrating that she was the sole director.
[15] The Appellant
certainly had some powers within the company. However, when he exercised those
powers, he was subject to the direction and supervision of his spouse or he
exercised them within the limits of the powers delegated by her. It was in that
capacity that the Appellant prepared and signed government reports and cheques
and leased personal property and negotiated with tax authorities. He did not
perform those actions as a director of the company. He did not introduce
himself as director of the company when he dealt with third parties.
[16] The Respondent
attempted to demonstrate that the Appellant introduced himself to third parties
as a director of the company. The Respondent’s evidence in that respect is based
on the following facts, which, in my opinion, are largely irrelevant, isolated
considering all the evidence surrounding the Appellant’s conduct, and largely
inconclusive:
(i) the evidence revealed that on one
occasion, the Appellant told Claude Paradis that he was director of the
company. This action by the Appellant cannot, in my opinion, create a
presumption of his capacity of de facto director as, in my opinion, it was an
isolated incident which, moreover, occurred outside the relevant period.
(ii) the Respondent submitted that the
Appellant’s signature on Exhibit 1-9 created a presumption of his capacity
of de facto director. I am of the opinion that the signature on that document
does not create such a presumption. The Appellant’s explanation that when he
signed the document, he did not notice that he was explicitly mentioned as
director of the corporation convinced me.
(iii) finally, the Respondent submitted
that the Appellant’s signature on two lease contracts created a presumption
that he was a de facto director. In other words, I
cannot conclude that the Appellant represented the corporation by taking the
title of director. That form was not meant to be used in cases where the lessor
was a company and therefore caused confusion.
[17] For these reasons,
the appeal is allowed with costs.
Signed at Ottawa, Canada, this 19th day of February
2007.
“Paul Bédard”
Translation certified true
on this 31st day of August 2007.
Daniela Possamai,
Translator
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