Citation: 2005TCC393
Date: 20050630
Docket: 2003‑1473(GST)I
BETWEEN:
SYLVIO THIBEAULT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL
ENGLISH TRANSLATION]
REASONS FOR
JUDGMENT
Dussault J.
[1] This is an appeal from an assessment made under
section 323 of the Excise Tax Act, Part IX (the "Act"),
against the Appellant, as a director, for an amount of $15,730.15, representing
the goods and services tax (the "GST") collected but not remitted by
Société Recherches et Travaux Maritimes R.T.M. Inc. (the
"corporation" or "R.T.M.") for the period from May 1
to July 31, 1998. This amount includes interest and penalties to the date
of the assessment, August 31, 2000.
[2] In assessing the Appellant, the Minister of National
Revenue (the "Minister") relied on the findings and assumptions of
fact stated in subparagraphs 10(a) to (j) of the Amended Reply to the
Notice of Appeal. Those subparagraphs read as follows:
[TRANSLATION]
(a) In 1998, the Appellant was
the sole director of Société Recherches et Travaux Maritimes R.T.M. Inc.
(hereinafter "the corporation").
(b) In 1998, the corporation was
registered for GST purposes.
(c) (...) After Société
Recherches et Travaux Maritimes R.T.M. Inc. filed its tax return for the period
from May 1 to July 31, 1998, it was found that the corporation
had collected GST of $12,646.51 without remitting it to the Respondent
during that period (...).
(i) On March 22, 1999, a
notice of assessment bearing number 863931 was then issued against Société
Recherches et Travaux Maritimes R.T.M. Inc. in the amount of $13,417.53,
including the unremitted tax of $12,646.51 plus penalties and interest for the
period from May 1 to July 31, 1998.
(ii) On January 28, 2000,
following an audit of Société Recherches et Travaux Maritimes R.T.M. Inc.,
adjustments of $63,618.54 were added to the net tax for the period from
September 1, 1995, to July 31, 1998, and a notice of assessment
bearing number 9213956 was issued against Société Recherches et Travaux
Maritimes R.T.M. Inc.
(iii) Following a second audit
of Société Recherches et Travaux Maritimes R.T.M. Inc., an amount of
$100,048.33 was added to the net tax, and a notice of assessment bearing
number 203377 was issued against the corporation on July 7, 2000, for
the period from November 1, 1995, to July 31, 1998.
(d) On July 7, 2000, the
corporation assigned its assets under the Bankruptcy and Insolvency Act.
(e) Although the Respondent
filed a proof of claim on August 31 and September 21, 2000, that is,
within six months of the date of the bankruptcy of the corporation, her claim
was never paid in full.
(i) On August 31, 2000, the
Minister of National Revenue (the "Minister") assessed the Appellant
under section 323 of the Excise Tax Act for a total of
$15,730.15, representing G.S.T. of $12,646.51 collected but not remitted for
the period from May 1 to July 31, 1998, plus penalties and interest,
as stated in the notice of assessment bearing number PQ‑2000‑5279.
(ii) In addition, on
September 28, 2000, the Minister of National Revenue assessed the
Appellant under section 323 of the Excise Tax Act for a total of
$146,833.87, representing the G.S.T. determined from the two audits, plus
interest and penalties, for the period from November 1, 1995, to
July 31, 1998, as stated in the notice of assessment bearing
number PQ‑2000‑5326.
(iii) Upon the filing of the
supporting documentation from Société Recherches et Travaux Maritimes R.T.M.
Inc., the notices of assessment issued against the corporation following the
two audits, bearing numbers 9213956 and 203377, were vacated on January 5
and 12, 2001 respectively, by the notices of assessment bearing
numbers 203649 and 203671.
(iv) On January 16, 2001,
further to the issuing of the two notices of assessment bearing
numbers 203649 and 203671, the Minister issued a notice of assessment
bearing number PQ‑2001‑5553 in the Appellant's name cancelling
the notice of assessment of September 28, 2000, bearing number PQ‑2000‑5326,
and issued under section 323 of the Excise Tax Act.
(v) At no time did the
Respondent vacate the notice of assessment bearing number 863931 issued
against Société Recherches et Travaux Maritimes R.T.M. Inc. on March 22,
1999, since the amount of GST of $12,646.51 had been collected by the
corporation but not remitted to the Respondent, as seen from the corporation's
return of income of August 28, 1998, covering the period from May 1
to July 31, 1998.
(vi) Furthermore, the
Respondent never cancelled the notice of assessment of August 31, 2000,
bearing number PQ‑2000‑5279, which was issued against the
Appellant under section 323 of the Excise Tax Act and is the
subject of the instant case.
(f) The Appellant was a director
of the corporation during the periods when the corporation was required to
remit the net tax to the Respondent.
(g) Despite the fact that he was
replaced on the board of directors of Société Recherches et Travaux Maritimes
R.T.M. Inc. by 9043‑1925 Québec Inc., operating under the trade name
"Victor Management", the Appellant was still a director of the
corporation during the periods when the corporation was required to remit the
net tax to the Respondent.
(h) The Appellant controls 9043‑1925
Québec Inc., operating under the trade name "Victor Management",
since he is the sole director and shareholder of that company and, as such,
acted as a director of Société Recherches et Travaux Maritimes R.T.M. Inc.
through other corporations.
(i) As a director of the
corporation, 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.
(j) In particular, the Appellant
took no concrete and positive steps to prevent the failures of the corporation.
[3] Counsel for the Appellant contends that the assessment
must be vacated, relying on a number of arguments. I summarize his claims as
follows:
·
R.T.M.'s
debt is non-existent, since it was cancelled by subsequent assessments;
·
The
Minister did not file proof of claim with R.T.M.'s trustee in bankruptcy within
six months following the assignment, as required by paragraph 323(2)(c)
of the Act;
·
The
Appellant was no longer a director of R.T.M. at the time it was required to
remit the amount in issue;
·
If
it were found that the Appellant was still a director, he exercised reasonable
care within the meaning of subsection 323(3) of the Act.
[4] Since a number of
assessments are in issue in the instant case, following, for reasons of
convenience, is a table providing details on the various assessments. Below, I
will refer to each assessment using the name stated in the first column.
|
|
Date of notice of assessment
|
Number of notice of assessment
|
Period covered
|
Exhibit filed in evidence
|
|
First assessment
|
March 22, 1999
|
863931
|
May 1, 1998 to July 31, 1998
|
Exhibit I‑6, Tab 5
|
|
Second
assessment
(vacated
by sixth assessment)
|
January 28,
2000
|
9213956
|
September 1,
1995, to July 31, 1998
|
Exhibit I‑6,
Tab 6
|
|
Third
assessment
(vacated
by seventh assessment)
|
July 7,
2000
|
203377
|
November 1,
1995, to July 31, 1998
|
Exhibit I‑6,
Tab 7
|
|
Fourth
assessment
|
August 31,
2000
|
PQ‑2000‑5279
|
May 1
to July 31, 1998
|
Exhibit I‑6,
Tab 1
|
|
Fifth
assessment
(vacated
by eighth assessment)
|
September 28,
2000
|
PQ‑2000‑5326
|
November 1,
1995, to July 31, 1998
|
Exhibit I‑6,
Tab 9
|
|
Sixth
assessment
(vacated
by second assessment)
|
January 5,
2001
|
203649
|
September 1,
1995, to July 31, 1998
|
Exhibit I‑6,
Tab 10
(page 1)
|
|
Seventh
assessment
(vacated
by third assessment)
|
January 12,
2001
|
203671
|
November 1,
1995, to July 31, 1998
|
Exhibit I‑6,
Tab 10
(page 2)
|
|
eighth
assessment
(vacated
by fifth assessment)
|
January 16,
2001
|
PQ‑2001‑5553
|
November 1,
1995, to July 31, 1998
|
Exhibit I‑6,
Tab 11
|
[5] The Appellant testified, as did Bertrand Lemieux
and Pierre Magnan, auditor and tax collections officer, respectively, at Quebec's Ministry of Revenue.
[6] R.T.M. was incorporated under the Canada Business
Corporations Act on August 24, 1995. The Appellant was initially its
principal shareholder and sole director. In 1996, 9043‑1925 Québec Inc.,
doing business under the trade name Victor Management ("Victor
Management"), was appointed director, and the Appellant ceased to be a
director in 1997 (Exhibits I‑5 and I‑6, Tab 13).
[7] In his testimony, the Appellant stated that he was in
a conflict‑of‑interest situation since he was both a director and
creditor of R.T.M., and that that was why he had resigned from his position as
director. A lawyer named Yvon Chouinard was appointed director and
secretary of Victor Management.
[8] Despite resigning as director and the fact that he
then gave himself the title of general manager, the Appellant admitted that he
still managed and controlled R.T.M. in 1998, negotiated with banks and signed
contracts and other documents for the corporation (Exhibits I‑8, I‑10
and I‑11).
[9] The Appellant was always the only person authorized to
sign the corporation's cheques.
[10] The Appellant said that R.T.M. was heavily indebted and
that he himself had invested in the form of capital stock and that he had lent
funds to the corporation. In 1997, R.T.M. was already experiencing
difficulties. In January or February of that year, the Appellant had the
corporation's debts assigned to him under a deed of trust that guaranteed his
loans. In 1998, and more particularly during the period from May 1 to
July 31, R.T.M.'s situation was critical. According to the Appellant, the
corporation was short of cash and was delinquent in repaying the loans that it
had taken out, in particular with CIBC. The Appellant stated that he himself
had advanced funds in 1998 to pay salaries. R.T.M. was also waiting for a
contract to be signed for the sale of eight ships in the Ivory Coast and to obtain the necessary financing
and guarantees for that transaction. The Appellant said that R.T.M. had needed
an additional $1,000,000 at that time in order to restart his business, but the
banks did not seem interested in lending more, in view of the corporation's
already precarious situation.
[11] The Appellant said that R.T.M. ceased operations in
June 1998. The corporation had claimed scientific research and experimental
development credits, at both the provincial and federal levels, in respect of
new marine products. The credits had been allowed by the Government of Quebec.
At the federal level, authorities were preparing to reduce the credits claimed
in respect of a major project by 50 percent. However, according to the
Appellant, R.T.M. was still expecting to receive an amount of money from the
federal government.
[12] It was in this context that the GST return for the
period from May 1 to July 31, 1998, was filed by the corporation's
accountant on August 27, 1998 (Exhibit I‑6, Tab 4).
[13] That return shows net GST and PST payable of
$12,646.51. However, no amount was paid at the time the return was filed. The
Appellant stated that the corporation was still waiting to receive federal
credits at that time and that it was trying to ensure that everyone received
what was owed him.
[14] The federal credits were received in the fall of 1998.
The cheque was deposited at the CIBC, and the amount was allocated to repayment
of the loans granted by it under a loan guarantee agreement from the Société de
développement industriel (SDI). The contract for the sale of ships in the Ivory Coast was never signed, and R.T.M. was unable
to restart its business. According to the Appellant, on March 22, 1999,
that is when the first assessment was made, the corporation was no longer
active. The first notice of assessment states that the net tax was $12,646.51,
the interest $342.79 and the penalty $428.23. The Appellant stated that it was
possible that the notice of assessment had been received by the corporation and
that it had simply been sent back to the department, as other documents
received after operations had ceased. As to the tax owed for that period, the
Appellant said that he believed it had never been paid. He stated that, in the
past, R.T.M. had always filed its returns and paid the GST within the
prescribed time period. R.T.M. ultimately assigned its assets on July 7,
2000. The Appellant said that the corporation had owed him approximately
$200,000 at that time. He said that he had also lost certain securities given
as collateral for a line of credit of the corporation (Exhibit I‑9).
[15] Bertrand Lemieux testified on his audit of R.T.M.
and the assessments made against the corporation.
[16] Mr. Lemieux was assigned the R.T.M. case for audit
in April 1999. In an initial telephone conversation with the Appellant in June
1999, he said the latter told him that he was no longer a director of R.T.M.
and that he no longer had any documents. In addition, when he contacted the
corporation's accountant, also in June 1999, she apparently asked him to
postpone his audit until the fall, which he agreed to do. Following another
telephone conversation with the Appellant in November 1999, Mr. Lemieux
went to his office. During the meeting, the Appellant told him that the
corporation was in serious financial difficulty, that he was more or less a
director of the corporation and that all the corporation's documents requested
for the audit had disappeared.
[17] As R.T.M. had received substantial rebates as a result
of large input tax credits received since the start of its operations,
Mr. Lemieux decided to assess R.T.M. for the amount of the rebates
obtained, since no invoices could be produced to justify those rebates.
According to Mr. Lemieux, a draft assessment was then sent to the corporation
and was simply returned to the department. As there had been no discussion with
anyone, Mr. Lemieux proceeded with the second assessment. The adjustments
made totalled $63,618.54, plus interest and penalties. Exhibit I‑7,
page 3, and Exhibit I‑14 show that this was the sum of the
rebates obtained by R.T.M. for the following annual periods:
November 1, 1995, to January 31, 1996: $13,649.98
February 1, 1996, to January 31, 1997: $27,130.64
February 1, 1997, to January 31, 1998: $22,837.92
Total: $63,618.54
[18] In his testimony, Mr. Lemieux explained that this
second assessment did not reflect the net tax payable of $12,646.51 for the
quarter ended July 31, 1998, which was still in arrears, as stated on
page 3 of Exhibit I‑7. He said that the amount had been
reported by R.T.M. but not paid, such that it became a matter for collections.
I would point out that the second notice of assessment does not in any way
state that it concerns an additional assessment rather than a reassessment. As
Mr. Lemieux had obtained no documents from R.T.M. or any news from the
corporation after the second notice of assessment had been sent, he decided,
after discussing the matter with his supervisor and with collections
management, to assess R.T.M. a third time for the total amount of the input tax
credits claimed, not only for those that had resulted in the rebates totalling
$63,618.54.
[19] A reassessment was therefore made. The third notice of
assessment states that adjustments of $100,048.33 had been made to the net tax
reported following the audit. It states that the amount owed is $133,803.68, including interest of $14,396.71 and penalties of $19,358.64. In his
testimony, Mr. Lemieux explained that these adjustments were in addition
to those previously made by the second assessment. Thus, the total adjustments
of $163,666.87 were the subject of two separate assessments, both of which,
however, excluded the amount of $12,646.51 in arrears for the period ended
July 31, 1998 (Exhibit I‑7, page 3, and Exhibit I‑14).
I would also point out here that the third notice of assessment does not in any
way state that it concerns an additional assessment and not a reassessment.
[20] Mr. Lemieux admitted that the third notice of
assessment had not been mailed to R.T.M., but had been sent to the Collections
section, since the previous notice had been returned to the department.
However, he stated that he had learned, it is not really known when, that a
notice of objection had been received on April 17, 2000.
[21] Exhibit A‑1 shows the same amounts of
interest and penalties as those stated in the third notice of assessment.
However, it shows two dates: July 7, 2000 and September 20, 2000.
Mr. Lemieux said that the interest and penalties had indeed been
calculated to July 7, 2000, only, and not to September 20, 2000. He
said he did not know why the document stated September 20, 2000. He
reiterated that the second and third assessments did not include the $12,646.41
amount in arrears.
[22] The Appellant himself was the subject of the fourth
assessment, in the amount of $15,730.15.
[23] The fifth assessment was a reassessment of the
Appellant. As will be seen, one of the claims of counsel for the Appellant is
that this assessment included the $133,803.68 amount claimed from R.T.M. in the
third assessment, which was apparently made on July 7, 2000, but in which,
he said, interest and penalties had been calculated to September 20 of
that year. According to counsel for the Appellant, that assessment also
included the $12,646.51 amount owed by R.T.M., as well as an additional amount
for eight days of interest at the rate of 11.9674 percent. As regards this
suggestion by counsel for the Appellant, Mr. Lemieux stated that he had
never been consulted concerning the assessments made against the Appellant
himself and that he could not explain the calculations made in support of the
fifth assessment. It was purportedly not until December 1, 2000, that
Mr. Lemieux was contacted by the objections unit and asked to proceed with
a supplementary audit, since R.T.M.'s outside accountant, Alain St‑Arnaud,
had informed the department that he had retaken possession of all the
corporation's papers and supporting documentation, which, he said, the banks
had kept until that point for audit purposes.
[24] Mr. Lemieux said that he had then proceeded with
another audit at the office of the accountant Ms. St‑Arnaud. As he
found that all the documentation in support of the input tax credits was
acceptable, he then made reassessments cancelling the two assessments made
following his first audit. The sixth notice of assessment thus cancelled the
second notice. The amount owed was nil. The seventh notice of assessment
cancelled the third notice of assessment. The amount owed was nil.
[25] I would point out here that the Appellant was also the
subject of a reassessment. The eighth notice of assessment thus cancelled the
fifth notice of assessment.
[26] Pierre Magnan, a tax collections officer, explained the
assessments made against the Appellant as a director of R.T.M. in respect of
taxes collected and not remitted by it.
[27] The fourth assessment was for an amount of $15,730.15,
including interest and penalties to the date of the assessment. However, the
notice mentions only the total amount of $15,730.15, which is described as
"net tax". The calculation appears in Exhibit I‑15. The
amount of unremitted tax was $12,646.51, as is moreover shown by R.T.M.'s
return of August 27, 1997, signed by the corporation's accountant,
Lyne St‑Arnaud (Exhibit I‑6, Tab 4). That amount should
have been remitted at the time of the return, but never was. I would recall
that R.T.M. had been assessed for that amount by the first notice of
assessment.
[28] The fifth assessment, against the Appellant, shows an
amount of $146,833.87, which, here again, was simply described as "net
tax". The explanation provided by Mr. Magnan is that that assessment
did not reflect the $12,646.51 figure, the amount of tax on which the fourth
assessment was based. On this point, he referred to Exhibits I‑7 and
I‑15. Exhibit I‑15 shows that, for the period ended
July 31, 1998, R.T.M. had collected GST of $15,864.23, that it was
entitled to input tax credits of $3,217.72 and that the tax payable was
$12,646.51. Those figures are consistent with the corporation's return for that
period (Exhibit I‑6, Tab 4). Exhibit I‑7,
page 1, clearly shows that the tax collected for that same period was
$15,864.23, but only the input tax credit of $3,217.72 was considered in
computing the total of $146,833.87, including interest and penalties.
[29] According to Mr. Magnan, the table in
Exhibit I‑7, on page 1, was prepared on the principle that a
director can only be held liable for taxes collected but not remitted, plus
interest and penalties. He said that only one calculation method reflecting
this principle was used, contrary to the suggestion of counsel for the
Appellant that two different methods were used to arrive at the stated total.
However, he pointed out that remittances previously made by the corporation
obviously had to be taken into account in order to arrive at the amount of tax
collected but not remitted for each period. My understanding of the
explanations provided is that the computations were made on the assumption that
the corporation was entitled to no input tax credits, since it had been
assessed for those amounts by the two assessments made following
Mr. Lemieux's first audit, that is to say the second and third
assessments. With respect to the third assessment, Mr. Magnan stated that
the date of September 20, 2000, appearing in Exhibit A‑1, was
only an indication of the date on which the data were entered into the system
and that the interest and penalties stated in the notice of assessment and
Exhibit A‑1 had in fact been calculated on July 7, 2000. He was
unable to explain why the data had been entered so late.
[30] Mr. Magnan further explained the breakdown of the
fourth assessment, which was made against the Appellant. Although the notice of
assessment states that the amount of $15,730.15 is "net tax", Exhibit I‑15
shows that the tax payable was $12,646.61, penalties were $1,555.41 and
interest was $1,247.91 to July 8, 2000, the day following R.T.M.'s
bankruptcy. Additional penalties of $140.54 and additional interest of $139.79
were added to August 31, 2000, the date of the assessment, for a total of
$15,730.15.
[31] The fifth assessment against the Appellant was vacated
by the eighth assessment. It was vacated as a result of the vacating of the two
assessments made against R.T.M. following Mr. Lemieux's second audit, of
which he spoke in his testimony.
[32] Mr. Magnan also testified on the proof of claim
that the department sent R.T.M.'s trustee in bankruptcy, the firm of Robitaille
Delisle & Associés. Mr. Magnan stated that a co‑worker,
Martin Savard, had sent the trustee two proofs of claim, the first dated
August 31, 2000, and the second September 21, 2000 (Exhibit I‑6,
Tab 8). For the GST, the proof of claim of August 31 indicated an
amount of $139,193.74, and that of September 21, an amount of $271,304.80.
Exhibit I‑15 shows the calculations in support of the two proofs of
claim. In both cases, it may be seen, for the period ended July 31, 1998,
that the amount of tax reflected in the calculations, according to the return
filed by the corporation, was $15,864.23, less input tax credits of $3,217.72,
for a total of $12,646.51. That was precisely the amount of tax stated in
support of the first and fourth assessments, details of which appear in
Exhibit I‑15.
[33] Counsel for the Appellant pointed out to Mr. Magnan
that the proofs of claim filed in evidence (Exhibit I‑6, Tab 8)
were incomplete, in that the first page containing Mr. Savard's affidavit
was missing. Mr. Magnan then said that the page containing
Mr. Savard's affidavit, signed by him, had in fact been sent to R.T.M.'s
trustee in bankruptcy on the stated dates, that is on August 31, 2002 and
September 21, 2000. Mr. Magnan then filed in evidence a copy of each
of Mr. Savard's letters sent to the trustee with the proofs of claim (Exhibit I‑17).
In spite of the objection raised by counsel for the Appellant, I decided to
admit these letters in evidence since they support Mr. Magnan's testimony
that the proofs of claim were indeed sent to the trustee on the stated dates.
[34] Counsel for the Appellant disputes the fourth
assessment, which was made against the Appellant. The first ground for
objection is that the debt claimed is non-existent. On the one hand, he
contends that the amount of the tax for the period ended July 31, 1998,
which had been the subject of the first assessment, was included in the second
and third assessments, both of which cover the period ending on the same date.
However, those two assessments were subsequently vacated by the sixth and
seventh assessments.
[35] On the other hand, he contends that that same amount of
$12,646.51, which was the subject of the fourth assessment, dated
August 31, 2000, against the Appellant, was also included in the fifth
assessment. However, the fifth assessment was vacated by the eighth assessment.
[36] Counsel for the Appellant thus claims that the debt was
cancelled with respect to both R.T.M. and the Appellant.
[37] I disagree with these claims by counsel for the
Appellant. Mr. Lemieux's testimony and the documents to which he referred
(Exhibit I‑7, page 3, and Exhibit I‑14) show that
the assessments made following his first audit were additional assessments. The
second assessment essentially concerned the rebates obtained, whereas the third
assessment concerned the input tax credits in excess of the rebates obtained.
Neither of the two assessments included the amount of $12,646.51 owed by R.T.M.
for the period from May 1 to July 31, 1998. It is true that the
notices of those assessments do not state that both of them concerned
additional assessments, which they should have stated. In any event, the
assessments are not in dispute because of the failure to state the details of
the calculations, and I find the explanations provided satisfactory on this
point. Thus, neither of the additional assessments included the tax of
$12,646.51 owed by R.T.M. and covered by the first assessment. They reflected
only those additional amounts covered by the assessments that were vacated
following Mr. Lemieux's second audit, when the corporation's accountant
had retaken possession of the books, papers and supporting documentation
showing that it was entitled to all the input tax credits claimed.
[38] My finding is therefore that the amount of $12,646.51
included in the first assessment was never cancelled.
[39] Mr. Magnan also explained the assessments made in
respect of the Appellant. It appears from his testimony and the documents filed
(Exhibit I‑15 and Exhibit I‑7, page 1) that the
fifth assessment did not include the amount of $15,730.15, that is the net tax
of $12,646.51 owed by the corporation for the period ended July 31, 1998,
plus the interest and penalties stated in the fourth assessment (that is, the
first assessment of the Appellant). Mr. Magnan showed that the amount of
$146,833.87 did not correspond to the amount of $133,803.68 owed by R.T.M., as
established by the third assessment, plus the amount of $12,646.51 and the
additional interest for a period of eight days, from September 20 to 28,
2000, the date of the assessment, but rather to the total amount of taxes
collected but not remitted by R.T.M., plus interest and penalties to
September 28, 2000, following the assessments of the corporation after
Mr. Lemieux's first audit. I would recall that, by those two assessments,
all the input tax credits that had been claimed were thus eliminated in two
stages. Furthermore, while this fact had to be taken into account for the
purpose of computing the assessment of $146,833.87, it was also necessary to
consider only the amount of tax collected and not remitted, that is to subtract
the amount of taxes collected but not remitted by R.T.M., which is shown by
Exhibit I‑7, page 1.
[40] In addition, that same page clearly shows that only
$3,217.72 of the total amount of $15,864.23 of tax collected was considered for
the purpose of the calculations for the period ended July 31, 1998; the
difference of $12,646.51, plus interest and penalties, that is, a total of
$15,730.15, was the subject of the fourth assessment.
[41] To accept the claim of counsel for the Appellant, the total
of $15,730.15 would have had to be added to the amount of $133,803.68 owed by
R.T.M. according to the third assessment. The additional interest and penalties
to September 28, 2000, should also have been added. In that case, the
amount of the assessment would not have been $146,833.87, but rather more than
$149,500, which shows that this is not how the amount was computed. I therefore
accept Mr. Magnan's explanation that the fifth assessment did not include
the amount of $12,646.51, plus interest and penalties, that is, the total
amount of $15,730.15 stated in the fourth assessment.
[42] The fifth assessment was vacated by the eighth
assessment. As the fifth assessment did not include the amount stated in the
fourth assessment and that assessment was never vacated, it is therefore still
valid.
[43] The second argument advanced by counsel for the
Appellant is that the Minister did not establish any proof of his claim in the
six months following R.T.M.'s assignment, as required by paragraph 323(2)(c)
of the Act.
[44] Even though Mr. Magnan himself did not send the
proofs of claim to the trustee following R.T.M.'s bankruptcy, his testimony and
the documents filed in evidence, that is Exhibits I‑6, Tab 8, I‑16
and I‑17, have satisfied me on a balance of probabilities that the proofs
of claim were indeed sent to the trustee on August 31, 2000 and
September 21, 2000. I am also satisfied that those proofs of claim
included the amount of $12,646.51 for tax owed for the period from
May 1, 1998 to July 31, 1998, plus interest and penalties.
[45] The third argument submitted by counsel for the
Appellant is that the Appellant was no longer a director of R.T.M. in 1998,
since he had resigned from his position in 1997 and been replaced by Victor
Management. The Appellant explained the resignation by saying that, as a
creditor and director, he was in conflict of interest. First, I must emphasize
that paragraph 105(1)(c) of the Canada Business Corporations Act
does not permit a corporation to be appointed as a director of a corporation
governed by that act, which was the case of R.T.M. Thus, in my view, the
appointment of Victor Management as a director of R.T.M. has no merit in law.
[46] Furthermore, and this is the most important aspect for
the purposes of the instant case, the Appellant stated in his testimony that,
as general manager, he performed all managerial acts, gave instructions, signed
contracts or other documents and assumed control. The Appellant was also the
only person authorized to sign cheques. Thus, in spite of his resignation, it
may readily be concluded that the Appellant remained a de facto director
of R.T.M.
[47] In Canada v. Corsano, [1999]
3 F.C. 173, [1999] F.C.J. No. 401, the Federal Court of Appeal
held that section 227.1 of the Income Tax Act was applicable to
both de facto and de jure directors. On this point,
Létourneau J.A. wrote as follows, at paragraph 5 of that decision:
5. Subsection 227.1(1) of the Act imposes liability on all the
directors of a corporation who have failed to remit to Revenue Canada the sums due. The word
"directors" in the said subsection is unrestricted and unqualified.
It is a basic rule of legislative drafting, based on the corresponding rule of
interpretation which conditions drafting, that the use of a generic word
without restrictions or qualifications conveys the legislator's intention that
the word be given a broad meaning. Here, by using the word
"directors" without qualifications in subsection 227.1(1), Parliament
intended the word to cover all types of directors known to the law in company
law, including, amongst others, de jure and de facto directors.
[48] Section 323 of the Act is similar to
section 227.1 of the Income Tax Act and, in my view, must be
interpreted as applying to both de facto and de jure directors.
[49] As a de facto director, did the Appellant
exercise the degree of care, diligence and skill to prevent the failure that a
reasonably prudent person would have exercised in the same circumstances? His
counsel contends that he did. And yet no evidence was adduced of any action in
that direction. R.T.M. owed net tax of $12,646.51, which it was required to pay
no later than August 31, 1998. The Appellant stated that R.T.M. had
financial difficulties, that it was short of cash and that it was expecting to
receive scientific research and experimental development credits from the
federal government. Those credits were apparently received in the fall of 1998,
and CIBC used the amount received in repayment of its loans. Furthermore, the
Appellant also stated that R.T.M. had ceased operations in June 1998, but
that it was still waiting for a contract to be signed for the sale of eight
ships in the Ivory Coast. However, virtually nothing
specific is known about R.T.M.'s financial position in August 1998 or about
what the Appellant did or tried to do to prevent the failure to remit the tax
collected. He merely said that he had tried to ensure that "everyone
received what was owed to him." Having regard to the lack of evidence as
to the nature of the specific, concrete actions taken by the Appellant to
prevent the failure, it is simply impossible to conclude that he met the
standard of care, diligence and skill set out in subsection 323(3) of the Act.
[50] Accordingly, the appeal is dismissed.
Signed at Ottawa, Canada, this 30th
day of June 2005.
"P.R. Dussault"
Translation certified true
on this 14th day of March,
2006.
Garth
McLeod, Translator
Email this Content