REASONS
FOR JUDGMENT
Woods J.
Background
[1]
The question to be decided is whether the
appellants failed to comply with notices commonly known as “requirements to pay”
issued pursuant to subsection 224(1) of the Income Tax Act and as a
result each are liable to pay $1,800 pursuant to subsection 224(4) of the Act.
[2]
The relevant provisions are reproduced below.
224(1) Where
the Minister has knowledge or suspects that a person is, or will be within one
year, liable to make a payment to another person who is liable to make a
payment under this Act (in this subsection and subsections 224(1.1) and 224(3)
referred to as the “tax debtor”), the Minister may in writing require the
person to pay forthwith, where the moneys are immediately payable, and in any
other case as and when the moneys become payable, the moneys otherwise payable
to the tax debtor in whole or in part to the Receiver General on account of the
tax debtor’s liability under this Act.
[…]
224(4) Every person who fails to comply with a requirement under
subsection 224(1), 224(1.2) or 224(3) is liable to pay to Her Majesty an amount
equal to the amount that the person was required under subsection 224(1),
224(1.2) or 224(3), as the case may be, to pay to the Receiver General.
[3]
The appellants, Gordon Feil, C.G.A., Ltd. and
Leslie Feil, C.G.A., Ltd., and a third person are each members of a joint
venture that carries on an accounting business under the name Feil & Co.
[4]
Gordon Feil and Leslie Feil are brothers and
each is a shareholder of one of the appellants.
[5]
The members of Feil & Co. each received from
the Minister of National Revenue a requirement to garnish payments to be made
by Feil & Co. to Gordon Feil. The requirements were issued because
Gordon Feil was indebted in respect of a tax debt, which as at December 1, 2006
was in the amount of $93,645.
[6]
In 2004, Feil & Co. made payments that the
Minister says contravened the requirements to pay. The payments were made by
three cheques that totalled $4,500. Two of the cheques were payable to “The Living
Love Society” and one cheque was payable to “overseer, living love society.”
[7]
It is the respondent’s position that these payments
were made to Gordon Feil and as such were contrary to the requirements to
pay. Accordingly, separate assessments were issued to the members of Feil &
Co. in accordance with s. 224(4) of the Act. As I understand it, the
appellants are the only members of Feil & Co. to appeal this decision.
[8]
The appellants submit that the payments were not
made to Gordon Feil and in support introduced a copy of a document purporting
to be Articles of Incorporation from the State of Nevada relating to the
incorporation of the following entity:
Gordon Norman Feil, Overseer of Living Love
Society*, and His Successors, A Corporation Sole (*an un-incorporated Spiritual
Society)
[9]
The above will be referred to in these reasons
as the “Corporation Sole.”
Preliminary matter
[10]
At the commencement of the hearing, the
respondent brought a motion to quash one of the appeals because it mentioned
the wrong assessment. Counsel for the appellants did not dispute that the
reference was incorrect.
[11]
Despite the objection of the respondent, I
permitted the pleadings to be amended to correct the problem. I also awarded
costs to the respondent because an amendment to the notice of appeal should
have been sought before the hearing. There is no good reason that the
respondent was forced to bring a motion to have this dealt with.
Discussion
[12]
The only issue that is engaged in these appeals
is whether the three cheques by Feil & Co. constituted payments to Gordon
Feil. At the hearing, I questioned whether it was appropriate for each member
of Feil & Co. to be assessed for the same failure. Counsel for the
appellants did not make submissions on this point and I see no reason to allow
the appeals on this basis.
[13]
Counsel for the respondent makes two arguments
in support of its position that the payments were made by Feil & Co. to Gordon
Feil. First, it is submitted that the payments were made to the Corporation
Sole which was acting as a nominee or agent of Gordon Feil because Mr. Feil
used the funds transferred to this entity for his own benefit. Alternatively,
the respondent submits that the appellants have not established that the
Corporation Sole is an entity that is separate from Gordon Feil.
[14]
During argument, counsel for the appellants suggested
that he had not been given adequate notice of the alternative argument. He said
that the focus of the prior discussions had been on whether the Corporation
Sole was acting as an agent or nominee.
[15]
I would comment that counsel for the appellants
was somewhat prepared concerning the alternative argument because he introduced
a copy of the purported Articles of Incorporation and he introduced excerpts
from legislation, such as the B.C. Business Corporations Act, under
which a corporation sole is specifically excluded from being a “corporation”
for purpose of that statute.
[16]
Although the appellants were somewhat prepared on
this point, I am troubled by the respondent’s reliance on this argument because
it is not raised in the replies. In fact, the replies do not raise any legal argument
at all except for an unhelpful statement that s. 225(4) of the Act
should apply with respect to the payments.
[17]
If this issue were to be engaged in these
appeals, I would conclude that the appellants have failed to establish that the
Corporation Sole is a separate entity. In particular, there was no evidence at
all as to the law of the State of Nevada as to the nature of a corporation
sole.
[18]
The appellants suggested that it was appropriate
to look at Canadian law on this point. Even if this were the correct approach,
I was not pointed to any authority which would lead me to conclude that a
corporation sole generally has characteristics of a separate entity.
[19]
However, in light of the inadequate replies I
would prefer to base my decision on the respondent’s main argument.
[20]
The issue, then, is whether Feil & Co. paid
amounts totalling $4,500 to the Corporation Sole as a nominee or agent of
Gordon Feil.
[21]
The conclusion that I have reached is that the
appellants have not made out a prima facie case on this point.
[22]
The evidence by the appellants regarding this
issue was extremely brief. Essentially, Mr. Feil provided brief,
self-interested testimony to the effect that he formed the Corporation Sole for
charitable activities and that he wanted it to continue on after him. He also
stated that the Corporation Sole was not very active and that it received and
disbursed funds. The disbursements, he said, were to charities, churches and
relatives.
[23]
This self-interested testimony is simply too
brief to be believable and is not sufficient to establish a prima facie
case that the payments were not made to the Corporation Sole as the nominee of
Gordon Feil.
[24]
Further, in cross-examination Mr. Feil
acknowledged that funds from the Corporation Sole were used for the benefit of
his parents, his spouse’s medical expenses, tuition fees, hydro and water on
his home, and personal visa bills.
[25]
In addition, Mr. Feil’s testimony regarding a
charitable donation appears to be untrue. On cross-examination, Mr. Feil denied
that the Corporation Sole made a charitable donation that he deducted on his
own income tax return.
[26]
This testimony appears to be contrary to
evidence given on Mr. Feil’s examination for discovery in a similar matter
involving Gordon Feil, C.G.A., Ltd. (2011-2834(IT)G). The following answers
from the discovery were read in by the respondent:
Q. Okay. Now, did
you claim donations to this charity on your personal tax return?
A. Either on mine
or my wife’s. Some of the children that were supported were supported through
personal accounts, some were supported through the Corporation Sole account.
Q. Okay. But
these charitable donations made to Compassion Canada were not claimed on any
tax returns filed by the Corporation Sole or Living Love probably because they
didn’t file tax returns; right?
A. That’s right.
[27]
The evidence as a whole, and particularly the
lack of evidence by the appellants, suggests that Mr. Feil set up the
Corporation Sole as a conduit for his own personal expenses. I would also note
that Mr. Feil’s corporation was a member of Feil & Co. and that Feil &
Co. would have been aware through this connection that the Corporation Sole was
just a conduit.
[28]
I would conclude that the respondent was correct
to conclude that the cheques written by Feil & Co. were in fact payments to
Mr. Feil that were contrary to the requirements to pay.
[29]
The appeals will be dismissed on this basis.
Signed
at Toronto, Ontario this 8th day of June 2015.
“J.M. Woods”
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