REASONS FOR JUDGMENT
Masse D.J.
[1]
In docket 2012‑4656(GST)I, Shamsuddin Syed
(Shamsuddin) was assessed by notice of assessment dated July 11, 2011, and
bearing the number F‑032866, under subsection 323(1) of the Excise
Tax Act, R.S.C. (1985), c. E‑15 (the ETA) in his capacity as director
of a company, Buffet Samrat Inc. (Samrat). The assessment in the amount of $86,640.07
included the goods and services tax (the GST) and related interest and
penalties, which Samrat is required to pay to the Minister of National Revenue (the
Minister) under subsection 228(2) of the ETA for the period from January 1,
2003, to December 31, 2006. As explained below, the amount of this assessment
is reduced to $66,666.39.
[2]
In docket 2012‑4656(GST)I, Abida Begum
Syed (Abida) was assessed by notice of assessment dated February 27, 2012
and bearing the number F‑036082 under subsection 325(2) of the
ETA, with respect to the amount of $110,000, which was transferred by Samrat at
the end of December 2008 and at the beginning of January 2009. The amount of
the assessment is $57,357.83. The Minister submits that Abida was not dealing
with Samrat at arm’s length and that she received this money without
consideration. Therefore, according to the respondent, Abida and Samrat are jointly
and severally liable to pay the assessment.
[3]
Shamsuddin and Abida appeal their assessments. Both
appeals were heard on common evidence.
Factual background
[4]
Moinuddin Syed (Moinuddin) was born in
Bangladesh in 1967. He is Shamsuddin’s brother. He immigrated to Canada in 1988
where he worked in the restaurant business. In 1995, he sponsored his father, mother,
four brothers and one of his sisters to immigrate from Bangladesh to Canada. The
family lived together in his apartment. In 1996, he married Abida. The financial
situation was very difficult for Moinuddin, because the family depended on him.
In 2003, an acquaintance of Moinuddin proposed that he go into business and
operate a restaurant. Moinuddin could not invest money or become a shareholder,
because he had no savings, but his brother Shamsuddin had some. Therefore, a
corporation, Buffet Samrat Inc., was incorporated and Shamsuddin became a shareholder
with two other investors. Shamsuddin had also become a director of the corporation
without knowing what he was getting involved in. Samrat was a buffet-style
Indian restaurant located on Ste-Catherine Street in Montréal. It was not
disputed that Samrat is a legal person duly incorporated and registered for the
purposes of Part IX of the ETA.
[5]
The restaurant was never successful and always
operated at a deficit. The other investors became discouraged and they were not
willing to continue in the business. Therefore, they sold their shares to Shamsuddin.
Shamsuddin became the sole shareholder and director of Samrat in 2004.
[6]
The two brothers, Shamsuddin and Moinuddin, took
care of the management of the restaurant. Moinuddin had more experience than
Shamsuddin in the restaurant business and Shamsuddin hired Moinuddin to
fulfill, on his behalf, several director functions. While Shamsuddin was Samrat’s
sole shareholder and director, it was really a family business managed by
Moinuddin and Shamsuddin. Shamsuddin admitted that he had no experience in accounting.
Therefore, bookkeeping, pay, financial statements, income tax returns and tax
declarations (GST and the Quebec sales tax (QST)) were prepared by Samrat’s
accountant, Hadi Aliahmad (Hadi). Hadi himself compiled Samrat’s expenses. However,
it is curious to note that Samrat’s sales were compiled by Shamsuddin or
Moinuddin and not by Hadi. Every three months, Shamsuddin or Moinuddin handed
in the total sales and all the other expense invoices to Hadi so that he could
prepare the GST/QST declarations, financial statements and income tax returns.
Hadi prepared these declarations and the cheques to pay the taxes owing, for
signature by Moinuddin or Shamsuddin. Shamsuddin or Moinuddin reviewed the declarations,
signed and sent the cheques and declarations to Revenu Québec.
[7]
The restaurant had financial problems. It always
operated at a deficit. Samrat had to advertise and make promotions to attract
clients. Various promotions were advertised: (a) 2 for 1 buffet, (b) one
free drink on presenting a hotel room key, and (c) a second free alcoholic
drink when you purchase a first drink. Unfortunately, these promotions did not
generate profits. Despite this, Samrat did not stop the promotions. Moinuddin
estimated that approximately 30% of the alcohol purchased was given to clients
for free. The rest of the alcohol was sold at the normal price. Shamsuddin estimated
that 30 to 35% of the alcohol purchased was simply given in promotion to
clients. Unfortunately, these estimates are not supported by any supporting
evidence. The quantity of alcohol that was lost through broken bottles, or
alcohol used in the kitchen or stolen by employees or given in promotion was never
recorded. Samrat did not keep a record of the alcohol lost or given in
promotion. The estimates of 30 to 35% are exactly that: estimates, and very
imprecise ones.
[8]
In 2007, the city of Montréal purchased the building
where Samrat was located. The city intended to demolish this building and so
the city invoked a clause of the lease with Samrat that allowed the termination
of the lease. Following negotiations held between the city of Montréal and
Samrat, it was agreed that the city would terminate Samrat’s lease and that
Samrat would have to leave the premises in December 2008. The city of Montréal
paid Samrat $138,794 (which represents $150,000 less the late rent that Samrat owed
to the city) to terminate the lease. Samrat left the premises and terminated
its operations. Samrat also obtained $20,000 by liquidating its equipment, which
was sold at auction. After December 2008, Samrat no longer operated a
business, no longer had employees and had stopped liquidating its assets.
[9]
What should be done with the amount of money
that Samrat received from the city of Montréal? Hadi was of the opinion that
this money could be withdrawn by Shamsuddin as “Capital Stock” without tax
impact on Samrat’s balance sheet, because Shamsuddin was the sole shareholder and
this amount represented the capital invested in the company by Shamsuddin. Hadi
accounted for the $150,000 received for termination of the lease in the section
“Revenue and cancellation of lease” in Samrat’s 2008 financial statement. Shamsuddin
was paid $10,000 for living expenses and $23,000 to pay a credit card debt. On
December 23, 2008, Samrat wrote a cheque payable to Abida in the amount of
$60,000. This cheque was signed by Shamsuddin. The amount of $50,000 was transferred
from Samrat’s bank account directly to Abida’s bank account on January 3,
2009 (see Exhibit I‑1, Tabs 3 and 4). These transactions were accounted
for by lowering Samrat’s “Capital Stock” account. Abida testified that these sums
were given to her as gifts so that she and Moinuddin could purchase a family
home. She received the money instead of Moinuddin, because he owed money to the
Minister of Employment and Social Security, as he had sponsored his family to
immigrate to Canada and he wanted to avoid paying this debt.
[10]
Shamsuddin claims that he ceased to be a
director of Samrat on November 15, 2008. There is no doubt that Samrat ceased
these commercial activities in December 2008. Its GST and QST accounts have
been inactive since January 1, 2009. However, as I will explain below,
Shamsuddin continued to act as director after Samrat’s operations had ended.
[11]
In 2007, Arnold Richard, an auditor working for
Revenu Québec, decided to analyze some of Samrat’s financial indices. First,
he examined the amount of taxes paid on supplies purchased by Samrat compared
to the taxes collected on sales. In the restaurant business, it is rare that
taxes paid exceed 30% of taxes collected. He noted that the taxes paid compared
to taxes collected were very high—in this case, the percentage was 87% in 2003,
66% in 2004, 71% in 2005 and 69% in 2006. Second, the business was always at a
deficit and, according to him, would never realize a profit. Third, the payroll
was low considering the number of employees; lower than industry standards. Fourth,
the cost of energy exceeded industry standards. All of this indicated that
there were financial irregularities.
[12]
Mr. Richard visited the restaurant in October 2007
and he requested all the accounting records regarding the restaurant’s sales
and purchases for 2003, 2004, 2005 and 2006. He conducted an analysis of these
records by using an alternative method to reconstruct the restaurant’s income.
Mr. Richard fully explained this method, which is a statistical method
developed by Revenu Québec and the Université de Montréal. The method establishes
a ratio of sales to the litres of alcohol sold using software. Alcohol is often
used as a starting point in this method, because it is easy to check with the
SAQ or with breweries the volume of alcohol purchased by a restaurateur. Usually,
restaurateurs keep records of alcohol sales because alcohol sales generate
large profits. There is usually better internal controls in restaurants with
respect to alcohol purchased and sold, compared to the other products sold. Unfortunately,
Samrat did not have good internal controls of alcohol sales or “losses and
promotion” (meaning the loss of alcohol caused by broken bottles, alcohol stolen
or drunk by employees, alcohol used in the kitchen and the amount of alcohol given
in promotion).
[13]
The total number of litres of alcohol purchased
by Samrat is determined. This allows the software to extrapolate the total number
of litres of alcohol sold based on the number of litres purchased for the year.
Then, the number of litres of alcohol purchased by the company is reduced by 5%
as losses. According to Mr. Richard, those losses refer to alcohol that is
not found on clients’ bills. This number is necessarily arbitrary because
Samrat did not keep records of losses and promotions that would help establish
a more precise percentage. The 5% rate is generally the percentage of losses that
may be found in the industry. It is presumed that all litres of alcohol purchased
less the losses and promotions are sold, given that there was very little
change in inventory of alcohol from one year to the next. Afterward, the bills
for sales were reviewed. To estimate the actual sales and compare them to the declared
sales, Mr. Richard carried out a sampling. The software randomly selects dates and
periods of time to review. Indeed, a sampling of the food bills was taken and
all the sales for this period are recorded and computerized. The litres of
alcohol sold are determined and then, a ratio of the sales is established for
the sampling periods, by dividing the total sales by the total number of litres
of alcohol sold. If we multiply the number of litres of alcohol purchased by the
ratios of each year, we obtain an estimate of taxable supplies during the year.
Given the relationship between sales figures, represented by the total sales,
and the volume of alcohol sold, a certain amount of alcohol sales must be
expected. However, the restaurant had declared only amounts lower than the expected
sales figures. In this case, the difference between the sales reported by
Samrat and the reconstructed sales was $186,299 for 2003 (a difference of 97.35%
compared with reported sales), a difference of $257,479 for 2004 (a difference
of 104.50%), a difference of $134,056 (a difference of 61.29%) for 2005, and a
difference of $135,280 (a difference of 63.09%) for 2006. The total difference
between the reconstructed income and the income reported by Samrat for the taxation
period totals $713,114.
[14]
The GST assessment of the company is based on
the unreported taxable income calculated by this alternative method. The estimated
taxable supplies less the taxable supplies reported by the company gives us the
amount of unreported taxable supplies. The following table gives the results of
the audit by assuming a percentage of losses and promotions of 5% (see Exhibit I‑5,
Tab 15, page 1):
Assuming a rate of 5% for losses
and promotions
|
GST
|
Unreported
Income
|
Taxes
on Unreported Income
|
|
2003
|
$186,299
|
$13,040.93
|
|
2004
|
$257,479
|
$18,023.53
|
|
2005
|
$134,056
|
$9,383.92
|
|
2006
|
$135,280
|
$8,793.20
|
[15]
In this case, the percentage of losses and
promotions was increased to 10% following submissions made by the appellants
relative to the Samrat file. If we assume a percentage of losses and promotions
of 10%, the results are indicated in the following table (see Exhibit I‑5,
Tab 21):
Assuming a rate of 10% for losses
and promotions
|
GST
|
Unreported
Income
|
Taxes
on Unreported Income
|
|
2003
|
$166,422
|
$11,649.59
|
|
2004
|
$230,960
|
$16,167.21
|
|
2005
|
$115,488
|
$8,084.17
|
|
2006
|
$116,875
|
$7,596.88
|
[16]
Of course, the results are estimates of unreported
income, because this is an alternative indirect method. Mr. Richard admitted
that he never asked questions of Shamsuddin and Moinuddin as part of the audit about
the promotions, absence of profits, high rate of taxable expenditures on total
income, payroll or energy costs. Therefore, he did not factor in the losses and
promotions of 30% to 35% estimated by Moinuddin and Shamsuddin because he was
never made aware of these estimated percentages. Mr. Richard stated that
the clients’ bills that he reviewed were written by hand, were not numbered and
they did not indicate whether alcohol was given to clients in promotion. If alcohol
was given in promotion, one would expect to see “Promo, 1 beer $00” or
something similar on clients’ bills.
[17]
On January 6, 2010, the Minister assessed Samrat
for GST (see Exhibit A‑15). On November 29, 2010, the
respondent obtained a Federal Court judgment against Samrat pursuant to
section 316 of the ETA with respect to amounts it owed of $84,068.11 including
penalties and interest. On March 2, 2011, the Federal Court issued a writ
of seizure and sale against Samrat. On March 22, 2011, the writ of seizure
and sale for that amount had been returned unsatisfied in whole. On
July 11, 2011, notice of assessment number F‑032866 was issued for
Shamsuddin, in his capacity as director of Samrat under paragraph 323(1) of
the ETA for a total of $86,640.07.
[18]
Eventually, Samrat and the Minister entered into
a settlement and Justice Jorré of the Tax Court of Canada issued a consent
judgment dated April 26, 2013 (see Exhibit I‑7). By this
consent, the assessment was reduced to a total of $43,497.78. The Minister made
some concessions; a percentage of 10% instead of 5% for losses and promotions and
the penalty was cut to 50%. A new notice of assessment was issued for Samrat
dated May 30, 2013 (see Exhibit I‑5, Tab 5).
Appellants’ position
[19]
Shamsuddin challenges his assessment by relying
on three grounds:
(a)
Samrat had no GST debt. The company did not fail
to withhold, report or remit the net tax. Samrat’s assessment is based entirely
on theories rather on its records, which were complete and accurate;
(b)
More than two years elapsed since he ceased
directing the company, which ceased its operations in 2008, and thus the
assessment was statute barred. He raises as a defence the provisions of subsection 323(5)
of the ETA;
(c)
The appellant was diligent in his management of
the company. All the records and returns were completed by an accountant and
the company paid the taxes thus calculated and owed and no income was hidden, nor
was any expenditure inflated.
[20]
Abida challenged her assessment by relying on
the following grounds:
(a)
Samrat had no GST debt on the dates of the payments
that she received;
(b)
She also challenged the validity of Samrat’s underlying
assessments;
(c)
No transfer took place within the meaning of
subsection 325(2) of the ETA.
[21]
The appellants request that the assessments be vacated.
Otherwise, the appellants request that the matter be referred back to the Minister
for redetermination and reassessment on the basis of a percentage of 30% as losses
and promotions.
Respondent’s
position
[22]
The respondent argues that Samrat’s underlying assessment
is valid and that the appellants have not demonstrated that this assessment is
without basis in law or in fact.
[23]
The respondent claims that the appellant
Shamsuddin always acted as director of Samrat during the periods when it was
required to pay the net tax to the respondent. At all relevant times,
Shamsuddin never resigned, nor was replaced or removed as director of Samrat.
Shamsuddin was Samrat’s sole director for the period from 2003 up to the
beginning of 2012. Shamsuddin knew, or should have known that Samrat failed to
remit the positive amount of its net tax as required by the ETA. Shamsuddin did
not act with the care, diligence and skill required, nor did he take all steps
to prevent Samrat’s failure to meet its obligations with respect to the ETA. Therefore,
Shamsuddin is jointly and severally liable with Samrat to pay the assessment amount
and the related interest and penalties under subsection 323(1) of the ETA.
[24]
The respondent claims that the appellant Abida
received from Samrat a transfer of property without consideration and, thus,
she is jointly and severally liable with Samrat to pay Samrat’s tax debts up to
the amount assessed under subsection 325(1) of the ETA.
Statutory provisions
[25]
Subsection 286(1) of the ETA sets out an
agent’s obligation to keep books and records:
286. (1) Every
person who carries on a business or is engaged in a commercial activity in
Canada, every person who is required under this Part to file a return and every
person who makes an application for a rebate or refund shall keep records in
English or in French in Canada, or at such other place and on such terms and
conditions as the Minister may specify in writing, in such form and containing
such information as will enable the determination of the person’s liabilities
and obligations under this Part or the amount of any rebate or refund to which
the person is entitled.
[26]
Subsection 288(1) of the ETA confers on duly
authorized persons, the power to audit an agent’s books and records to establish
his or her tax liability:
288. (1) An
authorized person may, at all reasonable times, for any purpose related to the
administration or enforcement of this Part, inspect, audit or examine the
documents, property or processes of a person that may be relevant in
determining the obligations of that or any other person under this Part or the
amount of any rebate or refund to which that or any other person is entitled …
[27]
Under subsection 296(1) of the ETA, the
Minister may make an assessment to determine an agent’s net tax for a reporting
period and the penalties and interest payable by the agent. Under subsection 299(3)
of the ETA, an assessment is deemed to be valid and binding.
[28]
Subsection 323(1) of the ETA defines and delimits
the liability of a director of a company:
323. (1) If a corporation fails to remit an amount of net tax as
required under subsection 228(2) or (2.3) or to pay an amount as required under
section 230.1 that was paid to, or was applied to the liability of, the
corporation as a net tax refund, the directors of the corporation at the time
the corporation was required to remit or pay, as the case may be, the amount
are jointly and severally, or solidarily, liable, together with the
corporation, to pay the amount and any interest on, or penalties relating to,
the amount.
(2) A director of a
corporation is not liable under subsection (1) unless
(a) a certificate for the amount of the corporation’s liability
referred to in that subsection has been registered in the Federal Court under
section 316 and execution for that amount has been returned unsatisfied in
whole or in part;
(b) the corporation has commenced liquidation or dissolution
proceedings or has been dissolved and a claim for the amount of the
corporation’s liability referred to in subsection (1) has been proved within
six months after the earlier of the date of commencement of the proceedings and
the date of dissolution; or
(c) the corporation has made an assignment or a bankruptcy order has
been made against it under the Bankruptcy and Insolvency Act and a claim
for the amount of the corporation’s liability referred to in subsection (1) has
been proved within six months after the date of the assignment or bankruptcy
order.
(3) A director of a
corporation is not liable for a failure under subsection (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.
(4) The Minister may
assess any person for any amount payable by the person under this section and,
where the Minister sends a notice of assessment, sections 296 to 311 apply,
with such modifications as the circumstances require.
(5) An assessment under subsection (4) of any amount payable by a
person who is a director of a corporation shall not be made more than two years
after the person last ceased to be a director of the corporation.
[29]
A person with a non-arm’s length relationship
with an agent who is registered under Part IX of the ETA can be found
liable for the agent’s GST debt if the agent transfers property to him or her without
consideration. Section 325 of the ETA provides as follows:
325. (1) Where at any time a person transfers property, either
directly or indirectly, by means of a trust or by any other means, to;
(a) the transferor’s spouse or common-law partner or an individual
who has since become the transferor’s spouse or common-law partner,
(b) an individual who was under eighteen years of age, or
(c) another person with whom the transferor was not dealing at arm’s
length,
the transferee and
transferor are jointly and severally liable to pay under this Part an amount
equal to the lesser of
(d) the amount determined by the formula
A – B
where
A
is the amount, if any,
by which the fair market value of the property at that time exceeds the fair
market value at that time of the consideration given by the transferee for the
transfer of the property, and,
B
is the amount, if any,
by which the amount assessed the transferee under subsection 160(2) of the
Income Tax Act in respect of the property exceeds the amount paid by the
transferor in respect of the amount so assessed, and
(e) the total of all amounts each of which is
(i) an amount that the
transferor is liable to pay or remit under this Part for the reporting period
of the transferor that includes that time or any preceding reporting period of
the transferor, or,
(ii) interest or
penalty for which the transferor is liable as of that time,
but nothing in this
subsection limits the liability of the transferor under any provision of this
Part.
…
(2) The Minister may at any time assess a transferee in respect of
any amount payable by reason of this section, and the provisions of sections
296 to 311 apply, with such modifications as the circumstances require.
Analysis
Burden of proof
[30]
In Amiante Spec Inc v. Canada, [2009] F.C.J.
No. 603 (QL), 2009 FCA 139, [2009] G.S.T.C. 71, the Federal
Court of Appeal described the burden of proof applicable when a taxpayer wishes
to challenge the validity of an assessment:
[15] Hickman reminded us that the Minister proceeds on
assumptions in order to make assessments and that the taxpayer has the initial
burden of demolishing the exact assumptions stated by the Minister. This
initial onus is met where the taxpayer makes out at least a prima facie
case that demolishes the accuracy of the assumptions made in the assessment.
Lastly, when the taxpayer has met his or her onus, the onus shifts to the
Minister to rebut the prima facie case made out by the taxpayer and
prove the assumptions (Hickman, supra, at paragraphs 92, 93 and
94)
…
[23] A prima facie case is one “supported by evidence
which raises such a degree of probability in its favour that it must be
accepted if believed by the Court unless it is rebutted or the contrary is
proved. It may be contrasted with conclusive evidence which excludes the
possibility of the truth of any other conclusion than the one established by
that evidence” (Stewart v. Canada, [2000] T.C.J. No. 53, paragraph 23).
[24] Although
it is not conclusive evidence, “the burden of proof put on the taxpayer is not
to be lightly, capriciously or casually shifted”, considering that “[i]t is the
taxpayer’s business” (Orly Automobiles Inc v. Canada, 2005 FCA 425,
paragraph 20). This Court stated that the taxpayer “knows how and why it is run
in a particular fashion rather than in some other ways. He [or she] knows and
possesses information that the Minister does not. He [or she] has information
within his [or her] reach and under his [or her] control”.
[31]
Thus, it is up to the appellants to establish on
a balance of probabilities that the assessments are unfounded.
The file of Buffet Samrat Inc.
restaurant
[32]
The appellants argue that Samrat had no GST debt
and Samrat did not fail to withhold, report or remit the GST that it owed
during the period at issue. The appellants claim that Samrat’s assessment is
based entirely on theories rather than on its records, which were complete and
accurate. In other words, according to the appellants, the alternative method described
by Mr. Richard could not be used in this case because Samrat had adequate accounting
records. Mr. Richard should have relied only on Samrat’s records in conducting
his audit and not on an alternative method. The two appellants owe nothing to
the Minister, since Samrat owed nothing to the Minister.
[33]
My colleague Justice Favreau, in his decision 9100-8649
Québec Inc v. Canada, [2013] T.C.J. No. 124 (QL), 2013 TCC
160, [2013] ACWS (3d) 274, (affirmed by the Federal Court of Appeal, [2014]
F.C.J. No. 131 (QL), 2014 FCA 20, [2014] GSTC 20), stressed the need to
use alternative methods in cases where the taxpayer does not have reliable records:
[39] Courts allow tax authorities to use alternative audit
methods not only in cases where the taxpayer does not have adequate accounting
records, but also when the books, registers and financial statements are not
reliable.
[40] In this
case, the appellant had no documents in support of the inventory counts. In the
circumstances, it is not open to the appellant to argue that its books,
registers and financial statements are complete, adequate and reliable.
[34]
To the same effect, my colleague Justice Bédard noted
in Restaurant Place Romaine Inc v. Canada, [2010] T.C.J. No. 262 (QL),
2010 TCC 347, [2010] GTC 74:
[16] In
regard to the appellant's claim that it was unwarranted for the Minister to use
an indirect audit method since the books and records were adequate and well
kept, my comments will be brief. The appellant must understand that the
Minister may be justified in using an indirect audit method for a taxpayer's
affairs even if the books and records appear to be adequate and well kept on
the surface. In fact, these books, records and financial statements must be
reliable. … How can the appellant claim that its books, records and financial
statements are reliable when it has no documentation in support of its
inventory taking? … How can the appellant claim that these books, records and
financial statements are reliable when, for each of the periods in relevant
period, there is a significant gap between the purchases and the sales of beer
and wine considering how little variation there was in its inventory from one
year end to another?...
[35]
All circumstances must be considered in determining
whether the Minister was justified in using an alternative audit method. In
this case, Samrat did not produce any document in support of inventory taking. The
auditor, Mr. Richard, noted that the ratio of input tax credits claimed to
the GST collected by Samrat is very high, between two to three times higher
than normal in the industry. From the beginning, Samrat had financial difficulties
and was always operating at a deficit. Each year, the payroll reported by the
company was very low for the eight to ten employees that the company employed. The
cost of power was very high compared to the industry standard. Although Hadi did
the company’s accounting himself, he relied only on the sheets prepared by
Shamsuddin and Moinuddin, which indicated the amount of income without considering
any of the supporting documents. Hadi never reviewed the sales invoices during
the preparation of the financial statements. In the circumstances, even if the
books, records and financial statements are adequate and well kept, these books,
records and financial statements must also be reliable and reflect the financial
reality of the business. The appellants cannot claim that the books, records and
financial statements of Samrat were complete, adequate and reliable when Samrat
kept no records of the loss of alcohol or the quantity of alcohol given in
promotion, with a very high value of supposedly 30% to 35% of the value of
alcohol purchased. The sale of alcohol can generate great profits. The insufficiency
of internal control of alcohol in this case calls into question the reliability
of Samrat’s books and records. In my view, given all the circumstances, the
Minister was justified in using an indirect auditing method with respect to
Samrat.
[36]
The appellants challenge the reliability of this
alternative method. They suggest that the Minister should have called an expert
witness at the hearing so as to show that the premises on which the audit method
is based are reliable. As Mr. Rossignol indicated, the alternative audit
method used by the Minister in this case has been recognized by the courts for
some years, without expert testimony. Mr. Rossignol referred in Court to several
decisions where the indirect audit method used in this case was confirmed by
the Tax Court of Canada: see 9100‑8649 Québec inc., supra, (confirmed
by the Federal Court of Appeal, [2014] F.C.J. No. 131 (QL), 2014 FCA 20), Restaurant
Place Romaine inc., supra, and 9110‑1568 Québec Inc v. Canada,
[2014] T.C.J. No. 436 (QL), 2009 TCC 554 (CanLII).
[37]
In this case, I must point out that the
appellants themselves did not call witnesses to refute Mr. Richard’s
testimony or the methodology that he used. The appellants did not propose
another more reliable method and did not provide more clearly accurate data than
the results produced by the alternative method.
[38]
In Ruest v. Canada, [1998] T.C.J. No. 798
(QL), [1998] GSTC 112, 1998 CanLII 649, Judge Tardif found that the taxpayer
did not discharge her burden of showing that the assessment was ill-founded as instead
of bringing forward arguments to support her position, she chose to focus on discrediting
the respondent’s work . It is up to the appellants to prove that the method
used was not valid. Judge Tardif established the following:
[25] In such matters, the burden of proof is on the person
challenging the validity of the assessment, which generally results from an
audit followed by discussions and negotiations.
[26] In other words, if the appellant does not prove that the
assessment, which is presumed valid, is incorrect, the Court must simply
confirm it. The appellant must prove this on a balance of evidence; thus, proof
beyond a reasonable doubt is not necessary. However, it is essential that the
balance of probabilities support the arguments underlying the appeal.
[27] Such proof generally requires the involvement of witnesses
whose testimony is supplemented and confirmed by adequate documentary evidence.
It may sometimes be helpful to call one or more experts. The evidence must be
coherent, clear and above all credible and plausible.
[28] In the instant case, the appellant's evidence was totally
deficient and without foundation; she chose to focus her energies on
discrediting the respondent's work. She forgot that she was legally obliged to
have, at all times, records supplemented by the appropriate documentation
allowing the quality of her administration as a fiduciary of the government to
be established and defined.
…
[30] It may seem excessive for such a burden to be imposed on
some taxpayers, but it can be explained and justified by the fact that our
society puts its trust in its citizens, who must self-assess. Persons with such
a responsibility have to understand that they are important players who are directly
involved in good government management. In this regard, they are obliged to
have, at all times, accounting that is clear, precise, detailed and complete so
as to make it possible to verify whether their obligations have been properly
fulfilled.
[31] Here,
the appellant completely failed to fulfil her obligations and must therefore
take the consequences of her gross negligence.
[39]
I arrive at the same conclusion as Judge Tardif.
In this case, the appellants simply disqualified Mr. Richard’s work
without proving that the alternative method used by him was not valid.
[40]
The appellants dispute the percentage awarded by
the Minister as losses and promotions. It must be pointed out that it is up to
the appellants to submit persuasive evidence in support of their claim that the
percentage awarded by the Minister is erroneous. The only contrary evidence provided
by the appellants with respect to the percentage of losses of alcohol is an
approximation by Moinuddin and Shamsuddin that 30 to 35% of alcohol purchased was
lost by theft, waste, drunk by employees, broken bottles, used in the kitchen
or in promotions. As I already stated, the appellants provided no adequate documentary
evidence in support of this approximation. Samrat had the obligation at all
times to have clear, precise, detailed and complete accounting, allowing to
check whether its obligations were assumed correctly. It is inconceivable that
a restaurant would not keep adequate records to help determine the cost of losses
and promotions—a very large expense in this case. The approximation of 30 to 35%
is very imprecise and unreliable. The evidence submitted by the appellants in
this case does not create the degree of probability required to constitute prima
facie evidence. I am of the view that the allocation of 10% for losses and
promotions allowed by the Minister is very reasonable in the circumstances.
[41]
In considering all of the evidence, I find that the
Minister was justified in using an indirect method to reconstruct Samrat’s
income. This method is valid and has been accepted by several of my colleagues.
I am also of the view that the appellants have not discharged their burden of
proof to establish that Samrat’s assessment is not valid. According to subsection 286(1)
of the ETA, Samrat had the obligation of having, at all times, records completed
by adequate documentation establishing its obligations and responsibilities
under the ETA. In the absence of evidence from the appellants that Samrat’s
assessment, which was presumed to be well-founded, is unfounded, the court must
simply confirm the said assessment. The appellants produced no documentary
evidence. The appellants’ evidence in this respect is deficient and unfounded.
[42]
I am of the view that the assessment established
regarding Samrat is valid and I confirm the said assessment.
Abida Begum
Syed’s file
No transfer within the meaning of subsection 325(1) ETA
[43]
Abida argued that subsection 325(1) of the
ETA does not apply to the circumstances in which she obtained the money. She
claims that it was Shamsuddin who gave the money to Abida, not Samrat. The
money belonged to Shamsuddin, not Samrat. The section “Capital Stock” on the
company’s balance sheet is part of the “Shareholders’ equity” section. Abida claimed
that the shareholders’ equity belonged to the shareholders and not to the
company. In this case, it concerns redemptions of preferred shares by Samrat. Abida
stated that the company reimbursed the funds invested initially by Shamsuddin, without
gain or added value. Shamsuddin was a creditor of these amounts retrieved from
Samrat. It was open to him to assign them to Abida. She argued that the fact that
Shamsuddin had authorized Samrat’s direct payment to her changes nothing in
this legal reality. Abida relied on article 1557 of the Civil Code of
Quebec, CQLR c. C‑1991 (the CCQ), which provides the possibility
of designating a third party to receive the payment due to him as creditor. This
article provides:
[1557] Payment shall be
made to the creditor or to a person authorized to receive it for him.
Payment made to a third person is valid if
the creditor ratifies it; if it is not ratified, the payment is valid only to
the extent of the benefit that the creditor derives from it.
[44]
In support of this argument, Abida refers to the
decision of my colleague, Justice O’Connor, in Finch v. Canada, [2003]
T.C.J. No. 389 (QL), 2003 TCC 472.
[45]
With respect, I must reject this argument.
[46]
The purpose and spirit of section 325 of the
ETA are to prevent a taxpayer from transferring property to a person with whom
he or she has a non‑arm’s length relationship in order to thwart Minister’s
efforts to collect the money which is owed to him; see Canada v. Livingston,
[2008] F.C.J. No. 360 (QL), 2008 FCA 89, paragraph 18, with respect to section 160
of the Income Tax Act, R.S.C. 1985, c. 1 (5th suppl.) (the ITA).
Section 160 of the ITA is the equivalent of section 325 of the ETA.
[47]
It cannot be disputed that there is a non-arm’s
length relationship between Abida and Samrat given the non-arm’s length
relationship between Abida and Shamsuddin—the sole shareholder and director of
Samrat. Section 160 of the ITA (and therefore section 325 of the ETA,
whose wording is very similar) applies so long as there is a transfer of
property by a company controlled by a person with whom the taxpayer has a
non-arm’s length relationship: see Christensen v. Canada, [1998] T.C.J. No.
361 (QL), 98 DTC 1893.
[48]
Subsection 325(1) of the ETA applies to a
person who transfers property, either directly or indirectly, to a person with
whom he or she has a non-arm’s length relationship. The evidence shows that
Samrat transferred the amounts of money in question directly to Abida through a
cheque dated December 23, 2008, in the amount of $60,000 drawn from Samrat’s
bank account and, through a direct transfer from Samrat’s bank account to Abida’s
bank account in the amount of $50,000 on January 3, 2009. These two
transactions constitute direct transfers from Samrat to Abida. These two amounts
of money come from the city of Montréal, which paid the amount of $150,000 to
Samrat at the termination of the lease that Samrat had with Montréal. A lease
is an asset. The lease in question was certainly an asset belonging to Samrat and
not to Shamsuddin. Therefore, the amount that Samrat received for the termination
of the lease is also Samrat’s asset and not Shamsuddin’s.
[49]
I accept the respondent’s argument that as a
shareholder of Samrat, Shamsuddin contributed to Samrat by combining
contributions. These contributions constitute Samrat’s patrimony. The patrimony
of the company is separate from that of the appellant Shamsuddin. The sums
included in the item “Capital Stock”, as well as the retained earnings of the
company belong to the company and not to Shamsuddin. Shamsuddin was a
shareholder of the company and not a creditor. Therefore, article 1557 of
the CCQ does not apply in this case.
[50]
I am of the view that the transfers totalling
$110,000 that were made by Samrat directly to Abida were made without
consideration. I am also of the view that at the time when the transfers were made,
Samrat owed the minister a GST debt. Under section 325 of the ETA, the
appellant is jointly and severally liable for the payment of the amounts that
Samrat is liable for under the ETA up to $53,956.53.
Shamsuddin Syed’s file
The assessment is statute barred
[51]
The issue of the date on which a person ceases
to be a director is often raised in the context of subsection 323(5) of the
ETA. This provision provides that the an assessment for an amount payable by a
person who is a director shall not be made more than two years after the person
last ceased to be a director. Therefore, the date on which a person last ceased
to be a director of a company is very important and is sometimes difficult to
determine. Everything depends on the facts in the case.
[52]
In this case, Shamsuddin was assessed on
July 11, 2011, by notice F‑032866 under subsection 323(1) of
the ETA. Therefore, the issue to determine is whether Shamsuddin last ceased to
be the director of the company before July 11, 2009, two years before. If
so, the assessment is statute barred by the application of subsection 323(5)
of the ETA and Shamsuddin is in no way obliged to pay the respondent the amount
of the assessment. If not, he is jointly and severally liable with Samrat to
pay the amount and the related interest and penalties.
[53]
The Shamsuddin argued that his term as director was
terminated at the end of 2008, as he stated in the questionnaire at tab 11
of Exhibit I‑3. Samrat was no longer a registrant to collect GST in June 2009,
more than two years before the assessment under appeal was issued (see Exhibit A‑18).
Shamsuddin stated that Samrat was no longer operating after 2008 and only
Moinuddin acted for the company for the sole purpose of challenging tax assessments.
However, the respondent argued that Shamsuddin never ceased to be the director;
he was the director at all times, in law and/or in fact.
Director in law
[54]
According to the Companies Act,
Part IA, CQLR, c. C‑38 (the CA), section 123.76, “Notwithstanding
the expiry of his term, a director remains in office until he is re-elected,
replaced, or removed”. In this case, it is admitted by the appellant that no notification
of resignation as director was given by him, whether verbally or in writing. According
to Shamsuddin, the fact that Samrat ceased its operations ended his term as director
and he has done nothing as director since the restaurant ceased commercial
activities.
[55]
According to the respondent, the mere fact of the
expropriation of the premises rented by the company and the company’s cessation
of operations does not automatically imply that the company ceases to exist and
that its director is no longer in his position. As my colleague Justice Bédard observed
in Dufour v. Canada, [2005] T.C.J. No. 15 (QL), 2005 TCC 9, [2005]
GSTC 5, at paragraph 4:
[4] In my
view, a person does not cease to be director of a company from the moment when
that company ceases all commercial activities. I believe that it is necessary
to refer to the provisions of the Companies Act to determine the moment
when a person ceases to be a director. In that regard, section 123.76 of that
Act sets out that, notwithstanding the expiry of his term, a director remains
in office until he is re-elected, replaced, or removed. A director must resign
from office by giving notice to that effect. …
[56]
Even after Samrat ceased its activities, Shamsuddin
was authorized to sign cheques, income tax returns and all documents leading a
third party to believe that he was still Samrat’s director. The company’s Information
Statement published at the Registraire des entreprises (see Exhibit I‑3,
Tab 1, page 3), dated July 30, 2012, indicated that Shamsuddin was
still the sole director and president of Samrat at that date. Given the lack of
proof of resignation, replacement or removal, I am not persuaded that Shamsuddin
ceased to be Samrat’s director. His claim is not convincing enough to contradict
the registrar’s registration. Shamsuddin has the burden of proving his
resignation and the date of this resignation given the presumption of the
assessment’s validity. Therefore, the appellant never ceased to be Samrat’s
legal director.
De facto director
[57]
The respondent also argued that the appellant Shamsuddin
continued to act as de facto director. The concept of director was aptly
explained by Justice Tardif in Milani v. Canada, 2011 TCC 488:
[58] Even if a person has tendered a statutory resignation in
proper form, the fact that the person continues to act as a director prevents
him from availing himself of subsection 323(5) because he can be considered a de
facto director in such a case. In this regard, it is helpful to cite
Justice Proulx in Hattem [Hattem v. Canada, 2008 TCC 32], where
he quotes from Paul Martel:
33 A person who
holds himself out to third parties as a director becomes by virtue thereof a de
facto director. I quote author Paul Martel in Précis
de droit sur les compagnies au Québec, 1st ed. (Montréal:
Wilson & Lafleur, Martel Ltée, 2000), at pages 465 and 489:
[Translation]…
As the name suggests, a de
facto director will be considered a director where, in effect, he
usurps the position by engaging in acts that are normally reserved for
directors, such as participating in meetings of the board of directors, signing
resolutions of the board, making or taking part in management or disposition decisions,
giving instructions on behalf of the company, holding himself out to third
parties as a director, etc.
…
A director who resigns,
but in fact continues to act, and hold himself out to third parties, as a
director of the company, risks being considered a de facto director
despite that resignation, and, as such, remaining subject to the
responsibilities that the law imposes on directors.
It should be emphasized,
moreover, that resigning directors would do well to ensure that the notice of
change of directors form indicating their resignation is duly filed in Quebec
City or Ottawa because of the statutory presumption that persons designated as
directors in the notice most recently filed with the Inspector General or
Director actually hold that position: (QCA, s. 123.31(2) and (3); CBCA, s.
253(2); ALP, s. 62(6). This presumption is, however, rebuttable, and can only
be relied upon by third parties who are in good faith.
…
34 The evidence
shows that the appellant continued to hold herself out as a director to the
Minister's employees until June 2, 2005. Neither she nor her husband notified
the Minister of her purported resignation. Even if this resignation had
occurred on the date alleged, the appellant would nonetheless have remained a de
facto director. The resignation could not have been set up against the
Minister, who was unaware of it until the notice of objection. However, on the
basis of the evidence in the instant case, it is my opinion that the
resignation did not take place on March 22, 2002.
[59] According to the case law, a person cannot have ceased
being a director if he acted as a de facto director during the period in
question. [Sandhu v. R., 2009 TCC 175 at para. 47]. This rule is so
fundamental that it can negate all the effects and benefits of a proper
resignation.
[60] This is
obviously a clear provision that is very easy to understand. The resignation
must be genuine, and the evidence of its genuineness must be decisive, reliable
and credible.
[58]
In this case, Shamsuddin never resigned and had
never stopped managing the internal business of the company. The evidence shows
that since the end of 2008, he continued to carry out a number of measures to
manage Samrat’s business. The respondent identified them as follows:
(a)
on December 23, 2008, he signed a cheque in
the amount of $60,000 issued by Samrat to his sister-in-law, Abida (see Exhibit I‑3,
Tab 4);
(b)
on January 3, 2009, he signed a transfer
voucher for $50,000 from Samrat to Abida (see Exhibit I‑3, Tab 5);
(c)
on September 8, 2009, he signed the Quebec
income tax return for Samrat in which he declared that he was the director and
president of this company for the fiscal year ending on December 31, 2008,
accompanied by the company’s financial statements also signed by Shamsuddin as “Director”
(see Exhibit I‑3, Tab 3, form CO‑17 of 2008);
(d)
on September 22, 2009, the “Déclaration de
renseignements pour le registre des entreprises 2008” form for the year 2008 for
the company was filed at the enterprise register without amendment (see Exhibit I‑3,
Tab 2);
(e)
on November 2, 2009, the appellant personally
closed Samrat’s bank account (see Exhibit I‑3, Tab 12);
(f)
on February 15, 2010, he signed as president
of Samrat, the “Power of Attorney, Authorization to Communicate Information, or
Revocation” form to mandate a lawyer to represent it in the company’s objection
(see Exhibit I‑5, Tab 2, second last page);
(g)
on September 20, 2010, he signed the
company’s Quebec income tax return in which he declared that he was the director
and president of Samrat for the fiscal year ending on December 31, 2009,
accompanied by the company’s financial statements also signed by Shamsuddin as “Director”
(see Exhibit I‑3, Tab 3, form CO‑17 of 2009);
(h)
on November 22, 2010, he signed the “Information
Statement” form for the company in which he declared that he was director and president
of the company for 2009 at the Registraire des entreprises (see Exhibit I‑3,
Tab 2);
(i)
on January 14, 2011, he filed the “Information
Statement” form for 2009 for the company with the Registraire des entreprises (see
Exhibit I‑3, Tab 2);
(j)
on December 12, 2011, he signed the company’s Quebec
income tax return in which he declared that he was the director and president of
the company for the fiscal year ending on December 31, 2010, accompanied
by the company’s financial statements, also signed by Shamsuddin as “Director”
(see Exhibit I‑3, Tab 3, form CO‑17 of 2010);
(k)
on January 5, 2012, the “Déclaration de mise à
jour annuelle” form for the year 2010 was filed with the Registraire des
entreprises for the company.
[59]
Therefore, we see that Shamsuddin continued to
present himself as a director or officer of Samrat until January 5, 2012. In
Snively v. Canada, [2011] T.C.J. No. 181 (QL), 2011 TCC 196, [2011]
G.S.T.C. 78, Justice Paris of the Tax Court of Canada, referring to the decision
in Bremner v. Canada, 2007 TCC 509, [2007] G.S.T.C. 113, affirmed by the
Federal Court of Appeal [2009] T.C.J. No. 569 (QL), 2009 FCA 146, 393 N.R.
61, indicated at paragraphs 35 and 36, that it is not necessary for the director’s
activities to be extensive to show continued management of the corporation:
[35] The Court of Appeal also specifically endorsed the finding
that the activities of the deemed director need not be extensive to show
continued management of the corporation:
6. The Tax Court Judge
found that in corresponding with the CCRA, the appellant demonstrated that he
was still managing the actions of the Corporation, however minimal those
actions may have been.
7. In our view, this
finding is unassailable and is sufficient to dispose of the appeal, since it
establishes that the two year limitation period for the assessment would not
expire before April of 2003, a date subsequent to October 1, 2002, the date of
the assessment.
[36] In the case at bar, there is evidence to show that after
October 10, 2003, the Appellant took a number of steps that I would
characterize as management of JDR's affairs:
–
he caused a Notice of Objection to be filed by
JDR to the GST assessments that were made in February 2004 and instructed
counsel on behalf of JDR in relation to the objection;
–
he instructed JDR's accountants to prepare
financial statements and tax returns for JDR;
–
he signed those tax returns; and
–
he signed the business consent form authorizing
the CRA to disclose information about JDR to Inch Hammond;.
[60]
Clearly, Shamsuddin never ceased to be the de
facto director of the company since he engaged in actions and continued to
act as the president and director of the company until January 5, 2012.
[61]
I find that Shamsuddin never ceased to be the director
of the company either in law or in fact. He performed, and/or made his brother responsible
for performing on his behalf, multiple acts as director at least until January 5,
2012. Therefore, according to subsection 323(5) of the ETA, since his
assessment was made on July 11, 2011, I must conclude that Shamsuddin continued
to act as de facto director within two years prior to the assessment. I
am of the view that the assessment was not statute barred and Shamsuddin cannot
avail himself of the provisions of subsection 323(5) of the ETA.
The care, diligence and skill defence
[62]
According to subsection 323(3) of the ETA, a
director is not liable if he exercised the degree of care, diligence and skill to
prevent the failure to pay the taxes that a reasonably prudent person would
have exercised in comparable circumstances.
[63]
In Attia v. Canada, 2014 TCC 46, my colleague
Justice Bédard described the legal framework applicable to the defence set out
in subsection 323(3) of the ETA:
[10] The legal framework applicable to the care, diligence and
skill defence set out in subsection 323(3) of the ETA was recently briefly
explained as follows by the Federal Court of Appeal in Canada v. Buckingham
and Balthazard v. Canada:
a. The
standard of care, skill and diligence required under subsection 323(3) of the Excise
Tax Act is an objective standard as set out by the Supreme Court of Canada
in Peoples Department Stores Inc. (Trustee of) v. Wise, 2004 SCC 68,
[2004] 3 S.C.R. 461. This objective standard has set aside the common law
principle that a director's management of a corporation is to be judged
according to his or her own personal skills, knowledge, abilities and
capacities. However, an objective standard does not mean that a director's
particular circumstances are to be ignored. These circumstances must be taken
into account, but must be considered against an objective "reasonably
prudent person" standard.
b. The
assessment of the director's conduct, for the purposes of this objective
standard, begins when it becomes apparent to the director, acting reasonably
and with due care, diligence and skill, that the corporation is entering a
period of financial difficulties.
c. In
circumstances where a corporation is facing financial difficulties, it may be
tempting to divert these Crown remittances in order to pay other creditors and
thus ensure the continuity of the operations of the corporation. That is
precisely the situation which section 323 of the Excise Tax Act seeks to
avoid. The defence under subsection 323(3) of the Excise Tax Act must
not be used to encourage such failures by allowing a care, diligence and skill
defence for directors who finance the activities of their corporation with
Crown monies, whether or not they expect to make good on these failures to
remit at a later date.
d. Since
the liability of directors in these respects is not absolute, it is possible
for a corporation to fail to make remissions to the Crown without the joint and
several, or solidary, liability of its directors being engaged.
e. What is required is that the directors establish that
they were specifically concerned with the tax remittances and that they
exercised their duty of care, diligence and skill with a view to preventing a
failure by the corporation to remit the amounts at issue [not that they show
that they subsequently corrected the failures].
[64]
In this case, the evidence shows that from the
beginning, the company had financial difficulties, as it always operated at a
deficit. The appellant Shamsuddin was certainly aware of its financial difficulties,
because he was monitoring on a daily basis the operation of the restaurant. In
such a context, it is up to the appellant to show diligence.
[65]
Shamsuddin admits that he was not perfect and
could have done better, taking detailed records of the inventory and drinks given
in promotion; but he did not do so. Shamsuddin claims that this does not mean
that he did not act with the care, diligence and skill required by
paragraph 323(3) of the ETA. He stated that he was still reasonably prudent
by compiling himself the sales, regularly monitoring the restaurant’s
operations, hiring an accountant to make the statements and by keeping detailed
accounting.
[66]
In my view, the accounting was not complete and detailed.
There was a lack of internal controls. The clients’ bills were inadequate; they
were not numbered and did not indicate when an alcoholic beverage was given to
the client in promotion. The invoices for expenses were given to the accountant
for accounting, but not the clients’ sales bills. I must ask myself, why not? Shamsuddin
had no documents in support of the inventory taking, not only for alcohol, but
also generally. Shamsuddin kept no record of alcohol sold or given in
promotions, or in free drinks, or drunk by employees or used in the kitchen. As
I already indicated, alcohol has the potential to make large profits for a
restaurant. I find it inconceivable that a restaurant would keep no record of
sales, losses or promotion with respect to alcohol; especially when it is
alleged that 30% to 35% of alcohol purchased leaves the restaurant, either in losses
or promotions. It is up to Shamsuddin to show that alcohol not recorded was
part of losses and promotions and not sales, which he did not succeed in doing.
This lack of accounting shows that he had a lack of due diligence.
[67]
I am of the view that Shamsuddin, as director of
the restaurant, did not act with the care, diligence and skill that a reasonably
prudent person would have shown to prevent Samrat’s failure to pay the GST collected
from the restaurant’s clients. Therefore, he cannot rely on the defence set out
in subsection 323(3) of the ETA.
[68]
Following the concession made by the Minister in
the Samrat case, the amount owed by the director on July 11, 2011, is
$66,666.39, i.e. $43,497.78 in taxes, $8,590.38 in penalties and $14,578.23 in interest.
Therefore, Shamsuddin is jointly and severally liable, with Samrat, to pay this
amount to the Minister under section 323 of the ETA.
Conclusion
[69]
Having considered all the evidence, I find, on a
balance of probabilities, the following:
(a)
The Minister was justified in using an indirect
method to reconstruct Samrat’s income. I am also of the view that the
appellants did not discharge their burden of proof to establish that Samrat’s
assessment is ill-founded. I am of the view that the assessment established
with respect to the company Buffet Samrat Inc., in accordance with the consent
judgment made by Justice Jorré of the Tax Court of Canada dated April 26, 2013,
in case number 2011‑1092(GST)G, is valid and I confirm the said assessment.
(b)
I am of the view that the transfers totaling $110,000
that were made by Samrat directly to Abida were done without consideration. I
am also of the view that at the time when the transfers were made, Samrat owed
the Minister a GST debt. Under section 325(1) of the ETA, the appellant Abida
is jointly and severally liable to pay the sums for which Samrat is liable under
the ETA, for a maximum of $53,956.53.
(c)
I find that the appellant Shamsuddin did not
discharge his burden of proof to demolish the accuracy of the Minister’s
assumptions: see Hickman Motors Ltd v. Canada, [1997] 2 S.C.R. 336. I
find that Shamsuddin never ceased to be the director of the company either in
law or in fact. I am persuaded that Shamsuddin did not resign from the position
of director, he was not replaced and he was not relieved of his powers and obligations
as director of Samrat. Therefore, he was at all times a de jure director.
I am also convinced that, despite the fact that Samrat ceased its commercial
operations in December 2008, Shamsuddin performed and/or appointed his
brother to perform on his behalf, multiple actions as director until January 5,
2012. Therefore, he was a de facto director at all relevant times. I am
of the view that the assessment is not statute barred and the appellant Shamsuddin
cannot avail himself of the provisions of subsection 323(5) of the ETA.
(d)
I am of the view that the appellant Shamsuddin, as
director of the restaurant, did not act with the care, diligence and skill that
a reasonably prudent person would have shown to prevent Samrat’s failure to pay
the GST collected from the restaurant’s clients. Therefore, he cannot avail
himself of the defence provided in subsection 323(3) of the ETA.
[70]
For these reasons:
(a)
The appeal in the file numbered 2012-4656(GST)I regarding
Abida Begum Syed is dismissed.
(b)
The appeal in the file numbered 2012‑2292(GST)I
regarding Shamsuddin Syed is allowed in part. The matter is referred back to
the Minister of National Revenue for reconsideration and reassessment so as to
reflect the consent judgment made by Justice Jorré of this Court in the file of
Buffet Samrat Inc., (2011‑1092(GST)G).
Signed at Kingston, Ontario, this 22nd
day of October 2014.
“Rommel G. Masse”
Translation certified true
on this 31st day of March 2015
Catherine Jones, Translator
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