Citation: 2014 TCC 184
Date:
20140604
Docket:
2013-3196(GST)I
BETWEEN:
GERALD GRUPP,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Lyons J.
[1]
The Minister of
National Revenue (the “Minister”) assessed Gerald Grupp, the appellant, as a
director liable for Persuader Court Agents Inc.'s (“Persuader”) failure to
remit to the Receiver General net goods and services tax (“GST”) plus interest and
penalties thereon, totalling the amount of $57,059.38 (the “Amount”).[1] The
appellant appeals that assessment.
[2]
The Amount
comprises the reporting period ended June 30, 1995 and each reporting period
ended between June 30, 1997 to June 30, 2009. Persuader was required but failed
to remit positive amounts of net GST and file returns on or by September 30
(“Relevant Periods”) after each of the reporting periods ended June 30 for
each reporting period in dispute.
[3]
The first issue is
whether the Minister discharged his statutory obligation to take appropriate
collection action. The second issue is whether the appellant was a director
during the Relevant Periods. The third issue is whether GST paid by Persuader in
the amount of $1,037.22 has or has not been accounted for in the Amount
assessed.
Facts
[4]
Testifying at the
hearing were the appellant and Lance Fergin, a collections officer with the
Canada Revenue Agency ("CRA"). Their testimony and documentary
evidence revealed the following facts.
[5]
Persuader was incorporated
on July 9, 1993, under the Ontario Business Corporations Act, R.S.O.
1990, c. B.16 as amended ("OBCA"). Persuader provided
paralegal services.
[6]
Persuader was a GST
registrant, an annual filer with its reporting period ended on June 30, and was
required to file GST returns, report GST and remit positive amounts of net GST
by September 30 of each year.[2]
[7]
Persuader failed to
remit positive amounts of net GST for the reporting period ended June 30, 1995
and for each of the reporting periods June 30, 1997 to June 30, 2009, and
failed to file all GST returns by the deadline of September 30 after each of
those reporting periods. Persuader was reassessed. As at July 17, 2010, the
amount of $56,321.69 was outstanding.[3]
[8]
Barbara F. Grupp and
Deborah L Grupp, the appellant’s spouse and daughter, respectively, were
registered as directors of Persuader upon incorporation. They resigned in 1994.
[9]
In his testimony, the appellant
said that he was not a director of Persuader upon incorporation, and without
indicating when he became a director said that he had resigned as a director in
1995. During cross-examination, he was presented with a Corporation Point in
Time Report from the Province of Ontario ("Province") which indicates
that he was a director and the General Manager upon incorporation.[4] He
confirmed that in the letter he signed dated June 19, 2010, from Persuader
(“2010 Letter”) to the CRA, that he is described as a Manager.[5] He stated
he had no recollection that his directorship began on July 9, 1993.
[10]
According to the
appellant, he tried to file and re-file a form with the Province indicating
that he had resigned as a director, but on each occasion the form was returned
to him. He therefore doubts it has a copy and he did not try to obtain a copy
from the Province. He stated that he attempted to locate a copy of the form
from his records but those are no longer available.
[11]
The appellant does not
dispute any other assumptions stated in paragraph 7 of the Minister’s Reply
except for the assumption in subparagraph 7(c) indicating that he was a
director during the Relevant Periods, and says that the GST paid in the amount
of $1,037.22, referred to in the 2010 Letter, has not been accounted for in the
Amount owed by Persuader.[6]
The remaining admitted assumptions are as follows:
7. …
e) PCAI’s [Persuader's] GST returns for the reporting period
ending on June 30, 1995 and for the reporting periods from July 1, 1996 to June
30, 2009 were late filed without remittance of net [GST, collected,] having
been made at any time [to the Receiver General] as set out below:
|
Period ended
|
GST Return file (received by CRA) date
|
Net tax owing amount on GST returns
|
Payment enclosed with GST return
|
|
2009-06-30
|
2010-06-29
|
1,420.91
|
0
|
|
2008-06-30
|
2010-06-29
|
2,223.72
|
0
|
|
2007-06-30
|
2010-06-29
|
2,697.52
|
0
|
|
2006-06-30
|
2010-06-29
|
1,803.69
|
0
|
|
2005-06-30
|
2010-06-29
|
3,306.74
|
0
|
|
2004-06-30
|
2010-06-29
|
3,213.02
|
0
|
|
2003-06-30
|
2010-06-29
|
3,332.86
|
0
|
|
2002-06-30
|
2005-02-09
|
1,948.24
|
0
|
|
2001-06-30
|
2005-02-09
|
2,368.44
|
0
|
|
2000-06-30
|
2005-02-09
|
1,739.97
|
0
|
|
1999-06-30
|
2005-02-09
|
754.80
|
0
|
|
1998-06-30
|
1999-02-15
|
2,040.66
|
0
|
|
1997-06-30
|
1999-02-15
|
2,540.61
|
0
|
|
1995-06-30
|
1995-08-30
|
171.60
|
0
|
f) the amounts reported by PCAI [Persuader] in its filed returns,
which are the amounts of net tax assessed for PCAI [Persuader] for the Period,
are as shown in Schedule "A" [which show the identical amounts of net
tax assessed as in assumption 7 (e) above] attached to this Reply;
g) PCAI [Persuader] collected GST during the Period but none of
the $29,562.78 reported total net tax amounts was remitted to the Receiver
General;
h) the Minister advised PCAI [Persuader] that amounts in respect
of the net tax and the applicable interest and penalties were owing, but
nothing resulted from the requests for remittance and collection efforts;
i) on or about July 27, 2010, a Certificate for the amount of PCAI’s
[Persuader's] liability for net tax, and interest and penalties thereon, was
registered with the Federal Court, and execution for the amount was returned
wholly unsatisfied by the Sheriff for the Regional Municipality of York,
Ontario; and
j)
at all material times, the Appellant did not
exercise the degree of care, diligence and skill as a director of PCAI [Persuader]
to prevent the failure by PCAI [Persuader] to remit the net tax, and the
interest and penalties related to that net tax, that a reasonably prudent
person would have exercised in comparable circumstances.
[12]
Lance Fergin explained that in
the spring of 2010, Persuader was an account in his inventory because GST
returns and GST amounts were outstanding. He outlined the contacts he made
with the appellant and subsequently the Sheriff in an attempt to collect
Persuader’s unpaid debt. He also outlined the reassessment issued to Persuader,
and the subsequent director’s liability assessment issued against the appellant
on October 20, 2010, in the Amount.
[13]
Mr. Fergin first telephoned
the number on file but it was not in service. He then went to the addresses
on file, first to Finch Avenue, and then to Bayview Avenue. At the Bayview
address, he left a letter with the concierge of the building to provide to the
appellant. Mr. Fergin did not receive any response. He then telephoned the appellant
and his spouse’s phone numbers and received a response. Mr. Fergin sent a pre‑assessment
letter to the appellant, Barbara Grupp and Deborah Grupp. He received responses
from only Barbara Grupp and Deborah Grupp who indicated that they had resigned as
directors in the early to mid-1990's and provided documentation in support of
that.
[14]
He subsequently telephoned
the appellant and said that he planned to send a second pre‑assessment letter
to the address in Brampton. The appellant did not respond to that letter. In a
subsequent telephone conversation with the appellant, Mr. Fergin was
informed that there were no assets in Persuader. The appellant also stated that
there would be no payment as the appellant would be bringing an appeal in mid‑July
of 2010.
[15]
After that discussion,
Mr. Fergin requested and obtained a Certificate from the Federal Court,
registered on July 27, 2010, for Persuader’s liability for the positive amount
of net GST plus interest and penalties thereon in the amount of $56,321.69.[7] Pursuant
to the Certificate, Mr. Fergin asked the Sheriff to execute the Writ of Seizure
and Sale (“Writ”) upon Persuader’s property for payment of the amount certified.[8]
[16]
On September 14, 2010,
the Sheriff attempted to execute the Writ against Persuader at 7805 Bayview Avenue, #825, Thornhill, Ontario.[9]
In the Levy Report, the Sheriff reported that he spoke with the appellant's
daughter and left a copy of the Notice of Enforcement with her for the
appellant. He also called and spoke with the appellant and informed him of the
reason for visiting the appellant's home and demanded payment for the
outstanding balance on the Writ for Persuader. The appellant said it was not
the address for Persuader, that he could not and would not pay it and reiterated
that there were no assets. The Sheriff returned the Writ to Mr. Fergin stating
it was unsatisfied in whole or in part, and sent the Levy Report, via mail, to
Mr. Fergin before he issued the assessment against the appellant.[10]
Analysis
[17]
Liability for a
director is created by subsection 323(1) of the Excise Tax Act (the
"Act"). Before issuing a director's liability
assessment, the Minister must satisfy any of the paragraphs in subsection 323(2)
of the Act.
Registration of certificate and execution of writ
[18]
For the purpose of this
appeal, the applicable statutory provision is paragraph 323(2)(a) of the
Act. It is incumbent on the Minister to demonstrate the registration of
the Certificate with the Federal Court for the amount of Persuader's liability
and that execution for that amount had been returned unsatisfied in whole or in
part.[11]
Section 323 states:
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.
323.(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.
[19]
The appellant asserts
that the collection procedures
of the CRA are flawed in that it did not obtain a certificate or writ of
seizure and sale against him personally, nor were attempts made to collect the
unpaid debt of Persuader from the appellant personally. He argues that the only
collection action taken against Persuader was insufficient and perfunctory consisting
of a superficial visit from the Sheriff at his home when he was not present.[12] I disagree.
[20]
The requirements in
paragraph 323(2)(a) of the Act are to obtain a registered certificate in the Federal Court, in the
amount of Persuader’s liability, as against Persuader and seek to collect on
the unpaid debt by executing the writ against Persuader prior to issuing the
director's liability against the appellant.
[21]
The evidence establishes
that before issuing a director’s liability assessment against the appellant on
October 20, 2010, the Minister had registered a Certificate, in Persuader’s name, in the Federal Court
on July 27, 2010. The Sheriff – having made attempts to collect in September
2010 - returned the Writ to Mr. Fergin because execution of the Writ was
unsatisfied in whole or in part. As well, the appellant admitted the assumption
in subparagraph 7(i) of the Minister’s Reply that the Certificate was
registered and the Writ was unsatisfied in whole or in part.
[22]
The appellant asks this
Court to find the collection actions against Persuader were insufficient. The Federal
Court of Appeal has enunciated that the Minister is only under a duty of good
faith in seeking to satisfy and to collect the tax debt from the assets of the
corporation. In Canada v Barrett, 2012 FCA 33, [2012] FCJ No. 130 (QL),
the taxpayer had argued that the Minister ought to have searched for particular
bank accounts of the corporation and thus take all reasonable steps to collect before
pursuing a director’s liability assessment. The Court rejected the reasonable
standard and overturned the trial judge’s finding in favour of the taxpayer.
The Federal Court of Appeal concluded that the Minister’s only duty is to act in
good faith in attempting to collect, and the reasonable standard does not apply.
[23]
After a number of
attempts to collect on Persuader’s debt and in light of the appellant’s
statement in mid-July 2010 that there were no assets in Persuader, Mr. Fergin
obtained the Certificate under the Federal Court seal, and then requested the Sheriff
to execute on the Writ. The Sheriff details the efforts he made to collect on
Persuader's debt. This commenced on September 14, 2010, by leaving a Notice of
Enforcement at the address for service with the appellant’s daughter. The Sheriff
followed up with a conversation with the appellant who indicated that there
were no assets in Persuader, and that there could, nor would, be any payment.[13] Consequently,
the Writ was returned by the Sheriff to Mr. Fergin unsatisfied in whole or in
part before the director's liability assessment was issued.
[24]
When asked in
cross-examination if the appellant recalled any conversation with the Sheriff,
as well as the CRA officer, in 2010 relating to collection activities and that
he had indicated that there were no assets in Persuader, he said that he had no
recollection of any such conversations.
[25]
By contrast, and
notwithstanding the appellant’s request that I disregard Mr. Fergin’s
testimony because he had not brought his notes to the hearing, Mr. Fergin
was able from his recollection to provide viva voce testimony in identifying
the contacts he made with the appellant, the steps he took to obtain the
Certificate, and his instructions to, and contact with, the Sheriff. The later
two steps were corroborated by documentary evidence.[14]
[26]
In cross-examination,
Mr. Fergin acknowledged he had eighty files in his inventory, said he could not
remember every detail, and agreed that his collection efforts were directed at
Persuader, as the debtor, and not against the appellant personally. Mr. Fergin was clear, concise and direct in providing his testimony and
again provided documentary evidence. I agree with the appellant’s observation
that Mr. Fergin testified in a forthright manner. I accept and prefer Mr.
Fergin’s evidence as more reliable than the appellant’s.
[27]
I find that in having
the Sheriff make the attempts outlined so as to collect and seek satisfaction
of Persuader’s unpaid debt by executing the Writ, the Minister satisfied his
duty of good faith. The appellant’s suggestion to conduct an examination of
debtor goes beyond the good faith requirement and would make no sense in any
event in light of the appellant’s statements that there were no assets. I conclude
that the Minister met the requirements and discharged his statutory obligation
under paragraph 323(2)(a) of the Act.
[28]
Turning to the
appellant’s comment that collection procedures “should be amended” to include an examination of debtor on Persuader the
appellant personally, there is
no requirement in the legislation to conduct such examination. Such amendments
are for Parliament to decide, not this Court.
Was the appellant a director during the Relevant
Periods?
[29]
If a corporation fails
to remit to the Receiver General a positive amount of net GST plus interest and
penalties thereon for a reporting period as required,[15] as
previously noted a director of
the corporation - at the time the corporation failed to remit such amounts - is
jointly and severally liable to pay such amounts unless certain exceptions apply.
Since Persuader's year-end is June 30, it was required to file GST returns and
make remittances during the Relevant Periods.
[30]
Initially the appellant
testified that he was not a director upon Persuader's incorporation in 1993,
but acknowledged in cross-examination, after the admission into evidence of a
document, that he was but said he did not remember that.[16] I find
that the appellant was a director upon incorporation in 1993.
[31]
The appellant urges
the Court to accept that he resigned as a director of Persuader in 1995. (I
will address the resignation later in the reasons). The burden and onus was on
the appellant to prove the facts of which he had knowledge including those
relating to the office of director, and show on the balance of probabilities that
he ceased to be a de jure director and was not a de facto
director after his purported resignation in 1995.[17]
[32]
The Act does not
provide criteria as to when a person ceases to become a director of a
corporation.
[33]
In answering that very question,
the Federal Court of Appeal has held that the provincial law governing the
corporation is to be applied. In
Canada v. Kalef, [1996] 2 CTC 1 (FCA), the Court states at paragraph 10:
10. The
Income Tax Act neither defines the term director, nor establishes any criteria
for when a person ceases to hold such a position. Given the silence of the Income
Tax Act, it only makes sense to look to the company’s incorporating
legislation for guidance. …
[34]
Recently the same Court
in Aujla v. Canada, 2008 FCA 304, [2008] GSTC 197 (FCA), applied
provincial law,[18]
in the context of section 323 of the Act, in determining whether the
taxpayer ceased to be a director. At paragraph 23, it states:
23.
Both parties contend that the application of
section 323 of the ETA is to be undertaken in light of the applicable
provincial corporate law provisions, citing the decision of this Court in Kalef
v. R., [1996] 2 C.T.C. 1 (F.C.A). In that decision, McDonald J.A. agreed
with the reasoning of MacKay J. in Perri (J.F.) v. M.N.R., [1995] 2 C.T.C.
196 (F.C.) to the effect that the principles that apply to the question of
whether a directorship has been terminated are to be determined under the
applicable provincial law and that the answer to that question may vary from
province to province. Specifically, at page 5, McDonald J.A. stated:
I agree with the
reasoning of MacKay J. While it may be open to Parliament to expressly deviate
from the principles of corporate law for the purposes of the Income Tax Act,
I do not think such an intention should be imputed.
[35]
Persuader was
incorporated under the OBCA.
[36]
The respondent relies
on subsection 115(4) of the OBCA in asserting that the appellant is
deemed to continue as a director because he was the only remaining director and
continued to manage the affairs of Persuader until sometime in 2010.[19]
[37]
Subsection 115(4) of the OBCA deals
with the eventuality where all of the directors of a corporation have resigned
or have been removed, and if any person manages or supervises the business,
that person is deemed to be a director of the corporation. It reads:
Where
all of the directors have resigned or have been removed by the shareholders
without replacement, any person who manages or supervises the management of the
business and affairs of the corporation shall be deemed to be a director for
the purposes of this Act.
[38]
Subsection 115(4) of
the OBCA was applied in Moll v Canada, 2008 TCC 234, 2008 DTC
3420, in similar circumstances to that of the appellant. An important
consideration for the Court was the taxpayer’s conduct in holding himself out
as a director (especially to CRA officials and providing the CRA with post‑dated
cheques for the corporation’s debt), plus managing the affairs of the
corporation after he purportedly resigned. Even though the taxpayer had
tendered a written resignation, V.A. Miller J. found he was deemed to continue
as a director for the corporation.[20]
Another factor centred around the fact that no evidence was produced by the
taxpayer to show he had informed anyone, especially third party creditors, that
he was no longer a director. The Moll decision is similar to the
circumstances in Bremner v Canada, 2007 TCC 509, [2007] GSTC 113, in
which the Associate Chief Justice Rip of this Court (as he then was) had to
decide when a de facto and deemed director ceased to be a
director.
[39]
By analogy, the
appellant said that when he resigned as a director of Persuader in 1995, there
were no other directors, no other director was appointed, no one else managed
Persuader and he continued to remain active in the business after he resigned
and until the business closed down in 2010. Those factors, holding himself out
to the CRA in 2010, the 2010 Letter (signed by him), other documentary evidence
corroborating he was the manager of Persuaders affairs,[21] plus
the fact no evidence was proffered by the appellant to show that he had
attempted to disabuse third parties that he was no longer the director, leads me
to conclude that he continued as a director of Persuader after his purported
resignation in 1995. I find he falls squarely within the requirements of
subsection 115(4) of the OBCA and conclude that he is a deemed director.
The appellant has failed to discharge his onus to rebut the Minister’s
assumption that he was a director during the Relevant Periods.
GST Paid
[40]
The appellant suggested
that the amount of $1,037.22,
referenced in the 2010 Letter, has
not been recognized by the CRA in the Amount owed by Persuader for the Relevant
Periods.[22]
Other than his statement, the appellant provided no further elaboration or
evidence in support of that assertion. I note that the 2010 Letter states it
relates to the reporting period ended June 30, 2009. It shows “GST Collected” ($2,458.13),
less the “GST Paid” ($1,037.22), resulting in a “Balance Owing” ($1,420.91). Comparing
that to the information on Schedule “A” of the Reply, it is clear that the
Balance Owing in the amount of $1,420.91, is the only amount owing for the reporting
period ended June 30, 2009. I infer from that, that the CRA has properly recognized
the $1,037.22 and it does not form part of the Amount owed.
[41]
My conclusions above are
suffice to dispose of the matter. However, I will make some comments with
respect to the appellant’s assertion relating to the purported resignation.
Resignation
[42]
Section 121 of the OBCA
identifies when and how a director ceases to hold office. Essentially, a
written resignation is required and becomes effective at the time it is
received by the corporation or at the time specified in the resignation,
whichever is later. The section provides:
121(1) A director of a
corporation ceases to hold office when he or she,
(a) dies or,
subject to subsection 119(2), resigns;
(b)
is removed in accordance with section 122; or
(c) becomes
disqualified under subsection 118(1).
(2) A resignation of a
director becomes effective at the time a written resignation is received by the
corporation or at the time specified in the resignation, whichever is later.
[43]
I do not accept the
appellant’s evidence that he resigned to himself at some point in 1995, and
made an entry in the Persuader Minute Book. If such an entry was made, presumably records maintained by Persuader would corroborate the
resignation. However, he did
not produce the Minute Book nor other (corporate) documentary evidence to
corroborate the purported resignation. During cross‑examination, the
appellant admitted that he had not sent a written resignation to Persuader,
thus does not comply with subsection 121(2) of the OBCA. Even if I were to
accept the appellant’s testimony
that he resigned in 1995, and even if he had tendered a valid written resignation
in compliance with the provincial legislation, he is still caught by subsection
115(4) of the OBCA as he continued to manage the affairs of Persuader.[23]
Conclusion
[44]
I conclude the
appellant was a deemed director during the Relevant Periods pursuant to
subsection 115(4) of the OBCA, the Minister discharged his statutory
obligation pursuant to paragraph 323(2)(a) of the Act, and since
the appellant has acknowledged that he failed to exercise the standard of care
in not preventing Persuader’s failure to remit the Amount when and as due, he
is jointly and severally liable as a director for the Amount owed by Persuader.
[45]
The appeal is
dismissed.
Signed at Ottawa, Canada, this 4th day of June 2014.
"K. Lyons"
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