Date: 20100115
Docket: A-90-09
Citation: 2010 FCA 13
CORAM: LÉTOURNEAU
J.A.
NOËL
J.A.
TRUDEL
J.A.
BETWEEN:
ANTHONY COMPARELLI
Appellant
and
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT
LÉTOURNEAU J.A.
Issue on appeal
[1]
This is an
appeal against a decision of the Tax Court of Canada whereby Justice Valerie
Miller (judge) dismissed the appellant’s appeal from an assessment under the Income
Tax Act, 1985, c. 1 (5th Supp.) (Act) for the years 1999, 2000
and 2001.
[2]
The
assessment was made on the basis that the appellant was liable under section
227.1 of the Act for the failure of MindTheStore.com Inc. (MTS) to remit source
deductions of federal and provincial income taxes as well as employment and
Canada Pension Plan premiums.
[3]
Section
227.1 reads:
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227.1 (1) Where a corporation has failed to deduct
or withhold an amount as required by subsection 135(3) or 135.1(7) or section
153 or 215, has failed to remit such an amount or has failed to pay an amount
of tax for a taxation year as required under Part VII or VIII, the directors
of the corporation at the time the corporation was required to deduct, withhold,
remit or pay the amount are jointly and severally, or solidarily, liable,
together with the corporation, to pay that amount and any interest or
penalties relating to it.
(2)
A director is not liable under subsection 227.1(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 223
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 that subsection 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 that subsection has been
proved within six months after the date of the assignment or bankruptcy
order.
(3)
A director is not liable for a failure under subsection 227.1(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.
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227.1 (1) Lorsqu’une société a omis de déduire ou
de retenir une somme, tel que prévu aux paragraphes 135(3) ou 135.1(7) ou aux
articles 153 ou 215, ou a omis de verser cette somme ou a omis de payer un
montant d’impôt en vertu de la partie VII ou VIII pour une année
d’imposition, les administrateurs de la société, au moment où celle-ci était
tenue de déduire, de retenir, de verser ou de payer la somme, sont
solidairement responsables, avec la société, du paiement de cette somme, y
compris les intérêts et les pénalités s’y rapportant.
(2)
Un administrateur n’encourt la responsabilité prévue au paragraphe (1) que
dans l’un ou l’autre des cas suivants :
a) un certificat précisant la somme pour
laquelle la société est responsable selon ce paragraphe a été enregistré à la
Cour fédérale en application de l’article 223 et il y a eu défaut d’exécution
totale ou partielle à l’égard de cette somme;
b) la société a engagé des procédures de
liquidation ou de dissolution ou elle a fait l’objet d’une dissolution et
l’existence de la créance à l’égard de laquelle elle encourt la
responsabilité en vertu de ce paragraphe a été établie dans les six mois
suivant le premier en date du jour où les procédures ont été engagées et du
jour de la dissolution;
c) la société a fait une cession ou une
ordonnance de faillite a été rendue contre elle en vertu de la Loi sur la
faillite et l’insolvabilité et l’existence de la créance à l’égard de
laquelle elle encourt la responsabilité en vertu de ce paragraphe a été
établie dans les six mois suivant la date de la cession ou de l’ordonnance de
faillite.
(3)
Un administrateur n’est pas responsable de l’omission visée au paragraphe (1)
lorsqu’il a agi avec le degré de soin, de diligence et d’habileté pour
prévenir le manquement qu’une personne raisonnablement prudente aurait exercé
dans des circonstances comparables.
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Analysis of the decision of the Tax Court of Canada and the
submissions of the parties
[4]
The judge concluded
that the appellant had not exercised the requisite degree of care, diligence
and skill to prevent the failure of MTS to remit the source deductions.
Therefore, it could not rely upon subsection 227.1(3) to escape from his
liability.
[5]
In coming to this conclusion,
she made the following findings:
a)
the appellant was at all times an inside director;
b)
he was involved in the day-to-day management of MTS;
c) in
1999, he was elected Chairman and Chief Executive Officer of MTS and became
President until June 27, 2000;
d) he
was intelligent and experienced in business matters;
e) he was
aware of his responsibilities under the Act as a result of previous dealings
with the Canada Revenue Agency pursuant to MTS’s failure to remit source
deductions on time;
f) he
was aware of the precarious financial position of MTS as MTS had little or no
income and was relying on debt financing to continue its operations;
g) the
amounts the appellant advanced to MTS were directed at keeping MTS in operation
and not at preventing the failure to remit the payroll source deductions;
h) for
the whole of its nearly six years of existence, i.e. 1996, 1997, 1998, 1999,
2000 and 2001, MTS had been at one time or another in default of remitting
source deductions; and
i)
the appellant cannot blame the failure to remit on a third party.
[6]
The appellant does
not quarrel with these findings. In any event, they were amply supported by the
evidence. I see in any of them no palpable and overriding error justifying the
intervention of this Court.
[7]
Counsel for the
appellant submits that the judge applied the wrong test to determine whether or
not the appellant had exercised the degree of care and diligence required to
prevent the failure to remit. In his view, this amounts to an extricable error
of law reviewable on the standard of correctness.
[8]
The appellant’s
argument rests on his interpretation of the decision of this Court in Worrell
v. Canada, [2001] 2 F.C. 203, also reported as A.G. of Canada et al. v.
McKinnon et al., 2000 DTC 6593. He submits that the judge should have reached
the same conclusion in this case. In his view, her failure to apply Worrell
is the result of her taking into account irrelevant considerations and ignoring
relevant considerations.
[9]
After an analysis and
a comparison of the facts in the Worrell case with those in the present
instance, the judge concluded that the Worrell case was clearly
distinguishable. I agree with her analysis and conclusion.
[10]
There are many
distinguishing features. For example, the Worrell Company had been successful
in business for thirty years while MTS never really got off the ground. Unlike
MTS, there was no history of repeated failures to remit by Worrell.
[11]
Chief among many, the
judge found as significant and determinative the fact that almost all of Worrell’s
debt to Revenue Canada for unremitted source deductions accrued
after the bank started to exercise control over the cheques issued by the
company: see paragraph 43 of her reasons for judgment.
[12]
In my respectful
view, the judge properly reiterated at paragraph 42 of her reasons that the
“defence in subsection 227.1(3) of the Act requires a director to exercise
reasonable care, diligence and skill, to prevent the failure to remit”
(in bold character in the original). The defence certainly does not apply
where, as in this case, the actions of MTS consisted in perpetuating the
failures to remit, while merely attempting to reduce the amount of new arrears,
in the hope that the company would survive and eventually be financially able
to pay back all the accrued arrears. As this Court said at paragraph 69 of the Worrell
decision, “taxpayers are not required involuntarily to underwrite this risk, no
matter how reasonable it may have been from a business perspective for the
directors to have continued the business without doing anything to prevent
future failures to remit”.
[13]
For these reasons, I
would dismiss the appeal with costs.
“Gilles
Létourneau”
“I
agree
Marc
Noël J.A.”
“I
agree
Johanne
Trudel J.A.”
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