Date: 20071101
Docket: A-407-06
Citation: 2007 FCA 353
CORAM: LÉTOURNEAU
J.A.
NOËL J.A.
TRUDEL
J.A.
BETWEEN:
HER MAJESTY THE QUEEN
Appellant
and
PIERRE ROY
Respondent
REASONS FOR JUDGMENT
NOËL J.A.
[1]
This is an
appeal from a decision by Judge Tardif of the Tax Court of Canada which allowed
an appeal against an assessment made pursuant to Part IX of the Excise Tax
Act, R.S.C. 1985, c. E-15 (the Act) for the period from November 1, 1996 to
January 31, 2000, and quashed the assessment.
[2]
The
appellant submitted on behalf of the Minister of National Revenue that Judge
Tardif made a palpable and overriding error by overturning the assessment on the
ground that the respondent had acted with care, diligence and skill to prevent
the failure by the company to pay the amount of net taxes collected under the
Act.
RELEVANT FACTS
[3]
During the
period at issue, from 1996 to 2000, the respondent was the sole director of
Piemar Son et Vision Inc., a company registered for purposes of the goods and services
tax (GST) and the Quebec sales tax (QST). For a better
understanding of the matter, it is worth pointing out that the QST is a tax levied
and administered by the Quebec Department of Revenue (Revenu Québec), and the
GST is a tax levied by the Department of National Revenue (Revenue Canada), but
the administration of which is handled by Revenu Québec through a
federal-provincial administrative agreement.
[4]
Following
an audit in October 1996, Revenu Québec, acting pursuant to the Act respecting
the Quebec sales tax, R.S.Q. c. T-0.1 (the Sales Tax Act) assessed
the company for QST not collected on commissions for the period from August 1,
1992 to April 30,
1996.
[5]
Pierre
Roy, who as director of the company was dissatisfied with this assessment,
undertook a veritable crusade. First, he objected and submitted to Revenu
Québec that the commissions were not taxable supplies under the Sales Tax
Act, since they were received from companies outside Quebec.
[6]
Second,
the appellant arranged for the company to delay or cease making its payments as
of 1997. It would appear that, initially at least, the respondent made this
decision gambling that he would be successful in his dispute concerning the
QST, and that the QST overpayments would offset the unpaid taxes (Transcript,
p. 47). Accordingly, the company filed its returns late and without payments
for the periods ending on January 31, April 30 and October 31, 1997. It also
ceased filing its returns for the periods from November 1, 1997 to January 31, 2000 (Appeal Book,
at p. 146: Transcript, at pp. 49, 66 and 89).
[7]
On or
about January 23,
2001 the
interpretation branch of Revenu Québec arrived at the conclusion that the
commissions received by the company from customers located outside Quebec were
not taxable supplies under the Sales Tax Act. An agreement was reached
between Revenu Québec and the company on December 18, 2001, by which unpaid QST
of $8,191 was cancelled and the interest adjusted accordingly.
[8]
Shortly
after this agreement was signed the company, through the respondent, agreed to
file the returns it had failed to file and amended those that were inaccurate,
but still without any payment of taxes.
[9]
On November 9, 2001 a certificate was registered
in the Federal Court against the company for $6,024.02 in unpaid GST as well as
the related interest and penalties. A second certificate was registered on
October 25, 2002 in the amount of $18,624.25, again for unpaid GST, interest
and penalties (Appeal Book, at pp. 118 and 121).
[10]
In a
letter written on May
23, 2003 the
respondent asked Revenu Québec to cancel the penalties and interest for the
period at issue, on the ground that amounts greater than the taxes due
(combined GST and QST) had been paid by the company (Appeal Book, at p. 74).
Specifically, he argued that QST of $11,365.45 and GST of $37,188.43 were owed
by the company for this period. On the other hand, he maintained that the sum
of $62,616.64 had been paid towards these taxes during the period.
[11]
In a
letter dated October 17, 2003 (Appeal Book, at p. 142), Revenu Québec refused
to cancel the penalties and interest for the reasons which follow:
[TRANSLATION]
You indicate
that the QST/GST fees for the period from April 1996 to October 2000 came to
$48,842.88 and that the payments made on these fees were $62,616.64. A review
of your file indicates that for the period in question the fees were $49,666.20
and the payments made on these fees were $44,982.74. The difference in payments
is explained by the fact that payments you identified were used to pay amounts
owed other than for the period in question.
[12]
The sum of
$23,068 was subsequently assessed in the hands of the respondent, as director
of the company, to account for the amounts which the company had failed to pay
(less the sum of $1,580 presumably credited in the interim). This assessment,
which is the one at issue, was made pursuant to section 323 of the Act. The
amount assessed represents GST of some $11,973.31 and interest and penalties of
$4,368.11 and $6,726.94 respectively. A summary table of QST/GST returns
received and credits built up for the periods relating to this assessment is
set out at page 145 of the Appeal Book.
[13]
After
unsuccessfully objecting to this assessment, the respondent appealed to the Tax
Court of Canada. On July
4, 2006 Judge
Tardif allowed the appeal and quashed the assessment on the ground that the
respondent had acted with diligence to prevent the failure by the company to
discharge its tax obligations.
[14]
In support
of her appeal the appellant maintained that the evidence did not allow for this
conclusion. In her submission, Judge Tardif made a palpable and overriding
error by relying on irrelevant factors and ignoring the evidence in concluding
that the respondent had acted with diligence.
LEGISLATIVE BACKGROUND
[15]
Subsections
323(1) and (3) of the Act are applicable in resolving the matter. They provide,
respectively:
|
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.
Diligence
(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.
|
323. (1) Les
administrateurs d’une personne morale au moment où elle était tenue de
verser, comme l’exigent les paragraphes 228(2) ou (2.3), un montant de taxe
nette ou, comme l’exige l’article 230.1, un montant au titre d’un
remboursement de taxe nette qui lui a été payé ou qui a été déduit d’une
somme dont elle est redevable, sont, en cas de défaut par la personne
morale, solidairement tenus, avec cette dernière, de payer le montant ainsi
que les intérêts et pénalités afférents.
Diligence
(3)
L’administrateur n’encourt pas de responsabilité s’il a agi avec autant de
soin, de diligence et de compétence pour prévenir le manquement visé au
paragraphe (1) que ne l’aurait fait une personne raisonnablement prudente
dans les mêmes circonstances.
|
[Emphasis added.]
ANALYSIS AND DECISION
[16]
Before
Judge Tardif the appellant conceded that the company legally owed the GST that
was assessed in his hands. It was also conceded that at the time of trial the
company had no property and had ceased all activities. Judge Tardif accordingly
had to consider whether the respondent had acted with diligence to prevent this
“failure” within the meaning of subsection 323(3).
[17]
The gist
of Judge Tardif’s reasoning to support the conclusion at which he arrived is
contained in paragraphs 15 to 19 of his reasons. It is useful to set out these
paragraphs in full:
[TRANSLATION]
[14]
On several occasions I have said [in pending cases] that excise in
our tax system is based on self-assessment, by which a reasonably coherent
system of accounts must be kept by the taxpayer so it can be analyzed and
checked at any time. Such a system of accounts also requires the keeping of all
relevant vouchers and documents to validate the information recorded in various
books.
[15]
In the absence of such accounting, people who are audited run the
risk of unfortunate consequences.
[16]
Conversely, the government must be able to give any taxpayer all
the explanations requested, in accessible accounting language so that the
taxpayer can fully understand the situation. What is clear is that every
taxpayer has the right to a report in clear accounting language. Saying that
the work was done by a computer and that the result obtained was reliable,
correct and beyond question simply is not sufficient, especially if the person
in question or his or her representative does not understand the information
being provided.
[17]
In the case at bar, not only was the appellant not careless, negligent,
reckless or irresponsible, he demonstrated a continuing interest in resolving
his case. His determination to understand his case is irrefutable proof that he
was concerned about it and did not want to be subject to the amounts he owed
the treasury: that is all. It was a completely legitimate request and he was
fully entitled to be given clear answers to his questions.
[18]
I see absolutely nothing in this case that would lead me to
conclude that the appellant failed to demonstrate vigilance and was negligent
or careless: on the contrary, the weight of the evidence is that he was very
active, even aggressive, when that proved necessary, in resolving his case.
This comes across very clearly from the appellant’s testimony, but also in a
very eloquent and persuasive way from certain transcripts included by the
person responsible for his case on the exceptional number of actions taken by
the appellant, who wanted to know precisely how the respondent had administered
its work.
[19]
For these reasons, the appeal is allowed and the assessment
quashed.
[18]
In short,
the judge said, the respondent was entitled to clear answers and did not get
them. Not only was he not irresponsible, but he demonstrated an ongoing
interest in resolving his case. In the circumstances, he was justified in
acting vigorously, even aggressively. According to Judge Tardif, the
respondent’s conduct was the exact opposite of a careless director, and so he
concluded that the respondent had acted with due diligence.
[19]
With
respect, this reasoning relates to the appellant’s conduct after the company
had failed to discharge its obligation to pay the taxes owed. It does not take
into account the respondent’s conduct at the time of the omissions, especially
the fact that it was the appellant who decided that as of 1997 the company
would cease making the GST payments due under the Act and filing its returns.
If Judge Tardif had taken into account the fact that it was the appellant who
was responsible for the company’s failures, I do not see how he could have
concluded that the appellant had acted with diligence “to prevent” these
failures as required by subsection 323(3) of the Act.
[20]
In fact,
the respondent never denied that it was he who decided that the company would
cease making its payments, or that the latter owed the GST as assessed. The
respondent’s real complaint was that Revenu Québec had wrongly allocated the
amounts at its disposal by paying itself the QST before the GST (Transcript, at
p. 54). In the appellant’s view, the company would owe nothing for GST and for
the related interest and penalties if the amounts had been correctly allocated.
[21]
If the
respondent sought to avoid his joint and several liability on the ground that
his company had already paid the amounts claimed from him, he had to lead
evidence to this effect. Despite the many questions raised on this front,
Tardif J. was unable to draw any conclusion in this respect.
[22]
It is true
that the respondent was hoping that the credits resulting from an eventual
reimbursement would be allocated to the GST, and that this was not done.
However, the Act respecting the Ministère du Revenu, R.S.Q., c. M-31,
provides in section 31 that money from a refund under of a Quebec tax statute may be allocated
first to the payment of debts due under another Quebec tax statute. The evidence was that
during the relevant period the company owed QST as well as source deductions
under the Taxation Act, R.S.Q., c. I-3, which explains why the
reimbursement was not allocated to the GST.
[23]
I would
add that the respondent admitted before the trial judge that he was aware of
the policy applicable to the GST/QST offset (Transcript, at p. 55), which is
reproduced on the remittance forms (Appeal Book, at pp. 132 to 140):
[TRANSLATION]
The Minister may refuse
to allow a GST/HST-QST offset to be made by a taxpayer who has other debts to
the Government of Canada or Government of Quebec (even if an agreement exists
for the settlement of tax debt), or who has not filed a return for an earlier
period.
It can be seen that apart from the fact that amounts were
owed under Quebec tax legislation, pursuant to
this policy, Revenu Québec had no duty to allocate the amounts to the payment
of GST before the respondent filed his return in 2002.
[24]
For these
reasons, the appeal will be allowed, the decision of Judge Tardif set aside
and, giving the judgment which Tardif J. should have given, the respondent’s
appeal to the Tax Court of Canada will be dismissed and the assessment dated November
18, 2003 affirmed. In accordance with section 18.25 of the Tax Court of
Canada Act, R.S.C. 1985, c. T-2, the respondent will nevertheless be
entitled to reasonable costs incurred as a result of the appeal at bar.
“Marc
Noël”
“I agree,
Gilles Létourneau J.A.”
“I agree,
Johanne Trudel J.A.”
Certified true
translation
Brian McCordick,
Translator
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