Docket:
A-93-13
Citation: 2014 FCA
37
CORAM:
BLAIS C.J.
GAUTHIER J.A.
MAINVILLE
J.A.
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BETWEEN:
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DANIEL MARCOTTE
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Appellant
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and
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HER MAJESTY THE QUEEN
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Respondent
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REASONS FOR JUDGMENT
MAINVILLE J.A.
[1]
This is an appeal from a judgment by Chief
Justice Rip of the Tax Court of Canada (the judge) dated February 7, 2013,
bearing neutral citation 2013 TCC 49 (the judgment), dismissing an appeal
against an assessment dated July 16, 2008, issued under subsection 323(1)
of the Excise Tax Act, R.S.C. 1985, c. E-15.
Facts and
background
[2]
The appellant, Daniel Marcotte, is the sole
administrator and shareholder of 3634451 Canada Inc., which will be called
“JORA” for the purposes of this dispute. This company specializes in the
construction of residential buildings.
[3]
JORA, the appellant in his personal capacity,
his brother Guy Marcotte and an employee, Gail Maloney, had five rental
properties built on adjacent lots. Given that the buildings in question were
completed on different dates and that it was difficult to spread the
construction costs among them, the appellant entered into an agreement with an
official from Revenu Québec to treat the buildings as a complex for the
purposes of GST and QST.
[4]
For the purposes of remitting these taxes, in
2004 the appellant instructed Revenu Québec to keep $349,162.91 in input tax
credits, and JORA issued a cheque to Revenu Québec in the amount of $500,000.
After splitting the amount of the cheque into two instalments of $250,000 to
the GST and QST accounts respectively, Revenu Québec allocated the total amount
of the cheque to JORA’s account balance. Following these operations, on
March 31, 2007, Revenu Québec’s books showed a $53,691.41 credit balance
in JORA’s GST account.
[5]
However, during the summer of 2007, the
appellant asked that the previous payment of $500,000 instead be allocated to
his personal tax debts as well as those of his brother Guy Marcotte and his
employee Gail Maloney. This request was granted by Revenu Québec on
December 17, 2007, and the amount was allocated as follows:
-Gail Maloney $
61,852.79
-Daniel Marcotte $285,975.38
-Guy Marcotte $
38,564.21
-JORA $113,607.62
[6]
This new allocation resulted in a retroactive
adjustment of JORA’s GST account. Because the adjusted tax debt on the GST
account had not been paid by JORA, Revenu Québec issued against the appellant
three notices of assessment in accordance with section 325 of the Excise
Tax Act in the amounts of $46,612.41, $45,642.61 and $89,949.17,
respectively. In making these assessments, Revenu Québec relied on the fact
that in 2005 and 2006, JORA had declared and paid dividends of $400,000 to the
appellant during the assessment periods at issue.
[7]
Subsection 325(2) of the Excise Tax Act
provides a basis for assessing a transferee in the circumstances set out at
subsection 325(1), which reads as follows:
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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.
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325. (1) La personne qui transfère un bien, directement ou
indirectement, par le biais d’une fiducie ou par tout autre moyen, à son
époux ou conjoint de fait, ou à un particulier qui l’est devenu depuis, à un
particulier de moins de 18 ans ou à une personne avec laquelle elle a un lien
de dépendance, est solidairement tenue, avec le cessionnaire, de payer en
application de la présente partie le moins élevé des montants suivants :
a) le résultat du calcul
suivant :
A - B
où :
A
représente l’excédent éventuel de la juste valeur
marchande du bien au moment du transfert sur la juste valeur marchande, à ce
moment, de la contrepartie payée par le cessionnaire pour le transfert du
bien,
B
l’excédent éventuel du montant de la cotisation
établie à l’égard du cessionnaire en application du paragraphe 160(2) de la Loi
de l’impôt sur le revenu relativement au bien sur la somme payée par le
cédant relativement à ce montant;
b) le total des montants
représentant chacun :
(i) le
montant dont le cédant est redevable en vertu de la présente partie pour sa
période de déclaration qui comprend le moment du transfert ou pour ses
périodes de déclaration antérieures,
(ii) les intérêts ou les pénalités dont le cédant est redevable à ce
moment.
Toutefois, le
présent paragraphe ne limite en rien la responsabilité du cédant découlant
d’une autre disposition de la présente partie.
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[8]
These assessments were vacated by the judge of
the Tax Court of Canada in a judgment dated September 27, 2012, bearing
neutral citation 2012 TCC 336. The judge held that JORA had a credit balance of
$53,691.14 with Revenu Québec until December 17, 2007, the date on which
the amount of $500,000 was reallocated, and that section 325 of the Excise
Tax Act therefore did not apply, since no taxes were owed by JORA at the
time the dividends at issue were paid.
[9]
However, the matter did not end there. Another
assessment was issued to the appellant on July 16, 2008, under
section 323 of the Excise Tax Act, which deals with director
liability. Subsections 323(1) and (3) read as follows:
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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.
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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.
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(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.
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(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.
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[10]
This last assessment was at issue in the
judgment under appeal.
Judgment of the Tax Court of Canada
[11]
The sole issue raised before the judge of the
Tax Court of Canada was whether it was open to the appellant to invoke the
defence of due diligence provided for by subsection 323(3) of the Excise
Tax Act, reproduced above, in order to be released from his liability under
subsection 323(1).
[12]
The judge held that “[r]emitting an amount and
then withdrawing it does not constitute a payment” (at para. 14 of the
judgment) in setting aside the appellant’s claim that JORA had paid its tax debts
during the relevant periods.
[13]
The judge also held that the appellant had
failed to show that he had exercised the degree of care and diligence required
by subsection 323(3), on the grounds that in proceeding with the
reallocation of the amount of $500,000 in late 2007, the appellant knew, or
should have known, that this operation would result in the creation of a tax
debt for JORA.
Analysis
[14]
The appellant’s first ground of appeal is that
the judge erred in failing to consider his own findings in relation to the
assessments issued under section 325. The judge essentially held in
another judgment that JORA had no tax debt during the 2005 and 2006 taxation
years. The appellant submits that the conditions for applying director
liability under section 323 have therefore not been met.
[15]
I cannot accept this ground of appeal.
[16]
The conditions for the application of sections
325 and 323 of the Excise Tax Act are different, and the judgment of the
Tax Court of Canada judge, which concluded in the appellant’s favour under
section 325, does not necessarily lead to the same conclusion under
section 323. The evidence shows that it was the appellant who asked that
the amount of $500,000 credited to JORA’s account be reallocated to his
personal tax debts and those of his brother and employee. In the circumstances,
it was inevitable that this would result in a retroactive adjustment of JORA’s
GST account. This is a sufficient basis for a finding that section 323 of
the Excise Tax Act applies.
[17]
As a second ground of appeal, the appellant adds
that Revenu Québec had accepted the new allocation of the amount of $500,000
without informing him that he would be held personally liable for JORA’s resulting
tax debt. He submits that he was misled and that he should therefore be able to
invoke the defence of due diligence provided for at subsection 323(3) of
the Excise Tax Act.
[18]
Again, I cannot accept this second ground of
appeal.
[19]
I note first that the evidence in the record
does not support the appellant’s claims. The official from Revenu Québec in
charge of this file testified that he had informed the appellant that the new
allocation of the amount of $500,000 would lead to collection measures: see the
Appeal Book at pages 638, 640-41, 801 and 805.
[20]
Furthermore, applying the objective standard of
care, diligence and skill required by subsection 323(3) of the Excise
Tax Act and taking into account this Court’s decision in Canada v.
Buckingham, 2011 FCA 142, [2013] 1 F.C.R. 86, I am firmly of the view that
any reasonably diligent director would understand that reallocating amounts
from JORA’s tax account for the benefits of other individuals would result in a
tax debt for the company in question. This is an elementary calculation that is
easy to understand. In this respect, I adopt the following conclusions of the
judge at paragraph 15 of his judgment:
A reasonable
businessman placed in the same circumstances would thus have been aware of the
extent of JORA’s tax obligations and would by virtue of that fact have realized
that amending the allocation of the payment would result in the creation of a
debt for JORA. In such circumstances, it would be absurd to find that Mr.
Marcotte acted diligently and that JORA paid an amount of net tax for a
reporting period. In the end, JORA remains liable to pay an amount to the Crown
for one or more reporting periods. Indeed, it is Mr. Marcotte who created the
situation that resulted in the revival of JORA’s debt.
[21]
I would therefore dismiss the appeal with costs.
“Robert M. Mainville”
“I agree.
Pierre Blais C.J.”
“I agree.
Johanne Gauthier J.A.”
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