De Vries – Tax Court of Canada finds that a corporate creditor’s oral agreement to postpone collection of his loan defeated a RTP encompassing that loan
The two individual shareholders (husband and wife) of a corporation (“IPG”) were assessed under s. 160 regarding a dividend they had received from IPG on the basis that, at the time of the dividend, IPG had been assessed for failure to comply with a s. 224(1) requirement to pay (“RTP”) effectively requiring it to pay to CRA a demand loan owing by it to a former employee and business associate (“Houweling”).
Paris J accepted testimony that Houweling had orally agreed, prior to the receipt by IPG of the RTP, to postpone his right to receive repayment of the loan until the conclusion of a significant suit brought by IPG against a third party. He further found that “there has been an evolution in the doctrine of consideration in the context of contract modifications,” so that now “when parties to a contract agree to vary its terms, the variation should be enforceable without fresh consideration, absent duress, unconscionability, or other public policy concerns.”
As the oral agreement of Houweling to postpone payment was contractually binding, the assessment of IPG for its purported failure to honour the RTP was invalid, so that there was no corporate liability to flow through to the taxpayers under s. 160.