Delia – Court of Quebec finds that a director showed due diligence in relying on accounts for his corporation that did not show a remittance obligation

The ARQ commenced a QST audit of a corporation (Motostar) after its voluntary dissolution by its sole individual shareholder (Delia) and assessed Motostar for some unremitted QST – and then assessed Delia for the same amount under the Quebec equivalent of ETA s. 323(1) (and ITA s. 227.1(1).) Cameron JCQ found that the assessment of Motostar was void given that the equivalent provision in the Quebec BCA to CBCA s. 226(2) did not (unlike s. 226(2)) provide that a proceeding may be brought against the dissolved corporation within X years after its dissolution, and instead merely provided that “judicial or administrative proceedings to which the corporation was a party” are continued against its shareholder on the dissolution. (As noted, the “administrative proceedings,” i.e., audit, were commenced after the dissolution.)

Nonetheless, the assessment against Delia was valid but for the due diligence defence given that the Quebec equivalent of ETA s. 323(2)(b) (and of ITA s. 227.1(2)(b)) merely required that the corporation have been dissolved (or was in the process of dissolution proceedings) and did not require that a claim for the corporation’s liability have been proved. (The ARQ dropped an argument that Delia also was liable under the BCA for the QST in his capacity of shareholder of the dissolved corporation.)

In finding that the due diligence defence was made out, Cameron JCQ indicated that it was reasonable in the circumstance for Delia to rely on his accounting staff and to treat the accounts of Motostar, which at the time of its winding-up did not disclose any QST liability, as if they were accurate.

This case, for example, supports the view that the director of a corporation - which has been attentive to its tax reporting obligations but mistakenly missed a withholding tax obligation, e.g., under Part XIII - has a due diligence defence in relying on the corporation’s accounting staff (cf. 2015-0622751I7).

Neal Armstrong. Summaries of Delia v. Agence du revenu du Québec, 2018 QCCQ 9487 under CBCA, s. 226(2), ETA s. 323(1) and s. 323(3).