Penate – Tax Court of Canada finds that sexual harassment by customers and no evidence of diversion of GST/HST collections established a due diligence defence

The taxpayer, Ms. Penate, was the sole director and shareholder of a roofing company that fell behind in its GST/HST remittances. Campbell J found:

There is no evidence that any GST/HST remittances were diverted to assist with the business activities. It was simply a matter of not being able to collect from many contractors as a female-run subtrade unless Ms. Penate agreed to return sexual favours for payment of the Company’s completed subcontracts.

Campbell J stated that these constituted “exceptional circumstances and facts” which allowed her to conclude that the taxpayer could avail herself of the due diligence defence – so that the appeal was allowed.

Neal Armstrong. Summary of Penate v. The Queen, 2020 TCC 63 under ETA s. 323(3).