Her Majesty the Queen v. Whissell-McLeod Ventures Ltd. And George Whissell, [1993] 1 CTC 89

Mustard, P.C.J.:—On November 1991, Revenue Canada Taxation issued and served six demands under paragraph 231.2(1)(a) on both the corporate accused ("the corporation”) and George Whissell ("VVhissell"), whereby each accused was required to provide within 75 days, signed T2 income tax returns for the corporation for each of its fiscal years ending December 31, 1986 to 1990 inclusive.

As permitted under the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act"), service of the demands was proved by affidavit and further affidavits established that as late as May 2, 1992 none of the requested returns of the corporation had been filed. It was established beyond a reasonable doubt that apart from the corporation's lawyer, Whissell was the only director, the sole directing mind of the corporation and aware of the nonfiling of the returns, the absence of records and so forth.

The issues

The defence was based on two grounds. First, as a result of financial difficulties over the period in question the corporation was unable to maintain sufficient accounting staff to keep records of the corporation's affairs, although the corporation continued to operate during that period, generating at least three and a half million dollars in sales annually. Since 1989 Whissell had retained tax lawyers and accountants to assemble records and prepare returns and, although Whissell and his other corporations had expended approximately $150,000 in the process, the returns were not prepared and filed by the end of January 1992 deadline, or indeed up to the present time. Lack of funds had prevented completion. Based on these facts the defence claimed that the 75-day deadline was unreasonable. In respect to Whissell personally it was alleged that he lacked the expertise to prepare and file the returns himself without expert legal and accounting assistance. Second, it was alleged that in proceeding under paragraph 231.2(1)(a) the Crown had proceeded under the wrong section and instead should have made a demand upon the corporation only, and under subsection 150(1). Those provisions read in part as follows:

231.2 (1) Notwithstanding any other provision of this Act, the Minister may . . . for any purpose relating to the administration or enforcement of this Act, by notice served personally or by registered or by certified mail require that any person provide, within such reasonable time as is stipulated in the notice,

(a) any information or additional information, including a return of income or a supplementary return. . . .

150 (2) Whether or not he is liable to pay tax under this Part for a taxation year and whether or not a return has been filed under subsection (1) or (3), every person shall, on demand from the Minister, served personally or by registered letter, file, within such reasonable time as may be stipulated therein, with the Minister in prescribed form and containing prescribed information, a return of the income for the taxation year designated therein.

As part of their defence, Counsel claimed that Revenue Canada has no right to require a director to file a corporate return, that was the responsibility of the corporation. Counsel further alleged that section 150 could require the corporation to prepare and file a return whereas paragraph 231.2(1)(a) could only require a filing of an existing return but not require its preparation as well. Counsel stressed that the charge was not one of failing to file returns, but rather failure to respond to a demand requiring the filing of returns. In my opinion this last is a distinction without a difference and I was provided with no authority to support the previous suggestion.

It was established as a fact that the corporation and a number of related corporations controlled by Whissell were generating something in the order of 75 million dollars in sales annually prior to 1982 and subsequently as much as ten million dollars per annum. Over the six-year period in question the corporation alone had a gross sales in the order of three and one half million dollars annually.

Decision

Dealing first with the question of reasonableness of notice, it was established that in 1989, in response to pressure from Revenue Canada, Whissell began seriously to reconstruct the records of the corporation to enable returns to be filed. He engaged tax counsel and accountants to do this. At the time of trial about 90 per cent of the work necessary to complete and prepare and file the returns had been completed and financial arrangements made to enable accountants to finish the job. It is contended that neither Whissell nor the corporation should be punished for lack of funds, having already spent large amounts personally to bring the records to their current state. Defence claimed that originally there had been some 40 corporations under the Whis- sell canopy, of which 20 required returns. Of these Whissell had filed all but two, of which the corporation was one.

In respect to reasonableness of the compliance period set forth in the demands, I rely on the decisions in R. v. Gill, (unreported), B.C.C.C., Harris, C.C.J., October 19, 1989, and R. v. Leibel, (unreported) P.C. Linn, Prov. J., August 23, 1990. As authority for the proposition that neither the corporation nor Whissell can rely on poor records and lack of funds as a defence, the Judgment of Harris, C.C.J. in Gill states the position exactly. The Honourable Judge at page 8 says as follows:

I have noted the evidence of Mr. Leonard McIntosh, C.A. for the defence to the effect that the books of the various companies at the time the demands were served were in a mess and would have required four to six months of professional work and a cost of between $25,000 and $40,000 to do a proper full return situation. That in my view does not constitute a valid defence to any of the charges: The operator of any business (whether an individual or limited company) is under a duty to maintain such proper books of account and financial records as to enable that person to comply with his or its statutory reporting duties to the Revenue authorities: If a taxpayer fails regularly to maintain its records, and allows them to get in such a state that his or its income tax obligations can only be fulfilled through a lengthy and costly investigation which the taxpayer may have difficulty in affording, the taxpayer does so at his peril.

The Gill case was similar in facts to the present except that the relevant demand documents were addressed only to Gill as a director requiring him to file the corporate returns. This was so because at the time of the service of the demands all the corporations were non-existing, each having been struck from the Register and not reinstated. But for that, and the fact that there was no officer in existence capable in law of signing a return, nor a Board capable in law of authorizing any other person to sign a return for the defunct corporations, it would appear that the director would have been found liable in that case. Subsection 231.5(2) excuses anyone from doing what he would otherwise be obliged to do if he is "unable to do so”. Further in the Gill case the Court found that at all material times Gill was "unable to so do" in the wording of subsection 231.5(2) but quoting from the decision:

Not because time and a shortage of money prevented the preparation of income tax returns, but because as a matter of law for the reason set out above he was incapable of complying with the demands.

In the case of Leibel the Provincial Court for Saskatchewan on facts similar to the present case also found the time for filing in response to the demand reasonable. On page 6 of that judgment, Linn, P.C.J. stated:

I agree with Crown Counsel's submission that the accused is obliged to keep books and records regarding his tax affairs and further obliged to file his tax return without demand by the Minister. Given these obligations I do not find that the time limits on the letters of requirement were unreasonable.

In all the circumstances I find the 75-day period for filing in the present case was not unreasonable.

In respect to the second issue I refer to the decision of Wilson, J. in R. v. Slupek, an unreported decision of the Court of Queen's Bench of Alberta dated January 13, 1992, wherein the accused was found guilty. Counsel have advised me that the Court of Appeal upheld the decision of the trial judge but the transcript is not yet available to me.

The Slupek case differs from the facts of the present case to the extent that there were no corporate taxpayers involved in that case, the demand being addressed to the accused individual and what was required of him was the filing of his personal returns. Mr. Erler, counsel for the accused in the present matter, was also counsel for Mr. Slupek.

While no reference was made in argument by either counsel to the question of whether the Crown had established a genuine and ongoing investigation into the tax liabilities of the corporation or the enforcement of the Act against the corporation, I find as a fact that such was the case. The corporation is therefore guilty as charged.

No authority has been cited to satisfy me whether paragraph 231.2(1)(a) is broad enough to require from a director of a corporation (in this case one who by his own admission is the directing mind of that corporation) signed T2 returns for that corporation and failing that to make the director guilty under subsection 238(1) for breach of the earlier section.

Neither the Slupek case nor the case of R. v. Dakus 87 A.R. 374, Girgulis, J.Q.B.A., July 7, 1988 assist me in this respect. In both those cases demands were made under paragraph 231.2(1)(a) or its earlier equivalent, but on individuals, and not corporations, and only in respect to the individual's return.

Both Leibel and Gill dealt with demands made on directors in respect of filing returns of the corporations with respect to which the individuals were directors and the sole directing mind of the corporation.

In Gill the director escaped liability for the reasons already stated.

In Leibel no demand for the corporate returns was made upon the corporation itself, only on the director requiring him to deliver signed corporate returns for the corporation. The Court failed to deal directly with the issue of whether Revenue Canada can under paragraph 231.2(1)(a) require a director to file a corporate return. Instead the Court found Leibel guilty as a party under section 242 of the Act.

For the reasons already stated I am not satisfied that the Crown has met its obligations of proof in respect to counts one to six as against Whissell for failing to personally respond to the demands under paragraph 231.2(1)(a) to file the corporate returns of the corporation and, as such, is not guilty as a principal of the offences as charged. However, on the evidence, the only inference that can be drawn is that Whissell, in his capacity as a director and the sole directing mind of the corporation, directed, authorized or assented to, or at the very least acquiesced or participated in whatever the corporation did or failed to do in committing the offences of which I found the corporation guilty by virtue of subsection 238(1). Section 242 makes any such officer or director a party to the corporate offence, guilty of the offence and upon conviction liable to the same punishment provided for the offence. Here the accused Whissell dealt with Revenue Canada and its officers, was aware of the failure to file the 1985 to 1990 corporate returns, was personally served with the demands upon the corporation and upon himself in his capacity as director of the corporation, was involved since 1989 and before in dealing with the tax lawyers and accountants to try to put together the records necessary to produce the requested returns. I have no doubt whatsoever that George Whissell falls within section 242 and therefore I find him guilty as a party to each offence committed by the corporation.

While not argued because the issue only arose in preparation of this decision, it should be noted that it is not necessary that the information charge Whissell as a party. It is enough that the full offence be charged and that is sufficient to support a conviction of an accused as a party, even though the accused may not be guilty of the offence as a principal, or that he be incapable of committing the offence as principal or even that no one charged is capable of being convicted as a principal. R. v. Harder, [1956] S.C.R. 489,23 C.R. 295, 114 C.C.C. 129, 4 D.L.R. (2d) 150 in the Supreme Court of Canada is authority for that proposition. That was a case where the accused was charged with rape as it then was but there was no evidence that "he as a man, had sexual intercourse with a female, not his wife", as charged. However, there was evidence of his participation in the offence as an aider or abettor and under section 21 he was properly convicted as a party. It would be equally true that if that accused had been a female, similarly charged, with like participation as an aider or abettor, she, would likewise be properly found guilty under section 21, even though incapable of committing the full offence as charged. Section 242 of the Income Tax Act should have the same effect.

Accused convicted.