O’Connor
T.C.J.:
This
appeal
was
heard
at
Toronto,
Ontario
on
February
23,
1998
pursuant
to
the
General
Procedure
of
this
Court.
For
the
Appellant
testimony
was
given
by
himself
and
his
sister,
Ivana.
For
the
Respondent
(“Minister”)
testimony
was
given
by
Maria
Cesario,
a
collection
officer.
Several
exhibits
were
filed
including
Appellant’s
Book
of
Documents
(“ABD”)
containing
31
tabs.
The
Appellant
appeals
a
Notice
of
Assessment
dated
November
17,
1994
which,
inter
alia,
assessed
the
Appellant
a
director’s
liability
under
subsection
227.1(1)
of
the
Income
Tax
Act
(“Act”)
for
federal
income
taxes
deducted
at
source
but
not
remitted
by
Ontario
Masonry
(1988)
Ltd.
(“Corporation”)
in
the
taxation
years
1990,
1991
and
1992.
The
total
amount
of
the
said
taxes
was
$73,697.20
plus
interest
of
$6,225.63.
The
assessment
was
contested
by
a
Notice
of
Objection
and
the
Minister
confirmed
the
assessment
by
a
Notice
of
Confirmation
dated
July
13,
1995.
Facts
The
Corporation
was
incorporated
on
March
29,
1988.
Its
sole
directors
were
the
Appellant
and
his
sister,
Ivana
who
were
also
the
sole
shareholders
in
the
proportions
of
70%
for
the
Appellant
and
30%
for
Ivana.
The
Appellant
was
president
and
Ivana
was
secretary-treasurer.
The
Corporation
carried
on
a
masonry
business.
The
Appellant
and
Ivana
were
the
only
permanent
employees.
Other
employees
were
hired
from
time
to
time
as
work
required.
As
salaries,
the
Appellant
received
approximately
$60,000.
per
annum
and
Ivana
$20,000
per
annum.
The
Appellant
and
Ivana
had
separate
functions.
The
Appellant
tendered
and
secured
jobs
and
made
estimates
and
as
well
supervised
the
construction
work
in
the
field.
Ivana
was
in
charge
of
internal
office
matters
including
preparation
of
payroll,
issuing
cheques,
making
necessary
deductions,
handling
all
banking
matters
and
doing
bookkeeping
generally.
The
Appellant’s
main
input
in
respect
to
Ivana’s
work
involved
supplying
her
with
foremen’s
sheets
showing
hours
worked
by
the
employees.
These
sheets
formed
the
basis
for
preparation
of
the
payroll.
As
to
education,
the
Appellant
graduated
from
high
school
and
took
two
and
one-half
semesters
at
Humber
College
on
business
matters.
Ivana’s
education
was
more
advanced
and
she
had
bookkeeping
education
experience.
As
to
work
experience,
the
Appellant
started
working
for
his
father
in
his
father’s
masonry
business
and
continued
that
work
from
1983
until
1988
when
the
Corporation
was
formed.
His
work
with
his
father’s
operation
provided
the
experience
for
his
work
for
the
Corporation.
The
Appellant
alleges
that
he
had
no
knowledge
of
problems
with
source
deductions
until
he
received
a
call
from
a
Revenue
Canada
collector
in
the
Spring
of
1993
who
advised
at
that
time
the
Corporation
was
in
arrears
in
an
amount
of
approximately
$50,000.
The
Respondent
of
course
contends
that
the
Appellant
must
have
known
long
before
that
call.
After
realizing
that
the
Corporation
was
seriously
indebted
to
Revenue
Canada,
Ivana
set
up
a
payment
schedule
with
Revenue
Canada.
However,
the
financial
obligations
were
so
great
that
the
Corporation
was
unable
to
afford
the
original
schedule
of
payments
of
$7,500
per
month
after
only
a
few
months
of
making
payments.
The
Corporation
was
modestly
successful
at
first
and
showed
only
relatively
modest
losses
of
approximately
$7,000
in
each
of
its
fiscal
years
ended
March
31,
1990
and
March
31,
1991.
The
Appellant
explained
how
the
recession,
which
took
hold
in
1991,
reduced
work
and
profit
margins
with
the
result
that
he
had
to
work
longer
hours
obtaining
work
and
supervising
same
and
attempting
to
reduce
costs
wherever
possible.
The
recession
affected
the
construction
industry
generally
and
collection
of
receivables
grew
more
difficult.
It
is
clear
from
Tabs
4
and
6
of
the
ABD
that
salaries
and
benefits
were
the
largest
expense
of
the
Corporation
amounting
to
approximately
95%
of
gross
revenues
in
the
fiscal
years
ending
March
31,
1990
and
March
31,
1991.
The
Corporation
had
insignificant
assets
since
all
of
its
equipment
and
premises
were
leased.
Economic
and
financial
difficulties
forced
the
Corporation
to
cease
operations
in
July
of
1994
and
it
was
dissolved
pursuant
to
the
Ontario
Busi-
ness
Corporations
Act
by
an
Order
dated
May
15,
1995
for
default
in
complying
with
the
Corporations
Tax
Act
(Ontario).
A
Certificate
of
the
Minister
(the
“1993
Certificate”)
was
registered
on
July
6,
1993
in
the
Federal
Court
of
Canada
under
subsection
223(3)
of
the
Act
relative
to
the
assessments
issued
against
the
Corporation
on
February
22
and
August
22,
1992
and
March
30,
1993.
A
Writ
of
Fieri
Facias
was
issued
dated
August
11,
1993
(the
“1993
Writ”)
to
the
Sheriff
of
the
Regional
Municipality
of
York,
Ontario,
in
respect
of
the
1993
Certificate.
The
August
11
date
appears
in
paragraph
20
of
the
Amended
Notice
of
Appeal.
That
paragraph
is
admitted
in
the
Reply
but
the
date
on
the
actual
Writ
is
July
6,
1993.
However
this
is
of
no
consequence.
An
undated
report
by
Stuart
Reid,
Senior
Enforcement
Officer
of
the
Sheriffs
Office
Regional
Municipality
of
York
returned
the
1993
Writ
marked
“Nulla
Bona"'.
Although
undated,
this
report
mentions
that
Mr.
Reid
visited
the
premises
of
the
Corporation
on
October
19,
1993.
Law
The
relevant
provisions
of
the
Income
Tax
Act,
Federal
Court
Act
and
Rules,
the
Ontario
Rules
of
Civil
Procedure
and
the
Ontario
Business
Corporations
Act
follow:
Income
Tax
Act
166
Irregularities
-
An
assessment
shall
not
be
vacated
or
varied
on
appeal
by
reason
only
of
any
irregularity,
informality,
omission
or
error
on
the
part
of
any
person
in
the
observation
of
any
directory
provision
of
this
Act.
227.1.
(1)
Liability
of
directors
for
failure
to
deduct
-
Where
a
corporation
has
failed
to
deduct
or
withhold
an
amount
as
required
by
subsection
135(3)
or
section
153
or
215,
has
failed
to
remit
such
an
amount
or
has
failed
to
pay
an
amount
of
tax
for
a
taxation
year
as
required
under
Part
VII
or
VIII,
the
directors
of
the
corporation
at
the
time
the
corporation
was
required
to
deduct,
withhold,
remit
or
pay
the
amount
are
jointly
and
severally
liable,
together
with
the
corporation,
to
pay
that
amount
and
any
interest
or
penalties
relating
thereto.
(2)
Limitations
on
liability
-
A
director
is
not
liable
under
subsection
(1),
unless
(a)
a
certificate
for
the
amount
of
the
corporation’s
liability
referred
to
in
that
subsection
has
been
registered
in
the
Federal
Court
under
section
223
and
execution
for
that
amount
has
been
returned
unsatisfied
in
whole
or
in
part;
(b)
the
corporation
has
commenced
liquidation
or
dissolution
proceedings
or
has
been
dissolved
and
a
claim
for
the
amount
of
the
corporation’s
liability
referred
to
in
that
subsection
has
been
proved
within
six
months
after
the
earlier
of
the
date
of
commencement
of
the
proceedings
and
the
date
of
dissolution;
or
(c)
the
corporation
has
made
an
assignment
or
a
receiving
order
has
been
made
against
it
under
the
Bankruptcy
and
Insolvency
Act
and
a
claim
for
the
amount
of
the
corporation’s
liability
referred
to
in
that
subsection
has
been
proved
within
six
months
after
the
date
of
the
assignment
or
receiving
order.
(3)
Idem
-
A
director
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.
(4)
Limitation
period
-
No
action
or
proceedings
to
recover
any
amount
payable
by
a
director
of
a
corporation
under
subsection
(1)
shall
be
commenced
more
than
two
years
after
the
director
last
ceased
to
be
a
director
of
that
corporation.
(5)
Amount
recoverable
-
Where
execution
referred
to
in
paragraph
(2)(a)
has
issued,
the
amount
recoverable
from
a
director
is
the
amount
remaining
unsatisfied
after
execution.
223.
(1)
Definition
of
“amount
payable”
-
For
the
purposes
of
subsection
(2),
an
“amount
payable”
by
a
person
means
any
or
all
of
(a)
an
amount
payable
under
this
Act
by
the
person;
(b)
an
amount
payable
under
the
Unemployment
Insurance
Act
by
the
person;
(c)
an
amount
payable
under
the
Canada
Pension
Plan
by
the
person;
and
(d)
an
amount
payable
by
the
person
under
an
Act
of
a
province
with
which
the
Minister
of
Finance
has
entered
into
an
agreement
for
the
collection
of
taxes
payable
to
the
province
under
that
Act.
(2)
Certificates
-
An
amount
payable
by
a
person
(in
this
section
referred
to
as
a
“debtor”)
that
has
not
been
paid
or
any
part
of
an
amount
payable
by
the
debtor
that
has
not
been
paid
may
be
certified
by
the
Minister
as
an
amount
payable
by
the
debtor.
(3)
Registration
in
court
-
On
production
to
the
Federal
Court,
a
certificate
made
under
subsection
(2)
in
respect
of
a
debtor
shall
be
registered
in
the
Court
and
when
so
registered
has
the
same
effect,
and
all
proceedings
may
be
taken
thereon,
as
if
the
certificate
were
a
judgment
obtained
in
the
Court
against
the
debtor
for
a
debt
in
the
amount
certified
plus
interest
thereon
to
the
day
of
payment
as
provided
by
the
statute
or
statutes
referred
to
in
subsection
(1)
under
which
the
amount
is
payable
and,
for
the
purpose
of
any
such
proceedings,
the
certificate
shall
be
deemed
to
be
a
judgment
of
the
Court
against
the
debtor
for
a
debt
due
to
Her
Majesty,
enforceable
in
the
amount
certified
plus
interest
thereon
to
the
day
of
payment
as
provided
by
that
statute
or
statutes.
History:
S.
223
(3)
was
amended
by
S.C.
1
994,
c.
7,
Sched.
VIII,
s.
129,
effective
on
Royal
Assent,
May
12,
1994.
S.
223
(3)
formerly
read:
(3)
On
production
to
the
Federal
Court,
a
certificate
made
under
subsection
(2)
in
respect
of
a
debtor
shall
be
registered
in
the
Court
and
when
so
registered
has
the
same
effect,
and
all
proceedings
may
be
taken
thereon,
as
if
the
certificate
were
a
judgment
obtained
in
the
Court
against
the
debtor
for
a
debt
in
the
amount
certified
plus
interest
thereon
to
the
day
of
payment
as
provided
by
law
and,
for
the
purposes
of
any
such
proceedings,
the
certificate
shall
be
deemed
to
be
a
judgment
of
the
Court
against
the
debtor
for
a
debt
due
to
Her
Majesty
enforceable
in
the
amount
certified
plus
interest
thereon
to
the
day
of
payment
as
provided
by
law.
Federal
Court
Act
Section
56
Analogy
to
provincial
process
-
Process
against
person
-
Process
against
property
-
Claim
against
property
seized
56.
(1)
In
addition
to
any
writs
of
execution
or
other
process
that
are
prescribed
by
the
rules
for
enforcement
of
its
judgments
or
orders,
the
Court
may
issue
process
against
the
person
or
the
property
of
any
party,
of
the
same
tenor
and
effect
as
those
that
may
be
issued
out
of
any
of
the
superior
courts
of
the
province
in
which
any
judgment
or
order
is
to
be
executed;
and
where,
by
the
law
of
that
province,
an
order
of
a
judge
is
required
for
the
issue
of
any
process,
a
judge
of
the
Court
may
make
a
similar
order
with
respect
to
like
process
to
issue
out
of
the
Court.
(2)
No
person
shall
be
taken
into
custody
under
process
of
execution
for
debt
issued
out
of
the
Court.
(3)
All
writs
of
execution
or
other
process
against
property,
whether
prescribed
by
the
Rules
or
authorized
by
subsection
(1),
shall,
unless
otherwise
provided
by
the
Rules,
be
executed,
with
respect
to
the
property
liable
to
execution
and
the
mode
of
seizure
and
sale,
as
nearly
as
possible
in
the
same
manner
as
similar
writs
or
process,
issued
out
of
the
superior
courts
of
the
province,
required
to
be
executed,
and
the
writs
or
other
process
issued
by
the
Court
shall
bind
property
in
the
same
manner
as
such
similar
writs
or
process
issued
by
the
provincial
superior
courts,
and
the
rights
of
purchasers
thereunder
are
the
same
as
those
of
purchasers
under
those
similar
writs
or
process.
(4)
Every
claim
made
by
any
person
to
property
seized
under
a
writ
of
execution
or
other
process
issued
out
of
the
Court,
or
to
the
proceeds
of
the
sale
of
such
property,
shall,
unless
otherwise
provided
by
the
Rules,
be
heard
and
disposed
of
as
nearly
as
may
be
according
to
the
procedure
applicable
to
like
claims
to
property
seized
under
similar
writs
or
process
issued
out
of
the
courts
of
the
province.
(5)
Repealed.
[S.C.
1990,
c.8,
s.
18]
Rule
2008
2008.
(1)
Any
party
at
whose
instance
a
writ
of
execution
was
issued
may
serve
a
notice
on
the
sheriff
to
whom
the
writ
was
directed
requiring
him,
within
such
reasonable
time
as
may
be
specified
in
the
notice,
to
endorse
on
the
writ
a
statement
of
the
manner
in
which
he
has
executed
it
and
to
send
to
that
party
a
copy
of
the
statement.
(2)
If
a
sheriff
on
whom
such
a
notice
is
served
under
paragraph
(1)
fails
to
comply
with
it,
the
party
by
whom
it
was
served
may
apply
to
the
Court
for
an
order
directing
the
sheriff
to
comply
with
the
notice.
Ontario
Rules
of
Civil
Procedure
Sheriff's
Report
on
Execution
of
Writ
60.14
(1)
A
party
or
solicitor
who
has
filed
a
writ
with
a
sheriff
may
in
writing
require
the
sheriff
to
report
the
manner
in
which
he
or
she
has
executed
the
writ
and
the
sheriff
shall
do
so
forthwith
by
mailing
to
the
party
or
solicitor
a
sheriffs
report
(Form
60N).
Withdrawal
of
Writ
(2)
A
party
or
solicitor
who
has
filed
a
writ
with
a
sheriff
may
withdraw
it
as
against
one
or
more
of
the
debtors
named
in
it
by
giving
the
sheriff
written
instructions
to
that
effect.
O.
Regs.
560/84,
r.
60.15(2);
478/85,
s.1.
(3)
When
a
writ
is
withdrawn,
the
sheriff
shall
record
the
date
and
the
time
of
withdrawal
in
a
memorandum
on
the
writ,
and
where
it
is
withdrawn
as
against
all
debtors
named
in
it,
shall
remove
the
writ
from
his
or
her
file
and
return
it
to
the
person
who
withdrew
it.
O.
Regs.
560/84,
r.
60.15(3);
478/85,
s.1.
Form
60
N
Sheriff's
Report
(General
heading)
Sheriff’s
Report
In
response
to
your
request
of
(date)
concerning
the
execution
of
the
writ
of
seizure
and
sale
(or
possession,
delivery
or
sequestration)
against
(name
of
party)
filed
with
me,
I
report
that
I
have
taken
the
following
action,
with
the
following
results:
(Give
particulars.)
(Date)
(Signature
of
sheriff)
TO
(Name
and
address
of
creditor
or
solicitor)
Ontario
Business
Corporations
Act
242.(1)
Despite
the
dissolution
of
a
corporation
under
this
Act,
(a)
a
civil,
criminal
or
administrative
action
or
proceeding
commenced
by
or
against
the
corporation
before
its
dissolu-
tion
may
be
continued
as
if
the
corporation
had
not
been
dissolved;
(b)
a
civil,
criminal
or
administrative
action
or
proceeding
may
be
brought
against
the
corporation
within
five
years
after
its
dissolution
as
if
the
corporation
had
not
been
dissolved;
and
(c)
any
property
that
would
have
been
available
to
satisfy
any
judgment
or
order
if
the
corporation
had
not
been
dissolved
remains
available
for
such
purpose.
1982,
c.4,
s.
241(1);
1986,
c.57,
s.19.
Appellant’s
Position
The
Appellant
states
that
a
director
is
not
liable
under
section
227.1
of
the
Act
unless
and
until
one
of
the
conditions
of
subsection
227.1(2)
is
satisfied
and
that
the
Minister
has
the
onus
of
proof
in
this
regard.
The
Appellant
submits,
that
since
the
1993
Sheriff’s
Report
is
undated,
he
was
not
liable
under
paragraph
227.1(2)(a)
of
the
Act
on
November
17,
1994,
the
date
of
the
Assessment.
The
Assessment
was
issued
to
the
Appellant
prior
to
the
Corporation’s
Assessment
upon
which
the
Assessment
is
based
and
the
Corporation’s
Assessment
was
issued
against
the
Corporation
after
the
Corporation
was
dissolved.
The
Appellant
states
that
Section
56
of
the
Federal
Court
Act
requires
that
in
Federal
Court
a
process
analogous
to
the
process
of
the
Superior
Court
of
the
Province
may
be
used
in
addition
to
the
Writs
of
Execution
and
process
prescribed
by
the
Federal
Rules.
The
Appellant
submits
that
the
Ontario
Rules
require
that
the
Sheriff
complete
his
report
in
Form
60N.
Form
60N
sets
out
on
its
face,
the
requirement
that
the
Sheriffs
report
be
dated
and
signed
by
the
Sheriff.
The
1993
Sheriffs
Report
is
deficient
because
it
is
undated.
The
Appellant
submits
that
Federal
Rule
2008
requires
the
Sheriff
to
endorse
on
the
Writ
a
statement
of
the
manner
in
which
he
has
executed
it
and
to
send
to
that
party
a
copy
of
the
statement.
Thus,
the
1993
Sheriffs
Report
is
deficient
pursuant
to
the
Federal
Rules
as
the
Sheriff
has
not
endorsed
on
the
Writ
of
Fieri
Facias
itself
a
statement
of
the
manner
in
which
he
has
executed
it
as
required
pursuant
to
Rule
2008.
The
Appellant
submits
that
the
undated
Sheriff
s
Report
is
deficient
in
that
the
Sheriff
has
not
fulfilled
his
duties
in
completing
his
report
because
his
report
does
not
demonstrate
that
he
made
all
reasonable
inquiries
to
dis-
cover
what
assets
the
Corporation
had
to
seize
in
satisfaction
of
the
1993
Writ
before
marking
the
report
“NULLA
BONA”.
The
Minister
is
unable
to
answer
these
deficiencies
in
the
undated
Sheriffs
Report
and
the
Appellant
submits
that
these
deficiencies
show
that
the
undated
Sheriffs
Report
is
insupportable
in
fact.
Consequently,
the
Appellant
submits
that
the
Minister
failed
to
take
the
requisite
steps
provided
in
paragraph
227.1
(2)(<a)
of
the
Act
as
he
failed
to
exhaust
recourse
against
the
Corporation
before
calling
upon
the
Appellant,
who
is
not
directly
liable
for
the
Corporation’s
income
tax.
Moreover,
section
166
of
the
Act
is
of
no
use
to
the
Minister.
In
other
words
the
undating
and
the
flaws
described
above
go
beyond
the
protection
given
to
the
Minister
by
section
166.
The
Ontario
Business
Corporations
Act
does
not
provide
a
mechanism
for
a
creditor
to
prove
a
claim
and
it
was
not
possible
for
the
Minister
to
prove
a
claim
for
the
amount
of
the
Corporation’s
tax
liability
under
the
Act
within
six
months
after
the
earlier
of
the
date
of
commencement
of
the
dissolution
proceedings
under
the
Ontario
Business
Corporations
Act
and
the
date
of
dissolution.
The
Corporation
did
not
make
an
assignment
in
bankruptcy
nor
was
a
receiving
order
made
against
it
under
the
Bankruptcy
and
Insolvency
Act
(Canada),
and
therefore
the
Minister
did
not
prove
a
claim
for
the
amount
of
the
Corporation’s
tax
liability
under
the
Act
within
six
months
after
the
earlier
of
the
date
of
any
such
assignment
or
receiving
order.
The
Appellant
further
submits
that
no
claim
for
the
amount
of
the
Corporation’s
liability
referred
to
in
subsection
227.1(1)
was
proved
in
accordance
with
paragraph
227.1(2)0)
or
(c)
of
the
Act.
The
Appellant
ceased
to
be
a
director
on
May
15,
1995
and
the
Minister
is
statute
barred
from
commencing
an
action
or
proceeding
against
the
Appellant
for
his
role
as
a
director
of
the
Corporation
after
May
15,
1997
because
of
the
limitation
contained
in
subsection
227.1(4)
of
the
Act.
In
the
alternative,
the
Appellant
submits
that
he
is
not
liable
under
subsection
227.1(1)
of
the
Act
because
he
exercised
the
degree
of
care,
diligence
and
skill
required
by
subsection
227.1(3).
Minister’s
Position
The
Minister
submits
that
he
properly
assessed
the
Appellant
pursuant
to
sections
227
and
227.1
of
the
Act
for
the
failure
by
the
Corporation
to
remit
to
the
Receiver
General
an
amount
of
federal
income
tax,
with
penalties
and
interest
thereon,
as
required
by
section
153
of
the
Act.
The
Minister
submits
that
the
Appellant
did
not
exercise
the
degree
of
care,
diligence
and
skill
to
prevent
the
failure
to
remit
the
amount
by
the
Corporation
that
a
reasonably
prudent
person
would
have
exercised
in
comparable
circumstances.
The
Minister
submits
that
the
assessment
raised
against
the
Appellant
pursuant
to
sections
227
and
227.1
of
the
Act
is
proper
as,
before
the
assessment
was
raised,
the
requirements
of
the
condition
precedent
found
in
paragraph
227.1(2)(a)
of
the
Act
had
been
satisfied,
that
is,
a
certificate
for
the
amount
of
the
Corporation’s
liability
had
been
registered
in
the
Federal
Court
of
Canada
under
section
223
of
the
Act
and
execution
for
such
amount
was
returned
unsatisfied.
The
Minister
submits
that
the
assessment
raised
against
the
Appellant
under
sections
227
and
227.1
of
the
Act
is
proper
notwithstanding
the
failure
by
the
Sheriff
to
date
his
Nulla
Bona
Report.
He
submits
further
that
subsection
56(3)
of
the
Federal
Court
Act
does
not
incorporate
by
reference
the
whole
of
the
Ontario
Rules
dealing
with
executions
against
property
such
that
the
failure
by
the
Sheriff
to
exactly
follow
Form
60N
of
the
Ontario
Rules
and
date
his
Nulla
Bona
Report
does
not
remove
the
Appellant’s
joint
liability
with
the
Corporation
under
sections
227
and
227.1
of
the
Act.
The
Minister
submits
that
the
Writ
of
Fieri
Facias
is
not
deficient
as
Rule
2008
of
the
Federal
Rules
does
not
require
the
Sheriff
to
endorse
on
the
Writ
of
Fieri
Facias
itself
a
statement
of
the
manner
in
which
he
has
executed
unless
so
requested
by
the
party
at
whose
instance
the
Writ
of
Fieri
Facias
was
issued.
Moreover,
the
assessment
is
deemed
valid
pursuant
to
section
166
of
the
Act.
The
Minister
submits
that
as
the
Corporation
was
dissolved
pursuant
to
section
241
of
the
Ontario
Business
Corporations
Act
it
was
not
possible
for
the
Minister
to
meet
the
requirements
of
the
condition
precedent
in
paragraph
227.1(2)(b)
of
the
Act
before
assessing
the
Appellant
under
section
227
and
227.1
of
the
Act
and
that
therefore
the
Minister
properly
proceeded
under
paragraph
227.1(2)(a)
of
the
Act.
The
Minister
submits
that
there
is
no
statutory
precondition
in
the
Act
that
requires
the
Minister
to
assess
a
corporation
in
respect
of
its
unremitted
source
deductions
before
assessing
the
director
of
the
corporation
under
sections
227
and
227.1
of
the
Act.
The
Minister
submits
that
pursuant
to
section
242
of
the
Ontario
Business
Corporations
Act,
a
civil,
criminal,
or
administrative
action
may
be
brought
against
a
dissolved
corporation
within
five
years
after
its
dissolution
as
if
the
corporation
had
not
been
dissolved.
Analysis
and
Decision
As
to
the
undated
Sheriffs
Report
and
to
the
other
alleged
deficiencies
in
the
Sheriffs
process,
I
am
of
the
view
that
the
Minister’s
position
set
forth
above
is
correct.
I
have
difficulty
in
accepting
that
the
lack
of
a
date
and
the
other
irregularities
alleged
by
the
Appellant
are
sufficient
to
void
the
assessment.
Moreover,
it
is
clear
from
all
of
the
evidence
that
the
company
had
no
assets
and
the
allegations
that
the
sheriff
did
not
do
his
job
properly
in
ascertaining
assets
is
not
all
that
material.
Moreover,
I
believe
section
166
of
the
Act
protects
the
Minister.
The
Sheriffs
Report
does
mention
a
date
where
he
visited
the
premises,
namely
October
19,
1993
which
should
be
satisfactory
in
determining
a
date.
Moreover,
it
may
well
be
that
irregularities
in
a
process
governed
by
the
Federal
Court
Act
must
be
ruled
upon
by
the
Federal
Court.
See
Curylo
v.
Minister
of
National
Revenue
(1992),
92
D.T.C.
1250
(T.C.C.)
where
Beaubier
J.
stated:
It
is
this
Court’s
finding
that
if
the
Certificate
filed
in
the
Federal
Court
of
Canada
by
the
Minister
of
National
Revenue
on
February
10,
1986
names
the
wrong
corporation,
or
if
the
amendment
the
Minister
of
National
Revenue
purported
to
make
is
invalid,
then
that
must
be
determined
by
an
appropriate
action
in
the
Federal
Court
of
Canada
to
terminate
the
Certificate
in
question.
To
use
the
words
of
Cattanach,
J.
in
Her
Majesty
The
Queen
v.
Star
Treck
Holdings
Ltd.,
et
al.,
77
DTC
5311
(F.C.T.D.)
at
5313:
On
the
contrary
it
is
authority
for
the
proposition
that
a
person
affected
by
the
registration
of
such
a
certificate
is
entitled
to
invoke
the
exercise
of
this
Court’s
jurisdiction
to
determine
the
propriety
or
otherwise
of
the
registration
and
that
it
is
open
to
a
person
against
whom
such
a
certificate
is
registered
to
contest
it
by
way
of
an
independent
proceeding
claiming
invalidity
in
the
certificate
or
its
registration.
The
Tax
Court
is
a
creation
of
statute
and
has
no
inherent
jurisdiction.
Therefore
it
would
appear
that
the
Federal
Court
is
the
proper
forum
to
determine
the
merits
of
the
Appellant’s
argument
that
the
Minister,
and
the
Sheriff,
did
not
correctly
follow
the
procedural
rules
set
out
in
the
Federal
Court
Act.
The
only
preconditions
in
the
Act
that
must
be
satisfied
before
a
director
is
deemed
liable
for
a
corporation’s
unremitted
source
deductions
are
those
set
out
in
subsection
227.1(2).
There
is
nothing
in
that
subsection
which
states
that
the
corporation
must
be
assessed
for
the
unremitted
source
deductions
prior
to
the
director
being
assessed.
Subsection
223(3)
of
the
Act
states
that
the
filing
of
the
certificate
in
Federal
Court
has
the
same
effect
as
a
judgment
obtained
in
that
Court.
It
is
the
certificate
referred
to
in
that
subsection
that
the
Appellant’s
liability
is
based
upon,
not
the
corporation’s
original
assessment.
According
to
the
Ontario
Business
Corporations
Act,
a
civil,
criminal
or
administrative
action
may
be
brought
against
a
dissolved
corporation
within
five
years
after
its
dissolution
as
if
the
corporation
had
not
been
dissolved.
With
respect
to
the
Appellant’s
position
on
the
interpretation
of
paragraphs
227.1(2)(a),
(b)
and
(c),
it
is
my
opinion
that
the
ruling
by
Christie
A.C.J.
in
Kennedy
v.
Minister
of
National
Revenue
(1991),
91
D.T.C.
1037
(T.C.C.),
is
directly
on
point.
He
stated
at
1040
that:
It
is
the
appellant’s
contention
that
fulfilling
the
requirements
of
paragraph
227.1
(2)(«)
is
not
compliance
with
the
condition
precedent
in
all
cases.
Whether
there
must
be
observance
of
paragraph
227.1
(2)(a)
or
(b)
or
(c)
in
order
to
do
so
will
depend
on
the
facts
of
each
case.
If
a
corporation
has
commenced
liquidation
or
dissolution
proceedings
or
has
been
dissolved,
the
route
designated
under
paragraph
227.1(2)(b)
must
be
followed.
If
a
corporation
has
made
an
assignment
or
a
receiving
order
has
been
made
against
it
under
the
Bankruptcy
Act,
paragraph
227.1
(2)(c)
governs.
In
other
circumstances,
paragraph
227.1(2)(a)
is
applicable.
I
think
that
the
foregoing
is
the
proper
approach.
Travel
Consultants
having
been
dissolved,
it
is
said
that
the
appellant
is
entitled
to
succeed
because
the
Minister
complied
with
paragraph
227.1(2)(a)
and
not
paragraph
227.1(2)(fc)
as
required.
This
argument
is
sustainable
only
if
in
the
case
at
hand
it
was
possible
for
the
Minister
to
comply
with
paragraph
227.1
(2)(Z>).
It
requires
that
where
a
corporation
has
been
dissolved
without
it
having
commenced
liquidation
or
dissolution
proceedings,
which
is
what
occurred
regarding
Travel
Consultants,
a
claim
for
the
amount
of
the
corporation’s
liability
referred
to
in
subsection
227.1(1)
shall
be
proved
within
six
months
after
the
date
of
dissolution.
In
the
event,
however,
that
a
corporation
is
dissolved
by
the
Registrar
under
section
205
there
is
no
provision
for
the
appointment
of
a
liquidator
to
whom
proof
of
the
corporation’s
liability
can
be
made
and,
in
fact,
no
liquidator
was
appointed
with
relation
to
the
dissolution
of
Travel
Consultants.
The
matter
is
different
if
under
section
205
the
Registrar
makes
application
to
the
Court
of
Queen’s
Bench
of
Alberta
for
an
order
dissolving
a
corporation
because
of
its
default
in
filing
annual
returns.
In
such
case,
section
210
of
the
Business
Corporations
Act
applies.
It
deals
with
the
power
of
the
Court
respecting
the
dissolution
of
a
corporation,
which
includes
authority
to
make
an
order
appointing
a
liquidator.
Paragraph
214(a),
subparagraph
214(£>)(iii)
and
paragraph
214(c)
provide:
214
A
liquidator
shall
(a)
forthwith
after
his
appointment
give
notice
of
his
appointment
to
the
Registrar
and
to
each
claimant
and
creditor
known
to
the
liquidator,
(b)
forthwith
publish
notice
in
the
Registrar’s
periodical
and
once
a
week
for
2
consecutive
weeks
in
a
newspaper
published
or
distributed
in
the
place
where
the
corporation
has
its
registered
office
and
take
reasonable
steps
to
give
notice
in
each
province
in
Canada
where
the
corporation
carries
on
business,
stating
the
fact
of
his
appointment
and
requiring
any
person
(iii)
having
a
claim
against
the
corporation,
whether
liquidated,
unliquidated,
future
or
contingent,
to
present
particulars
of
the
claim
in
writing
to
the
liquidator
not
later
than
2
months
after
the
first
publication
of
the
notice,
(c)
take
into
his
custody
and
control
the
property
of
the
corporation,
Paragraph
227.1(2)(b)
being
inapplicable
to
this
appeal
and
the
Minister
having
observed
the
requirements
of
paragraph
227.1(2)(a)
as
permitted
by
paragraph
219(2)(b)
of
the
Business
Corporations
Act,
which
was
the
only
effectual
course
of
action
open
to
him
under
subsection
227.1(2),
this
appeal
cannot
succeed.
The
Appellant
has
clearly
stated
in
his
Notice
of
Appeal
that
the
Minister
did
not
prove
his
claim
under
paragraph
227.1
(2)(fe)
or
(c)
nor,
was
the
Minister
capable
of
proving
that
claim.
However,
following
the
reasoning
of
Christie,
A.C.J.
in
Kennedy,
supra,
the
Minister
correctly
observed
the
requirements
of
paragraph
227.1
[(2)](a)
of
the
Act.
With
respect
to
the
two
year
limitation
rule,
the
assessment
for
income
tax
which
set
out
the
Appellant’s
liability,
and
from
which
he
is
appealing,
is
dated
November
17,
1994.
The
alleged
date
on
which
the
Appellant
ceased
to
be
a
director
was
May
15,
1995.
The
assessment
was
made
within
the
two
year
period.
The
issue
as
to
whether
an
assessment
is
an
action
or
proceeding
was
dealt
with
by
Kempo,
J.
in
Manago
v.
Minister
of
National
Revenue
(1990),
90
D.T.C.
1889
(T.C.C.).
The
relevant
argument
in
Manago,
supra,
are
set
out
by
Kempo,
J.
at
1891:
The
analysis
submitted
on
behalf
of
the
Appellant
on
the
first
ground
was
that
the
words
used
in
subsection
227.1(4)
limitation
provision
“action
or
proceedings
to
recover
any
amount
payable”,
do
not
include
a
notice
of
assessment
or
reassessment
of
liability
for
the
reason
that
the
nature
of
the
latter
is
that
of
a
mere
administrative
function
which
simply
sets
the
quantum.
Recovery
thereof,
in
the
sense
of
the
words
employed
in
the
limitative
provision,
is
precluded
until
the
liability
or
quantum
has
been
finally
fixed
in
the
form
of
acceptance
by
the
taxpayer
as
evidenced
by
non-objection
or
appeal
abandonment,
or
by
a
final
judicial
determination.
Parliament,
by
the
use
of
the
phraseology
employed,
chose
to
impose
a
limitation
period
commencing
with
the
date
of
the
cessation
of
a
directorship
and
ended
with
the
date
of
the
commencement
of
a
legal
action
or
proceedings
for
recovery
of
the
amount
payable.
Kempo
J.
determines
the
issue
at
1892:
The
first,
and
very
startling,
consequence
of
the
Appellant’s
analysis
is
that
it
would
permit
a
taxpayer
to
use
his
objection
and
appeal
rights
to
completely
nullify
the
time
limitation
provisions
which
operate
against
the
Respondent
and
which,
it
can
be
said,
have
been
put
in
the
legislation
for
the
benefit
of
the
taxpayer.
Secondly,
an
immediate
anomaly
arises
because
this
interpretation
contemplates
no
limitation
period
within
which
the
assessment
itself
may
be
made,
but
which
in
the
end
may
be
an
empty
exercise
because
judicial
appeals
are
often
ongoing
for
significant
time
periods.
And
at
1893:
The
fact
that
clause
(10)
of
section
227.1,
which
empowered
the
Respondent
to
make
the
assessment,
incorporates
the
procedural
objection
and
appeal
rights
under
Divisions
I
and
J,
signifies
a
legislative
intent
that
the
clause
(4)
phrase
“action
or
proceeding
to
recover”
is
not
necessarily
isolative
and
restrictive
in
nature.
It
is
my
considered
opinion
that
that
phrase
includes
an
assessment
made
under
clause
(10)
of
section
227.1.
Common
sense
dictates
that
there
must
first
be
an
amount
of
a
debt
which
is
crystallized
by
the
fixation
of
the
liability
in
the
form
of
an
assessment.
This
is
then
followed
by
its
means
of
recovery,
and
that
for
limitation
purposes,
absent
any
specific
words
of
a
restrictive
or
modifying
nature,
the
phrase
“action
or
proceedings
to
recover”
is
not
confined
to
proceedings
that
are
solely
legal
in
nature.
The
subject
phrase
is
worded
broadly
enough
to
encompass
and
include
the
administrative
act
of
recovery
of
the
liability
in
the
form
of
a
notice
of
assessment
or
reassessment.
In
any
event,
I
am
unable
to
ascertain
any
interpretative
rule
or
principle
as
to
why
a
broad
meaning
is
or
ought
to
be
precluded
in
favour
of
a
narrow
and
technical
one.
As
noted
earlier,
the
narrow
approach
does
produce
anomalies
which
are
completely
out
of
harmony
with
the
scheme
of
the
Act.
[Note:
the
references
to
clause
10
of
section
227.1
should
read
clause
10
of
section
227]
There
may
be
some
remaining
doubt
in
certain
minds
as
to
whether
an
assessment
is
“an
action
or
legal
proceeding”.
However,
in
my
opinion,
it
is
certain
that
the
registration
of
the
certificate
on
July
6,
1993,
the
first
step
in
proceeding
against
a
director,
constituted
a
legal
proceeding
and
since
it
was
made
within
the
two
year
period
the
Appellant’s
position
on
this
front
cannot
succeed.
As
to
due
diligence,
subsection
227.1(3)
allows
a
director
that
defence.
Thus,
I
need
to
determine
whether
the
Appellant
acted
as
a
reasonably
prudent
person
would
have
in
similar
circumstances
in
an
attempt
to
prevent
the
failure
of
the
corporation
to
remit
the
required
withholding
taxes.
As
Rip,
J.
of
this
Court
said
in
Ho
v.
Minister
of
National
Revenue
(1990),
91
D.T.C.
76
(T.C.C.),
at
page
80:
The
word
“prevent”
is
defined
in
The
Shorter
Oxford
Dictionary
On
Historical
Principals
[sic]
as:
1
To
act
in
anticipation
of
or
in
preparation
for
(a
future
event,
or
a
point
in
time);
to
act
as
if
the
event
or
time
had
already
come
...
b.
To
meet
beforehand
...
3.
To
stop,
keep
or
hinder
from
doing
something.
...
4.
To
provide
beforehand
against
the
occurrence
of
(something);
to
preclude,
stop,
hinder
...
6.
To
frustrate,
defeat,
bring
to
naught
...
7.
To
use
preventative
measures.
...
In
the
French
language,
the
word
“prévenir”
is
used
in
subsection
227.1(3).
Le
Petit
Robert
I
defines
the
word
“prévenir”:
1
Devancer
(qqn)
dans
l’accomplissement
d’une
chose,
agir
avant
(un
autre)....
2.
Aller
au-devant
de
(qqch.)
pour
hâter
l’accomplissement.
...
3.
Aller
au-devant
pour
faire
obstacle;
empêcher
par
ses
précautions.
…
The
words
“prevent”
and
“prévenir”
mean
the
same:
to
stop
an
event
from
happening
before
it
happens.
Once
a
failure
to
remit
takes
place,
its
prevention
is
no
longer
possible.
Anything
Ho,
or
Lawlor
or
Ho’s
counsel
may
have
done
after
November,
1986
was
too
late
to
prevent
the
failures
that
had
already
occurred.
Rip,
J.
found
that
the
action
taken
by
the
Appellant,
after
the
Appellant
realized
that
the
withholding
taxes
were
not
being
remitted
as
required
by
the
Act,
did
not
suffice
in
making
out
a
defence
of
due
diligence.
He
stated
that
the
Appellant
must
take
positive
action
to
prevent
the
corporation’s
failure
to
remit
withholding
taxes.
In
Soper
v.
R.
(1997),
97
D.T.C.
5407
(Fed.
C.A.),
a
decision
of
the
Federal
Court
of
Appeal,
Robertson,
J.A.
analysed
the
requirements
of
the
due
diligence
defence
for
directors
attempting
to
avoid
liability
for
unremitted
source
deductions.
Robertson,
J.A.
characterized
the
test
as
an
“objective-subjective”
test.
He
stated
at
5417
that:
...
it
is
difficult
to
deny
that
inside
directors,
meaning
those
involved
in
the
day-
to-day
management
of
the
company
and
who
influence
the
conduct
of
its
business
affairs,
will
have
the
most
difficulty
in
establishing
the
due
diligence
defence.
For
such
individuals,
it
will
be
a
challenge
to
argue
convincingly
that,
despite
their
daily
role
in
corporate
management,
they
lacked
business
acumen
to
the
extent
that
that
factor
should
overtake
the
assumption
that
they
did
know,
or
ought
to
have
known,
of
both
remittance
requirements
and
any
problem
in
this
regard.
In
short,
inside
directors
will
face
a
significant
hurdle
when
arguing
that
the
subjective
element
of
the
standard
of
care
should
predominate
over
its
objective
aspect.
Robertson,
J.A.,
by
categorizing
directors
as
being
either
inside
or
outside
directors,
has
seriously
limited
the
subjective
portion
of
the
due
diligence
test
for
taxpayers
that
are
involved
in
the
day-to-day
running
of
a
company.
Robertson,
J.A.
also
stated,
with
reference
to
an
outside
director,
that
...
the
positive
duty
to
act
arises
where
a
director
obtains
information,
or
becomes
aware
of
facts,
which
might
lead
one
to
conclude
that
there
is,
or
could
reasonably
be,
a
potential
problem
with
remittances.
Put
differently,
it
is
indeed
incumbent
upon
an
outside
director
to
take
positive
steps
if
he
or
she
knew,
or
ought
to
have
known,
that
the
corporation
could
be
experiencing
a
remittance
problem.
The
typical
situation
in
which
a
director
is,
or
ought
to
have
been,
apprised
of
the
possibility
of
such
a
problem
is
where
the
company
is
having
financial
difficulties.
The
Appellant
has
the
onus
with
respect
to
due
diligence.
He
was
one
of
only
two
directors
at
all
relevant
times,
was
a
70%
shareholder
with
a
direct
interest
in
the
profitability
of
the
Corporation
and
all
of
its
goings
on
and
was
president
and
directly
in
charge
of
obtaining
contracts
which
would
produce
the
bottom
line
for
the
Corporation.
Moreover
the
Corporation
paid
out
large
salaries
to
the
Appellant
and
his
sister.
The
Appellant
must
be
considered
as
an
inside
director
and
the
onus
on
him
as
set
forth
in
the
Federal
Court
of
Appeal
decision
in
Soperis
an
onerous
one.
To
conclude
that
he
was
never
aware
of
the
source
deduction
problems
requires
a
leap
of
faith
which
I
find
too
broad
in
every
respect.
For
all
of
these
reasons,
the
appeal
is
dismissed
with
costs.
Appeal
dismissed.
Email this Content