Maverick Oilfield – Federal Court quashes a CRA decision not to provide full interest relief for companies’ failure to make tax remittances due to their CEO’s incompetence and deception

The applicants were an Alberta oilfield service company and a trucking company, each owned equally by Mr. Schnell and his spouse, and directed by him. In order to semi-retire, in 2012 he hired a Mr. Challis as the CEO of both companies, and a CFO. Mr. Challis ran those successful companies into the ground within a few years. Furthermore, employees, including the accountant and the CFO, deceived Mr. Schnell in order to conceal emerging problems and Mr. Challis’ incompetence. Mr. Schnell did not become aware of the companies’ failures to make the required remittance until May 2018, whereupon he fired the CEO and CFO, retook control of the companies, and entered into a payment arrangement with CRA in April 2018, and used his personal resources to make full payment by January 2020.

CRA denied the companies’ applications for relief from interest and penalties accrued during their 2014 through 2020 taxation years, made on the basis of “extraordinary circumstances leading to … financial hardship.” CRA granted relief only from interest assessed during the CRA approved payment arrangements, and took the view inter alia that “the director [Mr. Schnell] remained responsible to take the necessary measures … to ensure that all obligations [were] met when required” and failed to do so.

Zinn J found this decision to be unreasonable, so that it was quashed and the requests for relief remitted to a different decision maker. First, the CRA finding that it was within the control of Mr. Schnell as director to avoid the late remittances did not address the active concealment by Mr. Challis and other employees of the late remittances.

Second, regarding a CRA finding “that extraordinary circumstances cannot persist over several years”, Zinn J stated that “[t]here is no temporal limitation on extraordinary circumstances”.

Third, it was evident that the consequences of Mr. Challis’ actions did not immediately end with his firing (the companies simply did not have the financial resources to make the necessary payments after such firing) and CRA’s finding to the contrary was unreasonable.

Neal Armstrong. Summary of Maverick Oilfield Services Ltd. & Latigo Trucking Ltd. v. Canada 2023 FC 1728 under s. 220(3.1).