Date:
20021231
Docket:
2000-3994-IT-G,
2000-4278-GST-G
BETWEEN:
PETER
BONCH,
Appellant,
and
HER MAJESTY
THE QUEEN,
Respondent.
Reasons
for Judgment
O'Connor, J.T.C.C.
BASIC
FACTS
[1]
These appeals were heard together on common evidence on
December 3, 2002 at Toronto, Ontario.
[2]
In the Reply in the income tax appeal (2000-3994(IT)G) the
assumptions of the Minister of National Revenue
("Minister") relative to Trent Travel Service Inc. (the
"Company") read as follows:
5.
In so assessing the Appellant, the Minister made,
inter alia, the following assumptions:
a)
The Appellant was, at all material times the sole director of the
Company;
b)
The Company failed to remit to the Receiver General the federal
income tax withheld from the wages paid to its employees in the
amount of $7,555.13 for the years 1994 and 1995;
c)
The Company failed to pay penalties and interest relating to the
unremitted federal tax in the amounts of $1,615.00 and $8,866.39
respectively;
d)
A certificate for the amount of the Company's liability for
federal income tax, penalties and interest was registered in the
Federal Court of Canada under section 223 of the Income Tax
Act and execution for such amount has been returned
unsatisfied in whole or in part;
e)
The Appellant did not exercise the degree of care, diligence and
skill to prevent the failure to remit the said amount by the
company that a reasonably prudent person would have exercised in
comparable circumstances.
[3]
In the GST appeal (2000-4278(GST)G) the facts are set forth in
the assumptions in the Amended Reply which read as
follows:
5.
In so assessing the Appellant, the Minister made,
inter alia, the following assumptions:
a)
The Appellant was, at all material times the sole director of the
Company;
b)
The Company failed to remit to the Receiver General goods and
services tax in the amount of $12,971.76 for the period November
1, 1994 1991 to April 30, 1995;
c)
The Company failed to pay penalties and interest relating to the
unremitted goods and services tax in the amounts of $9,637.10 and
$5,118.15 respectively;
d)
A certificate for the amount of the Company's liability for
goods and services tax, penalties and interest was registered in
the Federal Court of Canada under section 316 of the Excise
Tax Act and execution for such amount has been returned
unsatisfied in whole or in part;
[4]
The Appellant, in essence, produced three defences. Firstly, he
contested the amounts in the GST assessment. Secondly, he
maintained that the defence of due diligence was available to him
as he did his best for the Company in maintaining a good travel
agency and retaining good employees. He continued to pay their
salaries and generally did what was best for the Company.
Thirdly, he maintained that he became unable legally to carry on
the business of the travel agency for the following reasons. The
Company began to experience financial problems due to a recession
in the travel business in the early nineties and because of
certain basic changes in the way the travel business was handled,
thus favouring competitors and harming the Company. The problems
became acute in 1993 and 1994 due to a severe computer failure
resulting in the Company's accountant refusing to certify the
accuracy of the Company's financial reports, thus putting the
Company in default of obligations under the Travel Industry
Act and the Regulations thereunder and the termination
on November 22, 1995 (see Exhibit A-2) of the Company's
IATA and ATAC Passenger Sales Agency Agreements effectively
making it impossible to continue the businesses. The Appellant
argues that since the business thus terminated he must be
considered to have ceased to be a director thereafter and that
the assessments by the Minister being dated November 24, 1999
were more than two years after the dates of these events and
consequently are statute-barred by virtue of
section 227.1(4) of the Income Tax Act and section
323(5) of the Excise Tax Act.
[5]
The Appellant referred to Paradis v. Canada (Minister of
National Revenue - M.N.R.), [1995] T.C.J. No. 166 where a
director who was excluded from the company's management
either at the time when his employment was terminated or at the
time of bankruptcy it was held that the assessment was too late
and was therefore statute-barred notwithstanding the fact that he
did not actually resign. Reference was also made to
McConnachie et al. v. M.N.R, [1991] DTC 873 where Judge
Bonner of this Court stated at page 877:
...Directors of a corporation which has lost the
capacity to dispose of or deal with corporate property are not
the sort of persons who are the target of section 227.1. In my
view, Perri [referred to later] follows the "modern
rule" of statutory construction approved by the Supreme
Court of Canada in Stubart Investments Limited v. The
Queen, 84 D.T.C. 6305, which rule is:
Today there
is only one principle or approach, namely, the words of an Act
are to be read in their entire context and in their grammatical
and ordinary sense harmoniously with the scheme of the Act, the
object of the Act, and the intention of Parliament.
The purpose
of subsection 227.1(4) is to protect directors from indefinite
exposure to collection proceedings in respect of liability under
subsection 227.1(1). That protection would, as a practical
matter, be diminished greatly if directors of a bankrupt
corporation are by reason of vestigial powers which they hold
after a bankruptcy to be treated as continuing in office until
either they resign or the corporation is struck from the
register. Few people in such circumstances would ever think of
resigning and few bankrupt corporations ever pay their debts in
full and are discharged. As a consequence in most cases the
two-year period would not start to run until the time when the
corporation is struck from the register for failure to file
returns. I find it difficult to conceive that the constructionfor
which the Respondent contends was in the contemplation of the
legislature. For the foregoing reasons I have concluded that the
Appellants last ceased to be directors of the Company more than
two years before the assessments were issued.
[6]
Moreover, in the most recent decision of Kalef v. M.N.R.,
[1995] DTC 487, Judge Beaubier of this Court subscribed
to the opinion expressed in McConnachie.
[7]
In Perri et al. v. M.N.R., [1989] DTC 723, Associate Chief
Justice Christie, as he then was, stated at page 725:
As I
understand it, it is the intention or object of subsection
227.1(4) to fix a limitation period that runs from a time when an
individual ceases to be in a position in law and in fact to
exercise the powers of a director to rectify the failure of the
corporation to deduct or remit or both. I regard that as being
the correct meaning of the phrase "ceased to be a
director" in subsection 227.1(4). To hold that those words
in all circumstances mean that there must be a lapse of two years
from the date an individual ceases to hold office as a director
in accordance with the provisions of the relevant corporate
legislation would in some instances, such as those under
construction, render the limitation period devoid of meaningful
substance. What could the appellants do qua director in
relation to Olympic's default after the receiver-manager was
appointed? Nothing.
[8]
In my opinion the authorities cited above apply in these appeals
and consequently the appeals are allowed, without costs, and the
matters are referred back to the Minister of National Revenue for
reconsideration and reassessment on the basis that the Appellant
is not liable as director of Trent Travel Service Inc. for the
federal income tax withheld nor for the unremitted goods and
service taxes nor penalties nor interest in respect of
same.
[9]
Having reached the foregoing conclusion, I find it unnecessary to
analyze the other two defences of the Appellant.
Signed at
Ottawa, Canada this 31st day of December, 2002.
J.T.C.C.COURT
FILE
NO.:
2000-3994(IT)G
2000-4278(GST)G
STYLE OF
CAUSE:
Peter Bonch v. The Queen
PLACE OF
HEARING:
Toronto, Ontario
DATE OF
HEARING:
December 3, 2002
REASONS FOR
JUDGMENT BY: The Honourable Judge T.
O'Connor
DATE OF
JUDGMENT:
December 31, 2002
APPEARANCES:
For the
Appellant:
The Appellant himself
Counsel
for the
Respondent:
Shatru Ghan
COUNSEL OF
RECORD:
For the
Appellant:
Name:
Firm:
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2000-3994(IT)G
BETWEEN:
PETER
BONCH,
Appellant,
and
HER MAJESTY
THE QUEEN,
Respondent.
Appeal heard
on common evidence with the appeal of
Peter
Bonch (2000-4278(GST)G)
on December 3, 2002
at Toronto,
Ontario, by the Honourable Judge Terrence O'Connor
Appearances
For the
Appellant:
The Appellant himself
Counsel
for the
Respondent:
Shatru Ghan
JUDGMENT
The appeal from the assessment made under the Income Tax
Act, notice of which is dated November 24, 1999 and bears
number 12860, is allowed, without costs, and the assessment is
referred back to the Minister of National Revenue for
reconsideration and reassessment in accordance with the attached
Reasons for Judgment.
Signed at
Ottawa, Canada this 31st day of December, 2002.
J.T.C.C.
2000-4278(GST)G
BETWEEN:
PETER
BONCH,
Appellant,
and
HER MAJESTY
THE QUEEN,
Respondent.
Appeal heard
on common evidence with the appeal of
Peter
Bonch (2000-3994(IT)G)
on December 3, 2002
at Toronto,
Ontario, by the Honourable Judge Terrence O'Connor
Appearances
For the
Appellant:
The Appellant himself
Counsel
for the
Respondent:
Shatru Ghan
JUDGMENT
The appeal from the assessment made under the Excise Tax
Act, notice of which is dated November 24, 1999 and bears
number 58853, is allowed, without costs, and the assessment is
referred back to the Minister of National Revenue for
reconsideration and reassessment in accordance with the attached
Reasons for Judgment.
Signed at
Ottawa, Canada this 31st day of December, 2002.
J.T.C.C.
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