Ricciuti v. The Queen, docket 2001-3719(GST)I (Informal Procedure)

Date: 20020703

Docket: 2001-3719-GST-I

BETWEEN:

ALDO RICCIUTI,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasonsfor Judgment

Beaubier, J.T.C.C.

[1]            This appeal pursuant to the Informal Procedure was heard at Toronto, Ontario on June 13 and 14, 2002. The Appellant testified. The Respondent called Janice Trinchi, the bookkeeper for Vaughan Iron Works Ltd. ("Vaughan") during its operation (for two visits per month totalling four hours per visit) and Sergio Mariani, the Appellant's co-shareholder, officer and director of Vaughan during its operation and for the periods in question.

[2]            There are four periods during which Vaughan is assumed to have failed to pay GST and for which tax, penalty and interest was assessed. The ending date and balance assessed on the Appellant as director of Vaughan are:

December 31, 1996	$ 9,156.66
September 30, 1996	$11,625.41
March 31, 1996	$12,613.92
December 31, 1995	$ 7,865.61

At the outset of the hearing, Respondent's counsel acknowledged respecting this assessment on account of December 31, 1996 for $9,156.66 that it is not owed by the Appellant. Therefore this portion of the appeal is allowed.

[3]            Paragraphs 3 to 7 inclusive of the Reply to Notice of Appeal read:

3.              By Notice of Assessment No. 21524, dated December 22, 2000, the Minister assessed the Appellant with respect of the failure by the Vaughan Iron Works Ltd. (the "Corporation") to remit Goods and Services Tax (the "GST") in the amount of $25,803.89, and for penalties thereon and interest thereto up to on or about December 22, 2000 as outlined in Exhibit "A".

4.              In so assessing the Appellant, the Minister made the following assumptions of fact:

(a)            at all material times, the Appellant was a director of the Corporation;

(b)            the Minister issued Notices of Assessment to the Corporation dated August 21, 1996, October 23, 1997 and October 30, 1997 in relation to the unremitted net tax;

(c)            the Corporation failed to remit net tax, as well as penalties and interest relating to the unremitted net tax as outlined in Exhibit "A";

(d)            a certificate in the amount of $39,826.31 was registered in the Federal Court of Canada with respect to the liability of the Corporation for unremitted net tax, interest and penalties. The resulting writ issued on September 11, 2000 by the Federal Court of Canada was registered with the Regional Municipality of York, Ontario and was returned unsatisfied, nulla bona; and

(e)            the Appellant did not exercise the degree of care, diligence and skill to prevent the failure of the Corporation to remit net tax in the amount of $25,803.89 that a reasonably prudent person would have exercised in comparable circumstances.

B.             ISSUES TO BE DECIDED

5.              The issue to be decided is whether the Appellant is liable under subsection 323(1) of the Act for the failure by the Corporation to remit to the Receiver General the net tax and the penalties and interest relating thereto.

C.             STATUTORY PROVISIONS, GROUNDS RELIED ON AND RELIEF SOUGHT

6.              He relies on sections, inter alia, 221, 225, 228, 280, 296, 299, 316 and 323 of the Act and the Tax Court of Canada Act.

7.              He submits that the Minister properly assessed the Appellant pursuant to section 323 of the Act for the failure by the Corporation to remit to the Receiver General an amount of $25,803.89 as required by section 228 of the Act and the interest thereon and penalties relating thereto.

[4]            The assumptions were not refuted by the Appellant.

[5]            The Respondent alleged that the Appellant's GST "Return for Registrants" was filed for the period ending September 30, 1996. The last "Return for Registrants" which the Respondent has is for the period ending June 30, 1996. There is no evidence that any were filed for periods after June 30, 1996 although Ms. Trinchi "assumed" that one or more were. On the evidence before the Court, the Court finds that none were filed for the periods after June 30, 1996.

[6]            At the fiscal year end September 30, 1996, the Appellant's financial statement (Exhibit A-18) recorded accounts receivable of $253,701.19. A rough statement, prepared from the computerized records of the Appellant for the fiscal year end September 30, 1996 by Ms. Trinchi and dated December 1, 1997, showed no receivables, but bad debts of $188,301.31 (Exhibit R-1, Tab 28).

[7]            The Appellant's Goods and Services Tax Return for Registrants in evidence for the periods ending after September 30, 1995 show "adjustments" respecting GST of:

Period	Adjustment
October 1, 1995 to December 31, 1995	Nil
January 1, 1996 to March 31, 1996	$5,602.71
April 1, 1996 to June 30, 1996	Nil

[8]            The evidence before the Court establishes clearly that the Appellant was the director of Vaughan who did and was responsible for sales, billing, paying and the books of Vaughan throughout its existence. Vaughan's two directors signed all of its cheques. The Appellant was, in every sense, an inside "director" of Vaughan within the meaning contained in Soper v. The Queen, 97 DTC 5407 (F.C.A.). The Appellant's lawyer and accountant did Vaughan's work as they had done the work for a previous corporate business ("Cardinal") owned and operated by the Appellant. Moreover, the Appellant was Vaughan's GST "Contact Person" shown on its returns and filled out a number of Vaughan's GST returns which were placed in exhibit.

[9]            Sergio Mariani testified that the Appellant and Sergio Mariani inflated the value of the assets they loaned or contributed to the corporation at its start in order to obtain a greater initial bank loan. Sergio also testified that his corporation "North York Welding" was billed false invoices when Vaughan was obviously in financial trouble around and after January 1, 1996 in order to deceive the bank as to the amount and value of Vaughan's receivables. Sergio also testified that a corporation operated by a friend of the Appellant's, Aquicon Construction Co. Ltd. ("Aquicon") was similarly invoiced with false bills by Vaughan in order to deceive the bank. On December 20, 1996 Mr. Ricciuti rebilled Aquicon with a particularized account for a total amount of $79,781.23 and received a return fax of the original with the words "To Aldo Piss on you" written on it (Exhibit R-4). When the Appellant received it on the witness stand he simply smiled and shrugged. This, plus the fact that the bank appears not to have followed up on the receivables, plus Mr. Mariani's admissions about "North York Welding" cause the Court to believe Mr. Mariani's entire testimony over that of Mr. Ricciuti, including, in this instance his testimony about fraudulent billing by Vaughan and particularly by Mr. Ricciuti.

[10]          For the same reason, the Court does not believe that Mr. Ricciuti ever resigned as a director of Vaughan. Mr. Ricciuti testified that he delivered a resignation dated September 1, 1996 (Exhibit A-4) to Mr. Mariani. Mr. Mariani denied this. Moreover, Mr. Ricciuti did not have his lawyer register this with the appropriate Ontario Corporate Registry. Nor did he advise anyone else of his resignation despite the fact that he was experienced in corporate matters and saw to it that his accountant and lawyer became Vaughan's at the time it was incorporated and during its operation. He continued to do rebillings and collections, and to sign Vaughan's cheques after September 1, 1996. He also continued to deal with Ms. Trinchi for Vaughan, much as he had before September 1, 1996, up to just before Christmas, 1996.

[11]          On the evidence before the Court, the Appellant did nothing to prevent Vaughan's failure to pay GST. Rather, he was instrumental in that failure since he directed the payment of accounts by Vaughan during its operation and he admitted that he knew that GST had to be paid. Yet he did not see that it was paid. Thus he is liable as assessed.

[12]          However Mr. Mariani was frank to state that Vaughan, Mr. Mariani and Mr. Ricciuti participated in false and fraudulent invoicing of its customers for work that it never did in order to deceive Vaughan's bank and maintain its line of credit. The reduction of Mr. Mariani's (or North York Welding's) loan account was achieved by this means. Some of the Aquicon invoices were of this nature. None were itemized by amount. The Appellant did not testify to this, nor did he admit it at any time. These are allegations of what appears to be criminal fraud. For this reason, they would have to be proved, item by item, for the Court to accept them. In such circumstances they might benefit the Appellant if they established that no GST was billed or due. However such facts might also cause a criminal prosecution of the Appellant.

[13]          No such item by item proof was presented to the Court. For this reason, the appeal is dismissed respecting the amounts assessed against the Appellant respecting Vaughan's ending dates of September 30, 1996, March 31, 1996 and December 31, 1995.

                Signed at Saskatoon, Saskatchewan, this 3rd day of July, 2002.

"D. W. Beaubier"

J.T.C.C.

COURT FILE NO.:                                                 2001-3719(GST)I

STYLE OF CAUSE:                                               Aldo Ricciuti v. The Queen

PLACE OF HEARING:                                         Toronto, Ontario

DATE OF HEARING:                                           June 13 and 14, 2002

REASONS FOR JUDGMENT BY:      The Honourable Judge D. W. Beaubier

DATE OF JUDGMENT:                                       July 3, 2002

APPEARANCES:

Counsel for the Appellant: Derek Sorrenti

Counsel for the Respondent:              Suzanne M. Bruce

COUNSEL OF RECORD:

Counsel for the Appellant:

Name:                                Derek Sorrenti

Firm:                  Tanzola & Sorbara, LLP

For the Respondent:                             Morris Rosenberg

                                                                                Deputy Attorney General of Canada

                                                                                                Ottawa, Canada

2001-3719(GST)I

BETWEEN:

ALDO RICCIUTI,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeal heard on June 13 and 14, 2002 at Toronto, Ontario, by

the Honourable Judge D. W. Beaubier

Appearances

Counsel for the Appellant:                    Derek Sorrenti

Counsel for the Respondent:                Suzanne M. Bruce

JUDGMENT

          The appeal from the assessment made under the Excise Tax Act, notice of which is dated December 22, 2000 and bears number 21524 is allowed in accordance with the attached Reasons for Judgment.

          Signed at Saskatoon, Saskatchewan, this 3rd day of July, 2002.

"D. W. Beaubier"

J.T.C.C.