Docket: 2009‑1066(GST)G
BETWEEN:
JAMES BOLES,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Appeal heard on May 4 2011, at Toronto, Ontario.
Before: The Honourable
Justice Patrick Boyle
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 February 5, 2008
and bears number A115049, is dismissed, with costs, in accordance with the
reasons for judgment attached hereto.
Signed at Ottawa, Canada, this 9th day of June 2011.
"Patrick Boyle"
Citation: 2011 TCC 288
Date: 20110609
Docket: 2009‑1066(GST)G
BETWEEN:
JAMES BOLES,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Boyle J.
[1]
The issues raised in this
appeal are: 1) whether the Appellant was a director of Begley Associates
Inc. (“Begley Associates”) at the relevant times or at all; 2) if so,
whether he resigned more than two years before the unremitted goods and
services tax (“GST”) assessment in question; and 3) whether he exercised
the degree of care, diligence and skill to prevent the failure to remit GST
that a reasonably prudent person would have exercised in comparable
circumstances so as to absolve himself from director’s liability under
subsection 323(3) of the Excise Tax Act (Canada) (the “GST
legislation”).
I. Law
[2]
The most recent
pronouncement on the scope of director’s liability for unremitted GST or income
tax withholdings and upon director’s possible defences thereto are set out by
the Federal Court of Appeal in its recent decision in Canada v. Buckingham,
2011 FCA 142, dated April 21, 2011. In Buckingham
the Federal Court of Appeal confirmed that the scope of the director’s
liability provisions is potentially broad and far reaching in order to effectively
move the risk for a failure to remit by a corporation from the fisc and
Canadian taxpayers generally to the directors of the corporation, being those persons
legally entitled to supervise, control or manage the management of its affairs.
The Court also confirmed that a director seeking to be exculpated for having
exercised reasonable care, diligence and skill must have taken those steps “to
prevent the failure” to remit and not to cure it thereafter. Further, the
standard of care, diligence and skill required is overall an objective
standard. Specifically, the Court wrote:
38 . . . Stricter standards also discourage
the appointment of inactive directors chosen for show or who fail to discharge
their duties as director by leaving decisions to the active directors.
Consequently, a person who is appointed as a director must carry out the duties
of that function on an active basis and will not be allowed to defend a claim
for malfeasance in the discharge of his or her duties by relying on his or her
own inaction. . .
. . .
40 . . . In order to rely on these defences, a
director must thus establish that he turned his attention to the required
remittances and that he exercised his duty of care, diligence and skill with a
view to preventing a failure by the corporation to remit the concerned amounts.
And later:
52 Parliament did not require that directors be subject to an
absolute liability for the remittances of their corporations. Consequently,
Parliament has accepted that a corporation may, in certain circumstances, fail
to effect remittances without its directors incurring liability. What is
required is that the directors establish that they were specifically concerned
with the tax remittances and that they exercised their duty of care, diligence
and skill with a view to preventing a failure by the corporation to remit the
concerned amounts.
II. Facts
[3]
Mr. Boles was the
owner‑manager of a project management and construction management company
known as F.D. Begley and Associates Inc. (“F.D. Begley”). In 1995, he was a
director and the President as well as the controlling shareholder of F.D.
Begley. At that time Mr. Clark was an employee of F.D. Begley who ran the
construction side of that company’s business leaving the Appellant to run the
planning and design side of the business. In 1995, the Appellant sold his
shareholdings in F.D. Begley to Mr. Clark. Mr. Boles continued to
work for clients and be an officer of F.D. Begley; specifically, he was the President
and Mr. Clark took on the title at that time of Vice‑President.
[4]
Mr. Clark
thereupon incorporated a new company, Begley Associates Inc., being the
corporation whose failure to remit GST has given rise to the assessment in
question in this appeal, in order to carry on similar work however for a risk‑based
fee instead of an entirely fee for services based structure. It is clear that
Mr. Boles signed himself on as a director of Begley Associates at this
time.
[5]
Mr. Boles
maintained in his evidence‑in‑chief that he did not know he was
ever a director of Begley Associates until 2005 when the Canada Revenue Agency
(“CRA”) began pursuing him. Specifically he said he was never consulted on any
of its activities or involved in any of its activities and had no direct
knowledge of its activities or business affairs or any control or input into
its operations at all or at any point. The only exception he said was for a
period beginning in 2000 when his consulting contract was run through Begley
Associates at Mr. Clark’s request. It was his position that he must have
signed the Begley Associates documents at the same time as signing a number of
documents turning over F.D. Begley to Mr. Clark as well as setting up a
new corporation for himself to be used in his own consulting work going forward
toward retirement.
[6]
The CRA assessed
Mr. Boles for Begley Associates’ unremitted GST as well as interest and
penalties thereon in the approximate amount of $23,000 by Notice of Assessment
dated February 5, 2008.
[7]
In the circumstances, I
must find that Mr. Boles did become a director of Begley Associates at the
time of the incorporation of that company. All of the corporate records and
filings made this clear. I do not accept Mr. Boles’ explanation of
the unintended signing of the Begley Associates documentation identifying
himself as director given that in his cross‑examination and in the evidence
of his accountant it came out that in 1997, one of its early years of
operations, Begley Associates did have revenues of almost four hundred thousand
dollars and, of greater concern, that Mr. Boles’ wife was a 20%
shareholder of Begley Associates and received dividends in respect of the
income earned by it in that year.
[8]
I also find on the
evidence that Mr. Boles never legally resigned as a director of Begley
Associates. I accept Mr. Boles’ testimony that in April 2003,
given concerns about Mr. Clark and Begley Associates, Mr. Boles asked
Mr. Clark to check on his status with Begley Associates as director or
officer because he wanted to resign from any such position and free
Mr. Clark to operate as he prefers. This conversation is corroborated by
one of Mr. Boles’ journal entries in his telephone diary. However, once
one is a director, legal steps must be complied with to cease to be a director
and Mr. Boles did not make any inquiry or attempt to do that. Apparently,
he did not even send a confirmation letter to Mr. Clark asking for him to
have the paperwork prepared to remove him as a director. The facts are somewhat
sympathetic to Mr. Boles given that he may well have forgotten by some
point that he continued to be a director of Begley Associates, and the evidence
is consistent with him having had no direct involvement in any activities of
Begley Associates for the two years prior to the company’s failure to remit
tax, however that alone is insufficient under the legislation to absolve him
from liability under his assessment as the two-year limitation period applies
to persons who cease to be directors.
[9]
This leaves the question
of whether Mr. Boles did in fact exercise the degree of skill, care,
diligence and prudence to prevent the company’s failure to remit GST in the
circumstances. There was no evidence whatsoever that Mr. Boles involved
himself at all with Begley Associates in the years in question and therefore he
cannot say that he did anything actively to prevent the failure to remit the
GST. There was some evidence that in later years he may have helped free up
some money for Mr. Clark, prior to his death, to significantly pay down or
pay off any tax arrears of Begley Associates. However, it is clear that the
active steps must be to prevent the failure and not merely to remedy it. It may
be that, in an appropriate case, a director may entirely and genuinely forget
he was a director and therefore have no involvement or be aware of any power to
be involved and concerned with the company, such that no direct action could
constitute an adequate degree of skill, care, diligence and prudence that a
reasonable person would exercise in comparable circumstances, and that person
therefore be absolved from director’s liability. However, given my concerns with
the lack of candour in the Appellant’s testimony regarding his becoming a director
of Begley Associates, I am unable to conclude that he did genuinely forget
that he continued to be a director and therefore can leave this question to be
decided another day if such circumstances arise.
[10]
The Appellant’s appeal
is dismissed with costs.
Signed at Ottawa, Canada, this 9th day of June 2011.
"Patrick Boyle"
CITATION: 2011 TCC 288
COURT FILE NO.: 2009‑1066(GST)G
STYLE OF CAUSE: JAMES BOLES v. HER MAJESTY THE QUEEN
PLACE OF HEARING: Toronto,
Ontario
DATE OF HEARING: May 4, 2011
REASONS FOR JUDGMENT BY: The
Honourable Justice Patrick Boyle
DATE OF JUDGMENT: June 9, 2011
APPEARANCES:
|
For the Appellant:
|
The Appellant himself
|
|
Counsel for the Respondent:
|
Shatru Ghan
|
COUNSEL OF RECORD:
For the Appellant:
Name:
Firm:
For the Respondent: Myles J. Kirvan
Deputy
Attorney General of Canada
Ottawa,
Canada
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