Citation: 2007TCC316
Date: 20070605
Docket: 2003-835(GST)G
BETWEEN:
PETER V. ABRAMETZ,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Sheridan, J.
[1] The Appellant,
Peter V. Abrametz, is appealing Notice of Assessment No. 68370 made by the
Minister of National Revenue pursuant to the Excise Tax Act. According
to the Minister, the Appellant is liable under subsection 323(1) of the Act as
the sole director of Mada Construction Company Ltd. (the "Corporation")
for its failure to remit net tax for the period May 1, 1991 to October 31,
1994, together with interest and penalties.
[2] The Minister
based his assessment upon the assumptions set out in paragraph 9 of the
Reply to the Notice of Appeal:
…
b) at all material times the Appellant was the sole director
of the Corporation;
c) at all material times the Appellant was the sole
shareholder of the Corporation;
d) the Corporation was incorporated in the Province of
Saskatchewan on February 6, 1991;
e) the Corporation was struck from the registry of the
Saskatchewan Corporations Branch on July 29, 1994;
f) the Corporation was engaged in the construction of homes
and buildings;
g) the Corporation was a registrant for the purposes of the Act
effective January 1, 1991 under GST registration number 127799203;
h) at all material times the Corporation was engaged in
commercial activities and made supplies which were taxable at 7 percent;
i) at all material times the Corporation collected tax
pursuant to Part IX of the Act on the supplies it made;
j) the Corporation was required to file its return on a
quarterly basis and had a fiscal year ending October 31;
k) the Corporation failed to file returns on time, and failed
to remit net tax, and interest and penalties relating thereto, as follows:
|
Period
Ending
|
Return Due
|
Return Filed
|
Net Tax
|
Interest
|
Penalty
|
Balance
|
|
31-Jan-92
|
28-Feb-92
|
12-July-94
|
6,700.36
|
12,238.36
|
14,318.32
|
33,257.04
|
|
30-April-92
|
31-May-92
|
12-July-94
|
0.00
|
198.42
|
240.57
|
438.99
|
|
31-July-92
|
31-Aug-92
|
23-Feb-95
|
1,574.58
|
1,539.51
|
1,861.82
|
4,975.91
|
|
31-Oct-92
|
30-Nov-92
|
23-Feb-95
|
598.52
|
487.13
|
589.93
|
1,675.58
|
|
31-Oct-94
|
30-Nov-94
|
28-Mar-95
|
16,706.13
|
22,788.72
|
26,801.90
|
66,296.75
|
|
|
|
|
25,579.59
|
37,252.14
|
43,812.54
|
106,644.27
|
l) The Corporation filed returns reporting its net tax for
reporting periods ending between May 1, 1991 to October 31, as set out in
Schedule A;
m) The Corporation failed to remit amounts reported as positive
net tax on its returns filed for the reporting periods ending between May 1,
1991 to October 31, 1994;
n) By Notice of Assessment dated December 13, 1996, the
Corporation was assessed additional net tax in the amount of $16,706.13 as set
out in Schedule A;
o) The additional net tax referred to in the previous
subparagraphs was included as part of the net tax payable for the period ending
October 31, 1994;
p) The Director's liability assessment issued to the Appellant
includes the net tax the Corporation failed to remit to the Receiver General
for the reporting periods ending between May 1, 1991 to October 31, 1994;
q) on June 6, 1996, March 4, 1997 and November 21, 2001, the
Minister issued certificates (the "Certificates") under section 316
of the Act certifying amounts of the Corporation's liability for unremitted net
tax interest and penalties;
r) the Certificates were registered against the Corporation
in the Federal Court of Canada on June 6, 1996, March 4, 1997, and November 21,
2001, respectively;
s) Writs of Fieri Facias were issued by the Federal Court of
Canada against the Corporation on June 6, 1996, March 13, 1997, and November
21, 2001, respectively;
t) execution against the Corporation remains unsatisfied in
whole or in part;
u) the Appellant was actively involved in the operations of
the Corporation;
v) the Appellant failed to ensure that the Corporation had any
system to ensure the proper collecting, reporting and remittance of net tax;
w) the Appellant is jointly and severally liable with the
Corporation to pay the unremitted net tax and unpaid interest and penalties
relating thereto; and
x) the Appellant did not exercise the degree of care,
diligence and skill to prevent the failure by the Corporation to remit the
amounts itemized in paragraph 9(k) above, that a reasonably prudent person
would have exercised in comparable circumstances.
[3] At the hearing,
counsel for the Appellant advised the Court that the Appellant was going to
base his challenge of the assessment solely on the ground of the incorrectness
of the audit and assessment of the GST owed by the Corporation. Accordingly,
the Appellant presented no evidence to refute the Minister's assumptions with
respect to the Appellant's lack of due diligence.
[4] The first hurdle
faced by the Appellant is a legal one: whether the Appellant may call into
question the correctness of the corporate assessment in challenging the
validity of the assessment made against him as a director of the corporate
taxpayer. As both counsel noted in their submissions, the case law is divided
on this point[1]. In my view, however, given that the corporate
assessment lies at the root of the assessment against the director taxpayer, it
is both just and sensible that it ought to be open to challenge as part of the
taxpayer's appeal of his own tax liability. As Rothstein, J.A. (as he then was)
stated in Gaucher v. R.:
[6] ... It is
a basic rule of natural justice that, barring a statutory provision to the
contrary, a person who is not a party to litigation cannot be bound by a
judgment between other parties. The appellant was not a party to the reassessment
proceedings between the Minister and her former husband. Those proceedings did
not purport to impose any liability on her. While she may have been a witness
in those proceedings, she was not a party, and hence could not in those
proceedings raise defences to her former husband's assessment.
[7] When the
Minister issues a derivative assessment under subsection 160(1), a special
statutory provision is invoked entitling the Minister to seek payment from a
second person for the tax assessed against the primary tax payer. That second
person must have a full right of defence to challenge the assessment made
against her, including an attack on the primary assessment on which the second
person's assessment is based.
[8] This view
has been expressed by Judges of the Tax Court. See, for example, Acton v. The
Queen (1994), 95
D.T.C. 107, at 108 per Bowman T.C.C.J.; Ramey v. The Queen (1993), 93
D.T.C. 791, at 792 per Bowman T.C.C.J.; Thorsteinson v. M.N.R. (1980), 80
D.T.C. 1369, at 1372 per Taylor T.C.C.J. While the contrary view was
expressed in Schafer (A.) v. Canada, [1998]
G.S.T.C. 7-1, at 7-9 (appeal dismissed for delay (August 30, 1999),
A-258-98 (F.C.A.)), I am of the respectful opinion that such view is in error.
It seems to me that this approach fails to appreciate that what is at issue are
two separate assessments between the Minister and two different taxpayers. Once
the assessment against the primary taxpayer is finalized, either because the
primary taxpayer does not appeal the assessment, or the assessment is confirmed
by the Tax Court (or a higher court if further appealed), that assessment is
final and binding between the primary taxpayer and the Minister. An assessment
issued under subsection 160(1) against a secondary taxpayer cannot affect the
assessment between the Minister and the primary taxpayer.
[9] By the
same token, since the secondary taxpayer was not a party in the proceedings
between the Minister and the primary taxpayer, she is not bound by the
assessment against the primary taxpayer. The secondary taxpayer is entitled to
raise any defence that the primary taxpayer could have raised against the
primary assessment. The result may be that the assessment against the secondary
taxpayer is quashed or is found to be for a lesser amount than the assessment
against the primary taxpayer. That, of course, will have no effect on the
assessment against the primary tax payer against whom the primary assessment
was final and binding.
[5] The next step, then, is for the Appellant to discharge his onus of proving wrong
the amounts assessed against the Corporation as set out in subparagraphs 9(g)
to (p) of the Reply to the Notice of Appeal. The Appellant did not testify. The
only witness called was Mr. Reid McLeod, a chartered accountant with nearly 30
years experience. He was very careful and candid in his description of the
scope of his analysis in respect of the Corporation's assessment. I found his
testimony was entirely credible; the weakness of his evidence lay in the
limited nature of his involvement with the Corporation and of the information
provided by the Appellant for his review.
[6] Mr. McLeod had
had no dealings with the Corporation prior to the Appellant's instructions in
2001 that he review the Corporation's GST audit report. He testified that the
materials provided to him were "very disorganized" and his review was
"very much confined to the audit working papers received from Revenue Canada and
comparing the deposit analysis they made with the bank statements from the
Royal Bank and the bank statements from the Prince Albert Credit Union".
He was not given the Corporation's financial statements or other corporate
records to compare to the bank statements. He stated that from the material
provided by the Appellant, he was not in a position to say whether the GST
returns filed by the Corporation were correct. He agreed with counsel for the
Respondent that he had essentially attempted to work backwards from the
assessment and expressed the opinion that this was not the best way to do things.
[7] In view of the
evidence of the Appellant's own witness, I am unable to conclude what, if any,
errors were made in the Minister's assessment of the Corporation's GST
liability or to what extent they might have altered the amounts assumed in
subparagraph 9(k) of the Reply to the Notice of Appeal. Accordingly, there is
insufficient evidence that the Minister's assessment of the Corporation was
incorrect. As that was the sole ground of the Appellant's appeal, it is
dismissed, with costs to the Respondent.
Signed at Saskatoon, Saskatchewan, this 5th
day of June, 2007.
"G. Sheridan"
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