Wojciech Stasieczek and Zbigniew Turkiewicz v. The Queen, 2005 TCC 127 (Informal Procedure)

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Appeals heard on October 25, 2004, at Toronto, Ontario,

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ORDER & JUDGMENT

          It appearing that Mr. Zbigniew Turkiewicz was inadvertently omitted from the style of cause, it is hereby ordered that he be added as an Appellant.

          The appeals from the assessments of goods an services tax made under the Excise Tax Act, notices of which are dated January 23, 2002 and bear numbers 56157 and 56156, respectively, are allowed and the assessments are vacated.

Signed at Ottawa, Canada, this 11th day of February, 2005.

Bowie J.

REASONS FOR JUDGMENT

BowieJ.

[1]      These two individuals were the only officers and directors of a company called City Lights Construction Corp. (City Lights). On January 23, 2002, they were each assessed under subsection 323(1) of theExcise Tax Act (the Act) a total of $23,353.79 for goods and services tax, interest and penalties owing by City Lights at the time it became bankrupt. A Notice of Appeal from these assessments was filed in this Court on August 12, 2003 by an agent, Bernard Cooper. It bears the name of each of Mr. Stasieczek and Mr. Turkiewicz, but the name of Mr. Turkiewicz appears to have been struck out at some point by someone. By whom, or why, is not clear. When the matter first came before me I ordered that the hearing be adjourned to give Mr. Turkiewicz, who was not served with notice of the hearing and who was not present, the opportunity to attend and to be heard. When the matter came back before me on October 25, 2004, Mr. Turkiewicz appeared and took part in the hearing. The Respondent filed a Reply in the appeal of Mr. Turkiewicz on that date, in terms more or less identical to the Reply filed earlier in the appeal of Mr. Stasieczek. Both Appellants gave evidence, as did the trustee in bankruptcy of City Lights.

[2]      City Lights was engaged in construction work. The Appellants were the principals of the company. According to their evidence, which I have no reason to disbelieve, it entered into three contracts in 1995 which ultimately led to its bankruptcy. The company had expended a great deal of time and money in the execution of these contracts, for which it was unable to obtain payment. Sometime in the latter part of 1996 it became insolvent, and in November of that year it made an assignment in bankruptcy. The accounts receivable at that time were substantial, and of course they included GST which had been billed but remained unpaid. It appears from the evidence that the company had reported that GST as due when it invoiced its customers, as it was bound to do; however it did not remit it as it should have done. Subsection 231(1) of the Act makes provision for a registrant to take a deduction from tax payable in a later reporting period in respect of tax that forms part of an uncollectible account. According to the evidence, that was not done in this case, and as a result there was more than $16,000 GST owing at the time City Lights made its assignment in bankruptcy. The trustee was unable to realize anything on the accounts receivable, and the full amount of GST, together with penalty and interest, remained outstanding when the Minister assessed the Appellants under section 323 of the Act in January 2002.

[3]      The Appellants argued that they should not be made vicariously liable for the debt of City Lights under section 323 of the Act, because that outstanding GST had never been collected from its customers, and so City Lights was in no position to remit it. However, as I explained in Zaborniak v. Canada,[1] the liability of corporate directors that is created by section 323 of the Act is for the amount of net tax that the corporation has failed to remit to the Receiver General as it was required to do by subsection 228(2) of the Act. That amount is a debt owing by the company to Her Majesty in right of Canada by the operation of subsection 313(1), and it is that unremitted amount for which the directors are made liable by subsection 323(1). However Draconian that scheme may seem to some, it is the effect of the clear words of Parliament and the Courts have no power to grant relief from it on the basis of their conception of fairness or equity. Any relief must be found in the provisions of the Act itself.

[4]      All that said, there are saving provisions within section 323 that are available to corporate directors. Subsection (3) protects directors from liability if they can show that they exercised reasonable care, diligence, and skill to prevent the corporation's failure to remit tax owing. Unfortunately, the evidence in this case does not show that this defence is available to the Appellants. Ironically, due diligence on their part would have included causing the corporation to claim the deduction from tax that was available under subsection 231(1), which it apparently did not do. While I have some sympathy for the situation in which these Appellants find themselves, the evidence relating to the manner in which they carried out their duties simply did not address the issue in any convincing way.

[5]      I find, however, that I must allow the appeals for other reasons. In order to avail himself of subsection 323(1) of the Act, the Minister must comply with subsections 323(4) and (5), which read:

323(4) The Minister may assess any person for any amount payable by the person under this section and, where the Minister sends a notice of assessment, sections 296 to 311 apply, with such modifications as the circumstances require.

323(5) An assessment under subsection (4) of any amount payable by a person who is a director of a corporation shall not be made more than two years after the person last ceased to be a director of the corporation

[6]      Both Appellants testified that they signed a document resigning their directorships in 1996. Mr. Stasieczek believed that he had signed it in May or June 1996; Mr. Turkiewicz believed that they had both signed it in November at the office of the trustee in bankruptcy when they went to make the assignment. The inconsistency in their evidence is not surprising; after such a long lapse of time it would be surprising if they remembered the event more than vaguely. However, I accept their evidence that they did both sign such a document. Whether it was signed in May or November, much more than five years had elapsed before the Minister assessed them in January 2002. I do not find it surprising either that the Appellants were not able to produce a copy of the resignation. The corporate records were beyond their control for most of that time. The trustee gave evidence, but he did not have the records with him, and his oral evidence was not of any value. He had no specific recollection of the events, nor would I expect him to after all these years. It is quite understandable that all the evidence was quite imprecise as to the details of their resignations. The appeals were heard in October 2004, some eight years after the events. If the quality of the evidence is less than perfect, that is in large measure attributable to the Minister's unexplained delay in raising the assessments. I accept the evidence of the Appellants that they had both resigned their directorships in 1996. Consequently, the assessments were made beyond the limitation period.

[7]      The appeals are allowed and the assessments are vacated.

Signed at Ottawa, Canada, this 11th day of February, 2005.

Bowie J.