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Citation: 2005TCC9
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Date: 20050111
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Docket: 2004-1201(GST)I
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BETWEEN:
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JEAN-PIERRE DUFOUR,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
BédardJ.
[1] The Appellant was the sole
director of the company 9070-2119 Québec Inc. (the
"company") when it failed to remit the goods and
services tax (GST) amounts that it had collected, thereby
contravening the provisions of the Excise Tax Act (the
"Act"). Since the Minister of National Revenue (the
"Minister") was not able to recover those GST amounts
from the company, the Minister held the Appellant jointly and
severally liable under subsection 323(1) of the Act for the GST
amounts that were not remitted by the company and the Minister
accordingly issued an assessment to the Appellant dated February
5, 2003 (the "assessment"). The Appellant is appealing
from that assessment for the following reasons:
(i) first, he submitted that he
had been assessed more than two years after he ceased to be the
director and that the Minister was therefore not entitled, under
subsection 323(5) of the Act, to make the assessment;
(ii) second, he argued that on
September 12, 2000, he obtained a final discharge from the Quebec
Deputy Minister of Revenue with respect to, in particular, any
GST amount collected and not remitted during the company's
operation of the restaurant;
(iii) lastly, he submitted that, in
the instant case, he had exercised due diligence and that he
therefore could not be held jointly and severally liable for the
company's tax liability.
Analysis
[2] The evidence established that
(i) the company had operated a
restaurant from November 5, 1998, until January 20, 2000;
(ii) the company had been
incorporated on November 5, 1998, under the Companies Act
(Part IA) and struck on May 4, 2001;
(iii) the Appellant had been the
company's only shareholder during its existence;
(iv) the Appellant had been the
company's only director since its incorporation until the
date of his resignation on August 20, 2001;
(v) during the period where the
company had operated the restaurant, the Appellant was employed
full time as sales director for the food chain Métro.
However, during that period, the Appellant went to the restaurant
regularly to perform general supervision. In fact, the Appellant
was at the restaurant every day of the week, specifically, in the
morning from 7:00 a.m. to 8:30 a.m. and at lunchtime. Also, he
worked at the restaurant every weekend. Lastly, he obtained daily
updates on the company's financial situation;
(vi) during that period, the company
employed 12 people including a service manager and the
Appellant's son who was kitchen manager. The Appellant's
wife did the company's bookkeeping (cashing out, manual
journals and tax reports) Serge Lavoie, CGA, prepared the
company's financial and income statements;
(vii) for the period from May 1, 1999, to
July 3, 1999, and for the period from August 1, 1999, to October
31, 1999, the company had filed the returns required by the Act
on time, but had not remitted all the GST amounts collected;
(viii) on April 3, 2000, a certificate (Exhibit
I-2) (numbered GST-11780-00) had been filed in the Federal
Court with regard to the company for an amount of $12,090.69,
representing the GST amounts (including interest and penalties)
collected and not remitted by the company for those two periods;
on that date, the company's tax liability (including the
amounts owing under the Act and under the Act respecting the
Québec sales tax) was approximately $28,000. The tax
authorities had therefore seized the company's bank account
and its equipment. The company had paid all of the $28,000 tax
liability (including the $12,090.69) on September 12, 2000, and
obtained a discharge in that regard. It should be noted that the
Appellant had to pay tax authorities $12,519.85 from his own
funds in order for the $28,000 liability to be fully paid;
(ix) for the period from November 1,
1999, to January 31, 2000, the company had not filed the return
required by the Act until November 10, 2000, whereas it should
have been filed no later than February 28, 2000. That return
indicated that $3,315.52 in GST had been collected and not
remitted. On May 30, 2001, a certificate numbered
GST-2508-01 had been filed in the Federal Court with regard to
the company for an amount of $3,815.70 and on March 8, 2002, a
writ of seizure was returned marked with an indication that it
had not been executed. Therefore, the Minister held the Appellant
jointly and severally liable for the amounts owing by the company
under the Act for the period from November 1, 1999, to January
31, 2000, and thus issued the Appellant the assessment dated
February 5, 2003.
Analysis and decision
Time limit
[3] I note that counsel for the
Appellant submitted that the February 5, 2003, assessment was
made more than two years after the Appellant had ceased to be
director of the company and that the Minister of National Revenue
was therefore not entitled under subsection 323(5) of the Act to
make that assessment. In that regard, she argued that the
Appellant had no longer acted as director of the company from the
moment when the company ceased all commercial activities on
January 20, 2000, and that the Appellant therefore could no
longer be considered a director as of that date for the purposes
of the Act.
[4] In my view, a person does not
cease to be director of a company from the moment when that
company ceases all commercial activities. I believe that it is
necessary to refer to the provisions of the Companies Act
to determine the moment when a person ceases to be a director. In
that regard, section 123.76 of that Act sets out that,
notwithstanding the expiry of his term, a director remains in
office until he is re-elected, replaced, or removed. A director
must resign from office by giving notice to that effect. In the
instant case, the evidence clearly establishes that the Appellant
had been at the very least director of the company until the date
of his resignation, which was August 20, 2001. Furthermore, is it
not true that on September 12, 2000, the Appellant signed, as
director of the company, the bill of sale through which the
company sold its equipment and, on November 2, 2000,
the bill of sale through which it sold its building, after the
date on which the company ceased its commercial activities?
Discharge
[5] I note that counsel for the
Appellant submitted that on September 12, 2000, the company had
obtained a final discharge from the Quebec Deputy Minister of
National Revenue with regard to any GST amount owing as part of
the operation of the restaurant. The Appellant's evidence, in
that regard, was based solely on his testimony. According to the
Appellant, on September 12, 2000, it had been agreed with Michel
Bédard, collection officer for the Quebec Minister of
Revenue, that in consideration of the company's payment of
the $28,000 ($12,519.85 of which came from the Appellant's
funds), the company would obtain a final discharge with regard to
all of its tax liabilities related to the operation of the
restaurant.
[6] The Appellant's testimony in
that regard was simply not persuasive for the following
reasons:
(i) Mr. Bédard denied the
Appellant's statements in that regard;
(ii) the documentary evidence
seems rather to support Mr. Bédard's testimony. In
fact, the discharge of September 12, 2000, (Exhibit A-2) only
covered the GST amount of $12,090.69 under the certificate
(Exhibit I-2) filed with the Clerk of the Federal Court on April
3, 2000, in the file numbered GST-1178-00. The certificate only
covered the GST amounts owing by the company for the period from
May 1 to July 31, 1999, and for the period from August 1 to
October 31, 1999. Also, it should be pointed out that, on
September 12, 2002, the tax authorities were not yet aware of the
GST amounts owing by the company for the period from November 1,
1999, to January 20, 2000 (the date on which the restaurant
activities ceased). In fact, the return required by the Act was
not filed by the company until November 10, 2001. It would be
very surprising if the tax authorities had given a final
discharge on amounts owing to them that they were not even aware
existed.
Due diligence
[7] Lastly, counsel for the Appellant
submitted that in the instant case the Appellant had exercised
due diligence and that he therefore could not be held liable for
the company's tax liabilities. In that regard, she submitted,
relying on the conclusions in Soper v. Canada,
[1998] 1 F.C. 124 (F.C.A.), that to satisfy the due diligence
requirement a director may take positive measures by setting up
controls. In the instant case, she pointed out that the Appellant
had set up controls: the Appellant's spouse was responsible
for filing the GST returns required by the Act, returns that were
audited by Mr. Lavoie, the external auditor. She added that those
returns had moreover been filed on time. It should first be noted
that in Soper, Robertson J. found that to satisfy the due
diligence requirement, a director must not only take positive
measures by setting up controls to account for remittances, but
also by asking for regular reports from the company's
financial officers on the ongoing use of such controls and by
obtaining confirmation at regular intervals that withholding and
remittance has taken place as required by the Act.
[8] In the instant case, the Appellant
was the company's only director. The evidence clearly
established that he was perfectly aware of the company's
financial situation at all times, that he therefore knew that the
company had filed the returns required by the Act on time for the
period from May 1 to July 31, 1999, and for the period from
August 1 to October 31, 1999, but he also knew that the company
had failed to remit in a timely manner the GST collected for
those two periods. The fact that the company finally paid the
amounts it owed on September 12, 2000, is simply not relevant in
the instant case. I cannot accept that the Appellant who, in my
view, was at all times aware of the company's financial
situation, did not know that the return required by the Act for
the period from November 1, 1999, to January 31, 2000, had not
been filed on time and that the GST collected during that period
had not been remitted. There is no basis on which I can find that
the Appellant's spouse and Mr. Lavoie had misled the
Appellant about the status of the remittances for that period.
The Appellant was aware of the company's financial
difficulties and the status of the GST remittances. He received
the company's income statement each month. Thus, it was up to
him to ensure that the GST collected was remitted, regardless of
the company's financial difficulties. In the instant case, he
had an obligation to achieve results. I find that, in the
circumstances, the Appellant could not properly rely on the due
diligence defence set out in subsection 323(3) of the Act.
[9] For those reasons, the appeal is
dismissed.
Signed at Ottawa, Canada, this 11th day of January 2005.
Bédard J.
Translation certified true
on this 12th day of April 2005
Aveta Graham, Translator
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