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Citation: 2004TCC542
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Date: August 04, 2004
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Docket: 2003-3095(GST)G
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BETWEEN:
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JEAN-CLAUDE BERGER,
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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]
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REASONS FOR JUDGMENT
Garon
C.J.T.C.C.
[1] This
is an appeal from an assessment dated May 27, 2002, for the sum of $21,542.84,
issued under the Excise Tax Act, for the period beginning February 1998
and ended May 2000. According to the Respondent, the Appellant did not fulfil
his obligations as director of 9046-4264 Québec Inc. (“Company 9046”) with the
reasonable degree of care, diligence, and knowledge required to prevent Company
9046 from failing to remit the required amounts of Goods and Services Tax to
the tax authorities.
[2] Company
9046 was incorporated on February 5, 1997, under Part 1A of the Companies
Act of Quebec. Beginning in April 1997, it operated a
vehicle maintenance and repair business and a service station. At the time,
the corporation’s business was known as Garage Philippe Cloutier (“Garage
Cloutier”).
[3] The
only two shareholders of Company 9046 were Ms. Lise Gosselin and Mr. Paul
Couture; each shareholder held 50% of all of the shares in this company, which
had three directors, namely, the two shareholders—Mr. Couture and Ms.
Gosselin—and the Appellant, Ms. Gosselin’s spouse since 1990.
[4] Company
9046 had close ties with 9005-2200 Québec Inc. (“ Company 9005”). Company
9005 has only two directors, namely, the Appellant, who is the Vice-President,
and Ms. Gosselin, who is the President. Ms. Gosselin is the sole shareholder
of Company 9005. This company’s place of business is located on the premises
of l’Atelier de pneus Montmagny. Company 9005 held all of the shares in
l’Atelier de pneus Montmagny Ltée.
[5] It
is important to begin by describing the role of Ms. Gosselin, Mr. Cloutier,
and, particularly, the Appellant within Company 9046.
[6] Ms.
Gosselin described herself as a businesswoman. She owned a clothing and shoe
store from 1970 to 1990. In 1994, she acquired all of the shares of a company
operating as l’Atelier de pneus Montmagny through Company 9005.
[7] Mr.
Couture was unemployed at the time Company 9046 acquired Garage Cloutier. In
addition to being a director, he was the vice-president of Company 9046. He
managed the day-to-day operations of Garage Cloutier. He performed manual
labour and supervised the garage’s employees. According to clause (b) of the
shareholders’ agreement dated April 11, 1997, reproduced below, Mr. Couture was
the manager of this business. He dealt with the suppliers. Through him,
Company 9046 purchased tires from l’Atelier de pneus Montmagny for the purpose
of his business. These purchases were invoiced to Garage Cloutier.
[8] Mr.
Paul Couture described himself as a labourer; he had a secondary school level
IV education. He normally supervised two employees, and on occasion, he
supervised a third employee. He confirmed that the Appellant did not work at
Garage Cloutier, but that he worked full-time at l’Atelier de pneus Montmagny.
The accounting work for Company 9046 was performed on the premises of l’Atelier
de pneus Montmagny. Mr. Couture would submit the documents relevant to the
garage’s current operations to the Appellant when he would come to fill up his
vehicle at Garage Cloutier. Mr. Couture testified that he handled all of the
bank deposits for Company 9046 from April 1997 to December 1999, as supported
by his signature as it appears on all of the deposit slips prepared during this
period. Mr. Couture was required to sign all of the cheques issued by Company
9046. A second signature was also required; the Appellant or Ms. Gosselin also
had to sign.
[9] Mr.
Couture dealt with the Appellant where major issues arose with respect to the
operations of Garage Cloutier. According to him, the tax returns were signed
by Ms. Gosselin or the Appellant, and at times by himself, where the Appellant
or Ms. Gosselin were absent. Mr. Couture stated that the Appellant made the
business decisions for the company. Mr. Couture ceased to be a director on
December 23, 1999. He claimed that he reimbursed Company 9046 in 1997 for the
personal expenses the company had paid while relations with Mr. Couture and Ms.
Gosselin were good. During cross-examination, it was introduced in evidence
that Mr. Couture had pleaded guilty to some criminal charges in 1997 and 1998.
Mr. Couture also stated that he was informed by the Minister of Revenue of
Quebec, in a letter dated April 18, 2002, that the department was contemplating
assessing him as a director of Company 9046, given that the company failed to
remit some taxes. Through his letter dated April 26, 2002, to Ms. Josée
Perrault of Revenu Québec, Mr. Couture persuaded the tax authorities to not
follow through on their intention to issue an assessment against him.
[10] A shareholder agreement, dated April 11, 1997, governed the relations
between Mr. Paul Couture and Ms. Lise Gosselin. Two clauses in this agreement
are of particular interest. They read as follows:
[TRANSLATION]
1 – GENERAL PURPOSE
[...]
(b) The shareholders
agree to provide their expertise and their resources to the company; Paul
Couture agrees to act as business manager and employee until April 30, 2002.
His remuneration shall be twenty-five thousand dollars ($25,000) per year, paid
weekly, subject to increases approved by the shareholders, on the basis of
increased business profits, and, for as long as he remains business manager,
shall include the lease of a vehicle or the cost of leasing a vehicle
(approximately $6,000 per year), a vehicle expense allowance of two thousand
five hundred dollars ($2,500) per year, and an entertainment expense allowance
to a maximum of two thousand five hundred dollars ($2,500) upon submission of
supporting documents for these expenses.
[...]
The company’s
accounting shall be carried out under the supervision of the legal entity known
as 9005-2200 Québec Inc., whose place of business is located at 266 St-Ignace
Street, Montmagny, Quebec, G5V 1S7, until the directors deem it appropriate
that the accounting be carried out at the company’s principal place of
business.
[11] As previously stated, the Appellant did not work at Garage Cloutier.
He was the manager of a garage that sold tires, l’Atelier de pneus Montmagny,
as previously mentioned.
[12] As for his role in the management of Company 9046, the Appellant
maintains that he was appointed to the position of director and secretary of
the company at the notary’s suggestion. He states categorically that he has
not invested in Company 9046 and that he has no financial interest in this
company. He has not, at any time, been paid for any services performed as
director or in any other capacity. However, in 1999, the Appellant did lend
Ms. Gosselin $20,000 to fund some of Company 9046’s undertakings.
[13] In his testimony, the Appellant stated that he has a grade nine
education and that he has been a tire salesman since 1964. He has never owned a
business. He was friendly with Mr. Couture and, during the years at issue, he
frequented Garage Cloutier to purchase gas, nothing more. He stated that he
did not participate in business meetings dealing with Garage Cloutier’s
operations, although he has, on occasion, accompanied his spouse, Ms. Gosselin,
to some meetings. He also accompanied Mr. Couture to a meeting to discuss an
automobile parts franchise with U.A.P. At Ms. Gosselin’s request, the
Appellant also contacted the ministère du Revenu du Québec regarding the GST.
Although he does not recall whether he signed cheques for Company 9046, he
added subsequently that, if he did, it was only one or two cheques. The
Appellant could not say specifically when he became aware that Company 9046 had
not remitted taxes, but it was some time prior to the transactions of December
23 and 24, 1999, which are described below.
[14] The Appellant acknowledged that he had signed a number of documents
dealing with Company 9046's commercial operations, including those relating to
the company’s incorporation and tax returns. According to the Appellant, he
did so because his spouse, Ms. Lise Gosselin, asked him to help out in her
absence. At other times, he did so at the request of l'Atelier de pneus
Montmagny’s office secretary. The company’s tax return for the fiscal year
ended January 31, 1999, lists the Appellant as director and the person
responsible for Company 9046’s books. This tax return was prepared by
Mallette Maheu. The Appellant also certified the content of the
regulations on the loans and guarantees of a corporation for the Caisse
Populaire, as well as the “Résolution et attestation concernant
l’administration d’une personne morale” [resolution and declaration
regarding the administration of a corporation]. This document states that the
signature of the vice-president, in this case, Mr. Couture, is always required
in these matters.
[15] The Appellant did not incur any liability for the $50,000 line of
credit granted to Company 9046. The co-signatories and guarantors were Mr.
Paul Couture and Ms. Lise Gosselin. The Appellant did not incur any
liabilities with suppliers.
[16] In addition, taxes were not remitted for Company 9046’s sale of a
pick-up truck to Ms. Julie Ouellette, Mr. Couture’s spouse. The Appellant’s
initials appeared on the bill of sale at issue. According to the Appellant,
Ms. Gosselin did not collect the taxes for this transaction and thus, she could
not remit them.
[17] The evidence also showed that some
invoices paid by Company 9046 represented Mr. Couture’s personal expenses. I
refer specifically to the purchase of a winch, men’s clothing, and certain
renovations done in his home. The Appellant lives across the street from Mr.
Couture and could have easily determined that renovations had been done in Mr.
Couture’s home. Company 9046 took no action to recover the payment of these
expenses. Ms. Gosselin stated that she only became aware of these personal
expenses incurred by Mr. Couture after the accounting books and records and
other documents for Company 9046 were reviewed some time after Mr. Couture
ceased to be a shareholder. Mr. Couture testified that he invoiced some
personal expenses to Company 9046 based on a suggestion made by the Appellant,
who claimed that the company would, consequently, pay less income tax. The
amounts at issue for these expenses totalled approximately $2,000. Ms.
Gosselin was asked to explain her statement whereby Mr. Couture’s personal
expenses had been paid by Company 9046 without her knowledge; she replied that
she had signed the cheques without comparing them to the invoices.
[18] It is necessary to examine how the accounting work for Company 9046
was carried out, and by whom.
[19] Ms. Fabienne Leblanc performed bookkeeping duties for Company 9046
from the beginning of the company’s operations until her resignation in June
1999. She prepared documents for tax remittances based on the supporting
documents and information provided by Mr. Couture. On a number of occasions,
the Appellant signed the government remittance slips. This accounting work was
performed on the premises of l’Atelier des pneus Montmagny. Ms. Leblanc also
kept the books for l’Atelier de pneus Montmagny. Beginning in July 1999, Ms.
Julie Ouellette—Mr. Couture’s spouse, as I mentioned earlier—replaced Ms.
Leblanc for a period of approximately six weeks. During the period beginning
July 1, 1999, and ended December 24, 1999, taxes were remitted by Ms. Ouellette
or Mr. Couture. After Ms. Leblanc left in June 1999, Mr. Patrice Roy, an
accountant, made source deduction remittances for Company 9046 on a monthly
basis, and GST and QST remittances every three months. Ms. Gosselin testified
that she did not learn before July 2000 that some remittances had not been made.
[20] The Appellant explained that, in the fall of 1999, Mr. Couture wanted
to end his involvement with the Appellant and Ms. Gosselin in the business of
Company 9046 prior to the end of the year at issue. According to the
Appellant, Mr. Couture wanted to claim a deduction for the losses he incurred
for the 1999 taxation year as a result of his investment in Company 9046.
Company 9046 was in poor financial condition owing to the fuel price war. Mr.
Couture also wanted to release the guarantors from their obligations to the
Caisse populaire Desjardins de Montmagny.
[21] On December 24, 1999, Mr. Paul Couture sold all of his stock—50,000
shares—in Company 9046 to Ms. Gosselin for $1. The transaction in which these
shares were sold was preceded by another transaction, the [TRANSLATION]
“Transaction Agreement,” dated December 23, 1999, between Mr. Paul Couture and
Ms. Lise Gosselin. The parties mentioned clause 7 of this agreement
specifically. It reads as follows:
[TRANSLATION]
7/ The transferor
authorizes the company to apply specifically to the repayment of advances made
by Jean-Claude Berger ($20,000), the repayment of advances made by l’Atelier de
Pneus Montmagny ($10,000), and the payment of the debt owing to l’Atelier de
Pneus Montmagny for supplies ($30,000), the proceeds from the repayment of
capital on the $50,000 promissory note owed by 9027-9068 Québec Inc. to the
company, bearing an interest rate of two percent (2%) per year, signed on April
11, 1997, and the interest owing on the other promissory note, dated on the
same day, for the initial amount of $100,000, bearing an interest rate of four
percent (4%).
(Exhibit I-1, Tab 14.)
[22] Company 9046 ceased to operate Garage Cloutier on January 31, 2001.
[23] Ms. Line Dufresne, a Revenu Québec tax audit technician responsible
for contacting businesses who do not file their income tax returns or who fail
to make source deductions contacted Company 9046 in this regard; she first
dealt with Mr. Couture, who said that action would be taken following her
call. Ms. Leblanc later stated that the Appellant would deal with tax
remittance issues. The Appellant did so on July 19, 1999, and Ms. Dufresne
told him that the QST and GST returns for January 1999 had not been filed. The
Appellant explained that Company 9046 was experiencing cash flow problems and
that a payment would be made at a later date. It should be noted that Ms.
Dufresne did not communicate with Ms. Gosselin about the requests for
information on the tax returns and remittances.
[24] In June 2000, Ms. Johanne Doré, who was no longer an employee of the
ministère du Revenu du Québec at the time of this appeal hearing, but who was,
at the relevant time, an employee of that department, carried out a tax audit
of Company 9046 for the period beginning March 1997 and ended April 2000. She
noted inconsistencies in the accounting data, and she was unable to speak with
Ms. Leblanc, who was no longer an employee of Company 9046 and Company 9005.
She stated that she contacted the Appellant and Ms. Gosselin to obtain the
information that was missing. She stated that the Appellant had more knowledge
of the details of the business relationship between Company 9046 and
Petro-Canada during the years at issue than Ms. Gosselin had. Ms. Doré
confirmed the reliability of the information provided by the Appellant with
Petro-Canada. She added that she submitted her draft assessment to Ms.
Gosselin and to the Appellant, and she gave them 21 days to submit their
comments. The Appellant discussed the draft assessment with her by telephone
on a number of occasions. Ms. Gosselin did not deal with Ms. Doré regarding
the draft assessment. The Appellant was the only person to do so. She also
stated that she attempted to contact Mr. Couture with respect to this draft
assessment, but she was unsuccessful. She dealt with the Appellant and Ms.
Gosselin during her audit. She was unable to determine whether Ms. Gosselin or
the Appellant had provided the most information. Ms. Doré also discussed this draft
assessment with Mr. Patrice Roy, an accountant retained by Company 9046.
[25] Ms. Perrault’s testimony revealed that the Appellant negotiated the
agreement on the terms and conditions of payment with Revenu Québec with
respect to the assessment at issue.
[26] Company 9046 did not object to the assessments of GST amounts that
were not remitted to the tax authorities.
Analysis
[27] In light of these facts, it must first be determined whether the
Appellant was a director of Company 9046 during the period at issue.
[28] Firstly, it is necessary to examine the initial return filed by
Company 9046, dated March 21, 1997, in which it is clearly indicated that this
company had three directors: the Appellant, Ms. Gosselin, and Mr. Couture. The
amending declaration of a corporation, also dated March 21, 1997, which was
filed by this company, also identifies the Appellant as a director. The
section of the document that contains additional information shows that the
Appellant is the secretary of Company 9046 through the use of a notation:
“SE.” These two documents were certified by the Appellant himself shortly
before Company 9046 began its operations. Company 9046 sent the department at
issue a second amending declaration, dated April 18, 1997. The addition
identifying “Garage Philippe Cloutier” in this declaration was also signed by
the Appellant.
[29] With respect to whether the Appellant was a director of Company 9046,
section 62 of An Act respecting the Legal publicity
of sole proprietorships, partnerships and legal persons, which reads as follows, must be considered:
The information relating to each registrant
is proof of its contents in favour of third persons in good faith from the date
on which it is entered in the statement of information. Third persons may
submit any proof to refute the information contained in a declaration.
That information shall include:
[...]
6) the names and domiciles of the directors, with
an entry indicating the position held by each.
[30] It is clear from the preceding that the Appellant was one of the
directors of Company 9046. The Appellant did not, at any time, claim that his
name had been inserted in the declaration required pursuant to the Quebec Companies
Act without his consent. The fact that he may not have known the extent of
the responsibilities inherent in the position of director of a corporation does
not change the fact that he became a director of Company 9046 in law.
Paragraph 8 of the amended notice of appeal contains an ambiguous passage,
which reads as follows:
[TRANSLATION]
8. The Appellant
was appointed to the position of secretary of the corporation at the request of
the notary who incorporated the company; the notary claimed that there should
be three (3) directors.
[31] The Appellant, therefore, was indeed a director of Company 9046 during
the period at issue. The evidence is conclusive in this matter.
[32] Additionally, the evidence shows that the Appellant was closely
involved in the management of Company 9046. For example, the Appellant signed
a form from the Caisse populaire Desjardins entitled “Règlement relatif aux
emprunts et aux garanties de la personne morale” [regulations regarding the
loans and guarantees of a corporation] on behalf of Company 9046 (Exhibit I-1,
Tab 8). On April 1, 1997, he also signed another document from the Caisse
populaire Desjardins entitled “Résolution et attestation concernant
l'administration d'une personne morale” [resolution and attestation regarding
the administration of a corporation] (Exhibit I-1, Tab 9). The Appellant
signed two tax returns for Company 9046, dated June and August 1999 (Exhibit
I-1, Tab 10). The Appellant’s name also appears on a document relating to the
sale of a truck to Ms. Ouellette by Company 9046 on December 1, 1999 (Exhibit
I-1, Tab 12). On December 24, 1999, the Appellant also signed another document
from the Caisse populaire Desjardins entitled “Résolution et attestation
concernant l'administration d'une personne morale” [resolution and attestation
regarding the administration of a corporation] (Exhibit I-1, Tab 13).
[33] Moreover, it was also shown that the Appellant played an important
role on some occasions with respect to the business of Company 9046. The
Appellant explained to the Revenu Québec representative the nature of the
relatively complex arrangements made between the Appellant and Petro-Canada
concerning some of the payments it made, as Ms. Gosselin was unable to provide
appropriate information in this matter. The Appellant explained the volume
discount given to Company 9046 by Petro-Canada to the Revenu Québec
representative. Reference can be made to Ms. Dufresne’s testimony in which she
claims that the Appellant contacted her in July 1999 to inform her that Company
9046 was experiencing cash flow problems and that Company 9046 would make a
payment at a later time. Reference can also be made to Ms. Doré’s testimony,
whereby the Appellant was the only person who had a number of discussions with
the Revenu Québec representative regarding the draft assessment of Company
9046. As counsel for the Respondent clearly indicated, the Appellant
intervened on a number of occasions with respect to the management of Company
9046’s business.
[34] I conclude that the Appellant minimized his role within Company 9046.
Contrary to his claims, he played an active role in the business operations of
the company at issue. He was involved in the principal events concerning this
company, particularly those dealing with financial aspects, during the relevant
period.
[35] Based on all of the evidence, I conclude that the Appellant was a
director of Company 9046 and that his circumstances are those of an inside
director, according to the definition set out by the Federal Court of Appeal in
Soper v. Canada (C.A.), [1998] 1 F.C. 124.
[36] Given that it is my opinion that the Appellant was a director of the
company, I conclude that the Appellant has not taken the measures necessary to
prevent the failure to remit the Goods and Services Tax for the periods at
issue.
[37] Firstly, pursuant to the shareholders’ agreement concluded between Mr.
Couture and Ms. Gosselin, on April 11, 1997, the monitoring of Company 9046’s
accounting operations was the responsibility of Company 9005, whose place of
business was located on the premises of l’Atelier de pneus Montmagny, where the
Appellant worked on a permanent basis during the period at issue. The
Appellant was one of two directors of Company 9005; the other director was the
Appellant’s spouse, Ms. Gosselin. According to Ms. Dufresne’s testimony, he
was aware, by July 1999, that a tax remittance report for the month of January
1999 had not been generated. He knew that Company 9046 was experiencing cash
flow problems.
[38] Given his knowledge of Company 9046’s operations and activities, it is
more than likely that he knew that Company 9046 had not remitted taxes for some
time. The opposite seems unlikely to me. At the very least, he could have
inquired about the tax remittance, particularly the GST, and made arrangements
to resolve this matter. In the circumstances, the Appellant would not have had
to make a big effort to ensure that the required payments had been made to the
tax authorities involved. For example, before July 1999, he could have
contacted Fabienne Leblanc (the person responsible for Company 9046’s
bookkeeping), who was located on the premises of l’Atelier de pneus Montmagny,
where the Appellant was employed as a tire salesman during the relevant period.
[39] Although the Appellant’s formal education was limited, he nonetheless
had business experience. The standards of conduct pursuant to subsection
323(3) of the Excise Tax Act, which are partially subjective, are not
being disputed here. See Soper, supra, in which the Federal Court of
Appeal commented on a similar provision of the Income Tax Act.
[40] Given all of the circumstances in this case, I conclude that the
Appellant did not exercise the degree of care, diligence, and knowledge required by
the Excise Tax Act.
[41] It is my opinion, therefore, that the assessment made by the Minister
of National Revenue is well founded.
[42] For these reasons, the appeal is dismissed, with costs.
Signed at Ottawa,
Canada, this 4th day of August 2004.
Garon
C.J.T.C.C.
Translation certified true
on this 28th day of February 2005.
Colette Dupuis-Beaulne, Translator
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