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Citation: 2004TCC560
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Date: 20040813
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Docket: 2003-2011(GST)I
2003-2016(GST)I
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BETWEEN:
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CHRISTOPHER ZABORNIAK
and CHERYL ZABORNIAK,
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Appellants,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Bowie J.
[1] The Minister of National Revenue
has assessed Cheryl Zaborniak and her brother Christopher
Zaborniak under section 323 of the Excise Tax Act[1](the Act). They,
along with a third sibling, owned all the shares of Zabco
Holdings Inc., and were its only directors. Zabco owned and
operated a Tim Horton franchise, and in the course of its
business it collected goods and services tax (GST). Zabco failed
to file returns under the Act, as it was obliged to do on
an annual basis, and it failed as well in its obligation to remit
the appropriate amount of GST. Following an audit, the Minister
assessed Zabco in respect of the periods ending July 31, 1997 and
July 31, 1998 as follows:
Period
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Net Tax
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Interest
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Penalty
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Total
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1996-08-01 to 1997-07-31
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$3,211.56
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$834.10
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$1,069.60
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$5,115.26
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1997-08-01 to 1998-07-31
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24,500.00
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3,628.95
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4,186.25
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32,315.20
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$27,711.56
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$4,463.05
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$5,255.85
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$37,430.46
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Unable to collect from Zabco, the Minister invoked his
statutory power to assess the Appellants as directors for the
unremitted net tax, interest and penalties of $37,430.46. It is
these assessments that are now under appeal. The appeals were
heard together on common evidence.
[2] There is only one fact that is in
dispute, and that is the quantum of net tax, interest and penalty
owing by Zabco at the time the derivative assessments now under
appeal were made. The Appellants do not contest that Zabco was
assessed for each of the two periods, or that it failed to pay
the amounts for which it was assessed. They do not dispute that
Zabco did not challenge either of the assessments against it by
either objection or appeal. Nor do they dispute that on February
4, 2000 the Minister filed a certificate under section 316 of the
Act in the Federal Court in respect of the unpaid net tax,
penalty and interest totalling $32,324.57 for which Zabco was
then liable, or that a writ of seizure and sale was issued on
February 4, 2000 and returned nulla bona on April 10,
2001. The Appellants neither pleaded nor argued that they were
entitled to the protection of the due diligence defense that
subsection 323(3) affords to corporate directors.
[3] The only ground on which the
Appellants attack these derivative assessments is their assertion
that the assessment of Zabco for the second period was incorrect.
The only evidence that they produced to support that contention
was the testimony of their agent, Mr. Kornelius Loewen, C.A., and
Exhibit A-1, which is a schedule prepared by Mr. Loewen whereby
he computed the liability of Zabco for GST in respect of the
second period to be "roughly $14,190.08". Two questions
are therefore raised. First, is it open to the Appellants on
these appeals to go behind the Minister's assessment of Zabco
for the period ending July 31, 1998, to show that it was
incorrect? Second, if that course is open to the Appellants, does
Mr. Loewen's evidence satisfactorily discharge the
Appellants' burden of proof? For the reasons that follow, I
would answer both these questions in the negative.
[4] In enacting Part IX of the
Act, Parliament made provision whereby the liability of a
registrant to pay net tax, together with any interest or penalty,
may be fixed by the Minister by means of an assessment made under
subsection 298(1). Section 299 is carefully drafted to
provide that the registrant's liability is precisely fixed by
any such assessment. It is deemed to be valid and binding,
subject only to either a subsequent reassessment by the Minister,
or being vacated following the process of objection and appeal
that is provided for in sections 301 to 307.[2] The processes for objection and
appeal are available only to the person who has been assessed.[3] The amount of net
tax, interest or penalty assessed, subject only to reassessment,
or vacating of the assessment as a result of an objection or an
appeal, is a debt due to Her Majesty in Right of Canada,[4] and when so certified
by the Minister under section 316 the certificate is deemed to be
a judgment of the Federal Court.
[5] Among the many provisions that
Parliament has enacted for the collection of unpaid net tax,
interest and penalties of registrants is section 323 which looks
to the directors of a delinquent corporation if they have failed
in their duty of due diligence in managing its affairs. It
reads:
323(1) Where a corporation fails to remit an amount of
net tax as required under subsection 228(2) or (2.3), the
directors of the corporation at the time the corporation was
required to remit the amount are jointly and severally liable,
together with the corporation, to pay that amount and any
interest thereon or penalties relating thereto.
323(2) A director of a corporation is not liable under
subsection (1) unless
(a) a
certificate for the amount of the corporation's liability
referred to in that subsection has been registered in the Federal
Court under section 316 and execution for that amount has been
returned unsatisfied in whole or in part;
(b) the
corporation has commenced liquidation or dissolution proceedings
or has been dissolved and a claim for the amount of the
corporation's liability referred to in subsection (1) has
been proved within six months after the earlier of the date of
commencement of the proceedings and the date of dissolution;
or
(c) the
corporation has made an assignment or a receiving order has been
made against it under the Bankruptcy and Insolvency Act and a
claim for the amount of the corporation's liability referred
to in subsection (1) has been proved within six months after the
date of the assignment or receiving order.
323(3) A director of a corporation is not liable for a
failure under subsection (1) where the director exercised the
degree of care, diligence and skill to prevent the failure that a
reasonably prudent person would have exercised in comparable
circumstances.
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.
323(6) Where execution referred to in paragraph
(2)(a) has issued, the amount recoverable from a director
is the amount remaining unsatisfied after execution.
323(7) Where a director of a corporation pays an amount
in respect of a corporation's liability referred to in
subsection (1) that is proved in liquidation, dissolution or
bankruptcy proceedings, the director is entitled to any
preference that Her Majesty in right of Canada would have been
entitled to had the amount not been so paid and, where a
certificate that relates to the amount has been registered, the
director is entitled to an assignment of the certificate to the
extent of the director's payment, which assignment the
Minister is empowered to make.
323(8) A director who satisfies a claim under this
section is entitled to contribution from the other directors who
were liable for the claim.
The liability that this section imposes on the directors,
jointly and severally with the corporation, is "... to pay
that amount and any interest thereon or penalties relating
thereto"; that amount, read in its context in
subsection 323(1), and having regard to the scheme of subdivision
e of the Act, can only mean the amount of net tax that the
corporation has failed to remit as required. Section 323 only
permits the Minister to assess a director where that
amount is either an amount that is deemed to be a
judgment debt for which execution against the debtor has been
returned unsatisfied,[5] or else a claim proved in liquidation or dissolution
proceedings, or in bankruptcy.[6] In the present case it is a (deemed) judgment
debt.
[6] If there were no authority on the
subject, I would have had no hesitation in finding that the
statutory language is clear, and that it leaves no room for a
collateral attack on the judgment debt in the course of an appeal
from an assessment under section 323. This is true of both the
French and the English versions of the statute.[7] I would therefore feel
constrained by the judgment of the Supreme Court of Canada in
Shell Canada Ltd. v. Canada.[8] The present Chief Justice said
there:
... Where the provision at issue is clear and
unambiguous, its terms must simply be applied: ... [9]
There have, however, been conflicting decisions of this Court
on the point since the decision of the Federal Court of Appeal in
Gaucher v Canada[10]. That case dealt with an assessment made under
section 160 of the Income Tax Act, which renders a
non-arm's length recipient of a gratuitous transfer of
property from a delinquent taxpayer liable, jointly and severally
with the transferor, for the transferor's tax liability, up
to a limit defined as the lesser of the extent to which the value
of the property transferred exceeds the value of any
consideration that may have been given for it, and
the total of all amounts each of which is an amount that the
transferor is liable to pay under this Act in or in
respect of the taxation year in which the property was
transferred or any preceding taxation year.[11]
It was the latter expression that applied in that case. The
Federal Court of Appeal held that this Court had erred in finding
that the Appellant in an appeal from a derivative assessment made
under section 160 could not dispute the amount of the tax
liability of the principal debtor for the year in question,
notwithstanding that the principal debtor had objected to the
assessment and then pursued his right of appeal from it to this
Court, all without success. The reasoning of the Court, as I
understand it, is that the initial assessment against the primary
taxpayer does not "bind" the secondary taxpayer, but
only the primary taxpayer, for reasons arising out of the rules
of natural justice. Since then there have been at least six
decisions of this Court in cases where directors assessed under
section 323 have sought to make a collateral attack on the
primary assessment. In most of those cases,[12] it was not necessary to decide
whether section 323 suffers from ambiguity. Only the decisions of
Garon C.J. in Schuster v. Canada[13] and Tardif J. in
Maillé v. Canada[14] have discussed the issue whether Gaucher
applies to section 323. They both concluded that it does not,
primarily because a director will normally have had the
opportunity to influence the corporation's decision whether
to appeal. That was certainly true in this case, where the
Appellants are two of the three directors and shareholders of a
small family business.
[7] Whatever ambiguity may be found in
section 160 of the Income Tax Act, I am not able to
identify one in section 323, and that is a prerequisite to any
departure from the plain words: see Bell ExpressVu Limited
Partnership v. Rex[15] at paragraphs 28 to 30. Iacobucci J. said there:
... ambiguity cannot reside in the mere fact that several
courts - or for that matter several doctrinal writers - have come
to differing conclusions on the interpretation of a given
provision. ...
To find that the Appellants in this case have a right to
dispute the quantum of the judgment debt would require that I add
to subsection 323(1), by implication, the words "or such
lesser amount as the corporation might have been found liable to
remit following a successful appeal of its assessment". I
simply have no mandate to do that. I am in agreement with the
conclusions reached by Garon C.J. and Tardif J. I note that these
decisions have been criticized and described as "not
... good law".[16] I disagree. The policy is certainly a legitimate
subject for criticism, but that criticism should be directed to
Parliament, for it is there and not in the Court that policy is
formulated: see Shell Canada Ltd., supra, at
paragraphs 43 to 48; the Queen v. Ray,[17] at paragraph 14.
[8] Mr. Loewen said candidly in giving
his evidence that he was working with something less than the
complete records of Zabco. A dispute of some kind had apparently
arisen between the two Appellants and their brother, with the
result that the brother had removed many of the financial records
of the company. Mr. Loewen was, therefore, left in the
position that he had to prepare Exhibit A-1 from
records that were not complete. Even those records were not
produced in evidence to support Mr. Loewen's ex post
facto analysis. This evidence falls far short of what would
be required to show that the assessor's computation of the
net tax owing for the second period under appeal is
incorrect.
[9] That does not end the matter,
however. Among the assumptions of fact pleaded by the Deputy
Attorney General in his Reply to the Notice of Appeal are the
following:
9. ...
l) a
Certificate, issued and registered at the Federal Court of Canada
on February 4, 2000, certified that the Corporation's debt
under the Act was $32,324.57, including penalty and
interest calculated to January 6, 2000;
m) a Writ of Seizure
and Sale was issued on February 4, 2000;
n) the Writ of
Seizure and Sale was returned Nulla Bona on April 10,
2001;
The liability of the directors is limited by the provisions of
paragraph 323(2)(a) to the amount for which a certificate
has been registered in the Federal Court. The Minister was not
entitled, therefore, to assess the directors in this case for any
amount in excess of $32,324.57. The appeals will therefore be
allowed and the assessments referred back to the Minister for
reconsideration and reassessment on that basis.
Signed at Ottawa, Canada, this 13th of August, 2004.
Bowie J.
SCHEDULE
323(1) Les administrateurs de la personne morale
au moment où elle était tenue de verser une taxe
nette comme l'exigent les paragraphes 228(2) ou (2.3), sont,
en cas de défaut par la personne morale, solidairement
tenus, avec cette dernière, de payer cette taxe ainsi que
les intérêts et pénalités y
afférents.
323(2) L'administrateur n'encourt de
responsabilité selon le paragraphe (1) que si :
a) un
certificat précisant la somme pour laquelle la personne
morale est responsable a été enregistré
à la Cour fédérale en application de
l'article 316 et il y a eu défaut
d'exécution totale ou partielle à
l'égard de cette somme;
b) la
personne morale a entrepris des procédures de liquidation
ou de dissolution, ou elle a fait l'objet d'une
dissolution, et une réclamation de la somme pour laquelle
elle est responsable a été établie dans les
six mois suivant le premier en date du début des
procédures et de la dissolution;
c) la
personne morale a fait une cession, ou une ordonnance de
séquestre a été rendue contre elle en
application de la Loi sur la faillite et
l'insolvabilité, et une réclamation de la somme
pour laquelle elle est responsable a été
établie dans les six mois suivant la cession ou
l'ordonnance.
323(3) L'administrateur n'encourt pas de
responsabilité s'il a agi avec autant de soin, de
diligence et de compétence pour prévenir le
manquement visé au paragraphe (1) que ne l'aurait fait
une personne raisonnablement prudente dans les mêmes
circonstances.
323(4) Le ministre peut établir une
cotisation pour un montant payable par une personne aux termes du
présent article. Les articles 296 à 311
s'appliquent, compte tenu des adaptations de circonstance,
dès que le ministre envoie l'avis de cotisation
applicable.
323(5) L'établissement d'une telle
cotisation pour un montant payable par un administrateur se
prescrit par deux ans après qu'il a cessé pour
la dernière fois d'être administrateur.
323(6) Dans le cas du défaut
d'exécution visé à l'alinéa
(2)a), la somme à recouvrer d'un administrateur
est celle qui demeure impayée après
l'exécution.
323(7) L'administrateur qui verse une somme,
au titre de la responsabilité d'une personne morale,
qui est établie lors de procédures de liquidation,
de dissolution ou de faillite a droit au privilège auquel
Sa Majesté du chef du Canada aurait eu droit si cette
somme n'avait pas été versée. En cas
d'enregistrement d'un certificat relatif à cette
somme, le ministre est autorisé à céder le
certificat à l'administrateur jusqu'à
concurrence de son versement.
323(8) L'administrateur qui a satisfait
à la réclamation peut répéter les
parts des administrateurs tenus responsables de la
réclamation.
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