Date:
20010607
Docket:
1999-4623-GST-I
BETWEEN:
RICHARD
JOBIN,
Appellant,
and
HER MAJESTY
THE QUEEN,
Respondent.
For the
Appellant:
The Appellant himself
Counsel for
the
Respondent:
François Trudel
Reasons
for Judgment
(delivered
orally from the Bench on
May 8, 2001,
at Montréal, Quebec,
and revised on June 7, 2001)
P.R.
Dussault, J.T.C.C.
[1]
In this case, I have had an opportunity to review the evidence
adduced earlier and to hear new testimony.
[2]
Mr. Jobin, I understand all the problems you may have had. You
gave me a full account of them. You asked witnesses to appear on
the first day of the hearing to explain how it all happened in
October 1996, why the company had to close its doors and went
bankrupt.
[3]
Throughout this trial, I have insisted on obtaining technical
details about the exact periods involved. I obtained that
information this morning. I am now sure about the period involved
and the amount that was assessed.
[4]
I will start by quoting subsection 323(1) of
the Excise Tax Act ("the Act"), which
reads as follows:
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.
Subparagraph
2(a) states that:
A director of a corporation is not liable under subsection (1)
unless
(a) ...
Next, we have three different situations. The one that concerns
us here is the third, under paragraph (c), which
states:
(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.
[5]
We have proof of the bankruptcy and proof that
the Department's claim for the GST was filed on November 7,
1996. This is what is found in the documents filed in evidence.
This condition is met. I now refer to subsection 323(3) of
the Act, which reads as follows:
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.
[6]
I therefore point out two phrases in subsection 323(1) of the
Act:
. . . at the time the corporation was required
to remit the amount . . .
and
Where a corporation fails to remit an amount . . .
which leads to
liability, and moreover subsection (3) states that:
A director of a corporation is not liable for a failure . . .
where the director exercised the degree of care, diligence and
skill to prevent the failure. . . .
[7]
This aspect has been raised in some decisions. Obviously, many
things can be done afterwards, but the failure in question is a
failure to remit the tax at the time it is owed.
[8]
You were assessed on October 22, 1997, for $7,172.57, which is made up of $6,361.52 in net tax plus
interest and penalties for a total of $7,172.57.
[9]
The period at issue is from April 1 to June 30, 1996. The tax
owed for those three months is therefore what had to be remitted
at the end of July 1996.
[10] If I
refer to the evidence adduced, you said that you had problems and
disagreements with other shareholders in 1995. On the first day
of the hearing, you said that this occurred between February and
June 1995, and today you are telling us that it might have
continued until September 1995, the time when you became in
charge of everything yourself.
[11] In
September, you hired a controller, Marie-Jeanne Gauthier. She left in March
1996.
[12] The
period for which you were assessed was therefore after Ms.
Gauthier's departure. However, what was
done previously shows us that there were already failures. The
returns were not filed on time, the GST amounts were not paid and
the source deductions were not made.
[13]
Around the beginning of March 1996, after Ms. Gauthier left,
there were a number of meetings and telephone conversations with
Ms. Béland of Revenu Québec. You said that an
agreement was reached on March 22, whereas Ms. Béland
referred instead to an agreement reached on March 27. You made
proposals, and they were not necessarily accepted. However, on
March 27, you finally reached an agreement.
[14]
Since Marie-Jeanne Gauthier
had already left by March 27, the agreement was entered into with
you personally. Page 2 of the letter signed by Ms. Béland
and dated March 28, 1996, states the
following:
[TRANSLATION]
Subject to this agreement, the provisions of tax legislation to
which the debtor is subject continue to apply. At the
debtor's first failure to comply with those provisions or
with any of the conditions and obligations provided for in this
agreement, the portion of this agreement that has not been
carried out shall become void.
[15] This
seems very clear to me. In tax matters, there are two things that
people have trouble understanding. One of them involves source
deductions ("SDs"), and it is that SDs do not belong to
employers. That money belongs to employees, who are entitled to
gross earnings. Source deductions must be remitted to the
government and cannot be used to finance a business.
[16] The
same is true of the GST. It is a tax owed by consumers, and
businesses are required to collect it as they carry on their
economic activities. That money does not belong to the business
either.
[17]
Where a business does not ensure that it remits source deductions
every month and where GST returns and remittances are not filed
or made on a quarterly basis, this creates a major problem. This
was the case for your business, since agreements were
reached.
[18]
However, insofar as sales continue to increase, failures must be
prevented. Furthermore, you told me, and I quote you word for
word:
[TRANSLATION]
From March to October 1996, I worked to
increase sales and reduce costs. The problem was that the
National Bank was the banker and also the client; any increase in
sales led to outlays, and those outlays were higher than the fees
billed. Success was costly for the cash flow. In September 1996,
I started to negotiate with the Bank of Montreal to have a second
major client. The contract was to start around October 23,
1996. . . .
Today, you said the
15th instead, and you added:
[TRANSLATION]
. . . the
volume would have doubled the company's sales, and expenses
would have increased by only 30 percent. That could have
interested the investors in the company. . . .
[19] You
therefore increased sales and reduced certain costs, but there is
nothing in the evidence to show that you did anything whatsoever
between the beginning of April and the end of July 1996 to
prevent the failure at the end of July 1996.
[20]
Therefore, your first failure to comply with the agreement
occurred at the end of July 1996. Your second failure occurred on
August 30, 1996, when a cheque for $7,200 that was supposed to
cover previous debts could not be cashed because it was, as they
say, a "not-sufficient-funds"
cheque.
[21] You
apparently did not speak to Ms. Béland between the two
failures. She testified that you asked for a statement of account
on April 18 following the agreement. The last time you were in
contact with her was therefore on
April 18, 1996.
[22] The
date of the next entry in Ms. Béland's report is
August 19, 1996. In April, May, June and July, Ms. Béland
heard nothing of you-absolutely nothing for four
months.
[23] It
is difficult for me to see any reasonable diligence in this case.
For May, June and July, the evidence shows that there were also
other problems with the SDs. Nothing was done and no remittances
were made.
[24] Your
business made progress and increased its sales. You told me that,
on June 30, 1996, you were at $987,000, that the amount of fees
to be paid was $364,000 and that you had money left. Naturally,
salaries had to be paid to the employees but you could not avoid
paying the Department.
[25] The
Department of National Revenue is not a financier. It is not
obliged to finance taxes. Under the Act, taxes are owed on
a fixed date. Arrangements are made with businesses so as to
avoid closing them down, provided that the businesspersons
involved make their payments. When SDs are not remitted over a
period of several months, this cannot continue to
work.
[26]
Since you were in charge of all the operations, it was your
responsibility to make the payments. The blame cannot be laid on
former associates or Marie-Jeanne Gauthier, since those people had
long since left.
[27] In
this case, I have no evidence that reasonable diligence was
exercised to prevent the failure for which you were
assessed.
[28] What
happened afterwards is that the situation worsened. You looked
for other ways to come to an agreement. You tried to get your
cheque back so you could issue another. You decided to wait and
then to try to get financing. You went to the bank for money.
None of those steps was intended to prevent the failure; what you
were trying to do was pay after the fact. Those efforts were
laudable, since you did not cut all ties and throw it all in. But
that is not what you did in April, May, June and July.
[29] You
insisted on increasing sales and reducing costs, but during that
whole time, as in the previous months, you financed yourself
using tax money-money, it must be recalled, that did not belong
to you. You took a risk.
[30] The
Act aims precisely to punish that kind of risk-taking and
way of doing things. It is not possible to act that way for
months and years thinking that the Department is the one that is
wrong because it is trying to collect taxes that are owed under
the Act. What the Department tends to do subsequently is
to enter into agreements to try to save the business. This does
not release directors from their responsibility to ensure that
taxes are remitted at the appropriate time.
[31] As a
result of the foregoing, the appeal is dismissed.
Signed at
Ottawa, Canada, this 7th day of June 2001.
J.T.C.C.
Translation certified
true on this 6th day of January 2003.
Sophie
Debbané, Revisor
[OFFICIAL
ENGLISH TRANSLATION]
Docket:
1999-4623 (GST)I
BETWEEN:
RICHARD
JOBIN,
Appellant,
and
HER MAJESTY
THE QUEEN,
Respondent.
CERTIFICATION OF TRANSCRIPT
Let the attached copy, as corrected, of the Reasons for Judgment
delivered from the Bench at the Tax Court of Canada, 500 Place
d'Armes, Montréal, Quebec, on May 8, 2001, be
filed.
Signed at
Ottawa, Canada, this 7th day of June 2001.
J.T.C.C.
Translation certified
true on this 6th day of January 2003.
Sophie
Debbané, Revisor
[OFFICIAL
ENGLISH TRANSLATION]
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