Citation: 2013 TCC 233
Date: 20130718
Docket: 2009-2139(GST)G
BETWEEN:
YVON TURCOTTE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
D'Auray J.
Introduction
[1]
Mr. Turcotte was
the director of Mission Confort Inc., previously known as Centre d'économie en
Chauffage Turcotte Inc. (the Turcotte Corporation).
[2]
The Turcotte
Corporation, until its bankruptcy, carried on business in the distribution and
sale of heating and air conditioning equipment.
[3]
Pursuant to the Excise
Tax Act (the Act), the Turcotte Corporation had to file a monthly goods and
services tax (GST) return. Thus, at the end of each month, the Turcotte
Corporation had to calculate its net tax.
[4]
If the calculation of its
net tax by the Turcotte Corporation yielded a positive amount, that is, the GST
collected and collectable from its clients was greater than the GST paid on the
supplies which it had purchased in the course of its commercial activities
(commonly called input tax credits or ITCs), the Turcotte Corporation had to remit
the difference as a net tax payment to the Receiver General of Canada.
[5]
However, if the result
of the calculation of the net tax was negative, that is, the GST collected or collectable
was less than the GST paid on the supplies purchased by the Turcotte
Corporation in the course of its commercial activities, the Receiver General had
to pay back the difference to the Turcotte Corporation as a net tax refund.
[6]
Following an audit, the
Quebec Minister of Revenue, who was mandated to act on behalf of the Minister
of National Revenue (the Minister), made an assessment whose effect was to
increase the net tax of the Turcotte Corporation:
•
by increasing the GST
collected or collectable for certain periods and;
•
by disallowing input
tax credits claimed by the Turcotte Corporation for certain periods.
[7]
In April 2004, when it
made an assignment under the Bankruptcy and Insolvency Act, the Turcotte
Corporation had a tax liability.
[8]
Pursuant to section 323
of the Act, a director of a corporation is jointly and severally liable with
the corporation for net tax not remitted to the Receiver General of Canada. Accordingly, Mr. Turcotte, as director, was assessed for the amount of net tax
the Turcotte Corporation owed pursuant to the Act.
[9]
Mr. Turcotte argues
that as director he is only liable for part of the Turcotte Corporation's tax
debt, namely the part thereof that relates to the GST collected from its
clients.
[10]
However, he submits
that pursuant to the terms used in subsection 323(1) of the Act, that is, in the
pre-2005 version (subsection 323(1) pre-2005), as director, he is not liable for
the input tax credit amounts that the Minister disallowed following the audit
of the Turcotte Corporation.
Issue
[11]
The issue in the
present appeal is whether Mr. Turcotte, as director, is liable for the Turcotte
Corporation's tax debt pursuant to subsection 323(1) pre‑2005, namely for
the amounts related to the input tax credits the Minister disallowed.
Agreement on
the facts
[12]
At the hearing, the
parties filed the following agreed statement of facts:
[translation]
The
parties in this case, through their counsel, enter into this agreement on facts
for the purposes of the hearing. The parties do not intend to file any other
documents (aside from those noted in the present agreement) and/or call witnesses
during the hearing unless there is an agreement between the parties in this regard.
1.
The applicable version of subsection 323(1) of
the Excise Tax Act (ETA) for the periods in question in the present case
is that which was in force before the amendments enacted by S.C., c. 30, para.
24, which came into effect on June 29, 2005. The version of subsection 323(1) of
the ETA that applies in this case reads as follows:
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.
2.
Notwithstanding the appellant's admission regarding
the tax collected for the period of April 2001 ($14,000.04) and October 2002 ($4,144),
the parties agree that the issue before this honourable court is as follows:
(a) In light of the facts of this case, can the respondent rely on
subsection 323(1) of the ETA, as applicable during the period at issue, to
assess the appellant as director of the Corporation?
3.
Without admitting the validity of the respondent's
factual assumptions, the appellant abandons the other issues raised in his
amended notice of appeal.
4.
Mission Confort Inc., previously known as Centre
d'économie en Chauffage Turcotte Inc. (hereinafter the Corporation), was
incorporated on November 14, 1979, pursuant to the Canada Business Corporations
Act, R.S.C. (1985), c. C‑44 (hereinafter the CBCA) and had its head
office in the province of Quebec.
5.
Until its bankruptcy, the Corporation carried on
business in the distribution and sale of heating and air-conditioning units.
6.
The Corporation was at all relevant times a
registrant within the meaning of Part IX of the ETA.
7.
The Corporation was required to produce a
monthly return for the purposes of Part IX of the ETA.
8.
The Corporation filed its GST returns for the purposes
of Part IX of the ETA within the prescribed times, and the details of those
returns are as follows:
|
Period
|
GST/HST
and Adjustment
|
ITC
and Adjustment
|
Net
Tax
|
|
April 2001
|
$106,586.10
|
$63,711.91
|
$42,874.19
|
|
May 2001
|
$71,617.34
|
$68,821.89
|
$2,795.45
|
|
June 2001
|
$93,930.71
|
$58,788.13
|
$35,142.58
|
|
July 2001
|
$84,854.06
|
$37,921.73
|
$46,923.33
|
|
August 2001
|
$124,376.32
|
$112,102.17
|
$12,274.15
|
|
Sept. 2001
|
$60,515.89
|
$47,317.98
|
$13,197.91
|
|
October 2001
|
$59,481.61
|
$41,195.29
|
$18,286.29
|
|
November 2001
|
$25,053.11
|
$34,708.29
|
- $9,655.18
|
|
December 2001
|
$20,153.78
|
$15,730.09
|
$4,423.69
|
|
February 2002
|
$19,402.22
|
$24,399.14
|
- $4,996.92
|
|
October 2002
|
$25,782.57
|
$25,827.20
|
- $44.63
|
|
July 2003
|
$49,786.20
|
$29,000.39
|
$20,785.81
|
9.
When it filed its GST returns referred to in
paragraph 8, the Corporation remitted to the respondent the "net tax"
indicated in that paragraph, and the Corporation received a refund of the
following amounts noted at paragraph 8: $9,655.18 for the period of November
2001, $4,996.92 for the period of February 2002, and $44.63 for the period
of October 2002.
10. On October 1, 2003, the respondent began a tax audit of the Corporation's
books.
11. On April 19, 2004, the respondent's auditor presented the draft assessment
to Ms. Puppato, the Corporation's internal comptroller.
12.
This draft assessment determined the Corporation's
net tax to be as follows:
|
Period
|
Assessment
|
Net tax
|
|
April 2001
|
-
|
$42,874.19
|
|
May 2001
|
$21,397.07
|
$24,192.52
|
|
June 2001
|
$14,351.21
|
$49,493.79
|
|
July 2001
|
$14,023.25
|
$60,955.58
|
|
August 2001
|
$24,232.92
|
$36,507.07
|
|
Sept. 2001
|
$13,928.08
|
$27,125.99
|
|
October 2001
|
$17,128.45
|
$35,414.74
|
|
November 2001
|
$5,167.48
|
-$ 4,487.70
|
|
December 2001
|
$21.00
|
$4,444.69
|
|
February 2002
|
$77.00
|
-$4,919.92
|
|
October 2002
|
$12,934.48
|
$12,889.85
|
|
July 2003
|
$7,192.53
|
$27,978.34
|
13. The appellant was the director of the Corporation during the period covered
by the assessment at issue and at the time the Corporation had "to remit
an amount of net tax as required under subsection 228(2) or (2.3)" within
the meaning of subsection 323(1) of the ETA as in force before June 29, 2005.
14. On April 6, 2004, the Corporation made an assignment in bankruptcy
pursuant to the Bankruptcy and Insolvency Act (hereinafter the BIA) and
Réal Langlois was appointed trustee in bankruptcy, as appears from the notice
of bankruptcy and of the first meeting of creditors dated April 8, 2004,
submitted as Exhibit A-1 (I-8).
15. The audit referred to in the preceding paragraphs amended the Corporation's
net tax for the period from May 1, 2001 to July 30, 2003, as follows:
|
GST
|
Management
Fees
|
|
$4,144
|
|
ITC
|
9023-0579 Qc
Inc.
|
$94,653.56
|
|
|
|
Missing
documents
|
$1,098.90
|
|
|
|
Misc.
|
$2,079.93
|
|
|
|
Invoices in
wrong name
|
$14,022.70
|
|
|
|
Gestion de
Services Crémazie
|
$12,099.72
|
|
|
|
Summary GST/ITC
|
$2,355.66
|
|
|
|
|
|
|
|
|
|
$126,309.47
|
|
As
appears from the statement of audit adjustments dated April 9, 2004, submitted
as Exhibit A-2 (A-8).
16. On May 4, 2004, the respondent issued to the Corporation a notice of
assessment with regard to GST for the period from May 1, 2001 to July 31, 2003,
as appears from the notice of assessment dated May 4, 2004, submitted as
Exhibit A-3 (A-7).
17. On May 12, 2004, the respondent issued to the Corporation a notice
of reassessment with regard to GST for the period from May 1, 2001 to July 31,
2003, as appears from the reassessment dated May 12, 2004 and submitted as Exhibit
A-4 (I-6).
18. On June 17, 2004, Her Majesty in right of Canada, represented by the
Quebec Minister of Revenue, submitted to the trustee a proof of claim as an
unsecured creditor under the BIA for the following periods:
|
ACT
|
Period
|
Amount
|
|
Excise Tax Act
|
2001-5 to
2004-02
|
$170,722.98
|
|
|
2004-03
(estimated)
|
$3,830.98
|
|
|
TOTAL
|
$174,553.96
|
As
appears from the letter from Revenu Québec dated June 17, 2004 and the documents
attached thereto, submitted together as Exhibit A-5 (I-10).
19. On April 20, 2005, Her Majesty in right of Canada filed a revised proof of claim regarding the following reference periods:
|
ACT
|
Period
|
Amount
|
|
Excise Tax Act
|
2001-04 to
2003-07
|
$191,911.21
|
|
|
2004-03
(estimated)
|
$3,830.98
|
|
|
TOTAL
|
$195,742.19
|
As
appears from the Revenu Quebec letter dated April 20, 2005 and the documents attached
thereto, submitted together as Exhibit A-6 (I-11).
20. On May 10, 2005, Her Majesty in right of Canada filed a revised
proof of claim, which was unchanged in terms of the GST and the reference
periods involved.
21. An amount of $21,188.23 was added by Her Majesty in right of Canada's proof of claim against the Corporation submitted to the trustee on April 20, 2005
(A‑6), and this amount was in relation to the period from April 1, 2001
to April 30, 2001.
22. By notice of assessment dated April 5, 2006 bearing the number BR 05 1023, the respondent claimed from the appellant as
director of the Corporation a total of $225,426.93, pursuant to subsection
323(1) of the ETA, for the period from March 31, 2001 to August 31, 2003, as appears
from the notice of assessment dated April 5, 2006 and the appendix attached thereto,
submitted as Exhibit A‑7 (I-1).
23. The appellant objected to the assessment of which the notice is
dated April 5, 2006 within the statutory time limit, as appears from the notice
of objection submitted as Exhibit A-8 (I-2).
24. Under the terms of a settlement reached between the trustee and the respondent
around July 2007, the amount assessed against the Corporation was brought down to
$77,077.33 (representing goods and services tax of $4,144 and input
tax credits of $72,933.33) for the period from May 1, 2001 to July 31, 2003, as
appears from the settlement and waiver of the right to appeal submitted as Exhibit
A-9 (I‑12).
25. The appellant is not a party to the settlement between the Corporation
and the Minister of Revenue.
26. On July 3, 2008, the respondent issued against the Corporation a
reassessment confirming the settlement amounts referred to in paragraph 24 of
the present agreement, as appears from the notice of assessment dated July 3, 2008
submitted as Exhibit A-10.
27. On March 30, 2009, the respondent issued a reassessment against the
appellant for the period from April 1, 2001 to July 31, 2003 for a total of $140,132.64,
pursuant to subsection 301(5) of the ETA, which reassessment cancels and supersedes
the April 5, 2006 assessment, as appears from the notice of assessment dated
March 20, 2009 and the appendix attached thereto, submitted as Exhibit A-11
(I-4).
28. This reassessment against the appellant dated March 30, 2009 (A-11) followed
on from the adjustments made by the respondent to the Corporation's GST returns
pursuant to Part IX of the ETA, the details being as follows:
|
Period
|
GST/HST
and Adjustment
|
ITC
and Adjustment
|
Net
Tax
|
|
April 2001
|
$120,586.14
|
$63,711.91
|
$56,874.23
|
|
May 2001
|
$71,617.34
|
$58,123.36
|
$13,493.98
|
|
June 2001
|
$93,930.71
|
$51,612.52
|
$42,318.19
|
|
July 2001
|
$84,854.06
|
$30,910.11
|
$53,943.95
|
|
August 2001
|
$124,376.32
|
$99,985.71
|
$24,390.61
|
|
Sept. 2001
|
$60,515.89
|
$40,353.93
|
$20,161.96
|
|
October 2001
|
$59,481.61
|
$31,883.97
|
$27,597.64
|
|
November 2001
|
$25,053.11
|
$31,084.59
|
- $6,031.48
|
|
December 2001
|
$20,153.78
|
$15,719.59
|
$4,434.19
|
|
February 2002
|
$19,402.22
|
$24,360.64
|
- $4,958.42
|
|
October 2002
|
$29,926.57
|
$17,036.72
|
$12,889.85
|
|
July 2003
|
$49,786.20
|
$21,087.86
|
$27,978.81
|
29. The appellant admits, for the purposes of this case only, that the
respondent could assess him under subsection 323(1) of the ETA considering the
adjustments to the tax collected indicated at paragraph 28 for the periods
of April 2001 and October 2002 and the related interest and penalties, namely:
(1) tax collected increases by $14,000.04 for the period of April 2001; (2) tax
collected increases by $4,144 for the period of October 2002.
30. The respondent for her part admits that the periods of November 2001
and February 2002 should be removed from the assessment in their entirety, as
well as the amount of $44.63 for the period of October 2002.
31. By letter dated April 3, 2009, Revenu Québec, as agent for the
respondent, sent to the appellant the notice of reassessment dated March 30,
2009 (A-11) and a notice of changes, as appears from the letter and notice of
changes submitted as Exhibit A-12 (I-3).
32. The objections officer in the appellant's case drafted a report in
support of the changes noted in her letter of April 3, 2009, and this report was
submitted as Exhibit A-13 (I-13).
Analysis
[13]
To facilitate
understanding of this case, I reproduce at paragraph 14 of these reasons the
amounts the Turcotte Corporation reported in its GST returns, and at paragraph
15 of these reasons, the amounts determined with regard to tax collected, input
tax credits and net tax in the last assessment, which confirms the agreement
between the Minister and the trustee.
[14]
The amounts reported by
the Turcotte Corporation in its GST returns are as follows:
|
Column
|
1
|
2
|
3
|
|
Period
|
GST/HST
Collected
|
ITC
|
Net
Tax
|
|
April 2001
|
$106,586.10
|
$63,711.91
|
$42,874.19
|
|
May 2001
|
$71,617.34
|
$68,821.89
|
$2,795.45
|
|
June 2001
|
$93,930.71
|
$58,788.13
|
$35,142.58
|
|
July 2001
|
$84,854.06
|
$37,921.73
|
$46,923.33
|
|
August 2001
|
$124,376.32
|
$112,102.17
|
$12,274.15
|
|
Sept. 2001
|
$60,515.89
|
$47,317.98
|
$13,197.91
|
|
October 2001
|
$59,481.61
|
$41,195.29
|
$18,286.29
|
|
November 2001
|
$25,053.11
|
$34,708.29
|
- $9,655.18
|
|
December 2001
|
$20,153.78
|
$15,730.09
|
$4,423.69
|
|
February 2002
|
$19,402.22
|
$24,399.14
|
- $4,996.92
|
|
October 2002
|
$25,782.57
|
$25,827.20
|
- $44.63
|
|
July 2003
|
$49,786.20
|
$29,000.39
|
$20,785.81
|
[15]
The amounts determined
in the last assessment, following the agreement between the trustee and the
Minister, are as follows:
|
Column
|
1
|
2
|
3
|
|
Period
|
GST/HST
Collected
|
ITC
|
Net
Tax
|
|
April 2001
|
$120,586.14
|
$63,711.91
|
$56,874.23
|
|
May 2001
|
$71,617.34
|
$58,123.36
|
$13,493.98
|
|
June 2001
|
$93,930.71
|
$51,612.52
|
$42,318.19
|
|
July 2001
|
$84,854.06
|
$30,910.11
|
$53,943.95
|
|
August 2001
|
$124,376.32
|
$99,985.71
|
$24,390.61
|
|
Sept. 2001
|
$60,515.89
|
$40,353.93
|
$20,161.96
|
|
October 2001
|
$59,481.61
|
$31,883.97
|
$27,597.64
|
|
November 2001
|
$25,053.11
|
$31,084.59
|
- $6,031.48
|
|
December 2001
|
$20,153.78
|
$15,719.59
|
$4,434.19
|
|
February 2002
|
$19,402.22
|
$24,360.64
|
- $4,958.42
|
|
October 2002
|
$29,926.57
|
$17,036.72
|
$12,889.85
|
|
July 2003
|
$49,786.20
|
$21,087.86
|
$27,978.81
|
[16]
Regarding the amounts determined
in the last assessment, Mr. Turcotte concedes that he was properly
assessed for the periods of April 2001 and October 2002. In April 2001, the tax
collected was established at $120,586.14, resulting in net tax of $56,874.23.
For the period of October 2002, the tax collected was established at $29,926.57,
resulting in net tax of $12,845.22. This admission goes hand in hand with Mr.
Turcotte's argument that he is not responsible for the part of the assessment relating
to the Minister's denial of certain input tax credits. For the periods covered
by the concession, it can be seen that the input tax credits were not modified
by the last assessment (see columns 1 and 2 of the tables at paragraphs 14 and
15 of these reasons).
[17]
The respondent for her
part concedes that the periods of November 2001 and February 2002 should be
removed from the assessment in their entirety pursuant to the wording of subsection
323(1) pre-2005 (see column 3 of the tables at paragraphs 14 and 15 of these
reasons).
[18]
The respondent also
concedes that an amount of $44.63 should be deducted from the amount determined
for the period of October 2002. This amount represents the refund of net tax that
the Turcotte Corporation claimed in the calculation of its net tax for October
2002 (see, for the period of October 2002, column 3 of the table at paragraph
14 of these reasons). Therefore, the amount of net tax for the period of
October 2002 is $12,845.22.
[19]
The respondent's
admissions also go hand in hand with her argument that, pursuant to subsection
323(1) pre-2005, the Minister did not have the authority to assess Mr. Turcotte
as director for the periods in which there was a refund of net tax (see
paragraph 15, column 3, for the periods of November 2001 and February 2002, and
with regard to the refund of $44.63 for the period of October 2002, see column
3 at paragraph 14 of these reasons).
[20]
The applicable provision
for the periods in question, namely subsection 323(1) pre‑2005, is worded
as follows in English and French:
|
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.
|
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.
|
[Emphasis added.]
[21]
Subsection 323(1) of
the Act is worded as follows in English and French since the 2005 amendments:
|
If a corporation fails to remit an amount of net tax as required
under subsection 228(2) or (2.3) or to pay an amount as required under
section 230.1 that was paid to, or was applied to the liability of, the
corporation as a net tax refund, the directors of the corporation at the
time the corporation was required to remit or pay, as the case may be, the
amount are jointly and severally, or solidarily, liable, together with the
corporation, to pay the amount and any interest on, or penalties relating to,
the amount.
|
Les administrateurs d'une personne morale au moment où elle était
tenue de verser, comme l'exigent les paragraphes 228(2) ou (2.3), un
montant de taxe nette ou, comme l'exige l'article 230.1, un montant au
titre d'un remboursement de taxe nette qui lui a été payé ou qui a été
déduit d'une somme dont elle est redevable, sont, en cas de défaut par la
personne morale, solidairement tenus, avec cette dernière, de payer le
montant ainsi que les intérêts et pénalités afférents.
|
[Emphasis
added.]
[22]
Mr. Turcotte submits
that pursuant to subsection 323(1) pre-2005, the Minister can only make a
director liable for the tax payable, that is, the tax that the Turcotte
Corporation would have collected from its clients following the distribution
and sale of heating equipment. That tax payable is the amounts appearing in column
1 of the tables at paragraphs 14 and 15 of these reasons.
[23]
This argument is based
on the use of the word "taxe" in the French version of
subsection 323(1) pre-2005 and the definition of "tax" in section 123,
as "tax payable under this Part". The end of the French
version of subsection 323(1) states:
Les
administrateurs . . . sont en cas de défaut par la personne morale,
solidairement tenus, avec cette dernière de payer cette taxe . . .
[Emphasis
added.]
[24]
According to Mr. Turcotte,
subsection 323(1) pre-2005 does not refer to net tax but rather to the tax
payable pursuant to Part IX. A director would thus only be responsible for the corporation's
failure with respect to the tax payable, that is, the tax the Turcotte
Corporation was required to collect from its clients on the distribution and
sale of heating and air conditioning equipment.
[25]
According to Mr. Turcotte,
the input tax credits are refunds, as they represent amounts the Turcotte
Corporation paid in GST when it purchased goods and services in the course of
its commercial activities. He argues that the way the Act works is that the
GST/ITC paid by the Turcotte Corporation to its suppliers must be refunded by
the Minister. Those amounts are therefore refunds. Thus, as the text of
subsection 323(1) pre-2005 does not refer to the concept of a refund within the
meaning of section 230.1, it is clear that, under the pre‑2005 version, the
director cannot be responsible following the changes that the Minister made to
these input tax credit refunds on the basis that the corporation was not
entitled to the refunds, when the corporation had in fact claimed and received
the input tax credit refunds.
[26]
To come to this
conclusion, he compares the current version of subsection 323(1), which states
that a director will also be liable for any refund overpayment contemplated by
section 230.1, with the pre-2005 version of subsection 323(1), which does not
make any reference to refund overpayments contemplated by section 230.1. Section
230.1 states:
Where an amount is paid to, or applied to a liability of, a person
as a refund, or as interest, under this Division and the person is not entitled
to the refund or interest, as the case may be, or the amount paid or applied
exceeds the refund or interest, as the case may be, to which the person is
entitled, the person shall pay to the Receiver General an amount equal to the
refund, interest or excess, as the case may be, on the day the refund, interest
or excess, as the case may be, is paid to, or applied to a liability of, the
person.
[27]
I do not agree with Mr.
Turcotte's arguments.
[28]
First, I do not agree
with his interpretation of the word "tax" in subsection 323(1) pre-2005.
[29]
Although the word "tax"
is defined at section 123 of the Act as being "tax payable", on analyzing
the overall context of the Act, Parliament's intention, and the ordinary and
grammatical meaning of the words, as advocated by the Supreme Court of Canada
in Canada Trustco Mortgage v. Canada, 2005 SCC 54, it can be seen that
the word "tax" in subsection 323(1) pre-2005 refers to "net tax"
and not to "tax payable".
[30]
The word "taxe"
in the French version of subsection 323(1) pre-2005 is qualified by the
demonstrative adjective "cette", and the word "cette"
can only refer to the words "taxe nette" used earlier in the
paragraph. For ease of understanding, I will paraphrase the French version of subsection
323(1) pre-2005:
Les
administrateurs de la personne morale au moment où elle était tenue de verser
une taxe nette . . . sont, en cas de défaut par la personne morale . . . tenus
de payer cette taxe.
[31]
My interpretation of
the French word "taxe" as referring to net tax is confirmed in
the English version of subsection 323(1) pre-2005. To paraphrase the English
text:
Where
a corporation fails to remit an amount of net tax, the directors of the
corporation at the time the corporation was required to remit the amount are
liable to pay that amount.
[32]
In the English version
of subsection 323(1) pre-2005, the word "amount" is used to refer to
the amount of the net tax. Therefore, Mr. Turcotte's argument that the word "taxe"
refers to tax payable is untenable. The French version is clear, but if there were
any doubt as to the meaning of the word "taxe", the English
version dispels such doubt. First, the English version speaks of the "amount
of net tax" ("montant de taxe nette") and then of "the
amount" and "that amount" ("ce montant") in
referring to the "amount of net tax" ("montant de taxe nette ").
[33]
Explained briefly, the
net tax in subsection 225(1) of the Act is the difference between the GST a
person collected for a given period and the input tax credits for a given
period.
[34]
A person's net tax for
a given period corresponds to a positive or negative amount. Thus, there is
positive net tax when a person must pay the Receiver General the difference
between the GST collected and the input tax credits (see subsection 228(1) of
the Act).
[35]
Negative net tax occurs
when a person receives a net tax refund, because the person paid more GST
(input tax credits) than he or she collected in taxes (see subsection 228(3) of
the Act).
[36]
The concept of net tax
is important in this case because the 2005 amendment to subsection 323(1) refers
to "an amount of net tax" or "a net tax refund" under
section 230.1. To paraphrase the amended version of subsection 323(1):
If a corporation fails to remit an amount of net tax as required
under subsection 228(2) or (2.3) or to pay an amount as required under
section 230.1 that was paid to the corporation as a net tax refund, the
directors of the corporation at the time the corporation was required to remit
or pay the amount are liable, together with the corporation, to pay the amount
and any interest on, or penalties relating to, the amount.
[37]
The 2005 amendment to
subsection 323(1) allows the Minister to render a director liable for a net tax
refund obtained without entitlement or as an overpayment.
[38]
Thus, pursuant to
subsection 323(1) pre-2005, the Minister could not assess to make the director liable
for any net tax refund obtained by the Turcotte Corporation without entitlement
or as an overpayment.
[39]
It was in light of this
reasoning that the respondent consented to judgment for the periods of November
2001 and February 2002 and that a $44.63 credit was applied for the period of
October 2002.
[40]
In this regard, the
explanatory notes with respect to the amendment of subsection 323(1) state:
Clause
26 – Liability of Directors
ETA
323(1)
Where a corporation fails to remit an
amount of net tax as required under subsection 228(2) or (2.3) of the Act,
existing subsection 323(1) of the Act provides that a director of a corporation
can, subject to certain conditions set out in section 323, be held jointly and
severally liable, together with the corporation, to pay the net tax and any
interest or penalties relating to the net tax. One of those conditions, is that
the director has not exercised due diligence in ensuring that the remittances
are made.
Subsection 323(1) is amended to
provide that a director of a corporation may also be held liable for the failure
by the corporation to pay an amount of net tax refund to which the corporation
is not entitled, as required under section 230.1 of the Act, and any interest
and penalties relating to that amount.
Subsection 323(1) is also amended to
harmonize it with the civil law applicable in the province of Quebec by adding in the English version of the subsection a reference to the directors
being "solidarily" liable, which is comparable to the common law
concept of joint and several liability.
The amendment applies in respect
of net tax refund amounts paid to, or applied to the liability of, a
corporation on or after Royal Assent.
[Emphasis added.]
[41]
I therefore do not
agree with Mr. Turcotte when he contends that under subsection 323(1) pre-2005,
the Minister could not change the input tax credits.
[42]
Under subsection 323(1)
pre-2005, the Minister had the authority to assess net tax. He could thus
change either the tax collected or the input tax credits. Contrary to Mr. Turcotte's
position, it is impossible for me to associate input tax credits with net tax
refunds. "Net tax" and "net tax refund" the terms are used
in the relevant provisions in this case.
[43]
Moreover, Mr. Turcotte's
argument regarding tax payable is untenable. Tax payable applies to the
recipient who must pay the GST. The concept of tax payable under the Act is
different from the concept of net tax that is involved in this case.
Conclusion
[44]
The Minister correctly
assessed Mr. Turcotte as a director, under subsection 323(1) pre-2005 of the
Act, for the amounts relating to the input tax credits the Minister disallowed.
[45]
As the respondent
conceded, the Minister could not assess Mr. Turcotte as a director, under
subsection 323(1) pre-2005, with respect to the net tax refunds the Turcotte
Corporation obtained without entitlement or as overpayments, because subsection
323(1) pre‑2005 does not make reference to the concept of net tax refund found
in section 230.1 of the Act.
[46]
Accordingly, the appeal
is allowed with regard to the periods of November 2001 and February 2002. An
amount of $44.63 shall also be deducted from the amount the Minister determined
for the reporting period of October 2002, resulting in net tax of $12,845.22.
The appeal is dismissed with regard to the other reporting periods.
[47]
Costs shall be against
the appellant.
Signed at Ottawa, Canada, this 18th day of July 2013.
"Johanne D'Auray"
Translation
certified true
on this 30th day
of September 2013.
Erich Klein, Revisor
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