6094350 Canada Inc. and Genex Communications - Court of Quebec finds that tax advice with clearly flawed factual assumptions did not meet a director’s due diligence defence

The individual taxpayer (Demers) was a director of the owner of the RadioX team, which was a minor professional hockey team that played in the Ligue Nord-Americaine de Hockey (which was popular with some fans for having over 5-times more fights per game than the NHL). The corporation had been treating its players (and other staff) as employees rather than independent contractors for Quebec health tax purposes in accordance with the known views of the ARQ, but then commenced to treat them as independent contractors. The players did not register for GST/QST purposes or invoice for their services, and declined to sign a written contract (which did not reflect the realities of how the team continued to be operated), and the only substantive change made was that the team manager was incorporated.

After finding that the players continued to be employees, Cotnam JCQ next dealt with the due diligence defence of Demers under the equivalent of ITA s. 227.1(3) (the corporation having since been wound up without paying any of the source deductions), which was based on the proposition that he had been advised by his tax advisor, Ms. Rochette (who was also his wife and a co-director of the corporation) that the players were now independent contractors. In rejecting this defence, Cotnam JCQ noted that the views of Ms Rochette were based on a factually incorrect matters that could have been readily checked by her, including that the players could play for other teams, that they had their own tools and that the team did not reimburse them for their expenses, and also noted that Ms. Rochette had not consulted the jurisprudence. She then stated:

Mr. Demers, in his capacity of director, could not blindly rely on an opinion whose assumptions were clearly incomplete.

However, she went on to find that the assessment of Mr. Demers was statute-barred.

Neal Armstrong. Summaries of 6094350 Canada Inc. and Genex Communications Inc. v. Agence du revenu du Québec, 2018 QCCQ 556 under s. 5(1), s. 227.1(3) and s. 152(1).