Lorraine Routhier v. Minister of National Revenue, [1990] 1 CTC 2283, 90 DTC 1195

Lamarre Proulx, T.C.J.:—The appellant is appealing from an assessment by the respondent, Minister of National Revenue, made pursuant to section 227.1 of the Income Tax Act, ("the Act”).

The point at issue in the instant case is whether the appellant was a director and whether she exercised reasonable diligence in the circumstances, this being a ground of defence provided by subsection 227.1(3) of the Act.

Subsections 227.1(1) and (3) and 153(1) read as follows:

227.1 (1) Where a corporation has failed to deduct or withhold an amount as required by subsection 135(3) or section 153 or 215, has failed to remit such an amount or has failed to pay an amount of tax for a taxation year as required under Part VII or VIII, the directors of the corporation at the time the corporation was required to deduct, withhold, remit or pay the amount are jointly and severally liable, together with the corporation, to pay that amount and any interest or penalties relating thereto.

(3) A director is not liable for a failure under subsection (1) where he exercised the degree of care, diligence and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances.

153. (1) Every person paying at any time in a taxation year

(a) salary or wages or other remuneration

shall deduct or withhold therefrom such amount as may be determined in accordance with prescribed rules and shall, at such time as may be prescribed, remit that amount to the Receiver General on account of the payee's tax for the year under this Part or Part XI.3, as the case may be.

The respondent raised a question as to this Court's jurisdiction over the part of the appeal relating to the assessment for unemployment insurance contributions and penalties and interest relating thereto. After reading section 68.1 of the Unemployment Insurance Act, 1971, S.C. 1984, c. 1, sections 123, and 227.1 and 153 of the Act, I conclude that the appeal for the part relating to unemployment insurance contributions is not before the tribunal which has jurisdiction over it. The appeal procedure to be followed in the circumstances is described in Part IV of the Unemployment Insurance Act, R.S.C. 1985, c. U-1. I would add for the parties' information that section 68.1 came into effect on January 19, 1984, and that although the reply to the notice of appeal mentions that this part of the assessment is made pursuant to section 68.1 of the Unemployment Insurance Act, 1971, this reference does not appear in the notice of assessment.

As regards the main part of the appeal, namely the director's liability for tax deductions not submitted to the Receiver General as required by section 153 of the Act, the facts on which the respondent relied in assessing the appellant are as follows:

(Translation)

(a) "Produits Forestiers Marbleton Inc.", is a commercial corporation created on September 28, 1982 pursuant to the Canadian Commercial Corporations Act;

(b) at the time the assessment at issue was made, “Produits Forestiers Marbleton Inc.” owed the Department of National Revenue $7,379.99;

(c) this amount of $7,379.99 consisted of income tax deductions and unemployment insurance contributions, with penalties and interest, for April 1983 to April 1984;

Income tax deductions	$4,760.32
Unemployment insurance contribution	330.00
Penalties	750.05
Interest	$1,539.62
TOTAL	$7,379.99

(d) "Produits Forestiers Marbleton Inc.” failed to remit to the Receiver General of Canada within the specified time limits the income tax source deductions and unemployment insurance contributions mentioned above;

(e) on September 6, 1985, in view of the non-payment by "Produits Forestiers Marbleton Inc", the Department of National Revenue filed a certificate in the Registry of the Federal Court pursuant to s. 223(2) of the Income Tax Act;

(f) on September 17, 1985 the Federal Court issued a writ of fieri facias, directing that the Department of National Revenue's claim be paid from the assets of "Produits Forestiers Marbleton Inc.”,

(g) on October 25, 1985, an officiating bailiff reported to the Department of National Revenue that there had been a total failure to execute the certificate and writ of fierei facias;

(h) the appellant was a director of "Produits Forestiers Marbleton Inc.” on the dates when this commercial company was required to pay the money at issue to the Receiver General of Canada;

(i) in her capacity as a director of “Produits Forestiers Marbleton Inc", the appellant did not act with the degree of care, diligence and skill necessary to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances;

(j) in particular, the appellant did not make the necessary arrangements to prevent the failure to pay by “Produits Forestiers Marbleton Inc", which lasted from April 1983 to April 1984.

The appellant was the only witness for herself. The respondent called one witness. The appellant first sought to contend that she was not the director for the period in question and that Mr. Mostapha Jatti was. The evidence disclosed that this person was the director, but for an earlier period. From April 1983 to April 1984, the appellant was the director of Produits Forestiers Marbleton Inc. This is indicated by the many pieces of documentation, in particular a resolution by the company regarding banking matters and guarantees, in which the appellant is referred to as the "vice-president" and "secretary-treasurer" of the company. Her husband, Mr. Guy Routhier, is president. According to the banking resolution, either one was empowered to sign cheques.

The appellant testified that these titles meant nothing, that Mr. Routhier took all the decisions, that she had no authority, no decision-making power and could have none: she had a very small number of shares in the company and was not part of the decision-making process in the administration of the company. However, she said that she and her husband worked together and put all their effort into this business. According to the tax returns, her salary was the same as her husband's. The company office was located in the family home.

A person does not have to be a shareholder to be a director, and as to her function of "order-taker with wide powers" as suggested by her counsel, there would have to have been other testimony to support this because many aspects of her testimony indicated that she was fully aware of and conversant with the company's business.

Subsection 227.1(3) allows a defence of reasonable diligence in comparable circumstances. It is for the taxpayer to present such a defence. The company had employees. The appellant could have called some of them to testify. Her testimony was very evasive regarding her function in the business, supervision of secretarial work, preparation of pay sheets and payment of source deductions, whether under the Act or under other applicable legislation. It is hard for me to believe that she was not aware that the deductions referred to in section 153 of the Act had not been paid and that she did not discuss this with her husband.

In conclusion, since the appellant was the director of the company, her testimony was vague, imprecise and not corroborated and she did not therefore present a defence of reasonable diligence that met the requirements of subsection 227.1(3) of the Act, the appeal is dismissed.

The part of the appeal relating to unemployment insurance contributions and the penalties and interest applicable thereto is dismissed because this Court lacks jurisdiction.

Appeal dismissed.