224-341

The registrant, who had a quarterly GST reporting period, had acquired a property for personal use, but converted it to commercial use (for short-term rentals) in the second quarter of 2005. The Minister denied his claim at the end of 2009 for an input tax credit on the basis that the four-year limitations period in s. 225(4)(b) had commenced on 1 July 2005.

VA Miller J dismissed the registrant's appeal. She stated (at para. 15):

According to paragraph 225(4)(b) of the ETA, ITCs must be claimed by a registrant in a return filed by the registrant on or before the due date of the return for the last reporting period that ends within four years after the end of the reporting period in which the ITC could have first been claimed. Mr. Chew filed his GST returns on a quarterly basis. Therefore he was required to claim an ITC with respect to the first significant change in use of the Unit before July 1, 2009. This he failed to do.

The appellant, a registrant in the events management business, invoiced a customer (Flora) for a total of $1,769,694 including GST of $103,440 for services rendered (and invoiced, see para. 22) over a 12-month period ending on October 2006, but was unable to collect anything as Flora was determined to be insolvent in November 2006. Flora made a settlement offer to its creditors in February 2007, which the appellant accepted, but no payments were made thereunder.

After Revenue Quebec indicated (at the end of 2008) that it would deny the appellant's claim (made for its quarterly reporting period ending on 31 January 2007) under s. 231 on the basis that the situation instead had called for a claim under s. 232 (apparently based on viewing the February 2007 agreement as an adjustment to the consideration), the appellant (in January 2009) entered into a write-off agreement with Flora, issued a credit note to Flora, and claimed a credit under s. 232(3) for the GST of $103,440 in its return for the reporting period ending on 31 January 2009. Revenue Quebec considered that the credit note had not been issued "within a reasonable time," as required by s. 232(3).

After stating (at para. 19) (TaxInterpretations translation) that the jurisprudence indicated "that the creditor need not have taken proactive measures if it reasonably and sincerely believed that recovery was impossible," Tardif J concluded (at para. 30) that in light of Flora's known insolvency, it was appropriate at the effective time of the bad debt claim to consider the debt to be irrecoverable and that any expense or effort to recover it would have been "a pure waste of energy and money." Respecting the "write-off" branch of s. 231(1), he stated (at para. 39) that "a contemporaneous document recording the decision to write-off the debt appears essential to the application of section 231," and (at para. 40) that here, the preponderance of evidence indicated the satisfaction of the write-off requirement.

The disposition of the "reasonable delay" issue is summarized below under s. 232(3). The appeal was allowed.

The appellant was not entitled to a credit under s. 231(1) in respect of the GST of approximately $170,000 owing to it as there was "little evidence as to the actual measures taken by the appellant to collect any specific debt" (para. 12), there was no evidence of the debt having been written off in the reporting period in question (although, at para. 14, the finding in Burkman v. The Queen, [1997] G.S.T.C. 98, "that a written note, as opposed to a journal entry, could satisfy the requirement that the debt must be written off in the books of account, in circumstances where no ledger existed" was accepted.) Furthermore, 1/3 of the appellant's receivable was owing by the holder "Garden Hill") of 98% of its shares. In this regard, Bowie J rejected the appellant's submission (at para. 20) that the provisions of ITA s. 251(2) (adopted for ETA purposes by ETA s. 126(2)) "simply raise a rebuttable presumption that the appellant and Garden Hill did not deal at arm's length, and that this presumption is rebutted by the evidence that the appellant's policy was to provide service to Garden Hill and its members at the same commercial rates that it charged to all its other customers."

In finding that the appellant, a criminal lawyer, had not satisfied the "writing off" requirements of s. 231(1) in respect of amounts owing to him by the Ontario Legal Aid Plan, Bonner J stated (at para 6):

[A] bad debt cannot be considered to have been written off in a person's books of account unless and until a notation is made in those books that the particular debt has been written off. …A journal entry ought to be made to clear out each worthless receivable. Otherwise, subsection 231(3) would be impossible to enforce.

This case is summarized in greater detail under s. 231(1). In brief, the appellant claimed a bad debt credit under s. 231 with respect to the GST in a customer receivable. After Revenue Quebec indicated that it would deny this claim on the basis that the situation instead engaged s. 232 (apparently based on the acceptance by the appellant of a proposal made by the customer to its creditors almost 23 months previously), the appellant thereupon issued a credit note to the customer, and claimed a credit under s. 232(3) for the GST in its return for the related reporting period. Revenue Quebec considered that the credit note had not been issued "within a reasonable time," as required by s. 232(3). Tardif J first found that the appellant was entitled to the s. 231 credit.

Respecting the "reasonable delay" issue arising under s. 232(3) in the alternative, Tardif J stated (at para. 55) that "it is true that a delay of 23 month is relatively long," but found that it was reasonable in the circumstances as the appellant did not find out that Revenue Quebec was denying its bad debt claim until shortly before issuing the credit note. The appeal was allowed.

For income tax planning reasons, the registrant followed a practice of not claiming input tax credits ("ITCs") for a number of successive monthly reporting periods ("Deferral Periods") and then, in its return for the reporting period following that grouping of Deferral Periods (the "ITC claim return"), claimed ITCs for the Deferral Periods.

Suppose that in a Deferral Period, the registrant was invoiced $1,070 including GST, and received credit notes (e.g., respecting order shortfalls) for $107 including GST. In its ITC claim return, it claimed ITCs of $70-$7, or $63 for that Deferral Period. Later, on the advice of KPMG, the registrant claimed ITCs for a further $7 (the "Residual ITC") in a return for a reporting period subsequent to that for which it filed the ITC claim return. (In fact, the Residual ITCs were claimed in returns for five different reporting periods within the s. 225(4) ITC-barring periods in respect of a three-year period of Deferral Periods commencing in 2000, and totaled $3,910,610.)

In finding that the registrant was entitled to the Residual ITCs, D'Auray J found (at para. 20) that "except for section 232…there are no provisions in the Act that require a registrant to make an adjustment to an ITC as a result of a credit note or debit note being received," so that (reverting to the above example) the registrant was entitled to ITCs of $70 for the Deferral Period as that was the month in which it was invoiced for the related supplies (see ss. 168(1) and 152(1)); and (at para. 26-27) that "additions to net tax will be required pursuant to paragraph 232(3)(c)…only if the appellant has claimed ITCs in respect of credited tax in the same, or a preceding, reporting period as the one in which the credit…notes were issued or received," whereas here the registrant instead claimed such ITCs in subsequent reporting periods.

The registrant, when it paid volume rebates to customers, was found by McArthur J to be thereby reducing the consideration on the previous sales for purposes of s. 232(2) (stating at p. 85-5 that "volume rebates...[are] a mechanism which reduces the consideration paid by the customer to the manufacturer"). However, it was not obligated under s. 232(2) to rebate GST under s. 232(3) when the consideration was so reduced (as the word "may" only gave it the "option" of doing so), and it did not do so. Accordingly, for purposes of former s. 181.1, s. 232(3) did not apply to the volume rebates.

After signing an agreement to purchase a new home, the appellant was advised that to secure mortgage financing, he would need to obtain a co-obligor who would also be a co-owner. Accordingly, his friend ("Khandaker") agreed to co-sign the mortgage documents and to be placed on title as a co-owner. At the same time as the appellant applied for the new housing rebate, they signed a statutory declaration stating that the appellant was the 100% beneficial owner and that Khandaker held a 0.01% interest in trust for the appellant. The appellant occupied the home as his principal place of residence to the exclusion of Khandaker.

Before citing Davidson, Lyons J stated (at para. 17) that "where a supply is made to the particular individual as [part of] a group, subsection 254(2) applies so that each individual in the group must meet the criteria in paragraph 254(2)(b)." She found (at para. 22) that since both executed the agreements (and, at para. 29, that "Khandaker understood the nature of his involvement and that he was signing as a co-purchaser and co-owner"), "both individuals are the particular individual and both assumed liability" and "each must therefore meet the requirements in paragraphs 254(2)(a) to (g)." Ss. 254(2)(b) and (g) were not satisfied as Khandaker did not purchase as a primary place of residence and for occupation.

Respecting the statutory declaration, she stated (at para. 27):

The creation of a trust must be properly documented containing the requisite elements of a trust, dated, signed and in existence prior to or contemporaneous with the matter that is the subject of the trust arrangement.

Angers J. denied the rebate to the appellant who, along with two other individuals, purchased vacant land in Quebec and signed an agreement for the construction of a unit thereon. Only the appellant resided in it and the other two (Miserany and Auger) were co-owners for financing reasons and co-signed the hypothec loan agreement. Angers J rejected a submission that Miserany and Auger were mere prête‑noms for financing reasons and found (at para. 13) that the purchase agreement showed that the unit was constructed for all three individuals. He further stated (at para. 14):

This rebate is also available when the provision of the residential unit is made for a number of individuals, as is the case here, except that the references to a particular individual apply to the entire group. ... In this case, the immovable in question was never used as the primary place of residence of Mr. Miserany and Ms. Auger.

The appellant purchased a new duplex. Title was taken in his name and of another ("Waterhouse"), who was not a beneficial owner and was joined as owner for mortgage purposes only. McArthur J held (at para. 8):

The Certificate of Title and the mortgage sets out both individuals, as joint tenants. Pursuant to subsection 262(3), therefore, the references to a "particular individual" in section 254 necessarily refer to both the Appellant and to Ms. Waterhouse. This requires that Ms. Waterhouse also satisfy the conditions of section 254 before the Appellant may claim the GST/HST rebate. As Ms. Waterhouse did not enter into liability with the intention of acquiring the complex for use as her primary place of residence, and is not a relative of the Appellant, the conditions of section 254 have not been met. The Appellant is therefore not eligible to claim the new housing rebate.

The registrant ("Mattamy"), which was a housing developer, paid municipal development levies at the time it entered into a subdivision agreement with the municipality, or when the municipality issued building permits. The sales agreements with home purchasers stated the parties' agreement that "as part of …the Purchase Price herein, the Vendor has or will pay on behalf of the Purchaser…all applicable development charges…." The development levies which were so reimbursed by the home purchasers were found to be part of the taxable consideration for such home sales, with the result that Mattamy was found to have been understating the sales price to the purchasers. As the new housing rebates ("NHRs") of the purchasers (which they had assigned to Mattamy and which it had rebated to them as contemplated in s. 234(1)) decreased as the sales price increased above $350,000, this increased taxable consideration decreased the NHRs which were properly claimable on some of the sales.

In finding that Mattamy was liable under s. 254(6) for the overstated amount of the NHR rebate claims, Woods J stated (at para. 92) that "in accordance with judicial interpretation of the phrase ‘ought to have known'…the test is an objective one," and then stated (at para. 94):

In my view, a reasonable person in Mattamy's circumstances would have concluded, based on competent professional advice, that the Purchasers did not pay development charges qua development charges. Quite simply, this is the only reasonable conclusion that may be drawn from the Purchase Agreements. Because the amount of a NHR is a function of the consideration for the home, it follows that a reasonable person would have known that some of the amounts paid or credited by Mattamy in respect of Purchasers' NHR claims were excessive.

The appellant agreed to purchase a new home (the "Woodbine property"). Around the same time, his cousin ("Kwinson Ho"), cousin's spouse ("Chun Sim Yip"), and cousin's mother entered an agreement to purchase another new home (the "Heenan property").

Having financial problems, the appellant amended his purchase agreement to have the cousin and spouse added as purchasers. The appellant, Kwinson Ho and Chun Sim Yip closed the purchase of the Woodbine property. Kwinson Ho, Chun Sim Yip and Kwinson Ho's mother moved in; the appellant did not.

D'Arcy J rejected the appellant's appeal for the new housing rebate on the Woodbine property, as he was a member of the purchasing group who did not then occupy the property. He stated (at para. 43):

Clause 254(2)(g)(i)(A) as modified by subsection 263(2) does not contain any ambiguities. It clearly states that all of the individuals as a group must occupy the complex as a place of residence.

Prior to its bankruptcy, the appellant granted a general security agreement ("GSA") to its parent and related companies as security for a $6 million advance. In the appellant's name, the receiver for the secured creditors appealed the Minister's denial of input tax credit claims of the appellant. The trustee in bankruptcy had already accepted the GSA as valid, waived redemption of the security and released the interests of the general creditors in the collateral (i.e., essentially all the appellant's assets, as the secured creditors' claim exceeded the value of the bankrupt estate), but had not specifically authorized the present proceedings.

The Minister applied to dismiss the claim on the basis of the lack of legal capacity of the receiver to bring the claim (i.e., that only the trustee could bring the claim).

After noting (at para. 17) that he "would likely have concluded in this instance that the prior assignment of the book debts (choses in action) under the GSA has otherwise validly transferred the rights to the referable property enumerated under sections 301 (person assessed may file an objection) and 306 (objector receiving or deemed to receive a confirmation may file an appeal)" he quoted ETA s. 266 (including "the receiver shall be deemed to be an agent of the [debtor]") and found (at para. 18):

[A] secured creditor, acting as a "receiver" in respect of part of the property of the debtor under a "debt security", becomes an agent under subsection 266(1) and is not precluded from objecting to a GST assessment or reassessment in respect of certain property assigned (the book debt) and maintaining thereafter the appeal which follows.

The appellant was the director of a corporation ("Golden Leaf" - confusingly referred to in the reasons for judgment as "GL Trust") which was a bare trustee holding title to property for another company and a trust under a joint venture agreement to build and sell residential condominiums in Richmond B.C. The Minister assessed Golden Leaf on the basis that it was the operator under a joint venture election and, as such, was liable for unremitted GST under the self-supply rule in s, 191(1) - and then assessed the appellant under s. 323(1) when the corporate assessment was not paid.

Before going on to find that Golden Leaf was not liable for the s. 191(1) assessment on the basis that no joint venture election had been made, McArthur J found (at para. 21) that Golden Leaf was a "participant" in the joint venture as it "partook and shared in the responsibilities of the joint venture through its management of the lands."

The Pendragon Group, the largest car sales group in Europe, used a scheme (devised and marketed to it by KPMG) to reduce its VAT liability. Under the scheme:

• Step 1: Pendragon bought cars (destined for use as demonstrators in Steps 3 and 4) from a wholesaler, then sold them to four captive leasing companies ("CLCs"). Pendragon paid input tax on the wholesale purchase price but recovered it by accounting for output tax received when the cars were sold to the CLCs.
• Step 2: The CLCs immediately leased the cars to Pendragon dealerships. The CLCs paid input tax on the purchase of the cars from Pendragon but recovered it by accounting for output tax paid by the Pendragon dealerships on their rental payments under the leases.
• Step 3: The CLCs then assigned the leases and their title in the cars to an offshore bank Soc Gen Jersey ("SGJ"), in consideration for £20m (financed by SG London, which received a further assignment of the assets as security). This assignment, which qualified as an assignment of leased goods to a financial institution, was therefore "de-supplied" (deemed not to be a supply) so that no VAT was payable.
• Step 4: Some 30 to 45 days later, SGJ transferred its leasing business including the lease agreements and cars to Captive Co 5 for over £18M. This sale of the business as a going concern was de-supplied.
• Step 5: The demonstrator cars were sold to customers by the dealerships, acting as agents for Captive Co 5. Customers paid VAT only on Captive Co 5's profit on the sales, rather than on the total sale price, under the "margin scheme" applicable to second-hand goods, which was available here because the goods had been acquired as part of a business transferred as a going concern.

The scheme was abusive, so that the Commissioners' appeal was allowed.

In Halifax plc v Customs and Excise Commissioners [2006] EUECJ C-255/02, [2006] STC 919, the Grand Chamber stated (paras. 74-5, quoted at para. 7):

[I]n the sphere of VAT, an abusive practice can be found to exist only if, first, the transactions concerned, notwithstanding formal application of the conditions laid down by the relevant provisions of the Sixth Directive and the national legislation transposing it, result in the accrual of a tax advantage the grant of which would be contrary to the purpose of those provisions.

…Second, it must also be apparent from a number of objective factors that the essential aim of the transactions concerned is to obtain a tax advantage. ….[T]he prohibition of abuse is not relevant where the economic activity carried out may have some explanation other than the mere attainment of tax advantages.

Respecting the first condition, Lord Sumption noted (at para. 14) that the VAT "broad principle is that tax on the ultimate value of the product is levied only once, albeit that it may be collected at different stages of the process of manufacture and distribution," and (at para. 20) that normally "the reseller seeking to avail himself of the margin scheme will have acquired the goods from someone with no right to recover input tax in respect of their own acquisition of them" so that "the object and effect is to avoid double taxation," whereas "the effect of the KPMG scheme was to enable the Pendragon Group to sell demonstrator cars second-hand under the margin scheme in circumstances where VAT had not only been previously charged but fully recovered…[so that a] system designed to prevent double taxation on the consideration for goods has been exploited so as to prevent any taxation on the consideration at all" (para. 30).

Respecting the second condition, although the involvement of an offshore bank as "it is no part of the policy of the legislation that a party should be restricted in its freedom to select as its commercial partners firms whose place of residence gives dealings with them a tax advantage, even if that is the only reason for their selection" (para. 33) it was essential to the scheme that Captive Co 5 acquire the cars as part of a business as a going concern, and for that to be possible, it was essential that the transferor of the business have acquired the cars by assignment. "[N]either of these two special features of the scheme had any commercial rationale other than the achievement of a tax advantage" (para. 33).

The appellant ("Michelin") sold its inventory of imported tires to an affiliated corporation ("Uniroyal") on December 28, 1990 and repurchased the inventory on January 2, 1991. As Uniroyal had been registered as a manufacturer, Michelin generated a full refund under s. 68.2 of the 13.5% federal sales tax it had paid; whereas if it had continued to hold this inventry, it would have received a rebate under s. 120 only at a rate of 8.1% as the owner of the tires on Janauary 1, 1991. In confirming the Minister's application of s. 274 to deny a refund of more than 8.1%, the Tribuanl stated (at p. 17-23) that s. 68.2:

allows refunds in case where a manufacturer, wholesale or importer, that has paid FST on the purchase of certain goods, subsequently sell these goods under tax-exempt circumstances. In this case, the Tribunal is of the view that, by allowing the appellant its refund, the overall intent of the provision…would not be met.

CRA assessed Canadian Air Lines ("CAIL") in June 2000 for failure to charge GST on frequent flier points which the appellant ("RBC") paid for. CAIL did not pay the assessment and in January 2001, CRA assessed RBC for GST that was payable by it on the same points purchases. In rejecting submissions on behalf of RBC that the second assessment gave rise to double taxation, Hershfield J stated (at paras. 68, 69 and 73):

[I]t is untenable to think that recipients would be liable to pay two collectors for GST on the same transactions. To prevent this…[s]ubsection 278(2) provides that amounts collectable by the Crown from a recipient cannot be paid to the Crown if the supplier is liable to collect the tax from the recipient. That subsection reads as follows:

…It is not enough then that an assessment has been issued against the Appellant. As long as CAIL as supplier has an obligation under section 221 to collect tax from the Appellant as agent of Her Majesty…the Crown cannot collect the tax payable by the Appellant as recipient of a supply except on behalf of CAIL.

… CAIL filed the Plan under the CCAA which released it of its liabilities arising before March 24, 2000. As the Plan was accepted by CAIL's creditors…it may necessarily follow that CAIL's collection obligation under section 221 was terminated so as to lift the limitation in subsection 278(2). But in the absence of provisions in the Act spelling out when such limitation is lifted, such finding is best left for another day – perhaps in a collection forum.

Graham J found that foster care services supplied by the appellant ("Caithkin") were not exempt under Sched. V, Part IV, s. 2. Despite treating such supplies as exempt, Caithkin had claimed input tax credits on the per-diem payments that it made to the foster parents.

Graham J upheld the Minister's penalties under s. 280(1)(a), noting that "in no way could this have-my-cake-and-eat-it-too approach be seen as duly diligent" (para. 39).

A college ("Humber") was entitled to claim a rebate under s. 259(3) of 67% of most GST payable by it on its purchases. Approximately a year after it purchased three real estate properties, it realized it had failed to report those purchases. It did so in its August 2008 return, applied at that time for the 67% rebate, and remitted the net amount of GST. The Minister assessed interest on 100% of the GST from the time it was owed, without reduction for the rebate amounts. Humber appealed on the basis that the interest should be calculated on the net 33% amount so that, in effect, it should be given the 67% rebate retroactively to approximately one year before it applied for it.

In agreeing with this approach, C Miller noted (at para. 20) that if Humber had instead only reported the GST on its property purchases in its August 2008 return without claiming the rebate, then the Minister, in assessing that return, would have been obligated to apply s. 296(2.1) so as to grant the rebate on a retroactive basis - and that it was absurd to interpret the Act so as to impose a worse result because Humber made a more complete filing. He stated (at para. 22):

Clearly, subsection 296(2.1) of the Act is there to help a college that has not made the rebate claim, not to harm the college that applies for a rebate it has not yet obtained.

Accordingly, s. 280(1) was to be interpreted on the basis that "the Act intends to offset the rebate against the tax at the time the tax arises" (para. 27).

Hogan J. found that the taxpayer, who had failed to file two income tax returns and nine GST returns until they were requested by the Minister, was liable for late-filing penalties. Regarding the taxpayer's submission that it had reasonable grounds to believe that no taxes were owed in connection with the late-filed returns, Hogan J. stated:

To succeed with this defence, the taxpayer must show how the error was made and demonstrate that he relied on the error in deciding to postpone the filing of the returns beyond their due date. This is required in order to satisfy the subjective test. To satisfy the objective test, the taxpayer must then establish that a reasonable person would have made and relied on the same error in deciding to postpone the filing of the returns.

The taxpayer's evidence was vague and self-serving, and did not satisfy either test.

The taxpayer did not report the GST that was payable under the self-assessment rule in s. 191(3) on the completion of two multiple unit residential complexes until one quarter late in the case of one building and two years late in the case of the second building. It also claimed related ITCs in the same returns.

Garon CJ dismissed the taxpayer's submission that the late-claimed ITCs should be applied to retroactively adjust the net amount of GST owing on the buildings, so as to thereby eliminate interest payable under s. 280(1). He stated (at paras. 16-17):

The juxtaposition of the mention of the particular reporting period and the preceding period in paragraph a) of Point B of [s. 225(1)] does not seem to leave any doubt that the legislative intent was to allow a taxpayer to claim input tax credit in a return subsequent to the period during which these credits could first have been claimed. ...

The above indicates that this right to input tax credit does not exist until it is claimed.

Revenue Canada waived interest, and reduced penalties to 4% in accordance with its policy on "wash transactions", with respect to the failure of the registrant to add GST to its reimbursement charges to tenants for property taxes, utilities and insurance. Lamarre TCJ. found that the registrant had made out a defence of due diligence, with the result that Revenue Canada was directed to delete the 4% penalty.

A housing developer ("Mattamy") recouped the cost to it of (GST-exempt) development levies paid by it to the relevant municipality in its sales agreement with home purchasers. These amounts were found to be part of the taxable consideration for such home sales, with the result that Mattamy was found to have been understating the sales price to the purchasers. As the new housing rebates ("NHRs") of the purchasers (which they had assigned to Mattamy and which it had rebated to them as contemplated in s. 234(1)) increased as the sales price increased to $350,000, this increased taxable consideration increased the NHRs which could have been claimed on some of the sales.

Woods J found that Mattamy was not entitled to a credit under s. 296(2) for such unclaimed NHRs as Mattamy had not satisfied the requirement in ss. 296(2)(a) and 234(1) that it had credited an amount to the home purchasers under s. 254(4) in respect of such unclaimed NHRs.

The registrants had unclaimed input tax credits (well in excess of their taxable supplies) for 2003 and 2004, for which they did not file GST returns until September 2009 (i.e., beyond the limitation period in s. 225(4) for ITC claims). The Minister denied all of the ITCs claimed in excess of the taxable supplies made by them, relying on such limitations period.

Webb J. found that the registrants' claim for ITCs should be allowed pursuant to s. 296(2). Literally, 296(2)(b) provided that the Minister is only compelled to take into account a taxpayer's ITCs that the taxpayer has not claimed on any return prior to the Minister's reassessment. However, this led to the illogical result that a registrant is better off not claiming ITCs on a late return itself , and instead referring to them in a separate letter delivered to the Minister (para. 15) - or appealing the Minister's denial of the ITC claims and then requiring the Minster to take the ITCs into account when issuing a reassessment to implement a favourable Tax Court judgment (para. 17).

Subparagraph 304(5)(b)(iv) of the French ETA requires that the person applying for an extension have reasonable grounds to do so. This requirement was missing from the English version. Paris J found that, because the more restrictive version prevails in the event of a direct conflict (Daoust, 2004 SCC 6, at paras 27-29), the appellant was entitled to rely on the English version. Because the Minister's dismissal of the appellant's extension relied heavily on subparagraph (iv), and given that the applicant had met the requirements in subparas. (i)-(iii), Paris J reversed the Minister's dismissal.

After being approached by the incorporator ("Marney") of a pub, the appellant subscribed $10,000 for shares as a passive investment. He became an authorized signatory and was appointed secretary/treasurer and signed cheques on the basis that two signatories were required, which he would do without any document review - his involvement was minimal. He also signed various banking documents and certificates, as well as a corporate tax return, CRA RC59 business consent form and disclaimer letter in favour of CRA (all without review) showing him as a director. Marney and another individual, who had been named as the initial directors, were struck from the corporate register shortly after the commencement of operations and the name of the name of the common-law wife of Marney ("Richards"), who now was running the operations, was added to the register. However, no directors or shareholder meetings were held, noone was appointed by the shareholder as director. The appellant purchased all the remaining shares of the corporation for $1 from Richards, upon her bankruptcy. The Minster assessed the appellant personally for the corporation's GST and income tax remittance shortfalls under ETA s. 323(1) and ITA s. 227(1).

Rossiter ACJ found that the taxpayer was not so liable. After finding (at para. 37), that the appellant had not become a de jure director, he then found (at para. 39) that "the concept of de facto director ... should be limited to those who hold themselves out as directors" (para. 39), and stated (at para. 44):

[T]he Appellant was a shareholder only. …[H]e did not at any time give his consent to be a director. He did not realize that he was in fact listed as a director with the Corporations Division… until very late and once he did, he took every step possible to have his name struck from the record. He did not… complete any of the required steps to be appointed as a director… . Further, all major decisions relating to the business were made by persons other than the Appellant.

The Minister assessed the appellant for director's liability in respect of a corporation that had not remitted net tax for reporting periods ending on and after July 1, 2000. The appellant had been excluded by the franchisor of the corporation's business from any input into the financial affairs of the corporation after October 2001, and from any involvement at all after July 2002. The applicant had no access to the corporation's records, and CRA would not provide any background as to how it had computed the corporation's liability. Paris J found that this was sufficient to shift onto the Minister the burden of proving the correctness of the corporation's assessment, and that this burden had not been discharged.

The taxpayer was a director of an Alberta corporation ("cDemo") and a Delaware corporation ("Global"). Both corporations owed Canadian source deductions, and cDemo owed GST collections. Although the taxpayer had resigned as director more than two years before being assessed, Hogan J. found that the taxpayer was not beyond the limitations periods in s. 227.1(4) of the Income Tax Act or s. 323(5) of the Excise Tax Act. He remained a de facto director of each corporation, based on his taking actions in respect of the corporations that only a director could take.

The taxpayer was a de facto director of cDemo because he signed a declaration removing a fellow director from the corporate registry, and he signed a bill of sale of certain of cDemo's assets (with the proceeds being used to pay down the amounts owing).

The taxpayer was a de facto director of Global because he met with a prospective Global client in order to generate a revenue stream. The taxpayer provided CRA with documentation indicating approximately how much revenue Global would obtain from such a deal.

Finally, the taxpayer was a de facto director of each because he continually dealt with CRA on the corporations' behalf regarding the unremitted deductions and GST.

The taxpayer directed a tavern business whose main clientele were university students. Payroll and GST/PST remittances were handled by his general manager (Hughes). The taxpayer co-signed all expense cheques on a weekly basis, and also conferred with Hughes on a weekly basis about how the business was doing. In mid-August, CRA advised him that the corporation had GST remittance failures beginning in June. Hughes advised him that she made an arrangement to pay the arrears in instalments. In early September, he was also informed of payroll remittance failures, and of PST remittance failures. He injected $22,000 of his own capital into the business, but it was used mainly to replenish inventory.

C. Miller J. found that the taxpayer was liable for the remittance failures from August until the business closed in November, given that the taxpayer had deliberately collected payroll deductions and sales tax and not remitted those amounts.

Before August, however, the taxpayer had no reason to suspect that the corporation's remittance obligations were not being met, and he had been reasonably prudent in keeping abreast of the corporation's finances, relying principally on Hughes to keep him informed and keep the business in order. C. Miller J. stated (at para. 32):

The assessment of a director's conduct prior to deemed or actual knowledge of financial difficulties should simply not be as demanding. I agree with the Respondent that a director should ask specific questions about remittances during a period of financial difficulties. I do not believe though that such a level of diligence is required up to that point in determining the director's due diligence.

Bowman A.C.J. found that the taxpayer's appointment as president of a failing business corporation, which entailed broad management powers, did not make the taxpayer a director or de facto director for the purpose of liability for the corporation's unremitted source deductions under s. 227.1(4) of the Income Tax Act or s. 323(5) of the Excise Tax Act. The question whether a de facto director could be liable for remittance failures had not previously been considered. Bowman A.C.J. found that a de facto director could be liable, but that "one must be very careful about what one means by the expression 'de facto director'." He stated (at paras. 29-30):

There is a lengthy and learned discussion of de facto directors at pages 408 to 411 in Mr. Wegenast's leading text on corporate law Canadian Companies. I cite only a short passage from page 411 which is, I think, useful in this case (footnotes omitted):

There must, however, have been something more than a mere usurpation of office. There must have been something to justify outsiders in assuming that the person or persons in question had been duly elected or were acting with the concurrence of the shareholders, for the doctrine of de facto directors is merely an application of the doctrine of estoppel or "holding out."

...

I am inclined to think that the concept of de facto director may have evolved in some degree since Mr. Wegenast wrote the above in 1931. However one wishes to define de facto director — either as one who occupies, whether by usurpation or default, the role of director or one in whose election there is some defect — it is clear that Mr. Mosier was not one of those.

The taxpayer was liable for unremitted GST as a director of his business corporation, notwithstanding a finding that the Minister failed to validly assess the corporation (there was no evidence that any assessments had been mailed) and that an assessment against the corporation would have been statute-barred. Pizzitelli J. stated (at para. 41):

The clear wording of [s. 323(1)] crystallizes a director's liability to pay the net tax not remitted by the Corporation "at the time the corporation was required to remit or pay, as the case may be, the amount...".

Subsection 299(2) also clearly obviates the need for a corporate assessment. Furthermore, the only limitations period for director' liability is the one in s. 323(5), which only commences when the director ceases to be a director.

The taxpayer was not a director on the basis only of various unsigned documents in the minute book designating her as a director.

It was unnecessary to evaluate the appellant's due diligence arguments, but Paris J found that they would not have succeeded. The essence of the appellant's argument was that he had met his diligence obligations by appointing another director to manage the corporation's financial difficulties. Paris J found that the appellant should have at least taken some steps to monitor the new director's management and ensure that he was meeting tax obligations.

Boyle J. found that the taxpayers did not have a due diligence defence for unremitted source deductions and GST collections because, regardless of their earnest efforts to restore their corporation's fortunes and their forthright dealings with CRA, the fact remained that they deliberately chose to float their business with the unremitted amounts. Boyle J. stated (at para. 23):

Given the specific wording of [ss. 227.1(3) of the ITA and 323(3) of the ETA] and the Federal Court of Appeal's comments in Buckingham, it appears somewhat difficult to imagine circumstances in which an informed and active owner-manager and director of a corporation will not be liable for unremitted employee source deductions and unremitted GST amounts.

Boyle J. acknowledged that an attempt to restore a company's fortunes may be enough to establish due diligence in exceptional circumstances, but the present case did not entail such circumstances (para. 21).

Angers J. found that the taxpayer, who was a director of two corporations forming part of a related group, was liable for unremitted income tax source deductions of those two corporations, but not for a period starting with the initial remittance failures. During that period, it became apparent that the group was in financial difficulty, the taxpayer hired a chief financial officer, a lawyer and a chartered accountant to assist him with the financial crisis. He also made the payment of taxes a priority - he refused to have certain accounts receivables applied to pay suppliers in priority to the remittance obligations. Although payroll remittance failures did indeed arise, the corporations had overpaid GST/HST remittances as a result of poor advice, and the overpayment amounts would have covered the remittance obligations. The taxpayer was liable for subsequent remittance failures because of the finding that his attention was no longer directed towards avoiding such failures.

The Appellant (an optometrist practising in Unity and Meadow Lake, Saskatchewan), who owned 75% of the shares of a corporation holding three commercial properties in a different city, was found by McArthur J to be an outside director of the corporation (with limited business experience) who had left responsibility for GST and accounting matters to the minority shareholder, who was the Appellant's investment advisor. The due diligence test had been met notwithstanding that the GST remittance failures in question had extended over a period of six years, and the Appellant had been required to inject additional capital into the corporation towards the end of the fifth year.

In rejecting a submission of the second appellant (Mr MacKay) that he had satisfied his due diligence defence by delegating management of the corporation (including responsibility for HST remittances) to a third party manager, D'Arcy J stated (at para 49) that:

due diligence normally requires that, when a director becomes aware, or ought to have become aware, the the company is falling behind with its remittances, he or she should take some positive steps to prevent the default

and (at para 64) "such a delegation is not an abdication and does not exonerate Mr. MacKay from liability.

Somewhat similarly, "once Mr. Power [the first appellant] became aware of the financial problems of the Corporation, he should have taken some positive steps to assure himself that the Corporation was remitting the HST," which he failed to do. Both appellants were liable under s. 323.

The appellant was the sole shareholder and sole director of a construction and heavy equipment rental business corporation (JDR). JDR had made purchases from various suppliers on behalf of a client. CRA and the Court accepted that JDR had acted as an agent of the client, and therefore the amounts paid by the client were reimbursements, exempt from GST. However, JDR had also claimed ITCs for the GST included in the reimbursement amounts notwithstanding that such GST was not incurred by JDR, and those amounts were disallowed.

Paris J. found that the appellant could not establish due diligence because his evidence was inadequate regarding his bookkeeper, who allegedly was responsible for the erroneous ITC claim. The appellant had neither called her as a witness, nor brought evidence to establish her training and qualifications. There was therefore no basis on which to conclude that the appellant's reliance on the bookkeeper met the standard of a reasonably prudent person in the circumstances.

The taxpayer exercised due diligence in leaving the bookkeeping work to his wife who had relied on an accounting firm for any assistance she needed with respect to GST filings and remittances. In these circumstances "it would be unreasonable to require him to go further and check her work, particularly when neither he nor Agatha were given any indication that anything was wrong" (p. 2214).

The appellant was unsuccessful in a submission that he had ceased to be a director of a corporation at the time of a meeting between him and another individual (who together indirectly held 80% of the shares of the corporation) and the franchisor of the corporation at which the franchisor informed him that henceforth he would be excluded from any involvement in company management.

Although the corporation of which the Appellant was a director was struck from the Saskatchewan Corporate Register more than two years before the assessments of the Appellant under s. 323, MacArthur J found that it was not possible to resolve whether or not the Appellant thereby ceased to be a director without evidence that the corporation also was dissolved. (However, he found that the due diligence test had been met.)

The appellant, who was the sole shareholder and director of a corporation with a rental business, was found to be deemed by s. 115(4) of the Business Corporations Act (Ontario) to continue to be a director given that he continued to engage in various steps relating to taxation filings of the corporation, which Paris J. characterized as being management activities. S. 115(4) provided:

Where all of the directors have resigned or have been removed by the shareholders without replacement, any person who manages or supervises the management of the business and affairs of the corporation shall be deemed to be a director for the purposes of this Act.

In response to the proposed repeal effective 1 June 1984 of the zero rating of building alteration services, four building companies with existing contracts for building alterations arranged with their customers for payment by the customers before that date subject (in one case) to the condition that the building company would immediately lend back an equivalent sum, to be repaid as the work was done or subject (in the other case) to that money being paid into an account of the building company for release only as the work was done.

Although the use of the money was fettered, the payments discharged the liability of the customers under the building contracts. Accordingly, the building companies had "receive[d] a payment" before 1 June 1984.