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,[1] 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.
|
"P. R. Dussault" |
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.
|
"P. R. Dussault" |
J.T.C.C.
Translation certified true on this 6th day of January 2003.
Sophie Debbané, Revisor
[OFFICIAL ENGLISH TRANSLATION]