Date: 20021231
Docket: 2000-3994-IT-G,
2000-4278-GST-G
BETWEEN:
PETER BONCH,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
O'Connor, J.T.C.C.
BASIC FACTS
[1] These appeals were heard together on common evidence on December 3, 2002 at Toronto, Ontario.
[2] In the Reply in the income tax appeal (2000-3994(IT)G) the assumptions of the Minister of National Revenue ("Minister") relative to Trent Travel Service Inc. (the "Company") read as follows:
5. In so assessing the Appellant, the Minister made, inter alia, the following assumptions:
a) The Appellant was, at all material times the sole director of the Company;
b) The Company failed to remit to the Receiver General the federal income tax withheld from the wages paid to its employees in the amount of $7,555.13 for the years 1994 and 1995;
c) The Company failed to pay penalties and interest relating to the unremitted federal tax in the amounts of $1,615.00 and $8,866.39 respectively;
d) A certificate for the amount of the Company's liability for federal income tax, penalties and interest was registered in the Federal Court of Canada under section 223 of the Income Tax Act and execution for such amount has been returned unsatisfied in whole or in part;
e) The Appellant did not exercise the degree of care, diligence and skill to prevent the failure to remit the said amount by the company that a reasonably prudent person would have exercised in comparable circumstances.
[3] In the GST appeal (2000-4278(GST)G) the facts are set forth in the assumptions in the Amended Reply which read as follows:
5. In so assessing the Appellant, the Minister made, inter alia, the following assumptions:
a) The Appellant was, at all material times the sole director of the Company;
b)
The Company failed to remit to the Receiver General goods and
services tax in the amount of $12,971.76 for the period November
1, 1994 1991 to April 30, 1995;
c) The Company failed to pay penalties and interest relating to the unremitted goods and services tax in the amounts of $9,637.10 and $5,118.15 respectively;
d) A certificate for the amount of the Company's liability for goods and services tax, penalties and interest was registered in the Federal Court of Canada under section 316 of the Excise Tax Act and execution for such amount has been returned unsatisfied in whole or in part;
[4] The Appellant, in essence, produced three defences. Firstly, he contested the amounts in the GST assessment. Secondly, he maintained that the defence of due diligence was available to him as he did his best for the Company in maintaining a good travel agency and retaining good employees. He continued to pay their salaries and generally did what was best for the Company. Thirdly, he maintained that he became unable legally to carry on the business of the travel agency for the following reasons. The Company began to experience financial problems due to a recession in the travel business in the early nineties and because of certain basic changes in the way the travel business was handled, thus favouring competitors and harming the Company. The problems became acute in 1993 and 1994 due to a severe computer failure resulting in the Company's accountant refusing to certify the accuracy of the Company's financial reports, thus putting the Company in default of obligations under the Travel Industry Act and the Regulations thereunder and the termination on November 22, 1995 (see Exhibit A-2) of the Company's IATA and ATAC Passenger Sales Agency Agreements effectively making it impossible to continue the businesses. The Appellant argues that since the business thus terminated he must be considered to have ceased to be a director thereafter and that the assessments by the Minister being dated November 24, 1999 were more than two years after the dates of these events and consequently are statute-barred by virtue of section 227.1(4) of the Income Tax Act and section 323(5) of the Excise Tax Act.
[5] The Appellant referred to Paradis v. Canada (Minister of National Revenue - M.N.R.), [1995] T.C.J. No. 166 where a director who was excluded from the company's management either at the time when his employment was terminated or at the time of bankruptcy it was held that the assessment was too late and was therefore statute-barred notwithstanding the fact that he did not actually resign. Reference was also made to McConnachie et al. v. M.N.R, [1991] DTC 873 where Judge Bonner of this Court stated at page 877:
...Directors of a corporation which has lost the capacity to dispose of or deal with corporate property are not the sort of persons who are the target of section 227.1. In my view, Perri [referred to later] follows the "modern rule" of statutory construction approved by the Supreme Court of Canada in Stubart Investments Limited v. The Queen, 84 D.T.C. 6305, which rule is:
Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.
The purpose of subsection 227.1(4) is to protect directors from indefinite exposure to collection proceedings in respect of liability under subsection 227.1(1). That protection would, as a practical matter, be diminished greatly if directors of a bankrupt corporation are by reason of vestigial powers which they hold after a bankruptcy to be treated as continuing in office until either they resign or the corporation is struck from the register. Few people in such circumstances would ever think of resigning and few bankrupt corporations ever pay their debts in full and are discharged. As a consequence in most cases the two-year period would not start to run until the time when the corporation is struck from the register for failure to file returns. I find it difficult to conceive that the constructionfor which the Respondent contends was in the contemplation of the legislature. For the foregoing reasons I have concluded that the Appellants last ceased to be directors of the Company more than two years before the assessments were issued.
[6] Moreover, in the most recent decision of Kalef v. M.N.R., [1995] DTC 487, Judge Beaubier of this Court subscribed to the opinion expressed in McConnachie.
[7] In Perri et al. v. M.N.R., [1989] DTC 723, Associate Chief Justice Christie, as he then was, stated at page 725:
As I understand it, it is the intention or object of subsection 227.1(4) to fix a limitation period that runs from a time when an individual ceases to be in a position in law and in fact to exercise the powers of a director to rectify the failure of the corporation to deduct or remit or both. I regard that as being the correct meaning of the phrase "ceased to be a director" in subsection 227.1(4). To hold that those words in all circumstances mean that there must be a lapse of two years from the date an individual ceases to hold office as a director in accordance with the provisions of the relevant corporate legislation would in some instances, such as those under construction, render the limitation period devoid of meaningful substance. What could the appellants do qua director in relation to Olympic's default after the receiver-manager was appointed? Nothing.
[8] In my opinion the authorities cited above apply in these appeals and consequently the appeals are allowed, without costs, and the matters are referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the Appellant is not liable as director of Trent Travel Service Inc. for the federal income tax withheld nor for the unremitted goods and service taxes nor penalties nor interest in respect of same.
[9] Having reached the foregoing conclusion, I find it unnecessary to analyze the other two defences of the Appellant.
Signed at Ottawa, Canada this 31st day of December, 2002.
|
"T. O'Connor" |
J.T.C.C.COURT FILE NO.: 2000-3994(IT)G
2000-4278(GST)G
STYLE OF CAUSE: Peter Bonch v. The Queen
PLACE OF HEARING: Toronto, Ontario
DATE OF HEARING: December 3, 2002
REASONS FOR JUDGMENT BY: The Honourable Judge T. O'Connor
DATE OF JUDGMENT: December 31, 2002
APPEARANCES:
For the Appellant: The Appellant himself
Counsel for the Respondent: Shatru Ghan
COUNSEL OF RECORD:
For the Appellant:
Name:
Firm:
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2000-3994(IT)G
BETWEEN:
PETER BONCH,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on common evidence with the appeal of
Peter Bonch (2000-4278(GST)G) on December 3, 2002
at Toronto, Ontario, by the Honourable Judge Terrence O'Connor
Appearances
For the Appellant: The Appellant himself
Counsel for the Respondent: Shatru Ghan
JUDGMENT
The appeal from the assessment made under the Income Tax Act, notice of which is dated November 24, 1999 and bears number 12860, is allowed, without costs, and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada this 31st day of December, 2002.
|
"T. O'Connor" |
J.T.C.C.
2000-4278(GST)G
BETWEEN:
PETER BONCH,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on common evidence with the appeal of
Peter Bonch (2000-3994(IT)G) on December 3, 2002
at Toronto, Ontario, by the Honourable Judge Terrence O'Connor
Appearances
For the Appellant: The Appellant himself
Counsel for the Respondent: Shatru Ghan
JUDGMENT
The appeal from the assessment made under the Excise Tax Act, notice of which is dated November 24, 1999 and bears number 58853, is allowed, without costs, and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada this 31st day of December, 2002.
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"T. O'Connor" |
J.T.C.C.