Date: 20001206
Dockets: 98-495-IT-G; 98-507-IT-G
BETWEEN:
ANTONIETTA BOZZO, JOSEPH BOZZO
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Teskey, J.
[1] These two appeals were heard on common evidence.
[2] Both Appellants appeal assessments of tax assessed pursuant to subsection 227.1(1) of the Income Tax Act (the "Act"), notices of which are dated August 20, 1996, for unpaid deductions, interest and penalties payable by Homelife/Artel Real Estate Services Inc. (the "Corporation").
Issues
There were four issues put before the Court, namely:
First
[3] Are the assessments statute barred on the basis that each Appellant was assessed under subsection 227.1(1) of the Act more than two years after they ceased being directors of the Corporation?
Second
[4] If either one or both assessments are not statute-barred, then did either or both Appellants exercise the degree of care, diligence and skill to prevent the failure to remit by the Corporation that a reasonably prudent person would have exercised in comparable circumstances?
Third
[5] If either Appellant is found liable, then can a director challenge the quantum of the assessments? and
Fourth
[6] If a director can challenge the quantum of the assessment, then the Court may establish the quantum and vary the assessment or refer it back to the Minister of National Revenue (the "Minister") for reconsideration and reassessment on a different basis?
First Issue
[7] Articles of Incorporation for the Artel Real Estate Services Inc. were certified on September 6, 1984, making the articles effective (Tab 1, Exhibit A-1). Paragraph 4 states that the first directors are the Appellants and that their residential address is 97 Andrea Lane, the same address as the registered office. Both Appellants signed the Articles of Incorporation. Only Joseph Bozzo ("Joe") signed the consent to act as a first director. The only document Antonietta Bozzo ("Antonietta") ever signed was a resignation as a director on August 4, 1988. She never took part in anything to do with the Corporation and never signed any cheques or performed any functions either as a director or an officer.
[8] Antonietta did not sign the following documents:
By-law No. 1 Tab 2, Exhibit A-1
By-law No. 2 Tab 3, Exhibit A-1
Resolutions of Shareholder Tab 4, Exhibit A-1
dated September 6, 1984
Application for Common Shares Tab 5, Exhibit A-1
Share Certificate No. 2 Tab 6, Exhibit A-1
Appointment of Officer Tab 7, Exhibit A-1
Share Certificate No. 1 Tab 8, Exhibit A-1
Resolution to Change Name
to Homelife/Artel Real Estate Services Inc. Tab 9, Exhibit A-1
Articles of Amendment for Name Change Tab 10, Exhibit A-1
Resolution Changing Number of Directors Tab 12, Exhibit A-1
Resolution of the Board of Directors Tab 15, Exhibit A-1
Resolution Changing Head Office Tab 16, Exhibit A-1
Special Resolution Tab 17, Exhibit A-1
Resolutions of Director Tab 18, Exhibit A-1
Application for Common Shares Tab 19, Exhibit A-1
[9] Having observed both Joe and Antonietta giving their evidence, I accept their testimony as truthful, notwithstanding that some of the documentation could possibly cast doubt.
[10] I accept that Spencer Black, a solicitor, was tardy and sloppy in his work and that he was eventually disbarred. I strongly suspect he left the preparation of the corporate records up to his secretaries and never checked them for accuracy.
[11] I accept the certificate from National Trust (Tab 14, Exhibit R-1), dated June 17, 1991, as factual and that the certificate at Tab 13 of Exhibit R-1 was blank when signed by Joe and improperly filled out by someone at National Trust.
[12] It is unfortunate that Form 1 of the Corporations Information Act, at Tab 14 of Exhibit A-1 was signed by Spencer Black and filed with the Company's Branch on September 12, 1990, as it reflects the typed corporation documents but does not take into consideration that they were never signed by Antonietta nor her written resignation as a director and, therefore, they did not reflect the actual facts and it is inaccurate.
[13] Tab 18 of Exhibit A-1 is an example of Spencer Black's sloppiness, the heading, Resolutions of Director in singular, is undated and provides for the signature of both Appellants. No weight can be placed on the sloppy corporate documents or on the Form 1 return (Tab 14 of Exhibit A-1).
[14] I accept as factual that Antonietta intended to resign and in fact did so, in writing, on August 4, 1988 (Tab 11 of Exhibit A-1) which was accepted on the same date.
[15] Having determined this and since the assessment against Antonietta is dated August 20, 1996, it is statute-barred pursuant to subsection 227.1(1) of the Act.
[16] In regard to Joe, I am satisfied that a real estate broker can only be associated with one corporate entity at the same time.
[17] When Joe started operating as Homelife/Bestway Realty ("Bestway"), he had to have resigned as director and officer of the Corporation and transfer his broker's license to Bestway.
[18] Melissa Cole ("Cole"), a trust examiner with Revenue Canada, started her audit in October 1992 and finalized it in March 1993. Before March 1993, Joe had started Homelife/Bestway, which gives credence to Joe's resignation of February 5, 1993 (Tab 26 of Exhibit A-1) and the documents at Tabs 25 and 27 purporting to remove him as a director can be interpreted as acceptance of his resignation.
[19] Subsection 227.1(1) of the Act provides that those persons who are directors at the time the corporation is required to deduct, withhold or remit to the Receiver General the amount of federal tax required by subsection 135(3) or section 153 or 215 of the Act are jointly and severally liable, together with the corporation, to pay that amount together with any interest or penalties relating thereto.
[20] Subsection 227.1(4) of the Act provides that no action or proceedings to recover any amount payable by a director of a corporation under subsection (1) shall be commenced more than two years after the director last ceased to be a director of that corporation.
[21] The Business Corporation's Act (Ontario), R.S.O. c. B. 16, as amended, (the "OBCA") provides in subsection 119(1) that each director named in the articles shall hold office from the date of endorsement of the certificate of incorporation until the first meeting of the shareholders.
[22] The OBCA as amended in 1994, C. 27, in subsection 71(13) repeals the former subsection 119(2) and provides that until the first meeting of shareholders, the resignation of a director named in the Articles shall not be effective unless at the time the resignation is to become effective a successor has been elected or appointed.
[23] Subsection 119(9) of the OBCA was added in 1994 by C. 27, subsection 71(14) and provides that the election or appointment of a director under this Act is not effective unless the person elected or appointed consent in writing on or within ten days after the date of the election or appointment.
[24] Subsection 121(1) provides that a director of a corporation ceases to hold office when he or she, (a) dies or, subject to subsection 119(2), resigns; (b) is removed in accordance with section 122; or (c) becomes disqualified under subsection 118(1).
[25] Also, subsection 121(2) provides that a resignation of a director becomes effective at the time a written resignation is received by the corporation or at the time specified in the resignation, whichever is later.
[26] Subsection 122(1) provides that subject to clause 120(f), the shareholders of a corporation may by ordinary resolution at an annual or special meeting remove any director or directors from office.
[27] Based on the above finding of fact and the relevant sections of the Act and the sections of the OBCA, I conclude that both Appellants had ceased being directors of the Corporation more than two years before the assessments against them, which were dated August 20, 1996. Antonietta ceased being a director on August 4, 1988 and Joe ceased being a director on February 5, 1993.
[28] On this issue, the Respondent argues in essence that I look at the documentation that is before the Court and do not accept the oral testimony of both Appellants.
[29] As stated previously and having observed both Appellants in the witness stand giving their evidence, I accept their testimony as being truthful and I accept it without qualification.
[30] The Respondent refers to a decision of my colleague Mogan J. in L. Zwierschke v. M.N.R., 92 DTC 1003, however, subsection 119(2) was amended in 1994 and therefore that decision is of no help, as it deals with the wording of subsection 119(2) as it was previously worded.
[31] The Federal Court of Appeal in the The Queen v. Kalef, 96 DTC 6132, also dealing with an assessment under subsection 227.1(1) of the Act, was dealing with notices of assessment which were dated July 21 and 22, 1987.
[32] McDonald J.A. said that the only impediment to a director for resigning in the Ontario Business Corporation's Act is found in subsection 119(2) as it then read, previous to the 1994 amendment.
[33] The only impediment to a director resigning a directorship after the first meeting of shareholders is that it must be in writing and be received by the Corporation.
[34] Having determined that the two assessments are statute-barred, there is no need to comment on the other issues.
[35] The appeals are allowed with costs and the assessments are vacated. There shall be only one counsel fee for the trial.
Signed at Ottawa, Canada, this 6th day of December, 2000.
"Gordon Teskey"
J.T.C.C.