Date: 19980505
Docket: 96-2849-IT-I
BETWEEN:
ALY A. NANJI,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Mogan, J.T.C.C.
[1]The Appellant has been assessed as a director of a corporation under subsection 323(1) of the Excise Tax Act, the goods and services tax legislation.
323(1) 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.
This provision is similar to subsection 227.1(1) of the Income Tax Act. Nan Investments Ltd. (“the Corporation”) was incorporated under the laws of Alberta on June 9, 1980. In July 1992, the Corporation filed returns under the goods and services tax (“GST”) legislation for the quarterly periods ending September 30 and December 31, 1991 and March 31, 1992 reporting GST in the following amounts:
|
Period Ending |
Return Due Date |
Date Filed |
Net Tax |
|
30/09/91 |
31/10/91 |
16/07/92 |
$7,539.87 |
|
31/12/91 |
31/01/92 |
16/07/92 |
6,647.08 |
|
31/03/92 |
30/04/92 |
15/07/92 |
8,744.17 |
|
TOTAL |
$22,931.12 |
The Corporation did not remit the tax with the returns listed above but amounts paid after the returns were filed reduced the net tax owing for the three quarterly periods to the amount of $20,937.94.
[2] On June 12, 1992, the Court of Queen’s Bench in Manitoba issued an Order appointing a receiver for the Corporation. On January 27, 1993, the Corporation made an assignment under the Bankruptcy and Insolvency Act. By notice of assessment - third party 09CR103827895 - 00 dated August 8, 1994, the Minister of National Revenue assessed the Appellant as a director of the Corporation in the amount of $24,004.92 with respect to the failure of the Corporation to remit the net tax owing for the three quarterly periods listed above. The amount assessed was calculated as follows:
|
Net tax remittable by the Corporation for the relevant periods |
$20,937.94 |
|
Accrued interest |
1,625.16 |
|
Accrued penalty |
1,441.82 |
|
Total assessed |
$24,004.92 |
[3]The Appellant disputes the assessment issued to him as a director of the Corporation on the ground that he was not a director of the Corporation at any relevant time. There are other defences available to a director under subsections (2) and (3) of section 323 of the Excise Tax Act but those defences are not relevant because, in the special circumstances of this appeal, the only defence put forward by the Appellant is that he was not a director at any relevant time. The Appellant has elected the informal procedure.
[4]From the time of incorporation (June 1980) until 1985, the Appellant and his wife were 50/50 shareholders and they were also directors of the Corporation. After 1985, the Appellant’s wife, Nasim Nanji, was the sole shareholder of the Corporation and also the sole director. Exhibit A-1 is a notice of change of directors filed with the Alberta Consumer and Corporate Affairs Department stating that the Appellant ceased to hold office as a director as of May 10, 1985. According to the Appellant’s evidence, in March or April of 1986 the Alberta business of the Corporation was sold. In May 1987, the Corporation purchased the Manitoba Inn which was a motel/hotel operated at Portage La Prairie, Manitoba. Immediately following completion of the purchase, the Appellant became general manager of the Manitoba Inn.
[5]Because the Corporation was incorporated under the laws of Alberta, it was required to register under the Manitoba Corporations Act for the purpose of carrying on business in Manitoba. Exhibit A-2 is an application for registration under the Manitoba Corporations Act stating that the Corporation commenced carrying on business in Manitoba on May 4, 1987. Exhibit A-2 identified the Appellant under the heading “name and address in full of any resident director or attorney for service in Manitoba”. Exhibit A-3 signed on March 26, 1987 is the power of attorney by which the Corporation authorized the Appellant to act as its attorney within Manitoba. Exhibits A-1, A-2 and A-3 are consistent with the Appellant’s oral evidence that he was not a director of the Corporation after May 10, 1985.
[6]After the Appellant signed Exhibit A-3 consenting to act as attorney for the Corporation within Manitoba, there were a series of corporate documents filed in the Province of Manitoba which indicate that the Appellant regarded himself as the sole director of the Corporation. Exhibits A-4 and A-5 are annual information returns filed by the Corporation in Manitoba for the periods June 30, 1987 and June 30, 1988. Each of those information returns shows the Appellant as the only director of the Corporation and also as the president. On Exhibits A-4 and A-5, the information provided by the Corporation has been typed in the relevant boxes requiring information to be disclosed but, in box number six entitled “Directors”,
someone has hand-written after the Appellant’s typed name the words “Mrs Nasim” in brackets trying to indicate that it is not the Appellant who is the director but his wife.
[7]Exhibit A-6 is a group of four annual information returns filed by the Corporation in the Province of Alberta for the years 1988, 1989, 1990 and 1991 showing Nasim Nanji as the sole shareholder. On each of those information returns, in answer to the question “Has there been any change of directors?”, the answer is shown as “No” by putting an “x” in the appropriate box. Looking at Exhibits A-1 and A-6 together, I would conclude that from and after May 10, 1985, the Corporation was consistent in showing only Nasim Nanji as the sole director for filing annual information returns within the Province of Alberta.
[8]Exhibit A-7 is a group of three annual information returns filed by the Corporation within the Province of Manitoba for the periods ending respectively July 31, 1989, 1990 and 1991. Those returns are signed by the Appellant on August 15, 1991 as “president”. Each of those returns shows the Appellant as the sole director of the Corporation with an address at Portage La Prairie, Manitoba. Also, each of those returns appears to have been filed with the Manitoba Corporations Branch on August 19, 1991. Exhibit A-8 is another information return filed in the Province of Manitoba showing that the Corporation was giving notice of its change of registered office. That document was also dated August 15, 1991 and signed by the Appellant as “president”. The Appellant stated that his wife had cancer in the summer of 1991 and, for a certain time, was in a hospital in Winnipeg. His explanation for signing Exhibits A-7 and A-8 showing himself as the president and sole director is that he was under some stress because of his wife’s serious illness and, I would surmise, to protect her from being contacted as the real president and sole director of the Corporation.
[9]The Appellant’s wife testified briefly in this appeal and confirmed his evidence to the effect that, from and after May 10, 1985, she was the sole director of the Corporation and its president. According to the Appellant, the only office he held after the purchase of the Manitoba Inn in May 1987 was general manager.
[10]It is fundamental that a person cannot be liable as a director under subsection 323(1) unless that person was at the relevant time a director of the Corporation which failed to remit the tax. In the circumstances of this appeal, the GST legislation did not become effective until January 1, 1991. Also, the periods for which the Corporation failed to remit tax ran from July 1, 1991 to March 31, 1992. The oral evidence of the Appellant and his wife is that he was not a director of the Corporation at any time after May 10, 1985; and that she was the sole director at all times after May 10, 1985.
[11]The only evidence which indicates that the Appellant was a director of the Corporation after 1985 is found in Exhibits A-4, A-5 and A-7 which are all annual information returns filed by the Corporation in the Province of Manitoba. It is important to remember, however, that the Corporation was incorporated in the Province of Alberta and, in each of the annual information returns contained in Exhibits A-4, A-5 and A-7, the “jurisdiction” is shown as Alberta. More significantly, the four annual information returns filed in Alberta for 1988-1989-1990-1991 (Exhibit A-6) show the wife as the sole shareholder and no change of directors. Exhibit A-1, described above, is a notice under the Alberta Business Corporations Act stating that the Appellant ceased to be a director on May 10, 1985.
[12]In my view, the best documentary evidence on the questions of whether the Appellant was a director of the Corporation at a particular time is the minute book of the Corporation. For whatever reason, the minute book was not entered as an exhibit or ever produced at the hearing. The second best documentary evidence is the annual information returns filed in Alberta as the incorporating jurisdiction. Those returns (Exhibit A-6) support the Appellant’s claim. The third best documentary evidence is the annual information returns filed in Manitoba as the jurisdiction where the Corporation carried on the business of operating the Inn. Those annual information returns filed in Manitoba have some evidentiary weight but, in my opinion, they are outweighed by (i) the oral evidence of both the Appellant and his wife; (ii) the notice (Exhibit A-1) showing that the Appellant ceased to be a director on May 10, 1985; and (iii) the annual returns filed in Alberta (Exhibit A-6) showing that the wife is the sole shareholder and that there has been no change of directors.
[13]Having regard to the annual information returns filed in Manitoba (Exhibits A-4, A-5 and A-7) for the years 1987, 1988, 1989, 1990 and 1991, the Respondent did not plead and did not argue estoppel. Therefore, I will not consider whether the Appellant may have been estopped by signing and filing those returns.
[14]In deciding to allow this appeal, I am impressed by the following facts. The Minister of National Revenue knew at all relevant times that the Corporation was incorporated in Alberta. The Minister could have asked to examine the minute book but there is no evidence that he did. The Minister could have examined the annual information returns filed in Alberta but there is no evidence that he did. The Appellant filed his Notice of Objection dated October 18, 1994 attaching a statutory declaration (Exhibit A-10) stating that he ceased to be a director on May 10, 1985; but the Minister appears to have ignored that declaration when there may still have been time to assess the wife as the sole director because the Corporation did not make an assignment in bankruptcy until January 1993. And finally, the Appellant’s wife wrote a letter to Revenue Canada dated November 18, 1995 (Exhibit A-9) confirming that after May 10, 1985 she was the sole shareholder and sole director. I find that the Appellant was not a director of the Corporation at any time relevant to this appeal.
[15]Having regard to the facts in the preceding paragraph, I do not understand why the Minister did not examine in a timely manner the Corporation’s minute book or its annual information returns filed in Alberta to determine whether some person other than the Appellant could be or ought to be assessed as a director under subsection 323(1) of the GST legislation. The appeal is allowed.
Signed at Ottawa, Canada, this 5th day of May, 1998.
"M.A. Mogan"
J.T.C.C.