Date: 20000316
Docket: 2000-2528-GST-I
BETWEEN:
JOEL W. WINCH,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Bell, J.T.C.C.
ISSUE:
[1] The issue is whether the Appellant is liable under subsection 323(1) of the Excise Tax Act, Part IX ("Act") for Goods and Services Tax ("GST") for five periods between June 1, 1993 and August 3, 1995 in the total amount of $47,992.09 together with interest and penalty.
FACTS:
[2] The Appellant and three others were directors of Inverary Properties Inc. ("Inc.") which failed to remit GST in respect of the above periods. Inc. was placed in receivership on August 4, 1995 and made an assignment under the Bankruptcy and Insolvency Act on August 29, 1995. The amount owing for the fifth period above described was $16,219.05 which was to be remitted on September 30, 1995. A letter from Respondent's counsel to the Appellant dated February 23, 2001 reads:
February 23, 2001
VIA FACSIMILE
220 Richview Avenue
Toronto, Ontario
M5P 3G3
Attention: Joel Winch
Dear Sir:
Re: WINCH, Joel v. H.M.Q.
Court File No.: 2000-2528(GST)I
This letter is to confirm our conversation February 21, 2001, wherein you requested the following:
1) Information regarding whether the amount of $47,992.09 and the interest and penalties relating to the unremitted goods and services tax payable by Inverary Properties Inc. and Golf Haven Country Club (the "Corporation") as paid to the Receiver General.
2) Whether all the directors of the Corporation were assessed by the Minister of National Revenue.
3) Whether the Respondent will provide you with documents relating to the other directors of the corporation.
The following is our response to the foregoing:
1) The amount of $47,992.09 and the interest and penalties relating to the goods and services tax payable by the Corporation was paid to the Receiver General subsequent to the bankruptcy of the Corporation and subsequent to the time that the corporation was required to pay.
2) All directors of the Corporation were assessed by the Minister of National Revenue.
3) The Respondent will only provide copies of documents that will be relied upon at trial.
Should you have any questions regarding the foregoing, please contact me at (415)973-2138.
Yours truly,
"signature"
Jocelyn Espejo Clarke
Counsel
Tax Law Services Section
The Appellant produced this letter as an exhibit at the hearing. Such letter inspired a question from the Court as to why, the tax, interest and penalty having been paid in full, this case was proceeding. After quite some time Respondent's counsel informed the Court that some of the amount described in her letter was "paid" but that the balance was "collected". Counsel also said that the Respondent conceded that the sum of $16,219.05 respecting the final period would be excluded from the amount for which Judgment against the Appellant was sought. That reduces the net tax figure to $31,773. That would, of course, bear interest and penalty.
[3] Ultimately, Respondent's counsel supplied the Court with a statement indicating that two directors, who did not object to their assessments, had paid a total amount of $23,874 in reduction of tax. The Agency, by collection action, collected the sum of $24,117.91 from the other director. He objected to the assessment. The amounts paid by the first two directors are not refundable to them, no appeal procedures having been commenced. It is possible, however, that part or all of the amount paid by the third director, if he is successful in his appeal, could be refunded to him.
[4] It will be seen that if the total GST owing was $31,773 and $23,874 was paid by two directors who had not appealed their assessment, the maximum net tax payable is $7,899. Even if the third director is successful in his appeal, the maximum amount of tax which the Appellant will be obliged to pay it $7,899.
[5] The Appellant stated that he was not raising a due diligence defence and, indeed, had no defence to the assessment. In my view, when an Appellant comes to Court with an appeal of an assessment of liability as a director for tax unpaid by the company of which he was a director, the Respondent should advise him fully of the amount of tax, interest and penalties paid and by whom, and the balance of each still owing. Under the above circumstances, the Appellant, who was not raising any defence, may well, had he been given the relevant facts, consented to judgment thereby avoiding the necessity of appearing in Court. This would, of course, have benefited everyone who appeared in that courtroom. The Respondent, seeking judgment in the full amount of the Appellant's statutory liability should have informed him in full of the status of the company's account, as ultimately occurred here. That would not have happened, without action by the Court.
[6] The Appellant referred to McCullogh v. M.N.R., 89 DTC 446. In that case, respecting liability of directors under section 227.1 of the Income Tax Act the Minister of National Revenue, in September, 1984 assessed the Appellant and one other director. Revenue Canada then seized $27,000 by garnishment from the other director and subsequently returned it to him upon that director having filed a notice of objection. Then, in February, 1987 the Minister again assessed the taxpayer, presumably in respect of the same amounts as were sought in the first assessment. This Court held that the liability of the company was fully satisfied when the Minister seized the $27,000 from the other director. Accordingly, the Minister was not entitled to pursue the taxpayer in respect of the same amount which had already been collected. At page 448, this Court stated:
The amount seized was sufficient to discharge the Ideal debt. There is no basis for the suggestion that following the seizure either Ideal or Mr. Sandrin continued to be liable to the Respondent. The whole purpose of section 227.1 is to enable the Minister to look to a director for payment in cases where that director has not exercised due diligence in an effort to cause his corporation to discharge its obligations to the Crown. Section is spent when it has served its purpose by putting the Minister in funds. Nothing in the language of the statute suggests a legislative intention to empower the Minister to utilize this section to collect from a director after the Minister has fully recovered the debt from someone else. Mr. Sandrin's statement makes it clear that the money owing by Ideal to Revenue Canada was recovered in full by means of the seizure. There was no basis for a conclusion that the money seized went into some sort of suspense account or was applied to some purpose other than the discharge of the Ideal liability ... I cannot see how the original Ideal liability was in some mysterious way revived simply because the Minister chose to reimburse Mr. Sandrin. The intention of section 227.1 is to enable the Minister to collect once and once only.
[7] In that case the assessment under which the Minister sought to establish McCullogh's liability was the second assessment (no information having been given as to how the first assessment was disposed of) and was made after the seizure from the other director and reimbursement to him. That is not the situation in this case. The assessment of the present Appellant was made before any tax was paid.
Even though from a practical viewpoint, the Appellant's maximum exposure is $7,899 in tax, Judgment will issue in the sum of $31,773. The reason is that subsection 323(1) of the Act provides that where a corporation fails to remit an amount of net tax the directors at the time the corporation was required to remit are jointly and severally liable, together with the corporation, to pay that amount and any interest and penalties relating thereto.
Signed at Ottawa, Canada this 16th day of March, 2001.
"R.D. Bell"
J.T.C.C.