Date: 20011227
Docket: 2001-927-GST-I
BETWEEN:
JUDY REID,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor Judgment
Beaubier, J.T.C.C.
[1] This appeal pursuant to the Informal Procedure was heard at Vancouver, British Columbia on December 6, 2001. The Appellant testified. The Respondent called the auditor on the file, Surrendar Purmar.
[2] Paragraph 13 of the Reply to the Notice of Appeal reads:
In so assessing the Appellant, the Minister relied on the following assumptions of fact:
a) the facts stated and admitted above;
b) the Company was incorporated in the province of British Columbia on February 19, 1980;
c) the Company registered under Part IX of the Act effective January 1, 1991, and was assigned GST registration number 102173846;
d) the Company was required to file its GST returns quarterly;
e) the Company operated a food catering business, and, at all material times, collected or was required to collect GST on its taxable supplies;
f) all of the Company's supplies for the relevant period were taxable at the rate of 7 percent;
g) at all material times, the Appellant was the sole director of the Company, and has not resigned at any time;
h) the Company failed to file GST returns for the reporting periods from November 1, 1992 to April 30, 1993, and August 1, 1993 to January 31, 1994;
i) the Company agreed to its net tax liability as indicated in the Tax Court of Canada Judgment issued on April 23, 1996;
j) on May 8, 1998, a certificate for the Company's liability for GST, penalty and interest was registered at the Federal Court of Canada;
k) on May 8, 1998, a Writ of Fieri Facias was filed in the amount of $47,005.36 in respect of the Company's liability and was returned nulla bonna on October 30, 1998;
l) at all material times, the Appellant was an informed business person with considerable experience; was knowledgeable as to the responsibility of a director, was aware of the obligation to collect and remit GST, and knew of her statutory liability as a director for the Company's failure to remit GST; and
m) the Appellant did not exercise the degree of care, diligence and skill to prevent the failure to remit that a reasonably prudent person would have exercised in comparable circumstances.
[3] Assumptions 13(a) to (k) inclusive were not refuted. Those remaining are in dispute.
[4] Judy Reid ("Judy") is a mature woman who received her high school and post high school training in Denmark. She moved to Canada in 1964 and after three years began working in the restaurant business. In the early 1970's she opened a bakery in Delta, B.C., a suburb of Vancouver. In about 1980 she opened a restaurant in the company name "Granny Brown's Family Restaurant Ltd." (the "Company"). She was its owner-operator.
[5] A few years before the period in dispute the Company confined its business to catering for schools, the tourist trade and for government contracts. It had eight full-time employees and a number of temporary or part-time employees, depending on the season. One of the full-time employees was Miss Lock, the bookkeeper and another was Mrs. Errett, the manager. There was also a kitchen manager. Judy Reid was the owner-operator and managed the whole enterprise. Judy signed all of the GST returns and she prepared a set of work sheets contained in Exhibit R-2 which demonstrate a clear knowledge of accounting and the operation of the GST.
[6] In 1991 Judy got the flu and suffered a permanent loss of hearing in one ear and, for a period of time, the loss of her balance. She was bedridden at times in its beginning, but she continued to go into the Company when she could. There is no evidence that she was not there during the periods in question and she never denied that she was there then.
[7] In the Spring of 1993 Judy discovered that Miss Lock, the accountant, had an alcohol problem and dismissed her. She then had Mrs. Errett do the accounting. (Testimony and Exhibit R-1) At this time, Judy did nothing to check on the GST or its returns, despite the fact that she was the one who signed them. As assumed, the Company failed to pay GST and to file GST returns from November 1, 1992 until April 30, 1993 and August 1, 1993 to January 31, 1994. Judy testified that she only realized this when the audit occurred in 1994.
[8] Judy described these times in her letter of May 9, 1995 (Exhibit R-1) in the following words:
We were extremely busy during the summers of 1990/91/92/93 and we were offered help with bookkeeping from an individual whom had taken early retirement from Canfor Forest Products when they had cutbacks, this individual had worked there for many years doing accounting and bookkeeping. Subsequently this lady incurred some personal tragedies, her sister became ill with cancer her mother had a stroke, and both were diagnosed as terminally ill. As a result of these personal problems, our bookkeeper developed a problem with alcohol, this problem was not known to us, until the Spring of 1993 and the individual ceased to work with us.
As explained earlier, we are a small business and were extremely busy, I the writer was actively working in many areas of the operation in order to successfully perform the duties required to service the Train Contract we had at the time. I relied on the paperwork compiled in a file folder monthly, and presented to me for payment to be correct.
We tried to expand the business and moved the operation to larger premises in late 1993, to start additionally providing School Lunches.
The GST discrepancy were not known to us until the audit in spring 1994. The Audit is already high, due to the fact that it was taken from Deposit Books and in the deposit books once every month there is a cheque issued from the Bank of Montreal and then Deposited to the Royal Bank in order to cover a loan payment, and these deposits were also counted as revenue.
...
[9] Judy was ill and away from work in 1991 and, the Court believes, for early 1992. But the defalcations in question began in November, 1992. Judy's testimony in Court was to the effect that her balance problems continued long after 1991. However, the Court believes the statements quoted in Exhibit R-1; they were made at a time much closer to the events described and they correspond to much of Judy's testimony. Judy was the only shareholder and director and was the hands-on operator of this small business who was there on a day-to-day basis managing, operating and supervising the staff and the operation.
[11] Moreover, Judy was an inside director as that term is used by the Federal Court of Appeal in Soper v. The Queen, 97 DTC 5407. And she was the only director. Thus when she became ill, and later, when she discovered Miss Lock's problems and fired her, Judy had a duty to see that the Company was properly managed and that it reported and paid its GST.
[12] Since Judy signed the Company's GST returns, she had to know that reports weren't being filed. As this Company's only director, she had to know that it was not paying its GST. Not only did she have a duty respecting these matters as the Company's only director, the operation was sufficiently small in terms of staff and management that, as a matter of course, such knowledge was a part of her day-to-day duties as a chief operating officer.
[13] As a result, the Court finds that assumptions 13(l) and (m), as quoted herein, are correct.
[14] The appeal is dismissed.
Signed at Saskatoon, Canada this 27th day of December, 2001.
"D.W. Beaubier"
J.T.C.C.
COURT FILE NO.: 2000-927(GST)I
STYLE OF CAUSE: Judy Reid v. Her Majesty the Queen
PLACE OF HEARING: Vancouver, British Columbia
DATE OF HEARING: December 6, 2001
REASONS FOR JUDGMENT BY: The Honourable Judge D.W. Beaubier
DATE OF JUDGMENT: December 27, 2001
APPEARANCES:
Counsel for the Appellant: K. Paul Lail
Counsel for the Respondent: Victor Caux
COUNSEL OF RECORD:
For the Appellant:
Name: K. Paul Lail
Firm: Fritz, Lail, Sherriff & Vickers
Surrey, British Columbia
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2000-927(GST)I
BETWEEN:
JUDY REID,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on December 6, 2001 at Vancouver, British Columbia, by
the Honourable Judge D.W. Beaubier
Appearances
Counsel for the Appellant: K. Paul Lail
Counsel for the Respondent: Victor Caux
JUDGMENT
The appeal from the assessment made under the Excise Tax Act, notice of which is dated July 25, 1994 and bears number 11GU0309706, is dismissed in accordance with the attached Reasons for Judgment.
Signed at Saskatoon, Canada this 27th day of December, 2001.
|
"D.W. Beaubier" |
J.T.C.C.