Tax Court of Canada Judgments

Docket: 2004-683(IT)I

BETWEEN:

BERNARD TANNER,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent, AND COLIN LESSER, Intervenor.

____________________________________________________________________

Appeal heard on common evidence with the appeal of Bernard Tanner (2004-684(GST)I) on November 23, 2004 at Calgary, Alberta

Before: The Honourable D.W. Rowe, Deputy Judge
Appearances:
For the Appellant:	The Appellant himself
Counsel for the Respondent:	Galina Bining
Counsel for the Intervenor:	Jeffrey E. Sharpe

________________________________________________________________

JUDGMENT

          The appeal from the assessment made under the Income Tax Act for the 1998 taxation year is dismissed in accordance with the attached Reasons for Judgment.

Signed at Sidney, British Columbia, this 11th day of February 2005.

"D.W. Rowe"

Rowe, D.J.

Citation: 2005TCC119

Date: 20050211

Dockets: 2004-683(IT)I 2004-684(GST)I

BETWEEN:

BERNARD TANNER,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent, AND COLIN LESSER, Intervenor.

REASONS FOR JUDGMENT

Rowe, D.J.

[1]      The appellant - Tanner - appealed from an assessment of income tax issued pursuant to section 227.1 of the Income Tax Act (the "Act") in respect of the failure of the corporation Specter Services Ltd. (Specter) to remit a certain amount of payroll source deductions for the 1998 taxation year together with interest and penalty thereon.

[2]      Tanner was also assessed pursuant to subsection 323(1) of the Excise Tax Act (the "ETA") for the failure of Specter to remit an amount of net Goods and Services Tax (GST) in accordance with subsection 228(2) of the ETA. Interest and penalties were also added to the principal amount.

[3]      Jefffrey E. Sharpe appeared on behalf of Colin Lesser (Lesser), an individual who had been mentioned several times in the Notices of Appeal filed by Tanner with respect to both the income tax (IT) appeal and the GST appeal. Tanner had served Lesser with a subpoena to attend at the hearing of these appeals.

[4]      Sharpe applied for an Order pursuant to Rule 28 of the Tax Court of Canada Rules (General Procedure) which reads as follows:

Leave to Intervene

(1)                Where it is claimed by a person who is not a party to a proceeding

(a)    that such person has an interest in the subject matter of the proceeding,

(b)    that such person may be adversely affected by a judgment in the proceeding, or

(c)     that there exists between such person and any one or more parties to the proceeding a question of law or fact or mixed law and fact in common with one or more of the questions in issue in the proceeding,

such person may move for leave to intervene.

(2)                On the motion, the Court shall consider whether the intervention will unduly delay or prejudice the determination of the rights of the parties to the proceeding, and the Court may,

(a)    allow the person to intervene as a friend of the Court and without being a party to the proceeding, for the purpose of rendering assistance to the Court by way of evidence or argument, and

(b) give such direction for pleadings, discovery or costs as is just.

[5]      The appellant took no position with respect to the application nor did the appellant who appeared on his own behalf.

[6]      Upon hearing from Sharpe and reviewing certain allegations set forth in the respective Notices of Appeal, I granted leave to Colin Lesser to intervene in the proceedings for the purposes set forth in Rule 28(2)(a). I refrain from providing additional reasons for granting leave since they are not relevant to the determination of any of the issues in the within appeals. Further, it would undermine the purpose of granting said leave if those unproven allegations were recited in the course of giving reasons.

[7]      Counsel for the respondent and the appellant agreed the IT appeal and the GST appeal could be heard together.

[8]      Bernard Tanner testified he is a Professional Engineer and that the following assumptions of fact set forth in paragraph 8 of the Reply to the Notice of Appeal (Reply) filed in respect of appeal 2004-683(IT)I are correct:

(a)         the Corporation was incorporated on March 28, 1995, under the Business Corporations Act of Alberta;

(b)         the Appellant became a director of the Corporation on March 28, 1995;

(c)         the Appellant was the sole director of the Corporation;

(d)                at all material times the Corporation was a valid and subsisting corporation;

(e)                 at all material times the Corporation's business involved supplying and selling a dry paint application;

(f)                  the Corporation ceased carrying on its business on or about August 31, 1998;

(g)                 the Corporation operated its business for approximately 3 ½ years;

[9]      Tanner stated he intended to put Specter into bankruptcy but had been unable to raise the $7,000 fee. The appellant stated Lesser had incorporated Spectrum Process Industries Inc. (SPI) on November 21, 1997, as indicated on the Alberta Corporate Registration System Search, filed as Exhibit A-1. Tanner stated that all revenue - including applicable GST - generated by the Specter/SPI business arrangement was deposited into an account bearing the name of SPI and that prior to the incorporation of SPI, the required GST remittances had been made by Specter. By way of example, Tanner filed - as Exhibit A-2 - a photocopy of a cheque dated 6-30-98, payable to Receiver General - in the sum of $3,258.32 - that had been drawn on an account at the Fifth Avenue, Calgary, Alberta branch of the Alberta Treasury Branches (ATB) financial institution. The cheque was drawn on an account - designated by the prefix 127 and hereinafter referred to as #127 account - and was printed in the name of Specter Services Ltd. with the name Spectrum Process Industries in brackets underneath. That cheque was signed by both Lesser and Renee Tanner - the appellant's daughter - who was president of Specter. Tanner stated the ATB branch had insisted that Renee Tanner co-sign any cheque issued by Lesser on the #127 account so two signatures were required to issue any cheque. The appellant was not a signatory to that account and Renee Tanner remained as the sole signing authority on the Specter ATB account. Tanner stated his understanding of the June 30, 1998 cheque sent to the Receiver General was that it was either to pay - in full - a current amount owing and/or had been issued to catch up some arrears in respect of certain remittances. Specter had employees at that time and Tanner stated that even if his daughter - as President - was an employee of the corporation, she was not receiving any salary for her services and had been required to pledge her own credit to finance certain business operations carried on by Specter. The appellant stated Specter hired consultants such as mechanical engineers and other specialists and remunerated them on a fee for services basis. Other persons provided casual labour, as required from time to time, in the course of selling and supplying the special dry paint application process to various customers. Tanner stated Lesser was knowledgeable in the field of that special paint application and obtained contracts on behalf of Specter including a substantial one entered into with Wheatland Bins Ltd. (Wheatland) involving large grain storage units. Tanner stated there had been a design change by Wheatland and a dispute subsequently arose which resulted in that customer withholding a final payment in the approximate sum of $100,000. Although discussions were held with Wheatland, no payment was forthcoming and Specter did not pursue any legal action to collect the outstanding balance allegedly owing for services rendered pursuant to the contract. Specter had constructed large ovens into which grain bins were inserted and heated to a certain temperature for a specific period and the powdered paint was applied by an apparatus or "gun" via a hose directly to the object being painted. Turning again to the relationship between Specter and SPI, Tanner stated he and Lesser held discussions in December, 1997 and struck an agreement whereby SPI would pay all bills - including taxes - and with the view that - in the end - profits from the dry paint business would be shared equally between Specter and SPI. Tanner stated he understood - as a result of having received information from someone - that Lesser was an accountant and SPI spent $7,000 to purchase computers and software so that Lesser could carry out the necessary bookkeeping and accounting requirements of SPI and Specter in respect of the painting business. Tanner explained that SPI issued invoices to customers and when cheques were received in payment, they were deposited to the ATB #127 account which is the subject of the Statement of Account for the period ending July 31, 1998, filed as Exhibit A-3. On said statement, the identity of the account-holder is formatted with the name Specter Services Ltd. printed on top of the name Spectrum Process Industries and it states an address on Coventry Lane in Calgary. Specter operated an account at the same branch of ATB, as reflected in the Statement of Account for the period ending August 31, 1998, filed as Exhibit A-4. The Coventry Lane address - for Specter - printed on this statement is the same as the one used in Exhibit A-3. Tanner explained the business arrangement of Specter and SPI whereby SPI wrote cheques to Specter to cover field expenses such as disbursements to crew members to cover motel, food and travel costs. In the appellant's view, as at December 1, 1997, SPI was fixed with the responsibility to pay wages to workers and all associated costs because after that date SPI was the entity that invoiced customers for services rendered and all resulting payments to that corporation were deposited to the #127 account described in Exhibit A-3. Tanner estimated that approximately $350,000 in revenue had been deposited into the #127 account between December 1, 1997 and July 9, 1998. Prior to December 1, 1997 and beginning with the period commencing April, 1995, Tanner estimated Specter had gross revenue of about $100,000 per year, when based on a full year's operation - such as in 1996 - and continued thereafter at that equivalent rate until December 1, 1997 when SPI began billing clients. Prior to the dispute with Wheatland concerning the final payment, Tanner stated he estimated SPI's trade debts had been approximately $100,000 and understood that SPI had remitted all the GST collected from clients in accordance with the invoices issued to them. Tanner was the sole shareholder of Tanner Engineering Ltd. (Engineering), a Profession Corporation providing services to clients in the Alberta oil patch. He issued an Engineering cheque - in the sum of $2,000 - to Specter in order that it could pay the sum of $1,900.46 in GST. The relevant deposit slip was filed as Exhibit A-5 and the Specter cheque, signed by Renee Tanner - dated June 22, 1998 and payable to Revenue Canada - was filed as Exhibit A-6. The GST registration number of Specter was written on the memo line of said cheque. Tanner stated he began to experience health problems and underwent a triple bypass operation in April, 2000. Prior to that, he was aware that mail from Canada Revenue Agency (CRA) was being sent to Specter's address in relation to the failure of Specter to remit funds to the Receiver General but did not pay attention to the matter until it became apparent he was facing personal liability with respect to certain amounts of income tax and GST. Tanner stated he considered SPI was the proper entity responsible for remitting income tax and other source deductions as well as amounts due in respect of GST collected, since it had been responsible for paying wages and had issued all invoices - including GST amounts - to customers since December 1, 1997. Tanner stated that although he could not afford to retain the services of an accountant at that time, he hired a bookkeeping service to review the situation and was advised that certain remittances - required to have been made by Specter - were in arrears prior to November, 1997. Tanner stated that during this review process, he had been upset by discovering that cheques totalling approximately $40,000 had been issued to Lesser from the #127 account because he had been operating under the understanding that profit sharing between Specter, SPI and Brad Popowich - a Field Supervisor - would only be undertaken at the conclusion of the Wheatland project when payment had been received in full. Tanner stated he understood all interested parties had intended that Tanner would cease to participate in any aspect of the business, Specter would cease operations, SPI would carry on the paint business and Tanner's daughter - Renee - would assume an equity position in SPI in recognition of her efforts and personal investment of time and money to that point. Once the first job for Wheatland had been finished, there were another 3 major projects to be undertaken with the anticipation that SPI - operating alone - would have a profitable income stream in the foreseeable future because the experience gained during the first contract would prove to be invaluable when undertaking additional work of a similar nature. The appellant noted that - unfortunately - the rosy future did not pan out due to the dispute with Wheatland over the final payment on the initial project and the loss of opportunity to perform ongoing lucrative work for that large corporation. Tanner stated that at some point he obtained a legal opinion to the effect that a limitation period had expired and neither Specter nor SPI could issue a claim against Wheatland in respect of any sum alleged to have been payable in relation to services provided. The appellant stated he wished to make it clear that his daughter - Renee - had not benefited by drawing a salary from Specter - as alleged by the Minister - and had pledged her own credit in order to lease a vehicle for the use of Specter and/or SPI workers. The appellant - with Renee's permission (she was present in Court) filed a printout of her income tax return for the 1998 taxation year wherein net business income was stated as $9,675. In relation to Renee pledging personal credit and/or using private credit cards, the appellant filed an Equifax report - Exhibit A-8 - in which there was reference to Renee drawing on various lines of credit and using credit cards and/or charge cards for the benefit of Specter. The appellant stated Renee often used her own credit cards to cover Specter expenses and was required - by the lessor - to co-sign a lease on a truck and other equipment in order that Specter could obtain a vehicle for business use. Tanner referred to a bundle of deposit slips - Exhibit A-9 - pertaining to various deposits made to the ATB #127 account. The appellant stated these deposits represented payments by clients to SPI - the operating company - and were in response to invoices submitted by SPI. With respect to paying SPI accounts, Tanner stated he understood Lesser required Renee Tanner to sign blank cheques so he could add his signature later, as required by ATB. The appellant stated that by the end of August, 1998, when it had become apparent Wheatland was not going to pay any more money to SPI, both Specter and SPI were unable to meet their financial obligations. Until that point, SPI had issued cheques to Specter from time to time in order to reimburse Specter for expenses paid on behalf of SPI in the course of carrying out painting projects. A series of deposit slips in relation to the Specter ATB account was filed as Exhibit A-10. The amounts of the deposits ranged from $1,500 to $2,500 and the notation on the slips indicated the apparent purpose for which the various cheques were issued, including the one on June 22, 1998, where the memo indicated that the sum of $1,900.46 - deposited in the form of an Engineering cheque - was "a loan for GST".

[10]     The appellant - Bernard Tanner - was cross-examined by counsel for the respondent. Tanner was referred to a document headed Income Statement, Consolidated Statement, for the period ending April 30, 1998, filed as Exhibit R-1. He agreed the numbers therein pertained to both Specter and SPI even though he had not requested that sort of analysis from the bookkeeper because he wanted only to be provided with information that was relevant to Specter's participation in the business arrangement with SPI so he could have a better understanding of what had transpired during the period when Specter and SPI were operating what he considered to have been a joint venture. Tanner was referred to the fifth page of said Statement and to an entry that - as of April 30, 1998 - there was GST payable in the sum of $17,427.58. Tanner agreed the information was stated therein but pointed out that he had requested this Statement to be prepared years later and had not been aware of that particular GST liability as of April 30, 1998, nor until the bookkeeper had handed him that document. Tanner stated he had operated his own Professional Corporation - Engineering - for 30 years and even though his workers are independent contractors while carrying out tasks involving testing at oil and gas wells, he is well aware of the nature and effect of income tax and other source deductions and the GST requirements associated with his own business since GST is included in invoices sent by Engineering to its clients. Tanner stated he met Lesser through Brad Popowich who - at that time - was a close friend of Renee Tanner. Tanner was referred to a document - Exhibit R-2 - dated October 2, 1997, and acknowledged it was intended to be minutes of a meeting between himself, Renee and Popowich concerning the nature of an intended business arrangement between Specter, Lesser - and his future corporation - and Renee Tanner. The appellant stated it was decided that Renee should serve as President of Specter and that Popowich - for personal reasons arising out of a marital dispute - would remain a silent participant. During 1998, Renee was working as a realtor. The appellant agreed that in those minutes and throughout their relationship, Lesser had disclosed he was employed on a full-time basis by another company. He also conceded Lesser was not present at that meeting. Tanner stated he had been satisfied Lesser could carry on with his existing employment and also perform work for the benefit of Specter and SPI - even though it was within the same industry - because that job was limited to selling materials rather than undertaking any application of the product. With respect to referring to Lesser as capable of assuming the duties of accountant for the joint venture, Tanner stated he may have obtained that impression as a result of something told to him by Popowich. The appellant stated he appreciated that Lesser was entitled to receive cheques issued on the #127 account in order to reimburse him for expenses related to projects but still believed Lesser had been paid a form of salary by receiving cheques drawn on that account that were signed by both Lesser and Renee Tanner. The appellant conceded that the books and records of Specter had not been current at the end of August, 1998 due to the pressure of dealing with problems arising from the final aspect of the Wheatland contract.

[11]     The appellant - Bernard Tanner - was cross-examined by Jeffrey Sharpe, counsel for Lesser, in his capacity as intervenor. Tanner agreed that Lesser obtained business through SPI and that this company and Specter would have profited at the end of the initial Wheatland project by dividing net revenue on a 50-50 basis. Tanner agreed Lesser had no responsibility nor involvement with the management of Specter and that his role was as sole Director of SPI. Tanner also agreed that Lesser - in the course of their business relationship - had never represented that he was an accountant. Tanner agreed it was probable that the ATB #127 account had been opened prior to November 21, 1997, the date upon which SPI was incorporated. He also accepted the suggestion by Sharpe that it appeared as though the new ATB account - intended to be used as a separate operating account - was registered in the name of Specter with the addition of Spectrum Process Industries on a lower line of the account description. Tanner agreed Lesser had provided copies of all cheques written on that account so they could be reviewed by himself and Renee. Sharpe handed Tanner a series of handwritten sheets from a ledger purporting to include descriptions of all cheques written on the #127 account. After reviewing - briefly - the sheets, the appellant stated he had not seen them prior to Court. Sharpe pointed to a series of entries indicating that each time a cheque was written to Lesser on that account, another cheque - in an equal amount - had been issued to Specter. Sharpe referred Tanner to other entries in the sheets and Tanner agreed there were examples recorded therein where a cheque had been issued on that account to Specter - for $1,500 - and an equal amount had been paid - by cheque - to Lesser. The appellant acknowledged that on projects - other than the one involving Wheatland - Specter had received its share of revenue generated from the paint application business operated by SPI. Sharpe referred the appellant to other entries indicating those pertaining to cheques issued from that #127 account to pay for equipment and various other business expenses. Sharpe pointed out to the appellant that there were occasions upon which a cheque had been written to Specter but not to Lesser and that - overall - there seemed to be more cheques written to Specter on that account than to Lesser. Tanner stated he accepted this information as being correct and agreed that the cheques written on that account were to Lesser - personally - and not to SPI, his corporation.

[12]     The appellant stated he was not calling Renee Tanner to testify and did not want to call Lesser as a witness even though Lesser had attended in response to a subpoena that he had issued.

[13]     Counsel for the respondent did not call any witnesses nor did counsel for the intervenor.

[14]     In order that the appellant understand the nature of the jurisprudence relevant to the determination of his appeals, the appellant adopted my suggestion that he listen to the submissions of counsel for the respondent prior to making his own submissions.

[15]     Counsel for the respondent submitted the appellant was an experienced professional engineer who had operated his own business for 30 years and was well aware of the duties imposed upon a director of a corporation with respect to remittances for source deductions and/or GST. Counsel suggested the appellant attempted to defer responsibility to Lesser and/or Renee Tanner for important business matters and had failed to ensure proper accounting measures were in place in order to prevent a re-occurrence of past accumulations of arrears for source deductions and/or GST. With respect to the #127 account, counsel submitted it was - from the standpoint of the appellant - at best, a joint account with SPI but that the evidence supported the view it was always the account of Specter and the addition of the then-unincorporated entity - described as Spectrum Process Industries - was a mere accommodation by ATB to Specter, its customer. Counsel submitted there was no evidence to suggest that services were provided by workers to any corporation other than Specter. Invoices sent by SPI to clients included the GST registration number that had been issued to Specter and any payments of GST by clients were destined for that specific account. Counsel submitted the appellant in his capacity as sole director of Specter, could have provided ATB with a resolution to remove Lesser as a signing authority from the #127 account and substituted himself as either sole signatory or as a co-signatory thereon with Renee Tanner, if he decided she should remain on the account.

[16]     Counsel for the intervenor stated he was satisfied none of the allegations contained in the Notices of Appeal filed with respect to the IT appeal and/or the GST appeal had been proven and, as a consequence, had nothing further to add.

[17]     The appellant submitted he had undertaken reasonable steps to ensure the proper remittances were made. In his view, SPI was the operating arm of the joint venture involving Specter and had undertaken the billing to clients and - therefore - was in control of funds received as payments and subsequently deposited to the #127 account. He submitted he did not have any signing authority on the #127 account and could not have issued cheques in payment of any amount due to anyone. He added that it should have been the responsibility of Lesser to ensure that GST collected by SPI was remitted - when due - to the Receiver General. The appellant submitted that the drastic turn of events arising from the failure to receive the final, large payment from Wheatland had not been anticipated and that this default was the cause of the demise of both Specter and SPI in terms of carrying on the dry paint application business.

[18]     The relevant provisions of the ETA are as follows:

323(1) Liability of directors - 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.

323(3) Diligence - A director of a corporation is not liable for a failure under subsection (1) where the director exercised the degree of care, diligence and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances.

[19]     Pursuant to subsection 153(1) of the Act, there is a duty imposed on corporations to withhold taxes and other source deductions from the salary of an employee and to remit such amounts to the Receiver General. Subsection 227.1(1) of that Act makes a corporation liable for unremitted amounts and also imposes joint and several liability of its directors. However, directors may avoid personal liability if they can establish they acted in a manner so as to entitle them to the protection afforded by subsection 227.1(3) which is identical in wording to the saving provision above quoted from the ETA.

[20]     The IT appeal and the GST appeal were heard together. The relevant facts and jurisprudence discussed in these reasons are equally applicable in determining whether the appellant has established that his actions fell within the identically-worded saving provision in both the Act and the ETA.

[21]     The Federal Court of Appeal in Soper v. The Queen, 97 DTC 5407 dealt extensively with the matter of directors' personal liability for a corporation's unremitted source deductions for income tax. In the course of his judgment, Roberston J.A. reviewed the legislative history and framework of the provisions concerning personal liability of directors together with the standard of care as illustrated by the jurisprudence in this field. At page 5416 and following, Robertson J.A. stated:

This is a convenient place to summarize my findings in respect of subsection 227.1(3) of the Income Tax Act. The standard of care laid down in subsection 227.1(3) of the Act is inherently flexible. Rather than treating directors as a homogeneous group of professionals whose conduct is governed by a single, unchanging standard, that provision embraces a subjective element which takes into account the personal knowledge and background of the director, as well as his or her corporate circumstances in the form of, inter alia, the company's organization, resources, customs and conduct. Thus, for example, more is expected of individuals with superior qualifications (e.g. experienced business-persons).

The standard of care set out in subsection 227.1(3) of the Act is, therefore, not purely objective. Nor is it purely subjective. It is not enough for a director to say he or she did his or her best, for that is an invocation of the purely subjective standard. Equally clear is that honesty is not enough. However, the standard is not a professional one. Nor is it the negligence law standard that governs these cases. Rather, the Act contains both objective elements - embodied in the reasonable person language - and subjective elements - inherent in individual considerations like "skill" and the idea of "comparable circumstances". Accordingly, the standard can be properly described as "objective subjective".

V. ANALYSIS

There are far too many cases dealing with section 227.1 of the Act. One way to appreciate the breadth of the extant law is to categorize the relevant cases. That task has, in fact, already been accomplished in large part by some of the commentators: see e.g. Moskowitz ...; see also R.L. Campbell, "Directors' Liability for Unremitted Employee Deductions" (1933) 14 Advocates' Q. 453.

For example, in some instances the relevant issue will be whether an individual was in fact or in law a director at the relevant time for purposes of imposing personal liability or whether that individual ceased to hold office by operation of a valid resignation. In other cases, such as those involving bankruptcy and receivership, the central issue will be de jure control. Yet another cluster of cases, including situations in which a dominant director is able to limit others' influence over corporate affairs, will deal with de facto control. I intend to focus on the category of cases respecting the distinction between inside and outside directors since that line of authority is the most pertinent to this appeal.

At the outset, I wish to emphasize that in adopting this analytical approach I am not suggesting that liability is dependent simply upon whether a person is classified as an inside as opposed to an outside director. Rather, that characterization is simply the starting point of my analysis. At the same time, however, it is difficult to deny that inside directors, meaning those involved in the day-to-day management of the company and who influence the conduct of its business affairs, will have the most difficulty in establishing the due diligence defence. For such individuals, it will be a challenge to argue convincingly that, despite their daily role in corporate management, they lacked business acumen to the extent that that factor should overtake the assumption that they did know, or ought to have known, of both remittance requirements and any problem in this regard. In short, inside directors will face a significant hurdle when arguing that the subjective element of the standard of care should predominate over its objective aspect.

In some instances, it is easy to see why inside directors have been held liable. Such is true in respect of Barnett, ..., the first case which dealt with the due diligence defence. In that case the taxpayer, as director and sole shareholder of the company, hired a comptroller. When the latter informed the taxpayer that the company was short of cash, the taxpayer instructed that the business' key suppliers should be paid first. In these circumstances, the Tax Court dismissed the taxpayer's appeal from the Minister's assessment which held the taxpayer personally liable for the source deductions withheld but not remitted. Equally understandable is the imposition of liability in the following cases involving inside directors:Quantz v. M.N.R., 88 DTC 1201 (T.C.C.); and Beutler v. M.N.R., 88 DTC 1286 (T.C.C.).

[22]     In the within appeals, there is no question that Tanner, an experienced professional engineer who has operated his own corporation for 30 years, was well aware of the requirements of a corporation to withhold income tax and other source deductions and to remit GST as required. Tanner - at one point - advanced funds from his own corporation - Engineering - to Specter so it could pay an amount of GST arrears to the Receiver General. The position taken by the appellant during these appeals was that Lesser was responsible for remitting the GST and the source deductions because SPI was functioning as an " operating company" in terms of dealing directly with customers of the joint venture between Specter, SPI, and - at some level - Renee Tanner and Popowich, personally. There was very little evidence adduced in these appeals to establish that SPI ever operated as a corporation and other facts relevant to that issue point the other way. The ATB #127 account was opened in the name of Specter - Exhibit A-3 - with the name of the unincorporated entity - Spectrum Process Industries - added below. Although the appellant testified that to the best of his knowledge, all invoices were sent to customers on the letterhead of SPI - the corporation - and that the resultant payments were in the form of cheques payable to SPI, there is no other evidence to support that contention. We do know that the invoices issued to clients included GST billed under the GST registration number assigned to Specter. The payments by customers were deposited to the #127 ATB account - in the name of Specter/Spectrum Process Industries - and all cheques drawn on said account required the signatures of Lesser and the appellant's daughter, Renee Tanner. Renee was the President of Specter and the appellant was the sole shareholder and director. From time to time, cheques were issued from the #127 account to Lesser - personally, and not to SPI - as well as to Specter. The employees involved in the paint application business probably continued to be employees of Specter just as they had been prior to December 1, 1997, but the appellant's position was that Lesser should have ensured that the applicable source deductions were remitted to the Receiver General. However, it is clear that Lesser played no role in the management of Specter.

[23]     It is apparent the universe did not unfold as intended due to the inability of Specter and SPI - the corporation - or Specter and Spectrum Process Industries - the operating name of the unincorporated entity - to collect the final, substantial payment from Wheatland on the initial contract. To make matters worse, the appellant and his group had anticipated that Wheatland would offer their consortium several other contracts and that these would be profitable due to the experience gained from the first project. Tanner testified he was in poor health and did not pay attention to the matter of overdue remittances of income tax and other source deductions - and GST - to the Receiver General until it became apparent that he was facing personal liability flowing from his role as a director of Specter. It is not as though the accrual of arrears was a novel occurrence because Tanner had bailed out Specter once before with respect to outstanding GST and he should have been on top of situation thereafter to ensure the proper remittances were made in a timely fashion. As sole shareholder and director of Specter, he had the ability - at all material times - to take control of the ATB #127 account and thereby ensure that the GST being collected from customers - and deposited to that account - would be remitted to the Receiver General. The GST number on the invoices was the one issued to Specter and would have to be quoted by those clients in order for them to claim Input Tax Credits (ITCs) when filing their own GST returns.

[24]     Having regard to the evidence, I find the appellant did not discharge the duty required of him in his capacity as director as imposed by the relevant provisions of the Act and/or the ETA because he did nothing to prevent the failure of Specter to fall - again - into arrears with respect to withholding income tax and/or GST remittances. It was not sufficient merely to have his daughter act as President of Specter and to permit her to be on the #127 account as a mandatory co-signatory if he was not going to ensure that she and Lesser issued the appropriate cheques to the Receiver General when required. In the event they had failed to discharge that duty, then in his capacity as sole director of Specter, he could have removed them from the account and substituted himself as the sole signing authority. Money was being collected from customers and there was a duty to track the GST portion thereof and to pay the proper amount to the Receiver General when due. The haphazard approach to business such as having Renee Tanner use her personal credit for Specter's purposes and by failing to document properly the relationship between Specter and SPI - if SPI ever did function as a corporation during the relevant period - left the appellant in the position where he was forced to rely on his reconstruction of events and on his belated understanding of operating mechanisms that were employed by him, Specter - his corporation - and by Renee and Popowich and Lesser during the pursuit of their joint venture. The appellant hoped the problem of the unpaid remittances would go away. It did not.

[25]     The assessment issued by the Minister pursuant to provisions of the Act is confirmed and the IT appeal is dismissed.

[26]     The assessment issued by the Minister pursuant to provisions of the ETA is confirmed insofar as it pertains to federal income taxes, federal penalties and interest on those amounts. As a result, the GST appeal is also dismissed.

Signed at Sidney, British Columbia, this 11th day of February 2005.

"D.W. Rowe"

Rowe, D.J.

CITATION:

2005TCC119

COURT FILES NO.:

2004-683(IT)I and 2004-684(GST)I

STYLE OF CAUSE:

Bernard Tanner and H.M.Q. and Colin Lesser

PLACE OF HEARING:

Calgary, Alberta

DATE OF HEARING:

November 23, 2004

REASONS FOR JUDGMENT BY:

The Honourable D.W. Rowe, Deputy Judge

DATE OF JUDGMENT:

February 11, 2005

APPEARANCES:
	For the Appellant:	The Appellant himself

Counsel for the Respondent:

Galina Bining

Counsel for the Intervenor:

Jeffrey E. Sharpe

COUNSEL OF RECORD:

For the Appellant:
	Name:

Firm:

For the Respondent:

John H. Sims, Q.C. Deputy Attorney General of Canada Ottawa, Canada

For the Intervenor:
	Name:	Jeffrey E. Sharpe

Firm:

Burnet, Duckworth & Palmer LLP Calgary, Alberta