Short v. Canada
T-291-91
Evans J.
19/5/99
17 pp.
Appeal from Tax Court's dismissal of appeal against notice of assessment plaintiff owing $52,589.49 in respect of non-remitted deductions-At end of 1986 construction company, of which plaintiff president, co-director, going out of business owing $40,000 for source deductions from employees' wages for federal, provincial income tax, unemployment insurance premiums, Canada Pension Plan contributions-Income Tax Act, s. 227.1(1) imposing liability on directors of company for amounts company deducted from employees' wages, but failed to remit to Revenue Canada-S. 227.1(3) providing due diligence defence-Tax Court holding plaintiff not satisfying due diligence standard when continued to operate company throughout 1986 when company's financial position deteriorating, took no effective measures to prevent company from incurring liability to Revenue Canada which unlikely to be able to discharge-Company sub-contracting to supply labour for larger construction jobs-Relying on progress payments on contracts to enable it to make remittances to Revenue Canada on 15th of month for payroll deductions for previous month-In latter part of 1985 general contractor missing progress payments causing plaintiff to be late in making several remittance payments in 1985-Plaintiff's company made no remittance to Revenue Canada for deductions from May payroll-By mid-June 1986 company owed $34,000 on overdraft incurred to complete contract, $6,000 to suppliers-Although likelihood of recovering from general contractor fading, plaintiff "pushing ahead"-Making remittance to Revenue Canada to cover August deductions, but despite plaintiff's undertaking to repay company's remittance arrears, company not making remittances on amounts due for deductions made in September, October-When general contractor going into receivership, thus extinguishing any hope of payment, Bank "closed down" plaintiff's company-Appeal dismissed-Soper v. Canada, [1998] 1 F.C. 125 (C.A.) describing standard established by s. 227.1(3) as "subjective-objective", meaning whether director exercised care, standard, skill of reasonably prudent person to be determined by taking into account at least some of personal characteristics of individual in question-Statutory comparator reasonably prudent person in "comparable circumstances" to director in question-Requiring Court to consider knowledge, experience, general business sophistication of director, business circumstances under which director operating-Thus flexibility in application of standard, without degeneration into defence of "I did my best"-Applying statutory standard elaborated in Soper, Court considering plaintiff not finishing high school, acquired merely elementary knowledge of bookkeeping through attending night classes-On other hand, had considerable knowledge of construction industry in Newfoundland and intimately familiar with situation of own company which had been running for several years-Plaintiff apparently intelligent person with good knowledge of his business-Plaintiff submitting not responsible for company's failure to remit source deductions from June 1986 when Bank took over receivables to reduce overdraft, and permitted plaintiff to write cheques only to cover payroll, make payments to suppliers necessary to enable company to continue to work-Conceding liability for unremitted deductions for May, June because failures occurred when free to decide whether to continue operating company, which debts company would pay-Plaintiff not showing degree of care, diligence, skill required by s. 227.1(3)-Not specifically raising with bank manager question of whether Bank would honour cheques drawn in favour of Revenue Canada to meet source deductions-Not making appropriate efforts to discuss situation with Revenue Canada in timely fashion-Undercapitalization of company, absence of sufficiently reliable method for ensuring source deductions remitted, despite difficulties in construction industry in Newfoundland, suggesting plaintiff failed to take positive steps required of director to prevent failure to remit-Plaintiff should have learned from difficulties in 1985 in making remittances on time, and put company's financial position on more stable basis for 1986 construction season-On other hand, plaintiff, wife foregoing salary payments and collapse of company causing them personal hardship-Not case where director looking after own interest at expense of Revenue Canada's-Responsibilities of corporate director requiring more than honest effort to do one's best, willingness to comply with company's most immediately demanding creditors, and ignoring obligations owed to public represented by Revenue Canada-Income Tax Act, S.C. 1970-7172, c. 63, s. 227.1 (as enacted by S.C. 1980-81-82-83, c. 140, s. 124; 1984, c. 1, s. 100).