Tax Court of Canada


Income tax

Administration and enforcement

Director liable for corporation’s unpaid balance of source deductions following bankruptcy

G was majority shareholder and director of corporation. Corporation experienced severe financial difficulties and G retained services of trustee in bankruptcy. G was unable to fulfill proposals and corporation made assignment into bankruptcy on August 1, 2006. On August 26, 2006, new trustee in bankruptcy was appointed and CRA collections issued proof of claim on August 28, 2006 addressed to first trustee in bankruptcy. Revised or amended proof of claim was filed with second trustee in bankruptcy on July 24, 2007. Documentation corroborated G’s version of facts as to change of trustee in bankruptcy on August 26, 2006, filing of proposal on June 29, 2006, and that all real property was transferred to mortgagee pursuant to final order of foreclosure and that court appointed receiver-manager took possession and control of cash in bank, accounts receivable, and machinery and equipment such that there was no equity available to bankrupt estate. G was assessed under s. 227.1 of Income Tax Act (ITA) from liability of corporation for unpaid balance of source deductions together with penalties and interest in amount of $66,865.44. G appealed from notice of assessment. Appeal dismissed. Words “with all due dispatch” set out in s. 152(1) of Act had no bearing on analysis. G did not sign or deliver letter of resignation and merely assumed that he was no longer director of corporation as of bankruptcy date. On basis of evidence, G was still director of corporation when notice of assessment was issued in May 2012. There was insufficient evidence to show that G discharged his statutory duty of care for due diligence defence to apply. Signed proof of claim was admissible as evidence. There was nothing in statutory language contained in s. 227.1(2)(c) of Act requiring delivery of signed proof of claim to G as director and nothing prevented G from following up with CRA representative or her successor to verify that there would be sufficient assets to meet outstanding CRA claim, and nothing preventing G from following up or concluding arrangement with CRA in months after bankruptcy. Sending proof of claim to first trustee was error, however, on basis of wording of s. 166 of Act, assessment could not be vacated. Nothing turned on fact that amounts owing changed between date of initial proof of claim and second proof of claim.

Grant v. The Queen (2017), 2017 CarswellNat 3033, 2017 TCC 121, Guy R. Smith J. (T.C.C. [General Procedure]).

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