Taxpayer’s management took concrete steps to prevent default

Tax – Goods and Services Tax – Administration and enforcement

Director of taxpayer company, that developed prototype river turbines for power generation, was also its president and chief executive officer. When provincial election affected government support, taxpayer attempted to restructure before filing for bankruptcy when its proposal was rejected by creditors. Minister assessed company under Income Tax Act for unremitted employer contributions to Employment Insurance in months after government decision, plus penalties, and interest. After receiving received partial payment of its $74,000 claim in bankruptcy settlement, Minister assessed director for remaining debt of $15,242.85 under s. 227.1 of Act. Director appealed. Appeal allowed. Only question was whether director met appropriate standard of diligence to avoid liability as all other requirements of s. 227.1 of Act were met. Given context in which taxpayer’s management made its decision to continue its activities after government termination of support and in light of steps taken to try to find necessary funding, director discharged his duty of care, diligence and skill. Evidence clearly demonstrated that management was concerned about payment of source deductions and taxes, providing such information to shareholders while requesting additional contribution to cover employees’ pay, and only decided to lay off employees when shareholders refused. Taxpayer’s management took concrete steps to prevent default and to remedy default by making every effort to maximize sale price of asses. It was only because of bankruptcy technicality that part of tax debt was not paid as it was not considered claimed by Receiver General of Canada. Director took concrete steps to improve taxpayer’s financial position, investing more than $4 million of his family’s personal funds. Director acted with degree of care, diligence and skill that reasonably prudent person would have exercised in circumstances.

Hamad c. La Reine (2019), 2019 CarswellNat 3117, 2019 CarswellNat 3159, 2019 TCC 137, 2019 CCI 137, Réal Favreau J. (T.C.C. [Informal Procedure]).

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