Andrew v. The Queen

Andrew v. The Queen
Court (s) Database
Tax Court of Canada Judgments
Date
2015-01-02
Neutral citation
2015 TCC 1
File numbers
2010-2205(GST)G, 2010-2830(IT)G
Judges and Taxing Officers
Brent Paris
Subjects
Income Tax Act
Decision Content
Docket: 2010-2830(IT)G
BETWEEN:
DONALD ANDREW,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on January 21 and 22, 2014, at Toronto, Ontario.
Before: The Honourable Justice B. Paris
Appearances:
Counsel for the Appellant:
Leigh Somerville Taylor
Counsel for the Respondent:
Craig Maw
JUDGMENT
The appeal from the reassessment made under the Income Tax Act in respect of the 2005 and 2006 taxation years is allowed in part and the reassessment is referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment. The respondent is entitled to one set of party and party costs in this appeal and appeal # 2010-2205(GST)G.
Signed at Vancouver, Canada, this 2nd day of January 2015.
"B. Paris"
Paris J.
Docket: 2010-2205(GST)G
BETWEEN:
DONALD ANDREW,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on January 21 and 22, 2014, at Toronto, Ontario.
Before: The Honourable Justice B. Paris
Appearances:
Counsel for the Appellant:
Leigh Somerville Taylor
Counsel for the Respondent:
Craig Maw
JUDGMENT
The appeals from the reassessments made pursuant to section 323 of the Excise Tax Act, notices of which are dated April 23, 2008 and December 13, 2007 are allowed in part and the reassessments are referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment. Penalties and interest, if any, shall be adjusted accordingly. The respondent is entitled to one set of party and party costs in this appeal and appeal # 2010-2830(IT)G.
Signed at Vancouver, Canada, this 2nd day of January 2015.
"B. Paris"
Paris J.
Citation: 2015 TCC 1
Date: 20150102
Dockets: 2010-2830(IT)G,
2010-2205(GST)G
BETWEEN:
DONALD ANDREW,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Paris J.
[1] These are appeals from three assessments made against Donald Andrew as director of Andrew Paving and Engineering Ltd. (“Andrew Paving”) and 1555223 Ontario Inc. (“155”). Mr. Andrew was the president and CEO and the sole director of each corporation.
[2] By notice dated April 23, 2008, Mr. Andrew was assessed pursuant to section 323 of the Excise Tax Act (“ETA”) for Goods and Services Tax (“GST”) which Andrew Paving allegedly failed to remit for its reporting periods ending between September 30, 2000 and September 30, 2006. The amount of this assessment is $190,413.45, inclusive of interest and penalties.
[3] By notice dated December 13, 2007, Mr. Andrew was assessed pursuant to section 323 of the Excise tax Act (“ETA”) for GST which 155 allegedly failed to remit for its reporting periods ending June 30, 2003 September 30, 2003 and December 31, 2003. The amount of this assessment was $112,807.03 inclusive of interest and penalties.
[4] By notice dated April 23, 2008, Mr. Andrew was assessed pursuant to section 227.1 of the Income Tax Act (“ITA”) for source deductions which Andrew Paving allegedly failed to remit for the years 2005 and 2006. This assessment was for $166,591.81, inclusive of interest and penalties.
[5] The issues in this appeal are:
i) whether the amounts of the underlying liabilities of Andrew Paving and 155 for which the Minister seeks to hold Mr. Andrew liable are correct;
ii) whether the respondent has the onus to prove the amount of the underlying corporate liabilities; and
iii) whether Mr. Andrew exercised due diligence to prevent any failures by Andrew Paving and 155 to remit the amounts in issue.
Witnesses [6] The appellant testified on his own behalf and three collections officers from the Canada Revenue Agency (“CRA”), Jay Schafer, Ron Jarman and Rocco Locantore, gave evidence on behalf of the respondent.
Facts The corporations [7] Andrew Paving was incorporated in the early 1960’s and carried on the business of paving and road-building in the Toronto area. It operated in conjunction with a related company, Meld Development Inc. (“Meld”) which was set up around the same time as Andrew Paving.
[8] Mr. Andrew explained that Meld was set up to own the equipment that was used by Andrew Paving in the business, and that this arrangement was intended to protect the equipment from seizure by creditors in the event that Andrew Paving ran into financial difficulties.
[9] According to Mr. Andrew, prior to 2003, Andrew Paving and Meld split the revenue and expenses from the operation of the paving business and each reported a share of the GST and input tax credits (“ITCs”) from the business. Most, if not all of the billing was done by Andrew Paving, although Mr. Andrew said that Meld may have had a few paving contracts that it completed on its own.
[10] After August 2003, Andrew Paving began reporting all GST and ITCs in respect of the activities of both companies and Meld reported nothing. Mr. Andrew said that he was advised to proceed in this fashion by Jay Schafer, a CRA collections officer he dealt with in August 2003. Mr. Schafer, however, unequivocally denied having ever advised Mr. Andrew to consolidate the GST reporting under the name of Andrew Paving. According to Mr. Andrew, Andrew Paving and Meld still filed separate income tax returns after 2003.
[11] The third company in issue, 155, was set up in December 2002 when Mr. Andrew was planning to transfer the paving business to his son. It appears that the plan was to transfer the equipment and paving business of both Meld and Andrew Paving to 155 and to transfer the shares of 155 to Mr. Andrew’s son. The shares of 155 were never transferred, because Mr. Andrew said that at some point in 2003, he became aware that his son, who worked for Andrew Paving, had improperly appropriated hundreds of thousands of dollars of payments that were due to the company.
[12] Mr. Andrew said that another reason that the transfer did not take place was because his accountant advised that if the paving business was transferred to 155, Andrew Paving would lose its ability to use the tax losses it was carrying forward. Even though 155 was apparently already operating, he said that his accountant told him that those operations should be treated as the business of Andrew Paving rather than of 155. Mr. Andrew recalled that employee source deductions had already been remitted under the name of 155 and that this could not be reversed but that all other aspects of the transfer were cancelled and that Andrew Paving reported everything else for income tax purposes.
[13] The evidence shows, though, that 155 filed GST returns for the reporting periods ending June 30, 2003, September 30, 2003 and December 31, 2003 and it reported total net GST due of $78,250.82. No payments were remitted with those returns and no amounts have been paid on that account subsequently.
[14] In cross-examination, Mr. Andrew conceded that the GST returns had been filed by 155 and that it owed GST which was assessed pursuant to those returns and that the amount owing by 155 did not relate to employee source deductions.
Financial Difficulties [15] Mr. Andrew testified that the paving business was seasonal in nature. During the winter months, there would be little paving work but expenses would still be incurred due to the need to repair and maintain equipment and to purchase materials for next season. During the construction season, cash flow was also often an issue. Customers were slow to pay and this became worse as time went on.
[16] In 2003, the business took a downward turn. Andrew Paving encountered serious problems collecting for work it did on the Sheppard subway line. It took several years to collect about $800,000 that it had billed in 2003. The company also faced financial difficulties because of the improper diversion of funds by Mr. Andrew’s son.
[17] As a result, and because Mr. Andrew’s son, who was a key employee of Andrew Paving left the company, Mr. Andrew decided to get out of the business. He began to wind down the operations of Andrew Paving and Meld in 2005 but said that the companies worked through 2006 with reduced staff in order to collect amounts that were due. By the end of 2006, operations had virtually ceased. In 2007, 2008 and 2009, Mr. Andrew spent his time collecting payments from various clients and negotiating payments of his companies’ bills. He used the amounts he collected from clients as well as money he received from his mother’s estate and other personal funds to pay creditors other than the Minister of National Revenue.
Dealings with the CRA [18] Mr. Andrew testified that Andrew Paving and Meld ran into problems with their GST filings soon after the GST was introduced in 1991. He said that although the corporations filed GST returns showing they were entitled to a refund because their ITCs exceeded the GST collected, no refund was received and no credit to their accounts was posted by the CRA apparently because the CRA had no record of having received those returns. Mr. Andrew testified that the CRA kept asking for returns his companies had already submitted as CRA had no record of those returns having already been submitted.
[19] Later, when the corporations filed returns showing net tax payable, they did not submit any payment with those returns on the expectation that the previous credit returns would balance against the amounts due. Mr. Andrew said, though, that the previous credits were not applied and penalties and interest were charged on the net tax due because the CRA did not process the credit returns it had filed.
[20] Mr. Andrew said he became personally involved with the GST filings in about 1995 when he realized it became too complicated for the bookkeeper who had been responsible for the returns up to that point. He was certain that the corporations were being overcharged interest and penalties and said he spent a great deal of time trying to sort out the problems with the GST. He also felt that the problem was compounded by the application of payments made by the corporations to those penalty and interest amounts rather than to the net tax that the corporations were required to remit. This, in turn caused further penalties and interest to accrue.
[21] In the fall of 1996, the Minister issued arbitrary GST assessments against Meld totalling $144,861.82 because it had failed to file GST returns for nine reporting periods ending between June 30, 1994 and June 30, 1996.
[22] Mr. Andrew testified that in December 1996, he met with a collections officer named C. Addorisio from the CRA and that they arrived at an agreement concerning Meld’s outstanding GST liabilities at that time. He said that Mr. Addorisio agreed that Meld owed only $21,150 rather than $144,861.82. Mr. Andrew produced a copy of a letter dated December 11, 1996 addressed to Meld and signed by both him and Mr. Addorisio. I will refer to this as the “Meld letter.”
[23] The Meld letter refers to “section 323 liability of directors” and sets out that the Minister agrees to release a requirement to pay which was issued to Meld’s bank in respect of Meld’s GST liability and that, in return, Mr. Andrew undertakes not to use the fact of the release as a defence in any action arising out of the application of section 323 of the ETA. The first sentence of that letter originally read as follows:
Whereas, I am a Director of the above captioned corporation and which corporation is at this date indebted to Her Majesty on account of unremitted Goods and Services tax, in the amount of $144,861.82 as assessed under the Excise Tax Act.
[24] The last part of that sentence was amended by inserting in handwriting the following underlined words so that the sentence now reads:
Whereas, I am a Director of the above captioned corporation and which corporation is at this date indebted to Her Majesty on account of unremitted Goods and Services tax, in the amount of $144,861.82 as arbitrarily assessed under the Excise Tax Act and re-assessed at $21,150 plus penalty and interest up to period ending 96-06-30.
[25] Mr. Andrew stated that he and Mr. Addorisio had reviewed Meld’s account and the returns that Meld had filed shortly before the meeting for the periods covered by the arbitrary assessments and that Mr. Addorisio had agreed to reduce the assessed amount which was set out in the Meld letter. However, Mr. Andrew said that Meld’s liability has never been reduced despite his repeated requests to have it done. Mr. Andrew maintains that Meld was entitled to a credit of approximately $123,000 as a result of the agreement he made with Mr. Addorisio, and said that he has been attempting for many years to have the CRA honour that agreement.
[26] Mr. Andrew said that, after the agreement was made with Mr. Addorisio, whenever any CRA collections officers contacted him about amounts owing by either Meld or Andrew Paving, he would explain that the CRA owed the companies money because the $123,000 credit had not been processed.
[27] He referred to certain letters from different CRA collections officers to Andrew Paving between July 2000 and October 2002, and testified that he called the officers on the file and explained about the Meld credit and that the collections officers simply “went away” after the calls.
[28] Sometime in 2000, the CRA began a GST audit of both Meld and Andrew Paving for the period from April 1, 1996 to June 30, 1999. The audit resulted in reassessments in September 2002 for additional GST of $65,362, penalty of $23,530.64 and interest of $17,402.34 for Andrew Paving and additional GST of $48,005.00 for Meld (the amount of penalty and interest on the assessment issued to Meld is not in issue). Andrew Paving had also been reassessed separately in June 2002 to disallow ITCs of $41,246 for its reporting period ending September 30, 2001.
[29] In January 2003, Andrew Paving and Meld each filed a notice of objection to the reassessments. The grounds for Andrew Paving’s objection were that the assessment did not include credits to its account for payments made and for credits claimed on its GST returns, and did not take into account ITCs (presumably the disallowed amount of $41,246 for the period ending September 30, 2001.)
[30] In July 2003, Mr. Andrew met with Jay Schafer (the CRA collections officer) who had contacted Mr. Andrew about the outstanding GST debts of Andrew Paving and Meld. According to Mr. Andrew, he met with Mr. Schafer twice and reviewed the accounts of both Meld and Andrew Paving with him. They arrived at an agreement on how much GST both Meld and Andrew Paving owed and Mr. Andrew agreed to file all overdue GST returns for Andrew Paving and to provide post-dated cheques sufficient to pay the amounts owing for all reporting periods up to that point.
[31] Mr. Andrew also undertook to make a fairness application for a cancellation of penalties and interest, and agreed to write a letter to the Director of the Toronto North Tax Services Office regarding the agreement he said was set out in the Meld letter.
[32] Mr. Andrew wrote to the Director of the Toronto North Tax Services Office of the CRA on August 5, 2003 to request the credit for the $123,000 that he felt was due to Meld from 1996. A confirmation of receipt of the letter was sent to Mr. Andrew by the Assistant Director of that office on August 21, 2003.
[33] On August 18, 2003, Mr. Andrew provided Mr. Schafer with post-dated cheques totalling $342,000 for both companies, as well as GST returns and net tax due for Andrew Paving’s reporting periods ending between March 2002 to June 30, 2003. Mr. Andrew said that he expected to receive penalty and interest relief for both Meld and Andrew Paving and a credit for $123,000 respecting the Meld letter and that as a result, he thought that the CRA would not need to cash all of the post-dated cheques.
[34] On September 5, 2003, Mr. Andrew wrote to Lisa Kelly, the CRA appeals officer assigned to handle the objections previously filed by Andrew Paving and Meld, and advised her that, after reviewing Andrew Paving’s GST account with Mr. Schafer, he was satisfied that all credits for the reporting periods from April 1, 1996 to June 30, 1999 had been properly accounted for. The only item left outstanding at that point concerned the ITCs disallowed to Andrew Paving for the period ending September 30, 2001. (Those ITCs were ultimately allowed by Ms. Kelly.)
[35] On November 18, 2003, Mr. Andrew prepared the fairness application for each company and set them to the CRA.
[36] On April 30, 2004, both Meld’s and Andrew Paving’s fairness applications were granted in part. Penalties and interest were reduced by approximately $56,691 for Meld and by approximately $14,910 for Andrew Paving. The letter from CRA collections to Andrew Paving which granted the relief, provided the following details of interest and penalties that had been assessed to Andrew Paving for all of its reporting periods ending from March 31, 1991 on:
The accrued penalty and interest charges on your account total approximately $77,998.56. Of this amount, $14,910.19 has accrued on the audited periods, and $3,540.26 has accrued on periods in which notional assessments were raised and later replaced by you in November of 1996. The remaining $59,548.11 pertains to periods in which you filed or paid returns late.
. . .
Relief for the audited periods will be granted in full, resulting in the cancellation of approximately $14,910.19. Periods in which notional assessments were raised will not receive relief as the change in penalty and interest charges would be minimal. I should caution you that the cancelled amount is approximate, and total cancellation will not be available until the appropriate adjustments are completed.
[37] The penalties and interest which were cancelled related to the audited period of April 1, 1996 to June 30, 1999.
[38] Mr. Andrew testified that he continued to wait to hear from the Director of the Toronto North Tax Services Office regarding the Meld letter but that he never received a response.
[39] Mr. Andrew said that because he believed that there were credits owing by the CRA to Meld and Andrew Paving, including the $123,000 relating to the Meld letter, and because he could not get a response from anyone at the CRA about those credits, he decided not to pay any more tax amounts that were due by Andrew Paving or 155 until the matter was sorted out. In his view, if the amounts he believed to be owing to Meld and Andrew Paving were credited to them, there would have been sufficient funds available to offset any tax owing by Andrew paving and 155.
[40] Mr. Andrew said that the CRA collections section continued to pursue Andrew Paving and 155 for unpaid amounts, but that each time the companies were contacted by collections officers, he sent them a letter advising them that those companies did not owe anything. He said that he referred them to the Meld letter and to his request to the Director to acknowledge the credit owing to Meld and that each time he sent this information to the various collections officers, he said that he did not hear back from them. He also said that he dealt with between 15 and 20 collections officers during this period. The CRA collections diary, however, showed that far fewer collections officers handled the file after Mr. Schafer.
[41] The first of those CRA collections officers sent a demand for payment to Andrew Paving on June 9, 2005 for GST arrears of $167,957.90. Mr. Andrew replied by letter dated July 7, 2005, stating that the account had been paid in full up to June 2003 and that the amounts owing to Meld and Andrew Paving would eliminate the balance owing for subsequent reporting periods.
[42] In that letter and in a subsequent letter, he claimed that Andrew Paving and Meld had been granted additional relief from penalties and interest in the amount of $9,810 and $16,302.53, respectively, in June 2004 in respect of a second fairness review, but that neither company had received credit for those amounts.
[43] Mr. Andrew was not asked about this claim at the hearing and there was no reference to a second fairness review in any CRA letters or documents.
[44] The next contact with CRA collections occurred in March 2006 when collections officer Kevin Bailey called Mr. Andrew who followed up with a letter setting out his position that Andrew Paving, Meld and 155 did not owe any tax. Mr. Andrew said that Mr. Bailey suggested that he get a lawyer to assist him with the matter. Mr. Andrew testified that he then hired a lawyer to deal with the CRA.
[45] In June 2006, Andrew Paving was audited and assessed for unremitted employee source deductions and penalty and interest in the amount of $142,335.98 for 2005 and $1,365.05 for the months of January to May 2006. Mr. Andrew said that he was unaware of the audit and that the matter would have been handled by “the office.” He said that he thought that the company was up-to-date on its source deductions. However, a T-4 Summary report filed by Andrew Paving for 2005 that was included in the source deduction audit papers filed at the hearing showed that Andrew Paving had reported a balance owing for source deductions of $164,377.21 for that year. The amount of the unremitted source deductions for 2005 was reduced to $124,377.21 by the auditor, exclusive of penalties and interest. Mr. Andrew admitted that he instructed personnel in Andrew Paving’s office not to remit source deductions because he believed that Andrew and Meld had overpaid their taxes.
[46] In the spring of 2007, the CRA collections files for Andrew Paving, Meld and 155 were assigned to a collections officer named C. Andrews, and then, in the fall of 2007, to Ron Jarman.
[47] Mr. Andrew and his lawyer met on at least two occasions with Mr. Jarman. It was Mr. Jarman’s recollection that Mr. Andrew was only disputing the CRA’s accounting in Meld’s GST account, in particular with respect to the $123,000 Meld letter amount and with respect to three payments made to the Meld's account by cheque from Andrew Paving.
[48] Mr. Andrew testified that Mr. Jarman attempted to find where the three payments had been applied to but that he was unable to do so.
[49] Mr. Jarman, on the other hand, testified that he reconciled the three payments, one of which had taken some time to trace. Parts of one payment had been applied to three different reporting periods and therefore the statement of account did not show a credit in an amount that matched the payment. Mr. Jarman was therefore able to show that the entire amount of that payment as well as the two other contested payments had in fact been credited to Meld’s account.
[50] In cross-examination, Mr. Andrew acknowledged that Mr. Jarman had been able to reconcile the payments in question to Meld’s account, but was upset that without Mr. Jarman’s assistance, he would not have been able to tell how the one payment that was split up, had been applied.
[51] In a letter dated April 23, 2008 to Mr. Andrew’s lawyer, Mr. Jarman also explained the CRA’s position that there was no $123,000 credit owing to Meld. Mr. Jarman wrote that:
Secondly, there has been on-going confusion on Mr. Andrew’s part regarding the letter of December 11, 1996. This letter was issued as the result of a Requirement to Pay issued on Meld’s bank. As of that date, Meld was arbitrarily assessed in the amount $144,861.82. This amount was for the unfiled returns for periods ending 1994-06-30, 1994-09-30, 1994-12-31, 1995-03-31, 1995-06-30, 1995-09-30, 1995-12-31, 1996-03-31 and 1996-06-30. As standard Agency practice, Meld would have had to file these outstanding returns before release of the Requirement to Pay would be entertained. I am attaching a schedule of Meld’s returns for these periods:
Period End Date
GST Collected
Input Tax Credit
Period Total
30-Jun-94
13,180.00
7,623.00
5,557.00
30-Sep-94
15,481.00
8,201.00
7,280.00
31-Dec-94
17,822.00
8,607.00
9,215.00
31-Mar-95
650.00
5,157.00
-4,507.00
30-Jun-95
11,857.00
7,789.00
4,068.00
30-Sep-95
19,602.00
12,080.00
7,522.00
31-Dec-95
24,075.00
14,690.00
9,385.00
31-Mar-96
0.00
5,100.00
-5,100.00
30-Jun-96
12,600.00
6,100.00
6,500.00
Totals
115,267.00
75,347.00
39,920.00
The figures set out in Mr. Jarman’s letter were taken from a complete statement of Meld’s GST account which Mr. Jarman subsequently sent to Mr. Andrew’s lawyer on May 6, 2008. That statement confirmed that the GST collectable and ITCs available to Meld for the periods covered by the returns referred to above, were assessed in the amounts reported by Meld in the returns the company filed with the CRA.
[52] Mr. Jarman also wrote in the April 23, 2008 letter that:
During our meeting on March 6, 2008, Mr. Andrew agreed to the balances owing on Andrew and 1555223. As such I am unable to grant your request to release the Requirements to Pay issued.”
[53] The GST director’s liability assessments against Mr. Andrew were issued on April 23, 2008. The source deduction director’s liability assessment had been issued previously on December 13, 2007.
The Appellant’s Position [54] The appellant submits that as a director of these corporations, he exercised the degree of care, diligence and skill required to prevent the failure of these remittances that a reasonably prudent person would have exercised in comparable circumstances. He maintains that he had a reasonable belief that the CRA owed Meld more money than what Andrew Paving and 155 owed the CRA and that his attempts to have this debt recognized was all a reasonably prudent director could have done in the circumstances to prevent Andrew Paving’s and 155’s failure to remit.
[55] The appellant also disputes the correctness of the underlying corporate assessments and submits that given the circumstances of the case, the Minister bears the burden of establishing the correctness of the assessments. He argues that the Minister failed to do so.
The Respondent’s Position [56] The respondent submits that the appellant did not exercise due diligence. Instead, he intentionally caused the corporations’ failure to remit. He used these remittances to operate the business and then to pay creditors. The appellant’s belief that Meld was owed a refund and that the Minister had misapplied or improperly calculated credits did not relieve him of his duty to prevent failures to remit source deductions and GST.
[57] The respondent also submits that while the postings to the GST account for Andrew Paving may be confusing, the underlying corporate assessments are correct and easily understood. The assessments are based on returns filed by the corporations. The appellant chose to deal with the account issues himself, despite having no accounting training and despite having an accountant and a bookkeeper. As well, the CRA met and spoke with the appellant on many occasions and provided account information when requested. The CRA officers called to testify provided cogent explanations of the statements of account, and the appellant did not show any errors with respect to the underlying assessments.
Statutory Provisions Income Tax Act [58] Subsections 227.1(1) and (3) provide:
227.1(1) Where a corporation has failed to deduct or withhold an amount as required by subsection 135(3) or 135.1(7) or section 153 or 215, has failed to remit such an amount or has failed to pay an amount of tax for a taxation year as required under Part VII or VIII, the directors of the corporation at the time the corporation was required to deduct, withhold, remit or pay the amount are jointly and severally, or solidarily, liable, together with the corporation, to pay that amount and any interest or penalties relating to it.
. . .
(3) A director is not liable for a failure under subsection 227.1(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.
Excise Tax Act [59] Subsections 323(1) and (3) provide:
323.(1) If a corporation fails to remit an amount of net tax as required under subsection 228(2) or (2.3) or to pay an amount as required under section 230.1 that was paid to, or was applied to the liability of, the corporation as a net tax refund, the directors of the corporation at the time the corporation was required to remit or pay, as the case may be, the amount are jointly and severally, or solidarily, liable, together with the corporation, to pay the amount and any interest on, or penalties relating to, the amount.
. . .
(3) 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.
Analysis Onus [60] The appellant’s counsel argued that, on the particular facts of this case, the onus of establishing the correctness of the underlying tax assessments against Andrew Paving and 155 should be shifted to the respondent. The circumstances that in the appellant’s view result in reversing the normal onus in this case are that the GST statement of account for Andrew Paving do not reflect adjustments agreed to by the CRA, that amounts assessed include interest and penalties in respect of periods for which credit balances ought to have existed based on the net tax assessed, that the collections officers did not verify the correctness of the underlying corporate assessments and that the account statements were not comprehensible on their face.
[61] The appellant argues that Simon v. Her Majesty the Queen, [2001] T.C.J. No. 526 stands for the proposition that the Minister bears the onus of establishing the correctness of the underlying assessments in a director’s liability case. In Simon, Archambault J. stated at paragraph 74:
We are dealing here with a "derivative" assessment, as Rothstein J.A. put it in Gaucher, supra, and the approach adopted by the courts must take into account the fact that at issue are two separate assessments made by the Minister against two different taxpayers. Accordingly, where the SD amount in an assessment against a director is challenged, it is necessary to call as a witness the auditor who made the assessment against the corporation that failed to remit the SDs pursuant to section 153 of the Act, which assessment served as the basis for the assessment made against the director. It is not enough for a collection officer who assessed the director to state that he relied on the assessment made against the corporation by the SD auditor, just as it would not be enough merely to file that corporation's assessment. The Court cannot act on blind faith by assuming that all the audit work concerning the corporation was done in accordance with good practice and that the relevant documents were reviewed in making the assessment against the corporation.
[62] This statement, however, must be read alongside Archambault J.’s earlier comment at paragraph 68 of his decision that when a derivative assessment is based on the taxpayer’s own filings, the Minister would not bear the onus of proving the correctness of the assessments.
I added that it was not enough to produce the primary tax debtor’s notice of assessment unless the amount established by the Minister in that assessment corresponded to that indicated by the tax debtor in his or her tax return.
[63] Also, at paragraph 41 of my decision in Mignardi v Her Majesty the Queen, 2013 TCC 67, [2013] T.C.J. No. 66, I held that the onus to prove an underlying tax liability did not shift to the Minister in every appeal from a derivative assessment:
I return now to the proposition that appears to flow from the Gestion Yvan Drouin Inc. case that the Minister bears the onus to prove the underlying tax liability in every appeal from a derivative liability assessment under subsection 160(1) or section 227.1 of the ITA or sections 323 or 325 of the ETA. I agree with respondent's counsel that such a conclusion is inconsistent with the decisions of the Supreme Court and Federal Court of Appeal to which I have referred. It is only where the facts concerning the underlying tax debt are exclusively or peculiarly within the knowledge of the Minister that the burden will be shifted. Each case will turn on its own facts. Although there may be situations where the tax liability of the original tax debtor is something that is solely within the knowledge of the Crown, more often a taxpayer will have access to that information from the original tax debtor. It should be recalled that one of the bases on which a person is assessed under those provisions is his or her relationship with the tax debtor, either as in this case as a director of the debtor corporation or as a party not dealing at arm's length with the tax debtor. As a result of this relationship, a taxpayer may very well already have or be able to obtain the information required to verify the existence or amount of the underlying liability.
[64] In Mignardi, I recognized that in exceptional circumstances, the burden of proof may be shifted from the taxpayer to the Minister. However, this will occur only where the facts concerning the underlying tax debt are “exclusively or peculiarly within the knowledge of the Minister.” In the context of a director’s liability assessment, this might occur when a taxpayer does not have and cannot obtain the information required to verify the existence or amount of the underlying tax liability.
[65] I disagree with the appellant that the onus of proof of the underlying corporate assessments should be shifted to the respondent in this case because I am not satisfied that the appellant has demonstrated, as the appellant in Mignardi did, that the underlying assessments of Andrew Paving and 155 are exclusively or peculiarly within the knowledge of the Minister.
[66] First, both Mr. Jarman and Mr. Locantore testified that the amounts of net tax assessed to Andrew Paving and 155 under the ETA for the periods relevant to the director’s liability assessments were the amounts of net tax reported on the returns filed by those companies. Mr. Andrew confirmed this as well. Since Mr. Andrew, according to his own testimony, was personally involved in the filing of all of the GST returns, it would follow, in my view, that Mr. Andrew would be in the best position to what errors, if any, the underlying assessments contained. It is also clear that, while employees in the office of Andrew Paving handled source deductions, this was done under Mr. Andrew’s authority and that all information concerning source deductions by that company was available to him. As well, there is evidence that Andrew Paving itself reported that it owed source deductions for the 2005 year in excess of the amount assessed to the appellant.
[67] Therefore, I find that there are no circumstances like those in Mignardi, whereby Mr. Andrew has been denied access to the records of either Andrew Paving or 155. In fact, the evidence suggests that Mr. Andrew would have been in a position to retain possession of all of the files and records of both companies after they ceased operations, and that this would include all files and records pertaining to GST and source deductions.
[68] The fact that the underlying assessments were based on the corporations’ own filings would also mean that verification of those assessments by the collections officer who raised the director’s liability assessments would not be necessary.
[69] Next, contrary to the appellant’s submission, it also appears that the CRA was responsive to Mr. Andrew’s requests for an explanation or reconciliation of the GST liabilities of Andrew Paving and Meld. He admitted that on at least two occasions, in 2003 and 2008, CRA collections officers provided reconciliations of those accounts. The evidence shows that Mr. Andrew appeared satisfied with the 2003 reconciliation, telling the appeals officer handling notices of objection filed by Andrew Paving and Meld that Mr. Schafer had demonstrated that all credits for the period under objection had been applied. He also said that after meeting with Mr. Schafer, they had come to an agreement on what is owed by Meld and Andrew Paving up to that point, except with respect to Mr. Andrew’s claim regarding the Meld letter. In 2008, Mr. Jarman dealt with each of the specific cheques that the appellant felt had not been credited to the companies’ accounts and demonstrated where the credits had been applied. There is no evidence to show that Mr. Schafer and Mr. Jarman were unable to account for any payments made by the companies or unable to answer any of the appellant’s questions relating to those accounts.
[70] While it is true that the Director of the Toronto North Tax Services Office and some of the collections officers that Mr. Andrew dealt with did not respond to his request to look into the Meld letter situation, the CRA’s position on the issue was ultimately communicated to him by Mr. Jarman in his letter of April 23, 2008. By the time Mr. Andrew was assessed as Director of Andrew Paving and 155, he had been provided with the details of the assessments made against Meld for the reporting periods for which Mr. Andrew believed Meld was entitled to the $123,000 credit. No evidence was led to show that the explanation provided by Mr. Jarman was incorrect.
[71] For these reasons, I am unable to conclude that Mr. Andrew lacked the information necessary for him to determine the correctness of the assessments against Andrew Paving, 155 and Meld, or that the CRA failed to provide information to Mr. Andrew concerning the GST accounts of those companies.
[72] The appellant also submitted that in this case, the CRA documents that set out the calculation and application of various credits and the interest and penalties were “not comprehensible on their face or without the explanation of a collections officer.” The testimony from the CRA collections officers confirmed that it would take an auditor’s report to gain a complete understanding of what had happened at various times.
[73] However, the appellant brought no evidence that suggested he did not have access to the corporations’ books and records and no evidence that he would not have had access to the audit reports or any of the other information required to verify the existence or amount of the underlying tax liability. He also appears to have received assistance from the CRA in reconciling various payments and credits made to corporations’ accounts.
Alleged errors in underlying GST assessments of Andrew Paving [74] As I noted above, a taxpayer who has been assessed under section 227.1 of the ITA or section 323 of the ETA is entitled to challenge an underlying assessment or assessments made against the corporation of which he was a director on any basis that the corporation could have challenged that assessment.
[75] The appellant alleges that the Minister’s calculation of the total net tax, interest and penalty owing was too high. I assume that the appellant is referring to the amounts the Minister says are owing by Andrew Paving under the ETA, since none of the alleged errors, to which I will refer below, relate to the GST account of 155 or to the source deductions account of Andrew Paving. Furthermore, Mr. Andrew agreed with the amounts that were assessed against Andrew Paving for unremitted source deductions and against 155 for unremitted GST.
[76] Prior to dealing with the particular errors that the appellant alleges were made on Andrew Paving’s GST account, I note that most of them relate to reporting periods not included in the director’s liability assessment against the appellant. For example, the appellant submits that certain credits arising from net credit returns (i.e. ones where the IT