Thistle v. The Queen

Thistle v. The Queen
Court (s) Database
Tax Court of Canada Judgments
Date
2015-06-16
Neutral citation
2015 TCC 149
File numbers
2013-2648(IT)G, 2013-2649(GST)G
Judges and Taxing Officers
John R. Owen
Subjects
Income Tax Act
Decision Content
Dockets: 2013-2648(IT)G
2013-2649(GST)G
BETWEEN:
WALTER LESLIE THISTLE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on February 19 and 20, 2015,
at St. John’s, Newfoundland and Labrador
Before: The Honourable Justice John R. Owen
Appearances:
Counsel for the Appellant:
Keith S. Morgan
Counsel for the Respondent:
Amy Kendell
JUDGMENT
In accordance with the attached Reasons for Judgment the appeal from the assessment made under section 227.1 of the Income Tax Act, section 83 of the Employment Insurance Act and section 21.1 of the Canada Pension Plan for the 2008, 2009, 2010 and 2011 taxation years, by notice number 1629837 dated January 11, 2012, is allowed, with costs to the Appellant, and the assessment is vacated.
In accordance with the attached Reasons for Judgment the appeal from the assessment made under section 323 of the Excise Tax Act for the reporting period from July 1, 2010 to September 30, 2010, by notice number 1632439 dated January 11, 2012, is allowed, with costs to the Appellant, and the assessment is vacated.
Signed at Ottawa, Canada, this 16th day of June 2015.
“J.R. Owen”
Owen J.
Citation: 2015 TCC 149
Date: 20150616
Dockets: 2013-2648(IT)G
2013-2649(GST)G
BETWEEN:
WALTER LESLIE THISTLE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Owen J.
I. Introduction [1] These reasons address the appeals by Mr. Walter Leslie Thistle from an assessment (by notice number 1629837 dated January 11, 2012) under section 227.1 of the Income Tax Act (the “ITA”) and other applicable Acts[1] for unremitted payroll deductions for the 2008, 2009, 2010 and 2011 taxation years (the “Payroll Assessment”) and from an assessment (by notice number 1632439 dated January 11, 2012) under section 323 of the Excise Tax Act (the “ETA”) for unremitted net tax for the reporting period from July 1, 2010 to September 30, 2010 (the “HST Assessment”). The court file numbers are 2013-2648(IT)G and 2013-2649(GST)G respectively.
II. The Facts [2] The total amount for which the Appellant was assessed under the Payroll Assessment is $664,301.94. The breakdown by year of the amounts for which the Appellant was assessed under the Payroll Assessment is as follows:
Taxation Year
Amount Assessed in Respect of the Year Including Penalties and Interest[2]
2008
$3,418.76[3]
2009
$1,095.64
2010
$510,675.45
2011
$121,916.83
[3] The total amount for which the Appellant was assessed under the HST Assessment is $108,377.91.
[4] The Appellant and Ms. Tina Singleton testified on behalf of the Appellant. Ms. Singleton was the bookkeeper of NL RV Enterprises Inc. (“Enterprises”) from April 2010 to March 2011. Enterprises is the corporation that failed to remit the amounts in issue in these appeals.
[5] Mr. Robert McGrath and Mr. Gregory Peddle testified on behalf of the Respondent. Mr. McGrath is a resource officer, complex case officer and collections officer with the Canada Revenue Agency (the “CRA”) who is currently an acting team leader with Taxpayer Services, Debt Management Branch. Mr. Peddle is a team leader at the Employer Compliance Section of the CRA.
[6] Ms. Singleton testified first. Ms. Singleton was hired by Enterprises as a bookkeeper at the end of April 2010, shortly after obtaining a Business Management Diploma from the College of the North Atlantic. Ms. Singleton was interviewed by Robert Aymont, whose title was General Manager and who offered her the job with Enterprises. The individuals employed in the office at the time were Ian Fitzgerald, Robert Aymont and Mitchell Kennedy. Enterprises hired one other employee (a service technician) in June 2010, for a total at that time of five employees.[4]
[7] Ms. Singleton’s duties involved “data entry, reconciliations, things like that”.[5] In cross-examination, she stated that she would print out, monthly, financial statements such as income statements, accounts payable, accounts receivable and balance sheets from Simply Accounting, a software program that Enterprises used to keep its financial records.[6] She would provide these printouts to Mr. Aymont, but nobody else would ask for them.[7]
[8] At the time she was hired, Ms. Singleton understood that her duties related to the activities of Enterprises, which activities involved the sale of recreational vehicles (RVs) and the construction of mobile homes.[8] She subsequently became aware of another corporation, NL RV Resorts Limited (“Resorts”), through casual conversation with others in the office. However, she had no involvement with that corporation. According to Ms. Singleton, all of the employees in the office worked for Enterprises.[9]
[9] Ms. Singleton testified that the Appellant had no involvement in her hiring and that she was not in fact aware of the Appellant in April of 2010. She also stated that the Appellant was not involved in the operation of the office when she was hired.[10] Until the Appellant was identified to her as an owner in August 2010, Ms. Singleton believed that Ian Fitzgerald was the sole owner of Enterprises.[11]
[10] Ms. Singleton testified that, when she started, the accounts of Enterprise were a mess. She clarified that she had difficulty reconciling the entries for January 2010 in Simply Accounting and expressed her concerns to Mr. Aymont. She was unable to do anything further until he corrected the entries. In cross-examination, Ms. Singleton stated that she believed that the issue with the accounts related to the transition from Resorts to Enterprises. The accounts had not been entered correctly, but that was rectified when a new entry system was implemented by Mr. Aymont that corrected the entries for the period commencing in either December 2009 or January 2010.[12]
[11] Ms. Singleton testified that Enterprises did not use accountants to prepare its books and that she believed that, prior to her being hired as the corporation’s bookkeeper the bookkeeping function may have been performed by Mr. Fitzgerald’s wife.[13]
[12] Ms. Singleton had access to the monthly bank statements for Enterprises for the purpose of reconciling the amounts in the company’s bank accounts, but she did not have day-to-day access to the bank balances and she did not have signing authority on Enterprises’ Bank accounts.[14] The process for paying the amounts owing by Enterprises involved her completing a form setting out the accounts payable using information drawn from Simply Accounting and presenting the form to Mr. Fitzgerald for approval.[15] Once an amount was approved for payment, she would print a company cheque and, after it was signed by Mr. Fitzgerald, she would send it to the payee.
[13] Only Ms. Singleton and Mr. Fitzgerald were involved in the cheque‑issuing process. As far as she knew, all of the cheques issued through this process were honoured.[16] If she had questions about how to enter something in Enterprises’ books relating to the banking of Enterprises she would consult with Mr. Aymont.[17]
[14] A copy of a remittance summary for the period from January 1, 2010 to December 31, 2010 prepared by Ms. Singleton was entered into evidence as Exhibit A-1.[18] In cross-examination, Ms. Singleton stated that she would prepare the remittance summaries but that Mr. Fitzgerald handled the actual remittance of amounts to the CRA through online banking.[19] She believed that she filed the remittance information with the CRA but she was not certain. She also suggested that Enterprises may have been behind on remittances in the summer of 2010, but when pressed for clarification, it became clear that she did not have any actual knowledge of what Mr. Fitzgerald was paying to the CRA on behalf of Enterprises at that time.[20]
[15] Ms. Singleton identified an e-mail from an employee of a contractor in Nunavut dated January 18, 2011, which was addressed to her and Mr. Fitzgerald (Exhibit A-2). The e-mail related to contracts entered into by Enterprises with a company called NCC Dowland (the “Contractor”) to provide labour to build modular homes in Nunavut. The e-mail included below it an e-mail from Mr. Fitzgerald dated January 17, 2011 in which he identified issues with the Contractor. In particular, the e-mail states that only 50% had been paid on invoices issued by Enterprises from November 25, 2010 and that payment had ceased altogether after December 9, 2010. It is clear from the evidence reviewed below that this statement was false.
[16] In June 2010, Enterprises had bid on contracts to provide labour to build modular homes in Nunavut. Ms. Singleton was not involved in submitting the bids for these contracts and she did not discuss that project with anyone until after the contracts were secured.[21] She did, however, prepare the cheques for the five percent deposits that had to be submitted with the bids made by Enterprises for the contracts.[22]
[17] Ms. Singleton testified that the bid process was run by Mr. Fitzgerald and Mr. Aymont.[23] After the contracts were secured, Mr. Fitzgerald and Mr. Aymont hired the employees needed by Enterprises to fulfill the contracts.[24] Ms. Singleton testified that the Appellant was not involved in the hiring process but said “I’m not sure if he was involved in the bids”.[25] She also stated that the Appellant had no involvement with the office during the fall of 2010.[26]
[18] Ms. Singleton believed the Nunavut business of Enterprises commenced around August 2010. Until that time, the payroll for Enterprises consisted of a total of five employees. As a result of the new contracts, she believed that the payroll increased from five employees to approximately 70. Exhibit A-1 indicates that the first significant increase in the payroll was in September 2010, when the total gross payroll of Enterprises increased to $77,373.60 from $20,848.60 in August 2010 and $20,219.10 in July 2010. The gross payroll jumped again in October 2010 to $363,620.48. The November and December 2010 gross payrolls are stated to be $341,898.34 and $439,661.14 respectively.
[19] Ms. Singleton was responsible for issuing Enterprises’ invoices to the Contractor. She would send invoices for payroll bi-weekly and invoices for other costs monthly.[27] She stated that at first things went well and the Contractor would provide a schedule showing when it would be making payments to Enterprises.[28] However, in December 2010, the Contractor started holding back on the payments such that the payments received covered only the net payroll and not the payroll remittances.[29] She confirmed that the January 18, 2011 e-mail (Exhibit A-2) related to the Contractor’s purported failure to make payments. In cross-examination, Ms. Singleton said that she was not aware of material financial problems until November or December of 2010 and that to her recollection there were no indications of financial difficulties prior to that time.[30]
[20] Ms. Singleton testified that prior to the receipt of the January 18, 2011 e‑mail (Exhibit A-2) she had become aware of the Contractor payment issue because it showed up on her payroll reconciliation, which compared the payroll and remittances to the amounts actually being received by Enterprises. She discussed the issue with Mr. Fitzgerald, who appears to have given her the impression that he was pursuing payment of the shortfall with the Contractor.[31] In other words, he was blaming the Contractor for the shortfall.
[21] Ms. Singleton identified a schedule of receipts dated March 7, 2011 (Exhibit A-3) that she had printed from the Simply Accounting software program and confirmed that the schedule showed the amounts received by Enterprises from the Contractor to the date of the schedule. Exhibit A-3 shows that a total of $1,724,579.94 was paid by the Contractor to Enterprises from September 29, 2010 to January 14, 2011 and that the total amount held back by the Contractor over the same period was $190,065.38. The amount held back is approximately 10% of the total of the amount paid and the amount held back.
[22] The monthly payments received by Enterprises from the Contractor in the last four months of 2010 and in January 2011 net of the holdback were as follows (from Exhibit A-3):
September
October
November
December
January
$238,140
$316,482
$631,786
$262,332
$275,838
[23] The gross payroll of Enterprises for those same months was as follows (from Exhibit A-1 and Exhibit A-9):
September
October
November
December
January
$77,373
$363,620
$341,898
$439,661
$152,786
[24] The shortfall or surplus in each month and the cumulative shortfall or surplus to the end of January 2011 was as follows:
September
October
November
December
January
(Shortfall)/Surplus
$160,766
($47,138)
$289,888
($177,329)
$123,052
Cumulative (Shortfall)/Surplus
$160,766
$113,629
$403,517
$226,188
$349,240
[25] Ms. Singleton testified that the Appellant had no involvement in the Nunavut housing projects or the payroll of Enterprises except that on one occasion he was asked to sign payroll cheques because Mr. Fitzgerald was in Nunavut. According to Ms. Singleton, the cheques were taken to the Appellant for his signature in the fall of 2010.
[26] Around the same time, Ms. Singleton says, she had a conversation with Mr. Fitzgerald regarding the fact that the payroll of Enterprises was taking up all of her time. At the suggestion of the Appellant, a payroll system was set up with an outside payroll company called ADP.[32] Ms. Singleton identified a copy of a contract titled “ADP CANADA CO. EMPLOYER SERVICES Master Services Agreement” that was filled in by Ms. Singleton and executed on October 19, 2010 (Exhibit A-5). Ms. Singleton testified that the payroll system was to be implemented to achieve efficiency.[33]
[27] In order to use the payroll system, Enterprises had to submit to ADP all of the details regarding hours and pay as well as the money to fund the payroll. If this was done by Tuesday night at the latest then the payroll (and associated remittances) would be paid by ADP on Friday of the same week. Ms. Singleton testified that she attempted to use the payroll system every week after it was set up but that the funds for payment were never available by Tuesday night so the system went unused. The situation is described by Ms. Singleton as follows:
Q. Okay, so just going back to what your evidence was in relation to the cheque process that you had with Mr. Fitzgerald, my understanding of your previous evidence was that you would go to him with the amount that was required to run through the payroll?
A. Yes.
Q. Or run through the various cheques, the payables, and he would either indicate to you that you could write the cheques or not?
A. Yes.
Q. So is this the process that you would have followed on each week then in relation to the payroll amounts?
A. Well, I would look up to see how much we had to pay and then I would contact Ian to let him know and to see if there was enough money in the account.
Q. And from what I understand your evidence to be, you would be told that there was not sufficient to cover, is that right?
A. Yes.
Q. This circumstance, was anybody else aware of the fact that there was not sufficient money to cover those cheques other than yourself and Ian Fitzgerald?
A. Most of the employees.
Q. Okay.
A. Because there was times when our payroll was late as well.
Q. I see. So they knew that the system itself – I guess, they would have known that the system was established, the ADP System was established, is that right?
A. They wouldn’t have known – well, yes, they knew we were in the process of setting it up, but they also were aware that we couldn’t go through with it because, you know, when it came Friday and if we were able to pay the employees, then we would have to go to the actual bank and deposit the cheques.
Q. I see, okay. So was Mr. Thistle aware of the fact that this process was ongoing after October?
A. Yes. Oh, Mr. Thistle?
Q. Yes.
A. No.
Q. I take it that this situation essentially came to a head then in January of 2011, is that right?
A. Yes.[34]
[28] Ms. Singleton identified a remittance form relating to the Payroll Tax Act of the Northwest Territories (Exhibit A-6). The form indicated that the required remittance of $21,915.34 was not being made. The form was signed by Ian Fitzgerald. Ms. Singleton testified that, other than herself and Mr. Fitzgerald, to her knowledge no one else was aware of this failure to remit.[35]
[29] Ms. Singleton identified a T4 Summary of Remuneration Paid dated February 28, 2011 that she had prepared (Exhibit A-7). Box 76 of the form identifies Ian Fitzgerald as the person to contact about the return. The form indicates a shortfall in the payroll remittances made by Enterprises of $462,989.66. Ms. Singleton confirmed that Mr. Fitzgerald was aware of the shortfall but when asked whether anyone else was aware, Ms. Singleton stated, “I’m not sure. I don’t think so.”[36]
[30] Ms. Singleton testified that around February 2011, Enterprises was being audited by the CRA for outstanding payroll and GST remittances.[37] Ms. Singleton testified as follows:
Q. What was the nature of the issue that had come to the company?
A. Well, they had outstanding balances for their payroll remittance and their GST remittance.
Q. Okay. Was there an audit being conducted of the company’s books at that stage as well?
A. Yes.
Q. Were you involved in that audit or assisting CRA in that process?
A. Yes, CRA sent in – I believe his name was Glen Lannon.
Q. Uh-hm.
A. And he would tell me the documents that was [sic] required, so I’d print them off for him.
Q. Okay, and who else within the company would have been involved in that process other than yourself?
A. It was mostly me in the office giving him information, but he was also dealing with Ian Fitzgerald.
Q. Was Mr. Thistle involved in that process at any time, do you recall?
A. Not to my knowledge.[38]
[31] Ms. Singleton identified two GST/HST returns that she had faxed to the CRA on March 3, 2011 (Exhibit A-8), one for the period from July 1, 2010 to September 30, 2010 and the other for the period from October 1, 2010 to December 31, 2010. Ms. Singleton confirmed that these returns were sent to the CRA at the request of the CRA auditor.[39] Ms. Singleton also identified a summary of the payroll and payroll remittances of Enterprises for the period from January 1, 2010 to February 28, 2011 (Exhibit A-9). The information in Exhibit A-9 for the period from January 1, 2010 to December 31, 2010 is the same as that in Exhibit A-1.
[32] Ms. Singleton identified an e-mail dated January 18, 2012 that she had sent to the Appellant asking about T4s for the employees of Enterprises (Exhibit A-10). Ms. Singleton described the interchange as follows:
Q. Ms. Singleton, what was the purpose of this particular communication?
A. Well, I had a lot of employees contacting me looking for their T4s, and I no longer worked with the company. I contacted Ian Fitzgerald through Facebook, actually, and I asked him if the company would be sending out T4s to their employees and he told me he didn’t have any records, that I had to contact Les Thistle. I emailed Les Thistle and I asked him, you know, what they were doing about T4s, and he said that he didn’t have anything to do with the accounting.
Q. Up to that point in time, had you had any involvement with Mr. Thistle relating to the accounting?
A. No.
Q. You indicated in your email back to Mr. Thistle that you understood that he had nothing to do with the accounting?
A. Yes.
Q. And you also indicated that the plan was to set everything up in ADP, and you indicated to him that it could never be put in place?
A. Yes.
Q. Is this the first time you would have indicated that to Mr. Thistle?
A. Quite possibly. I had only spoken to Mr. Thistle, like, two or three times.
Q. Okay. So is it fair to say that when he says, “I thought everything was set up for ADP to do the payroll”, that that could well have been the case?
A. I was expecting that answer.
Q. Okay. This was January 18th, 2012, so this is well after the whole circumstance occurred that there was an assessment made and these sorts of things?
A. Yes.[40]
[33] Finally, Ms. Singleton testified that in January 2011 Mr. Fitzgerald used one of the payments from the Contractor to pay his personal Amex card.[41] However, she was not certain how much was paid to Amex and indicated that Mr. Fitzgerald would have had some travel expenses.
[34] The Appellant testified that he is a lawyer who was called to the bar in 1995 and who practices as a sole practitioner. Apart from his investments in Resorts and Enterprises, he has not been involved in any business enterprise other than his law practice. In cross-examination, he stated that he currently employs six individuals and that in 2008 he employed nine or ten individuals. He is involved in the bookkeeping and cheque writing and does the bank reconciliations for his law practice, which focuses on real estate law. Only 2% to 3% of his practice involves corporate or commercial law. He retains an accountant to prepare his tax returns. The payroll for his law practice has been administered by ADP since the spring or summer of 2005.
[35] The Appellant met Ian Fitzgerald in 2005 when he became a client of the Appellant. In January 2007, Mr. Fitzgerald was pursuing the purchase from an individual (the “Landlord”) of the remaining term of a 50-year lease of an RV park in Newfoundland and Labrador. The purchase was to be made by Resorts. The provincial government was holding up the purchase so it was abandoned in favour of a sublease. The Appellant did the legal work for Mr. Fitzgerald and Resorts
[36] Around March 2007, Mr. Fitzgerald asked the Appellant to invest in Resorts. The idea was that Resorts would sell long-term memberships to individuals that allowed the individuals to use the park for their RVs. After a proposal was made to him by Mr. Fitzgerald, the Appellant invested $150,000 in Resorts in August or September 2007. The funds were advanced as a loan to Resorts and the Appellant also received 25% of the equity in Resorts. The Appellant did not do the incorporation of Resorts and was not, and did not become, a director or officer of Resorts.
[37] In the spring of 2008, Mr. Fitzgerald approached the Appellant with a proposal to have Resorts sell RVs. The Appellant testified that Mr. Fitzgerald appeared to have significant knowledge of the business and that the concept fit well with the park business. As well, by that time some personality issues had arisen between Mr. Fitzgerald and the Landlord, so the Appellant viewed this as both a new business opportunity and a means to supplement the activities of Resorts in case there were any issues with Resort’s RV park business.
[38] A $1 million line of credit was established with Textron to fund Resorts’ new RV sales business. Resorts used the line of credit to purchase an inventory of RV trailers and sold the trailers from a lot on Commonwealth Avenue in Mount Pearl, NL.
[39] The Appellant testified that he was not involved in the day-to-day business of Resorts. From time to time, he would “pop in” to see how trailer sales were going and Mr. Fitzgerald would update him on those occasions.[42]
[40] In the fall of 2008, after further clashes between Mr. Fitzgerald and the Landlord, Mr. Fitzgerald asked the Appellant to incorporate a new corporation (Enterprises) so that the park business and the trailer business could be separated. The Appellant understood that the trailers were to be transferred to Enterprises and that the debt owed to him by Resorts would be assumed by Enterprises. He stated that he received an e-mail in the fall of 2008 from Mr. Fitzgerald indicating that the trailers had been transferred to Enterprises. The Appellant determined in May of 2011 that in fact the trailers had not been transferred to Enterprises but had remained with Resorts.
[41] The Appellant incorporated Enterprises on November 18, 2008 and listed the registered office as the address of his law firm in Mount Pearl, NL. The Appellant and Mr. Fitzgerald were both appointed as directors of Enterprises. The Appellant held 25% of the equity and Mr. Fitzgerald held the balance of 75%. In cross-examination, the Appellant identified a copy of the Certificate of Incorporation, the Notice of Directors and the Notice of Registered Office. The second of these confirmed that he was a director of Enterprises (Exhibit R-2). He also confirmed that he remained a director of Enterprises until March 2011.
[42] In early 2009, at the suggestion of Mr. Fitzgerald, Enterprises added a new business that involved the construction and sale of modular mobile homes. The company sold a total of three such homes and the Appellant was involved in addressing a post-sale issue with one of the homes in January 2010.[43]
[43] In May 2009, the Appellant was advised by Mr. Fitzgerald that Textron was concerned about some of the older trailer inventory and had stated that either the corporation had to buy the trailers or Textron would take them away.[44] Mr. Fitzgerald advised the Appellant that if he funded the purchase of the trailers, he would be repaid as the trailers were sold. Given this and the fact that the Appellant was concerned that a loss of inventory would put the RV business in financial difficulties, he agreed to lend an additional $188,000 for a total of $424,000 to that point in time.[45] In cross-examination, the Appellant stated that he would have been concerned about the business operations of Enterprises if he had not contributed the extra funds but that the contribution meant that the company had “a bunch of trailers that were free and clear”.[46]
[44] Mr. Fitzgerald asked the Appellant to remove him as a director of Enterprises in July 2010. This action was precipitated by the fact that Resorts had stopped paying for the sublease of the RV park and the sublease had reverted to the Landlord. Mr. Fitzgerald had expressed concern about claims by individuals who had purchased memberships in the RV park, and he had stated that he did not want any connection with Enterprises. The Appellant was instructed by an e-mail dated October 7, 2010 to reinstate Mr. Fitzgerald as a director, but that did not occur until March 2011. The Appellant stated that Mr. Fitzgerald always ran the businesses of Enterprises even when he was not a de jure director.[47] The Appellant was not an employee of, and did not receive any salary from, Enterprises.[48]
[45] In the spring of 2010, Mr. Fitzgerald approached the Appellant regarding the construction of modular mobile homes in Nunavut. Mr. Aymont had had experience with such projects when they were being run by the Nunavut Housing Authority (the “NHA”). The Appellant was told that the NHA had run into substantial budget overruns in the past and wanted to contract out the work to the private sector. This was presented to the Appellant as a lucrative business opportunity for Enterprises.
[46] The Appellant performed some research on the Internet to confirm the facts presented to him. He stated that in the spring of 2010 Enterprises had a lot of assets in the form of inventory, but the trailer business was slow and the modular home construction business was not meeting expectations. Although the company was asset rich, he was concerned about its long-term prospects and believed a new line of business was needed to generate income for the company. The Appellant stated:
I wasn’t concerned as much about the short term, it was more the long term, and I had sunk a fair amount of money in, I wanted to try to make sure that I got back out the money that I had put into the company.[49]
[47] In order to bid for a contract to construct homes in Nunavut, a bidder had to provide a deposit equal to 5% of the tender amount. Mr. Fitzgerald approached the Appellant to have him provide a total of $500,000 to Enterprises to fund the deposits for bids on four contracts in exchange for a percentage of the profits from the contracts. Mr. Fitzgerald provided a payment schedule that indicated that the principal would be repaid in bimonthly installments in October, November and December 2010 (Exhibit A-12). The Appellant was to receive 30% of the profits, Mr. Fitzgerald and Mr. Aymont were each to receive 10% and the balance of 50% was to remain in Enterprises. The 50% to Enterprises would allow Enterprises to pay its existing debt to the Appellant.
[48] On June 10, 2010, the Appellant loaned $430,455.18 to Enterprises to be used for four bids by Enterprises.[50] A further $69,544.82 was advanced in the fall of 2010, for a total of $500,000.[51] Enterprises succeeded on two of the bids. When the Appellant asked Mr. Fitzgerald about the funds freed up by the two unsuccessful bids he was asked to leave those funds in Enterprises for other bids, and he agreed to do so.[52]
[49] In August 2010, the Appellant was advised by Mr. Fitzgerald that the process relating to the Nunavut housing projects had changed. Rather than securing contracts directly with the NHA, Enterprises was to be hired as a subcontractor by the Contractor and only the Contractor would deal with the NHA. The Appellant did not know the reason for this change but speculated that the NHA may have wanted to deal with a single contractor rather than a number of contractors. With respect to his involvement in this process, the Appellant stated:
Other than Ian [Fitzgerald] telling me in August of 2010 that this is the way that the arrangement was going to work, I didn’t have any other involvement other than periodically we’d touch base as to the progress of how things were going. He signed off on all the individual contracts, the hiring and managed the operations for the Nunavut Housing Project.[53]
[50] To the Appellant’s knowledge, the cheques issued for the deposits on the bids were not cashed by the NHA and the money remained in Enterprises. In cross-examination, the Appellant testified that he checked Enterprises’ bank account in late August and found there to be only $140,000. He then questioned Mr. Fitzgerald, who advised him that the money had been used to buy additional trailers and to pay the ongoing expenses of Enterprises.[54] He went to the trailer lot and confirmed that there were a number of new trailers on the lot.[55] He admitted to being uneasy about the fact that he was not consulted about the use of the money, but he also said that he drew comfort from the fact that there were still significant funds in Enterprises’ bank account ($140,000) and that there were new assets in the form of additional trailer inventory.[56]
[51] The Appellant acknowledged that he was not provided with financial statements for Enterprises although he had seen statements for Resorts. He stated that he had two conversations with an individual at Grant Thornton in which he was questioned about Resorts. The Appellant testified that he had periodically requested statements for Enterprises but was told by Mr. Fitzgerald either that the accountants were behind in producing the statements or that the statements that were produced had to be sent back for revision because of errors.[57]
[52] In cross-examination, the Appellant confirmed that Mr. Fitzgerald had told him that Grant Thornton was doing the accounting work for Enterprises.[58] With respect to the situation at the time of the June 2010 loan, he stated:
Q. In June, 2010, did the company have an accountant, an external accountant?
A. I was under the understanding that Grant Thornton was the accountant for the company.
Q. And did you ask for financial statements around this time?
A. I was asking periodically for financial statements. It was always the same – I’d ask Mr. Fitzgerald, because really I had minimal contact with the other staff, it was through Ian, Mr. Fitzgerald, and the response was usually about the same, that the accountants are behind on it or they made some mistakes and he sent it back for them to correct it.[59]
[53] The Appellant admitted that he had not contacted Grant Thornton directly to ask for financial statements.[60] He explained that, as he was not dealing with that firm personally, it was not in his personality to call them up to say that they were behind in preparing the statements. When asked if he had contacted the CRA or Ms. Singleton in June 2010, the Appellant stated that he had not contacted the CRA, that he did not know that Ms. Singleton was employed by Enterprises at that time, and that he understood that Grant Thornton was doing the accounting work.[61]
[54] The Appellant acknowledged that the contracts in Nunavut would result in an increase in the number of employees, but maintained that he did not know exactly how many employees had to be hired until October 2010 when he was asked to sign the payroll cheques.[62] He also acknowledged that a document titled “Nunavut Housing Summary” (Exhibit R-4) prepared around June 8, 2010 indicated a labour cost in the $620,664 to $664,300 range for each contract, but noted that the incurrence of this cost was dependent on securing the contracts.[63] With respect to the time that at which contracts were executed, he stated:
Q. And to go back to Tab 14, and we’re going to move along a little bit to paragraph 19, and paragraph 19, “In August, 2010, I was informed by Mr. Fitzgerald that it looked like the contracts in Nunavut were going to proceed differently than originally thought. It looked like we were now going to supply labour. Only a major contractor who would handle a large amount of contracts. In late August, 2010, Mr. Fitzgerald signed the contracts with the said contractor, NCC Dowland, but I did not see them until several months later”. Is that an accurate description of the situation in August of 2010?
A. Yes. In actual fact, I never saw the contracts themselves until when things started to go awry with NCC Dowland in probably – I think probably February of 2011 might have been the first time I saw the actual contracts themselves.
Q. Okay.
A. I was aware he had signed contracts, though.
Q. But you were aware that it was with regards to supplying labour?
A. Yes.
Q. At this time in August of 2010, did you take any steps to ensure that a suitable payroll process was in place to take care of this increased labour force?
A. In August, 2010, no. Well, at that time I didn’t know the volume of staff that we were going to have. I hadn’t seen the contracts, I didn’t know how many contracts we had or how many staff we had. It wasn’t until October of 2010 that I started to appreciate the number of employees that were actually being hired or had been hired.[64]
[55] The Appellant recalled signing payroll cheques in October 2010 but thought the number was closer to 30 than the 70 recalled by Ms. Singleton. The cheques prompted him to have a discussion with Mr. Fitzgerald about the use of a payroll company to handle Enterprises’ payroll. Regarding the use of ADP, he testified:
So I had suggested to Mr. Fitzgerald that would be a much more efficient system to be using, and he appeared to agree. So we went to work with – appeared to instruct Ms. Singleton to set up the ADP system. I know that she had contacted me with regards to setting up the ADP system, and I can recall in October – I’m not sure if it was via telephone or not, but I do recall talking to somebody up there and them indicating – I can recall asking is ADP set up now and they said, yes, it’s ready to go for the next payroll. I thought that it was ready to go for the next payroll.[65]
[56] The Appellant identified an e-mail from Mr. Fitzgerald to him dated October 7, 2010 (Exhibit A-14). The e-mail included a second e-mail, dated October 6, 2010, from Mr. Fitzgerald to himself (with a cc to several others) that indicates on page 2 that there had been some issues with the payroll but that the auto pay system would be ready soon. The Appellant testified that he was advised by someone in the office that the payroll system was ready to go for the next payroll, and that after that he did not follow up to ensure it was actually being used:
Q. Okay. So as far as – you recall following up to confirm that the ADP system had been set up?
A. Yes.
Q. Did you make any inquiries to see whether it was being used?
A. Once I was told that it was set to go for the next payroll, I didn’t follow up after the fact to say, oh, did you enter it in this week.
Q. Okay.
A. I knew that nobody was coming to me to get cheques signed and nobody was raising any issues with me with regards to payroll, and it appeared to be running.[66]
[57] In addition to commenting on the payroll system, the second e-mail in Exhibit A-14, from Mr. Fitzgerald to himself and other employees of Enterprises, dated October 6, 2010, also states, in the first paragraph:
I have decided to oversee the remainder of this project myself and implementing some changes effective immediately. I will still have assistance from Garland and Bob, but I am the lead project manager from here on in. Tina has move [sic] in my office so we can make sure the needs of the project are met as well as the requests of our staff.
[58] In cross-examination, the Appellant was asked if he had contacted the CRA in October 2010 after seeing the large number of payroll cheques:
Q. At this point in time in October, 2010, when you saw the large number of cheques and you suggested that the ADP payment process be set up, did you contact the Revenue Agency to inquire about remittances?
A. No. In August of 2010, again we had a fair amount of money sitting - $140,000.00 sitting in the account. A large amount had been used or some money had been used certainly to settle up the outstanding bills of NLRV, which is what Mr. Fitzgerald told me, and then the balance went to buy the trailers. So I had no reason to believe that there was any outstanding amounts coming into, say, September, and then we were setting up with ADP, so I thought that – I had been using that system for five or six years at that point in time and I knew that they automatically send in the remittance, so I had no reason to contact CRA. At the time, I had no reason to contact CRA. At the time, I had no reason to contact CRA because I believed we had a system in place that took care of that.[67]
[59] The Appellant testified that in the fall of 2010 he periodically checked the balance in Enterprises’ bank account toward the end of the week using his company bank card. He stated that there always seemed to be a fair amount of money in the account.[68] He also periodically touched base with Mr. Fitzgerald about the company’s financial situation, primarily because the repayment schedule he had been given with regard to his loan was not being met. He described the conversations as follows:
A. Yes, that’s correct. So I did periodically touch base with Mr. Fitzgerald because I was looking for repayment of the initial $500,000.00 that was put into the company.
Q. Right.
A. And Mr. Fitzgerald was telling me at that point in time that we needed to leave the money in there a little bit longer, it would be coming shortly, you know, because we’re just waiting for the next payment to come in. I know that coming into certainly November and definitely through December, I had several conversations with him with regards to the money because, you know, at this point in time I’m supposed to have the majority, if not all of it back, and he said to me that Dowland was slow on getting the money back to us, that we’re owed in the neighbourhood of a million dollars, and I specifically asked him – I said, you know, what has to come out of that, and he said there’s nothing has to come out of that, that represents our profit, and I said to him, so we’re up to date on everythin