[2017] 2 F.C.R. D-6
Income Tax
Corporations
Directors
Appeals from Tax Court of Canada (T.C.C.) decisions (2014 TCC 254) — Appeals arising from two separate appeals from two separate assessments, both of which imposing liability on respondents on basis respondents directors — T.C.C. finding respondents having resigned as directors, setting aside Minister of National Revenue assessments — In 2001, respondents stating to spouses, owners of 1056922 Ontario Limited (105 Ltd.) intention to resign as directors — Respondent in first appeal (first respondent) instructing solicitor to draft resignations for both respondents but resignations never executed, never leaving law office — Later, spouse of respondent in second appeal (second respondent) instructing different lawyer to prepare resignation documents solely for second respondent — For five-year period, 105 Ltd. failing to remit payroll tax withholdings — Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1 rendering directors of company failing to remit source deductions personally liable for unremitted amounts but directors may raise due diligence defence under Act, s. 227.1(3) — Respondents assessed for these liabilities — Respondents appealing tax assessments — T.C.C. concluding that preparation of draft letters of resignation, combined with fact respondents verbally communicating to spouses tendering resignations resulting in effective resignation — Alternatively, finding that if resignations not effective, first respondent having reasonable belief having resigned but not second respondent — Whether T.C.C. erring in finding that respondents resigned as directors of 105 Ltd., thus not personally liable for corporation’s unremitted tax withholdings; whether T.C.C. erring in alternative finding first respondent having reasonable belief having resigned but not second respondent; whether T.C.C. erring in finding that, even if respondents directors, not exercising due diligence — T.C.C. erring in concluding that respondents resigning as directors — In absence of communication of written resignation to corporation, resignation not effective — On facts before T.C.C., respondents not resigning in 2001 — Pursuant to Ontario Business Corporations Act, R.S.O. 1990, c. B.16 (OBCA), s. 121(2), director’s resignation becoming effective at time written resignation received by corporation or at time specified in resignation — In present case, no written resignation received by 105 Ltd. within meaning of OBCA, s. 121(2) — Unsigned letters of resignation with no effective date found in solicitor’s file thus T.C.C. erring in concluding that respondents’ intention to resign satisfying necessary preconditions of effective resignation — Regarding reasonable belief in resignation, T.C.C. committing error on extricable question of law in finding that first respondent exercising due diligence — Director may be able to rely on reasonable belief in having resigned to ground due diligence defence but standard must be much higher than one applied by T.C.C. herein — Director’s belief having resigned having no correspondence or connection to underlying purposes of OBCA, s. 121(2), emphasis on objectively verifiable communication of resignation to corporation — Due diligence defences arising only by virtue of Act, s. 227.1(3) — To satisfy s. 227.1(3) defence, director must establish turning attention to required remittances, exercising duty of care, diligence, skill with view to preventing failure by corporation to remit concerned amounts — T.C.C. not considering due diligence defence in light of established principles — Director cannot raise due diligence defence by relying on own indifferent or casual attitude to responsibilities — Reasonable director would insist on being satisfied that intention to resign effected — T.C.C. not erring in rejecting second respondent’s due diligence defence — Finally, T.C.C. right to reject respondents’ alternative argument that, even if still directors, exercising due diligence — Appeals allowed.
Canada v. Chriss (A-137-15; A-138-15, 2016 FCA 236, Rennie J.A., judgment dated September 22, 2016, 10 pp.)