In a recent decision from the Tax Court of Canada in Achim Bekesinski and Her Majesty the Queen (“ Bekesinski “), the taxpayer, as director of a corporation, was personally reassessed by the Minister of National Revenue (“Minister”) in the amount $477,546.08 for the corporation’s unremitted income tax, employer contributions, interest and penalties for its 2001 to 2003 tax years. This type of Assessment is commonly called a director’s liability assessment.
Director was not liable for Corporation’s Tax Debt
The Tax Court of Canada (“Court”) held that since the taxpayer had resigned as a director of the corporation more than two years after the Minister’s assessment, the Minister was statue barred from raising the director’s liability assessment.
Brief Overview of the Facts
In 1992 the taxpayer purchased D.W. Stewart Cartage Ltd. (the “Corporation”), a general cartage, trucking and warehousing company. The taxpayer served as a director of the Corporation.
Between 2005 and 2011, the Corporation had issues with the tax authorities and did not comply with its tax obligations. The taxpayer, a listed director of the Corporation, received numerous letters from the Canada Revenue Agency (CRA) warning him that he could be held personally liable for the corporation’s tax debts as a director of the Corporation. He did not notify the CRA at that time that he had resigned until much later when he received a director’s liability assessment.
On October 15, 2010 the Minister issued a Notice of Assessment to the taxpayer for unremitted income tax, employer contributions, interest, and penalties in the amount of $477,546.08.
The taxpayer argued that he had resigned as director of the Corporation on July 20, 2006 by way of a Notice of Resignation and that the Minister was statute barred in its assessment against him since it has been more than two years since his resignation. The Minister argued that the taxpayer was in fact a director and that the taxpayer had backdated the resignation to qualify for the exception. To prove this point, the Minister attempted to adduce as evidence an “ink date test” to determine the authenticity of the Notice of Resignation to be conducted by a Canadian Border Services Agency (“CBSA”) forensic document chemist.
Analysis
Fortunately for the taxpayer, the ink date test was excluded by the Court because the Minister had failed to plead as an assumption the authenticity of the Notice of Resignation. In other words, since the Minister did not assume in her pleadings that the Resignation was backdated or inauthentic, the Minister was precluded from relying on the ink date test.
The Court commented that although there had been some inconsistency in the taxpayer’s testimony, none were glaring, and it was generally corroborated by that of other witnesses.
Campbell, J. concluded that while her belief was that the Resignation was backdated, it was not open to the Court to review the available evidence on that point due to the deficiencies in the Minister’s pleadings. Accordingly, the taxpayer had only to prove that he was not a director of the Corporation during the relevant taxation years and not the authenticity of his Resignation, a much more difficult case to meet.
Concluding Comments
The taxpayer in Bekesinski avoided director’s liability for corporate tax debts in large part due to litigation missteps by the Minister, a mistake unlikely to be repeated. It is highly advisable for corporate directors to carefully document their resignations so as to avoid potential future director’s liability tax assessments by the CRA and challenges to the authenticity of the resignation.
Bobby B. Solhi is a tax lawyer and partner at TaxChambers LLP, a boutique tax law firm in Toronto, Canada. The views and opinions are those of the author and do not necessarily represent the views and opinions of TaxChambers LLP. The information contained herein is general in nature and based on authorities that are subject to change. Applicability to specific situations is to be determined through consultation with your tax adviser.