http://decision.tcc-cci.gc.ca/tcc-cci/decisions/fr/item/109094/index.do
Benaroch v. The Queen (April 16, 2015 – 2015 TCC 93, Favreau J.).
Précis: Mr. Benaroch was assessed under subsection 325(1) of the Excise Tax Act for $67,424.15 in respect of a transfer to him by his wife of her half of the the proceeds of the sale of a condominium at a time when she was alleged to owe GST in excess of that amount. Her liability was alleged to stem from the liability of a corporation of which she was a director. Although the Minister’s counsel was in possession of a certificate from the Federal Court showing that a judgment against that corporation had been returned unsatisfied, counsel did not disclose it in the Crown’s list of documents or produce it at trial. The next day Crown counsel moved unsuccessfully for an order permitting the introduction of the certificate.
The Court held that the production of a certificate from the Federal Court was a precondition to proving that Ms. Benaroch was a tax debtor at the time of the sale of the condominium. As a consequence the appeal was allowed with costs and the assessment vacated.
Decision: The Crown simply failed to disclose or produce evidence in its possession:
[8] Subsections 323(1) and (2) of the ETA read as follows:
Liability of directors
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.
Limitations
(2) A director of a corporation is not liable under subsection (1) unless
(a) a certificate for the amount of the corporation’s liability referred to in that subsection has been registered in the Federal Court under section 316 and execution for that amount has been returned unsatisfied in whole or in part;
(b) the corporation has commenced liquidation or dissolution proceedings or has been dissolved and a claim for the amount of the corporation’s liability referred to in subsection (1) has been proved within six months after the earlier of the date of commencement of the proceedings and the date of dissolution; or
(c) the corporation has made an assignment or a bankruptcy order has been made against it under the Bankruptcy and Insolvency Act and a claim for the amount of the corporation’s liability referred to in subsection (1) has been proved within six months after the date of the assignment or bankruptcy order.
[9] At paragraph 36 of the Notice of Appeal, the appellant asked that the respondent establish that the conditions for section 323 of the ETA had been met. At the hearing, the question whether counsel for the respondent could prove that Quebec’s Minister of Revenue had complied with paragraph 323(2)(a), that is, whether execution of the writ of seizure and sale was returned unsatisfied, was raised.
[10] Counsel for the respondent had in his possession the certificate registered with the Federal Court, the writ of seizure and sale, and the bailiff’s return of nulla bona, but he did not adduce these documents into evidence. The bailiff’s return of nulla bona was not included in the respondent’s list of documents, and counsel for the respondent did not call any witnesses who had personal knowledge of the fact that execution of the writ was returned unsatisfied.
[11] The purpose of paragraph 323(2)(a) is to require the Minister to exhaust his remedies against the debtor corporation before permitting him the extraordinary remedy of assessing a third party, its director.
[12] The evidence showing that the Minister satisfied the conditions set out in paragraph 323(2)(a) is essential for making a director liable. Here, the Minister has produced no evidence to show that the execution of the writ of seizure and sale was returned unsatisfied. Consequently, the director of 4158831 Canada Inc. cannot be held solidarily liable for the amounts owed to the Minister by this corporation and the assessment on which this liability is based cannot be considered to be valid.
[13] In a notice of motion filed with the Court on October 17, 2014, that is, the following day, counsel for the respondent attempted to remedy the default and asked the Court to issue an order to allow it to adduce the following documents by affidavit:
(a) the certificate registered with the Federal Court under section 316 of the ETA;
(b) the writ of seizure and sale dated February 27, 2007;
(c) the return of nulla bona dated February 28, 2007.
[14] Counsel for the appellant opposed the production of these documents, and the motion was heard on March 31, 2015. After hearing the parties, the Court dismissed the motion in an order dated April 16, 2015.
[15] Given that the Minister did not prove that execution of the writ of seizure and sale was returned unsatisfied in whole or in part, as required by paragraph 323(2)(a) of the ETA, the assessment made with respect to Ms. Benaroch must be vacated. This decision is to the same effect as the decision rendered by Justice Sheridan of this Court in Roy Walsh (appellant) and Her Majesty the Queen (respondent), 2009 TCC 557, regarding paragraph 227.1(2)(a) of the Income Tax Act, which is the equivalent of paragraph 323(2)(a) of the ETA.
[16] As Ms. Benaroch does not owe any taxes under the ETA, the appellant cannot be held solidarily liable to pay any amount whatsoever with respect to Ms. Benaroch’s tax debt.
As a result the appeal was allowed with costs and the assessment against Mr. Benaroch vacated.
Comment: Presumably the alternative preconditions under paragraphs 323(2)(b) and (c) of the ETA (i.e., dissolution or insolvency) were not relevant.