http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/144090/index.do
Helgesen v. The Queen (May 5, 2016 – 2016 TCC 114, Ouimet J.).
Précis: Mr. Helgesen was a 50% shareholder and one of two directors of 1072519 Alberta Ltd. (the “Corporation”) which operated an OK Tire franchise . The other shareholder and director, Mr. Pyle, ran the Corporation’s day to day operations and his wife acted as corporate bookkeeper. CRA assessed Mr. Helgesen for roughly $200,000 in unremitted source deductions and GST. The Tax Court rejected Mr. Helgesen’s “due diligence” defence holding that he “did not exercise the degree of care, diligence and skill that a reasonably prudent person would have exercised in comparable circumstances” [para. [32]]. As a result the appeal was dismissed with costs.
Decision: Mr. Helgesen was an experienced businessman but acted a passive investor in, and director of, the Corporation:
[11] The Appellant is an experienced businessman with a long history of business and property ownership in Fairview, Alberta, and the surrounding area. From 1993 to 2005, the Appellant owned and was a director of Russell Helgesen Contracting, also known as HCL National or HCL (“Helgesen Contracting”). Helgesen Contracting had approximately 150 employees. The Appellant’s involvement in Helgesen Contracting included giving instructions to the accountants and helping with the banking. The Appellant also owned and operated a separate numbered company that rented equipment to Helgesen Contracting.
[12] Between 2005 and 2011, in addition to the Corporation and to 736000 Alberta Ltd., the Appellant was involved in a slashing company and companies named Clear Prairie Open Camp, Fairview Classic Collision, and Clear Prairie Gravel.
[13] The Appellant’s current business is Clear Prairie Gravel, a company he has been operating for the past five or six years. This company employs approximately two to seven employees at any given time.
C. The Corporation
[14] In 2000, the Appellant acquired a commercial building through 736000 Alberta Ltd., a corporation that he owned and operated. The building was empty during the first two years of ownership, from 2000 to 2002. Around that time, the Appellant met Mr. Pyle through an O.K. Tire representative. The representative became aware that the Appellant owned a commercial building and asked him if he would like to house an O.K. Tire franchise. The Appellant was interested, but Mr. Pyle had no credit or funds to operate the business. As a result, 1072519 Alberta Ltd. was incorporated on October 22, 2003. The Appellant became a 50% shareholder and director of the Corporation. The Corporation’s business was the operation of an O.K. Tire franchise in Fairview, Alberta (the “Business”). Mr. Pyle was the only other director and shareholder of the Corporation.
[15] From incorporation, the responsibility for day-to-day decisions of the Corporation rested with Mr. Pyle. Mr. Pyle was the owner-manager of the Business and Mrs. Pyle was the bookkeeper and worked at the front desk. The Appellant testified that he had no role in the Business except for being an outside director. The Appellant contributed funds and he helped to establish the Business, as Mr. Pyle had neither credit nor funds. The Appellant contributed $35,000 as a shareholder loan. The $35,000 is the sum of the following amounts: a $5,000 payment made on January 12, 2004, a $5,000 payment (for the start‑up franchise fee) made on January 27, 2004, and a $25,000 payment made on February 17, 2004.
[Footnote omitted]
The Court held that Mr. Helgesen’s conduct did not meet the standard of due diligence:
[29] The Appellant also chose to rely on the Pyles despite the fact that, on July 16, 2008, July 18, 2008 and August 27, 2008, he had received letters from the CRA stating that source deductions were still owed and that the CRA was considering assessing him under section 227.1 of the ITA.[14] The Appellant could have contacted the CRA directly or simply asked Mr. Pyle for proof of payment. Instead, he chose to rely only on Mr. Pyle’s word. I believe that a reasonably prudent person would not have acted in this fashion.
[30] The Appellant testified that, on or about January 28, 2010, he forgave $55,000 in rent arrears. He stated that he did this so that the Business could pay the CRA. What the Appellant did was to write a cheque in the amount of $55,000 to the Business. The cheque was deposited in the Business’s bank account on January 28, 2010. The same day, the Business wrote a cheque to 736000 Alberta Ltd. for $54,897. The two transactions happened on the same day and the Appellant testified that this was done for accounting and tax purposes. Obviously, the amount was not remitted to the CRA.
[31] It was only on January 27, 2011, while he was a director of the Corporation, that the Appellant wrote to the CRA stating that he was being misled by the Pyles about the status of the remittances. The Appellant cannot assert the malfeasance of the Pyles as a defence with regard to his failure to discharge his duties.
[Footnotes omitted]
As a result the appeal was dismissed with costs.