http://decision.tcc-cci.gc.ca/en/2013/2013tcc227/2013tcc227.html 
Kaur v. The Queen[1] (July 12, 2013) is a decision dealing with GST assessed against the sole director of a registrant corporation. The factual background was as follows:
[2] The appellant is the sole director of 644346 BC Ltd. (the “Corporation”). The Corporation was in the business of building and selling residential properties in British Columbia.
[3] As a GST registrant, the Corporation was responsible for collecting GST on all taxable supplies. The GST in question here consisted of GST collected on the sale of new homes by the Corporation. Like all GST registrants, the Corporation was able to claim input tax credits for GST paid or payable on goods and services acquired for use, consumption or supply in its commercial activities.
[4] The Corporation was assessed for net GST payable in the amount of $357,691.66 covering the GST reporting periods ended December 31, 2004, March 31, 2006, September 30, 2006 and December 31, 2006.
[5] The appellant testified that she was a residential real estate agent in Quebec in the mid-1980’s. She met Mr. Familamiri in Montreal in 1989. Mr. Familamiri, who has an engineering degree, was active in residential construction in Quebec until he moved to Vancouver in 1995.
[6] Until she also moved to Vancouver in 1995, the appellant worked as a real estate agent for a Century 21 real estate brokerage office, owned and operated by Mr. Familamiri. The appellant arranged construction financing for a few small real estate projects undertaken by Mr. Familamiri in Quebec. She testified that Mr. Familamiri had a bad credit record and could not obtain construction financing on his own. These projects came in on budget and the bank financing was repaid. The appellant earned sales commission from the sales of those properties.
[7] The appellant undertook two real estate projects with Mr. Familamiri in British Columbia beginning in 2002.
[8] The first project involved the construction of six townhouses, on a vacant lot, purchased by the Corporation in East Vancouver (the “Triumph Project”). Two of the townhouses were sold after completion of the project in 2004. The Corporation was unable to sell the four remaining townhouses and they were transferred to the appellant in 2006. The appellant rented out the four townhouses to generate cash flow to fund the carrying costs of the properties.
[9] In December of 2004, the Corporation commenced the construction of a 26‑unit townhouse project on vacant land that it owned in Port Coquitam, British Columbia (the “Grant Project”). The construction budget for the Grant Project was established at $4,976,504. The appellant arranged for the construction financing for the Corporation. She also guaranteed the construction loan. To reduce the risk of default, the appellant arranged for the sale of more than half of the units prior to the commencement of construction.
The appellant’s position was that she was the innocent victim of actions by Mr. Familamiri:
[15] The appellant believes that she should escape liability under section 323 because she delegated all GST oversight to Mr. Familamiri, whom she had reason to trust. The appellant argues that she should not be held accountable for the Corporation’s failure to remit GST because the decision to use the collected GST for another purpose was made by Mr. Familamiri, who acted without her knowledge. She maintains that when the CRA informed her of the Corporation’s failure the Corporation was insolvent and had no assets that could be used to cure the deficiency.
The Tax Court rejected this line of argument:
[16] Unfortunately, the appellant’s due diligence defence fails for the reasons enumerated by the Federal Court of Appeal in
Buckingham v. Canada. In that case Mainville J.A. noted:
37 . . . I conclude that the standard of care, skill and diligence required under subsection 227.1(3) of the
Income Tax Act and subsection 323(3) of the
Excise Tax Act is an objective standard . . . .
38 . . . Consequently, a person who is appointed as a director
must carry out the duties of that function
on an active basis and will not be allowed to defend a claim for malfeasance in the discharge of his or her duties
by relying on his or her own inaction . . . .
39 An objective standard does not however entail that the particular circumstances of a director are to be ignored. These circumstances must be taken into account, but must be considered against an objective “reasonably prudent person” standard. . . .
[Emphasis added.]
[Footnote omitted]
Similarly, the court rejected the appellant’s argument that she could have just walked away from the project and avoided GST liability:
20] The appellant also asserts that, had she been made aware of the Corporation’s financial shortfall on the sales of the townhouses, she could have walked away. If she had done so, she would not have been liable for the Corporation’s failure to remit GST. In my opinion, this argument is without merit. The appellant admitted that she personally guaranteed the Corporation’s construction liens. If the appellant had abandoned the Grant project, the bank likely would have used its security interest to complete the sales. The GST would have been remitted. The bank would have used part of the proceeds of sale to discharge the construction liens. In that case, the appellant would have owed the bank an amount equal to or greater that the GST amount used by the Corporation to discharge the construction loans. The appellant would not have been, as she contends, in a better position had she abandoned the project. She would have been indebted to the bank rather than the government. The CRA would have received the GST collected in trust from the purchasers. In summary, the actions taken by the Corporation benefited only the appellant by allowing the bank financing to be repaid, thus freeing the appellant from her personal guarantee.
The nub of this case is that it reaffirms that the due diligence defence to a director’s liability for unpaid GST is an
objective test.
[1] 2013 TCC 227.