Jarrold v. R. – FCt: Taxpayer refused remission of penalties and interest for GST assessment as director of corporations – decision not unreasonable

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Jarrold v. Canada (National Revenue) (February 5, 2015 – 2015 FC 153, Noël J.).

Précis: The taxpayer was assessed as a director of two corporations for GST, penalties and interest going back as far as 1991. He had exhausted his avenues of appeal and applied for a remission order under the Financial Administration Act. His application was rejected. The Federal Court rejected his application for judicial review finding he had not demonstrated that the decision was unreasonable.

Decision: The applicant’s background to his request for a remission order was very complex and lengthy:

[2] The Applicant is a certified management accountant.

[3] He was the sole director of Associates Ltd. and Management Systems Ltd.

[4] The Applicant requested a remission order in the amount of $14,746.25 GST, plus $72,936.22 related penalties and interest, in respect of two corporate accounts, Associates Ltd. and Management Systems Ltd., which he no longer operates. The Applicant also requested remission of $3,252.27 in costs awarded by the FCA that have been allocated to his T1 account.

[5] The Applicant was assessed director’s liability for Associates Ltd. in December 2006 for the 1991 to 1993 period in the amount of $35,645.42, comprised of $8,027.21 net GST, $16,823.12 in penalties and $10,795.09 interest. Without the Applicant knowing, his bookkeeper was collecting but not remitting the GST in order to satisfy Associates Ltd.’s financial obligations. When the Applicant discovered this situation, he filed outstanding quarterly returns in January 1994 for the various periods between April 1, 1991, and June 30, 1993. He did not however remit any of the net GST owing on those returns. Although the Applicant filed a GST return in 1999 for the period ending September 30, 1997, he did not remit the $3,267.60 net tax owing on that return.

[6] The Applicant appealed the director’s liability assessment of Associates Ltd. to the Tax Court of Canada [TCC] in 2009 (Jarrold v Canada, 2009 TCC 164), where the TCC upheld the CRA assessment. The Applicant then appealed the TCC decision to the FCA in 2010 (Jarrold v Canada, 2010 FCA 278). The FCA ruled in the CRA’s favour. Both courts found that the Applicant had not met the defence for due diligence, that CRA officials had satisfied the assessing provisions of section 323 of the Excise Tax Act, RSC 1985, c E-15, and that there was a very high standard of care required of the Applicant as the sole director of Associates Ltd. and an accounting professional to ensure the remittance of trust funds. The FCA also stated that the Applicant never stopped being a director of Associates Ltd., that the two-year statutory limit to assess director’s liability had not been contravened, and lastly, that the CRA was within its right to assess the Applicant personally.

[7] The Applicant began operating Management Systems Ltd. on January 1, 1994, and was assessed director’s liability on January 28, 2009, in respect of GST returns filed without payment for various reporting periods between April 1, 1995, and June 30, 1996. The assessment was for $16,471.99, consisting of $4,826.08 net tax and $11,645.91 in related penalties and interest. The Applicant was also assessed director’s liability for the payroll account on the same date for the 1996 and 1997 taxation years for $33,091.62, consisting of $12,206.03 net tax and $20,885.59 in related penalties and interest. The payroll debt was acquitted on January 19, 2011, via a CRA judgment registered against a property the Applicant sold. A further $1,271.08 from that judgment was allocated to reduce the Applicant’s GST liability on the account.

The Court held that Mr. Jarrold had not demonstrated that the decision was unreasonable:

[23] The Applicant submits that he is a single parent with a disabled son who is dependent on him, that he is a single-person household, that he has failing health and that his disposable income is shrinking. The Assistant Commissioner’s evaluation and conclusion that the financial setback remission guideline criteria do not apply to the Applicant is reasonable. Indeed, in his affidavit of the judicial review, the Applicant did not adduce any evidence that identifies factors that the Assistant Commissioner failed to consider in his analysis. Indeed, there were no circumstances beyond the Applicant’s control that caused the tax debt to exist or that prevented him from addressing that debt. The Assistant Commissioner, in coming to this conclusion, properly considered the TCC and FCA decisions which concluded that the Applicant acted without due diligence in the management of his corporate affairs to ensure the remittance of trust funds. Moreover, the Assistant Commissioner properly determined that the remission guideline criteria of extreme financial hardship did not apply to the Applicant’s case, because based on the facts, the Applicant’s income places him above the LICO for both the one-person and two-person household. The Assistant Commissioner also considered the Applicant’s equity in the two properties he co-owns as well as rental income in coming to this determination. Moreover, the fact that Ms. Foster is the Applicant’s girlfriend and not his partner, as alleged by the Applicant, has no bearing on the reasonableness of the Assistant Commissioner’s Decision.

Finally the Court held that Mr. Jarrold could not complain about the delay of CRA in reaching its decision:

[27] The Applicant also raised the issue that it took “a full twenty eight months after my request of November 10, 2011 without contact to the local CRA office or myself to determine if there were circumstances she (Ms. Stirling) might be aware of” (AM at para 1). This procedural argument cannot stand. The Financial Administration Act does not prescribe any procedures for handling requests for tax debt reduction. It is left to the discretion of the Minister. There was thus no need for the local CRA office to conduct an initial review and Ms. Stirling was not obliged to contact the Applicant. Moreover, the Applicant was given an opportunity to include the information he wished the Assistant Commissioner to consider in his remission request. The Assistant Commissioner thus had the opportunity to evaluate all the information provided by the Applicant in making his decision.

The application was dismissed with costs.