Le v. R. – TCC: Taxpayer neither a de jure nor de facto director – director’s liability assessment lifted

Le v. R. – TCC:  Taxpayer neither a de jure nor de facto director – director’s liability assessment lifted


Le v. The Queen (April 9, 2018 – 2018 TCC 65, Russell J.).

Précis:  The taxpayer was assessed for both GST and source deductions for several years in connection with 0780221 B.C. Ltd. (the “Corporation”) on the basis that she had been either a de jure or  de facto director of the Corporation during the periods at issue.  The Tax Court examined the evidence and was satisfied that the taxpayer had been neither a de jure nor a de facto director of the Corporation at any material time.  Thus her two appeals were allowed with costs totaling $1,000 even though these were informal procedure appeals.

Decision:   The facts of this case were, to say the least, odd:

[3]  The Appellant, fluent in Vietnamese and less so in English, testified that in 2006 she lived in North Vancouver where she owned and operated several beauty salons (hair, hands, nails). That year she decided to acquire and transform a tanning salon in Langley into another of her beauty salons. One of her long-time salon employees, Ms. Dang Thanh Landry, who also was fluent in Vietnamese, was moving to Surrey, putting her much closer than the Appellant to the new Langley beauty salon location. The Appellant testified that Ms. Landry proposed to her that they partner in the operation of this new salon.

[4]  The Appellant was agreeable to this. The Appellant’s testimony was that Ms. Landry’s husband, E. Landry, a non-lawyer, said he would prepare necessary paperwork. He wanted to be in the partnership too, and advised the Appellant they needed to set up a corporation. The Appellant testified she told him she wished simply a partnership arrangement. Nevertheless, in intended compliance with the Business Corporations Act (B.C.) (BCA), Mr. Landry prepared articles of incorporation for a new corporation, and he and the Appellant signed these articles, each as “incorporator”, in early January 2007. The Appellant acknowledged her signature but testified she did not recall the document itself.

[5]  The Appellant testified that also Mr. Landry prepared a 10 page agreement entitled, “Partnership Agreement of 0780221 B.C. Ltd., a British Columbia Corporation”, which the Appellant was asked to sign and she did so. This document made no mention of the Corporation throughout its 10 pages other than in the aforesaid title of the document and in clause 1.03 (immediately below), and it essentially was a re-worked partnership agreement. Its preamble stated that the Appellant was in partnership with Mr. Landry’s existing corporation, named EKO Consulting and Appraisal Services Ltd. (EKO).

The Tax Court held that the evidence did not support the assertion that Ms. Lee had ever acted as a de jure director of the Corporation:

[30]  In noting this I am aware of the Appellant’s testimony that she had expressed to Mr. Landry and his wife that she wished a partnership arrangement. She did not seek a corporate arrangement, however that is what Mr. Landry arranged. This seems confirmed by the fact Mr. Landry prepared the incorporation application and he or Gerry prepared what was called a “partnership agreement” for the Appellant and Mr. Landry to sign.

[31]  Therefore, it seems that there was no actual “incorporation agreement” in this situation, which statutorily and unavoidably leads to the conclusion that the Appellant was not an “incorporator” as defined in section 1 of the BCA. This in turn leads, per paragraph 121(2)(a) of the BCA set out above, to invalidity of any designation that she was a director.

[32]  The fact that at the end of the lengthy partnership agreement the Appellant signed her name over the designation of “Director” does nothing to alter these conclusions. There was no context provided for this designation appearing at the end of the lengthy agreement which dealt with partnership and only briefly mentioned the Corporation at the beginning of the agreement. The parties were referred to as “partners” throughout the agreement. Further, signing over the title “Director” in this agreement did not constitute any third party representation. The document was a private document, not to be, and in fact not, filed or available in any public way.

The Tax Court reached the same conclusion on the question of de facto director:

[40]  In this case the Appellant manifestly did not at any time hold herself out as a director of the Corporation. Further, it is doubtful that, at least until she sold her interest in the business to Mr. Landry for $15,000 in May 2009, to what extent she even was aware of the existence of the Corporation. But accepting that she was, she engaged in no acts of management, as Mr. Landry acknowledged, noted above, let alone any actions specific to a director. Her own evidence, uncontradicted, was that it was not until CRA made contact with her in 2013 that she learned she was considered a director of the Corporation. Also, the fact that she was publicly listed as a director, albeit not to her knowledge, does not require that she be a de facto director (Macdonald, supra, para. 49). Again, she herself at no time conducted or held herself out as a director. Accordingly, I find that the Appellant was not a de facto director of the Corporation.

[41]  I note the Respondent argued that if the Appellant were not a director, then likewise neither was Mr. Landry, yet per section 120 of the BCA the Corporation had to have at least one director, with the Respondent suggesting that the one director should be the Appellant. I disagree. The person who logically and obviously would be that one director is Mr. Landry, who prepared the incorporation application and described himself therein as the “completing party” of the incorporation application. Furthermore, and in any event it seems likely (but I make no finding) that he would have been a de facto director on the basis of holding himself out as a director of the Corporation.

Thus her two appeals were allowed with costs totaling $1,000 even though these were informal procedure appeals.