Sheck v. R. – TCC: Assessment for GST/HST on transfer from husband at a date he was a tax debtor upheld by Tax Court

Sheck v. R. – TCC:  Assessment for GST/HST on transfer from husband at a date he was a tax debtor upheld by Tax Court

Sheck v. The Queen (June 29, 2018 – 2018 TCC 125, Russell J.).

Précis:   Mrs. Sheck appealed an assessment in respect of a transfer of $17,500 made to her in 2008 in respect of outstanding GST/HST owing by her husband and a dry-cleaning corporation of which he was the sole director.  She argued that her husband was not liable for the corporate tax until the date in 2016 when a Federal Court certificate for the corporate tax was returned unsatisfied.  The Court rejected this argument as a matter of statutory interpretation.  The Court rejected a second argument that $12,000 of the funds transferred to her in 2008 represented repayment of a loan she had made to her husband.  As a result the appeal was dismissed without costs.

Decision:   The Court rejected the argument that the husband’s debt did not arise until 2016, some 8 years after the original transfer of $17,500 to her:

[8]  The Appellant’s submission is that at the time of the August 18, 2008 transfer, her husband the transferor was not under any liability to pay and remit an amount under Part IX of the Act.  While subsection 323(1) made him, as a director of the Company, jointly and severally liable with the Company for the Company’s un-remitted amounts of net tax, subsection 323(2) delays that liability upon the director until any of paragraphs (a), (b) and (c) of subsection 323(2) applies.  And this is due to subsection 323(2)’s clear opening words, that a director was “not liable under subsection (1) unless” one or other of those three statutory paragraphs applied.


[9]  The only one that since has come to apply is paragraph (a), which stipulates the filing of a certificate in Federal Court for the owed amount, and issuance and return unsatisfied of a writ of seizure against the Company.  The last of those steps was completed January 13, 2016 - more than seven years after the subject August 18, 2008 transfer.  Only upon that happening, the Appellant’s argument goes, did the husband transferor become, per paragraph 323(2)(a), jointly and severally liable for the Company’s debt under the Act - more than seven  years after the August 18, 2008 transfer.

[10]  In this case, per the wording of paragraph 323(2)(a) the director “is not liable under subsection (1) unless...”. But upon the “unless” proviso  being satisfied, it follows that the director then “is...liable under subsection (1)”.

[11]  And what is the actual subsection (1) liability?  It is, adopting the words of that provision, joint and several liability with the particular corporation “to pay the amount and any interest on or penalties relating to the amount”.  And, “the amount” is any amount of net tax that the corporation has failed to remit under the Act. Accordingly the subsection (1) liability arises at time of corporate failure to remit, and it is that liability for which the director is jointly and severally liable.

[12]  Thus, upon the paragraph 323(2)(a) “unless” provision being satisfied, the director’s consequential liability “under subsection (1)”, is as subsection (1) contemplates, joint and several liability that arose as of the time of the corporation’s failure to remit.  Here, as noted above, the date that liability arose is prior to August 18, 2008.

[13]  If Parliament had intended what the Appellant has argued, that a director’s liability would only take effect as of and from the date the writ was returned unsatisfied, then the wording of this legislation would simply have been that the director becomes jointly and severally liable for corporate failure to remit upon the writ having been returned unsatisfied, rather than as here commencing the legislative provisions by providing in subsection (1) for joint and several liability of the director arising at the time that the corporation has failed to remit.

The Court also rejected the argument that $12,000 of the 2008 payment was the repayment of a loan that Mrs. Sheck had made to her husband:

[17]  The Appellant’s other submission is that some consideration was paid for the subject $17,500 transfer, in the form of a $12,000 loan the Appellant made to her husband at his request to satisfy certain debts of his other company, Nu-Energy Window Cleaning Co. Ltd. There was no written loan agreement pertaining to this alleged loan, and as such no documentary evidence of any legal obligation to repay. The two spouses testified that they anticipated that this money would be repaid upon Mr. Sheck receiving funds from his father’s estate.

[18]  However, in cross-examination the Appellant admitted that in correspondence with Canada Revenue Agency (CRA) officials regarding the $12,000, she had never asserted that there was a contract between her and her husband requiring repayment of the $12,000. She had written to CRA approximately three years ago, although well after the August 18, 2008 transfer to her of the $17,500, saying that she “never got [the $12,000] paid back”. The Appellant testified also that on February 6, 2018 her accountant had written to CRA stating in respect of the August 18, 2008 transfer that she, “did not know why [her husband] transferred more to her than what was stipulated in the Will [which was nil for the Appellant]”. The Respondent submitted that this was indicative of the transfer not having been made pursuant to a legal contract because she the Appellant was admitting she did not know the reason for the transfer. In this response the Appellant acknowledged that it was “difficult to understand” her letter.

[19]  On the basis of the foregoing I am unable to conclude that there was a legal obligation to repay the $12,000, although quite possibly there was an extra-legal intent on the part of the husband, on a best efforts basis, to do so.

As a result the appeal was dismissed without costs.