In Danso-Coffey v. Ontario, 2010 ONCA 171, the Ontario Court of Appeal considered whether Ontario could assess and collect tax from an individual who was supposedly a director of a corporation when, it turned out, she wasn’t. The Court concluded that Ontario could assess and collect the tax if the individual failed to follow the appropriate procedures in the Retail Sales Tax Act (the “RSTA”) for disputing the assessment.
The Court summarized the problem faced by Ms. Danso-Coffey as follows:
[1] On May15, 2006, the appellant, hereinafter referred to as the Minister, assessed the respondent, Ms. Danso-Coffey, $64,020 for unremitted retail sales tax on the basis that she was a director of Danso Enterprises Ltd. Danso Enterprises was a company owned and incorporated by her brother that had failed to remit the tax and which had made an assignment in bankruptcy.
[2] The assessment was made pursuant to s. 43 of the Retail Sales Tax Act, R.S.O. 1990, c. R-31 (RSTA). Section 43 provides that when a bankrupt corporation has failed to remit tax, the directors of the corporation are jointly and severally liable with the corporation to pay the tax.[1] The section empowers the Minister to assess any person “for any amount payable by the person under this section” and states that the sections of the RSTA respecting assessments, objections and appeals apply with such modifications as required. Subsection 43(3) recognizes a “due diligence” defence, in that liability is not imposed “if the director exercised the degree of care, diligence and skill to prevent the failure [to remit tax] that a reasonably prudent person would have exercised in comparable circumstances.”
[3] Ms. Danso-Coffey was never a director of the corporation and had no involvement with the company. Regrettably, through no fault of her own, she did not contest liability within the framework of the RSTA. She did, however, seek and obtain a declaration under s. 97 of the Courts of Justice Act, R.S.O. 1990 c. C-43, and rule 14.05(3) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, that:
[Ms. Danso-Coffey] was never a director of Danso Enterprises Ltd. and [that she] is accordingly not liable for the section 43 Retail Sales Tax Act director’s liability assessment dated May 15, 2008.
Danso-Coffey’s brother added her as a director of the bankrupt corporation without her knowledge or consent. Moreover, she had no involvement in the corporation’s affairs, and so the Superior Court and the Court of Appeal accepted that, legally, she was never a director of the corporation.
Unfortunately, Ms. Danso-Coffey’s advisers did not follow the procedures set out in the RSTA for disputing her liability under section 43. They missed the relevant limitation periods, including the time within which they could have applied for an extension of time within which to file an objection, and so Danso-Coffey lost her ability to contest the assessment issued against her.
What was the result where, it became clear, the basis of the Minister’s assessment was wrong? The Superior Court purported to solve the problem by issuing a declaration to the effect that, because the basis of the assessment was erroneous, Ms. Danso-Coffey could not be liable under it.
The Court of Appeal overturned the Superior Court’s decision. Madame Justice Weiler accepted that the Superior Court had the jurisdiction to issue its declaration and, in effect, nullify the assessment, but she found that the Superior Court should not have done so.
[33] Superior Courts must be cautious in exercising their jurisdiction in order to preserve the efficacy of the system of tax assessments. They should respect the structure set up by the legislature and not develop a new form of incidental litigation. See by analogy: Canada v. Addison [2007 SCC 33]:
[8] We need not engage in a lengthy theoretical discussion on whether s. 18.5 can be used to review the exercise of ministerial discretion. It is not disputed that the Minister belongs to the class of persons and entities that fall within the Federal Court’s jurisdiction under s. 18.5. Judicial review is available, provided the matter is not otherwise appealable. It is also available to control abuses of power, including abusive delay. Fact-specific remedies may be crafted to address the wrongs or problems raised by a particular case.
[11] Reviewing courts should be very cautious in authorizing judicial review in such circumstances. The integrity and efficacy of the system of tax assessments and appeals should be preserved. Parliament has set up a complex structure to deal with a multitude of tax-related claims and this structure relies on an independent and specialized court, the Tax Court of Canada. Judicial review should not be used to develop a new form of incidental litigation designed to circumvent the system of tax appeals established by Parliament and the jurisdiction of the Tax Court. Judicial review should remain a remedy of last resort in this context.
[34] Whether or not the RSTA is a complete code in the strict sense of that term, the application here was a direct challenge to the validity of an assessment and the provisions of the RSTA govern such challenges.
[35] Where the legislature has specified precisely what conditions must be satisfied to achieve a particular result, it is reasonable to assume that the legislature intended that taxpayers would rely on such provisions to achieve the result they prescribe. Even absent words clear enough to oust the court’s jurisdiction, I would infer that the legislature intended disputes concerning the validity of an assessment of tax to be resolved within the RSTA. Thus the application judge erred in declaring that Ms. Danso-Coffey was not liable for retail sales tax.
What then? Can the Minister collect tax even where the basis for the assessment creating the liability is bogus?
[38] Because Ms. Danso-Coffey was never a director of the company, a precondition for the imposition of liability under s. 43(3) was not met. Nonetheless the original assessment remains valid because of s. 18 (8). Section 18(8) provides:
An assessment, subject to being varied or vacated on an objection or appeal and subject to a reassessment, shall be deemed to be valid and binding despite any error, defect or omission therein or in any proceeding under this Act relating thereto.
[39] As the original assessment under the RSTA was valid and cannot be set aside, I would allow the Minister’s appeal.
Mr. Justice Juriansz was more categorical:
[59] I would also observe that even if the application judge could have properly exercised jurisdiction to grant Ms. Danso-Coffey a declaration determining her tax liability under the RSTA, he should have declared she was liable for the tax assessed. Rule 14.05(3) did not give the application judge the authority to make a declaration that was contrary to the law plainly set out in s. 18(8). The assessment was deemed valid by s. 18(8) of the RSTA.
Interestingly enough, after arriving at her conclusion, Madame Justice Weiler went on to consider several other remedies that might be available to the respondent in the circumstances. The unsympathetic Mr. Justice Juriansz responded as follows:
[61] Finally, I do not acquiesce in the discussion Weiler J.A. undertakes after concluding the appeal must be allowed. I do not see it as my role to seek to assist one of the parties before it by, in effect, offering legal advice. The recourse that Ms. Danso-Coffey may yet have and the statutory provisions upon which she might apply are not issues pertinent to this appeal. I would also refrain from commenting on the equities of the case. Time limits and limitation periods serve a valuable function in the legal process by promoting finality. The fact that time limits and limitation periods are to the detriment of parties who miss them does not affect the equities, in my view.
I admit that I do not find the Court of Appeal decision surprising. It has reiterated a constant refrain of the federal tax courts: woe to you if you fail to dispute an assessment using the procedure provided in the relevant legislation: you will be liable for the tax assessed regardless of the equities.
I’ve had occasion to explain this to clients on a number of occasions. Usually they come to see me years after being assessed because they are being chased by Collections. They wish to argue that they shouldn’t have to pay because they weren’t liable for the tax. I have to explain to them something they don’t want to hear, which is that the Minister can make up a tax liability out of nothing, as it appears to have done for poor Ms. Danso-Coffey, and if you did not follow the correct procedures for disputing the assessment, you are out of luck.
