In Deakin v R, 2012 TCC 270, the taxpayers had been assessed as directors for the failure of a corporation to remit income tax and GST source deductions. It appears that the taxpayers chose to have the corporation use what it had withheld to keep its business afloat rather than remit the money as required by the Income Tax Act (Canada) and the Excise Tax Act (Canada) (¶ 8).
The Court was not impressed. After quoting at length from R v Buckingham, 2011 FCA 142, the Court concluded as follows:
[21] In these two paragraphs affirming Worrell [[2001] 2 F.C. 203 (CA)], the Federal Court of Appeal [in Buckingham] appears to be acknowledging that directors’ efforts to try to restore the corporation’s fortunes by continuing its business and hopefully allowing it to repay its accrued arrears can, in certain exceptional circumstances, be a relevant consideration in a due diligence defence appeal. It is likely that the extent and scope of this exception and the relevance of such post-default steps will need to be considered and developed by the courts over time. I am satisfied that it is not relevant in the Deakins’ case in any event.
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[23] Given the specific wording of the subsections and the Federal Court of Appeal’s comments in Buckingham, it appears somewhat difficult to imagine circumstances in which an informed and active owner-manager and director of a corporation will not be liable for unremitted employee source deductions and unremitted GST amounts. As mentioned above, the scope of the Worrell exception post-Buckingham remains to be developed in other cases than the Deakins’.
[24] Source deductions and GST remittances are required by law to be made by a business corporation. These are not the corporation’s own funds. The corporation has collected them from its employees and customers. Those employees and customers are given credit for these amounts once withheld and collected, even when not remitted. When owner-managers and directors decide to use these funds to keep their business afloat and support their investments, they are making all Canadian taxpayers invest involuntarily in a business and investment in which they have no upside. In doing so, shareholders and corporate decision-makers are investing or gambling with other people’s money. Directors should be aware of that when they cause or permit this to happen. The directors’ liability provisions of the legislation should be regarded by business persons as somewhat similar to a form of personal guarantee by the directors that can expose them to comparable liability for the amount involved. It is they who are deciding to invest the funds in their own business, for their own gain, not the government or people of Canada. They are doing so contrary to clear law and it appears appropriate as a policy matter that Parliament has legislated clearly that they will generally be responsible for such decisions and the loss resulting from them. In essence, if a corporation and its directors choose to unilaterally “borrow” from Canadian taxpayers and the public purse, Canadians get the benefit of security akin to personal guarantees of the directors.
