Ahmar v R, 2020 FCA 65, reminds us that a director is not duly diligent if he fails to remit HST in the hope that he can turn around the corporation’s business. This is true even where the director is an honest, hard-working business owner who injects his own money into the corporation to keep it afloat. The Court wrote:
[18] Insofar as this latter submission is concerned, this Court held in [R v. Buckingham, 2011 FCA 142] that a director’s conduct should be evaluated as of the time that he or she became aware that the company was entering a period of financial difficulties: above at para. 46. Moreover, the focus of the due diligence defence is “to prevent the failure to remit, not to cure failures to do so” Buckingham, above at paras. 31, 33 and 53. In [Balthazard v R, 2011 FCA 331], this Court found that “it is important for directors to quickly make the necessary decisions if they wish to successfully mount a due diligence defence”: above at para. 50. The Court further observed that quick decisions are important because the farther a business falls behind in its taxes, the more difficult it becomes to argue that the business is not using Crown remittances to operate: Balthazard, above at para. 50.
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[24] As this Court observed in Buckingham, where a company is facing financial difficulties “it may be tempting to divert these Crown remittances in order to pay other creditors and thus ensure the continuation of the operations of the corporation”. The Court held, however, that this was precisely the mischief that section 323 of the Excise Tax Act sought to avoid. This Court went on in Buckingham to state that the defence under section 323 “should not be used to encourage such failures by allowing a due diligence defence for directors who finance the activities of their corporation with Crown monies on the expectation that the failures to remit could eventually be cured”: both quotes from para. 49.
