In Leger v. The Queen, 2007 TCC 322 (which I discussed here) the Court held that the dissolution of a corporation that was later revived did not engage the two-year limitation period otherwise applicable under subsection 227.1(4) of the Income Tax Act. Mr. Justice Bowie arrived at a different conclusion in Aujla v. The Queen, 2007 TCC 764, in respect of a company under the British Columbia Company Act.
In Aujla, the federal Crown applied for an order reviving a company that had been assessed for unremitted GST and then dissolved by B.C. for failing to file corporate information returns. The order reviving the company stated that the purpose of the revival was the collection of the company’s GST debt.
Mr. Justice Bowie seemed to think it important that the order said nothing about the assessment of the directors. In his view, the dissolution of the company meant that its directors ceased to be directors as well. A person cannot be a director of a non-existent company. The revival of the company meant that it was put in the same position as if it had not been dissolved (per Leger), but Justice Bowie held that neither the Company Act nor the order of revival issued under it had the same effect on the directors. Justice Bowie opined that giving such an effect to the statute or the order would require inserting words into them that had retrospective effect, which was against an important principle of statutory construction (see ¶16) and basic principles of fairness, given that the application for the order of revival was made without notice to the former directors.
Aujla is distinguishable from Leger because of the different legal effect of the revival provisions of the B.C. Company Act and the New Brunswick Business Corporations Act. The Crown’s appeal to the Federal Court of Appeal was dismissed with costs (2008 FCA 304), and the latter Court said as much in its judgment (see ¶25). Moreover, the Federal Court of Appeal left open the possibility that an order of revival could include language that would retroactively revive a directorship. No doubt the CRA will be sure to try to include such language in future orders under the B.C. Act (assuming that the legislation has not changed materially since then).
Nonetheless, one wonders if Leger might have been decided differently if more attention had been paid to the Supreme Court’s discussion of the value of limitation periods in Markevich v. The Queen, 2003 SCC 9, which the Federal Court of Appeal cited as follows:
19 The appellant’s submission that the rationales for limitation periods militate against their application to tax collection cannot be correct. As noted above, limitation provisions are based upon what have been described as the certainty, evidentiary, and diligence rationales: see M. (K.), supra, at p. 29. The certainty rationale recognizes that, with the passage of time, an individual “should be secure in his reasonable expectation that he will not be held to account for ancient obligations”: M. (K.), supra, at p. 29. The evidentiary rationale recognizes the desire to preclude claims where the evidence used to support that claim has grown stale. The diligence rationale encourages claimants “to act diligently and not ‘sleep on their rights’”: M. (K.), supra, at p. 30.
20 Each of the rationales submitted as applicable to there being no limitation periods affecting collection are in fact just the opposite and are directly applicable to the Minister’s collection of tax debts. If the Minister makes no effort to collect a tax debt for an extended period, at a certain point a taxpayer may reasonably come to expect that he or she will not be called to account for the liability, and may conduct his or her affairs in reliance on that expectation. As well, a limitation period encourages the Minister to act diligently in pursuing the collection of tax debts. In light of the significant effect that collection of tax debts has upon the financial security of Canadian citizens, it is contrary to the public interest for the department to sleep on its rights in enforcing collection. It is evident that the rationales which justify the existence of limitation periods apply to the collection of tax debts.
The Federal Court of Appeal seemed to decide that, just because legislation might revive a corporation retroactively, it did not follow that the directors should be put in the same position so that they would lose the benefit of a limitation period (see ¶38). The Court seemed to be influenced by the fact that, in Aujla, the CRA, inexplicably, had waited almost five years to collect its debt. These considerations played no role in the Leger decision. The latter Court simply decided, without argument, that a retroactive revival of a corporation must entail the retroactive revival of a directorship (see ¶26).
