https://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/356485/index.do
Mueller v. The Queen (December 18, 2018 – 2018 TCC 260, Bocock J.).
Précis: Mr. Mueller was a director of Polgercan Corp. (Polgercan). He understood that the company was winding up its business so arranged to pay the outstanding corporate debts of which he was aware. Subsequently he was assessed as a director in respect of source withholding for three corporate employees. He claimed that he was never aware of the unpaid amounts. The Tax Court found him liable because he had never made reasonable inquiries to determine the state of the employee withholdings. Thus the appeal was dismissed with costs to the Crown, subject to the right of the parties to make submissions on costs within 30 days of the decision.
Decision: The facts were not very complex:
[2] Polgercan was incorporated on July 9, 2001. The only two directors, officers and shareholders were Mr. Mueller and one Gregory Chojna. Mr. Chojna and Mr. Mueller had worked together before that time for a well-known high rise repair and restoration company. Mr. Chojna approached Mr. Mueller to leave and undertake a new business of constructing and installing bus shelters. Mr. Mueller undertook the “hands on” operations of the business while Mr. Chojna managed the books, records and finances of Polgercan. All went quite well until 2005 or 2006, when Mr. Chojna lost interest and wished to pursue an investment business. He wanted out. Mr. Mueller, although dejected and disappointed, relented. Polgercan was, in Mr. Mueller’s words, “closed” or, at least Mr. Chojna led Mr. Mueller to believe it was so.
[3] In “closing down” Polgercan, Mr. Mueller believed all liabilities had been satisfied. He knew of some $40,000.00 in debts. He took steps to sell certain assets of Polgercan. He remitted that money and forfeited another $5,000.00 to Mr. Chojna to satisfy these known debts. He also took possession and assumed monthly lease payments of $460.00/month for 3 years on a 4 year old truck owned by Polgercan at the time the business ceased to operate.
[4] Lurking underneath the known liabilities were the unremitted amounts. These sums related to employee deductions for primarily 3 employees: Mr. Chojna’s son, Mr. Mueller’s former brother-in-law and one other. At the hearing, Mr. Mueller stated he was disbelieving of the quantum and existence of the amounts. He testified he believed his brother-in-law was an independent contractor, Mr. Chojna’ son could not possibly have been paid $25,000.00 since he was a student for only one summer, and, lastly, he had never heard of the third employee.
[5] The other director, Mr. Chojna, was not helpful to Mr. Mueller’s cause. Mr. Chojna became a bankrupt in 2009. He purposely destroyed all the business records. Similarly, Polgercan’s accountant, who had prepared all of the corporate and personal tax returns, retained very few, if any, records by the time Mr. Mueller was served on August 1, 2013, with the assessment for the unremitted amounts, relating back to 2005 and 2006.
[6] The reason for this delay was explained by various witnesses at the hearing, including the CRA resource office. The assessment arose because Polgercan had neither filed corporate tax returns since 2005 nor remitted source deductions since at least that time without explanation. After considerable effort in tracking down the records at the accountant’s office, a trust audit of payroll records was conducted in June 2009. A garnishment of a bank account for Polgercan collected a small amount. Ultimately, in January of 2013, an effective certificate for the debt was registered in the Federal Court. The writ of seizure and sale was remitted to the bailiwick of the Sheriff for the relevant county. It was returned nulla bona. In August of 2013, the assessment for the unremitted amounts was served on Mr. Mueller. Hence, this appeal.
The Tax Court rejected Mr. Mueller’s argument that he was unaware of the unpaid source deductions:
[16] Mr. Mueller was, and to this day is, a director of Polgercan. He cannot rely upon the two year limitation period in subsection 227.1(4). He may have believed that “shutting down” the business effected some combination of: his removal from office as a director and officer, the extinguishment of all obligations of the corporation (or, at least, himself) and the commencement a limitation period for directors’ liability claims. Regrettably for him, the “closing down” of Polgercan did nothing of the sort. Mr. Mueller had full signing authority on Polgercan’s accounts and exercised it concurrently with Mr. Chojna. He co-signed all paycheques. This made him aware of paid wages. The Act made him responsible for the concurrent liabilities now comprising the unremitted amounts.
[17] Because of his status as a director, and an active one at that, Mr. Mueller was required to: ascertain the status of the outstanding liabilities comprising the unremitted amounts. There is no evidence he requested such information or queried whether there were sufficient funds to pay source deductions as he concurrently signed the cheques. Mr. Mueller cannot in default of that required inquiry, during the time such liabilities arose, afterwards query why the CRA did not inform him, a director, of the amounts in 2008 and 2009, some 24 months later when the CRA first learned of the possible debt. The critical steps of Mr. Mueller were not taken during the accrual and non-payment of the unremitted amounts. Factually, there is no question of having received incorrect information on the status of the liabilities; he simply never asked.
[Footnote omitted]
Thus the appeal was dismissed with costs to the Crown, subject to the right of the parties to make submissions on costs within 30 days of the decision.