Ahmar v. R. – FCA: taxpayer failed to establish defence of due diligence before Tax Court – appeal dismissed by Federal Court of Appeal

Ahmar v. R. – FCA:  taxpayer failed to establish defence of due diligence before Tax Court – appeal dismissed by Federal Court of Appeal



Ahmar v. Canada (March 25, 2020 – 2020 FCA 65, Webb, Rennie, Mactavish (Author) JJ.A.).

Précis:   The taxpayer’s company, Strong Forming Inc., ran into difficulties as a subcontractor on a subway station project in Toronto.  Money was short and it failed to remit HST as the taxpayer used available funds in an attempt to keep the company afloat. The taxpayer was assessed as a director of Strong Forming for the unpaid HST.  He appealed unsuccessfully to the Tax Court and, subsequently, to the Federal Court of Appeal.  The Court of Appeal agreed with the Tax Court that the taxpayer had not made out a due diligence defence and dismissed the appeal.  The parties were given two weeks to attempt to agree upon costs.

Decision:    The taxpayer was the victim of unfortunate business circumstances:

[11]  The Tax Court considered Mr. Ahmar’s explanation for the company’s failure to comply with its HST obligations. While accepting that the company had been subject to an unfortunate set of circumstances that the Court described as a “perfect storm”, it nevertheless found that Mr. Ahmar had been aware of Strong Forming’s tax obligations and that he had failed to act “in a positive and affirmative way” to ensure that the company’s tax obligations were satisfied. Rather than using funds that were otherwise available to satisfy Strong Forming’s tax debt, Mr. Ahmar chose instead to use these funds to try to keep the company going.

Nevertheless the Court of Appeal found no reversible error in the Tax Court’s decision dismissing the taxpayer’s appeal:

[26]  There is, however, no dispute that the net tax during the reporting periods in issue was $183,180.75. There is no indication of the amount of input tax credits of Strong Forming for the relevant reporting periods. Since the rate of HST in Ontario was 13% at the relevant time, in order to generate this amount of net tax the taxable supplies made by Strong Forming during these reporting periods must have been at least $1,409,083 (which would the amount assuming no input tax credits). This would suggest that there were probably taxable supplies that were made by Strong Forming during this time, apart from the supply of services for which Strong Forming was invoicing Rossclair an amount equal to the payroll amount of these six employees plus HST.

[27]  The Tax Court was, moreover, clearly alive to Mr. Ahmar’s personal circumstances and those of Strong Forming, including the fact that Rossclair had failed to pay the HST component of Strong Forming’s invoices. The Court evaluated Mr. Ahmar’s explanation for the company’s failure to pay its taxes in light of the governing jurisprudence, finding that he had been focused on curing the failure to remit, rather than on preventing that failure in the first place. The Tax Court thus concluded that Mr. Ahmar had not demonstrated that he had exercised the degree of care, diligence and skill necessary to prevent the failure to remit that would be exercised by a reasonably prudent person in comparable circumstances. Having applied the appropriate test, the Tax Court did not err in law in this regard.

[28]  At the end of the day, Mr. Ahmar is really asking this Court to reweigh the evidence that was before the Tax Court and to come to a different conclusion with respect to his personal liability for the tax debt of Strong Forming. That is not the role of this Court on an appeal such as this. The Tax Court’s finding that Mr. Ahmar had failed to demonstrate that he was entitled to use the due diligence defence was one that was open to the Court in light of the record before it, the requirements of subsection 323(3) of the Excise Tax Act and the governing jurisprudence. Mr. Ahmar has not established that the finding was tainted by either an error of law or a palpable and overriding error.

Thus the appeal was dismissed.  The parties were given two weeks to agree upon costs.