Tax & Trade Blog

The recent Tax Court decision in Les Ventes et Façonnage du Papier Reiss Inc. v The Queen (2016 TCC 289) (the “Reiss Case”) places new emphasis on the verification obligations of GST/HST and QST registrants claiming input tax credits (“ITCs”), confirming and expanding the “duty of verification” first asserted by the CRA in Salaison Lévesque Inc v The Queen (2014 TCC 36: at para 86).

Over the past several years, the CRA Audit Division has directed more attention to businesses that use Employment Agencies for their staffing needs.  If your business deals with Employment Agencies, Temporary Labour, Staffing Agencies, or other similar entities, consider consulting us for strategies on safeguarding your ITCs.

The recent FCA decision, Canada v Chriss (2016 FCA 236), underscores the resignation obligations of directors.  If directors do not execute their resignations properly and completely, they will remain liable for the actions of the corporation, including director’s liability assessments issued by taxing authorities like the Canada Revenue Agency (“CRA”).

Although section 323 of the Excise Tax Act imposes joint and several liability onto the corporate director for a corporation’s failure to remit GST/HST, this liability is negated if the director “exercised the degree of care, diligence and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances.”  In order to establish this due diligence defence, a director has to meet a fairly high threshold according to current jurisprudence.  The recent decision of Cherniak (2015 TCC 53), suggests that this defence will be very difficult to meet where the corporation assessed was involved in “artificial” transactions.

In light of the inherent risks of serving as director of a corporation, business owner-operators may be tempted to appoint their spouse or family member as the sole director of their corporation, despite the fact that that person may be completely uninvolved with or unknowledgeable about the corporation’s operations.  This is primarily done with a view to “creditor-proofing”.  However, as the Federal Court of Appeal (FCA) decision of Constantin v. The Queen (2013 FCA 233) illustrates, this strategy is far from invincible when it comes to GST/HST remittances.