Ahmar v. Canada, 2020 FCA 65 is an appeal from the Tax Court’s decision to hold the taxpayer, who was the sole director and shareholder of a corporation, personally liable for the corporation’s HST debt. The background facts involve a deal that was negotiated between the taxpayer’s corporation, which was encountering financial difficulties in the midst of a construction project, and its customer, who agreed to reimburse the corporation for its payroll expenses. However, the customer failed to pay the accompanying HST, which the taxpayer then claimed was responsible for the shortfall at issue.
While the Tax Court was sympathetic to the taxpayer’s circumstances, it found that the taxpayer “had been focused on curing the failure to remit, rather than on preventing that failure in the first place”, and had also been aware of the company’s tax obligations, but did not ensure they were satisfied. Therefore, the Federal Court of Appeal upheld the Tax Court’s finding that the taxpayer was not entitled to use of the due diligence defence, which meant that the taxpayer was personally liable for the outstanding HST.
Blue J Tax correctly predicted that the taxpayer would not be entitled to use the due diligence defence. The prediction was based on a constellation of factors, including:
- The absence of evidence that the taxpayer, as the corporation’s “sole director and directing mind”, was unable to fulfill the remittance obligation
- The taxpayer’s administrative responsibility for the remittance obligation
- The taxpayer’s awareness that the corporation was experiencing financial hardship prior to the remittance failure
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