The taxpayer directed a tavern business whose main clientele were university students. Payroll and GST/PST remittances were handled by his general manager (Hughes). The taxpayer co-signed all expense cheques on a weekly basis, and also conferred with Hughes on a weekly basis about how the business was doing. In mid-August, CRA advised him that the corporation had GST remittance failures beginning in June. Hughes advised him that she made an arrangement to pay the arrears in instalments. In early September, he was also informed of payroll remittance failures, and of PST remittance failures. He injected $22,000 of his own capital into the business, but it was used mainly to replenish inventory.
C. Miller J. found that the taxpayer was liable for the remittance failures from August until the business closed in November, given that the taxpayer had deliberately collected payroll deductions and sales tax and not remitted those amounts.
Before August, however, the taxpayer had no reason to suspect that the corporation's remittance obligations were not being met, and he had been reasonably prudent in keeping abreast of the corporation's finances, relying principally on Hughes to keep him informed and keep the business in order. C. Miller J. stated (at para. 32):
The assessment of a director's conduct prior to deemed or actual knowledge of financial difficulties should simply not be as demanding. I agree with the Respondent that a director should ask specific questions about remittances during a period of financial difficulties. I do not believe though that such a level of diligence is required up to that point in determining the director's due diligence.