Facts
In 2014, Mr Astle decided to invest in a craft brewery and restaurant operation in British Columbia. He became a shareholder of Brew Street Craft and Kitchen Ltd. (“Brew Street”) and agreed to join the company’s board of directors, signing a consent to act as director and officer. The taxpayer invested $50,000 for a 10% share interest in Brew Street. Brew Street’s principal was an experienced pub operator. After two of Brew Street’s other directors left the company in 2016, the company’s principal asked the taxpayer to serve as a temporary director until a long-term replacement could be found (with both the principal and taxpayer apparently overlooking that the taxpayer had already signed on as director).[1]
The taxpayer began to take on more responsibility at this time, attempting to set up regular directors’ meetings. He also loaned Brew Street some $10,000 to cover operating shortfalls. However, by January 2017, the taxpayer was concerned that he had not been receiving the financial records he had requested for the company. He also became aware that Brew Street’s principal had opened up another bar nearby and it appeared that the principal had redirected funds from Brew Street to his new venture.[2]
By October of 2017, the taxpayer had become aware of unremitted GST along with some unremitted provincial sales tax. In his minutes recorded at the October 2017 directors’ meeting, the taxpayer noted that the principal’s new venture owed Brew Street some $180,000 and that these funds would be used to pay the GST and PST arrears. However, shortly after the directors’ meeting, Brew Street fell behind in paying its payroll processor. The taxpayer was not aware of this at the time, as he understood the company’s employees were being paid. The taxpayer left payroll to the company’s principal and had no reason to believe that the required remittances were not being made.[3]
In November, Brew Street’s principal asked the taxpayer to invest further funds into the company. The taxpayer answered that he was uncomfortable doing so given the issue of Brew Street funds having been redirected to the new venture. The taxpayer asserted, in a text message, that he was “done with it all”, that the company should be sold, and that all of the required taxes paid from the proceeds.[4]
At this point, nothing seems to happen until June 2018 when Brew Street’s corporate counsel had some email correspondence with the taxpayer about selling his shares. At that time, the company’s lawyer asked the taxpayer if he wanted to resign as director. After discussing the wording of the resignation, the taxpayer signed a resignation as director and officer of Brew Street on June 26, 2018 with stated immediate effect.[5]
In his testimony at the Tax Court, the taxpayer explained that following his November 1, 2017 text exchange with Brew Street’s principal, he had assumed the company would take the necessary steps to record his resignation and transfer his shares. Instead, the taxpayer said he first learned that these steps had not been taken when he followed up with the company’s lawyer in June 2018.[6]
On December 11, 2019, the CRA assessed the taxpayer for Brew Street’s payroll source deductions for 2017 and the period of 2018 up to May 31, 2018. (The CRA had attempted to obtain the funds from the corporation but had been unsuccessful in doing so.)[7]