Taxation law

Administrators’ liability and statute-barred years

Jul 17th, 2020

By Philippe Brunelle

In a recent decision, the Court of Appeal of Quebec[1] reaffirms not only the extent of the obligation of the administrator of a corporation with respect to source deductions and his liability in case of default based on section 24 and following of the Tax Administration Act, but also what this implies with respect to statute-barred years.

In fact, in first instance, the Court of Quebec[2] had held the administrator of the corporation liable, considering that he had not demonstrated on the balance of probabilities that he had acted with a reasonable degree of care, diligence and skill. Thus, the Court had considered that the director had blindly relied on the "biased and botched" opinion of his spouse, the company's tax specialist, wanting to save money by not collecting and remitting the deductions at source.

The interesting element of this decision of the Court of Appeal of Quebec[3], however, concerns the burden of proof with respect to tax-barred years, i.e., years more than 4 years prior to the issuance of the assessment, which cannot normally be reassessed. In fact, the administrator had won his case with respect to the tax-barred years, the Court considering that the ARQ had not succeeded in demonstrating the misrepresentation of facts by wilful negligence or omission, despite the conclusion that the taxpayer had not acted with a reasonable degree of care, diligence and skill in not making the deductions at source in order to save money.

The Court of Appeal of Quebec therefore concludes that there is an insurmountable contradiction and that, to the extent that the court in first instance concludes that there was wilful blindness on the part of the taxpayer and even a desire to save money by not making the source deductions, the limitation period must be waived, even though the burden of proof for the limitation period falls on the Minister.. The trial decision is therefore reversed and the Notice of Assessment for prior years is reinstated.

It must therefore be remembered that administrators must be prudent, because in addition to having to assume the corporation's tax obligations in the event of its failure to make source deductions, it is quite possible that the ARQ may go back beyond the statute-barred years if there is wilful blindness.


[1] Demers v. Quebec (Agence du revenu), 2020 QCCA 681

[2] 6094350 Canada inc. v. Quebec (Agence du revenu), 2018 QCCQ 556

[3] Prec., note 1