In a recent Tax Court of Canada decision, the court emphasized the importance for a corporate director to submit his resignation in writing.
Director Claims Resignation From Position
The appellant in this case became a director of an Ontario corporation in 1999.
In 2001, the corporation started having problems with payments and invoicing relating to employees. In 2005, it dealt with a failure to remit source deductions assessment, and the directors, including the appellant, had faced the possibility of a director’s liability assessment. While the directors were able to avoid any liability at that time, most of the directors subsequently resigned, with the exception of the appellant and the corporation’s CEO/President.
Additionally, as of October 2011, the corporation had not paid the appellant for five months’ work and owed him approximately $31,000. Thus, on October 18, 2011 the appellant sent an email to the CEO, which he claimed terminated his employment with the corporation and constituted an effective resignation from his position as a director. He also claimed to have followed up this email with several phone calls to the CEO regarding his resignation.
However, neither the corporation nor the appellant had registered the resignation with the proper authorities.
Director Challenges Tax Assessment Based on Resignation
In 2016 and 2017, the Minister of National Revenue (the “Minister”) assessed the appellant on the basis that had been a director of the corporation for the 2008 to 2014 taxation years. The assessment was in the amount of $305,390 for the corporation’s failure to remit total source with holdings.
The appellant challenged the Minister’s assessment on the basis that he had resigned from the corporation as director in 2011. One of his grounds of appeal was based on s. 227.1 of the Income Tax Act, which establishes a limitation period of two years for a director’s liability following the date at which the person ceases to be a director of the corporation.
Thus, one of main issues before the court was whether the appellant had effectively resigned from his position as director of the corporation.
The court noted that the only evidence submitted regarding the appellant’s alleged resignation was his email from October 2011. The court found that the email did not, in fact, make any mention of his resignation. Instead, the email discussed needing to remove himself from the corporation’s payroll for at least six months. The court then stated:
“As a result of that email, and a subsequent telephone conversation that evening, the appellant claims he resigned. Nothing in writing was provided by the appellant to [the corporation].”
The court then noted that pursuant to s. 121(2) of the Ontario Business Corporations Act and previous case law, a director’s resignation is only effective at the time a written resignation is received by the corporation or at a time specified in the resignation. Thus, having found that there had been no written resignation sent by the appellant nor received by the corporation, the court rejected the appellant’s claim that he had resigned at any time prior to the Minister’s assessment.
Despite this finding, however, the court ultimately held that the amounts assessed by the Minister had been fundamentally incorrect. In the result, the court therefore allowed the appellant’s appeal and he was not liable for the amounts assessed.
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