The Tax Court of Canada recently considered whether a director
could establish a due diligence defence with respect to unremitted
source deductions where the responsibility for remittance lay with
an employee in Roitelman v. The Queen, 2014 TCC 139.
Roitelman owned an electrical contracting business. Initially,
he personally remitted all source deductions. However, as his
business expanded and he was required to travel more frequently,
Roitelman hired and trained a bookkeeper who was to take over this
role. In the beginning, he oversaw her work and ensured remittances
were made in a timely fashion, but once this oversight ceased, the
company fell behind in its remittance obligations.
The CRA sent five letters to the company about repeated failures
to remit source deductions, and seven Notices of Assessment.
Roitelman did not receive and was not aware of many of these
letters and assessments. After the bookkeeper had been dismissed,
he discovered hidden documents and unsent remittance cheques in the
office. Roitelman admitted he relied on the bookkeeper to make the
remittances without much direct supervision. He left her signed
blank cheques to make the remittances and relied on her assurances
that the remittances had been made.
The CRA assessed Roitelman for directors' liability for
unremitted source deductions under subsection 227.1(1) of the
Income Tax Act for two taxation years. Roitelman appealed to the
Tax Court and advanced a due diligence defence under subsection
227.1(3) of the ITA.
The Court allowed Roitelman's appeal, finding he established
a due diligence defence and was not personally liable for the
In rendering its decision, the Court reviewed the key due
diligence decisions, and reiterated that the due diligence test is
objective and contemplates the degree of care, diligence and skill
exercised by the director in preventing a failure to remit. Thus,
the focus is on whether attempts were made to prevent the failure
to remit and not merely taking steps to remedy the failure after it
In determining whether Roitelman acted diligently, the Court
considered what the reasonably prudent person would have done in
similar circumstances and examined his actions against the prudent
person standard. The Court also emphasized that the director's
actions should not be analyzed in hindsight, but in the context of
the circumstances as they existed at the time the failures took
place. The due diligence test does not require that the steps taken
by the director be effective in ensuring future compliance; the
test only requires that a director take steps to prevent the
failure and that those steps would be proactive steps that a
reasonably prudent person would have exercised in similar
The Court found that the bookkeeper's action and errors were
not simple oversights or mistakes; she acted fraudulently with an
intention to deceive. As a result, the proactive steps taken by
Roitelman (hiring the bookkeeper, providing training, supervising
her until level of comfort reached, trying to correct failures he
was aware of) were reasonable, but frustrated by the
bookkeeper's fraudulent and deceitful behaviour. The Court
concluded that it was reasonable for Roitelman to expect that his
bookkeeper would bring any important correspondence to his
attention and believe that when he signed the remittance cheques
that they were being sent to the Receiver General. The Court also
noted that despite the proactive steps taken, Roitelman was unable
to discover or ascertain the extent of the remittance failures
because the bookkeeper thwarted his attempts to ensure compliance.
The Court held that Roitelman could not reasonably have known that
the bookkeeper would engage in fraudulent and misleading
The Court's decision in Roitelman is of interest because
rarely has a taxpayer been able to establish a due diligence
defence where responsibility for bookkeeping and remittances has
been delegated to another and relied upon. In prior cases, the
courts have emphasized that a director's oversight
responsibilities with respect to remittances cannot be entirely
delegated to another and that individual cannot be blindly relied
upon. The deciding factor in Roitelman was likely the fact that the
bookkeeper actively deceived the director/taxpayer, and no amount
of oversight could likely have avoided the failure to remit.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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