EDWARD DOUGLAS FITZGERALD Applicant – v. –, 2023 NBKB 162

Citation: 2023 NBKB 162 Date: September 26, 2023 Docket: FM-111-2022 IN THE COURT OF KING’S BENCH OF NEW BRUNSWICK TRIAL DIVISION JUDICIAL DISTRICT OF FREDERICTON BETWEEN: EDWARD DOUGLAS FITZGERALD Applicant – and – GILRIDGE GOLF CLUB INC., 508913 N.B. INC., HIS MAJESTY THE KING in right of CANADA as represented by THE MINISTER OF NATIONAL REVENUE OF CANADA, JOHN FITZGERALD, and PATRICK WINDLE Respondents Date of Hearing: April 4, 2023 Date of Decision: September 26, 2023 Subject Matter: Taxation – Jurisdiction Over Tax Matters Before: Justice Terrence J. Morrison At: Burton, New Brunswick Appearances: Jack M. Blackier for the applicant Tanner McInnis for the Attorney General of Canada

DECISION Morrison, J. I. INTRODUCTION [ 1 ] 508913 N.B. Inc. is the parent company of Gilridge Golf Club Inc. (“Gilridge”), owning 100% of the shares of Gilridge (collectively the “Corporations”). Gilridge owns and operates Gilridge Golf Club in Fredericton, New Brunswick. Historically, the applicant and his uncle, John Fitzgerald, each owned 50% of the shares of 508913. In December 2010, Gilridge sold land at the golf club. In conjunction with the land sale, the applicant sold his shares in 508913 to John Fitzgerald, such that John Fitzgerald became the owner of 100% of the shares of that corporation.

Prior to the land sale, the applicant was a director of both Corporations. [ 2 ] The applicant was under the belief that the sale of his shares constituted a termination of his position as a director of the Corporations, although there is no evidence that he submitted a resignation. After the sale of his shares, the applicant had no involvement, either directly or indirectly, in the management of the Corporations. The applicant had no involvement with the revival of the Corporations. [ 3 ] In November 2015, the Corporations were dissolved for non-payment of fees by the Director of Corporate Registry.

The Corporations were subsequently revived. The same thing happened again in 2018. [ 4 ] In 2019, the applicant received correspondence and inquiries from the Canada Revenue Agency (“CRA”) with respect to his potential personal tax liability for outstanding tax obligations of the Corporations.

The inference being that CRA continues to consider the applicant to be a director of the Corporations. [ 5 ] The applicant seeks, among other relief, a declaration that he ceased to be a director upon the dissolution of the Corporations and that he never became a director thereafter, either de facto or by virtue of the revival of the Corporations. The applicant also seeks rectification of the corporate records of the Corporations, removing him as a director pursuant to s. 168 of the Business Corporations Act, SNB 1981, c.

B-9.1 (“the BCA ”). [ 6 ] The named respondent, His Majesty the King as represented by the Minister of National Revenue of Canada submits that the proper name of the respondent should be “Attorney General of Canada”. The applicant doses not object. The style of the proceeding is hereby amended to reflect the proper name of the respondent as the Attorney General of Canada. The respondent will be referred to herein as “CRA”. II. PRELIMINARY ISSUE [ 7 ] The CRA submits that the Tax Court of Canada is the more appropriate forum to determine the issues raised in this application.

The CRA points to the applicant’s specific references in both the Notice of Application and his affidavit to the limitation period barring the CRA from pursuing a person two years after they cease to be a director. The CRA submits that it is “plain and obvious” that the raison d’être of this application is to obtain a declaration that would permit the applicant to avoid personal liability for the tax liabilities of the corporations. In short, the CRA submits that the application is made to avoid the imposition of a tax. [ 8 ] The CRA relies on Scotia Mortgage Corporation v. Gladu , 2017 BCSC 1182 .

In that case, the applicant sought a declaration that when a person purchases a property following foreclosure, under British Columbia law he purchases from the mortgagee and not a non-resident. The effect of the declaration would be to determine that the applicant did not acquire the property from a non- resident within the meaning of s. 116 of the Income Tax Act . The Court determined that the only purpose of the declaration was to avoid the 25% tax applicable to non-residents on such transactions. [ 9 ] The Court declined to exercise any jurisdiction over the matter.

The Court made specific reference at para. 19 to the case of Canada v. Addison & Leyen Ltd. , 2007 SCC 33 , where the Court stated, at para. 16:

Reviewing courts should be very cautious in authorizing judicial review in such circumstances. The integrity and efficacy of the systemof tax assessments and appeals should be preserved. Parliament has set up a complex structure to deal with a multitude of tax-related claims and this structure relies on an independent and specialized court, the Tax Court of Canada… [Emphasis added] [10] CRA also relies on Mandel v. 1909975 Ontario Inc., 2021 ONCA 844.

In that case the applicants sought adeclaration that, under the British Columbia Business Corporations Act, shares were not validly issued because they were not paid forwhen they were issued. The effect of the declaration would be to nullify a CRA assessment for taxes on the basis that the receipt of theshares constituted a taxable benefit under the Income Tax Act. [11] The application judge noted that the raison d’être for the application was the tax assessment and declined toexercise jurisdiction in the case.

The application judge stated at paragraph 13: [13] […] The Tax Court is much better placed than is this court to determine whether, for tax purposes, the applicants should be considered to becontrolling shareholders of the Child Corporations. The Tax Court has expertise in dealing with sophisticated corporate structuringand assessing the tax consequences of planning exercises of that nature.

Given its specialized expertise, the Tax Court is also betterplaced to make findings of fact and draw inferences about whether the applicants paid for their shares, why they recorded the purchaseprice as a receivable (if the “Sundry Receivable” in fact relates to the shares) and whether any of these findings or inferences should havea bearing on the application of s. 23(3) to the tax assessment. [Emphasis added] [12] The case was upheld by the Ontario Court of Appeal. [13] The applicant submits that the above-mentioned cases relied upon by the CRA are distinguishable from thepresent case.

He points out that in all the cited cases the CRA had issued notices of assessment. In the present case, there have been noassessments, notices of assessment, appeals or an audit with respect to the applicant. The applicant submits that, absent such actions bythe CRA, the Federal Tax Court could not have any jurisdiction over this application. [14] The jurisprudence directs that superior courts should take jurisdiction only in cases that are ancillary to a taxassessment (Sheila Holmes Spousal Trust v. Canada [AG], 2013 ABQB 489, at para. 6, citing Addison v. Leyen Ltd.).

In Sheila Holmes,the Court was asked for declaratory relief with respect to the validity of a trust. The court declined jurisdiction in part because thedeclaration would bind the Minister and would impact the basis upon which the applicant could be assessed. Even though there was noaction in the Tax Court of Canada, that was found not to be a reason for the Alberta court to take jurisdiction. The court stated atparagraph 20-21: [20] Declaratory relief granted by this Court pursuant to the Judicature Act is binding on the Minister and on the Tax Court: Dale v. R(1997) (FCA), 2 CTC 286 (Fed CA).

Therefore, while the assessment of tax is not before this Court, adeclaration by this Court that the Trust is or is not a sham and is or is not valid would be binding on the Minister and woulddirectly impact the primary basis upon which the Trust and the Settlor could be assessed. However, in the event this Court were todeclare the Trust valid, the alternative basis for the reassessment of the Settlor, being s. 75(2) of the Income Tax Act, would not beaffected. [21] The adjudication of the validity of tax assessments falls within the exclusive jurisdiction of the Tax Court of Canada.

Inaddition, the Tax Court has jurisdiction to make necessary and incidental findings of provincial law in the process ofadjudicating on tax matters if a court of competent jurisdiction has not already decided the issue: GLP NT Corp v Canada(Attorney General) (2003), (ON SC), 65 OR (3d) 840, DTC 5654 (Ont SCJ) at paras 12-15.

This proposition wasalso stated in Roper v R., (TCC), 2000 DTC 2213 (T.C.C.) [General Procedure] at para 10: When a taxpayer appeals to this Court from an assessment under the Income Tax Act, the Court has jurisdiction to consider anddecide all issues which are collateral to the appeal itself.

In this appeal, the presiding judge may have to decide whether a certainliability of the Appellant has been extinguished under the Bankruptcy and Insolvency Act if that precise question has not already beendecided by a court having jurisdiction in bankruptcy matters. [Emphasis added] [15] With respect to the issue of declaratory relief the court had this to say at paragraph 67: [67] With respect to the use of declaratory judgments, the comments of Dickson, J. in Operation Dismantle v.

R (1985), (SCC), 18 D.L.R. (4th) 481 SCC, speaking for the majority of the Supreme Court of Canada at p. 492 are instructive: The reluctance of courts to provide remedies where the causal link between an action and the future harm alleged to flow from it cannotbe proven is exemplified by the principles with respect to declaratory relief.

According to Fager, The Declaratory Judgment Action(1971), at p. 5: ‘The remedy [of declaratory relief] is not generally available where the controversy is not presently existing but merely possible orremote; the action is not maintainable to settle disputes which are contingent upon the happening of some future event which may never

take place. Conjectural or speculative issues, or feigned disputes or one-sided contentions are not the proper subjects for declaratory relief.’ [15] In this case, the declaration that the applicant ceased to be a director upon the dissolution of the Corporations would impact the basis for any future assessment by CRA against him. Further, the applicant’s counsel acknowledged that CRA was made a party to the application so that it would be bound by this court’s ruling.

While there has not yet been any assessment by CRA which could trigger personal tax liability of the applicant, the tax question is at the core of this application. [ 16 ] In the applicant’s Notice of Application the CRA is named as a respondent as having “legislative jurisdiction over the Income Tax Act (Canada) (“ ITA ”) and the Excise Tax Act (Canada) (“ ETA ”)”.

In the Notice of Application, the applicant seeks a declaration that he ceased to be a director at the time the Corporations were dissolved and makes specific reference to the two-year limitation period under the ITA and the ETA barring the CRA from pursuing a person two years after they ceased to be a director.

The applicant seeks a declaration effective as of a date outside of the two-year limitation period. [ 17 ] In his affidavit, the applicant attaches correspondence he received from CRA and makes specific reference to the provisions of the ITA and the ETA that may impose personal tax liability and the above-mentioned limitation period: 40.

I am advised by Blackier, and do verily believe, that there are provisions in the Income Tax Act (Canada) (“ ITA ”) and the Excise Tax Act (Canada) (“ ETA ”) wherein a director of a said company may be held personally liable by CRA for unremitted tax remittances by said company, including unremitted payroll remittances and unremitted HST collected by a company. I am also advised by Blackier, and do verily believe that, pursuant to

Section 227.1(4) of the ITA and

Section 323.1(5) of the ETA , no action or proceedings against a corporate director to recover moneys owing under the ITA or the ETA by the corporation shall be commenced more than two years after the director last ceased to be a director of the corporation. 41.

I am advised by Blackier, and do verily believe, that a determination of the timing of and the enforcement of the two (2) year limitation periods established under the ITA and the ETA requires a precise determination with respect to the date upon which an individual last ceased to be a director of a corporation. [ 18 ] The applicant has never resigned as a director of the Corporations even though he can do so at any time. However, s. 66(2) of the BCA provides that a resignation is effective as of the later of the time specified in the resignation, or the time it is sent to the corporation.

A resignation today by the applicant would not assist him on the limitation issue as he would remain exposed to personal liability for the next two years. The fact that the applicant has chosen to seek a declaration rather than simply resigning underscores the central purpose of this application: to avoid liability under the ITA and the ETA . [ 19 ] It is plain and obvious that the raison d’être of the present application is to obtain a declaration that would permit the applicant to avoid potential personal liability for corporate taxes and remittances.

In short, the application is made to avoid the imposition of a tax. As in the Scotia Mortgage case, the court would be commenting on the applicability of a provision of the ITA (in that case

section 116 of the ITA and here s. 227.1) even though the declaration is sought under the auspices of provincial corporations legislation . [ 20 ] I note that virtually every one of the cases cited by both counsel on the central issue in this case (the effect of dissolution) emanate from the Tax Court of Canada. The application also raises issues concerning whether the principles of equitable rectification apply. This is a topic that is frequently addressed by the Tax Court of Canada. In my view, this application is premature and pre-emptive. There is a statutory process under the income/excise tax regime.

If, and when, the applicant is assessed by CRA, and if he disagrees with the assessment, he may appeal the assessment and make the arguments he makes in this application. That would place the matter before the Tax Court of Canada which has the mandate and expertise to adjudicate the issues. [ 21 ] For the forgoing reasons I conclude that this matter ought to be before the Tax Court of Canada.

Accordingly, to the extent that this court has jurisdiction to consider the application, I decline to exercise such jurisdiction. [ 22 ] The application is dismissed with costs to the respondent, CRA, which I fix at $2,000.00. ______________________________

Terrence J. Morrison, J.C.K.B.