As we blogged about here and here, CRA has recently focused its audit powers to investigate allegations of shams (i.e., fraud) in the application of GST in the telecommunications industry.
The alleged fraudulent activities come in many forms and can even involve allegations of so-called GST ‘carousel schemes’. Below, we highlight two cases currently working their way through courts and the takeaway points for businesses unlucky enough to be facing similar situations.
Although section 323 of the Excise Tax Act imposes joint and several liability onto the corporate director for a corporation’s failure to remit GST/HST, this liability is negated if the director “exercised the degree of care, diligence and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances.” In order to establish this due diligence defence, a director has to meet a fairly high threshold according to current jurisprudence. The recent decision of Cherniak (2015 TCC 53), suggests that this defence will be very difficult to meet where the corporation assessed was involved in “artificial” transactions.
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