Executive Summary: Key Legal and Evidentiary Issues

• Directors of a corporation can be held solidarily liable under section 24.0.1 of Quebec's Tax Administration Act (LAF) when the corporation fails to remit taxes it collected.
• Mr. Pépin argued the assessments issued against him personally were time-barred under the two-year and four-year limitation periods in sections 24.0.2 and 25 LAF.
• The Court rejected the limitation argument, holding that only the two-year period in section 24.0.2 applies to director assessments, running from the date the person last ceases to be a director — here, December 16, 2020, when Roussillon was struck from the enterprise register.
• Assessments benefit from a presumption of validity, which the taxpayer may rebut by making a prima facie showing that the facts underlying the assessment are incorrect.
• Central to the case was the due diligence defence in section 24.0.2 LAF, requiring proof that the director acted with a reasonable degree of care, diligence and skill in the circumstances.
• Evidence showed seven monthly payments were made to Revenu Québec between May and November 2018, contradicting the RQ auditor's claim that only two payments had been made.

Facts of the case

Danny Pépin, a chartered real estate appraiser since 2004, incorporated Évaluations Roussillon in September 2006 and served as its president and sole shareholder. The company's full-time operations began in 2011 and initially grew well, with mandates from financial institutions, municipalities and individuals. In February 2012, UPAC searches targeting Mr. Pépin and his father — then mayor of St-Constant — generated publicity that caused a marked drop in business, particularly bank mandates, creating liquidity problems. To avoid tax remittance defaults on invoices not yet paid, Mr. Pépin switched the company to cash-basis accounting, declaring only taxes actually collected. Criminal charges laid against him and his father in November 2013 further dried up new mandates (the charges were withdrawn in September 2015). A new accountant hired in December 2014 discovered a significant gap between taxes collected and taxes remitted: invoices removed from the books when unpaid were never re-entered when clients later paid. Revenu Québec (RQ) identified these deficiencies in spring 2015 and Roussillon concluded a payment agreement. In February 2016, a $20,695 invoice for a completed expropriation mandate became uncollectible when the client died, causing a remittance default; in May 2016 RQ assessed Roussillon for GST of $4,528.97 and QST of $8,885.97, plus penalties and interest, totalling nearly $20,000. On May 10, 2018, Roussillon agreed to pay RQ $1,700 per month toward both its provincial and federal debts. After Mr. Pépin's father — who was completing the company's remaining mandates — was diagnosed with cancer in 2018 and died in 2019, the company ceased operations on November 1, 2018, made a last payment on November 19, 2018, and was struck from the enterprise register on December 16, 2020. On May 6, 2021, RQ issued a certificate establishing Roussillon's debt at $44,773.62, and on May 26, 2021, the Court clerk rendered judgment against the company for that amount. Unable to execute the judgment, RQ then assessed Mr. Pépin personally on June 29, 2022: $27,723 under the Quebec Sales Tax Act (LTVQ) for the period June 30, 2014 to September 30, 2018, and $6,971.49 under the federal Excise Tax Act for October 1, 2013 to December 31, 2016. His objections were dismissed on May 8, 2023, and he applied to the Court of Québec to annul both assessments.

Statutory provisions at issue

Three provisions of the Tax Administration Act framed the dispute. Section 24.0.1 LAF makes directors in office at the date of a corporation's failure to remit amounts owed solidarily liable with the corporation for those amounts, plus interest and penalties. Section 24.0.2 provides a defence: the liability does not apply to a director who acted with a reasonable degree of care, diligence and skill in the circumstances, or who could not have known of the omission; it also bars the Minister from assessing a director more than two years after the person last ceases to be a director. Section 25, invoked by Mr. Pépin, sets a general four-year limit for assessments, running from the date the duties should have been paid. Mr. Pépin relied on both limitation periods and on the due diligence defence.

The court's reasoning and analysis

Justice Luc Hervé Thibaudeau first addressed the burden of proof: in tax matters the standard is the balance of probabilities, but an assessment enjoys a presumption of validity that the taxpayer may rebut with prima facie evidence of its inaccuracy, after which RQ must establish that the assessment is well founded. On the limitation argument, the Court held that section 25 LAF could not assist Mr. Pépin, since it governs the delay to assess a corporation that fails to remit net tax; the only limitation period applicable to the director-liability regime is the two-year period in section 24.0.2, which runs from the date the person last ceases to be a director. Because information in the enterprise register is presumed accurate, Mr. Pépin remained a director, at least in law, until Roussillon's registration was struck on December 16, 2020, so the assessment was not late. On due diligence, the Court found that Mr. Pépin instructed his wife, the company's assistant, to record client payments so net tax collected could be remitted, and that the failure to re-enter previously unpaid invoices occurred without his knowledge; he relied on summary reports and ensured bank funds covered remittances calculated on amounts actually collected. The judgment catalogued concrete measures he took: reducing his annual salary to $35,000 until January 27, 2018, borrowing from family, conducting verifications and an audit once the discrepancy was detected, and honouring the payment agreement with RQ — the evidence showed seven $1,700 payments between May and November 2018, contrary to the RQ auditor's assertion that only two were made. The Court noted that the business collapse stemmed from the searches and their media coverage, events beyond his control, and that RQ failed to prove Roussillon diverted amounts destined for tax remittances to its operations. Finding it difficult to conceive what more Mr. Pépin could have done, the Court concluded he acted as a prudent and diligent director in the circumstances, satisfying section 24.0.2. However, the Court held it lacked jurisdiction over the assessment issued under the federal Excise Tax Act.

Ruling and overall outcome

The Court allowed Danny Pépin's contestation and annulled the provincial assessment bearing notice number CT-085728, dated June 29, 2022 — the $27,723 assessment established under the Quebec Sales Tax Act — making him the successful party in the proceeding. No monetary sum was ordered or awarded in his favour; his success took the form of the annulment of that assessment. The Court declined jurisdiction over the federal assessment of $6,971.49 under the Excise Tax Act (notice F-085729), so that portion of the claim was not decided on its merits. Exercising its discretion under article 340 of the Code of Civil Procedure, the Court awarded no legal costs to either side.