Citation: 2007TCCI466
Date: 20070810
Docket: 2003-3377(IT)G
BETWEEN:
MARCHÉ LAMBERT ET FRÈRES INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Paris J.
[1] The Appellant is
appealing from the assessment made on August 14, 2002, by the Minister of
National Revenue (the Minister) and seeking the amount of $4,075.46 payable
under subsection 227(9.4) of
the Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1 (the Act).
According to the Minister, the Appellant failed to remit to the Receiver General the amount of tax withheld from wages of
its employees for the period from July 15 to July 21, 2002.
[2] In 2001 and 2002,
the Appellant used the payroll processing services provided by Le Paie Maître
P.C. Inc. (Paie Maître). Paie Maître calculated the pay of the employees of the
Appellant and source deductions, paid employees their net pay and submitted
remittances to Receiver General, among
other things. For the period in issue, Paie Maître failed to pay remittances to
the Receiver General.
[3] According to subsection
227(9.4) of the Act, the liability to pay an amount deducted or withheld from a payment to another
person is
on the person who deducted or
withheld the amount pursuant to the Act. Subsection 153(1) imposes on every person paying
salary, wages or other
remuneration a liability to withhold from the payment the amount determined in accordance with
prescribed rules and remit that amount to
the Receiver General on account of the payee's tax.
[4] The issue is whether
the Appellant is the person who paid wages to the employees in accordance with
subsection 153(1) and who was liable to deduct or withhold from
those wages the prescribed amounts.
[5] In the case at bar,
the Appellant claims that it did not pay its employees anything for the period
from July 15 to July 21, 2002, and that, therefore, it had no liability to make
remittances. According to the Appellant, the wages in question were paid by
Paie Maître, that would therefore be liable under subsection 153(1).
[6] The Respondent
states that Paie Maître was the Appellant’s agent for purposes of the
payment of net wages to the employees of the Appellant and remittances to the
Receiver General, and that the Appellant is thereby the person who paid the
wages in accordance with subsection 153(1).
Facts
[7] In 2002, the
Appellant operated five food markets under the IGA banner pursuant to a
membership agreement with Sobeys Québec Inc. (Sobeys), which owned the IGA
trademark. In 2000, Sobeys entered into a payroll processing contract with Paie
Maître and encouraged its affiliated merchants who operated IGA markets in
Quebec and Ontario to use the services of Paie Maître. In 2002, Paie Maître
processed payroll for all Sobeys affiliated merchants operating IGA stores and
IGA stores operated by Sobeys. Generally speaking, for each pay period Sobeys
paid Paie Maître the gross amount of wages owed to the employees, then Paie
Maître calculated the required source deductions, paid employees their net
wages and remitted the deductions to the Receiver General. Sobeys was
reimbursed the gross amount of the wages by the merchants.
[8] In July 2002, owing
to financial problems, Paie Maître failed to remit deductions for those
merchants and Sobeys, who were then the subject of assessments similar to those
in the case at bar.
[9] The parties
prepared a statement of agreed facts, with attachments, which details the
relevant events and reads as follows:
[TRANSLATION]
1. From the commencement of
its activities in Quebec, Sobeys Québec Inc. (“Sobeys”) provided its affiliated
merchants with a payroll processing service.
2. Sobeys made the appropriate
calculations and the affiliated merchants themselves issued remittance cheques
for source deductions to tax authorities.
3. At the beginning of 2000,
Sobeys realized that its payroll processing software was outdated and was no
longer adequate for the task.
4. Instead of incurring
programming costs for new software, Sobeys decided to outsource its payroll
processing service.
5. On July 13, 2000, Sobeys
entered into a framework agreement with Le Paie Maître P.C. Inc. (“Paie
Maître”) a copy of which is in Tab 9 of the Appellant’s List of Documents.
6. The “whereas” clauses of
the Framework Agreement set out that Paie Maître provides
payroll processing services and that Sobeys intends to avail itself of said
services.
7. Pursuant to article 4 of
the Framework Agreement, Sobeys undertook to promote the services of
Paie Maître to ensure their use [TRANSLATION] “by as many [of its affiliated
merchants] as possible.”
8. Article 3 of the Framework
Agreement provided that Paie Maître would provide Sobeys with a file
containing the total payroll processing costs itemized and the amounts paid out
for each affiliated merchant, and that Sobeys would pay the total amount of the
invoices for the affiliated merchants to Paie Maître.
9. Under Article 5 of the Framework
Agreement, Paie Maître undertook to [TRANSLATION] “hold the money of the
affiliated merchants in a bank account in trust for remittance purposes.”
10. The appendices to the Framework
Agreement described the services provided by Paie Maître and fees.
11. In spring 2001, the
Appellant entered into a Retail Contract with Paie Maître, a
copy of which is in Tab 8 of the Appellant’s List of Documents.
12. The “whereas” clauses of
the Retail Contract set out that Paie Maître provided payroll processing
services and that the Appellant intended to avail itself of said services.
13. Under the Retail
Contract, Paie Maître provided the Appellant with equipment allowing it to
enter the relevant data, including the number of hours worked by each employee
in a given week, the hourly rate of each employee, etc.; those data were then
sent electronically to Paie Maître for processing purposes.
14. As appears in a letter
dated September 28, 2001, a copy of which is in the last page of Tab 8 of the
Appellant’s List of Documents, Sobeys agreed to pay the gross amount of
the wages of the Appellant’s employees to Paie Maître, and the Appellant agreed
to reimburse that amount to Sobeys. The letter confirmed the practice that was
in effect for the period during which Paie Maître provided payroll processing
services to the Appellant.
15. At the relevant time, the
Appellant operated as a franchise five stores under the “IGA” banner, held by
Sobeys, and it had about 800 employees.
16. Paie Maître provided
payroll processing services to Sobeys, in respect of IGA stores it operated
itself, and to all Sobeys affiliated merchants operating IGA stores both in
Quebec and Ontario, including the Appellant.
17. Depending on the size of
their payroll, affiliated merchants had to remit source deductions on a weekly,
biweekly or monthly basis. In the case of the Appellant, deductions were
remitted every week.
18. After processing the
information received from Sobeys and its affiliated merchants, Paie Maître transmitted
to Sobeys a Weekly Report of Wage Costs and Charges for all employees of
Sobeys and its affiliated merchants, as well as a document entitled Wage Publication
/ Payroll Costs representing the fees owed to Paie Maître. A copy of those
documents is reproduced in Tab 1 of the Appellant’s List of Documents.
19. As appears in said
documents shown in Tab 1, the total amount required by Paie Maître
representing the wages and source deductions in respect of the employees of the
affiliated merchants for the week ending July 13, 2002, was $3,248,666.08,
whereas the total amount required for the employees of the markets operated
directly by Sobeys was $311,635.11 for said week. Those two amounts
represented a total amount of $3,560,301.19.
20. As appears in the copies of
the Request for Payment and the cheques shown in Tab 1 of the Appellant’s List
of Documents, Sobeys paid said amount of $3,560,301.19 to Paie Maître
on July 18, 2002.
21. Tab 2 of the Appellant’s List
of Documents also shows that Sobeys paid Paie Maître $3,592,022.02 for
the week ending July 20, 2002, and the statements of the Bank of Montréal shown
at the end of Tab 2 confirm that payment.
22. Paie Maître then issued to
Sobeys a document entitled [TRANSLATION] “Invoice,” of which a copy was sent to
the Appellant, which provided a breakdown of the amounts payable in respect of
each store for a pay period, that is the net amounts paid to the employees,
taxes withheld at the source, employee contributions to the various plans, as
well as the fees payable to Paie Maître. A copy of that document is in Tabs 3
and 4 of the Appellant’s List of Documents. Paie Maître then remitted to
tax authorities the source deductions.
23. After paying to Paie Maître
an overall amount for all the affiliated merchants and its own stores, Sobeys
was immediately reimbursed by its affiliated merchants, including the
Appellant, by charging to their account the amount attributable to them, that
is the amount appearing on the “Invoice” mentioned in the preceding paragraph,
as appears in the documents shown in Tabs 5 and 6 of the Appellant’s List of
Documents.
24. Article 3 of the Framework
Agreement shown in Tab 9 of the Appellant’s List of Documents reads
as follows:
[TRANSLATION]
The Company shall make a single withdrawal
from the Client’s account for the total invoices for certified retailers.
25. The Appellant undertook to
complete and sign any form required by Paie Maître to allow it to perform
its duties.
26. The net pay of the
Appellant’s employees was paid to them by direct deposit into their bank
account from the bank account of Paie Maître and Paie Maître of the Appellant
submitted to them a deposit slip prepared by Paie Maître. The deposit slips
submitted to Ms. Venne and Ms. Hovington are examples of such slips.
27. Paie Maître was also
responsible for the issuance of income statements (T4 slips) to the employees
concerned; the T4 slips issued to the Appellant’s employees indicated, inter
alia, the Appellant’s name as an employer, as well as its employer number. The
T4 summary was also made in the Appellant’s name regardless of the fact that
during the year, the payroll service was performed by Sobeys, Paie Maître and
after the bankruptcy of Paie Maître by the firm that took over Paie Maître.
28. A cheque for the remittance
of deductions drawn on the bank account of Paie Maître was received by the
Canada Revenue Agency, but was not honoured by the financial institution on
which it was drawn on the grounds that the funds were not freed up.
29. The requirement, provided
for in the Framework Agreement, to deposit into a trust account the
amount received by Sobeys and its affiliated merchants was not complied with;
no verification was made prior to the end of July 2002 to ensure compliance.
30. On July 25, 2002, under the
pretext that is was experiencing some difficulties with its data processing
system, Paie Maître requested and obtained from Sobeys the amount owing to it
via a bank transfer to replace the cheques already submitted to Paie Maître
(see Tab 2).
31. In the late afternoon on
Friday, July 26, 2002, Sobeys requested and obtained from Paie Maître the
reimbursement of approximately $133,000, which was a portion of the amount sent
to Paie Maître via an electronic transfer. That amount was eventually remitted
to tax authorities.
32. The $133,000 was the amount
Sobeys demanded be returned via electronic transfer, incorrectly believing that
it is was the amount necessary to make the remittances to tax authorities.
33. When Sobeys realized that a
greater amount should have been claimed and contacted Paie Maître on Monday,
July 29, 2002, to obtain the difference, that is $370,265.78, it learned that
it was no longer possible.
34. An interim receiver of the
property of Paie Maître was appointed on July 31, 2002.
35. It was then that Sobeys
realized, after communicating with Paie Maître, the Bank of Montréal and the
interim receiver, that Paie Maître did not fulfill its commitment to hold the
source deductions in a trust account, that several million dollars had
vanished, that there was a balance of about $6M remaining, that Paie Maître had
made direct deposits in the amount of most of the employees’ net wages, but
that it did remit source deductions for the weeks ending on June 29, July 6, 13
and 20, 2002.
36. On August 1, 2002, Sobeys
also commenced before the Superior Court of the District of Montréal an action
and applied for a seizure before judgement for, inter alia, the seizure of the
amounts still in the bank accounts of Paie Maître, for purposes of remittance
to various government authorities. Those proceedings are shown in Tabs 27 and
28 of the Respondent’s List of Documents. The proceedings did not go
further owing to the subsequent bankruptcy of Paie Maître.
37. On or around August 15,
2002, the interim receiver sent a notice of stay of proceedings by which all
proceedings against Paie Maître, including the action and application for seizure
by Sobeys, were stayed. (To be documented.)
38. In the days that followed,
counsel for the Appellant met with counsel for the Respondent,
Richard Corbeil, to convince it to use the provisions of the Income Tax
Act (subsections 227(4) and (4.1)), creating a so-called
“presumed” trust to its benefit, to try to get a hold of the balance that
was in the bank account of Paie Maître.
39. Counsel for the Respondent
argued that “tracing” would be impossible to prove, considering that all the
amounts received by Paie Maître and hundreds of its clients had been commingled
in its current account. Therefore, counsel for the Respondent refused to claim
that the Respondent had a “super-privilege” under said provisions.
40. Paie Maître went bankrupt
on September 20, 2002.
41. On November 21, 2002,
Sobeys filed a proof of claim with the trustee
in bankruptcy of Paie
Maître. (To be documented.)
42.
The proof of
claim produced by Sobeys included the following:
[TRANSLATION]
This Proof of Claim (including the Affidavit
and Appendices I to IV) shall not prejudice any rights, recourse or submissions
of any nature whatsoever that Sobeys Québec Inc. and its
affiliated merchants could make before any other court and against whomever and
without any admission and/or renunciation of any nature whatsoever in that
regard. (To be documented.)
43. The proof of claim of
Sobeys was denied by the trustee and the appeal periods were suspended. (To be
documented.)
44. On August 14, 2002, the
Respondent issued to the Appellant the notice of assessment at issue in this
case, in respect of its employer account no. 103506184RP0007; the amount
assessed, $4,075.46, represented the amount (including source deductions
for income tax, employee contribution and employer contribution, owing under
the Employment Insurance Act) that should have been
paid to the Respondent, with respect to the remuneration paid to certain
employees of one of the Appellant’s markets for the period from July 15 to 21,
2002. That amount was not remitted to the Respondent. A copy of the notice of
assessment is in Tab 3 of the Respondent’s List of Documents. (To be
produced to the Court.)
45. On November 12, 2002, the
Appellant filed a notice of objection against this assessment, which is
reproduced in Tab 4 of the Respondent’s List of Documents.
46. On July 3, 2003, the
Respondent confirmed said assessment, as appears in the Notice of
Confirmation reproduced in the Tab of the Respondent’s List of
Documents.
47. On February 26, 2004, under
an initial order rendered by the Superior Court, part of the bankruptcy file of
Paie Maître became an arrangement pursuant to the Companies’
Creditors Arrangement Act. (To be documented.)
48. On March 18, 2004, Sobeys
filed a proof of claim under the Arrangement and Compromise Plan, which
included the following:
[TRANSLATION]
This Proof of Claim (including Appendices I,
II and III) shall not prejudice any rights, recourse or submissions of any
nature whatsoever that Sobeys Québec Inc. and its affiliated merchants could
make before any other court and against whomever and without any admission
and/or renunciation of any nature whatsoever in that regard. (To be documented.)
49. An Arrangement and
Compromise Plan was approved by the creditors on April 5, 2004, which
contained, inter alia, the following clauses:
[TRANSLATION]
2.1.1 There is currently a complex legal
dispute involving the TRUSTEE, several CREDITOR-CLAIMANTS and other parties
over the appropriation of BANK FUNDS. Several parties involved have come to the
conclusion that it is in the interest of all parties concerned to end this
costly and unpredictable legal dispute through this PLAN.
2.2.1 The purpose of the PLAN is to end
the legal dispute over the BANK FUNDS, offer a settlement resolving all CLAIMS
OF CREDITOR-CLAIMANTS, including the DEBTS RELATING TO REAL RIGHTS, to settle,
in part, the CLAIM OF GATX and to provide for the distribution of the BANK
FUNDS, upon receipt by the TRUSTEE, as expeditiously as possible.
3.4 . . . This provision, this PLAN and the
implementation of this PLAN are without prejudice to any personal right or
corporate right (other than the DEBTS RELATING TO REAL RIGHTS) that all parties
have, could have or could claim to have against any person. (To be documented.)
50. By order dated April 26,
2004, the Superior Court approved the Plan and stated that
[TRANSLATION]
. . . this order, the Plan and the date of
the Plan’s implementation are without prejudice to any personal right or
corporate right, other than the DEBTS RELATING TO REAL RIGHTS, that all parties
have, could have or could claim to have against any person;
. . . all property claims made by
the CREDITOR-CLAIMANTS as well as the appeals from the
TRUSTEE’S dismissal of the property claims are now null and void; (To be
documented.)
51. In order to maintain harmonious
business relations with its affiliated merchants, and without obligation to do
so, Sobeys paid, with its own funds, all the assessments issued to its
affiliated merchants, including the assessment issued to the Appellant and at
issue in this appeal, as appears in the documents shown in Tab 7 of Appellant’s
List of Documents.
52. Each of the affiliated
merchants gave a power of attorney to Sobeys to object to said assessments by
means of a notice of objection and/or appeal, and each affiliated merchant
transferred to Sobeys the reimbursement it may have obtained if said
assessments were vacated, as it was Sobeys who paid them.
53. By letter dated March 25,
2003, addressed by counsel for the Appellant to Josée Rodrigue of the Appeals
Division, a copy of which is in Tab 24 of the Respondent’s List of Documents,
the Appellant informed the Respondent that it did not object to the part of the
assessments relating to Employment Insurance and Canada Pension Plan, as the
dispute was limited to income tax amounts that were deducted from the
remuneration paid to the Appellant’s employees, but which were not remitted.
54. By letter dated April 22,
2003, also addressed to Josée Rodrigue of the Appeals Division, a copy of which
is in Tab 25 of the Respondent’s List of Documents, counsel for the
Appellant confirmed the agreement according to which the appeal would serve as
a test case for all the assessments issued to Sobeys and its affiliated
merchants and that the notices of objection of the other merchants would be put
on hold.
55. By letter dated October 19,
2004, addressed by the Respondent’s representative to counsel for the
Appellant, the Respondent confirmed that it would be willing not to enforce its
presumed trust on the dividends payable to the creditor’s-claimants represented
by Sobeys to the extent that they agree, in the event that they are successful
in the tax proceedings, that the Respondent may keep, from any reimbursement
that would be payable to the creditor-claimant, an amount determined as follows:
amount of the dividends received by the objecting creditor, multiplied by the
amount of source deductions assessed under the Income Tax Act, and
divided by the total amount of source deductions assessed under the Income
Tax Act, the total amount of source deductions assessed under the Employment
Insurance Act (if any) and the total source deductions assessed under the
Canada Pension Plan (if any). (To be documented.)
56. By letter dated November 9,
2004, addressed to counsel for the Respondent, counsel for the Appellant
accepted the Respondent’s proposal described in the preceding paragraph. (To be
documented.)
Legislative provisions
[10] The legal obligation to make source deductions and to
remit those amounts to the Receiver General of Canada
arise out of subsection 153 of the Act which reads, in part, as follows:
ARTICLE 153: Withholding.
(1)
Every person
paying at any time
in a taxation year
(a) salary, wages or other remuneration, other than amounts described in
subsection 212(5.1);
.
. .
shall deduct or withhold from the payment the amount
determined in accordance with prescribed rules and shall, at the prescribed
time, remit that amount to the Receiver General on account of the payee's
tax for the year under this Part or Part XI.3, as the case may be, and,
where at that prescribed time the person is a prescribed person, the remittance
shall be made to the account of the Receiver General at a designated financial
institution.
[Emphasis
added.]
[11] Section 227 of the Act then provides that
every person who is liable to withhold amounts under subsection 153(1) of the
Act must pay the amounts collected but not remitted to the Receiver General of
Canada. That liability, provided for more specifically in
subsection 227(9.4) of the Act, is worded as follows:
SECTION 227: Withholding taxes.
. . .
(9.4) Liability
to pay amount not remitted.
A person who has failed to remit as and when required by this Act or a regulation an amount
deducted or withheld from a payment to another person as required by this Act
or a regulation is liable to pay as tax under this Act on behalf of the other
person the amount so deducted or withheld.
[Emphasis added.]
Conditions
to be met for subsection 153(1) of the Act to apply
[12] The Federal Court of Appeal in The Queen v.
Coopers & Lybrand Limited, as
the agent of the Mercantile Bank of Canada and the receiver and manager of
Venus Electric Limited,
[1981] 2 F.C. 169 (QL), set out three requirements
to be met in order that liability may exist under under subsection 153(1) of the Act:
1) payments to employees must have been made;
2) such payments must have been with respect to wages or
salaries due to the employees;
3) the person sought to be held liable must have made
such payments.
[13] In the case at bar, the parties agreed that the first two
conditions were met. Net wage payments were made to the Appellant’s employees
via electronic fund transfers to their bank accounts. What remains to be
determined is whether it is the Appellant that paid the wages within the
meaning of subsection 153(1) of the Act.
Appellant’s
arguments
[14] According to the Appellant, even though it
was the employer of the employees who received the payments, that does not mean
that it is, in the circumstances, the person referred to in subsection 153(1)
of the Act. Subsection 153(1) speaks of the “person” who makes the payments,
and does not require an employer-employee relationship between the payer and
the payee.
[15] The Appellant claims that the person
referred to in paragraph 153(1) is the one who controls the funds that are
paid. In the case at bar, when the funds were transferred to Paie Maître to pay
the wages and remittances, the Appellant no longer had any control. The
Appellant claims that the funds became the property of Paie Maître
when they were deposited into the latter’s bank account, and that it was Paie
Maître chose to pay the net wages to the employees without remitting to
the Receiver General the source deductions. Therefore, the Appellant stated
that it was Paie Maître who was liable under subsection 153(1).
[16] Counsel for the Appellant cited the following cases:
Dauphin Plains v. Xyloid and The Queen,
[1980] 1 S.C.R. 1182;
Roll v. Canada, [2000] A.C.F.
no. 2048 (QL);
In re Bankruptcy
of G. & G. Equipment Co. Ltd., 74 DTC 6407 (S.C.B.C.);
Mollenhauer Ltd. v. Canada, [1992] A.C.F. no. 580
(QL);
The Queen v. Coopers & Lybrand
Limited, as the agent of the
Mercantile Bank of Canada and the receiver and manager of Venus Electric
Limited, [1981] 2
F.C. 169 (QL);
Cana Construction
Co. v. Canada, [1996] A.C.F. no. 827 (QL) (affirming appeal [1994]
T.C.J. no. 809 (QL)); and
Soltrac
International Inc. v. The
Minister of National Revenue, 94 DTC 1900.
Analysis
[17] First, I agree with the Appellant that the
element of decision-making power with respect to the funds paid to the
employees is determinative as to the application of subsection 153(1).
[18] The relevant case
law of the Federal Court of
Appeal shows that a person is only liable under that subsection if it had
decision-making powers over the payments to employees. In the case where a
person physically makes the payments, but has no independent authority over the
funds used to make them, that person is not liable to make remittances. In
other words, if the person who makes the payments upon the directives of
another person and not on his her own
initiative,
subsection 153(1) does not apply to him or her.
[19] In that respect, in Roll v. Canada, supra,
the Federal Court of Appeal decided that the Appellant, who was a bare
trustee of the funds that were used to pay the wages of the employees of
another person, was not liable, under subsection 153(1), for the remittance of
amounts withheld from those wages.
[20] Mr. Roll was a bookkeeper for Sea Hornet,
which was experiencing financial problems. At one point, all funds deposited
into Sea Hornet’s bank account were likely to be seized by its creditors.
Therefore, Mr. Roll acceded to the request of the principals of Sea Hornet that
he allow the company to deposit into the Mr. Roll’s bank account the funds
received from the investors for the payment of the employees’ net wages and
that Mr. Roll pay those wages with the cheques drawn on his account. When
Sea Hornet ceased its activities, it did not have the means to pay source
deduction arrears and the Minister sought to impose on Mr. Roll the
liability provided for in subsection 153(1) of the Act.
[21] In the judgment at
first instance (Roll
(Harvey Roll Business Services) v. Canada, [1999] T.C.J. no. 627 (QL)) this Court stated
that the Appellant, Mr. Roll, exceeded
his duties as the company bookkeeper by depositing into the bank account he
controlled the funds received by Sea Hornet, and then disbursing them to the employees and the creditors according to the
instructions given to him by Sea Hornet.
For that reason, and because Mr. Roll knew that the only reason for Sea Hornet to enter into
this arrangement with him was to keep its funds away from its creditors, the Court held that he was liable
under subsection 153(1).
[22] The Court of Appeal set aside that
decision stating that
. . . once the Tax Court Judge
determined that Mr. Roll was a bare trustee of the employer’s funds, that he
acted only on the directions of the principals of Sea Hornet and could exercise
no independent authority over the disposition of the funds, and that the
decision to pay the net salaries of the employees was that of the principals of
Sea Hornet alone, he should have concluded that Mr. Roll was not within the
scope of subsection 153(1) of the Income Tax Act.
[23] In Coopers & Lybrand, supra,
the Federal Court of Appeal decided that a receiver
and manager who paid
net wages to employees of a company in receivership (Venus Electric) was liable
to remit source deductions as it had decision-making power as to the payment of
wages.
[24] Coopers & Lybrand, which had been
appointed receiver and manager of Venus, decided to carry on the undertaking of
Venus and, to that end, ensured the payment of wages to the employees of
Venus.
[25] Coopers & Lybrand argued, inter alia,
that as receiver and manager, it was not the agent of Venus and therefore could
not be held personally liable as a result of the payment of net wages to the
employees.
[26] The Court of Appeal found that Coopers & Lybrand did not
act as a mere conduit for Venus and that the decision to pay the wages was that
of Coopers & Lybrand itself. At paragraphs 40 and 41
the Court stated as follows:
Having decided to circumvent these unwanted consequences of leaving
the employees to realize their wage claims as best they could, the respondent
of its own accord and solely on its own judgment initiated the steps which
resulted in making payment to each employee of an amount equal to the amount of
his or her earnings actually due. These payments would not have been made if
it were not for the decision and direction of the respondent. Even if it be
assumed that, so far as the respondent's responsibilities to Venus were
concerned, the relationship between the respondent and Venus was that of agent
and principal, the payment to the employees of the amount equal to the amount
indicated to be due and payable to them personally according to the payroll
calculations for the final pay period was not an act of which Venus was capable
at that time. All of its property had been in the possession of the respondent
from 1:00 a.m. 25th September. The payment of the amounts, which I
have concluded were wages, was a result of a decision taken by the respondent
in complete awareness of all the circumstances and carried out under its
express directions. Even if it be assumed that the Bank concurred in the
payments being made the person causing them to be made was the respondent.
The attendant
circumstances lead to one conclusion only — that the respondent was the
person paying wages to employees and consequently coming within the ambit of
section 153.
[Emphasis added.]
[27] In Cana Construction Co. v. Canada, supra, the
Federal Court of Appeal upheld a decision of this Court where it held that subsection 153(1) applied in
circumstances where the Appellant maintained total control over the payment of wages made to the employees
of one of its subcontractors, even if the cheques were drawn on the bank account of the subcontractor.
[28] Cana was a building contractor and Vidalin,
its subcontractor, worked on one of its projects. Vidalin could not pay its
employees so, to ensure the completion of the project, Cana decided that it was
necessary that the employees of Vidalin be paid.
[29] To that end, Vidalin informed Cana of the
amount owing to each employee and Cana allowed a bank draft to be drawn on its own account for the total amount. An employee of
Cana and an employee of Vidalin went to Vidalin’s bank and deposited the amount
in question into Vidalin’s account. At the same time, the bank certified the
cheques issued by Vidalin to its employees, which represented the net wages of
each employee. Those cheques were given to Vidalin to
be submitted to the employees.
[30] Cana submitted that the payments that were made
to Vidalin by means of bank drafts related to a contractual obligation that
existed between the Appellant and Vidalin as a subcontractor, and they were not
meant to cover the wages of Vidalin’s employees. Moreover, the Appellant
submitted that, because it did not issue the cheques to the employees, there
was no actual payment and it could not, therefore, come within the ambit of
subsection 153(1) of the Act.
[31] The Court found that the Appellant, Cana, maintained total control and dominion over the funds
used to pay the wages of
Vidalin’s employees, that Cana was the
person paying the employees wages and that it did so deliberately and with full
knowledge that it was doing so.
The judge stated as follows:
. . . Vidalin acted on Cana’s instructions and direction when it prepared
the pay cheques and attached stub with deduction details. Cana retained
complete control over the payment procedure. Section 153 states clearly that
every person paying wages to an employee must withhold tax, it does not say
that only employers must do so. (At paragraph 27 of
the decision.)
[32] In affirming the decision, the Federal
Court of Appeal stated as follows:
. . . the Appellant’s conduct and its
maintenance of complete control over the sums ostensibly paid by Vidalin until
such time as they were received by the employees supported the judge's finding
that Vidalin was acting on Appellant’s instructions and directions in preparing
the payroll cheques whose stubs showed (wrongly) that the applicable deductions
had been made. The judge was accordingly justified in concluding that the
situation was no different than if the Appellant had itself directly paid
Vidalin’s employees and had failed to remit the taxes deducted.
[33] In my opinion, that case law is clearly to
the effect that a person will be held liable under subsection 153(1) if he
or she has decision-making power as to the payments of wages made to employees.
He or she will not be held liable if he or she pays wages or salaries as a mere
conduit or as an agent of another person.
[34] In the case at bar, in order to determine
who between Paie Maître and Marché Lambert paid the wages within the
meaning of subsection 153(1), it is important to determine the role of
Paie Maître.
[35] The Retail Contract between the Appellant
and Paie-Maître reads, in part, as follows:
[TRANSLATION]
Whereas the COMPANY [Paie Maître] provides
payroll processing services;
Whereas the CLIENT [Marché Lambert] intends to
avail itself of said services;
The parties agree as follows:
Generally speaking, the COMPANY provides to
the CLIENT a time entry tool. The CLIENT records its employees’ work time using
this tool and transmits the data to the COMPANY that processes it, produces pay
records, makes the payments, produces reports chosen for printing by the
CLIENT.
. . .
5. CONDITIONS
. . .
c) The CLIENT undertakes to complete and
sign any form required by the COMPANY, enabling it to perform its duties.
. . .
8. LIMITATION OF LIABILITY
. . .
a) The COMPANY accepts, without research
or verification, all the information, data and instructions provided and
transmitted by the CLIENT as part of this contract.
[Emphasis added.]
[36] The specifications attached to the Retail Contract, of which
they were an integral part (within the meaning of paragraph 4 of the
contract), provided that the following services would be provided by Paie
Maître:
SPECIFICATIONS
SERVICES PROVIDED
1. Installation
of the COMPANY’s data entry software for the CLIENT. The CLIENT shall have at
its disposal computer equipment meeting the following minimum requirements:
(See Appendix 1A)
Store and Forward Option
2. Training of
the CLIENT’s staff on data entry and the operation of the payroll system at
the beginning of the initial contract
3. Tracking of
time by department (as required)
4. Time entry
list (as required)
5. “Employee”
file including all information necessary for payroll, opening the file
6. Copy of
“employee” file after any change
7. “Company” file
8. List of
missing information (when required)
9. Direct
deposit (P)
10. List of
deposits (P)
11. Detailed record
of wages by account receivable, by department, including the hours worked on a
daily basis (P)
12. Summary of the
record of wages by department and summary containing a breakdown of the total
earnings, deductions and fringe benefits by period with monthly and annual
accruals (P)
13. Summary of
vacation credits (P)
14. Detailed
invoicing of payroll processing costs and amounts disbursed (P)
15. Record of
Employment Form (as required) (Completed and mailed by the COMPANY)
16. Choice of
various lists by employee number, by department, by date of hiring, etc.,
indicating the address, telephone number, Social
Insurance Number (SIN)
17. Report
summarizing remittance to both levels of government and annual accruals
18.
Federal and provincial remittances made on behalf of the CLIENT
(Retailer’s choice)
19. Record of
surplus funds of the C.S.S.T. (A)
20. Journal to
balance annual accruals (A)
21. Calculation of
assessment to the Commission des normes du travail (C.N.T.) (A)
22. Submission of
the assessment to the Commission des normes du travail (C.N.T.) on behalf of
the CLIENT (A)
23. If the
remittances are made by the COMPANY: Federal summary and provincial summary
completed with the relevant information provided by the CLIENT on the dates
requested (Completed and mailed by the COMPANY) (A)
24. [DELETED]
25. T4 and Relevé 1
– balanced and inserted in an envelope (A)
26. Cost report, by
department, including vacation allowances, of the C.S.S.T. and C.N.T. (P)
27. Accounting
entry (Transfer by file to Quasimodo accounting system) (P)
28. Pension fund
report (M)
29. RRSP report (M)
30. Group insurance
report (M)
31. Union dues
report (M)
32. Garnishment of
wages pay code report (P)
33. Advancement of
funds pay code report (M)
34. Self-sufficient
fund report (P)
35. Report on the
calculation of statutory holidays and bonuses (based on the 0.004 of the gross
salary) (P)
36. Report on the
calculation of statutory holidays and bonuses (according to labour standards)
(P)
37. Report on
dental contributions (M)
38. Periodic report
on corporate funds (M)
39. Report on the
Fonds de solidarité des travailleurs du Québec (M)
40. Report on and
calculation of the retroactive amounts concerning wages (P) (end of March 2001)
41. Productivity
comparative statement (in development with Sobeys):
− for the current year and past year,
− with the amount of sales hours and
money
− for regular employees and part-time
employees
− for weekly, monthly and annual
periods (P)
42. Calculation of
90% of the payment for the first 14 days in respect of C.S.S.T. (end of March
2001)
43. Record of
vacation (P)
44. Record of sick
credits (P)
45. Record of
statutory holidays (P)
46. Record of
absenteeism (P)
47. Record of
positions and salaries (P)
48. Notes sheet
(disciplinary measures or other) (P)
49. Record of
internal / external training and training expenses. (P)
50. Record of hours
accumulated (P)
51. Record of hours
worked
. . .
[Emphasis
added.]
[37] The Appellant submits that the Retail
Contract is a contract for the provision of services by Paie Maître to
Marché Lambert. Paie Maître undertook to perform a number of tasks for Marché
Lambert, including that of distributing to various stakeholders, such as the
tax authorities, the amounts Marché Lambert sent to it.
[38] As for the Respondent, she submits that for
the purposes of the payments of wages to the employees, Paie Maître was the
agent of the Appellant and the other merchants.
[39] In light of all the evidence, I am of the
opinion that Paie Maître did not act as a conduit for Marché Lambert, that is
to say as its agent or a bare trustee. The Retail Contract
referred to the performance by Paie Maître of its duties, and the “Framework”
agreement provided, inter alia, that Paie Maître undertook to hold in a trust
account the amounts received, so that it make the payments to the employees and
stakeholders. (However, the funds were not deposited into a trust account and
neither the Appellant nor Sobeys verified the fulfillment of that undertaking.)
I would also like to point out that the cheques for the employees, although
drawn on the bank account of Paie Maître, indicated that the payments were made
[TRANSLATION] “on behalf of” the Appellant (Exhibit I‑2). The T4
forms, “Statement of Remuneration paid,” for 2001 and 2002 indicated that the
Appellant was the employer, and the name of Paie Maître did not appear
anywhere.
[40] It is clear that Paie Maître had at all
times a duty to use the funds provided by Sobeys (on behalf of the merchants)
according to the terms of the contract or the instructions of either the
Appellant or Sobeys. Paie Maître did not have the right to do otherwise. It
does not matter whether the contractual relationship between the Appellant and
Paie Maître was a mandate or trust, what matters is the control the Appellant
maintained over the funds that were in the hands of Paie Maître.
[41] Neither the Appellant nor Paie Maître ever
intended for Paie Maître to have decision-making power or any discretion
whatsoever over the payments that Paie Maître made to the employees
and various stakeholders. When Paie Maître made the various payments, it did so
according to the directives and under the control of the Appellant. It had no
power to decide how to use the funds; it only distributed the funds on behalf
of the Appellant in the normal performance of the payroll processing contract.
[42] The role of Paie Maître is similar to that
of Mr. Roll in Roll, supra. It is true that in this case
Paie Maître received the gross amount of the employees’ wages whereas
Mr. Roll only received the net amount from Sea Hornet, but the main point
is that the payments to the employees in both cases were made according to the
employer’s instructions and with the employer’s money. Just like Sea Hornet,
the employer, in Roll, the Appellant caused the wage payments to be
made.
[43] The Appellant submits that it is Paie Maître that is
liable under subsection 153(1) because it was the person that
decided to pay the net wages to the employees and not to make remittances to
the Receiver General.
[44] First I agree with counsel for the Respondent that there is
no evidence in this case that the failure to remit the source deductions was
owing to a decision taken by Paie Maître. All that can be said is that there
were not enough funds in the account of Paie Maître to allow the bank to honour
the cheques Paie Maître sent to the Receiver General to make the remittances.
There is no evidence that the lack of funds was owing to an intentional
behaviour on the part of Paie Maître. Second, the language of
subsection 153(1) does not suggest that the element of intent is relevant
for determining who is liable to withhold amounts and remit the amounts
withheld.
[45] In short, I hold that it is the Appellant who, for the
period in issue, paid the wages to its employees within the meaning of
subsection 153(1) of the Act and, accordingly, it is the Appellant who is
liable under subsection 227(9.4) of the Act to pay the amounts withheld
from the wages but not remitted to the Receiver General.
[46] For all these reasons, the appeal is dismissed with
costs.
Signed at Vancouver, British Columbia, this 10th day of August 2007.
“B. Paris”
Translation certified true
on this 24th day of January 2008.
François Brunet, Revisor
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