Chilcott v. The Queen, 78 DTC 6111, [1978] CTC 152 (FCTD)

Mahoney, J:—The plaintiff disputes his assessment for withholding tax in respect of interest earned in Canada and received by the plaintiff’s non-resident client. The client had an interest in land expropriated by the City of Ottawa and, in 1970, by a court order, the proceeds including a sum of interest were paid out of court to the plaintiff, who, on his client’s instructions and after deducting his account, invested the proceeds in a 30-day term deposit with a chartered bank.

The initial investment was, and replacements thereof remained, in the name “W D Chilcott, in trust”. I accept that this was done initially for convenience and continued through inertia, that the client could have terminated the trust at will and that all withdrawals from the investment were on the client’s instructions. I further accept that, after the client was introduced to the bank manager, on occasion the investment was dealt with on direct instructions from the client. On all such occasions where documents have been put in evidence, the plaintiff was asked, either by his client or the bank, to confirm to the bank the propriety of the withdrawal made or to be made. The plaintiff does not remember being consulted on occasions not referred to in documentation. I take it that all that was found was put in evidence. In particular, the plaintiff does not recall being consulted by either his client or the bank when, in 1972, the investment was liquidated and the proceeds paid to his client.

The bank reported the interest earned in each of 1970, 1971 and 1972 by “W D Chilcott, in trust” on T5 returns and sent the plaintiff T5 Supplementaries. It treated the interest as being credited to a Canadian resident, the plaintiff, and took no account of the nonresident cestui qui trust although obviously well aware of his identity. There is no evidence that the plaintiff did anything with or about or as a result of receiving the T5 Supplementaries.

The evidence falls far short of satisfying me that the plaintiff was not, in the eyes of both his client and the bank, the latter’s agent in respect of the investment. Undoubtedly that is the capacity in which he first made the investment and, in so far as documents have been produced, that is how he was consistently regarded by both the client and the bank. The only straw leaning in the opposite direction is the frail inference to be drawn from the plaintiff’s failure to recall instances of involvement with the investment of which he is not reminded by documentation. That lack of recall, which I accept, is equally consistent with his failure to react in any way to the T5 slips he received each year. He was innocently and utterly oblivious to the obligations called to his attention by the assessment.

The plaintiff offers no objection of any substance to the assessment as it bears on the interest paid out of court. As to the investment interest, I fail to see that either the fact that his client could, at will, have terminated the trust or that the bank might equally have been assessed help him. I accept the latter proposition for this purpose without finding it necessarily to be so.

As to 1970 and 1971, paragraph 106(1)(b), subsections 109(1), (3) and (5) and paragraph 123(8)(b) of the Income Tax Act as it then stood are in play. As to 1972, the applicable provisions of the current Act are, respectively, paragraph 212(1)(b), subsections 215(1), (3) and (6) and paragraph 227(8)(b), paragraph 212(1)(b) being subject to Subsection 10(4) of the Income Tax Application Rules, 1971. The provisions are, respectively, substantially identical and any differences appear immaterial.

Paragraphs 106(1)(b) and 212(1)(b), taken with ITAR subsection 10(4), imposed a 15% tax on the client in respect of the interest. Subsections 109(1) and 215(1) require that a person who pays or credits such interest to a non-resident withhold and remit the tax and subsections 109(3) and 215(3) provide:

Where an amount on which an income tax is payable under this Part was paid or credited to an agent or other person for or on behalf of the person entitled to payment without the tax having been withheld or deducted under subsection (1), the agent or other person shall, notwithstanding any agreement or law to the contrary, deduct or withhold therefrom the amount of the tax and forthwith remit that amount to the Receiver General of Canada on behalf of the person entitled to payment in payment of the tax and shall submit therewith a statement in prescribed form, and he shall thereupon, for purposes of accounting to the person entitled to payment, be deemed to have paid or credited that amount to him.

Subsections 109(5) and 215(6) provide that a person liable to withhold and remit such tax, who fails to do so, is liable to pay such amount as tax himself and paragraphs 123(8)(b) and 227(8)(b) provide that such person is liable to pay such amount with interest at 10% per annum. ,

Whatever the relationship between the plaintiff and his client at any material time, the plaintiff was at all times a person to whom taxable payments were made or credited within the meaning of subsections 109(3) and 215(3). I see nothing irregular in the assessments. The action will be dismissed with costs.

It was represented to me at the beginning of the hearing that the amounts assessed were not in issue. Certain of the cross-examination and comments made in argument raised a doubt that this was indeed so. To give the parties an opportunity to resolve any disagreements in this area, I shall withhold pronouncing judgment for 10 days from the date hereof to permit the parties to apply under Rule 496 if they deem it necessary.