|
Citation: 2004TCC336
|
|
Date: 20040511
|
|
Dockets: 2000-4194(IT)G
2000-4200(EI)
2000-4201(CPP)
2000-5208(EI)
2000-5209(CPP)
2000-5210(IT)I
|
|
BETWEEN:
|
|
ABORIGINAL FEDERATED ALLIANCE INC.,
|
|
Appellant,
|
|
And
|
|
|
|
HER MAJESTY THE QUEEN,
THE MINISTER OF NATIONAL REVENUE,
|
|
Respondents.
|
REASONS FOR JUDGMENT
[1] These appeals relate to a failure
to remit by the Appellant of various amounts of income tax,
employment insurance and Canada Pension Plan premiums withheld by
the Appellant from various employees of the Appellant.
[2] The history and the facts and the
issues raised in these appeals are best summarized by taking
certain extracts from Respondent's Written Submissions and
the Final Argument of Aboriginal Federated Alliance Inc., filed
in the record.
[3] The following are the relevant
extracts:
Respondent's Written Submissions
1. By Interim
Order of Associate Chief Judge Bowman (as he then was) dated May
12, 2003, the appeals were set down for hearing on the quantum
issue only. Thus the only issue before the Court at this time is
whether or not the quantum of assessments dated October 1, 1999,
January 17, 2000 and January 20, 2000 issued to the Appellant for
amounts that it withheld, but did not remit, is correct.
2. To be
clear, the Respondent maintains its position with regard to all
other issues as pleaded in the Replies to Notices of Appeal.
3. To expedite
the resolution of the quantum issue, the Respondent prepared
schedules setting out the amounts withheld, but not remitted,
based on documents provided by the Appellant. The accuracy of the
schedules is admitted by the Appellant.
PART I
STATEMENT OF FACTS
4. In 1999,
the Appellant was in the business of providing fire fighting
services in the summer and bush clearing operations in the
winter.
5. The
Appellant employed certain people to carry on its operations and
withheld amounts for EI, CPP and income tax from the salary paid
to those people.
6. The
Appellant remitted the amounts that it withheld for the months of
January, 1999 to June 1999, but failed to remit the amounts that
it withheld for the months of July, 1999 to December, 1999.
7. The
assessment dated October 1, 1999 assessed amounts withheld, but
not remitted, for the months of July and August, 1999.
8. The
assessment dated January 17, 2000 assessed amounts withheld, but
not remitted, for the month of September, 1999.
9. The
assessment dated January 20, 2000 assessed amounts withheld, but
not remitted, for the months of October, November and December,
1999.
10. Tbe total amount
withheld, but not remitted, for the period July, 1999 to
December, 1999 was $44,567.18. The three assessments in issue
assess the amount of $44,566.50 (68 cents less than the amount
actually withheld).
11. The Appellant has
admitted the correctness of the schedules prepared by the
Respondent, which set out the quantum of the amounts withheld,
but not remitted.
PART II
STATEMENT OF THE POINTS IN ISSUE
12. The sole issue is
whether or not the quantum of the assessments dated October 1,
1999, January 17, 2000 and January 20, 2000 is correct. In light
of the Appellant's admission, the Respondent respectfully
submits that there is no question that the assessments are
correct.
...
B. The
Appellant is liable to remit to the Minister amounts it withheld
from its employees at source
16. This portion of the
argument refers to provisions of the Income Tax Act. With regard
to Employment Insurance and Canada Pension, there are parallel
provisions in the applicable legislation that are footnoted and
included in the Respondent's authorities.
17. In general terms,
every person paying salary and wages and various other amounts
shall deduct or withhold a prescribed amount therefrom and
remit it to the Receiver General.[1]
18. Subsection 227(1) of
the Income Tax Act ensures that no action lies against an
employer who deducts or withholds a portion of an employee's
wage in compliance, or in intended compliance, with the
Act.[2]
19. The Income Tax
Act views different failures in different ways. It
distinguishes between a failure to withhold and a failure to
remit amounts that were withheld. A summary of the principles
applying to withholding and remitting is contained in the
judgment of the Federal Court of Appeals in Coopers &
Lybrand Ltd. v. R:
Section 227(1) deals with two distinctly different defaults by
persons paying wages. First, the failure to deduct and, second,
the failure to remit the amount deducted. The liability imposed
in each of these instances is more easily understood if one keeps
in mind that when a deduction for income tax is made from
wages the employee is deemed to have received, as wages, the
amount deducted and is accorded credit for the amount
deducted as an installment on account of the income tax to
become due with respect to his income.
If the person paying fails to deduct, his failure has no
effect on the liability of the employee for income tax it being
assumed that the taxing authority will recover from the employee
the full amount of the income tax; the only liability incurred by
the person paying the salary or wage is a penalty calculated as a
percentage of the amount he has failed to deduct.
On the other hand if a deduction is actually made and the
amount deducted not fully remitted the person making the
deduction becomes liable to the collector for the amount the
employee is deemed to have received as his salary and credit is
given to the employee on account of income tax for an amount
equal to the amount deducted. In this latter event the liability
of the person paying, over and above the 10% penalty which may be
assessed on account of his default in remitting is an amount
equal to the deductions he had failed to remit together, with
interest thereon.(Emphasis added)
Coopers & Lybrand Ltd. v. R., 80 D.T.C.
6281 (Fed. C.A.) at 6287 [TAB 8]
The appeal at bar involves the latter situation. Clearly,
given that the Appellant has admitted withholding the amounts set
out in paragraph 10(g) of the Amended Reply in the General
Procedure appeal, there is an indisputable obligation on the
Appellant to remit these amounts to the Receiver General of
Canada.
20. It should also be
noted that the Appellant paid, and its employees received, a full
wage, consisting of the net pay that the employees received and
the amount withheld at source. Under subsection 153(3) of the
Income Tax Act, amounts deducted or withheld are deemed received
by the employee at the time of deduction or withholding.[3] Importantly, each
employee was entitled to receive credits for the amounts that the
Appellant withheld.
21. The Appellant's
logical and legal imbalance is its apparent argument that
employees who might receive refunds are not taxable and,
therefore, the employer need not make withholdings at source.
This is wrong. These employees are taxable and it is the
employer's obligation to withhold that tax (and the other
deductions). In any event, the appeal at bar does not concern a
failure to withhold, but a failure to remit. The Appellant cannot
avoid its obligation to remit by arguing that it should not have
withheld. Simply put: amounts that have been withheld must be
remitted.
C. Even
if the Appellant made a mathematical error in the amounts it
withheld, which is denied, the Appellant is still obligated to
remit the amounts it withheld
22. Subsection 227(4) of
the Income Tax Act stipulates that amounts deducted or
withheld under the Act (such as employees' source
deductions) are deemed to be held in trust for Her Majesty and
for payment to Her Majesty in accordance with the Act.
The amounts deducted or withheld are deemed to be held separate
and apart from the property of the person withholding or
deducting the amounts.[4]
23. Furthermore,
subsection 227(9.4) of the Income Tax Act states that a
person who has failed to remit, as and when required by the
Act or a regulation, an amount deducted or withheld from a
payment to another person is liable to pay as tax under the
Act the amount so deducted or withheld on behalf of the
other person.
24. Finally, in a
technical note published in 1988, it is pointed out that
subsection 227(9.4) restates the obligation to remit an amount
deducted or withheld as provided in subsection 153(1).[5] Subsection 227(9.4), in
conjunction with subsection 227(10.1), enables the Minister to
assess the unremited source deductions against the person who
fails to remit, together with interest and penalties in respect
thereof.[6]
25. Accordingly,
regardless of the mathematical correctness of the Appellant's
own calculations, whatever quantum it withheld is held in trust
for the Minister and must be remitted. If the Appellant refuses
to do so, assessments can be raised against it for the full
amount that it failed to remit.
...
PART IV
ORDER SOUGHT
33. The Respondent
requests that a judgment issue determining that the Appellant was
correctly assessed for amounts withheld, but not remitted, from
July, 1999 to December, 1999 in the amount of $44,566.50, with
costs to the Respondent in the General Procedure appeal.
Final Argument of Aboriginal Federated Alliance
Inc.
1. Aboriginal
Federated Alliance Inc. [hereinafter referred to as Aboriginal
Federated] carried on business providing fire fighting services
in the Fort McMurray area in the summer of 1999 and 2000. These
tax appeals are for 2000-4194(IT)G, 2000-4200(EI), and
2000-4201(CPP) ... 2000-5210(IT)I, 2000-5208(EI) and
2000-5209(CPP) ... An Order of the Tax Court of Canada was issued
on August 12, 2002 directing that all of these appeals be set
down for hearing on the same day.
Order of August 12, 2002. [Tab 1]
2. The majority of
persons who were employed by Aboriginal Federated were either
status Indians or persons who had applied for status. Most of
these aboriginals were adherents to Treaty No. 8. These
aboriginal persons were involved in traditional land use
activities including hunting and fishing and these fire-services
were in the areas where these traditional activities occurred.
They were familiar with these land areas. Many of these persons
are "homeless" being unable to afford housing in the
Fort McMurray area. These fire fighting services performed by
Aboriginal Federated were paid for pursuant to contracts made
with Alberta Forestry/Environment.
Testimony of John Malcolm
3. By Order of
the Tax Court of Canada dated May 12, 2003, this hearing is to
deal with the issue of quantum only and the constitutional issue
respecting the taxation of aboriginals under Treaty No. 8
is held in abeyance pending the decision of Benoit by the
Federal Court of Appeal. The Federal Court of Appeal has given
judgment in the Benoit appeal however, the status of an
appeal to the Supreme Court of Canada has not yet been
determined.
Order of May 12, 2003. [Tab 2]
[4] Note that in both this Argument of
Aboriginal Federated Alliance Inc. and in the Respondent's
Submissions there are references to decisions of the Court of
Queen's Bench of Alberta and a judgment of the Alberta Court
of Appeal. The gist of these judgments is that they determine
that it is the Tax Court of Canada that has jurisdiction to
determine the quantum of the assessments in question.
[5] Note also that the Final Argument
of Aboriginal Federated Alliance Inc. and the Respondent's
Written Submissions both make reference to an annual CPP
exemption of $3500 and to the basic personal exemption for income
tax. The Appellant's counsel argues after discussing the
above that the amount in question should be reduced to
$17,024.59. In my view the submissions of counsel for the
Respondent are correct and the true amount in issue is
$44,566.50.
Analysis
[6] In my opinion I have concluded
that the Respondent's Written Submissions are correct and
consequently I find that the Appellant was correctly assessed for
amounts withheld but not remitted from July 1999 to December 1999
in the amount of $44,566.50. Costs are awarded to the Respondent
in the General Procedure appeal. It is to be observed that the
Supreme Court of Canada on April 29, 2004 refused to hear
the appeal of the judgment of the Federal Court of Appeal
inCharles John Gordon Benoit et al v. The Queen, with the
result that the argument of the Appellant based on certain
Aboriginals being adherents to Treaty No. 8 fails.
Signed at Ottawa, Canada, this 11th day of May 2004.
O'Connor, J.
Email this Content