Teitelbaum,
J.:—The
statement
of
claim
filed
into
the
Federal
Court
Registry
speaks
of
Mollenhauer
Ltd.
as
the
appellant,
and
Her
Majesty
the
Queen
as
respondent,
Mollenhauer
Ltd.
should
be
referred
to
as
plaintiff
and
Her
Majesty
the
Queen
as
defendant.
Notwithstanding
the
fact
that
the
plaintiff
is
appealing
a
decision
of
the
Tax
Court
of
Canada
to
the
Federal
Court
of
Canada,
Trial
Division,
this
is
done
by
a
direct
action
and
the
proceedings
before
the
Trial
Division
is
a
trial
de
novo.
At
the
commencement
of
the
hearing,
the
parties
filed
an
agreed
statement
of
facts
to
which
are
attached
seven
exhibits
(Exhibit
1).
It
is
necessary
to
incorporate
into
this
judgment
the
agreed
statement
of
facts
in
order
to
better
understand
this
judgment.
1.
The
plaintiff
carries
on
business,
inter
alia,
as
a
construction
contractor
and
in
furtherance
of
this
business
the
plaintiff,
in
its
1985
taxation
year,
subcontracted
certain
construction
work
to
Aprok
Drywall
Ltd.
("Aprok")
with
respect
to
a
project
known
as
the
Somitel
Hotel.
2.
Aprok
was
the
drywall
subcontractor
for
the
Somitel
Hotel
project
pursuant
to
a
written
subcontract
dated
December
5,
1984.
3.
Aprok
was
in
charge
of
its
own
employees,
directed
their
work
and
was
responsible
for
paying
them.
4.
In
or
about
October
1985
when
the
subcontract
was
about
85%
complete,
Aprok
was
unable
to
meet
its
payroll
liability
for
salary
or
wages.
At
that
time
the
plaintiff
owed
Aprok
approximately
$155,000
under
the
subcontract.
In
order
that
construction
work
could
proceed
the
plaintiff
arranged
to
pay
the
amounts
due
by
Aprok
to
Aprok's
employees
and
reduced
the
amount
due
to
Aprok
accordingly.
5.
The
arrangement
to
pay
employees
of
Aprok
for
work
performed
on
the
Somitel
Hotel
was
consented
to
by
Laurentian
Pacific
Insurance
Company
who
managed
a
performance
bond
issued
with
respect
to
the
Aprok
subcontract.
6.
The
plaintiff
asked
Aprok
to
indicate
amounts
owing
to
its
employees
on
the
plaintiff's
site.
Aprok
provided
pay
information
consisting
mainly
of
unsigned
cheques
in
names
of
employees
with
the
amounts
on
them,
together
with
the
applicable
pay
stubs.
The
plaintiff
duplicated
Aprok's
unsigned
cheques
with
its
own
cheques.
7.
The
plaintiff's
cheques
on
its
own
accounts
signed
by
a
duly
authorized
official
of
the
plaintiff
were
dated
October
18,
1985
and
October
23,
1985.
8.
The
plaintiff
invoiced
Aprok
for
the
amounts
paid
plus
a
10%
overhead
charge
and
a
10%
fee
and
deducted
these
amounts
from
that
owing
to
Aprok
as
agreed.
9.
The
amounts
which
the
plaintiff
paid
to
Aprok's
employees
were
net
of
unemployment
insurance
premiums,
Canada
Pension
Plan
contributions
and
income
tax
deductions
(“source
deductions”).
10.
No
source
deductions
were
withheld
or
remitted
by
the
plaintiff.
11.
No
source
deductions
were
withheld
or
remitted
by
Aprok.
12.
The
employees
were
not
notified
that
source
deductions
had
not
been
withheld
or
remitted.
13.
The
plaintiff
and
Aprok
were
subject
to
the
provisions
of
the
Builders
Lien
Act
of
the
Province
of
British
Columbia
in
force
at
the
material
times.
14.
By
Notice
of
Assessment
dated
May
20,
1986,
the
Minister
of
National
Revenue
assessed
the
plaintiff
on
the
basis
that
the
plaintiff
paid
salary
or
wages
to
Aprok's
employees
and
failed
to
remit
to
the
Receiver
General,
amounts
on
account
of
unemployment
insurance
premiums,
Canada
Pension
Plan
contributions
and
income
tax
(Exhibit
1-6
and
1-7).
15.
The
plaintiff
filed
a
Notice
of
Objection
to
the
defendant's
assessment
of
the
plaintiff's
1985
taxation
year
and
on
January
12,
1987,
the
defendant
confirmed
the
assessment
of
the
plaintiff's
1985
taxation
year.
16.
The
appeal
of
the
plaintiff
before
the
Tax
Court
of
Canada
with
respect
to
the
defendant's
assessment
in
regard
to
income
tax
was
dismissed
by
Judgment
dated
May
12,
1989,
and
mailed
by
the
Registrar
of
the
Tax
Court
of
Canada
on
May
30,
1989.
The
parties
have
also
filed,
by
consent,
the
transcript
of
a
hearing
in
the
case
of
Mollenhauer
Ltd.
v.
M.N.R.,
87-105
(unreported,
T.C.C.)
held
before
Judge
A.
Labelle
on
September
23,
1987
(Exhibit
2).
The
relevant
sections
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
"Act")
are
subsections
153(1),
227(8)
and
227(9).
153.
Withholding.
(1)
Every
person
paying
at
any
time
in
a
taxation
year
(a)
salary
or
wages
or
other
remuneration,
(b)
a
superannuation
or
pension
benefit,
(c)
a
retiring
allowance,
(d)
a
death
benefit,
(d.1)
an
amount
as
a
benefit
under
the
Unemployment
Insurance
Act,
1971,
(e)
an
amount
as
a
benefit
under
a
supplementary
unemployment
benefit
plan,
(f)
an
annuity
payment,
(g)
fees,
commissions
or
other
amounts
for
services,
(h)
a
payment
under
a
deferred
profit
sharing
plan
or
a
plan
referred
to
in
section
147
as
a
revoked
plan,
(i)
a
training
allowance
under
the
National
Training
Act,
(j)
a
payment
out
of
or
under
a
registered
retirement
savings
plan
or
a
plan
referred
to
in
subsection
146(12)
as
an
"amended
plan”,
(k)
an
amount
as,
on
account
or
in
lieu
of
payment
of,
or
in
satisfaction
of,
proceeds
of
the
surrender,
cancellation
or
redemption
of
an
income-averaging
annuity
contract,
(l)
a
payment
out
of
or
under
a
registered
retirement
income
fund,
(m)
an
amount
as
a
benefit
under
the
Labour
Adjustment
Benefits
Act,
(n)
one
or
more
amounts
to
an
individual
who
has
elected
for
the
year
in
prescribed
form
in
respect
of
all
such
amounts,
or
(o)
an
amount
described
in
paragraph
115(2)(c.1),
shall
deduct
or
withhold
therefrom
such
amount
as
may
be
determined
in
accordance
with
prescribed
rules
and
shall,
at
such
time
as
may
be
prescribed,
remit
that
amount
to
the
Receiver
General
on
account
of
the
payee's
tax
for
the
year
under
this
Part.
227.
(8)
Idem.
Any
person
who
has
failed
to
deduct
or
withhold
any
amount
as
required
by
this
Act
or
a
regulation
is
liable
to
pay
to
Her
Majesty
(a)
if
the
amount
should
have
been
deducted
or
withheld
under
subsection
153(1)
from
an
amount
that
has
been
paid
to
a
person
resident
in
Canada,
or
should
have
been
deducted
or
withheld
under
section
215
from
an
amount
that
has
been
paid
to
a
person
not
resident
in
Canada,
10%
of
the
amount
that
should
have
been
deducted
or
withheld,
and
(b)
in
any
other
case,
the
whole
amount
that
should
have
been
deducted
or
withheld,
together
with
interest
on
the
amount
that
should
have
been
deducted
or
withheld,
at
the
prescribed
rate
per
annum,
for
the
period
commencing
on
the
later
of
(c)
February
16,
1984,
and
(d)
the
15th
day
of
the
month
immediately
following
the
month
in
which
such
amount
should
have
been
so
deducted
or
withheld.
(9)
Idem.
Every
person
who
has
failed
to
remit
or
pay
(a)
an
amount
deducted
or
withheld
as
required
by
this
Act
or
a
regulation,
or
(b)
an
amount
of
tax
that
he
is,
by
section
116
or
by
a
regulation
made
under
subsection
215(4),
required
to
pay,
is
liable
to
a
penalty
of
10%
of
that
amount
or
$10,
whichever
is
the
greater,
in
addition
to
the
amount
itself,
together
with
interest
on
the
amount
at
the
prescribed
rate
per
annum,
for
the
period
commencing
on
the
15th
day
of
the
month
immediately
following
the
month
in
which
such
amount
was
deducted
or
withheld.
The
issue
to
be
determined,
according
to
plaintiff
and
contained
in
its
outline
of
argument
is:
The
issue
raised
on
this
appeal
from
the
Tax
Court
of
Canada
is
whether
payments
made
to
employees,
at
the
direction
of
their
employer,
by
a
debtor
of
that
employer,
are
payment
of
wages,
thereby
requiring
the
debtor
to
deduct
and
withhold
income
tax
remittances
pursuant
to
section
153
of
the
Income
Tax
Act
(the
"Act").
Counsel
for
the
defendant
states
that
she
does
not
agree
with
the
way
in
which
plaintiff
states
the
issue
to
be
decided
as
she
does
not
agree
that
the
payments
made
to
the
employees
were
made
at
the
direction
of
their
employer
by
a
debtor
of
that
employer.
It
is
counsel’s
submission
that
the
payments
to
the
employees
by
plaintiff
were,
pursuant
to
subsection
153(1)
salary
or
wages
or
other
remunerations"
and
that
plaintiff
"shall
deduct
and
withhold
.
.
.”.
The
issue
is
to
determine
whether
the
money
paid
to
the
employees
of
Aprok
by
the
plaintiff
was
paid
as
salary
or
wages
by
the
plaintiff
or
whether
what
was
paid
by
plaintiff
to
the
employees
of
Aprok
were
moneys
owing
to
Aprok
and
at
Aprok's
direction
was
paid
to
its
employees.
Counsel
for
plaintiff
submits
that
what
was
paid
by
plaintiff
was
not
salary
or
wages,notwithstanding
that
the
amount
received
by
each
employee
was
equivalent
to
that
employee's
net
wage
owing
to
him
and
notwithstanding
the
fact
that
the
employee
understood
that
he
was
receiving
his
net
wages
for
the
services
that
he
performed.
Plaintiff's
submissions
Plaintiff
submits
that
the
facts
clearly
establish
that
there
never
were
any
indices
of
an
employer/employee
relationship
and
that
the
payments
were
not
made
by
plaintiff
as
wages.
He
submits
the
following
facts
for
the
above
conclusion:
1.
Aprok
had
prior
to
the
cheques
being
written
supervised
and
directed
the
employees;
2.
Aprok
performed
the
calculations
for
the
payments
and
directed
Mollenhauer
as
to
the
amount
of
each
cheque;
3.
Aprok
directed
Mollenhauer
to
pay
the
cheques
from
amounts
otherwise
payable
to
Aprok;
and
4.
Mollenhauer
charged
a
fee
for
writing
the
cheques.
Plaintiff
submits
that
what
is
of
importance
"that
it
is
the
character
of
the
payment
for
the
payor
that
is
determinative
and
not
the
nature
of
the
receipt
of
the
payee".
Counsel
submits
that
the
plaintiff,
the
payor,
“is
settling
a
debt
by
directing
the
funds
to
a
third
party
(an
employee
of
the
creditor)
who
would
not
otherwise
be
entitled
to
sue
the
payor
for
wages
or
salary”.
Plaintiff
also
submits
that
each
employee
of
Aprok
would
have
had
a
claim
against
plaintiff
pursuant
to
the
trust
provisions
of
the
Builders
Lien
Act.
Section
2
of
this
Act
states:
2.
(1)
All
sums
received
by
a
contractor
.
.
.
on
account
of
the
contract
price
are
and
constitute
a
trust
fund
in
the
hands
of
the
contractor.
.
.
for
the
benefit
of
.
.
.
workers
.
.
.
.
The
contractor.
.
.
is
the
trustee
of
all
those
sums
received
by
him,
and
until
all
workers
.
.
.
are
paid
for
work
done
.
.
.
shall
not
appropriate
or
convert
any
part
of
it
to
his
own
use,
or
to
any
use
not
authorized
by
the
trust.
Counsel
submits
that
because
of
the
Builders
Lien
Act
plaintiff
would
have
had
to
retain
funds
for
the
employees.
Counsel
also
submits,
in
the
alternative:
It
is
submitted
that
if
the
appellant
ought
to
have
deducted
pursuant
to
subsection
153(1)
of
the
Act
it
did
not
deduct
nor
did
it
withhold
any
funds
and
accordingly
is
liable
only
to
a
penalty
pursuant
to
subsection
227(8)
(Tab
2).
(The
Queen
v.
Coopers
&
Lybrand
Ltd.,
[1980]
C.T.C.
367,
80
D.T.C.
6281
at
376-377,
(D.T.C.
6287-8))
Counsel
submitted,
for
my
consideration,
the
following
cases:
(1)
Realty
Projects
(1957)
Inc.
v.
M.N.R.,
[1979]
C.T.C.
2535,
79
D.T.C.
511
for
the
proposition
that
a
general
contractor
which
issued
cheques
jointly
to
its
subcontractor
and
its
subcontractor's
employees
was
not
liable
to
deduct
under
subsection
153(1).
(2)
The
Queen
v.
Coopers
&
Lybrand
Ltd.,
supra,
for
the
proposition
that
where
the
payments
were
made
solely
as
a
result
of
a
decision
of
the
payor,
that
payor
is
required
to
deduct
income
tax
remittances.
Counsel
submits
that
in
the
case
at
bar
the
plaintiff
made
the
payments
as
a
result
of
a
request
from
the
employer
Aprok.
Defendant's
submissions
Counsel
submits
that
subsection
153(1)
contains
a
simple
requirement,
everyone
paying
a
salary,
wages
or
other
remuneration,
must
deduct
and
remit.
She
states
this
is
an
obligation
on
every
person,
employer
or
not
employer.
If
this
is
not
done,
deduct
and
remit,
the
penalty
as
found
in
subsection
227(9)
can
be
enforced.
Counsel
submits
that
before
subsection
153(1)
read
as
it
does,
Every
Person
.
.
."
it
stated
"Every
Employer
.
.
.".
Thus
defendant
submits
that
one
does
not
need
to
be
an
employer,
the
wording
now“
"is
most
general”.
Counsel
for
defendant
submits
that
in
October,
1985
Aprok
advised
plaintiff
that
Aprok
would
not
be
able
to
meet
its
payroll
(Ex.
2,
page
8)
and
that
Aprok
asked
plaintiff
for
a
cash
advance.
Plaintiff
refused
for
fear
that
any
cash
advance
could
be
used
on
another
of
Aprok's
projects
(Ex.
2,
page
22).
Plaintiff
wanted
to
ensure
that
the
money
went
to
the
people
that
earned
it
on
the
job
(Ex.
2,
page
23)
for
fear
that
if
the
employees
were
not
paid
there
could
be
a
work
disruption
(Ex.
2,
page
16).
Counsel
submits
that
the
above
indicates
that
Aprok
wanted
cash,
that
plaintiff
was
concerned
of
work
disruptions
if
the
employees
were
not
paid
and
thus,
to
retain
control
of
the
funds
and
to
ensure
it
would
be
used
only
for
its
own
project,
plaintiff
undertook
upon
itself
to
pay
the
workers.
Counsel
submitted
the
following
cases
for
my
consideration:
(1)
Comanche
Drilling
Ltd.
(Deloitte
Haskins
&
Sells,
Receiver-Manager
for)
v.
Canada,
[1989]
1
C.T.C.
428,
89
D.T.C.
5225.
(2)
In
re
Bankruptcy
of
G,
&
G.
Equipment
Co.
Ltd.,
Supreme
Court
of
B.C.,
74
D.T.C.
6407,
[1974],
2
W.W.R.
95.
Discussion
It
is
very
clear
that
subsection
153(1)
of
the
Act
does
not
speak
of
whether
persons
doing
the
paying
are
employers
or
not.
I
am
satisfied
that
if
a
person
or
company
is
paying
"salary
or
wages
or
other
remuneration"
it
must
deduct
or
withhold
the
required
amount
pursuant
to
the
Income
Tax
Act.
From
the
facts
and
the
evidence
put
before
me
I
am
satisfied
that
the
plaintiff
paid
to
the
employees
the
wages
owing
to
them
and
did
so
with
the
full
knowledge
that
it
was
so
doing.
In
October,
1985
Aprok
was
unable
to
meet
its
payroll
liability
for
salary
or
wages.
At
that
time
plaintiff
owed
Aprok
approximately
$155,000
and
in
order
that
the
construction
work
could
proceed,
plaintiff
arranged
to
pay
the
amounts
due
by
Aprok
to
Aprok's
employees.
In
order
to
do
so,
plaintiff
asked
Aprok
to
indicate
the
amounts
owing
to
its
employees.
Aprok
provided
the
necessary
pay
information,
unsigned
cheques
in
the
names
of
the
employees
with
the
amounts
on
them
together
with
the
applicable
pay
stubs.
Exhibits
1-4
are
the
documents
prepared
by
Aprok.
Plaintiff,
upon
receiving
the
documents
prepared
its
own
cheque
in
the
name
of
the
employee
for
the
same
amount,
the
net
salary
owing
the
employee.
As
examples
of
what
happened,
I
reproduce
part
of
Ex.
1-4
for
two
individual
employees,
Ed
Baker
&
Maurice
Lavalle
[not
reproduced].
What
is
apparent
from
the
above,
is
that
plaintiff
is
being
told
by
Aprok
that
it
Owes
a
gross
salary
of
$1140.05
to
its
employee
Ed
Baker
and
that
it
has
deducted
250.80
for
federal
income
taxes,
plus
other
deductions
of
no
concern
for
the
case
at
bar,
and
that
there
is
a
net
sum
payable
to
Mr.
Ed
Baker
which
plaintiff
paid.
The
same
applies
to
Maurice
Lavalle.
The
document
indicates
$1504.44
owing
Mr.
Lavalle
as
his
gross
salary
and
that
a
deduction
was
made
in
the
sum
of
$386.75
for
federal
income
taxes
plus
other
deductions
of
no
concern
for
the
case
at
bar
and
that
there
is
a
net
sum
payable
to
Mr.
Maurice
Lavalle
in
the
sum
of
$1045.63
which
plaintiff
paid.
The
same
is
applicable
for
all
the
other
employees
paid
by
plaintiff.
I
adopt,
for
the
purposes
of
the
case
at
bar,
the
words
of
Mr.
Justice
Berger
in
the
case
of
In
re
Bankruptcy
of
G.
&
G.
Equipment
Co.
Ltd.,
supra,
where
at
page
6408
he
states:
The
question
then
is
whether
G.
&
G.
was
a“
person
paying
..
.
wages
.
.
.
to
an
.
.
.
employee".
If
G.
&
G.
falls
within
section
153,
the
Department
is
entitled
to
be
treated
as
a
preferred
creditor
under
section
107
of
the
Bankruptcy
Act.
I
think
the
Department
must
succeed.
Section
153
says
that
every
person
paying
wages
to
an
employee
must
withhold
tax,
it
doesrï't
say
that
only
employers
must.
The
language
must
be
taken
to
have
been
deliberately
chosen,
and
to
have
been
intended
to
encompass
the
kind
of
situation
that
exists
in
the
case
at
bar.
The
law
recognizes
that
these
two
companies
are
separate
legal
entities.
At
the
same
time
the
law
ought
to
recognize
that
one
business
undertaking
may
be
carried
on
through
a
group
of
related
companies.
The
law
ought
to
take
into
account
the
realities
of
modern
business
arrangements.
I
understand
that
in
the
above
case,
the
companies
involved
are
related
companies
but
I
am
satisfied
that
this
in
itself
is
immaterial.
What
is
important
is
that
in
the
case
at
bar
the
plaintiff
undertook
the
obligation
of
Aprok
to
pay
the
salary
and
wages
of
Aprok's
employees
in
order
for
plaintiff
to
complete
its
project
without
possible
disruption
from
the
employees
or
the
union
to
which
they
belong.
The
case
of
Comanche,
supra,
is,
in
many
ways,
similar
to
the
case
at
bar.
Plaintiff
Deloitte
was
appointed
receiver-manager.
It
failed
to
remit
deductions
submitting
that
no
deductions
were
made
and
therefore
had
nothing
to
remit.
In
their
case,
the
payroll
was
prepared
by
a
company
known
as
Comcheq
Services
Ltd.
which
company
calculated
the
gross
pay,
determined
the
deductions
and
arrived
at
a
net
amount.
Therefore,
Comcheq
prepared
the
cheques
and
payroll
stubs
in
the
same
manner
as
Aprok
prepared
the
cheques
and
payroll
stubs
for
plaintiff.
Mr.
Justice
Rouleau,
after
making
a
clear
analysis
of
plaintiff’s
and
defendant's
submissions
and
after
distinguishing
the
case
of
Coopers
&
Lybrand,
supra,
at
page
433
(D.T.C.
5229)
[of
Comanche]
states:
In
both
cases,
the
prima
facie
evidence
provided
by
payroll
records
indicate
that
deductions
were
made.
In
Coopers
&
Lybrand,
however,
the
receiver
never
had
access
to
funds
to
pay
gross
wages,
let
alone
the
deductions;
in
fact
the
moneys
came
directly
from
the
debenture
holder
and
only
the
net
amount
was
provided.
At
page
434
(D.T.C.
5230)
Mr.
Justice
Rouleau
states:
The
plaintiff
assumed
the
responsibility
of
directing
this
financially
plagued
company
undoubtedly
intending
to
maintain
it
as
a
going
concern
in
order
to
retain
the
goodwill
of
its
customers
and,
more
than
likely,
be
in
a
more
favourable
position
to
eventually
dispose
of
the
asset
to
the
greater
advantage
of
the
creditors.
Having
assumed
the
responsibility
of
an
employer
the
plaintiff
voluntarily
elected
to
pay
the
outstanding
wages
in
order
to
retain
the
staff.
To
suggest
that
mere
intention
is
sufficient
to
exonerate
an
employer
from
paying
what
is
rightfully
due
to
the
Minister
of
National
Revenue
is
ludicrous.
I
am
satisfied
from
Exhibit
1-4,
that
Aprok
indicated
the
deductions
owing
for
income
tax
and
that
the
plaintiff
Mollenhauer
Ltd.
voluntarily,
and
for
very
good
reason,
assumed
the
responsibility
of
Aprok
to
pay
the
full
wages
owing,
in
order
to
prevent
employee
and/or
union
disruptions
at
the
work
site.
The
action
is
dismissed.
Costs
in
favour
of
the
defendant.
Appeal
dismissed.