Cana Construction Co. Ltd. v. The Queen, 96 DTC 6370, [1996] 3 CTC 11 (FCA)

Hugessen J.T.C.C.: — Mr. Justice Pratte and I are of the view that there was no manifest error in the Tax Court judge’s finding that the Appellant had undertaken to pay its subcontractor, Vidalin’s, employees and to withhold and remit applicable source deductions including income tax. While that alleged undertaking was never honoured as far as concerns the deductions required by the Income Tax Act, there was both evidence and conduct which permitted the judge to find as he did. Furthermore, 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.

We would dismiss the appeal with costs.

Décary J.T.C.C. (dissenting):

I have come to the conclusion that the appeal should be allowed.

The Tax Court Judge essentially based his conclusions of fact on the testimony of one very much interested witness which he accepted, in my view, without weighing it against a critical examination of the whole of the evidence (see Faryna v. Chorny, [1952] 4 W.W.R. 171, [1952] 2 D.L.R. 354 (B.C. C.A.); Schwartz v. R. (sub nom. Schwartz v. Canada), [1996] 1 C.T.C. 303, 96 D.T.C. 6103 (S.C.C.). Such a critical examination could not have led him to conclude as he did that the Appellant had agreed to pay the wages of the employees of its subcontractor (Vidalin).

The only agreement that existed and which was evidenced by the parties’ conduct was to the effect that the Appellant would make the arrangements necessary to allow Vidalin itself to pay its employees during the performance of the contract. The Appellant never agreed to pay Vidalin’s employees; the Appellant undertook, rather, to make sure that Vidalin would pay its own employees. Vidalin’s employees were indeed paid by Vidalin with moneys that were due to Vidalin by the Appellant, that were paid to Vidalin by the Appellant pursuant to the subcontract for work actually done by Vidalin’s employees and that belonged to Vidalin at the time of payment.

The fact that the Appellant as a prudent businessperson required and ascertained that the amounts it was owing and paying to Vidalin would be utilized by Vidalin to pay the net wages of Vidalin’s employees, did not transform the Appellant into a payor of wages for the purposes of subsection 153(1) of the Income Tax Act. One does noT become a payor of wages merely by directing how and to whom the moneys one pays to an employer pursuant to a contract should be paid by that employer.

No bad faith was alleged by the Minister. No employer-employee relationship was ever established between the Appellant and Vidalin’s employees. The moneys used by Vidalin to pay its employees properly belonged to Vidalin. The employees were at all times working for Vidalin and performing the contract which Vidalin had entered into with the Appellant. Both the Appellant and Vidalin were interested albeit for different reasons in having the contract continued. The Minister, had Vidalin been solvent, would have been able to use subsection 153(1) as against Vidalin. That subsection should not be interpreted in my view as giving the Minister an alternative recourse against the person financing the employer or owing money to and paying the employer should the employer fail to deduct or withhold any amount from the wages paid to its employees.

The Tax Court Judge having committed a palpable and overriding error of fact in finding that the Appellant had agreed to pay the wages on behalf of Vidalin and having committed an error of law in equating control over payment with payment, I would allow the appeal with costs to the appellant here and in the Tax Court, set aside the decision of the Tax Court of Canada and refer the assessment back to the Minister for reconsideration and reassessment on the basis that the Appellant was not a person paying salary or wages or other remuneration to the Vidalin employees within the meaning of subsection 153(1) of the Income Tax Act and, therefore, was not obligated to deduct or withhold any amount under that provision.

Appeal dismissed.