2016 TCC 11
CHRISTOPHER SYLVAN STEWART,
GERARD WILLIAM JOHN O’TOOLE,
MAJESTY THE QUEEN,
This motion to dismiss the appeals was heard on
common evidence. On September 10, 2015, the Respondent filed a motion to dismiss
the appeals based on the grounds that the Tax Court of Canada does not have
jurisdiction over the subject matter of the appeals. Alternatively, if the
motion is dismissed, the Respondent is seeking an order granting the Respondent
60 days to file and serve the reply to the notice of appeal filed by each of
The grounds for the motion are as follows:
1. On October 15, 2012, Ram Management Inc.
submitted a tax waiver application on behalf of Hackett Songs Ltd. regarding
withholdings for fees to be paid to non-resident employees and sub-contractors
for services rendered in Canada between November 26 and December 11, 2014.
2. On November 19, 2014, the Canada Revenue
Agency’s (“CRA”) Non-Resident Audit section issued a decision regarding the
withholding waiver. This decision mandated that withholding be applied to
payments made to the employees and subcontractors.
3. On February 17, 2015, CRA confirmed its
decision of November 19, 2014.
4. On April 16, 2015, the Appellants filed
Notices of Appeal with this Court regarding the denial of the withholding
5. The Respondent makes the within application
for an order dismissing the Appeal on the ground that this court does not have
jurisdiction over the subject matter of the Appeal.
6. The relief sought by the Appellants is
effectually to overturn CRA’s decision with respect to waiver eligibility,
however, this relief is not within the jurisdiction of this Court.
7. According to section 152 of the Act,
the Minister shall, with due dispatch, examine a taxpayer’s income for a given
taxation year and assess the tax, the interest and penalties, if any.
8. Section 165 of the Act, provides that a
taxpayer may object to the Minister’s assessment by filing a Notice of
Objection, in writing, which sets out the reasons for the objection and the
9. Where a taxpayer has served a Notice of
Objection to an assessment under section 165 of the Act, section 169 of the Act
provides the right to appeal to this Court.
10. Section 171 of the Act provides that this Court
may dismiss the appeal or allow it, in order to vacate the assessment, vary the
assessment or refer the assessment back to the Minister for reconsideration and
11. The decision rendered on November 19, 2014 and
its confirmation on February 17, 2015, which denies the waiver request are not
an assessment as contemplated by section 152 of the Act. Such decision by the
Minister may not be objected to pursuant to section 165 of the Act or be
appealed to this Court pursuant to section 169 of the Act.
12. No assessments have been issued to the Appellants
with regard to their 2014 taxation year.
13. This Court does not have jurisdiction to grant
the relief sought in this Appeal as no assessments have been issued with
respect to the Appellant’s (sic) 2014 taxation year.
The following facts set out in section B of the
notice of appeal filed by each appellant are not opposed:
1. On October 15, 2015, the Appellant Hackett
Songs LTD applied for an R‑105 tax waiver regarding fees it was
contracted to receive for performances of Steve Hackett taking place in Canada
between November 26 and December 11, 2014. Hackett Song LTD concurrently
applied for secondary withholding tax waivers for fees to be paid to its
employee (Appellant Stephen Richard Hackett) and sub-contractors (Appellants
Nicholas Beggs, Erik Christopher Sylvan Stewart, Gary Gerard William John
O’Toole, Roger Frank King, and Robert James Townsend) for these same
performance dates (the “Application”).
2. Per the CRA’s determination in the Waiver
Decisions, Stephen Richard Hackett earned $4,374 USD ($4,991 CAD), Nicholas
Beggs earned $3,888 USD ($4,437 CAD), Erik Christopher Sylvan Stewart earned
$3,888 USD ($4,437 CAD), Gary Gerard William John O’Toole earned $3,888 USD
($4,437 CAD), Roger Frank King earned $4,374 USD ($4,991 CAD) and Robert James
Townsend earned $3,888 USD ($4,437 CAD) for their respective services in
3. Based on this determination, no withholding
tax should have been required on any of the individual Appellants’ fees given
these fees all fall within the CRA’s allowance for non-resident artists,
granting a waiver to individuals less than $5,000 CAD per year pursuant to the
CRA’s guidelines for Treaty-Based Waivers Involving Regulation 105 Withholding
4. In the course of discussions with the CRA
regarding the Application however, it was discovered that board and lodging as
well as transportation expenses paid on the Appellants’ behalf were included as
income in determining the Appellants’ eligibility for a waiver. While such
amounts may be included as income pursuant to the Guidelines, The Income Tax
Act clearly exempts such amounts from being included as income where they are
required for work at a special work site, as was the case for the Appellants,
pursuant to section 6(6) of the Act.
5. While the CRA did not require tax to be
withheld from the benefit amounts described in Section 4 herein, the
consideration of these amounts in the Application wrongly disqualifies the
individual Appellants from a waiver of withholding tax to which they were duly
entitled based on Canadian tax law, and further created undue burden on both
the individual Appellants, who would have to file T1 returns to recover tax
amounts withheld in violation of the Act, and on Hackett Songs LTD, which would
have to withhold, remit, and account for such withheld tax amounts.
6. In addition to the CRA’S Waiver Decisions and
subsequent ruling being made in violation of the Act, the time and burden that
would be placed on the Appellants as a result of such decisions is also
contrary to the general treatment in Canadian tax law and international tax
treaties of Non-Resident Individuals and Corporations having no permanent
establishment in Canada and doing business in Canada for limited periods of
time, and is disproportionate to the intended effects of withholding and other
tax evasion prevention measures in Canadian tax laws.
7. In addition to the issue of lawfulness of
withholding tax mandated by the Waiver Decision and subsequent ruling, the
Appellants made a similar application to the CRA for a waiver of withholding
tax in 2013. All the Appellants were part of this 2013 application, earned
similar salaries, and had similar amounts paid on their behalf for
transportation, board, and lodging. In the course of the 2013 application, the
CRA did not consider the Appellants’ benefits as income, and all Appellants
were all granted a full waiver of withholding tax. It should be noted here
that all relevant guideline, law, regulation, and treaty provisions applicable
in 2014 were also in force in 2013, and that both the 2013 and 2014
applications were processed by the same Tax Services Office. This inconsistent
application by the CRA of its own Guidelines prevented the Appellants from
appropriately planning their Canadian remuneration and tax liability 2014.
The issue is to determine whether a denial of a tax
waiver application can be considered an assessment for the purposes of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.)
as amended (the “Act”).
Position of the
The Appellants argued that the CRA’s decision
regarding the tax waiver application should be considered as an assessment because
it is in essence a determination of the tax liability of the Appellants which
is equivalent to an assessment.
The Appellants also argued that if the denial of
a tax waiver application is treated as not being an assessment, they would have
no way to appeal the Minister of National Revenue’s decision.
The Respondent’s position is that the Tax Court
of Canada (the “Court”) does not have jurisdiction over the subject matter of
the appeals. The Appellants are, in fact, asking this Court to overturn CRA’s
decision to deny the applications of the non-resident tax waivers. It is the Respondent’s
position that this relief is not within the jurisdiction of this Court.
According to the Respondent, the decision of the
Minister of National Revenue dated November 19, 2014 and its confirmation dated
February 17, 2015 denying the tax waiver applications are not an assessment
pursuant to section 152 of the Act.
Section 152 of the Act imposes on the
Minister of National Revenue, the obligation with all due dispatch, to examine
a taxpayer’s return of income for a taxation year, assess the tax for the year,
the interest and penalties and determine the amount of refund to the taxpayer
and the amount of tax deemed to be paid on account of the taxpayer’s tax
payable under Part I of the Act for the year.
Subsection 152(1) of the Act reads as
Assessment – The Minister
shall, with all due dispatch, examine a taxpayer’s return of income for a
taxation year, assess the tax for the year, the interest and penalties, if any,
payable and determine
the amount of refund, if
any, to which the taxpayer may be entitled by virtue of section 129, 131, 132
or 133 for the year; or
the amount of tax, if any, deemed by subsection
120(2) or (2.2), 122.5(3), 122.51(2), 122.7(2) or (3), 122.8(2) or (3),
125.4(3), 125.5(3), 127.1(1), 127.41(3) or 210.2(3) or (4) to be paid on
account of the taxpayer’s tax payable under this Part for the year.
Subsection 169(1) of the Act provides
that where a taxpayer has served a notice of objection to an assessment under
section 165 of the Act, the taxpayer may appeal to this Court to have
the assessment vacated or varied.
Susbsection 169(1) reads as follows:
Appeal – Where a taxpayer has served notice of objection to an assessment under
section 165, the taxpayer may appeal to the Tax Court of Canada to have the
assessment vacated or varied after either
the Minister has
confirmed the assessment or reassessed, or
90 days have elapsed after service of the notice of
objection and the Minister has not notified the taxpayer that the Minister has
vacated or confirmed the assessment or reassessed,
but no appeal under this section may be instituted after the expiration of
90 days from the day notice has been sent to the taxpayer under section 165
that the Minister has confirmed the assessment or reassessed.
When an appeal is filed, the Tax Court of Canada
may dispose of the appeal by dismissing it or by allowing it by vacating,
varying or referring back the assessment to the Minister. These options are
provided for by subsection 171(1) of the Act in the following
appeal – The Tax Court of Canada may dispose of an
dismissing it; or
allowing it and
vacating the assessment,
varying the assessment, or
referring the assessment back to the Minister for reconsideration and
Pursuant to paragraph 153(1)(g) of the Act
and section 105 of the Income Tax Act Regulations (the “Regulations”),
a withholding tax of 15% is required from the payment of fees, commissions or
other amounts paid or allocated to a non-resident person in respect of services
provided in Canada. The amount withheld is on account of the payee’s potential
liability for tax under the Act. Paragraph 153(1)(g) provides
paying at any time in a taxation year
. . .
commissions or other amounts for services, other than amounts described in
. . .
shall deduct 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.
To give effect to paragraph 153(1)(g) in
the context of payments to non-residents, the Governor-in-Council enacted
section 105 in the Regulations which reads as follows:
105(1) Every person
paying to a non-resident person a fee, commission or other amount in respect of
services rendered in Canada, of any nature whatever, shall deduct or withhold
15 per cent of such payment.
(1) does not apply to a payment
(a) described in the definition “remuneration” in subsection 100(1);
made to a registered non-resident insurer (within the meaning assigned by
section 804); or
(c) made to an
authorized foreign bank in respect of its Canadian banking business.
Where a non-resident can demonstrate, based on
treaty protection or estimated income and expenses that the normally required
withholding is in excess of the ultimate tax liability, the CRA may waive or
reduce the withholding accordingly pursuant to the undue hardship provisions of
subsection 153(1.1) of the Act. Waiver applications must be made on Form
R105, Regulation 105 Waiver Application.
The term “assessment” is not defined in the Act.
The 10th edition of Black Law Dictionary defines the term “assessment” as a
“determination of the rate or amount of something, such as a tax or damages
(assessment of the losses covered by insurance). The other definition given is
“imposition of something, such as a tax or fine, according to an established
rate; the tax or fine so imposed (assessment of a luxury tax)”.
In McMillen Holdings Ltd. v. Minister of
National Revenue, 1987 CarswellNat 532, Justice Rip (as he then was)
considered the meaning of the term “assessment” and came to the conclusion that
an “assessment” is a determination of the liability of a taxpayer. The basis of
his conclusion was as follows:
44 Section 152
states that the Minister shall examine a taxpayer’s return of income for a
taxation year, assess the tax of the year, interest and penalties and determine
any refund or tax paid on account. The term “assessment” or “reassessment” is
not defined in the Act except to provide that an assessment includes a
reassessment. The terms “reassessment” and “notice of reassessment” were
discussed by Mr. Justice Thorson in Pure Spring Company Limited v. Minister
of National Revenue,  C.T.C. 169 at 198, 46 D.T.C. 844 at 857:
is different from the notice of assessment; the one is an operation, the other
a piece of paper. The nature of the assessment operation was clearly stated by
the Chief Justice of Australia, Isaacs, A.C.J., in Federal Commission of Taxation v. Clarke (1927), 40 C.L.R. 246 at 277:
is only the ascertainment and fiscation of liability.”
which he had previously elaborated in The King v. Deputy Federal Commission of Taxation (S.A.);
ex parte Hooper (1926), 37
C.L.R. 368 at 373:
is not a piece of paper; it is an official act or operation; it is the
Commissioner’s ascertainment, on consideration of all relevant circumstances,
including sometimes his own opinion, of the amount of tax chargeable to a given
taxpayer. When he has completed his ascertainment of the amount he sends by
post a notification thereof called ‘a notice of assessment’ ... But neither the
paper sent nor the notification it gives is the ‘assessment’. That is and
remains the act of operation of the Commissioner.”
It is the
opinion as formed, and not the material on which it was based, that is one of
the circumstances relevant to the assessment. The assessment, as I see it, is
the summation of all the factors representing tax liability, ascertained in a
variety of ways, and the fixation of the total after all the necessary
computations have been made.
45 An assessment by its very nature is a determination of
liability of a taxpayer. An amount of money owed to the taxpayer by the Crown
on account of interest is not an amount which is subject to an assessment or an
assessed amount of money.
This concept of an “assessment” has been
followed consistently by the courts and led the courts to conclude that there can
be no appeal of a “nil” assessment because the taxpayer has nothing to contest
in his appeal to the courts.
In McIntosh v. Canada, 2011 TCC 147,
Justice D’Arcy referred to Justice Rip’s decision in McMillen Holdings
Ltd. and stated at paragraph 19 that:
It is clear from
these provisions that the jurisdiction of this Court is limited to appeals from
an assessment. It is only appeals from an assessment that arise under the Act . . .
In Weyerhaeuser Co. v. Canada, 2007 TCC
65, Justice Bowie explained the concept of withholding tax and concluded that a
withholding of tax is not an assessment. The following extract is particularly
7 Consideration of the purpose of subsection 153(1) leads to the same conclusion.
It does not impose a tax; as the respondent quite rightly argues, the
purpose of paragraph 153(1)(g) is to ensure that if the non-resident recipient
of a payment is, after all the facts are known, liable to pay income tax in
Canada, then there will be funds available, in the form of the 15% withheld and
remitted, to satisfy the obligation. That is inescapable, as the section
does not impose a tax but simply requires withholding "on account of the
payee's tax for the year".5
While I do not have before me all the written contracts between the appellant
and its consultants, a perusal of the invoices leads me to conclude that, as
one would expect, the appellant's obligation in respect of the disbursements is
simply to repay that which the consultant has paid on the appellant's behalf in
the course of rendering the service. To withhold 15% from that amount would not
at all further the purpose of paragraph 153(1)(g), or of the Act as a whole. Indeed, the result that would flow from doing
so would be quite contrary to the interests of Canadian industry. It is not
difficult to foresee that if foreign service providers were to be reimbursed
their expenses only to the extent of 85% until such time as they had filed a
Canadian income tax return after the year end, and then waited for an assessment
and a refund, that would create a considerable disincentive for them to offer
their services to Canadian clients. As the purpose of the provision is
simply to provide security for tax that may later be assessed, it need only be
concerned with providing that security with reference to income earned in
Canada as that is what subsection 2(3) of the Act taxes.
Therefore, it is clear from this paragraph of
Justice Bowie’s decision that a withholding of tax is not an assessment. It is
only a way for the government to make sure that the tax to which it is entitled
to, will be received from non-residents. If the amount of tax withheld exceeds
what the taxpayer actually has to pay, then the government will refund the
amount in excess to the taxpayer.
If a withholding of tax is not an assessment, a
waiver authorizing a Canadian taxpayer to not withhold the 15% on the fees
payable to a non-resident is also not an assessment.
In Big Bad Voodoo Daddy v. Canada, 2011 TCC
226, I had the occasion to consider how a Regulation 105 waiver works. At
paragraph 25, I provided the following explanation:
waiver application authorizes the Canadian taxpayer who is about to make a
payment to a non‑resident for services provided in Canada, to not withhold
the 15% tax on the fees payable to the non‑resident. As the waiver
request is based on an estimation of income versus expenses directly related to
services provided in Canada, any changes to the contracted fees or period of
service invalidate the waiver. In such a case, the Canadian taxpayer is then
responsible for the 15% withholding at source on the gross amount of any
payments to the non‑resident unless the non‑resident files another
waiver request with the CRA. The Canadian taxpayer is required to prepare a T4A‑NR
slip for each non‑resident paid and to give to each one a copy of the
slip. The T4A‑NR will show the fees paid and taxes deducted for the non‑resident.
I agree with the Respondent that refusal of a tax
waiver application is not an assessment but a discretionary decision of the
Minister. After an application by a non-resident is made, the Minister will
decide if he agrees that the tax be waived in that particular applicant’s situation.
As determined by Justice Bowie in Kravetsky v. Canada, 99 D.T.C. 451, a
judicial review of a discretionary power of the Minister is not within the
jurisdiction of this Court. The following extract clearly confirmed that
3 In the course of argument, counsel indicated to me that the two
paragraphs moved against are relied upon only in respect of the relief claimed
by paragraph 15(d) of the Notices of Appeal. His position was that an
arbitrary and unfair exercise of a discretionary power conferred by statute is
subject to judicial review in this Court. He was, however, unable to point to
any statutory provision giving this Court such jurisdiction. Indeed, the only
authority to which he could refer me was subsection 18(1) of the Federal Court
Act. That provision, of course, confers jurisdiction only on the Federal Court
of Canada. If the Appellants wish to pursue the remedy claimed in paragraph
14(d) on the basis of the facts that they allege in paragraphs 12 and 13, then
they will have to do so in that Court. This Court has only the jurisdiction
that is conferred on it by Parliament, either expressly or by necessary
implication: see Lamash Estate v. M.N.R.3
The Appellants submitted that CRA made a
determination that they were liable to pay tax in Canada and that, this
determination was equivalent to an assessment. I do not agree with this
assertion because a waiver is not a determination of the tax liability of a
non-resident but it is a decision with regards to giving permission to a
Canadian taxpayer or a non-resident payor to not withhold taxes on amounts
payable to a non-resident. The tax liability of the non-resident can only be
determined by an assessment after a review of his or her tax return. Even if a
waiver was granted in respect of a payment of fees to a non-resident, the
non-resident will still have to file a tax return at the end of the year. The
only difference is that the non-resident would not have been withheld an amount
to be applied on his taxes and will not have to claim a refund for the amount
paid in excess.
The Appellants also argued that no appeal would
then be available. When the Appellants will file their tax returns, they will
each receive a notice of assessment and each of them will be able to appeal
this notice of assessment if they do not agree with the assessment. In any
event, the Appellants will always have the opportunity to turn themselves to
the Federal Court of Canada in order to force the Minister to change its
decision as stated by Justice Bowie in Kravetsky. I agree with the
Respondent that the ministerial decision to grant a waiver would be equivalent
of a mandamus.
For the foregoing reasons, the Respondent’s
motion to dismiss the Appellants’ appeals is allowed and the appeals are
Signed at Ottawa, Canada, this 20th day of January 2016.