Citation: 2012 TCC 347
Date: 20121002
Docket: 2012-1655(IT)I
BETWEEN:
DOUGLAS JOHN SUTCLIFFE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Woods J.
[1]
Douglas Sutcliffe seeks a
determination that no tax is owing for the 2010 taxation year on the basis that
tax had already been withheld by his employer, Express Metal Supply Ltd.
[2]
The notice of appeal also seeks
relief for the 2009 taxation year but this claim was withdrawn at the hearing because it appeared that credit had been
given for tax remittances for that year.
Background
[3]
In 2006, Mr. Sutcliffe was hired
as a driver for Express Metal when his previous occupation as a roofer became
too much for him. The engagement continued until Express Metal went out of
business in October 2010. Express Metal was wholly-owned by Mr. Sutcliffe’s
son, Angus Sutcliffe.
[4]
Throughout the
engagement, Mr. Sutcliffe desired that Express Metal remit source deductions to
the Canada Revenue Agency, but the corporation refused to do so. It appears
that this was a source of significant friction between father and son.
[5]
Immediately after the
engagement was terminated, Mr. Sutcliffe applied for employment insurance
benefits, which he received after a ruling was made by the CRA that he had been
an employee during the relevant period.
[6]
Although no tax remittances
were made by Express Metal to the CRA, for several years the corporation did
pay Mr. Sutcliffe separately for the tax, and Mr. Sutcliffe remitted this to
the CRA. In 2010, however, Express Metal went out of business before the tax
payment for 2010 was made to him.
[7]
A central part of the
dispute is whether Mr. Sutcliffe’s regular pay was reduced to take into account
the separate tax payments. Mr. Sutcliffe submits that it was and provided
documentary evidence that his original semi-monthly cheques from Express Metal
in the amount of $1,400 were reduced to $1,202. He submits that the difference
represents source deductions that he remitted for each year except 2010.
[8]
The son, who testified
under subpoena from the Crown, disputed that the reduction in the pay was on
account of tax, although he testified that he could not remember why the pay
was reduced.
[9]
Mr. Sutcliffe’s tax
return was prepared by his accountant, based on information provided by his
spouse. Mrs. Sutcliffe did not inform the accountant about the separate tax
cheques and they were not reported as income in Mr. Sutcliffe’s tax
return. Mrs. Sutcliffe testified that she did not realize that the tax payments
were income.
Decision
[10]
Despite a significant
amount of evidence that was introduced at the hearing, this case cannot be
decided on its merits. Quite simply, it is not possible for this Court to give
the relief that Mr. Sutcliffe seeks because the Tax Court of Canada does not
have the authority to do so. The authority over whether source deductions have
been taken resides with the Federal Court and not the Tax Court.
[11]
This is not the first
time that a taxpayer has appealed to this Court regarding source deductions
based on a misunderstanding of the authority of the Court. The confusion may
stem in part because the tax owing is often referred to in the notice of
reassessment, but is not actually part of the reassessment. It is only the
reassessment, which is the calculation of the tax and not the tax owing, that can
be appealed to this Court.
[12]
A similar problem arose
in Boucher v The Queen, 2004 FCA 47, 2004 DTC 6085, where Sharlow J.A.
commented:
[10] In
oral argument, Ms. Boucher explained to this Court that she had at first
attempted to raise this issue by commencing a proceeding in the Federal Court,
but her documentation was rejected on the basis that the issue was one for the
Tax Court. If that is what happened, it is unfortunate indeed. However, it does
not alter the fact that Parliament has not empowered the Tax Court to determine
a dispute as to whether or not tax has been withheld at source from particular
payments.
[11] The only possible remedy is
to allow this appeal, set aside the judgment of the Tax Court and replace it
with a judgment quashing the Tax Court appeal. In the circumstances, Ms.
Boucher should be entitled to her costs in this Court and in the Tax Court.
(Emphasis added)
[13]
In these circumstances, which are
very unfortunate for Mr. Sutcliffe, the appeal for the 2009 and 2010 taxation
years must be quashed.
Deficiency with Reply
[14]
I would make some comment
concerning the Reply filed by the Crown, which was deficient in that it did not
address the source deduction issue. This issue was clearly raised in the notice
of appeal, and in fact it was the only issue mentioned.
[15]
The Reply addressed other possible
issues over which this Court would have jurisdiction and which were not raised
in the notice of appeal. This is salutary, but I am troubled that the Crown did
not address the source deduction issue.
[16]
This unfortunate
circumstance happens from time to time in this Court (see VanGhent v The
Queen, 2012 TCC 245). The failure of the Reply to address a taxpayer’s
argument that is clearly set out in a notice of appeal can be significantly prejudicial
to the taxpayer.
[17]
In this case, it would
have been highly desirable to avoid an unnecessary hearing. The hearing exposed
a bitter family dispute, which was difficult on the entire family who were
present. For example, Mr. Sutcliffe’s daughter who represented him at the
hearing had the unenviable task of cross-examining her brother. It is quite
possible that the hearing would have been avoided altogether if Mr. Sutcliffe
and his daughter had been given clear notice of the jurisdiction problem in the
Reply.
[18]
I was informed that
counsel for the Crown did have an oral discussion about the jurisdiction
problem with Mr. Sutcliffe before the hearing, but it is clear that
neither he nor his daughter had any understanding of it. They both attended the
hearing believing that the claim would be dealt with by the Court on the
merits.
[19]
In light of the
deficiency with the Reply, I requested that counsel for Crown address the issue
of costs. Notwithstanding counsel’s able arguments, I have concluded that, in
the particular circumstances of this case, it would be appropriate to award a
modest amount of costs to Mr. Sutcliffe. The costs will be fixed at $100.
The merits of
the case
[20]
Finally, I would make a
comment on determining the merits of the case, which would require an
evaluation of the evidence.
[21]
At the commencement of
the hearing when the jurisdiction point was raised, a discussion ensued as to
whether any evidence should be led. Counsel for the Crown, in an attempt to be
fair to Mr. Sutcliffe, suggested that I hear evidence because there could be
other issues to decide. Accordingly, testimony was heard from Mr. Sutcliffe,
his spouse and his son.
[22]
As it turned out, it is
not apparent to me that there are other issues to decide. The Reply mentions
section 118.7 of the Income Tax Act which provides a deduction in
respect of contributions payable under the Employment Insurance Act and the
Canada Pension Plan. However, it was not made clear how this section could
be an issue in this appeal.
[23]
I have concluded that
there are no other issues to decide, and that it would not be appropriate for me to consider the merits of
Mr. Sutcliffe’s source deduction argument. In Neuhaus v The Queen, 2002
FCA 391, 2003 DTC 5469, Noel J.A. commented:
[4] In this case the applicant is not
seeking to have the disputed assessments vacated or varied. Rather, she is
claiming that the taxes as assessed by the Minister have already been paid by
way of a deduction at source (see subsection 227(9.4), which inter alia
makes the employer liable for the taxes owing by an employee up to and
including the amounts deducted from the salary and not remitted). In these
circumstances, the judge below rightly held that she did not have jurisdiction
and it was therefore wrong for her to consider the dispute on its merits.
(Emphasis added)
[24]
Regretfully, the only
thing that is appropriate for me to do in light of the comment of Noel J.A. is to
suggest that the CRA further review the source deduction issue based on the
evidence introduced at the hearing. For the reasons above, the appeal will be
quashed.
Signed at Toronto, Ontario this 2nd day of
October 2012.
“J. M. Woods”
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