[OFFICIAL ENGLISH TRANSLATION]
Date: 20020424
Docket: 2001-1162(GST)I
2001-1164(GST)I
BETWEEN:
SYLVAIN JANELLE,
SERGE LEMAIRE,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDER
Tardif, J.T.C.C.
[1] This is a motion to determine
whether the respondent could legally assess the
appellants-applicants.
[2] In support of the motion, the
appellants presented the following facts:
[TRANSLATION]
1. The
respondent admits in her replies to the notices of appeal that
the appellants are partners in the operation of a partnership
called Bar Café O Saint-Fred, as appears in
paragraph (1) of the replies to the notices of appeal;
2. Bar
Café O Saint-Fred was the subject of a notice
of reassessment under the Act respecting the Quebec sales
tax for the same periods as those in this case, and the
partnership instituted an appeal from that assessment before the
Court of Quebec in docket
No. 405-02-002491-014, as appears from a
copy of the application in appeal attached hereto as
Exhibit R-1;
3. The
appellants have not been assessed under the Act respecting the
Quebec sales tax;
4. The notice
of reassessment in issue dated January 9, 2001, is addressed
to the appellants, as appears from the Court file;
5. Under
subsection 123(1) of the Excise Tax Act, a
"person" is defined as "an individual, a
partnership . . .");
6. Under the
Excise Tax Act, the appellants could not be reassessed
without the partnership having been assessed first and without
the partnership having been sent a reassessment that was
binding;
7. The
respondent admitted by letter dated April 2, 2002, that the
assessment should have been issued in the name of the
partnership, as appears from a copy of the letter from the
respondent's counsel dated April 2, 2002, attached
hereto as Exhibit R-2;
8. However,
the respondent now contends that the notice of reassessment in
issue is valid under subsections 272.1(5) and 299(3.1) of
the Excise Tax Act;
9. It is in
the interests of justice that the Court rule before the hearing
as to the validity of the notice of reassessment in issue since
that question could settle the matter in full;
[3] In reply, the respondent argued
that she was entirely justified in assessing the appellants under
subsections 272.1(5) and 299(3.1) of the Excise Tax
Act (the "Act").
Analysis
[4] A partnership is included in the
definition of "person" stated in section 123 of
the Act. The obligation of a person who makes a taxable
supply in the course of a commercial activity to be registered
for the purposes of the Act is provided for in
subsection 240(1) of the Act. Under
subsection 221(1) of the Act, every person who makes
a taxable supply is obliged to collect the tax payable by the
recipient. Subsection 238(1) provides for the
registrant's obligation to file a return and
subsection 228(1) provides for the obligation to calculate
the net tax of the person for the reporting period.
Subsection 228(2) imposes an obligation to remit that net
tax to the Receiver General of Canada. The date on which every
payment must be made is in general the same as the one provided
for in subsection 238(1) for the filing of returns.
[5] In Decaire v. The
Queen, [1999] T.C.J. No. 699 (Q.L), the point for
determination was whether two persons could be assessed for
the collection and payment of taxes payable on supplies made by
the partnership in which they were partners.
Subsection 272.1(5) was not applicable to the period in
issue.
[6] Judge Bell concluded that
the partnership was obligated to collect and pay the tax to the
Receiver General of Canada since the tax arose from supplies made
in the course of the partnership's commercial activities.
[7] The partners' assessment was
vacated since the partners had no obligation to collect and pay
the tax. In Decaire and Her Majesty the Queen,
supra, Judge Bell did not have to apply
subsection 272.1(5); he referred to that provision in
support of his conclusion that the partnership was obligated to
pay and that it was therefore the only entity that had to be
assessed. Subsection 272.1(5) provides that a partner is
liable for "amounts that become payable or remittable by the
partnership".
[8] In the instant case, the facts are
different in that this is a matter of determining the effect of
subsection 272.1(5). The application of
subsection 272.1(5) does not alter Judge Bell's
conclusion in Decaire, supra, that the partnership,
not the partners, is the person liable for collecting and paying
the tax on supplies made in the course of its activities.
[9] Subsection 272.1(5) provides
that the partners are jointly and severally liable for "the
payment or remittance of all amounts that become payable or
remittable by the partnership". In this case, it must be
determined whether the amounts for which a partner may be held
liable under subsection 272.1(5) of the Act must have
previously been the subject of an assessment of the
partnership.
[10] Subsection 272.1(5) defines a
partner's personal liability for the partnership's debts.
The Explanatory Notes published by the Minister of Finance,
attached to the amendments to the Act in which
subsection 272.1(5) is added, read in part as follows:
Subsection 272.1(5) is added to specify the extent of
joint and several liability imposed on a person who is a partner
or former partner (other than a limited partner who is not a
general partner). Such a liability exists for all amounts that
become payable or remittable by the partnership before or during
the period in which the person is a member of the
partnership. . . .
[11] Before subsection 272.1(5) came
into force, reference had to be made to the provincial
legislation governing partnerships to determine the scope of a
partner's liability. Subsection 272.1(5) now renders a
partner jointly and severally liable with the partnership for the
payment or remittance of amounts payable or remittable by the
partnership. The scope of the partner's liability, however,
is limited under subparagraph 272.1(5)(a)(i), which
reads as follows:
(i) the member is liable for the payment or remittance of
amounts that become payable or remittable before the period
only to the extent of the property and money that is regarded
as property or money of the partnership under the relevant laws
of general application in force in a province relating to
partnerships, ...
[12] The appellants contend that
subsection 299(3.1) shows that the partnership must first
have been assessed before a partner may be assessed. The
respondent, however, contends that the Minister of National
Revenue (the "Minister") may assess a partner under
paragraph 296(1)(e) and subsection 272.1(5)
without taking subsection 299(3.1) into account.
[13] Paragraph 296(1)(e) allows
the Minister to make an assessment to determine an amount that a
person is required to pay or remit under
subdivision (b.1) of Division VII, thus
including any amount payable under subsection 272.1(5).
[14] Under paragraph
299(3.1)(b), every partner is liable for the
partnership's obligations and is bound by an assessment of
the partnership. The Explanatory Notes published by the Minister
of Finance at the time subsection 299(3.1) was added read in
part as follows:
. . .
Paragraph 299(3.1)(a) provides that the assessment
is valid even where one or more of the persons liable for the
obligations of the body do not receive a notice of the
assessment.
Paragraph 299(3.1)(b) provides that the assessment
of a body is binding on each member of the body that is liable
for the body's obligations, subject to a reassessment of the
body and the rights of the body to appeal.
Finally, paragraph 299(3.1)(c) provides that the
assessment of a member in respect of the same matter as the
assessment of the body is binding on the member subject only to a
reassessment of the member and to the member's rights of
objection and appeal on certain grounds. Those grounds are that
the member is not a person who is liable to pay or remit an
amount for which the body is assessed, the body has been
reassessed, or the assessment of the body has been vacated.
[15] I do not believe that paragraph
299(3.1)(b) requires that the partnership be assessed
before liability is imposed on one of its partners.
[16] Paragraph 299(3.1)(b)
states that a partner is bound by an assessment of the
partnership, subject to a reassessment of the body. If an
assessment of the partnership were vacated as a result of an
appeal instituted by the partnership, the assessment would then
have to be vacated in respect of the partners.
[17] Paragraph 299(3.1)(c)
provides that, if a partner is assessed on the same basis as the
assessment made in respect of the partnership, the assessment of
the partnership is binding on the partner. In that case, the
partner's defences appear to be limited to those stated in
that paragraph. Paragraph 299(3.1)(c) precludes the
possibility of there being contradictory decisions on the same
matter. If a partner and a partnership are assessed on the same
matter, the partnership alone may raise the ground of defence
respecting the obligation to collect and pay the tax.
[18] The provisions of subsection
299(3.1) apply only where the partnership has first been
assessed. That provision applies independently of 272.1(5) and
from the moment the partnership is required to pay amounts to the
Receiver General. The obligation to pay exists before an
assessment is even made. Subsection 299(3.1) is essentially
complementary to paragraph 296(1)(e).
[19] Under paragraph 296(1)(e)
and subsection 272.1(5), a partnership need not be assessed
before a partner is assessed. The partner may be assessed to the
extent of that which is provided for under
subparagraph 272.1(5)(a)(i).
[20] For these reasons, I find that the
respondent was entitled to make notices of assessment in respect
of the appellants subject to having the assessments varied once
the partnership to which they belong has exhausted all remedies
reserved therefor. Consequently, the motion is dismissed.
Signed at Ottawa, Canada, this 24th day of April 2002.
J.T.C.C.
Translation certified true
on this 13th day of August 2003.
Sophie Debbané, Revisor
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