Citation: 2007TCC329
Date: 20071109
Docket: 2004-4044(IT)G
BETWEEN:
VILLE DE QUÉBEC,
Appellant,
and
HER MAJESTY THE QUEEN
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
AMENDED REASONS FOR JUDGMENT
Tardif J.
[1] This is an appeal
from assessments made under the Income Tax Act
(the Act) and the Employment Insurance Act for the 2000, 2001 and 2002
taxation years. Under the assessment, the Canada Revenue Agency (the Agency)
seeks from the Appellant the tax amounts that it should have deducted and
withheld from the salary and/or remuneration of its employees who are victims
of an industrial accident or occupational disease, but that it did not remit to
the Receiver General of Canada.
ISSUES:
[2] Does the Tax Court
of Canada have the jurisdiction to render a decision on assessments of the
Minister in which he seeks amounts that should have been deducted and withheld
from the salary and/or benefits of employees who are victims of an industrial
accident or occupational disease and that have not been remitted to the
Receiver General of Canada by
the Appellant?
[3] If yes, is the
procedure used by the Appellant to make source deductions on the amounts it
provides to its employees who are victims of an industrial accident or
occupational disease, amounts that are later reimbursed by the Commission de
la santé et sécurité au travail du Québec [Quebec board of occupational
health and safety] (CSST), consistent with the Act, such that the Appellant may
continue to operate this way in the future?
[4] Is the Appellant
entitled to retain amounts that have been deducted at source, given that it
retained them in the belief that they had been deducted in excess? There is
some confusion as to the nature of these amounts.
THE FACTS
[5] The parties
submitted to the Court a partial agreement on the facts that summarizes the
dispute well. The facts are as follows:
[Translation]
1. The Appellant
employs thousands of employees, whose working conditions are governed by a
variety of collective agreements;
2. During the
1980s and the years under appeal, the Appellant had agreed to pay their regular
net salary to employees prevented from working by an industrial accident or
occupational disease;
3. Before 1986,
the Appellant observed a sharp increase the number of days that its employees
were absent as a result of industrial accidents or occupational disease;
4. Because the
portion of remuneration paid to employees that was later recovered from the Commission
de la santé et sécurité au travail ultimately was not considered taxable
income, the employees were able upon filing their income tax returns to recover
a significant amount of the cumulative source deductions made throughout the
year, including for certain pay periods in which most of the amounts were
ultimately recovered from the CSST.
Adoption
of new policy by Appellant
5. In
1986, in order to put an end to the situation whereby, all other things
being equal, an employee receiving his regular net salary during a period in
which he was not working would (upon filing an income tax return) end up with
an after-tax income greater than the remuneration he would have received if he
had worked regular hours during the same period, the Appellant decided to implement
a new procedure.
6. (a) This new
procedure involved using a regular or amended T4 statement to reduce
retroactively the year-to-date remuneration paid to the employee in order to
take into account the advance payment of the income replacement indemnity by
the City to the employee that was subsequently recovered from the CSST by the
Appellant, as well as the cumulative amounts of the source deductions that had
been made, so that only the following amounts remained:
·
the portion of
remuneration described as a top-up;
·
the remuneration paid
for any days and hours that were really worked, as well as sick leave and other
paid leave;
·
a note alerting
employees that the amount paid and recovered by the City was not included in
box 14 of the CSST T4 slip.
(b) After this new procedure was
implemented in 1986, an employee who looked closely at his statements of
earnings would have noticed a discrepancy in the year-to-date amounts over the
course of the year he had been absent from work. He would have observed a
reduction in the year-to-date amount on one of his last statements of earnings
of the year:
(c) In order to recover an amount equal
to the total amounts deducted and remitted over the course of the year as a
function of the amounts paid to employees targeted by the procedure described
in the subparagraphs above, the Appellant subtracted from the amount it
remitted for the final pay periods an amount equal to the total amounts
received or expected from the CSST.
7. The
Appellant's objective was to recover the amounts it considered to be payments
in excess to the Receiver General of Canada, and normally, its payroll
information system allowed it to issue T4 slips and summaries corresponding to
the data displayed in the boxes listing the year-to-date amount as it appeared
on the final statement of earnings;
8. These downward
adjustments were made shortly before the end of the year, if the Appellant knew
that the CSST had reimbursed or would reimburse to it the portion of the
amounts paid for which the CSST was ultimately liable;
9. In cases where
the information was still unknown after December 31, or at least by the
time the T4 slips had to be completed and sent out, if the CSST later indicated
that it would reimburse the Appellant amounts other than the amount of the
top-up, the Appellant would then issue a T4 slip in which the employment income
(box 14) was reduced by the amount for which the CSST was ultimately liable and
in which the deductions made on that amount were reversed.
10. In
certain situations, employees who were absent due to illness were being
compensated pursuant to the provisions in the collective agreement governing
sick leave, but were claiming that the illness was work-related; as long as the
issue remained unresolved, the employee continued to be paid as though he were
on sick leave, and the statements of earnings and T4 slips were completed on
the assumption that the source deductions were appropriate;
11. In cases where
the period of uncertainty extended beyond one year, amended T4 slips were
prepared for the year preceding the end of the uncertainty, and a T4 slip for
the year in which the uncertainty was resolved listed the year-to-date amounts
from the final statement of earnings for the year.
12. Once the T4 was
thus amended, a corresponding amendment was made to the T4 Summary and the
Appellant recovered the corresponding amounts from the federal tax authorities;
13. The federal tax
authorities agreed to reimburse those amounts under the circumstances;
Change
of policy by tax authorities in response to Fraser
14. No
change was made to the 1999 or 2000 Income Tax Act that was relevant to
the dispute between the Appellant and the Respondent.
15. However,
following the Federal Court of Appeal's dismissal of the appeal filed by the
Respondent against the Tax Court of Canada's decision in Fraser,
involving an employee of the City of Cornwall in Ontario, the Employers’
Guide for the years 2000 and following was amended to state that only in
those cases where the employer has indicated in the payroll, at the time of
payment, that the portion represents an advance on the amount of an indemnity
from a worker's compensation board (such as the CSST) is the employer exempt
from making the deductions and remittances corresponding to the amounts so
identified (file decision in Fraser and Employers’ Guide).
According to the policy in question, challenged by the Appellant, no source
deduction is to be made with respect to that amount, as argued at
paragraph 19 of the notice of appeal. Under that policy, the employer is
not entitled to recover the amounts corresponding to the deductions that it has
remitted, nor is it entitled not to remit the amounts deducted.
16. The Appellant
has dealt with this situation by indicating [Translation] "absence—industrial accident"
in its payroll beside the income replacement indemnity amounts that it pays to
its employees prior to a decision by the CSST.
17. When the City
makes these payments to the employee, the CSST has not yet disbursed the
corresponding amount;
18. Under the new
policy, employers were prevented from amending T4 statements or entering
year-to-date amounts other than those appearing on the statements of earnings;
19. Quebec tax
authorities were contacted to determine whether they had also changed their own
policy or policies, but they said they had not;
20. Mr. Sauvageau,
the person in charge of compensation services for the Appellant, became aware
of the new policy before the beginning of 2000, as it affected both employment
insurance contributions and deductions, as well as source deductions for
federal income tax;
21. The Appellant
was made aware of the new policy before the beginning of 2000 but did nothing
to change its procedures. Mr. Blouin, counsel in the Appellant's legal
department, was consulted;
22. The Appellant
and its representatives made no attempt to contact the federal tax authorities
to determine the reasons for the policy changes;
23. According to
the legislation in force, the income replacement indemnity paid by the CSST is
not taxable, nor does it constitute insurable earnings for employment insurance
purposes;
24. During each of
the years under appeal, deductions and remittances were made on behalf of
employees without distinguishing between those claiming to be entitled to the
indemnities provided by the CSST, those recognized by all parties as being
entitled to such indemnities, and those working normal workweeks;
25. In early 2001,
with respect to the T4 Summary for the year 2000, the Appellant determined that
approximately $69,000 had been paid in excess in 2000 and should be reimbursed;
26. On
May 31, 2001, Mr. Sauvageau wrote to the Jonquière Tax Centre to
obtain the excess payment in question, explaining that the Appellant's
information system did not allow for downward adjustment. The year-to-date
amounts could not be adjusted downward (file letter);
27. The problem had
been resolved for the 2001 pay periods;
28. During
the summer of 2001, Mr. Sauvageau was informed by Ms. Tremblay that these
downward adjustments to the amounts paid were not possible under the new
policy, and this did not come as a surprise to Mr. Sauvageau;
29. Eventually,
Jacques Côté, auditor, contacted Mr. Sauvageau. The Appellant made
submissions to the Canadian tax authorities based primarily on fairness and the
text of the applicable collective agreements.
30. Régent Blouin,
counsel, wrote to the tax authorities on November 5, 2002, to inform them
of the Appellant's position and state the reasons it considered the assessment
to be incorrect; (add letter)
31. In cases where
it is undisputed that the employee's absence is the result of an industrial
accident, the statement of earnings indicates that the employee has been absent
because of an industrial accident with the statement [Translation] "absence—industrial
accident";
32. Mr. Ruel's
payroll records represent those of a typical person who is the undisputed
victim of an industrial accident;
33. Mr. Sauvageau
estimates that most of the adjustments were made by reducing the year-to-date
payment amounts and reversing the corresponding source deductions, and that
approximately 5% of the adjustments were made by issuing amended T4 slips.
November 8,
2006
. . .
[Emphasis in the original.]
APPELLANT'S CLAIMS
[6] The Appellant
argued strongly that the amounts so advanced to its employees claiming to be victims of an industrial accident or
occupational disease did not constitute remuneration, but rather advances
from which it made source deductions for the sole purpose of preventing the
compounding of interest.
[7] The basis for the
claim that the amounts do not constitute remuneration is that the employee who
was subject to these holdbacks did not work during the period corresponding to
the holdback. The Appellant had no choice, being obliged to proceed in this way
by either the Act or the collective agreement, to prevent employees who are
victims of industrial accidents or occupational diseases from being deprived of
income. It is a means to support employees so that they do not have to go for
several weeks without their salary. This procedure is practised not only by the
Appellant but also, in principle, by all employers.
[8] The Appellant
submitted that the procedure described by the Agency in its Employers' Guide creates an unfair
distinction between active and injured employees; the Appellant argued that
such a situation clearly does not reflect the legislator's intent, following
the principles set out by the Supreme Court of Canada in Québec (Communauté
urbaine) v. Corporation Notre‑Dame de Bon‑Secours et al.,
[1994] 3 S.C.R. 3.
[9] The fact that an
employee who is a victim of an industrial accident or occupational disease
gains a net financial advantage from the injury or illness has the effect of
encouraging some employees to do whatever they can to delay their return to
work, at a significant loss to the Appellant.
[10] The Appellant also
challenged the Agency's procedure on the basis that in order to be considered
an advance, the amount must meet two criteria: first, no source deduction may
be withheld on the amount constituting the advance and, secondly, the employer
must indicate in its records that it constitutes an "advance." In
other words, the Appellant argued that only the nature of the payment
should be taken into account; thus, the payment should be analyzed for what it
is and not according to what is written in the records.
[11] Because of the
procedure adopted by the Agency, the amounts at issue become taxable; in
reality, however, those amounts are non-taxable because they do not constitute
employment income; they are benefits resulting from an industrial accident or
occupational disease.
[12] The Appellant, which
has more than 5,000 employees, explained that considerable sums of money were
at stake. Given the problems caused by a situation of uncertainty, the
Appellant had set up a system that had the advantage of being coherent and,
even more importantly, was difficult to abuse.
[13] The Appellant
explained that following the decision in Fraser, the Agency had, beginning in the year 2000, changed its procedure for
dealing with "advances". The Respondent refused to change its
position following another decision, Cité de la santé de Laval v.
M.N.R., 2004 FCA 119, despite the fact that it changed
considerably the interpretation of the nature of advances.
[14] Finally, the
Appellant submitted that there was no provision in the Act that prohibited it
from following the procedure in question, namely doing the accounts at the end
of the year so that they could be based on real figures as opposed to estimates.
RESPONDENT'S CLAIMS
[15] The Respondent
argued that the source deductions that must be withheld by the employer must be
calculated in accordance with the Act and its associated regulations. These
deductions are a function of the remuneration paid during each pay period and
the employee's personal income tax credits for the year, which are used to
calculate the "notional gross earnings."
[16] In other words, the
Respondent argued that the deductions must be made precisely as though there
had been no accident or illness. It argued that for the purposes of
subsection 117(2) of the
Act, these "notional gross earnings" become the taxable amount for
the year and that the employer may not take into account any deduction to which
the worker is potentially entitled under subparagraph 110(1)(f)(ii)
of the Act (deduction for amounts received from the CSST) to reduce this
taxable amount.
[17] The Respondent is of
the opinion that when the Appellant withheld the amounts at issue from its
employees' remuneration and remitted them to the Receiver General of Canada, it
was not open to it when preparing T4 statements and T4 summaries to reclaim
these amounts by describing them as [Translation]
"payments in excess," given that under subsection 227(9.4) of the Act, those amounts were
paid as tax on behalf of the employee. Accordingly, the employee was entitled
to claim the amounts at the end of the year; the fact that he was sick or
injured therefore gave him an advantage over those who had worked throughout
the year. In other words, the victim of an industrial accident or an
occupational disease can claim, at the end of the year, the amounts withheld
while he was not working; the deductions in question were therefore not part of
the remuneration paid in exchange for work.
[18] The Respondent
argued that the Appellant should have been aware of the Minister's policy with
respect to source deductions and that the practice was consistent with the Act
and with the Regulations validated by case law; the Respondent added that
whether or not Appellant was aware of the policy, it is the Act that determines
its rights and obligations in this matter.
[19] The Respondent
attested that to the extent that, at year-end, the Appellant had reduced the amounts
withheld because it judged that it had remitted excess deductions over the
course of the year, it was not open to it not to remit to the tax authorities
the full amount withheld.
ANALYSIS
Does the Tax Court of Canada have
jurisdiction to hear this appeal?
[20] First we must
determine whether the Tax Court of Canada has the jurisdiction to decide this
issue.
[21] The Notice of
Confirmation by the Minister dated August 19, 2004, states the following:
[Translation]
At page 2:
Your assessments for failing to remit the amounts of $5,878.03 for
the year 2000 and $4,229.90 for 2001, deducted or withheld under subsection
153(1) of the Income Tax Act, have been issued pursuant to
subsections 227(9.4) and 227(10.1) of the Act.
At page 4:
Your assessments for failing to remit the amounts of
$50,726.33 for the year 2000 and $64,993.49 for 2001, deducted or withheld
under subsection 153(1) of the Income Tax Act, have been issued
pursuant to subsections 227(9.4) and 227(10.1) of the Act.
[22] According to the
evidence, the assessments under appeal are based on the Appellant's failure to remit to the Receiver General of Canada amounts
that it should have withheld from the salary of its employees.
[23] The Respondent drew
on the decision of the Honourable Judge Garon (as he then was) in Ville d’Outremont v. Canada,
No. 92‑683(IT)G, [1995] T.C.J. No. 1438 (QL) and submitted to
the Court that such assessments could not be issued by the Minister. It
suggested that the Tax Court of Canada could not decide an appeal of such an
assessment. Judge Garon wrote the following at pages 21 to 23:
There is another difficulty in
this case. That difficulty concerns the point that the Minister of National
Revenue did not have the power, in my view, to issue the assessments under
appeal.
The power
to assess is given by subsection 227(10.1) of the Income Tax Act, which,
at the relevant time, read as follows:
(10.1) The Minister may assess
(a) any
person for any amount payable by that person under subsection (9), (9.2), (9.3)
or (9.4); and
(b) any non-resident person for
any amount payable by that person under Part XIII;
and, where he sends a notice
of assessment to that person, sections 150 to 167 (except subsections
164(1.1) to (1.3)) and Division J of Part I are applicable with such
modifications as the circumstances require.
Subsection
227(9.4) states that "a person who has failed to remit as and when
required by this Act or a regulation an amount deducted or withheld from a
payment to another person as required by this Act or a regulation is liable to
pay as tax under this Act on behalf of the other person the amount so deducted
or withheld."
Subsection
227(9) provides for the assessment of a penalty in the case of a failure to
remit the amounts deducted at source as and when required. In the case of such
a failure, subsection 227(9.2) provides for the payment of interest on amounts
deducted but not remitted.
It is clear in
the instant case that the provisions of subsections (9), (9.2) and (9.4) do not
apply to the appellant because it did not fail in its obligation to remit to
the Receiver General within the prescribed time limits the amounts withheld or
deducted from the remuneration of the employees in question.
Subsection
227(10.1) is the only provision of Part XV of the Income Tax Act that
gives the Minister of National Revenue the power to assess in respect of the
obligation to remit as and when required the amounts withheld and deducted from
the employees' remuneration. The respondent's appropriate remedy in those
circumstances could be exercised by means of an ordinary action before the
Federal Court of Canada for payment of monies owed to the respondent.
The Court
thought it appropriate in the instant case to order that the hearing be
reopened as it had not had the benefit of hearing the parties on the two points
that it intended to consider, that is, (1) that the point at issue in this case
raises the application of Part I of the Income Tax Regulations and is
governed in particular by section 102 of those Regulations and (2) the absence
of the power of the Minister of National Revenue to assess the appellant having
regard to the circumstances of the instant case.
Draft reasons
for judgment dealing with the application of Part I of the Income Tax
Regulations to the facts of this case were enclosed with the letter dated
August 31, 1995 issued by the Deputy Registrar of this Court confirming the
reopening of the hearing. Those draft reasons for judgment were virtually
identical to the portion of the present reasons that precedes the discussion of
the question of the power of the Minister of National Revenue to assess the
appellant in respect of the amounts withheld and deducted from the remuneration
of the employees concerned. This last question was raised and briefly dealt
with in the letter of August 31, 1995 mentioned above.
After
considering the matter following that reopening of the hearing, I reconsidered
the representations made by counsel in their supplementary arguments and I came
to the conclusion that there were no grounds for altering my approach to the
questions raised in these appeals.
It is therefore
my view, as to the merits of the case, that the respondent is entitled to
payment, in particular, of the amounts representing the tax component of the
assessments at issue. The "interest" component of those assessments
and the "penalty" component of the assessment of August 3, 1990
made, according to the Minister of National Revenue, under subsections 227(9)
and 227(9.2) of the Income Tax Act are not valid as the appellant did
not fail in its obligation to remit the amounts deducted as and when required
by the Income Tax Act and the Income Tax Regulations. However,
the assessments themselves are null and void on the ground that the Minister of
National Revenue did not have the power to issue them. The appeals are allowed
and the assessments are vacated.
[Emphasis added.]
[24] My understanding of
this excerpt from the judgment is that the only grounds on which the appeals
arising out of such assessments were allowed were that the Minister did not
have the power to issue the assessments and not that the Tax Court of Canada
lacked jurisdiction.
[25] Nevertheless, it is
important to note that this case is very different from Ville d’Outremont, supra. In Ville d’Outremont,
the dispute arose from the fact that the Appellant had not failed to remit the
amounts deducted or withheld, while in this appeal, the Minister charges that
the Appellant failed to remit the amounts that it should have deducted or
withheld from its employees' salary.
[26] In this case, the
assessments were validly issued pursuant to subsections 227(9.4) and (10.1) of the Act,
clearly distinguishing this case from Ville d'Outremont. For these
reasons, I find that this Court has full jurisdiction to decide this appeal.
[27] As for the other
issue, regarding the validity of the procedure used by the Appellant to make
deductions at source, in light of the somewhat contradictory case law it will
be necessary to analyze the issue of source deductions when the employer is
paying not a salary but rather its equivalent to an employee who is the victim
of an industrial accident or occupational disease. It is therefore important to
consider the concept of an advance.
Legal obligation to make deductions at source
[28] First, it is clear
that the obligation to make source deductions flows from the Act and the Income
Tax Regulations (the Regulations). The relevant provision of the Act reads
as follows:
PAYMENT OF TAX
SECTION 153: Withholding.
(1) Every
person paying at any time in a taxation year
(a) salary, wages
or other remuneration, other than amounts described in subsection 212(5.1),
. . .
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.
[Emphasis added.]
[29] This provision makes
reference to the Regulations, the relevant provisions of which are as follows:
DEDUCTIONS AND REMITTANCES
101. Every person who
makes a payment described in subsection 153(1) of the Act in a taxation year
shall deduct or withhold therefrom, and remit to the Receiver General, such
amount, if any, as is determined in accordance with rules prescribed in this
Part.
PERIODIC PAYMENTS
102. (1) Except
as otherwise provided in this Part, the amount to be deducted or withheld by an
employer
(a) from any payment of remuneration
(in this subsection referred to as the "payment") made to an employee
in his taxation year where he reports for work at an establishment of the
employer in a province, in Canada beyond the limits of any province or outside
Canada, and
(b) for any pay period in which the
payment is made by the employer
shall be determined for each payment in
accordance with the following rules:
(c) an amount that is a notional
remuneration for the year in respect of
(i) a payment to the employee, and
(ii) the amount, if any, of gratuities referred
to in paragraph (a.1) of the definition "remuneration" in
subsection 100(1)
is deemed to be the amount determined by the
formula
A × B
where
A is the amount that is
deemed for the purpose of this paragraph to be the mid-point of the applicable
range of remuneration for the pay period, as provided in Schedule I, in which
falls the total of
(A) the payment referred to in
subparagraph (i) made in the pay period, and
(B) the amount of gratuities
referred to in subparagraph (ii) declared by the employee for the pay period,
and
B is
the maximum number of such pay periods in that year;
(d) if the employee is not
resident in Canada at the time of the payment, no personal credits will be
allowed for the purposes of this subsection and, if the employee is resident in
Canada at the time of the payment, the employee's personal credits for the year
are deemed to be the mid-point of the range of amounts of personal credits for
a taxation year as provided for in section 2 of Schedule I;
(e) an amount (in this
subsection referred to as the "notional tax for the year") shall be
computed in respect of that employee by
(i) calculating the amount of tax
payable for the year, as if that amount were calculated under subsection 117(2)
of the Act and adjusted annually pursuant to section 117.1 of the Act, on the
amount determined in accordance with paragraph (c) as if that
amount represented the employee's amount taxable for that year,
and deducting
the aggregate of
(ii) the amount determined in
accordance with paragraph (d) multiplied by the appropriate percentage
for the year,
(iii) an
amount equal to
(A) the amount determined in
accordance with paragraph (c) multiplied by the employee's premium rate
for the year under the Employment Insurance Act, not exceeding the
maximum amount of the premiums payable by the employee for the year under that
Act,
multiplied
by
(B) the
appropriate percentage for the year, and
(iv) an amount equal to
(A) the
product obtained when the difference between the amount determined in
accordance with paragraph (c) and the amount determined under
section 20 of the Canada Pension Plan for the year is multiplied by the
employee's contribution rate for the year under the Canada Pension Plan
or under a provincial pension plan as defined in subsection 3(1) of that Act,
not exceeding the maximum amount of such contributions payable by the employee
for the year under the plan,
multiplied by
(B) the appropriate percentage for
the year;
(f) the amount determined in accordance
with paragraph (e) shall be increased by, where applicable, the tax as
determined under subsection 120(1) of the Act;
(g) where the amount of
notional remuneration for the year is income earned in the Province of Quebec,
the amount determined in accordance with paragraph (e) shall be reduced
by an amount that is the aggregate of
(i) the amount that is deemed to
be paid under subsection 120(2) of the Act as if there were no other source of
income or loss for the year, and
(ii) the amount by which the
amount referred to in subparagraph (i) is increased by virtue of section 27 of
the Federal-Provincial Fiscal Arrangements and Federal Post-Secondary
Education and Health Contributions Act; and
(h)
[Repealed, SOR/92-667, s. 1]
(i) the
amount to be deducted or withheld shall be computed by
(i) dividing the amount of the
notional tax for the year by the maximum number of pay periods for the year in
respect of the appropriate pay period, and
(ii) rounding the amount
determined under subparagraph (i) to the nearest multiple of five cents or, if
such amount is equidistant from two such multiples, to the higher multiple.
(2) Where an employee has elected pursuant to subsection
107(2) and has not revoked such election, the amount to be deducted or withheld
by the employer from any payment of remuneration (in this subsection referred
to as the "payment") that is
(a) a payment in respect
of commissions or is a combined payment of commissions and salary or wages, or
(b) a payment in respect
of salary or wages where that employee receives a combined payment of
commissions and salary or wages,
made to that employee in his
taxation year where he reports for work at an establishment of the employer in
a province, in Canada beyond the limits of any province or outside Canada,
shall be determined for each payment in accordance with the following rules:
(c) an employee's
"estimated annual taxable income" shall be determined by using the
formula
A – B
where
A is the amount of that
employee's total remuneration in respect of the year as recorded by the
employee on the form referred to in subsection 107(2), and
B is the amount of that
employee's expenses in respect of the year as recorded by that employee on that
form;
(d) if the employee is not
resident in Canada at the time of the payment, no personal credits will be
allowed for the purposes of this subsection and if the employee is resident in
Canada at the time of the payment, the employee's personal credits for the year
shall be the total claim amount as recorded by that employee on the return for
the year referred to in subsection 107(1);
(e) an amount (in this
subsection referred to as the "notional tax for the year") shall be
calculated in respect of that employee by using the formula
C - [(D + E + F) × G] + H – I
where
C is
the amount of tax payable for the year, calculated as if that amount of tax
were computed under subsection 117(2) of the Act and adjusted annually pursuant
to section 117.1 of the Act, on the amount determined under paragraph (c)
as if that amount represented the employee's amount taxable for that year,
D is the amount
determined in accordance with paragraph (d),
E is the amount determined
in the description of A in paragraph (c) multiplied by the
employee's premium rate for the year under the Employment Insurance Act,
not exceeding the maximum amount of the premiums payable by the employee for
the year under that Act,
F is the amount
determined in the description of A in paragraph (c) less the amount
for the year determined under section 20 of the Canada Pension Plan multiplied
by the employee's contribution rate for the year under that Act or under a
provincial pension plan as defined in section 3 of that Act, not exceeding the
maximum amount of such contributions payable by the employee for the year under
the plan,
G is the appropriate
percentage for the year,
H is, where applicable,
the tax as determined under subsection 120(1) of the Act,
I is, where the amount
of total remuneration for the year is income earned in the Province of Quebec,
an amount equal to the aggregate of
(i) the amount that would be
deemed to have been paid under subsection 120(2) of the Act with respect to the
employee if the notional tax for the year for the employee were determined
without reference to the elements H, I and J in this formula and if that tax
were that employee's tax payable under Part I of the Act for that year, as if
there were no other source of income or loss for the year, and
(ii) the amount by which the
amount referred to in subparagraph (i) is increased by virtue of section 27 of
the Federal-Provincial Fiscal Arrangements Act;
(f) the employee's
notional rate of tax for a year is calculated by dividing the amount determined
under paragraph (e) by the amount referred to in the description of A in
paragraph (c) in respect of that employee and expressed as a decimal
fraction rounded to the nearest hundredth, or where the third digit is equidistant
from two consecutive one-thousandths, to the higher thereof;
(g) the amount to be
deducted or withheld in respect of any payment made to that employee shall be
determined by multiplying the payment by the appropriate decimal fraction
determined pursuant to paragraph (f).
(h)
[Repealed, SOR/2001-221, s. 2]
(3) [Repealed, SOR/89-508, s. 2]
(4) [Repealed, SOR/81-471, s. 3]
(5)
Notwithstanding subsections (1) and (2), no amount shall be deducted or
withheld in the year by an employer from a payment of remuneration to an
employee in respect of commissions earned by the employee in the immediately
preceding year where those commissions were previously reported by the employer
as remuneration of the employee in respect of that year on an information
return.
(6) [Repealed, SOR/83-349, s. 2]
[30] Under these
provisions, the employer is required to make source deductions throughout the
year on the salary it pays to its employees, based on the concept of
"notional gross remuneration."
[31] Because these
provisions can appear complex, the Agency produced a plain-language guide to
make them more accessible;
this guide, entitled Employers' Guide – Payroll Deductions (Basic
Information) 2000-2001 (Exhibit I‑1) was prepared to help the
taxpayer comply more easily with the statutory requirements.
[32] Such a guide does
not have force of law; it essentially presents the Agency's position on one procedure for making source deductions
that complies with the Act.
[33] Thus, there is no
sanction for failing to follow the guide if the taxpayer can establish that the
procedure he used to make his deductions at source respects the provisions of
the Act and the Regulations. This
interpretation is consistent with the approach taken by the Federal Court of
Appeal in Canada
(Attorney General) v. National Bank of Canada, 2003 FCA 242.
[34] In this case, is the
procedure used by the Appellant to make its source deductions consistent with
the Act and the Regulations?
Procedure used by Appellant
[35] Claude Sauvageau, who was in charge of
the Appellant's file, testified. Now retired, he used to work as a compensation
officer for the Ville de Québec. Mr. Sauvageau began by explaining the
procedure followed by the Appellant before 1986; he then stated that this
practice had created problems for the Appellant, which led to the adoption of
the new procedure to prevent abuses.
[36] He insisted that
this new procedure had been accepted by the Agency from 1986 to 2000. It is
worth reproducing an excerpt from Mr. Sauvageau's testimony:
[Translation]
Q. O.K. Can you describe for us the procedure
used by the City and explain why, all of a sudden, it adopted a new procedure
in 1986?
R. O.K. Over the years, let's say from '80 to
'86, the medical office and human resources observed a startling increase in
their industrial accident rates. Of course we are not saying that the employees
were abusing the system, but we do know that there was an incentive that was
not really, well, it was tempting for employees not to return to work
automatically after two weeks because they knew that, even the first year, we
would receive calls to the effect: "In theory, I should not be getting a
tax refund, so why am I getting a tax refund?" "Well, you were absent
because of your accident and you are recovering taxes that you did not owe in
the first place." It seems silly to say it, but that was pretty much how
it worked. So, we considered the accident rate unreasonably high, and, based on
analyses it carried out, the City came to agreements with the unions to add a
provision to the collective agreement to the effect that, from that moment on,
the amounts collected during the accident leave period would be subtracted from
the employee's earnings to prevent the employee from receiving a tax refund
while absent due to an industrial accident.
. . .
[37] The Appellant's
procedure was consistent with the provisions of the collective agreement,
adduced in Exhibit A‑2,
which sets out the following at pages 27 and 28:
[Translation]
ARTICLE 16 – OCCUPATIONAL DISEASES AND INDUSTRIAL
ACCIDENTS
16.01 In the case of an
industrial accident or occupational disease, a regular employee shall receive
the regular net salary that he/she would have received if he/she had remained
at work, and shall continue to receive it until the first day of the month
following a six (6)-month period, at which time he/she becomes eligible for
disability benefits under the Ville de Québec's employee benefit plan. In all
other situations, the Act respecting industrial accidents and occupational diseases
applies.
16.02 In the case of an
industrial accident or occupational disease, a casual employee shall receive
his/her regular net salary for a period of up to three (3) weeks, but not
exceeding the normal date of layoff established pursuant to article 8. In
all other situations, the Act respecting industrial accidents and
occupational diseases applies.
16.03 (a) In the case of absence due to an
industrial accident or occupational disease, the employee shall receive from
the employer an indemnity in an amount, when supplemented by otherwise payable
income replacement indemnities, such that the employee's net income in a
calendar year is equal to the regular net salary he/she would have received if
he/she had been at work.
(b) The regular net salary refers to the employee's regular salary
based on rank in the case of a regular employee or based on the rate at the
time of absence in the case of a casual employee, less contributions for income
tax, public benefit plans and the City’s supplementary benefits plans.
(c) The employee's net income refers to the sum, for the year, of
income replacement indemnities payable under the Act respecting industrial
accidents and occupational diseases, his/her salary and his/her indemnity
less contributions to the City's supplementary benefits plan and deductions
that would normally be made for income tax and public benefit plans on an
annual salary amount equal to the sum of his/her salary and indemnity.
(d) For administrative convenience, the payments made by the
employer, from the beginning of the disability, are governed by the following
provisions:
1. During each pay period, the employee shall
receive:
i. an amount
representing the income replacement indemnity payable pursuant to the Act
respecting industrial accidents and occupational diseases paid by the
employer on behalf of the Commission de la santé et de la sécurité au travail
du Québec;
ii a net amount
equal to the difference between his/her regular net salary for the period and
the income replacement indemnities payable pursuant to the Act respecting
industrial accidents and occupational diseases as an advance on the
indemnity to which he/she is entitled.
2. No later than February 28 of each year, the employer shall
determine the amount of the indemnity to which the regular employee is entitled
for the previous year, make the appropriate adjustments and enter in the T4
slips and Relevé 1 the resulting amounts. Each employee shall receive a
statement of the adjustments made by the employer and a copy shall be sent to
the union.
. . .
[38] Thus, when an
employee of the Appellant's suffers from an industrial accident or occupational
disease, the Appellant must do everything possible to ensure that the
employee's income does not decrease.
[39] While awaiting a
decision from the CSST, the Appellant paid what it considered to be an advance
to the employee, as well as the difference between his net salary and the
indemnity to be paid by the CSST.
[40] Pursuant to the
Act respecting industrial accidents and occupational diseases, R.S.Q. c. A‑3.001 (ARIAOD), a
worker who suffers an industrial accident or occupational disease is entitled
to an income replacement indemnity equal to 90% of his net salary. The relevant
provisions read as follows:
44. A worker who suffers an employment
injury is entitled to an income replacement indemnity if he becomes unable to
carry on his employment by reason of the injury.
A worker who is no longer employed when his
employment injury appears is entitled to the income replacement indemnity if he
becomes unable to carry on the employment he usually held.
45. The income replacement indemnity is
equal to 90% of the weighted net income that the worker derives annually from
his employment.
. . .
62. For the purposes of sections 59 to 61, the net salary or
wages of the worker is equal to his gross salary or wages less the deductions
usually made by his employer pursuant to
1) the Taxation Act (chapter I-3) and the
Income Tax Act (Revised Statutes of Canada, 1985, chapter 1, 5th
Supplement);
2) the Employment Insurance Act
(Statutes of Canada, 1996, chapter 23);
and
3) the Act respecting the
Québec Pension Plan (chapter R-9);
. . .
63. The weighted net income that the worker derives annually
from his employment is equal to his gross annual employment income less the
amount of deductions weighted by income brackets established by the Commission
in relation to the family situation of the worker to take account of
1) the income tax payable under the Taxation
Act (chapter I-3) and the Income Tax Act (Revised Statutes of
Canada, 1985, chapter 1, 5th Supplement),
2) the employee's premiums payable under the Employment
Insurance Act (Statutes of Canada, 1996, chapter 23), and
3) the contribution payable by the worker under
the Act respecting the Québec Pension Plan (chapter R-9);
. . .
[41] Despite these
provisions, the employer remains responsible for making source deductions from
an employee's salary. Under the Act, the payment received from the CSST is not
taxable to prevent the CSST from having to make source deductions. The source
deductions are therefore made by the employer, even though the employee is not
working.
[42] Such a procedure
gives a considerable advantage to an employee who is not working over an employee
working a regular week, as a result of the deduction provided for in
subparagraph 110(1)(f)(ii)
of the Act, which sets out the following:
SECTION 110: Deductions
(1) For the purpose of computing the
taxable income of a taxpayer for a taxation year, there may be deducted such of
the following amounts as are applicable
(f) any social assistance payment made on
the basis of a means, needs or income test and included because of clause
56(1)(a)(i)(A) or paragraph 56(1)(u) in computing the
taxpayer's income for the year or any amount that is
. . .
(ii) compensation received under an employees'
or workers' compensation law of Canada or a province in respect of an injury,
disability or death, except any such compensation received by a person as the
employer or former employer of the person in respect of whose injury,
disability or death the compensation was paid,
. . .
[43] The employee is also
entitled to a refund of the
tax collected on his salary equal to the indemnity received from the CSST; the
effect of this is to give him an advantage over an employee who is working,
since his income will be higher than that of his colleagues who are still on
the job. In other words, a sick or injured person receiving CSST indemnities
has a higher income, since he can recover some of the deductions made by the
employer, while an employee who is working cannot.
[44] This is clearly
absurd; I do not believe that I am acting as legislator by refusing to accept
the Respondent's guideline. In this case, the problem lies with the nature of
the benefit paid to the worker who suffers from an industrial accident or
occupational disease, which is why I do not think it is necessary to dismiss
outright the procedure prescribed by the Agency.
[45] The procedure set
out in the Employers'
Guide – Payroll Deductions (Basic Information) 2000-2001 is described as follows:
At page 33:
New policy – Reporting requirements
For 2000 and subsequent years, an employer who continues to pay an
employee’s salary before and after a workers’ compensation board claim is
decided is no longer allowed to retroactively reduce earnings in the
current year, or amend a previous-year T4 slip, and call the earnings workers’
compensation benefits. As a result, the employee has to report, in the year it
is received, the salary he or she receives before and after a workers’
compensation board claim is decided.
. . .
At pages 34 and 35:
How to treat workers’ compensation board payments under different
circumstances
Employer continues to pay regular wages
Example
John is injured at work on July 10, 2000. He continues
to be paid his regular wages until February 6, 2002, when the workers’
compensation board accepts his claim. The employer is reimbursed by the
workers’ compensation board.
Results
§
All wages paid in 2000, 2001, and 2002 are to be
reported on a T4 slip for each of those years, with CPP contributions, EI
premiums, and income tax withheld. John will report these T4 slips on his
income tax return for the appropriate year.
§
In 2002, the year of the award, the employer is not
allowed to adjust box 14, “Employment income,” of the T4 slip or to reduce the
CPP contributions, EI premiums, and income tax withheld in 2000, 2001, or 2002.
§
When completing the T4 slip for 2002, the
employer will enter code 77 in the “Other information” area, and report the
total amount of the workers’ compensation board award for the three years.
§
When John files his 2002 income tax return, he
will claim this amount as a deduction for other employment expenses (repayment
of salary or wages).
§
If there is any unused amount and John does not
have other types of income in 2002, this amount may become a non-capital
loss and may be deducted against income from all sources in any of the
three previous years. Any remaining loss is carried forward and can be deducted
against income for the following seven years.
Employer pays advances equal to the expected workers’ compensation
board award and an amount in addition to this advance
Example
Mary is injured on April 2, 2000, and is away from work until June
6, 2001. Her employment contract states that her employer will pay an amount
equal to her regular net pay. This amount will be in the form of advances equal
to the anticipated workers’ compensation board award and an amount paid in
addition to this advance.
Results
§
The amount of the advance received by Mary is
not considered as employment income. As a result, the employer will not have to
deduct CPP contributions, EI premiums, and income tax on this amount.
§
The amount paid by the employer in addition to
the advance, while waiting for a decision, is considered employment income in
the year it is paid and is subject to CPP contributions, EI premiums, and
income tax.
§
In 2001, when the claim is decided, her employer
has to offset the amount received from the workers’ compensation board against
the advances made in the following way:
-
If the amounts are equal, no amount will be
recorded in the “Other information” area of the T4 slip.
-
If the advances are more than the amount of the
award, the difference is considered employment income. Mary’s employer has to
report this income on a T4 slip with CPP contributions, EI premiums, and income
tax withheld. No entry is needed in the “Other information” area.
-
If after the claim is accepted by the workers’
compensation board, the employer continues to pay an amount in addition to the
workers’ compensation award, this amount is considered a top-up amount and he
or she has to withhold CPP contributions and income tax but no EI premiums.
§
If the claim is disallowed, the advance not
repaid becomes employment income in the year the claim is disallowed. If Mary
does not repay the advance the employer has to report the amount of the advance
on a T4 slip with CPP contributions, EI premiums, and income tax withheld. If
Mary repays the advance, the employer does not have to report the amount on a
T4 slip.
[46] As I understand it,
the text addresses two situations: either the employer continues to pay the
employee his regular salary, or the employer makes advances.
[47] Moreover, the Agency
stopped accepting retroactive adjustments following Fraser v. Canada, No. 95‑1251(IT)I, [1996] T.C.J.
No. 367 (QL), a decision we shall consider in more depth below.
[48] In this case, the
payments were not treated as advances, given that the Agency only accepts them
under the following two conditions:
(a) the employer has not
made source deductions from the payment;
(b) the employer has entered the word
"advance" in its payroll system.
[49] According to the
Respondent, the payment made by the Appellant did not constitute an advance
because, on the one hand, the Appellant had made source deductions on those
amounts and, on the other hand, [Translation]
"ABSENCE—INDUSTRIAL ACCIDENT" was recorded in the payroll
(Exhibit A‑1) and not "advance".
[50] The dispute arises
mainly from the procedure and the form of remuneration paid to sick or injured
workers who are entitled to CSST benefits.
[51] The Appellant cannot
initially make a formal determination of the nature of the file because the
CSST and the various superior tribunals have exclusive jurisdiction in this
matter.
[52] Until the CSST makes
a decision regarding the application of the sick or injured worker, the
employer must meet its obligations to the worker; it must pay remuneration that
may turn out to be reimbursable by the CSST.
[53] During the waiting
period, the Appellant must handle these files with great care. The Agency,
through its administrative practices or its guidelines that disguise the true
nature of the payment, would have the employer adopt a procedure that is
problematic with respect to the nature of the payment, but also with respect to
the worker.
[54] Given that the
Agency seems fixated on a superficial interpretation of a decision, I feel it
would be helpful to review the grounds for the Respondent's interpretation. In
this respect, the Federal Court of Appeal's decision in Cité de la Santé de Laval v. M.N.R., 2004 FCA 119,
seems to me to be inescapable.
[55] In that case, the
Federal Court of Appeal had to decide whether the remuneration received by two
nurses during a precautionary cessation of work was insurable. To this end, the
judges examined the purpose of the indemnity plans and held the following:
30 The AOHS establishes a public group plan to indemnify
persons who, because of their pregnancy or breast-feeding, are either unable to
do their usual work or as a precaution are relieved of their obligations to do
any work whatever. It therefore confers significant rights on those
individuals. First, it preserves their employed status, and consequently the
insurability associated with that employment. Then, it exempts them wholly or
partly from performing work. Finally, it pays them an income replacement
indemnity which the employer would not legally be required to pay if no work
was done. The cost of paying the indemnities is borne by employers in
general: see section 45 AOHS.
31 Beyond these public plans, and to avoid employees making
use of the plan being penalized by inevitable administrative delays, a
practical reality has arisen:
as a result of negotiations the employer in many cases undertakes, by
collective agreements, interim obligations to pay the income replacement
indemnities owed by public plans. This has the result of creating confusion
and obscuring, or even sometimes obliterating, the purposes and aims sought by
these public indemnity plans. I will give two examples of this. However, I will
say at once that it seems clear these collective agreements, and the resulting
obligations, were neither intended to alter the nature and universality of the
public and collective insurance plans and income replacement indemnity plans
in the event of precautionary cessation of work by the pregnant individual, nor
did they have that consequence.
32 The issue in the case at bar is one example of this
confusion, resulting from the fact that, as it was bound to do by the
agreement, the employer paid the amounts owed by the CSST. For example,
when Ms. Lachambre was testifying one of the judge's concerns was whether the
cheque the latter had received came from the CSST or from the employer:
applicant's record, pages 502-503. In cross-examination and reexamination,
questions also sought to establish whether these were regular pay cheques,
whether there was any indication on the cheques that the amounts came from the
CSST, whether the employee received a statement from the CSST, whether that
statement was issued at the same time as the cheques and whether the cheques
distinguished between the amounts coming from the employer as salary and those
from the CSST as indemnity: ibid., pages 504-505. In fact, the witness
confirmed that the cheques identified the amounts from the employer for days
worked and those that were or would be paid by the CSST for precautionary
cessation of work.
33 In Attorney General of Canada v. Quinlan, A-1206-92,
February 28, 1994 (F.C.A.), the discussion also dealt in large part with the
fact that the cheques, which included salary insurance, were issued by the employer
in accordance with the collective agreement. I will return to that decision
below.
34 All these matters, taken together with those involved in
the interpretation of the collective agreements (was this a loan, did the
collective agreement provide a reimbursement procedure, did the employer
undertake to make payments and so on) tend to relegate if not to oblivion, at
least to the back burner, the nature of the group plan, that of the amounts
paid and, as Judge Lamarre Proulx said in Régie Intermunicipale de
Traitement de l’eau potable, Saint-Romuald/Saint-Jean v. Canada (Minister of
National Revenue - M.N.R.), [1997] T.C.J. No. 744, at paragraph 19, the
purpose and aim of the payments.
35 These four matters, which because of their
essential nature and importance are at the very heart of a solution to the
question, lead me to conclude that in the case at bar the amounts at issue
were not insurable earnings within the meaning of the Act.
36 To begin with, the group plan established by the AOHS is
in legal terms a legislative insurance plan covering indemnities for the
pregnant person, which is not part of the contract of employment concluded
between the applicant and its employees, and which as already mentioned is
financed by contributions from employers: see by analogy the similar
classification by the Supreme Court of Canada of workmen's compensation plans
in Bell Canada v. Québec (Commission de la santé et de la sécurité du
travail), [1988] 1 S.C.R. 749, at paragraph 294. By its universal and public
nature, therefore, the plan differs from private insurance plans or special
insurance plans that are found among employers, and in certain cases make the
employer the insurer: see Université Laval, supra; Attorney
General of Canada v. National Bank of Canada, 2003 FCA 242. In my humble
opinion, the AOHS clearly indicates that the CSST is acting as a third party
insurer for pregnant employees who exercise the right to precautionary
cessation of work.
37 Second, for income from an employer to be earnings, it
must have been paid pursuant to a labour or employment contract: see Wong
v. M.N.R., 12 C.C.E.L. (2d) 257; M.N.R. v. Visan, [1983] 1 F.C. 820
(F.C.A.); Biron v. Canada (Minister of National Revenue - M.N.R.),
[1998] T.C.J. No. 76. The amounts paid by the CSST here were not paid
pursuant to a contract of employment between the employees and the CSST.
38 Further, the amounts from the CSST were legally
classified by the AOHS as an “income replacement indemnity”. They were not in
the nature of earnings. They did not correspond to services. To paraphrase
Urie J., speaking for this Court in Visan, supra, at 829,
they were at the opposite pole from payments of that kind as their purpose was
to indemnify employees in part for the loss of payments that would have been
made for services they would have rendered if they had not been prevented from
doing so by their pregnancy: see also Brière v. Canada (Minister of National
Revenue - M.N.R.), [1998] T.C.J. No. 111.
39 Finally, and I will not dwell on the point at any length
since I have already amply covered it, the purpose and aim of the payments
contemplated by the AOHS, and made by the CSST, are to indemnify a pregnant
employee for loss of income she would otherwise have been entitled to, a loss
which would have resulted in a loss of earnings if there were no income
replacement indemnity.
[56] Based on the
principles set out in that case, I conclude that the sums paid by the employer
in this case do not constitute earnings, but are essentially advances.
[57] This dispute focuses
mainly on the cases of victims of industrial accidents or occupational
diseases; thus there was no delivery of services to the employer by the
employees of the Ville de Québec
while they were absent due to an industrial accident.
[58] The compensation
paid to the employees who had ceased their regular work because of an
industrial accident or occupational disease is completely unrelated to the
quantity or quality of their work; it is essentially a form of economic support
that in no way corresponds to the definition of remuneration or salary in
exchange for work.
[59] The parties in this
case must act in a practical, transparent and coherent manner so that the
rights and obligations of each are consistently respected. In other words, the
caprices of one or another party are not justifiable, particularly if one of
the parties creates requirements that have significant consequences for the
other.
[60] In this case, the
Appellant must grapple both with uncertainty regarding the decision of the
CSST, and with the possibility of abuse by some workers. In order to limit the
negative effects and, preferably, prevent abuse, it implemented a procedure
that in no way limits the rights of the Respondent, while at the same time
enabling it to meet its obligations transparently.
[61] The Agency's
administrative policies and guidelines are neither justifiable nor reasonable.
In determining whether the payments made by the Ville de Québec are advances, only the nature of
the payment must be taken into consideration; administrative policy
statements have no bearing on the nature of the amounts paid to the workers in
question.
[62] The existence of
payroll records indicating that the reason for the advance was
"absence—industrial accident" seems to me to be sufficient and fully
acceptable.
[63] The decision in Fraser, which, according to the Respondent, was the genesis
for the new procedure and guidelines, lacks, with respect for the contrary
opinion, the broad scope attributed to it by the Respondent.
[64] It was following
that decision that the Agency decided to change its position and cease
accepting retroactive adjustments to source deductions. The facts in that case
are similar to these facts, as is clear from paragraphs 6 to 9:
6 The facts of this case are not in dispute. The appellant
was employed by the City of Cornwall during the 1992 taxation year. As a result
of a back injury, the appellant became entitled to receive compensation from
the Workmen's Compensation Board (the "WCB") between June and
December of 1992. Pursuant to the collective agreement under which the
appellant was employed, if a worker is injured and is on compensation or in a
position to receive worker's compensation, the employer "shall pay 100%
of the Employee's net salary and shall be responsible for all benefits
covered by the contract, until the Employee returns to normal duties".
7 Between June 13, 1992 and December 26, 1992, the employer paid
the appellant his regular salary, less the related deductions for tax. The
amount paid by the WCB was remitted directly to the employer, who adjusted the
appellant's gross income and tax withheld at source accordingly. Following
these adjustments, an amount of $5,235.72 representing the excess amount of
tax withheld and remitted was refunded to the employer by the Receiver General.
8 A discrepancy therefore appeared between the
amount of tax actually withheld and remitted to the Receiver General and the
total of these amounts shown on the appellant's pay stubs. As evidenced by the appellant's pay stubs, the
amount of tax withheld and remitted during the 1992 taxation year was
$12,637.35. On the other hand, the appellant's T-4 slip indicates that the
adjusted amount of tax withheld was $7,401.63.
9 The appellant was issued a refund in the amount of
$4,898.83 ($4,733.79 plus interest amounting to $165.04) when his 1992 return
was reassessed on November 22, 1993. Based on the subsequent assessment of the
appellant's 1992 income tax return on April 11, 1994, the respondent established
that the said refund should have been nil.
[Emphasis added]
[65] In that case, the
procedure used by Mr. Fraser's employer to make source deductions was
clearly at the heart of the dispute.
[66] The employer, the
City of Cornwall, maintained that it had sought a reimbursement of the amounts
it had already remitted to the Receiver General of Canada, given that the
amounts paid to its employee were advances on amounts it would later
receive from the indemnity plan. Because those amounts were not taxable, the
employer was not obliged to make source deductions on them. In that case, the employer had not
indicated anywhere on the pay stubs that the amounts in question constituted
advances; it had simply continued to pay the regular salary.
[67] The Honourable Judge
Lamarre Proulx gave
determinative weight to the collective agreement in her analysis in Fraser,
above. At paragraph 14 she wrote the following:
14 The
agreement between the employer and its employees requires the employer to treat
the injured employee as if he was still working. The employer's obligation is
to pay the regular salary and all benefits covered by the contract to the
injured employee when he is off the job. The amounts paid by the employer
during the employee's absence are not an advance in respect of the compensation
to be received from WCB. If that were the case, it is my view that it should
have been clearly indicated in the Collective Agreement as such. In that
sense, the employer (the City of Cornwall) should not have recovered from the
Receiver General the amount of $5,235.72 as this amount did not represent an
excess amount of tax withheld and remitted.
[Emphasis added]
[68] Invoking the
collective agreement, she held that the amounts did not constitute advances;
the employer was therefore required to make source deductions under the
Regulations and remit the amounts to the Receiver General.
[69] With respect for
that decision, it is my opinion that the terms of a collective agreement cannot
change the nature of a payment. The fact that it is indicated in a collective
agreement that a payment is insurable is not in itself a determining factor; it
is but one factor among many others.
[70] Whether or not it is
insurable depends on all the facts and the manner in which the work was
performed. Similarly, in this case, we must consider all the facts to determine
the nature of the payments that must be made by the employer and whether they
constitute advances.
[71] This approach is
fully consistent with the decision of the Federal Court of Appeal in Cité de la santé de Laval, supra, in which it is clearly
indicated that the interpretation of collective agreements must not override
the analysis of the nature of a payment:
34 All these matters, taken together with those involved in
the interpretation of the collective agreements (was this a loan, did the
collective agreement provide a reimbursement procedure, did the employer
undertake to make payments and so on) tend to relegate if not to oblivion,
at least to the back burner, the nature of the group plan, that of the amounts
paid and, as Judge Lamarre Proulx said in Régie Intermunicipale de
Traitement de l’eau potable, Saint-Romuald/Saint-Jean v. Canada (Minister of
National Revenue - M.N.R.), [1997] T.C.J. No. 744, at paragraph 19, the
purpose and aim of the payments.
[Emphasis added.]
[72] I do not believe
that Fraser is applicable here. In this case, in which the burden of
proof rests with the Appellant, the evidence definitively established that it
had proceeded in a fully acceptable manner in light of the particular facts and
its particular constraints. The Appellant was in no way negligent, indifferent
or careless.
[73] The Appellant's
approach respected the rights of all parties, particularly with respect to the
nature of the deductions. Accordingly, I find that it was entitled to be
reimbursed for amounts paid in excess to the Receiver General of Canada, or, as
the case may be, to retain the amounts deducted. The employee therefore finds himself in a
situation in which he receives 100% of his net salary. He is in no way
disadvantaged by such an outcome.
[74] For all these
reasons, I find that the Appellant is not obliged to remit to the Receiver
General of Canada the amounts that would have been deducted in excess, given
that they were essentially advances. These were amounts that it was not obliged
to withhold from the salaries of its employees.
CONCLUSION
[75] For all these
reasons, I find that the Appellant is not required to remit to the Receiver
General for Canada the amounts deducted in excess. I allow the appeal and
vacate the assessments of the Appellant. The payments made by the Appellant to stop the
accumulation of interest should be reimbursed with interest.
[76] The appeal is
allowed with costs to the Appellant.
Signed at Ottawa, Canada, this 9th day of
November 2007.
"Alain Tardif"
Translation certified true
on this 14th day
of February 2008.
Monica F.
Chamberlain, Reviser
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