Docket: 2005-193(IT)G
BETWEEN:
ANTHONY COMPARELLI,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Motion
heard on April 24, 2007 at Toronto, Ontario
By: The Honourable
Justice E.A. Bowie
Appearances:
|
Counsel
for the Appellant:
|
Sonja
Williams
|
|
Counsel for the Respondent:
|
Jenny P. Mboutsiadis
|
____________________________________________________________________
ORDER
Upon motion by the appellant for an Order
amending the Notice of Appeal herein;
And upon reading the Motion Record and other
materials filed;
And upon hearing counsel for the parties;
IT IS ORDERED that:
1. the appellant
shall have leave to amend the Notice of Appeal by adding paragraphs 51(a) and 52(a), as revised at
the hearing.
2. costs to the Respondent in the cause.
Signed at Ottawa, Canada,
this 8th day of May 2007.
“E.A. Bowie”
Citation: 2007TCC277
Date: 20070508
Docket: 2005-193(IT)G
BETWEEN:
ANTHONY COMPARELLI,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDER
Bowie
J.
[1] This appeal is
brought from an assessment made under section 227.1 of the Income Tax Act against
Mr. Comparelli as a director of Mindthestore.com Inc. (the “corporation”) in
respect of the failure of the corporation to withhold and remit what are
referred to loosely as source deductions.
[2] The motion of the appellant
before me is for leave to amend the Notice of Appeal to add thereto paragraphs
51(a) and 52(a). Although originally broader, the appellant now seeks to add
only this allegation:
51(a) Mindthestore.com
is entitled to GST refunds in the total amount of $66,467.90 together with
interest accrued thereon, which have never been credited to the liability of
the Corporation for which liability the Appellant as a direction (sic) has
been assessed pursuant to the following GST returns:
(iv) GST return for
the period June 1, 2001 to August 31, 2001 filed with CRA on an unknown date,
evidencing a refund due and payable in the amount of $66,467.90;
52(a) Has the Minister
failed to apply to reduce the liability of the Corporation, GST refunds
totalling $66,467.90 together with accrued interest thereon, for which liability
the appellant has been assessed as a director?
Originally the motion sought to allege four separate
refunds to be owing; it has now been confined to this one.
[3] The motion is
opposed by the Respondent on the basis that the question whether the corporation
was entitled to ITCs giving rise to an entitlement to a refund is not a
question that can be decided in this appeal under the Income Tax Act.
[4] As I understand Ms.
Mboutsiadis’ position, it is that the corporation could only assert its right
to a refund (a right which she says the Respondent contests) by proceedings
under the Excise Tax Act – either by way of an application for a refund,
or if there was an assessment covering the period June 1, 2001 to August 31,
2001, then by an appeal from that assessment. Neither of these things has
happened, and the corporation’s right to a refund cannot now be asserted in an
appeal brought under the Income Tax Act, even as a collateral matter.
[5] The appellant’s
position simply is this. There is some evidence (Motion Record. Affidavit of
Douglas Langley, Exhibit “F”) that suggests that the Respondent’s auditor
recognized an entitlement of the corporation to a gst net refund of $66,467.90.
The corporation debt for unpaid withholdings should be reduced by that amount,
and the subsection 227.1(1) assessment against the appellant should therefore
be reduced by that amount, together with interest.
[6] Ms. Mboutsiadis
argues that even if such a refund could be established, it would not reduce the
amount of unremitted withholding tax under the Income Tax Act. She goes
on to say that in order to have the gst refund applied to the debt for unremitted
withholdings the corporation would have had to make a specific request for such
a setoff. Without such a request, she argues, there could be no setoff. Counsel
did not refer me to any specific provision in either the Income Tax Act or
the Excise Tax Act to support that proposition. She did, however, rely
on Mogan J’s decision in Roper v R.
[7] That decision arose
out of a motion to strike out a Notice of Appeal. The appeal was brought by a
sole proprietor from an assessment under the Income Tax Act. In
paragraph 16 of the Notice of Appeal, it was pleaded:
16. The Appellant
submits that the Respondent has erred both in fact and in law in failing to
properly credit GST refunds to Source Deduction arrears for the 1996 taxation
year.
The Respondent moved to strike this (inter alia)
as being beyond jurisdiction of the Court in the income tax appeal. Mogan J.
held that although the Court had jurisdiction to decide collateral matters
necessary to the decision of the issue under the Income Tax Act it could
not, in an income tax appeal, where the issue
was liability for unremitted withholdings, decide a contested claim for itcs
under the Excise Tax Act. He said at paragraph 11 of his Reasons:
… The Appellant
does not purport to appeal under the GST legislation and so he is not permitted
to dispute whether he is entitled to specific input tax credits. If the
Respondent admits, however, that the Appellant is entitled to specific input
tax credits, then the Appellant is entitled to argue whether those input tax
credits may be set off against an amount which the Appellant would otherwise
owe under the Income Tax Act.
This
decision, the Respondent argues, is on all fours with the present case. She
goes on to say that there is no such agreement in this case. The Appellant has
filed affidavit material tending to show a right to a refund. The respondent
has filed material tending to show no right to a refund. The Court cannot
adjudicate that issue in an appeal under the Income Tax Act.
[8] The important distinction between Roper and the
present case is that in Roper the assessment was for the primary liability
of Mr. Roper to withhold and remit, and the refund for itcs that he sought to
set off was his as well. In the present case, the liability of Mr. Comparelli
is a derivative or vicarious liability for the primary liability of the corporation.
Mr. Comparelli seeks to attack the assessment on the basis that the amount of
the debt certified by the Minister and registered in the Federal Court should
have taken the claimed gst refund into account, and the amount that could be
assessed against him would therefore have been reduced by that amount.
[9] In Gaucher v. The Queen,
the appellant was assessed vicariously under section 160 of the Income Tax
Act in respect of property transferred from her spouse to her at a time
when he was liable for unpaid tax. The Federal Court of Appeal held that Mrs.
Gaucher, the derivatively assessed taxpayer, was free in her appeal to attack
the underlying assessment of her spouse, even though he had exhausted his
rights of appeal unsuccessfully.
[10] In my view, Mogan J. was correct to say that the
appellant before him could argue that there was a right to have a gst refund applied
as a setoff against his income tax liability, if that right to that refund was
not a matter in dispute.
[11] In the present case, the appellant seeks to bring an
attack that the principal tax debtor could not bring against the underlying
assessment and the reasoning in Gaucher suggests that that is
permissible. If he is able to establish that refund as an entitlement of the corporation
then he is free, on the reasoning of Roper, to argue that the corporation’s
debt was overstated by that amount in the Certificate, and that the amount of
his derivative assessment is overstated by the same amount.
[12] I will accept, for the sake of argument, that the corporation
would be barred from asserting the right to the gst refund otherwise than through
proceedings that have not taken place in this case. Mr. Gaucher was in exactly
the same position: he had no right at the relevant time (that is when his wife
was assessed), to contest the assessment against himself: subsection 152(8)
precluded that. The matter was res judicata against him.
[13] If subsection 152(8) did not prevent Mrs. Gaucher as a
derivative assessee from asserting that the assessment against her husband was
incorrect, then it is difficult to see why Mr. Comparelli should be barred from
asserting that there is an amount owing to the corporation by the Crown that
should have been applied to reduce the amount of the Certificate referred to in
paragraph 227.1(2)(a) of the Act.
[14] Is the appellant’s proposed assertion in paragraphs
51(a)(iv) and 52(a) so forlorn that if pleaded in the first instance, it would have
been susceptible of being struck out? I do not believe so. It is not for me
either to decide the factual issue, or to gauge
the strength of the appellant’s argument. There is some evidence of the additional
fact the appellant wishes to plead, and the appellant’s position based on that
factual assertion is an arguable one.
[15] The appellant will have leave to amend the Notice of
Appeal by adding the proposed paragraphs 51(a) and 52(a), amended to take into
account the withdrawal at the hearing of the motion of subparagraphs i), ii)
and iii) of paragraph 51(a).
[16] Costs of the motion will be to the Respondent in the
cause.
Signed at Ottawa, Canada, this 8th
day of May 2007.
“E.A. Bowie”
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