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Citation: 2005TCC503
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Date: 20050811
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Docket: 2004-2118(IT)I
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BETWEEN:
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FRANK YATES,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Sarchuk J.
Background
[1] In computing taxes payable for the 2002 taxation year, the Appellant claimed a non-refundable tax credit of $858 for employment insurance premiums deducted at source from his employment income in that taxation year. The Minister of National Revenue (Minister) assessed the Appellant on May 8, 2003 allowing the credit. The Appellant then filed a notice of objection to the assessment stating that the credit was incorrect and unlawful as it was a breach of paragraph 1(a) of the CanadianBill of Rights, and subsection 15(1) of the Canadian Charter of Rights and Freedoms (Charter),and was unreasonable and irrational at common law and resulted in unjust enrichment. On March 2, 2004, the Minister confirmed the assessment.
[2] On May 7, 2004, the Appellant filed a Notice of Appeal. The ground raised was that the 2002 income tax assessment was incorrect "because the amount payable in computing his income tax in accordance with section 118.7 of the Income Tax Act for Employment Insurance (EI) Employee Premium, an amount of $858, ... is unlawful in that it is a breach of sections 2(b), 7, and 15(1) of the Canadian Charter of Rights and Freedoms as well as in breach of section 1 of the Canadian Bill of Rights".
[3] On February 25, 2005, the Respondent filed a Notice of Motion seeking to have the appeal quashed on the ground that the Tax Court has no jurisdiction to entertain an appeal where the decision sought by the Appellant would increase his tax liability. The matter came up for hearing before Rowe J. on March 2, 2005 and after considering the Appellant's request for additional time in which to prepare his response, the hearing of the Motion was adjourned to June 27, 2005.
[4] Prior to this hearing, the Appellant gave notice of a new issue, to wit, that the application and effect of subsection 6(1) of the Tax Court of Canada Act upon the defendant is unconstitutional in that it creates a reasonable apprehension of bias and has an effect on the fairness and natural justice of the case at bar and is therefore contrary to paragraph 2(e) of the Canadian Bill of Rights and the preamble to the Constitution Act, 1867. I propose to deal with this issue first.
Appellant's submission
[5] The Appellant noted that section 2 of the Courts Administration Service Act sets out the purposes for which it was enacted which include the facilitating of coordination and cooperation among the Federal Courts including the Tax Court of Canada and, more particularly, to enhance judicial independence, by placing administrative services at arm's length from the Government of Canada, and thereby enhance accountability for the use of public money in support of Court administration while safeguarding the independence of the judiciary. The Appellant referred to Valente v. The Queen[1] in which the Court set out three essential conditions of judicial independence, to wit, security of tenure, financial security, and the institutional independence of the tribunal with respect to matters of administration bearing directly on the exercise of its judicial function. With these parameters in mind, the Appellant argued that although all Tax Court of Canada judges are required to reside within 40 kilometres of the National Capital Region in accordance with subsection 6(1) of the Tax Court of Canada Act, the Tax Courts are located in various cities throughout Canada and as a result of the provisions of subsection 6(1), the judges are required to travel from Ottawa to the various locations in order to hear the cases in respect of which they have jurisdiction. The Appellant made reference to the Report on the Federal Court of Canada and The Tax Court of Canada[2] and, more specifically, to that portion of the Report dealing with the issue of regionalization which involved the further issue of whether Judges should be allowed to reside outside the National Capital Region and hear most cases in the Regions where they reside. He noted that in this context, the Report considered the impact of the existing residency rule and also discussed the issue of stress and fatigue by travel created by the National Capital residency requirement. The Appellant argued that the application of subsection 6(1) of the Tax Court of Canada Act upon the Judges was an imposition by the Federal Government that:
"Not only affects the daily working lives of individual Judges but also by its effect, reaches into the individual appeals of Appellants by directly and indirectly potentially affecting matters of administration bearing directly on the exercise of the Court's judicial function".
The Appellant cited the decision of the Supreme Court of Canada in Reference Re Remuneration of Judges of the Provincial Court of P.E.I[3] in support of his argument that the residency rule constituted a breach of judicial independence and that the application of the impugned legislation results in potential unfairness and a breach of natural justice to the Appellant, and thus from "a reasonable person point of view" may create a reasonable apprehension of bias. As a result, this offends paragraph 2(e) of the Canadian Bill of Rights.
Respondent's submission
[6] Counsel noted that the Appellant raised the bias issue before an actual hearing had taken place and thus, the assertion of bias was not made against an individual Judge but rather against the Tax Court as an institution. In this context, counsel referred to Bennett v. British Columbia(Securities Commission),[4] in which a unanimous Bench of the British Columbia Court of Appeal stated:
... Bias is an attitude of mind unique to an individual. An allegation of bias must be directed against a particular individual alleged, because of the circumstances, to be unable to bring an impartial mind to bear. No individual is identified here. Rather the effect of the submissions is that all of the members of the commission appointed pursuant to s. 4 of the Securities Act, regardless of who they may be, are so tainted by staff conduct that none will be able to be an impartial judge. Counsel were unable to refer us to a single reported case where an entire tribunal of unidentified members had been disqualified from carrying out statutory responsibilities by reason of real or apprehended bias. We think that not to be surprising. The very proposition is so unlikely that it does not warrant serious consideration.
[7] Counsel further argued that the Appellant's reliance on Reference Re: Remuneration of Judges does not fill the void identified by the British Columbia Court of Appeal and more importantly, it does not stand for the Appellant's apparent proposition that an entire tribunal should be disqualified from carrying out statutory responsibilities by reason of real or apprehended bias. Counsel further noted that the presiding Justice is not a litigant in the matter at hand and, therefore, Reference Re: Remuneration of Judges is distinguishable and has absolutely no application in the matter at hand.
Conclusion
[8] The Appellant's position is based primarily on the decision of the Supreme Court of Canada in Reference Re: The Remuneration of Judges.[5] In that case, the allegations of constitutionality were raised as a result of a 5% reduction in the salaries of Judges of the Alberta Provincial Court brought about by the Payment to Provincial Amendment Regulation and subsection 17(1) of the Provincial Court Judges Act. Also challenged were the provisions of paragraphs 13(1)(a) and (b) of the Provincial Court Judges Act which confer the power to "designate the place at which a Judge shall have his residence" and "to designate the day or days on which the Court shall hold sittings". The decision of the Supreme Court was that subsection 17(1) of the Provincial Court Judges Act which provided that the Lieutenant Governor in Council "may" set judicial salaries violated paragraph 11(d) of the Charter because the section did not comply with the requirements for individual financial security in that it failed to lay down in mandatory terms that the Provincial Court Judges shall be provided with salaries. Furthermore, paragraphs 13(1)(a) and (b) of the Provincial Court Judges Act which conferred the power to "designate the place at which a Judge shall have his residence" and "designate the day or days on which the Court shall hold sittings" were unconstitutional because both provisions conferred powers on the Attorney General to make decisions which infringed upon the administrative independence of the Provincial Court.
[9] Based on the foregoing, the Appellant has taken the position that since the designation of the place of residence of Judges by the Government encroached upon the administrative independence of the judiciary, a violation of the Charter occurred, which could lead to a reasonable apprehension of bias. He also observed that in the Reference decision, there was mention of the fact that the possible continuous designation of places of residence for judges might be used to punish those judges whose decisions did not favour Government. This, he said, would also create a reasonable apprehension of bias. This issue was considered in the course of that appeal because, as the Supreme Court observed:
In large part, the constitutional challenges seemed to have been precipitated by the remarks of Premier Ralph Klein during a radio interview, in which he stated that a Judge of the Provincial Youth Court who had indicated that he would not sit in protest over his salary reduction, should be "very, very quickly fired".
[10] The decision of the Supreme Court that paragraphs 13(1)(a) and 13(1)(b) of the Alberta Provincial Court Judges Act were unconstitutional was based primarily on the language used in the legislation. As was noted by Lamer C.J.:
266 Section 13(1)(a) confers the power to "designate the place at which a judge shall have his residence". Counsel for the appellant rightly points out that it is reasonable (although not necessary) to vest responsibility for designating the residence of judges with the executive, because that decision concerns the proper allocation of court resources. However, my concern is that, as it is presently worded, s. 13(1)(a) creates the reasonable apprehension that it could be used to punish judges whose decisions do not favour the government, or alternatively, to favour judges whose decisions benefit the government. Section 13(1)(a)'s constitutional defect lies in the fact that it is not limited to the initial appointment of judges. The appellant tried to demonstrate that s. 13(1)(a), when properly interpreted, was so confined. However, the words of the provision are not qualified in the manner in which the appellant suggests. Section 13(1)(a) authorizes the Minister of Justice and the Attorney General to designate a judge's place of residence at any time, including his initial appointment or afterward. It therefore violates s. 11(d) of the Charter.
(Emphasis added)
Paragraph 13(1)(a) of the Alberta legislation was held to be unconstitutional because it was not limited to the initial appointment of Judges. Paragraph 13(1)(a) is distinguishable from subsection 6(1) of the Tax Court of Canada Act which provides that "a Judge shall reside in the national capital region described in the National Capital Act or within 40 kilometres thereof". I note as well that Lamer C.J. made it clear that it was appropriate to vest authority with the executive to designate the residence of judges because that decision concerns the proper allocation of Court resources. All of the foregoing leads me to conclude that there is no constitutional defect in subsection 6(1) of the Tax Court of Canada Act.
[11] I note as well that the Appellant failed to provide any factual basis to support his position that a reasonable apprehension of bias existed if his appeal were to be heard by a Judge of the Tax Court of Canada. In the absence of such evidence, it would be unreasonable to conclude that any Judge of the Tax Court would be influenced by the fact that he or she was required to travel from Ottawa to Vancouver in order to hear this case. Accordingly, the Appellant's motion is denied.
Respondent's Motion for an Order quashing the appeal
[12] This motion is the Minister's response to the demand by the Appellant for a finding that his income tax assessment for the year 2002 is incorrect. More specifically, the Appellant has asserted that the :
"Total federal non-refundable tax credit is incorrect ... because the 'amount payable' in computing his income tax payable in accordance with section 118.7 of the Income Tax Act for Employment Insurance (EI) Employee Premium, an amount of $858 (based on an employee premium rate of 2.2% or $2.20 per $100 of earnings up to $39,000) implemented by the Governor in Council is unlawful in that it is a breach of the following: section 2(b) and 2(d) and section 7 of the Canadian Charter of Rights and Freedoms."
The Respondent submits that section 118.7 operates to calculate a taxpayer's non-refundable tax credits. These tax credits reduce an individual taxpayer's tax liability. Thus section 118.7 operates like an expense provision and is a provision which benefits the taxpayer. Counsel argued that it follows from the above two points that even if the Appellant was ultimately successful and for whatever reason the credit amount is found to be unlawfully high or merely unlawful, the result of such a finding would be to both lower the amount determined under section 118.7, and concurrently increase the amount of tax payable by the Appellant for the purposes of the 2002 assessment. This, counsel contends, is beyond the jurisdiction of the Tax Court of Canada. In support, counsel referred to Valdis v. R.,[6]in which Hamlyn J. noted:
... that section 118.7 of the Act specifically makes provision for the calculation of credits pertaining to EI and CPP amounts which reduce a taxpayer's exigible tax and thus, the calculation of these credits is one of the constituent elements of an assessment by the Minister which properly falls within the jurisdiction of this Court.
Hamlyn J. then went on to say:
Despite having jurisdiction to consider amounts of EI and CPP source withholdings that the Appellant may be entitled to, in the case at hand, the Appellant is seeking a decision that would result in a higher tax liability, and this Court has no jurisdiction to entertain such an appeal. ...
Counsel submitted that the absence of jurisdiction to increase a taxpayer's liability was deliberate and was clearly intended to permit a taxpayer to come to this Court and have the security of knowing that whatever may occur, they cannot walk away with a higher tax liability.
[13] With respect to the balance of the Appellant's Charter arguments, counsel observed that no factual basis has been advanced to support the alleged violations.
Appellant's response
[14] The Appellant maintains that this Court has exclusive original jurisdiction to hear and determine appeals and references on matters arising under the Income Tax Act. This, he says, enables it to determine an appeal in respect of an assessment of the Appellant's taxes in the course of which the Court is entitled to consider "questions of law". In this particular case, he takes exception to the manner in which "the Government" set the rate of EI premiums for 2002 by placing the responsibility to do so in "the hands of the Governor in Council". He maintains this was done without "identifying what criterion was to be used" and thus "created an element of vagueness" with the result that the rate set "imposed excessive and unlawful premium rates on employees under the EI Act". Specific reference was made to a comment by the Auditor General, the relevant portion of which reads:
... Neither the Commission nor the Government clarified and disclosed what constitutes an adequate level of accumulated surplus, the time required to reach that level, and the factors considered when setting the rates. Therefore, we are unable to conclude that the intent of the Employment Insurance Act has been observed in setting the premium rates. The Government plans to review the rate setting process before the 2004 rate is set.[7]
The Appellant referred to the following statement in the Constitutional Law of Canada:[8] "action taken under statutory authority is valid only if it is within the scope of that authority", and maintains that when the EI employee premium was set in 2002, the Government did not act within the scope of its authority in that it ignored the intent of the EI Act, did not clarify how it arrived at the premium rate for 2002, and imposed excessive and unlawful EI premiums on employees. Therefore, the premium paid by him in 2002 was unconstitutional and, as a result, the EI tax credits granted pursuant to section 118.7 of the Income Tax Act are unconstitutional and incorrect.
[15] The Appellant takes particular exception to the Respondent's position that the constitutional issues advanced should not be considered at this time. He maintains that regardless of the Minister's position that the Tax Court of Canada has no jurisdiction to entertain an appeal where the decision sought would increase his tax liability, the validity of a statute in issue is relevant to the outcome of this dispute.[9] Specifically, the Appellant:
"seeks a decision of unconstitutionality, and a remedy in respect of that decision under section 24(1) of the Charter, read together with section 171(1)(b)(iii) of the Income Tax Act that will result in the Minister, and not the Tax Court, in reconsidering the issue of unconstitutionality. Clearly, it is incorrect for the Minister to assert that the consideration by the Tax Court of the constitutionality of the Appellant's issues, and a subsequent decision of unconstitutionality by the Tax Court would result in higher tax liability to the Appellant. The reality is, there has been no increase of the Appellant's taxes. Simply a finding of unconstitutionality and the matter is handed back to the Minister, who has the discretion to reconsider the decision of the Tax Court."
[16] The Appellant further argues that the various decisions of the Tax Court to the effect that the Court cannot entertain an appeal where the Appellant seeks a decision that would result in a higher tax liability violates paragraphs 2(b), 2(d) and section 7 of the Charter, as well as paragraph 2(e) of the Canadian Bill of Rights.
[17] The Appellant's basic premise is that the 2002 assessment is incorrect because of the unconstitutionality of the EI premiums. That being the case, "the result is that the amount paid by the Appellant in respect of these EI premiums may be considered therefore an 'overpayment'" as defined in subsection 164(7) and as such, must be refunded to him by the Minister in accordance with the provisions of subsections 164(1) and 164(7) of the Income Tax Act. Furthermore, he argues, that such a refund must be considered to come within the scope of subsection 152(4.3)[10] and "a refund would have the effect of reducing the assessment of tax payable for that year".
Conclusion
[18] I propose to deal with the jurisdiction issue raised by the Appellant first. He contends that the "application and adoption of the common law rule" that the Tax Court of Canada cannot entertain an appeal where the appeal may result in an increase of the Appellant's taxes is a violation of the Appellant's constitutional rights set out in paragraphs 2(b) and 2(d) and section 7 of the Charter as well as paragraph 2(e) of the Canadian Bill of Rights.
· Paragraph 2(b) of the Charter reads:
Everyone has the following fundamental freedoms:
(b) freedom of thought, belief, opinion and expression, including freedom of the press and other media communication;
(Appellant's emphasis)
The Appellant contends that there is no requirement in the Income Tax Act that the Minister's determination of the taxes to be paid must ultimately be the same or lower. He submits that he is entitled to know "his rightful taxes to be paid" regardless of whether they are higher or lower and that the Minister's refusal to do so amounts to a violation of paragraph 2(b) of the Charter.
· The Appellant also relies on paragraph 2(d) which states:
Everyone has the following fundamental freedoms:
(d) freedom of association.
and argues that he is a "'worker in Canada', and belongs and is associated with other workers in Canada, who are 'associated with each other', and subsequently form an association for the purposes of the Income Tax and EI Acts". He says the assessment in this case and the manner in which it was determined interferes with the rights of that association since, if the Minister's position is correct, none of the individuals belonging to a group of workers in Canadaunder the EI Act would ever be allowed to argue a similar issue before the Tax Court. This would effectively restrict all workers under the Act and constitutes a breach of paragraph 2(d) of the Charter.
· Reference was also made to section 7 of the Charter which reads:
Everyone has the right to life, liberty and security of the person and the right not to be deprived thereof except in accordance with the principles of fundamental justice.
(Appellant's emphasis)
He argues that "the impugned common law rule is a deprivation of the liberty of the Appellant in that it interferes with matters of personal importance such as requesting to know ones correct amount of taxes to be paid". These violations occur because the Minister by maintaining that the Tax Court of Canada cannot entertain an appeal where the result is an increase in the Appellant's taxes is attempting to restrict the right to a fair hearing for the determination of the Appellant's rights and obligations under Canada's Constitution. This, he says, results in a breach of paragraph 2(e) of the Canadian Bill of Rights which provides, inter alia, that "no law of Canada shall be construed or applied so as to deprive a person of the right to a fair hearing in accordance with the principles of fundamental justice for the determination of his rights and his obligations".
[19] I am unable to agree with the Appellant's submission that there has been "a complete disregard to the questions of constitutionality of the Income Tax Act that amount to an unfair hearing, and subsequently result in a violation of section 2(e) rights". There is a marked absence of any substantive evidence capable of supporting his position nor do his arguments convince me that there has been a breach of either the Charter or the Canadian Bill of Rights. Furthermore, there is no merit in the Appellant's submission that the Minister has wrongly applied the law and jurisprudence in maintaining that this Court has no jurisdiction to entertain an appeal where the decision sought would result in a higher tax liability.
[20] In this context, I refer to Cooper v. M.N.R.,[11] in which Christie, A.C.J. made the following comment with respect to this Court's jurisdiction:
... Subsection 171(1) of the Act provides:
171(1) The Tax Court of Canada may dispose of an appeal by
(a) dismissing it; or
(b) allowing it and
(i) vacating the assessment,
(ii) varying the assessment, or
(iii) referring the assessment back to the Minister for reconsideration and reassessment.
To make an order of dismissal could not give effect to the proposed exchange. On the other hand, if the appeal for 1981 were allowed then, having regard to the conjunctive nature of the relationship between allowing an appeal and subparagraphs (i), (ii) or (iii), it would be necessary to proceed further and vacate, vary or refer the reassessments back to the Respondent. It would be a contradictory act to allow a taxpayer's appeal for a taxation year and couple it with an Order, the effect of which is to increase his liability to tax. Such a course of action is not within the proper interpretation of subsection 171(1). It has been described as tantamount to allowing the Minister to appeal his assessment or reassessment: Louis J. Harris v. M.N.R., 64 DTC 5332 at 5337 (Ex. Ct.); Shiewitz v. M.N.R., 79 DTC 340 at 341 (T.R.B.) and Boyko et al. v. M.N.R., 84 DTC 1233 at 1237 (T.C.C.).
[21] I turn next to the substantive issue. The Appellant argues that since his assessment for 2002 is incorrect because of the unconstitutionality of the EI premiums, the amounts paid by him as premiums should not have been paid. The result he says, is that the amount paid in respect of his premiums must be considered to be an overpayment pursuant to subsection 164(7) of the Act. The Appellant further maintains that pursuant to this provision, he qualifies for a refund of the EI premiums which would have the effect of reducing the assessment of income tax payable for the year 2002.
[22] The Appellant's reliance on the overpayment provisions in section 164 of the Income Tax Act is not well founded. Section 118.7 of the Act provides, in part:
118.7 For the purpose of computing the tax payable under this Part by an individual for a taxation year, there may be deducted an amount determined by the formula
A X B
where
A is the appropriate percentage for the year; and
B is the total of
(a) the total of all amounts each of which is an amount payable by the individual as an employee's premium for the year under the Employment Insurance Act, not exceeding the maximum amount of such premiums payable by the individual for the year under that Act,
...
exceeds
(ii) the amount deductible under paragraph 60(e) in computing the individual's income for the year.
There is no dispute that an EI credit reduces the amount of tax payable pursuant to section 118.7 of the Act. However, from the formula set out therein, it is evident that the liability for employment insurance premiums does not arise from that part of the Act which is included in the definition in subsection 164(7) which reads:
164(7) In this section, "overpayment" of a taxpayer means
(a) where the taxpayer is not a corporation, the total of all amounts paid on account of the taxpayer's liability under this Part for the year minus all amounts payable in respect thereof; and
(b) ...
In my view, only one logical conclusion can be reached, being that an employee's premium payable pursuant to the Employment Insurance Act is not and cannot be considered "an amount paid on account of the taxpayer's liability" for the purposes of calculating an "overpayment" by a taxpayer for a taxation year as was urged by the Appellant. Thus even if this Court were to agree with the Appellant's position that the EI premiums were unconstitutional, the section 118.7 credit for the EI premium would still be nil. Furthermore, the consequence of the disappearance of the available credit in section 118.7 of the Act would have the effect of increasing the Appellant's tax liability which puts it squarely beyond the scope of the jurisdiction of this Court. There is no alternative to the foregoing conclusion on any reading of the legislation.
[23] The Respondent's motion is granted and the appeal from the assessment of tax made under the Income Tax Act for the 2002 taxation year is quashed.
Signed at Ottawa, Canada, this 11th day of August, 2005.
Sarchuk J.
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