Date: 20010129
Docket: 2000-2511-IT-I
BETWEEN:
DELIA VALDIS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Hamlyn, J.T.C.C.
FACTS
[1]
These are appeals for the 1996 and 1997 taxation years.
[2]
In computing income for the 1996 and 1997 taxation years, the
Appellant failed to report employment income, before deductions,
in the amounts of $22,867.23 and $11,805.01 respectively.
[3]
In reassessing the Appellant for the 1996 and 1997 taxation
years, by Notices of Reassessment dated March 9, 2000, the
Minister increased the Appellant's income by including
employment income in the amounts of $22,867.23 and $11,805.01
respectively (the "Amounts") which were received by the
Appellant from Global Architectural Contracting Inc. In so
reassessing the Appellant, the Minister also allowed the
Appellant source deductions, in respect of the employment income
she received from Global Architectural Contracting Inc., in the
following amounts:
1996
1997
Canada Pension Plan contributions $ 542.28 $
242.92
Employment Insurance premiums $
674.58 $ 342.35
Income
Tax
$4,055.37
$1,214.74
[4]
At the outset of the hearing the parties filed the following:
STATEMENT OF AGREED FACTS AND ISSUES (PARTIAL)
For the purposes of this appeal only, the parties agree that
the following facts may be accepted by the Court as evidence at
trial without further proof. The parties further agree that the
issues to be decided by the Court are as set out under the
heading "Issues".
FACTS
1.
The Appellant moved to Canada from Germany in or about June, 1995
to commence work as an architect at the request of Axel Ulrich
("Ulrich").
2.
Ulrich was the principal of Global Architectural contracting Inc.
and Global Architectural Metal Design Inc. (together, the
"Corporations").
3.
The taxpayer agreed with Ulrich to work as an architect for $500
net per week (after taxes and other payroll deductions).
4.
The Appellant was paid on a weekly basis in the form of two
cheques as follows:
Global Architectural Metal Design Inc. ("GAMD")
$155.00
Global Architectural Contracting Inc.
("GACI")
$345.00
5.
Source deductions were withheld and remitted by GAMD in respect
of the cheques issued by it in arriving at the weekly amount of
$155.00. GAMD issued T4 slips to the Appellant for the 1996 and
1997 taxation years, which contained the following
information:
1996
1997
Gross Income
$9,000.00
$15,970.00
Canada Pension Plan contributions $ 152.36 $
374.10
Employment Insurance premiums $
265.76 $ 463.13
Income
Tax
$ 350.27 $2,499.15
6.
At the request of Ulrich, the Appellant signed invoices on a
weekly basis prepared for her which were then submitted to GACI
for payment by that Corporation of the amounts of $345.00 per
week.
7.
GACI did not issue T4 slips to the Appellant for the 1996 and
1997 taxation years.
8.
In its books and records, GACI recorded the amounts paid to the
Appellant as "Translation Services".
9.
GACI did not remit any monies to the Minister in respect of
source deductions relating to its payments of $345.00 per week to
the Appellant.
10.
Commencing in or about August, 1997 GAMD began paying the
Appellant net wages of $500.00 per week. From this point forward,
GACI discontinued paying wages to the Appellant.
11.
In computing her income for the 1996 and 1997 taxation years, the
Appellant failed to report her employment income from GACI, which
was later calculated by the Minister to be in the amounts of
$22,867.23 and $11,805.01 respectively (gross income before
deductions).
12.
In reassessing the Appellant, the Minister included the amounts
of $22,867.23 and $11,805.02 in the Appellant's income for
the 1996 and 1997 taxation years respectively. In calculating the
gross income and balance owing by the Appellant, the Minister
credited the Appellant with the following source deductions
calculated in accordance with the relevant tables on the basis
that she received net wages of $345.00 per week from GACI:
1996
1997
Gross Income
$22,867.23
$11,805.01
Canada Pension Plan contributions 542.28
242.92
Employment Insurance premiums
674.58 342.35
Income
Tax
4,055.37 1,214.74
13.
The total credits allowed to the Appellant were as follows:
1996
GAMD GACI
Total
(Per T4)
Gross Income
$9,000.00
$22,867.23
$31,867.23
Canada Pension Plan Contributions 152.36
542.28 694.64
Employment Insurance premiums
265.76 674.58 940.34
Income
Tax
350.27 4,055.37 4,405.64
1997
GAMD GACI
Total
(Per T4)
Gross Income
$15,970.00
$11,805.01
$27,775.01
Canada Pension Plan Contributions 374.10
242.92 917.02
Employment Insurance premiums
463.13 342.35 805.48
Income
Tax
2,499.15 1,214.74 3,713.89
14.
The Minister accepted that the payments by GAMD to the Appellant
of $345.00 were not payments to an independent contractor, that
is, they accepted that the Appellant was an employee of both GACI
and of GAMD.
15.
Notwithstanding that GAMD did not issue a T4 slip to the
Appellant evidencing the withholding of source deductions, the
Minister calculated the gross employment income and applicable
source deductions which ought to have been withheld by GAMD in
respect of the weekly payments of $345.00.
Issues
16.
The issues are:
(a)
Whether the Court has jurisdiction to determine the balance owing
by a taxpayer insofar as it relates to the calculation of source
deductions withheld by an employer or employers in the
determination of the balance owing of a taxpayer?
(b)
If the Court has jurisdiction:
(i) whether the Appellant was employed by GAMD and/or GACI;
and
(ii) whether the Appellant can establish that the employer or
employers withheld an amount in respect of source deductions in
excess of the amount for which the Appellant has been granted
credits by the Minister (and as set out in paragraph 13
above).
OTHER SIGNIFICANT FACTS FROM THE EVIDENCE
[5]
The contractual arrangement between the Appellant and Ulrich was
oral.
[6]
The Appellant stated she believed she was working for one
employer GAMD, but went along with the wishes of Ulrich in
relation to the two employers because he told her it would reduce
his tax liability. In relation to services rendered the Appellant
maintained she was not providing translation services as was
indicated in the books of GACI. She stated she provided
architectural services that required knowledge of German building
codes and German building regulations.
[7]
There is no dispute between the Appellant and the Respondent as
to the total net income (after taxes and other payroll
deductions) received by the Appellant. The evidence also
establishes in relation to the monies paid to the Appellant by
GACI for invoiced services, there were no remittances.
ANALYSIS
[8]
The Appellant asks that she should be found to have been employed
by one employer, GAMD.
[9]
The effect of this finding, according to the Appellant, would be
to increase the applicable source deductions available to the
Appellant, given the assessed method of the calculation of source
deductions.
[10] The
question to be determined is whether this Court has the power to
determine the balance owing by a taxpayer insofar as it relates
to the calculation of source deductions withheld by the
taxpayer’s employer.
[11] In
Brooks v. The Queen,[1] Judge Sobier considered this question
in that case where the Appellant wanted a determination that all
taxes owing were or should have been withheld by his employer.
Judge Sobier summarized the facts of that case at paragraph
12:
From what the Appellant has said this morning, he agrees that he
wishes to have a determination made that all taxes owing have
been withheld and therefore he is not liable for that reason. He
is not disputing the amount of the tax which is originally
assessed. He is disputing that and alleging that all amounts have
been paid since they have been withheld or should have been
withheld.
[12] Judge
Sobier went on to consider the jurisdiction of this Court. He
stated at paragraph 9:
In Lamash Estate, Judge Christie cited Judge Rip in the
case of McMillen Holdings Limited v. The
Minister of National Revenue, 87 D.T.C. 585. Associate Chief
Judge Christie states at page 16 of Lamash, and I
quote:
Judge Rip held that the court
did not have jurisdiction. He said at pages 591-2 (the references
to "the Act" are to the Income Tax
Act):
and I quote from Judge Rip's judgment:
Section 12 of the Tax Court
of Canada Act grants this Court original jurisdiction to hear
and determine appeals on matters arising under the Act and
other statutes. Subsection 171(1) of the Act regulates how
the Court may exercise its original jurisdiction to determine an
appeal under the Act. Section 13 of the Tax Court of
Canada Act simply grants the Court all powers, rights and
privileges as are vested in a superior court of record in respect
of witnesses, documents and other matters necessary or proper for
the due exercise of its jurisdiction, that is, to hear and
determine appeals, but section 13 does not increase the
Court's jurisdiction to that of a superior court of record.
The due exercise of this Court's jurisdiction on matters
arising under the Act is to hear and determine an appeal
from a tax assessment. I cannot over emphasize that the
Court's original jurisdiction is to hear and determine
appeals in matters arising under the Act; an action
against the Crown based on the Act, but is not an appeal
from an assessment, is not an appeal arising under the
Act, which is within the jurisdiction of this Court.
While this Court does not have the jurisdiction that can be
exercised in an action for an accounting, [...].
(emphasis added)
[13] With
respect to determining whether this Court has jurisdiction to
grant an Appellant relief for source deductions that were or
should have been withheld by an Appellant’s employer, Judge
Sobier concluded in Brooks that it was not a matter that
fell within the jurisdiction of this Court, but rather a matter
for the Federal Court, Trial Division or Superior Court of
Ontario to decide. He stated at paragraphs 13-15:
Again this is the matter for an action between the company
and Mr. Brooks and not an appeal under the Income Tax
Act.
Again this Court has no jurisdiction to make such an order
since it again is not an appeal under the Act. I am
quite sure that Mr. Brooks has a legitimate claim either against
Revenue Canada for refusing to acknowledge that amounts have been
withheld or against his former employer for either failing to
remit or having withheld, not remitted. However, this is not a
matter which the Tax Court of Canada may determine. This
would be an action against the Crown which could be brought in
the Federal Court of Canada, Trial Division or an action which
could be brought in the Superior Court in the Province of Ontario
for accounting or other matters.
For these reasons the motion is granted and the Amended
Notice of Appeal is struck out as disclosing no reasonable
grounds for appeal. (emphasis added)
[14] In
Liu v. The Queen,[2] Judge Bowman considered the jurisdiction of this
Court with respect to crediting an Appellant for source
deductions withheld but not remitted by the employer, and stated
at paragraph 14:
Even if I had concluded differently it would not have been
within the power of this court to declare that in determining the
balance owing to the Government of Canada by Mr. Liu there should
be taken into account the amount withheld from his commissions
but not remitted. This court's jurisdiction, insofar as
it is relevant to this case, is to hear and determine references
and appeals on matters arising under the Income Tax Act.
Essentially in an appeal under the Income Tax Act the
question is the correctness of an assessment or determination of
loss. Here there is no issue with respect to the correctness of
the assessment. The question of amount of the balance of tax
owing by a taxpayer may be a matter within the jurisdiction of
the Federal Court but if that court sees the substantive
issue in the same manner in which I do I doubt that it could give
the appellant any more relief than I can.
(emphasis added)
[15] In
Neuhaus v. The Queen,[3] Judge Lamarre was not persuaded that
source deductions were withheld and remitted by the
Appellant’s employer. She concluded at paragraph 4 that in
accordance with Judge Bowman’s decision in Liu, this
Court does not have jurisdiction to consider whether an Appellant
is entitled to be credited for source deductions withheld and
that such jurisdiction falls with the Federal Court.
[16] In
contrast to the above decisions, Ashby v. The
Queen,[4] Manke v. The Queen,[5] and Ramsay v.
The Queen[6], held that this Court does have jurisdiction to
grant relief to an Appellant for source deductions withheld by an
Appellant’s employer. In Manke, Judge McArthur
agreed that this Court does not have jurisdiction with respect to
collection matters. However, with regard to source deductions,
Judge McArthur concluded that the ultimate question before the
Court is whether the Minister's assessment of tax is correct.
One of the constituent elements of the assessment is the amount
of credits to which the taxpayer is entitled. Judge McArthur
cited with approval a passage from Ashby, where
Judge Sarchuk reasoned at paragraph 14 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 are one of the constituent elements of an
assessment by the Minister which properly falls within the
jurisdiction of this Court. In the same passage, Judge Sarchuck
also suggests that it would be inappropriate to grant relief in
respect of EI and CPP and deny relief with respect to income tax
withheld at source on the basis of lack of jurisdiction. In
Ramsay, Judge Sarchuck followed the decisions in
Ashby and Manke.
[17] With
respect, while section 118.7 of the Act specificallymakes
provision for the calculation of credits pertaining to EI and CPP
amounts which reduce a taxpayer’s exigible tax, income tax
deducted at source by an employer does not reduce exigible tax
under the Act. In my view, under subsection 152(1), an
“assessment” is stipulated by Parliament to
“assess the tax for the year ... if any,
payable” and not to assess the tax for the year owing by a
taxpayer after source deductions withheld by an employer are
subtracted from exigible tax as assessed for the year. I conclude
it cannot be said that income tax withheld by an employer is a
constituent element of an assessment that can be appealed under
section 169. However, I do agree with the decision in
Ashby, that to the extent that there has been an amount
withheld for EI or CPP under section 118.7, such amounts are
integral to an assessment, therefore this Court has jurisdiction
to consider these credits in an appeal.
[18] The
Appellant has appealed the assessment of tax to this Court on the
basis that the Minister has not properly taken into account the
source deduction withholdings to which she was entitled. The
Court is entitled to make a determination on this point to the
extent of determining whether the Minister's assessment of
tax was correct. I conclude the decision in Neuhaus is
closest to the evidence in this case and I find the reasoning in
Neuhaus is persuasive. I therefore find the Court is
precluded from reviewing the calculation of income tax withheld
at source. However, per Ashby, I conclude that this Court
has jurisdiction to review amounts withheld at source for EI or
CPP under section 118.7 of the Act, as these amounts
are a constituent element of the Appellant’s
assessment.
[19] 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. The Appellant contends that the
Minister erred in calculating the gross wages and source
deductions for 1996 and 1997 by treating GACI as a separate
employer. The Appellant states that this has had the effect of
reducing the source deductions that should have been withheld and
doubling up the basic personal exemption claim implicit in the
source deduction tables. The Appellant contends that for purposes
of calculating the gross pay and source deductions that should
have been withheld for 1996 and 1997, the Appellant should be
treated as having been paid from one source. This would have the
effect of increasing the amounts of source deductions reassessed,
and since she was paid on a net basis, would result in a higher
amount of gross pay and a higher tax liability for 1996 and
1997.
[20] In
Cooper v. M.N.R.,[7] Associate Chief Judge Christie, as he was then,
concluded that this Court does not have the jurisdiction under
section 171 to increase an appellant’s tax liability. He
stated at page 205:
This would decrease the total amount of the reassessments by
$6,819 or 5.2%, but increase the reassessment in respect of
the 1981 taxation year by $6,980.82. The latter, I believe,
is beyond the 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., [1964]
C.T.C. 562 at 571, 64 D.T.C. 5332 at 5337 (Ex. Ct.);
Shiewitz v. M.N.R., [1979] C.T.C. 2291 at 2293, 79
D.T.C. 340 at 341 (T.R.B.) and Boyko et al. v.
M.N.R., [1984] C.T.C. 2233 at 2237, 84 D.T.C. 1233 at 1237
(T.C.C.).
(emphasis added)
[21] In
Millette v. The Queen,[8] Judge Lamarre Proulx reaffirmed that
this Court cannot entertain an appeal that contemplates
increasing an Appellant’s tax liability. She stated at
paragraph 72:
It is accepted in the case law that this Court cannot
increase the amount of the Minister's assessment because that
would be tantamount to the Minister appealing the assessment,
which he cannot do. The Minister cannot appeal his own
assessment: Harris v. M.N.R., 64 D.T.C. 5332,
at p. 5337; Shiewitz v. M.N.R., 79 D.T.C. 340, at
p. 342; and Abed v. The Queen, 82 D.T.C. 6099, at
p. 6103.
(emphasis added)
[22] I
conclude that, in accordance with the above decisions, this Court
has no jurisdiction to hear this appeal as it contemplates a
higher tax liability which is tantamount to the Minister
appealing his own assessment, which he cannot do.
[23] The
appeals are dismissed.
Signed at Ottawa, Canada, this 29th day of January 2001.
"D. Hamlyn"
J.T.C.C.
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