Mandate Erectors & Welding Ltd. v. Canada (Customs and Revenue Agency), 2005 FC 832

Date: 20050610

Docket: T-1919-04

Citation: 2005 FC 832

Ottawa, Ontario, June 10, 2005

Present:           THE HONOURABLE MADAM JUSTICE MACTAVISH                                   

BETWEEN:

                                        MANDATE ERECTORS & WELDING LTD

                                                                                                                                            Applicant

                                                                           and

                                    CANADA CUSTOMS AND REVENUE AGENCY

                                                                                                                                        Respondent

                                            REASONS FOR ORDER AND ORDER

[1]                Mandate Erectors and Welding Ltd. seeks to have a 'fairness' decision of a tax official set aside submitting that, in all of the circumstances, the decision was unreasonable.

Background

[2]                For many years, Mandate Erectors was "an accelerated remitter". That is, the size of the payroll of Mandate Erectors and its related companies was such that it was required to remit the tax monies deducted from its employees' pay cheques four times a month.

[3]                In December of 2003, Mandate Erectors obtained a contract to provide services in connection with the construction of the Belledune environmental project. This contractrequired the company to hire additional employees. Unlike the rest of Mandate Erectors' employees, these individuals were unionized.

[4]                Mandate Erectors contracts out the processing of its payroll to a company known as Ceridian. Ceridian remitted Mandate Erectors' payroll deductions to the respondent four times a month. However, Ceridian was unable to process the payroll for the unionized employees, because their deductions differed from the rest of Mandate Erectors' employees.

[5]                As a result, Mandate Erectors' controller, Danny Regan, assumed responsibility for the unionized employees' payroll.

[6]                Mandate Erectors failed to remit weekly amounts with respect to this portion of its payroll in the months of February, March, and April of 2004. As a result, the respondent assessed penalties against Mandate Erectors in the amount of $13,882.84.

Mandate Erectors' Fairness Requests

[7]                On April 27, 2004, Mr. Regan wrote to the respondent asking that the penalties be waived. Mr. Regan advised the respondent that although he was aware that Ceridian remitted source deductions on a weekly basis:

   The payroll I am doing however is for unionized workers at the Bennett job site in Belldune. This is a completely separate payroll that could not be handled by Ceridian. We had to purchase a payroll program and do it separately.

     I therefore assumed that the remittances were only due on the 15^th of the month.

[8]                The respondent declined to waive the penalties, stating that, after reviewing the facts of the case, it did not consider that any extraordinary circumstances or errors by the respondent prevented Mandate Erectors from complying with its statutory obligations. According to the respondent, amounts deducted from remuneration paid are to be remitted in accordance with the remittance frequency assigned to the employer. Employers are not entitled to subdivide their payrolls into different remitter groups.

[9]                A review of the analysis carried out by the respondent discloses that, amongst other factors considered, the respondent looked at the taxpayer's history of compliance problems.

[10]            Mandate Erectors then sought a second level review. In support of this request, Mr. Regan again explained the circumstances that led him to assume responsibility for the payroll for Mandate Erectors' unionized employees. He then went on to state:

    Completely unaware that I had to remit weekly, I proceeded to send my remittances once a month on the 15^th since my deductions were not over $50,000.

     I was not told that this was incorrect by your department. If so, I would have corrected my remittance period. Instead four to five months into the payroll you hit us with a $9000.00 penalty and interest charge [additional penalties were later levied by the respondent, bringing the total to $13,882.84]. This I feel is unconstitutional and completely unfair in my opinion.

[11]            A second level fairness review was then carried out, the result of which was to confirm the earlier decision not to waive the penalties.

Standard of Review

[12]            This case involves a discretionary decision made under the 'fairness package' in the Income Tax Act. The parties are in agreement that, in accordance with the recent decision of the Federal Court of Appeal in Lanno v. Canada Customs and Revenue Agency, 2005 FCA 153, the standard of review applicable to such decisions is that of reasonableness. That is, the question is whether the decision can withstand a somewhat probing examination: Law Society of New Brunswick v. Ryan, [2003] 1 S.C.R. 247.

Mandate Erectors' Arguments

[13]            Although Mandate Erectors agrees that it was previously an accelerated remitter, according to the affidavit filed by Mr. Regan in support of this application for judicial review, its' average monthly remittances for 2002 and 2003 were less than $50,000. As a consequence, when Mr. Regan reviewed the respondent's "Employers' Guide" relating to payroll remittances, he says that he quite reasonably came to the conclusion that the company was no longer required to remit four times a month, and could simply remit on the 15^th of each month.

[14]            Mandate Erectors also submits that the respondent erred in attributing a history of late filing to it. According to Mr. Regan, to his knowledge, "Mandate Erectors has never received a late remitting penalty".

[15]            Although not supported by any evidence, counsel for Mandate Erectors also argued that the respondent was wrong to consider the compliance history of a company known as MQM Quality Manufacturing Ltd. in connection with Mandate Erectors' fairness request, as the shareholders of MQM were different, and the company had a different payroll identification number and was located in a different locale.

[16]            Mandate Erectors maintains that Mr. Regan acted in good faith, and that the situation cries out for relief.

Analysis

[17]            Section 220 (3.1) of the Income Tax Act gives the income tax authorities the discretion to grant relief against the operation of certain sections of the Act. The issue for the Court is whether, in light of the evidence before it, the decision of the respondent declining to exercise its discretion in this case was unreasonable.

[18]            I am not persuaded that this is the case.

[19]            The explanation provided by Mandate Erectors for its failure to remit has evolved over time. Mr. Regan's first letter seems to suggest that he had segregated out the payroll for the unionized employees, and then made an assumption that he only had to remit on the 15^th of each month for these individuals. Not only is there no statutory authority for an employer to subdivide its payroll in this fashion, no explanation was offered as to why Mr. Regan simply assumed that he would therefore only be required to remit on the 15^th of each month.

[20]            It is also noteworthy that Mr. Regan did not even comply with what he says he understood to be the company's obligations, as the March, 2004 remittance was not made until the 19^th of the month.

[21]            A change to the amount of Mandate Erectors' monthly remittances was not raised as a justification for the company's failure to remit four times a month until Mr. Regan's second request, where he stated that "[his] deductions were not over $50,000".

[22]            The respondent's "Employers Guide" is clear: companies whose average monthly remittances exceed $50,000 are required to remit four times a month, whereas companies whose average monthly remittances are between $15,000 and $50,000 are required to remit twice a month, on the 15^th and the 25^th. "Regular remitters", which I understand to include those whose average monthly remittance are less than $15,000, are only required to remit on the 15^th of each month.

[23]            It is uncontroverted that Mandate Erectors has historically been an accelerated remitter - one that was required to remit four times a month. Further, there is no question but that Ceridian was continuing to remit four times a month on Mandate Erectors' behalf through 2004.

[24]            The frequency with which a company is required to remit depends upon the amount of the average monthly witholdings for the company and any related companies: see s. 108 (1.2) of the Income Tax Regulations.

[25]            Mr. Regan did not provide any financial records or other evidence as to the size of Mandate Erectors' witholdings, or those of its associated companies. Moreover, it is also not clear from his affidavit as to whether Mr. Regan was referring to deductions made for all of Mandate Erectors' employees, or merely the deductions for unionized employees when he says that "[his] deductions were not over $50,000". In any event, Mr. Regan never asserted that the company's monthly deductions ever fell below the $15,000 threshold that would have entitled it to remit monthly.

[26]            Thus, even if Mandate Erectors' monthly withholdings had fallen below the $50,000 threshold by 2004, the company was still required to remit on the 15^th and the 25^th of each month, and failed to do so. In this regard, Mandate Erectors has not succeeded in persuading me that there was any ambiguity in the information provided to taxpayers by the respondent on this point.

[27]            This leaves the argument that it was unreasonable for the respondent to have considered the compliance history of MQM Quality Manufacturing Ltd. in deciding whether or not to exercise its discretion in favour of Mandate Erectors.

[28]            The question in this regard is whether the two companies are 'associated', within the meaning of the Income Tax Act. While Mandate Erectors' counsel has argued that the two companies have different shareholders, as noted earlier, there is no evidence before the Court to support this submission. Moreover, this is not the test. According to s. 256 of the Income Tax Act, the test for determining whether two companies are associated is one of control. There is no evidence before the Court to support a finding that the two companies were not associated for tax purposes.

[29]            In these circumstances, Mandate Erectors has not persuaded me that it was unreasonable for the respondent to consider the compliance history of MQM Quality Manufacturing Ltd. in deciding whether or not to exercise its discretion in this case.

Conclusion

[30]            For these reasons, I find that the respondent's conclusion that there were no extraordinary circumstances justifying the exercise of discretion, nor any delays or errors on the part of the respondent that prevented Mandate Erectors from complying with its statutory obligations was one that was reasonably open to it. As a result, the application is dismissed.

                                                                       ORDER

THIS COURT ORDERS that:

1.          This application for judicial review is dismissed.

              "Anne L. Mactavish"                

Judge                             

                                                             FEDERAL COURT

                            NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET:                                          T-1919-04

STYLE OF CAUSE:                          MANDATE ERECTORS AND WELDING LTD

-AND-

CANADA CUSTOMS AND REVENUE AGENCY

PLACE OF HEARING:                    FREDERICTON, NEW BRUNSWICK

DATE OF HEARING:                      JUNE 7, 2005

REASONS FOR ORDER

AND ORDER :                               MACTAVISH, J.

DATED:                                             JUNE 10, 2005

APPEARANCES:

Terence P. Lenihan                                                                    FOR APPLICANT

Caitlin Ward                                                                              FOR RESPONDENT

SOLICITORS OF RECORD:

Byrne, Lenihan                                                                          FOR APPLICANT

Bathurst, New Brunswick

Justice Canada                                                                          FOR RESPONDENT

Halifax, Nova Scotia