Service De Chauffeurs “Extra” Ltée v. Minister of National Revenue, [1992] 2 CTC 2108, 92 DTC 1974

Tremblay, T.C.CJ.:—This appeal was heard on September 25, 1991, in the city of Montréal, Quebec.

1. Point at issue

The point at issue is whether the appellant is justified in refusing to pay Penalties assessed in respect of source deductions remitted late on April 28, 1988, May 25, 1988, July 4, 1988 and August 30, 1988. The penalties total $1,192.94.

The respondent contends that, in January and February, 1988, despite the late remittances, it had not assessed the penalties provided by subsection 227(9) of the Income Tax Act (hereinafter called the Act) equal to ten per cent of the amount remitted late. However, the appellant did not make bimonthly remittances for March, April, May and July. The respondent therefore had to levy the penalties provided under the Act. The appellant claims that it made the remittances every month and was not required to remit twice a month because its source deductions were less than $15,000, as provided by the Act for large employers. Indeed, its monthly deductions vary between $1,700 and $5,000.

2. Burden of proof

2.01 The burden is on the appellant to demonstrate that the assessments of the respondent are invalid. This burden of proof arises from a number of cases including a judgment by the Supreme Court of Canada in Johnston v. Minister of National Revenue, [1948] S.C.R.486, [1948] C.T.C. 195, 3 D.T.C. 11821.

2.02 In that judgment, the Court ruled that the facts assumed by the respondent in support of assessments and reassessments are also presumed to be true until evidence to the contrary is adduced. In the instant case, the facts assumed by the respondent are described in subparagraphs 5(a) to (g) in the respondent's reply to notice of appeal. This paragraph reads as follows:

5. In assessing the appellant as it did, the respondent took for granted, inter alia, the following facts:

(a) for 1988, the appellant, as employer, must withhold certain source deductions and remit them to the Receiver General for Canada;

(b) the amounts withheld or deducted by the appellant must be remitted to the Receiver General no later than the twenty-fifth day of the month for deductions made during the first 15 days of the month and on the tenth day of the following month for deductions made during the last 16 days of the month;

(c) the appellant was required to remit the sums withheld or deducted on the twenty-fifth day of the current month and the tenth day of the following month since the appellant's average monthly remittances were $15,000 or more in the second calendar year preceding 1988;

(d) the appellant was late in remitting the amounts withheld or deducted for the month of January 1988, but the respondent showed tolerance and no penalty was assessed;

(e) with regard to the amounts withheld or deducted for the month of February 1988, the appellant remitted those amounts late, but the respondent then showed tolerance and no penalty was assessed;

(f) the appellant was late in remitting the amounts withheld or deducted for the months of March, May and July 1988; the same was true for part of the amounts to be remitted for the month of April 1988;

(g) as a result of these late remittances, the respondent assessed penalties as described in paragraph 2 of the Reply to Notice of Appeal.

3. Facts

3.01 Mr. Guy Carbonneau, the accountant who performs accounting duties for the appellant, was the latter’s only witness.

3.02 According to Mr. Carbonneau, in fall 1987, the appellant received a letter from the respondent dated October 19, requesting that the former answer a questionnaire intended for "large employers". It was in fact in January, 1988 that large employers, those making more than $15,000 in source deductions per month, were required to make bimonthly remittances.

On November 2, the witness telephoned the Shawinigan office of the respondent to obtain an explanation. He was informed that a letter should be sent to the respondent explaining why the appellant should not be required to make bimonthly remittances and the matter would then be settled.

3.03 On that same day, November 2, 1987, the following letter was prepared by the witness, signed by the president of the appellant and forwarded to the respondent (Exhibit A-1). It reads as follows [Translation]:

To whom it may concern,

We have received a request from your department to complete and return a questionnaire intended for large employers. We never received this questionnaire.

Furthermore, in 1987, the company cut back its staff by 75 percent from 1986 and is no longer subject to the bimonthly remittances requirement that is to apply starting in January 1988.

3.04 The appellant received no reply to this letter. Furthermore, having forwarded the monthly report in January and having received no reaction, the witness believed that the matter had been settled, particularly since the ministère du Revenu du Québec had exempted the appellant from making bimonthly remittances for the same reasons.

3.05 In early May, 1988, the witness received the first notice of assessment dated April 28, 1988, concerning source deductions in the amount of $496.17. On May 5, he forwards a photocopy of the March remittance bearing the bank's stamp (Exhibit R-2).

3.06 At the end of May, he receives the second notice of assessment for the April source deduction of $173.84. That notice is dated May 24.

On May 31, he contacts Mr. Yves Charest of Revenue Canada, who tells him to wait two weeks and the corrections should be made.

3.07 At the end of June, the appellant receives from the respondent two letters dated June 21 and June 28 providing explanations of the two previous assessments. The letters are similar and say that the bimonthly remittances have to be made, but give no reason concerning the fact that the appellant does not have $15,000 in source deductions.

3.08 On June 30, 1988, the witness telephones the Shawinigan taxation office. He is referred to Mrs. Lise Brunet, in St-Hubert. In response to the accountant's explanations, Mrs. Brunet requests a copy of the letter of November 2, 1987.

3.09 In July, a third notice of assessment dated July 4, 1988 in the amount of $293.31 is received. On July 12 following, the witness receives a telephone call from Mrs. Brunet, who is forwarding a copy of the letter of November 2, 1987 to Ottawa to request an official decision.

3.10 At the end of August, 1988, the witness receives a letter from the St- Hubert offices of the respondent (Exhibit A-2). The letter refers to the section of the new Regulations and says that the appellant has to make bimonthly remittances. [Translation] "We have examined the information you have provided us, but the reasons given do not justify setting aside the penalties."

3.11 Notice of objection procedures are then started. The notice of confirmation uphold the assessments, referring simply to various sections.

4. Act—Analysis

4.01 Act

The provisions relevant to this appeal are subsections 153(1) and 227(9) of the Income Tax Act and subsection 108(1) of the Income Tax Regulations.

Subsection 153(1) of the Act establishes an obligation to deduct taxes at source and remit them in accordance with the Regulations.

Subsection 227(9) of the Act provides that an employer who is late in remitting an amount deducted or withheld is liable to a penalty of 10% of that amount or $10, whichever is the greater".

Subsection 108(1) of the Income Tax Regulations reads as follows:

108. (1) Amounts deducted or withheld under subsection 153(1) of the Act shall be remitted to the Receiver General on or before the 15th day of the month next following the month in which the amounts were deducted or withheld.

(1.1) Notwithstanding subsection (1), where the average monthly withholding amount of an employer for the second calendar year preceding a particular calendar year is not less than $15,000, amounts deducted or withheld from payments described in the definition “ remuneration” in subsection 100(1) made in the particular year by the employer shall be remitted to the Receiver General

(a) for payments made before the 16th day of a month, on or before the 25th day of the month; and

(b) for payments made after the 15th day of a month, on or before the 10th day of the following month.

4.02 Analysis

4.02.1 The mechanism described in the Regulations seems clear: the criterion for determining whether a company must remit on a bimonthly basis is that the monthly withholding amount of an employer for the second calendar year preceding a particular calendar year be not less than $15,000.

In the instant case, the "particular calendar year” is 1988 and the second calendar year preceding it is 1986.

Since, in 1986, the company's average monthly withholding amount was not less than $15,000, the amounts withheld shall be remitted to the Receiver General "on or before the 25th day of the [current] month” and "the 10th day of the following month”.

In using the word shall”, Parliament has bound the employer to remit the amounts not later than the dates set and compels him to do so.

4.02.2 The preceding analysis shows that this Court has little room to manoeuvre in addressing the appellants situation. Subsection 108(1.1) of the Income Tax Regulations is clearly worded and must be fully enforced. We are permitted, however, to doubt the rationality of the consequences that follow from its application.

Indeed, the purpose and object of this provision is no doubt to impose greater fiscal responsibilities on the officers of large corporations. By requiring these “large employers" to remit source deductions in two. periods, the government can more quickly collect cash which can then be reallocated to various social programs or to national debt reduction. [1] However, the mechanism introduced by Parliament in subsection 108(1.1) of the Regulations to pinpoint such “large employers" shows obvious weaknesses. The appellant's situation is a perfect illustration. The Regulations effectively provide that every employer withholding average monthly amounts greater than $15,000 in 1986 will have to make bimonthly remittances of such amounts in 1988. In using this type of retroactive analysis of the total payroll of the various employers in the country, Parliament no doubt assumes a certain stability in the economic situation of those corporations. However, what of employers who, for one reason or another, see their total payroll decline dramatically during the year following the period selected by Parliament as a basis for determining the frequency of remittances of withheld amounts to the Receiver General? In other words, can an employer whose economic situation no longer meets the legal criteria during the fiscal year preceding the taxation year under study logically be subjected to a treatment reserved for "large employers" solely on the ground that the average monthly amounts it withheld during the second year preceding the taxation year under study were equal to or greater than $15,000?

It is this Court's view that Parliament's objective in these regulations will too often be unrealized for lack of an exempting provision for situations similar to that of the appellant. It would be desirable for Parliament to consider such an initiative since the judicial system cannot rewrite statutes to make them clear and unambiguous.

4.02.3 In the instant appeal, the evidence shows that not only did the respondent never clearly explain the situation to the appellant, but, on the contrary, the latter was told on two occasions that the matter would be settled.

The appellant's reaction in believing that it was not subject to bimonthly remittances was only natural, particularly since the ministère du Revenu du Québec had exempted it from bimonthly remittances for the same reasons as those provided to the respondent.

Furthermore, the situation did not appear to be all that clear for the officers of the respondent since the matter had to be referred to Ottawa for final decision.

That decision (Exhibit A-2) is far from shedding any light on the substance of the problem [Translation]: "We have examined the information you have provided us, but the reasons given do not justify setting aside the penalties” (paragraph 3.10). This is the response of someone who is unaware of the real reason.

4.02.4 Counsel for the respondent filed with the Court the document issued by the respondent, entitled, “ Payroll Deductions—Tables". In paragraph 5, entitled, “Reducin Tax Deductions at Source—Undue Hardship,” we read: “You cannot reduce the tax to be withheld until you receive a letter of authority from the district office.”

But when a taxpayer receives no reply to a letter sent to the respondent, and is notified that the situation will be settled, it is easy to understand the taxpayer's point of view, particularly when a new statute first enters into effect, as in the instant case in which the legislation was passed in December, 1987.

4.02.5 The reasons given that the Department of National Revenue is a large machine and that computers are replacing human beings are not always good reasons for the taxpayer.

4.02.6 The strict interpretation of provisions of this nature such as subsection 108(1.1) of the Regulations and subsection 227(9) of the Act (the latter establishing that the taxpayer is “liable” to the penalty provided, that penalty must apply [2] ) gives the Court no other choice of interpretation.

However, where mitigating circumstances exist, as in the instant case, the Court may recommend application of section 23 of the Financial Administration Act, R.S.C. 1985, c. F-H) to grant remission of the penalty. The Court therefore recommends that the respondent activate the mechanism to grant remission of the penalty,

5. Conclusion

The appeal is dismissed.

Appeal dismissed.