410285 Ontario Limited v. Minister of National Revenue, [1985] 1 CTC 2377, 85 DTC 330

Taylor, TCJ:—This is an appeal heard in Toronto, Ontario, on February 21, 1985 against income tax assessments for the years 1980 and 1981. The notice of objection read:

I wish to appeal to the Board against reassessments for the years 1980 and 1981 when Employments Tax Credits were reduced from $2,832.75 to $234.00 and from $3,019.50 to $432.75 in each year respectively.

Initially, the tax credit program was instituted in my company by direct dealing with Canada Manpower and their stated required conditions were met in that the employee hired under the program was additional to regular staff at all times. This situation was established and later confirmed by Mrs D Seed of Manpower who installed the program.

Within the departments of government, there appears to be varied interpretations of the act which led to the reduction of tax credits. I was, however, guided by government representation in making the claim and am not able to devote time and energy to translating laws. I depend on the service provided by Manpower and would hope that the service can be considered dependable.

As recounted by the Minister, the situation was:

— the Appellant carried on business in Ontario as Taffy’s Tire Shop;

— in its 1980 and 1981 taxation years, the Appellant claimed employment tax credits, based on eligible hours claimed as follows:

	Credit	Eligible Hours
1980	$2,832.75	1,888.5
198]	$3,019.50	2,013

— the Appellant first entered into an “agreement”, within the meaning of section 2 of the Employment Tax Credit Program Regulations on August 24, 1979;

— the weekly average of the number of employees on the payroll of the Appellant who were each being paid for fifteen or more hours of work per week in respect of the first eight weeks preceding August 24, 1979 was five;

— from August 24 to September 20, 1979 there were six employees in the Appellant’s work force, one of whom was a person employed pursuant to an agreement under the Employment Tax Credit Program;

— thereafter to the end of the Appellant’s 1980 fiscal year (ending May 30), there were five employees in the work force;

— during the period when the work force was six, the person referred to in paragraph

(f) herein worked a total of 156 hours;

— the agreement of the said person terminated on July 24, 1980;

— in October 1980 the Appellant entered into another agreement in respect of one worker which agreement was terminated on February 12, 1981;

— during this period, the total number of employees in the Appellant’s work force was five except during the last week in which the number was six, and the said worker worked at least forty hours;

— in February 1981 the Appellant employed a third worker pursuant to another agreement;

— during the Appellant’s 1981 fiscal year, this third worker worked a total of 248.5 hours during the time in which the Appellant’s work force had more than five employees;

— at all times material to this appeal, the Appellant’s normal work force was five;

— the number of hours of eligible employment by the Appellant was 156 in its 1980, and 288.5 in its 1981, taxation years.

The respondent relies, inter alia, on subsection 127(13) of the Income Tax Act, RSC 1952, c 148, as amended; section 6000 of the Income Tax Regulations subsection 7(4) of the Employment Tax Credit Act, SC 1977-1978, c 4, as amended; and paragraphs 2(b) and 5(g) of the Employment Tax Credit Program Regulations, SOR/78-232. The respondent submits that the appellant was entitled to deduct pursuant to subsection 127(13) of the Income Tax Act, only the amounts of $234 for 1980, and $432.75 for 1981 as its employment tax credit for those taxation years, calculated in accordance with subsection 7(4) of the Employment Tax Credit Act, since the number of hours of eligible employment included only those weeks in which the employment of the eligible worker was additional to the appellant’s normal work force, within the meaning of paragraph 2(b), and by virtue of paragraph 5(g) of the Employment Tax Credit Program Regulations.

Some of the explanations brought out at the hearing cast a certain doubt on the details of the assumptions (supra), upon which the Minister relied in striking the assessment. However, the Minister retained the position that the calculations made by Revenue Canada officials (after an audit of the appellant’s records) were correct, and as I see it, that meant that the calculations made by the appellant in filing for the credit involved were incorrect. Mr B A Williams, president of the appellant corporation, noted for the Court that, after the reassessment at issue, he had checked with the officials of the Department of Employment and Immigration responsible for the implementation of the program, and he had been informed that he had not violated any of the rules applicable to his situation and that his calculations were in order, even though they differed from that of Revenue Canada. No one from Employment or Immigration was presented by either party to this dispute as a witness for the Court. Counsel for the Minister made reference to the case of J M Delaney Lumber Ltd v MNR, [1982] CTC 2863; 82 DTC 1863, a situation with some resemblance to the instant appeal wherein the appellant had been unsuccessful before the Tax Review Board, and I quote from page 2868 (DTC 1866) thereof:

4.02.1 The facts are not really in dispute. All of the respondent’s assumptions of fact quoted above in subparagraph 2.02, were not denied by the appellant. The interpretation and the application of the regulations quoted above are the only issues in dispute. Mr Delaney said he did not read the regulations before signing the Agreement.

4.02.2 After reading the legal provisions involved in this case, the Board concludes that the method used by the respondent to compute the tax credit (as explained in the assumptions of fact quoted in para. 2.02) is correct. The reassessment must be maintained and the appeal is dismissed.

Perhaps there is a slightly different perspective to be taken of this case when compared with Delaney Lumber Ltd (supra). As I see it the Court is faced with the situation that, according to the testimony of Mr Williams, the department of the Federal Government responsible for implementing the program, and thereby, presumably responsible for interpreting the laws and regulations relevant to that program, has not challenged the appellant’s calculations and, indeed (although that was not independently supported at the hearing) still is in accord with these calculations. I can see the dilemma when one department, Employment and Immigration is responsible for the program, whereas quite a separate department, Revenue Canada, may be adversely affected — or appear to be. But that is not my problem — that arises out of the government’s policy and legisla- tion. Without in any way reflecting on the possible accuracy of the interpretation by Revenue Canada placed on the relevant regulations arising out of Employment and Immigration, I am not prepared to accept these calculations as the only valid ones, when I am faced with an opposing position from Employment and Immigration. In effect, in this matter, Revenue Canada is challenging the results and calculations of the department directly responsible for the program — Employment and Immigration. Rather than a lengthy process of the audit by Revenue Canada on this aspect of the appellant’s affairs, I would think some form of confirmation or rejection of the calculations by a request from Revenue Canada to Employment and Immigration would be more appropriate. As I understood the hearing, Employment and Immigration, at the minimum, is not prepared to confirm the calculations of Revenue Canada. If the calculations by the appellant, of the tax credit are based on corporation data which is in agreement with the information accepted by Employment and Immigration from the appellant (and I understand it is) then I find no basis for the Court accepting a different calculation from Revenue Canada, based on a Revenue Canada interpretation of the Employment and Immigration rules and regulations.

The appeal is allowed and the matter referred back to the Minister for reconsideration and reassessment.

The appellant is entitled to party and party costs.

Appeal allowed.