Ville D’outremont v. R., [1997] 2 CTC 2395

Garon T.C.J.:

These are appeals from income tax assessments dated May 2, 1990 and August 3, 1990 for the 1989 taxation year.

The first of these assessments was in the amount of $3,192.27, that is, $3,048.27 in taxes and $144.00 in interest. According to the Minister of National Revenue, it was based on the failure to pay the Receiver General the amounts required in respect of the remuneration paid in 1989 to three employees of the appellant, Pierre Gravel, Pierre Dalpé and Réjean Dulude.

The second assessment, [1] which was dated August 3, 1990, amounted to $1,266.68, including $1,163.68 in taxes, $87.00 in penalties and $16.00 in interest. It was not stated specifically in this notice of assessment to which particular employees’ remuneration the assessment referred. [2] Stated in general terms, however, the substantive issue raised by this second assessment is the same as that which was the subject of the first assessment, as appears from the pleadings, evidence and arguments.

More specifically, these two assessments concern the amounts to be remitted to the Receiver General by the appellant in respect of the remuneration of certain employees who were victims of industrial accidents in 1989 and in respect of whom compensation was paid by the Commission de la santé et de la sécurité du travail (C.S.S.T.) in 1989. According to the notice of confirmation by the Minister of National Revenue, these assessments were issued under subsections 227(9) and 227(9.2) of the Income Tax Act (the “Act”).

The facts adduced in evidence were not disputed.

Louis Bélair and Victor Mainville, two employees of the appellant, testified on its behalf at the hearing of these appeals. For the respondent, Réal Villandré, an auditor with Revenue Canada, set forth in his testimony the facts and reasons on which the two assessments in issue were based.

The first witness, Mr. Bélair, had been the appellant’s treasurer since July 3, 1989. Mr. Bélair first indicated that an actuary, Denis Legendre, who died in late 1990, had prepared the appropriate accounting documents for the appellant with respect to 1989. Mr. Bélair related that, in 1989, when an employee had had an industrial accident, the appellant paid the same net salary throughout the entire year, even during his period of absence as a result of that accident. At the end of the year in issue, the appellant provided its actuary Mr. Legendre with a list of employees who had been victims of industrial accidents and of the compensation received from the C.S.S.T. in respect of those employees. The C.S.S.T. had sent the compensation to the appellant, which had previously paid the net salaries to the employees in question during their periods of absence. During January 1990, the actuary produced a report on adjustments to “pay to date”. This report established the gross salary of each of those employees, taking into account, in his view, the fact that the compensation received from the C.S.S.T. in respect of each of them was not taxable. The report was forwarded to the pay department on February 27, 1990 and the appellant immediately made the required adjustments. The appellant then obtained refunds from Revenue Canada of the amounts remitted by the appellant in respect of the remuneration paid to the injured employees since, according to the Minister of National Revenue, the tax treatment of the compensation necessarily resulted in the reduction of the amounts that, in the final analysis, had to be paid to the Receiver General in respect of that remuneration.

Réjean Dulude’s case was submitted for illustrative purposes. Two tables were produced regarding Mr. Dulude’s remuneration. Table 1 (Exhibit A-14) shows, for 1989, the appellant’s computations of Mr. Dulude’s gross salary, deductions, net amount paid by the employer, additional tax payable and, lastly, net receipt. Table 1 is reproduced below without Schedules A and B:

It should be noted that Mr. Dulude’s gross salary was reduced by $11,678.91, which, according to the appellant, represented the gross salary paid by it during Mr. Dulude’s period of disability. The corrected T4 shows a gross salary of $33,784.25. The same table indicates that Mr. Dulude’s net salary would have been $28,726.97 if he had worked all year. As he was absent from his work because of an industrial accident, the C.S.S.T. paid compensation of $6,361.24. The salary that was paid by the appellant out of its own funds, that is, without any right to reimbursement, amounted to $22,365.73 for 1989, which yields a total net salary of $28,726.97, including the C.S.S.T. compensation, received by Mr. Dulude in 1989, that is, the same net salary to which he would have been entitled if he had worked the entire year.

That table also shows tax payable (federal and provincial) of $835.00 in Mr. Dulude’s case if the employee had been on the job the entire year and the tax payable amounts to $840.00 if the C.S.S.T. payment is taken into account. The detailed computation of the tax payable in each of these two situations appears in Schedules A and B, as indicated moreover in Table 1.

Table 2 (Exhibit A-15) prepared by the appellant’s finance department, incorporates the corrections made by Revenue Canada to the various elements of the computation of Mr. Dulude’s remuneration for the year in issue. That table appears below, without its schedules:

[TRANSLATION]

Net Pay for 1989

According to the assessment by the Department of Revenue Canada, the employee’s net salary is recomputed without taking into account the actual situation provided for under the collective agreement and the amounts actually paid to the employee. The employee’s amended T-4 is thus as follows:

Rejean Dulude 1989

RECEIPT AFTER TAX

EMPLOYED ENTIRE YEAR - WITH CSST COMPENSATION OF $6,361

ACCORDING TO DEPARTMENT’S ADJUSTMENTS Gross salary{ 1} $ 41,358.24 Q.P.P. ( 525.00 ) Unemployment insurance ( 611.44 ) Pension fund ( 1,694.55 ) Federal income tax ( 4,696.06 ) Provincial income tax{2} ( 5,577.46 ) Union dues ( 466.44 ) Donations ( 48.00 ) Net receipt based on the

department’ sassumption $ 27,739.29 Net salary actually received by employee

under collective agreement 28,726.97 Plus

Income tax refund to be claimed

with 1989 income tax return

according to Schedule C 810.00 NET RECEIPT 29,536.97

Notes:

{1}	Includes a C.S.S.T. amount of $6,361.24.
{2}	According to T-4 amended by Revenu Quebec on the same basis as
	Revenue Canada.

Schedule C to this table contains, with respect to 1989, computations on the same points as those addressed in Schedules A and B of Table 1 and takes into account the C.S.S.T. compensation of $6,361.

According to that table, Mr. Dulude was entitled to a tax refund (federal and Quebec) of $810 as a result of the computations of the Minister of National Revenue, whereas, according to the appellant, he should have paid $840 in taxes (federal and Quebec), as shown in Table 1 cited above.

The same witness stated that, until 1977, the appellant had paid employees who were victims of industrial accidents “full salary”, that is, the gross salary, under article 15.01 of the former collective agreement of the firemen of Outremont. That article read at the time as follows:

[TRANSLATION]

A fireman who is a victim of a disease contracted or of an accident that happened in the performance of his duties continues to receive his full salary from the City.

In the subsequent collective agreement, the words “net salary” were substituted for the words “full salary”. This witness commented in reference to another table prepared by Mr. Legendre (Exhibit A-16) establishing, in his view, that under that former agreement, a fireman who was a victim of an industrial accident in respect of which C.S.S.T. compensation was paid was favoured in that he was required to pay less tax in respect of the same gross remuneration than if he had been on the job the entire year.

In his testimony, Mr. Bélair said that he agreed with the allegation of paragraph 4.9 of the Notice of Appeal which reads as follows:

[TRANSLATION]

To arrive at gross and net income at the end of the year, it is possible that the information on the pay slip given to the employee for each pay period may not coincide with the final results as determined under paragraph 4.7.

Paragraph 4.7 of the Notice of Appeal referred to in paragraph 4.9 reads as follows:

[TRANSLATION]

The principle established in paragraph 4.5 requires the employer to retain the services of experts in order to determine at the end of the year the exact gross income earned by the employee, having regard to the fact that a portion of the amounts received is not taxable, in order to comply with the agreement and thus to arrive at the net income. The determination of this net income takes into account the information provided by the employee on the prescribed forms at the beginning of the year.

In examination in chief, the witness Bélair also admitted paragraph 9(a) and paragraph 9(e) of the Reply to the Notice of Appeal as amended at the hearing. Those paragraphs read as follows:

[TRANSLATION]

(a) during 1989, a certain number of the appellant’s employees were victims of industrial accidents preventing them from performing their duties over varying periods of time;

(e) relying on article 15.01 of the collective agreement in effect between the appellant and its employees for 1989, the appellant made adjustments, for the entire year, to the salaries and applicable deductions at source of its employees who had been victims of industrial accidents, even though the period of disability of the said employees only lasted for part of the year.

The appellant’s actuary prepared the T4s for each employee after the end of the year. The adjustments to the T4s of the appellant’s employees were made on February 27, 1990.

The appellant’s second witness, Victor Mainville, indicated the reasons that led to the amendment to article 15.01 of the collective agreement, in the following terms:

[TRANSLATION]

To discourage absenteeism, prevent deadlines from being extended and for reasons of fairness, article 15.01 of the collective agreement was amended in 1978. Denis Legendre, the late actuary of the City of Outremont, already had the mandate from the City in 1975. He had proceeded in the same manner since 1979.

For the respondent, Réal Villandré, an auditor with Revenue Canada, explained how he had prepared the amended T4s relying on the appellant’s records with the aid of a work sheet, which was produced.

He first computed the remuneration paid to Mr. Dulude during the period of disability, which he set at $11,172.66, and deducted that sum from the gross salary for the entire year appearing in the payroll, that is, $45,463.13. To the amount thus obtained, that is, $34,290.47, he added the sum of $706.80, which was exactly the difference between the net salary paid to Mr. Dulude by the appellant during the period of disability and the compensation paid by the C.S.S.T., which represents 90 per cent of that net salary. In other words, the auditor set Mr. Dulude’s gross remuneration paid by the appellant for 1989 at $34,997.27, without taking into account the C.S.S.T. compensation of $6,361, and at $41,358.54, if that compensation is taken into account. Then, in order to determine the tax payable on that remuneration, he deducted the federal tax in respect of the period of disabil- ity, i.e. $1,441.79, from the total original amount of tax payable for the year in respect of a remuneration of $45,463.13, i.e. $6,137.85. The amount of $1,441.79 was subtracted, in his view, as a consequence of the non-taxable nature of the amount received from the C.S.S.T. He obtained a result of $4,696.06, an amount that represented the tax payable by Mr. Dulude. This is the amount that appears on the T4 Supplementary prepared by the auditor in respect of Mr. Dulude.

In cross-examination, the auditor had difficulty explaining the reasons for certain computations in support of the assessments under appeal, as appears from the following passage from that cross-examination:

[TRANSLATION]

Mr. LEGAULT: [3] So now we come back to the computation of tax. You say that you took the amount that appeared on the last cheque stub from the City of Outremont, $6,137.85?

A. Yes.

Q. You subtracted $1,441.79. Is that correct?

A. That is correct.

Q. Then you said that was going to be the tax in the future, but isn’t the tax usually calculated on the gross salary?

A. Yes.

Q. Then why didn’t you calculate the tax on the gross salary?

A. Because when there are C.S.S.T. payments, the employee is not supposed to lose any benefit.

Q. Where did you find that?

A. In the guideline.

Q. Show me that.

A. In any case, that’s what I applied.

Q. Because you know very well that what you’re doing is not fair.

A. I don’t have to judge whether it’s fair or not. I apply a guideline.

JUDGE: Are you sure that the guideline orders you to do that? In any case ...

Mr. LEGAULT: Show me, please.

A. In any case, that’s what was done.

Q. Yes, but by virtue of what did you do that? Show that to me in the guideline.

A. What?

Q. That you simply take the tax that was deducted for the weeks when the employee was injured and you deduct it instead of computing the tax on the remaining gross salary?

A. Because his gross salary was $717.51 per week.

Q. No, you said a moment ago on the back of the page that his gross salary became $34,997.30. That’s what I understood.

A. Yes.

Q. You added $6,361.24 for the C.S.S.T. So why didn’t you calculate the tax on $34,997.30 like everyone else?

A. Because this man had a rate of remuneration of $45,463.16.

Q. No, but you lowered his T4, you lowered his gross. So I’m asking you by virtue of what, if you lower his gross to $34,997.30, you can manage to set the tax as though his gross were not $34,997. It is based on $45,000; the tax is based on $45,000, then you say: I take a little bit off, I remove a period?

A. That’s because what happens is that, yes, it’s because the C.S.S.T. calculates the compensation on the gross salary.

Q. No, did you prepare a T4, sir?

A. Yes.

Q. When an employer prepares a T 4, he records a gross. He looks at the tables and he determines the amount of the tax. Show me in your guideline by virtue of what you did not set the amount of tax in that way, because it was you who set the gross salary. By virtue of what did you not set the amount of tax in accordance with the Act? From the moment you set the gross salary • don’t look at your counsel, I’m putting the question to you.

A. I can’t answer.

Q. So the guideline didn’t tell you that? You didn’t comply with the guideline? Is that what you’re telling me?

A. That is correct.

Q. Because you know perfectly well that the method you used is much more favourable for the employee than if you had calculated his tax on $34,997?

A. Our calculation is indeed more favourable for the employee.

Appellant’s Claims

Counsel for the appellant contended that the parties had amended the collective agreement in 1979 in order to prevent employees who were victims of industrial accidents from receiving a higher salary than those who worked the entire year, as had previously been the case. They no longer wanted to provide a kind of bonus for extended leaves of absence due to industrial accidents. Starting in 1979, article 15.01 guaranteed payment of the net salary, not gross salary, in case of an industrial accident. “The purpose of the new text is to ensure that a fireman who has had an industrial accident receives a net annual salary as though he had worked.” However, the appellant proceeded to make all the required deductions and all the other calculations as though the employee was not absent as a result of an industrial accident and was entitled to receive the same gross salary.

The appellant used the same method for 10 years before Revenue Canada objected to it in 1989. It was the view of counsel for the appellant that its interpretation of article 15.01 of the collective agreement was consistent with the parties’ intention and with the principles set out by the Supreme Court of Canada in Québec (Communauté urbaine) c. Corp. Notre-Dame de Bonsecours.* [4] He referred on this point to a passage at page 20 in which Gonthier J. stated:

Substance should be given precedence over form to the extent that this is consistent with the wording and objective of the statute.

Furthermore, counsel for the appellant argued that the Minister of National Revenue had unilaterally changed the salary and amended the T4 issued by the appellant, as alleged in paragraph 4.4 of the Notice of Appeal, and reiterated his request - stated in the Notice of Appeal - for a ruling by this Court on the legality of the decision by the Minister of National Revenue to proceed with such changes at its own initiative. He argued in particular on this point that the Minister was not authorized to fix the salary paid by the appellant. In making these remarks, he relied on the decision by the Tax Review Board in Binette v. Minister of National Revenue? [5]

Paragraphs 4.5, 4.7, 4.8 and 4.11 of the Notice of Appeal adequately set forth the appellant’s position as to the path that must be taken in order to determine at the end of the year the amendments that must be made to the deductions at source from the remuneration of employees in respect of whom C.S.S.T. compensation has been paid during the year. Those paragraphs read as follows:

[TRANSLATION]

4.5 The purpose of article 15.01 of the agreement is to enable an employee who is absent because of an industrial accident to receive the same net salary as he would have received if he had not been injured during the year;

4.7 The principle established in paragraph 4.5 requires the employer to retain the services of experts in order to determine at the end of the year the exact gross income earned by the employee, having regard to the fact that a portion of the amounts received is not taxable, in order to comply with the agreement and thus to arrive at the net income. The determination of this net income takes into account the information provided by the employee on the prescribed forms at the beginning of the year.

4.8 In order to comply with the agreement, the employer must therefore make changes to the gross salary and deductions at source for an employee who was absent as a result of an industrial accident during part of the year and on the job during the other part of the year. These changes necessarily take place after December 31 of the taxation year and before February 28 following, on which date the T4 form must be produced by the employer. This form is therefore prepared in accordance with the provisions of the agreement.

4.11 The Department of Revenue has never disputed the computations by the consulting actuary and, as will be shown at the hearing, the gross income computed by him and the changes made to the deductions at source are in accordance with the agreement and the tax legislation.

Counsel for the appellant also argued that the deductions that are made during the period of disability of an employee who has been the victim of an industrial accident are provisional and that the net salary paid during that same period is also paid on a provisional basis and in fact constitutes an advance. The salary paid by the appellant to the employee is subsequently reduced when the appellant receives the compensation from the C.S.S.T.

Respondent’s Claims

After giving a history of the tax treatment of amounts paid by a government agency as a result of an industrial accident or an occupational disease, counsel for the respondent first noted that the appellant in the instant case had not received the compensation as an employer, but as the person that had advanced the salary during the employee’s period of disability or as a subrogate payer.

Counsel for the respondent added that there are three schools of thought on the question of adjustments to the amounts that should be deducted and remitted to the Receiver General upon receipt of the C.S.S.T. compensation.

There is the school, which he characterized as flexible, advanced by the appellant. This approach had previously been adopted by the Communauté urbaine de Montréal in Binette, supra, and by the City of Montréal in Mar- chand v. Minister of National Revenue [6] According to this school, adjustments may be made throughout the year so that one ultimately arrives at a net amount roughly equal to that which would be paid if the employee had not been disabled.

There is, at the other end, the strict school according to which there should be no adjustments. This is, in his view, what was adopted by this Court in Marchand, supra.

At the hearing, the respondent adopted a position which she characterized as a “middle-of-the-road solution”, according to which the C.S.S.T.’s reimbursements must be taken into account solely in respect of the period of disability, not the entire year, as the appellant contended. Counsel for the respondent did not see how the collective agreement could legally amend the nature and the total of the amounts that had actually been paid during that period. According to him, the compensation paid by the C.S.S.T. in respect of the part of the year during which the employee was on the job must not be taken into account. Counsel for the respondent thus contended that the collective agreement “has no impact” on this case. What counts, he said, was the gross salary paid to the employees. Mr. Dulude in fact worked in normal fashion from mid-April to the end of the year 1989. During that period, he earned a gross salary of $34,290.50. The amounts remitted by the appellant during that period were, he claimed, insufficient.

According to counsel for the respondent, it was the principle that was at stake, not the amounts of the deductions that should have been made. The crux of the matter was the method that should be used to make the adjustments.

Analysis

First of all, it seems to me appropriate to consider the provisions of the Income Tax Act regarding the tax treatment of workmen’s compensation received as a result of an industrial accident.

Prior to 1982, compensation received under a workmen’s compensation statute was not included in the income under paragraph 81(1) (h) of the Act. Since 1982, paragraph 56(1) (v) of the Act requires that compensation received under employees’ or workmen’s compensation legislation be in- eluded in computing the income of a taxpayer. That paragraph reads as follows:

56(1) Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year,

(v) compensation received under an employee’s or workmen’s compensation law of Canada or a province in respect of an injury, disability or death.

Subparagraph 110(1) (f) (ii) allows for compensation received under such legislation in respect of certain taxpayers to be deducted in computing their taxable income. That subparagraph reads as follows:

110(1) For the purpose of computing the taxable income of a taxpayer for a taxation year, there may be deducted such of the following amounts as are applicable:

(f) any amount that is

(ii) compensation received under an employees’ or workmen’s compensation law of Canada or a province in respect of an injury, disability or death, except any such compensation received by a person as the employer or former employer of the person in respect of whose injury, disability or death the compensation was paid ...

It is clear from the text of this provision that employees, not employers or former employers, may avail themselves of this deduction.

In the course of my analysis, I shall refer on numerous occasions to the case of Réjean Dulude, as counsel for the parties did.

The compensation paid as a result of the industrial accident that happened to Mr. Dulude was payable to Mr. Dulude even though it was received by the appellant. The Act respecting industrial accidents and occupational diseases provides for the payment to the worker of 90 per cent of his net salary in certain circumstances, and the cheques representing payments of this compensation could not be cashed by the appellant without Mr. Dulude’s prior authorization. Counsel for both parties admitted that payment of the compensation in question had to be considered as having been made to Mr. Dulude. The employee’s obligation to hand the compensation paid by the C.S.S.T. over to the appellant was provided for by clause 15.02, which completed article 15.01 of the collective agreement dated May 6, 1987 between the City of Outremont and the Canadian Union of Public Em- ployees, Local 2602. That agreement was applicable during 1989, the year in issue. Articles 15.01 and 15.02 read as follows:

[TRANSLATION]

15.01 A fireman who is a victim of a disease contracted or of an accident that happened in the performance of his duties continues to receive his net salary from the City until it is medically established that he is able to return to his work or that he suffers from a permanent disability, total or partial, rendering him incapable of performing his duties.

15.02 A fireman who thus continues to receive his net salary from the City shall hand over to the latter any compensation that is paid to him for loss of salary by the Commission de la Santé et de la Sécurité du Travail and subrogate the City in the rights that he may have against third parties as a result of that disease or accident, to the extent of the amounts paid by the City.

It was not disputed by the parties that the employee was required to include the amount of the compensation in question in his income for the 1989 taxation year and that, furthermore, he was entitled to deduct that compensation in computing his taxable income for the same year. In Mr. Dulude’s case, it was admitted that the compensation paid by the C.S.S.T. in 1989 amounted to $6,361.24. The compensation received from the C.S.S.T. in 1989 represented 90 per cent of Mr. Dulude’s net salary paid during the 16-week period of disability. As the appellant had paid the employee’s entire net salary during his period of disability, it follows that the appellant had paid 10 per cent of that employee’s net salary during that same period without being entitled to reimbursement.

Having regard to these facts, I must determine whether corrections or adjustments had to be made after the end of the year at issue in respect of the amounts already remitted by the appellant to the Receiver General in respect of the remuneration paid to the employees who had received compensation from the C.S.S.T. during the same year. If so, I must determine the basis on which and the extent to which these corrections or adjustments have to be made.

The appellant’s tax liability in respect of the amounts to be deducted from the remuneration paid to an employee, and to be remitted to the Receiver General, must be determined in light of the relevant provisions of the Income Tax Act and Income Tax Regulations.

First of all, subsection 153(1) of the Act establishes the general rule that an employer must deduct at source certain amounts when he pays an employee. This paragraph reads as follows:

153(1) Every person paying at any time in a taxation year

(a) salary or wages or other remuneration,

shall deduct or withhold therefrom such amount as may be determined in accordance with prescribed rules and shall, at such time as may be prescribed, remit that amount to the Receiver General on account of the payee’s tax for the year under this Part or Part XI.3, as the case may be.

Part I of the Income Tax Regulations — sections 100 to 109 — provides for the deductions to be made by an employer from the remuneration paid to an employee and the amounts to be remitted to the Receiver General.

First of all, section 101 of the Act [sic] provides as follows:

Every person who makes a payment described in subsection 153(1) of the Act in a taxation year shall deduct or withhold therefrom, and remit to the Receiver General, such amount, if any, as is determined in accordance with rules prescribed in this Part.

Section 102 of the Regulations establishes specific rules with respect to the amounts that must be deducted or withheld by an employer. Subsection 102(1) is the only provision of interest for the purposes of this case. It reads as follows:

102. (1) Except as otherwise provided in this Part, the amount to be deducted or withheld by an employer

(a) from any payment of remuneration (in this subsection referred to as the “payment”) made to an employee in his taxation year where he reports for work at an establishment of the employer in a province, in Canada beyond the limits of any province or outside Canada, and

(b) for any pay period in which the payment is made by the employer shall be determined for each payment in accordance with the following rules:

(c) an amount that is a notional gross remuneration for the year in respect of a payment to that employee shall be established by multiplying the amount of the payment that is deemed for the purposes of this paragraph to be the midpoint of the applicable range of remuneration for the pay period, as provided for in Schedule I, in which that payment falls, made in the pay period by the maximum number of such pay periods in that year;

(d) if the employee is not resident in Canada at the time of the payment, no personal credits will be allowed for the purposes of this subsection and if the employee is resident in Canada at the time of the payment, the personal credits shall be established as

(i) where the employee’s personal credits for the year fall within a range of amounts recorded on the return for the year referred to in subsection 107(1) that is in respect of one of net claim codes 2 to 10 on that return, the midpoint of the applicable range, or

(ii) where the employee’s personal credits for the year fall within a range of amounts recorded on that return that is in respect of net claim code 1 on the return, the amount determined for the year under paragraph (a) of the definition “personal credits” in subsection 100(1);

(e) an amount (in this subsection referred to as the “notional tax for the year”) shall be computed in respect of that employee by

(i) calculating the amount of tax payable for the year, as if that amount were calculated under subsection 117(2) of the Act and adjusted annually pursuant to section 117.1 of the Act, on the amount determined in accordance with paragraph (c) as if that amount represented the employee’s amount taxable for that year,

and deducting the aggregate of

(ii) the amount determined in accordance with paragraph (d) multiplied by the appropriate percentage for the year,

(iii) an amount equal to

(A) the amount determined in accordance with paragraph (c) multiplied by the employee’s premium rate for the year under the Unemployment Insurance Act, not exceeding the maximum amount of the premiums payable by the employee for the year under that Act,

multiplied by

(B) the appropriate percentage for the year, and

(iv) an amount equal to

(A) the amount determined in accordance with paragraph (c) less $2,700 and the remainder multiplied by the employee’s contribution rate for the year under the Canada Pension Plan or under a provincial pension plan defined in section 3 of the Canada Pension Plan, not exceeding the maximum amount of such contributions payable by the employee for the year under the plan,

multiplied by

(B) the appropriate percentage for the year;

(f) the amount determined in accordance with paragraph (e) shall be increased by

(i) where applicable, an additional tax of 47 per cent of that amount as provided for in subsection 120(1) of the Act, and

(ii) an amount equal to the amount that would be determined under subsection 180.1(1) of the Act for the year in respect of the employee if the amount determined in accordance with paragraph (e) were that employee’s tax payable under Part I of the Act for that year;

(g) where the amount of notional net remuneration for the year is income earned in the Province of Quebec, reducing the amount determined in accordance with paragraph (e) by an amount that is the aggregate of

(i) the amount that is deemed to be paid under subsection 120(2) of the Act as if there were no other source of income or loss for the year, and

(ii) the amount by which the amount referred to in subparagraph (i) is increased by virtue of section 27 of the Federal- Provincial Fiscal Arrangements and Federal Post-Secondary Education and Health Contributions Act;

(h) reducing, with the approval of the Minister, the notional tax for the year otherwise determined in respect of the employee by an amount equal to the proportion of the notional tax for the year otherwise determined in respect of the employee that the lesser of the amounts determined under paragraphs 122.3(1) (c) and (d) of the Act in respect of the employee for the year is of the amount determined under paragraph 122.3(1) (e) of the Act in respect of the employee for the year; and

(i) the amount to be deducted or withheld shall be computed by

(i) dividing the amount of the notional tax for the year by the maximum number of pay periods for the year in respect of the appropriate pay period, and

(ii) rounding the amount determined under subparagraph (i) to the nearest multiple of five cents or, if such amount is equidistant from two such multiples, to the higher multiple. [7]

As may be seen, paragraph 102(1) (c) establishes as a basis of the calculation an amount that is a notional gross remuneration for the year in respect of a payment made to that employee.

Paragraph 102(1) (d) provides that the personal tax credits for the year of an employee resident in Canada at the time of the payment must be taken into account.

In the third calculation, according to paragraph (e), this employee’s notional tax for the year is computed by taking into account, as indicated in subsection 117(2) of the Act, the required tax rate on the amount that is determined under paragraph (c), the basis of this amount, as indicated above, being the notional gross remuneration. From the amount thus obtained under subparagraph 102(1) (e) (i) of the Regulations, there must be deducted the aggregate of the three amounts described in subparagraphs (ii),

(iii) and (iv) of the same paragraph. The amounts to be deducted are, in one case, the amount determined in accordance with paragraph (d) multiplied by the appropriate percentage for the year and, in the other two cases, the products of certain computations that take into account, in the first situation, the employee’s premium rate for the year under the Unemployment Insurance Act and, in the second situation, the employee’s contribution rate for the year under the Canada Pension Plan or an equivalent provincial plan.

Paragraph 102(1) (f) of the Regulations provides for an increase of the “notional tax for the year” in the two cases given therein. The first of those cases concerns the income, if any, that is not earned in a province and the second the surtax applicable to individuals.

Paragraph 102(1) (g) provides for a reduction in respect of income earned in the Province of Quebec, as is the case here, of amounts deemed to be paid under subsection 120(2) of the Act and of the amount by which the amount referred to in subparagraph (i) is increased by virtue of section 27 of the Federal-Provincial Fiscal Arrangements and Federal Post-Secondary Education and Health Contributions Act.

Paragraph 102(1) (h) provides for a reduction of the notional tax for the year where a taxpayer is entitled to a tax credit in respect of employment out of Canada.

Lastly, paragraph 102(1) (i) provides that the amount of the notional tax for the year must be divided by the maximum number of pay periods for the year in respect of the appropriate pay period and deals with certain other computations.

It thus appears from the provisions of subsection 102(1) of the Regulations that the employee’s notional gross remuneration and personal income tax credits for the year are the only basic elements taken into account to determine the amount to be withheld and deducted. It should be noted that the tax is computed from the notional gross remuneration in accordance with subparagraph 102(l)(e)(i). This notional gross remuneration thus becomes the “amount taxable” for the year for the purposes of subsection 117(2) of the Act, given what is stated in the last words of subparagraph 102(1) (e) (i), which reads, “as if that amount represented the employee’s amount taxable for that year”. Nowhere is it mentioned that the taxpayer’s taxable income and, in particular, the deduction in respect of employees’ or workers’ compensation provided for by subparagraph 110(1) (f) (ii) of the Act must be taken into account.

The other sections of Part I of the Regulations need not be considered for the solution of this case, except for section 100, which contains seven definitions.

The foregoing analysis thus shows that the various elements relating to the computation of taxable income dealt with in Division C — sections 109 to 114.2 — of Part I of the Act are not taken into account for the purposes of Part I of the Income Tax Regulations.

It follows from the foregoing that no adjustment is required in order to take into account the deduction, in computing the taxable income, of compensation received under employees’ or workmen’s compensation law. It follows that the deductions which were made in each pay period as though the employee in question had not been a victim of an industrial accident were the only ones required and authorized. It is indisputable that Part I of the Income Tax Regulations provides for no adjustment of taxable income in respect of the amounts deducted and remitted to the Receiver General. It goes without saying that, when filing his income tax return, the employee concerned may determine his tax payable by taking into account, in particular, the deduction provided for by subparagraph 110(1) (f) (ii) of the Act for the purpose of computing his taxable income.

Before closing, I would like to make certain general remarks.

In my view, both parties were mistaken when it was taken for granted that the deduction in respect of the C.S.S.T. compensation had to be taken into account in determining the remuneration of an industrial accident victim who had received such compensation during the year at issue. This deduction does not enter into the computation of employment income. In other words, this deduction must not be made at the first stage of the three major computations — income, taxable income and tax payable — leading to the determination of income tax to which a taxpayer may be subject for a given taxation year. Quite on the contrary, as indicated above, paragraph 56(1) (v) of the Act orders that compensation received under employees’ or workmen’s compensation law be included in computing a taxpayer’s income for a taxation year. On this point, it would not be realistic, and it was not contended, for example, that Mr. Dulude’s remuneration should have included the C.S.S.T. compensation of $6,361.24 in addition to the salary of $45,463.16 paid by the appellant during 1989, given the employee’s contractual obligation to hand the compensation in question over to the appellant.

The deduction provided for by subparagraph 110(1) (f) (ii) is allowed only for the purposes of determining a taxpayer’s taxable income. This deduction must not come into play until the second stage of computing the tax, not the first. The appellant’s obligation to pay a net salary of a certain order of magnitude to an employee who is a victim of an industrial accident commands and necessarily implies gross remuneration of a larger amount given, in particular, the tax liabilities imposed by Parliament in respect of income tax, of the Unemployment Insurance Act and the Canada Pension Plan or a provincial pension plan.

I shall briefly address the question of the right of the Minister of National Revenue to amend the T4 slip unilaterally in the case of the employees in question, who were victims of industrial accidents.

First, the payer has an obligation under section 200 of the Income Tax Regulations to complete an information return in the prescribed form, which is the T4, and, under section 205 of the Regulations, to file that form with the Minister of National Revenue on or before the last day of February of each year in respect of the preceding calendar year. Under section 209 of the Regulations, two copies of the portion of that form concerning the taxpayer must be sent to the taxpayer by the payer on or before the last day of February in respect of the preceding calendar year.

If the information provided by the payer is not correct, according to the Minister of National Revenue, it seems to me neither unreasonable nor illegal for the Minister of National Revenue to make an amended T4 in respect of a given employee given his power under the Act to assess both the payer and the employee in respect of income tax. To my knowledge, nothing in the Income Tax Act or Income Tax Regulations expressly permits the Minister of National Revenue to act in this manner, but this method of proceeding falls within his general administrative powers conferred by the Act and the Regulations. Moreover, the T4 slip revised by the Minister of National Revenue may be useful to an employee by enabling him, for example, to know the position of the Minister of National Revenue as far as he is concerned, which position may be correct or incorrect, as the case may be. The Minister of National Revenue could just as easily have made his decision on the subject known to an employee by means of a letter or some type of memo. The form of communication used by the Minister of National Revenue for this purpose is of no importance. This objection in respect of the T4 seems to me to be without any foundation.

As it appears that the assessments under appeal represent a portion of the amounts withheld from the remuneration of the employees who were victims of industrial accidents and paid by the appellant to the Receiver General and subsequently refunded to the appellant by the Minister of National Revenue, I must conclude, subject to the following remarks on the power of the Minister of National Revenue to assess in the instant case, that the assessments were well founded in terms of the tax component, given that, in my view, no portion of the amounts deducted from the remuneration of the employees concerned and remitted to the Receiver General had to be refunded to the appellant.

There is another difficulty in this case. That difficulty concerns the point that the Minister of National Revenue did not have the power, in my view, to issue the assessments under appeal.

The power to assess is given by subsection 227(10.1) of the Income Tax Act, which, at the relevant time, read as follows:

(10.1) The Minister may assess

(a) any person for any amount payable by that person under subsection (9), (9.2), (9.3) or (9.4); and

(b) any non-resident person for any amount payable by that person under Part XIII;

and, where he sends a notice of assessment to that person, sections 150 to 167 (except subsections 164(1.1) to (1.3)) and Division J of Part I are applicable with such modifications as the circumstances require.

Subsection 227(9.4) states that “a person who has failed to remit as and when required by this Act or a regulation an amount deducted or withheld from a payment to another person as required by this Act or a regulation is liable to pay as tax under this Act on behalf of the other person the amount so deducted or withheld.”

Subsection 227(9) provides for the assessment of a penalty in the case of a failure to remit the amounts deducted at source as and when required. In the case of such a failure, subsection 227(9.2) provides for the payment of interest on amounts deducted but not remitted.

It is clear in the instant case that the provisions of subsections (9), (9.2) and (9.4) do not apply to the appellant because it did not fail in its obliga- tion to remit to the Receiver General within the prescribed time limits the amounts withheld or deducted from the remuneration of the employees in question.

Subsection 227(10.1) is the only provision of Part XV of the Income Tax Act that gives the Minister of National Revenue the power to assess in respect of the obligation to remit as and when required the amounts withheld and deducted from the employees’ remuneration. The respondent’s appropriate remedy in those circumstances could be exercised by means of an ordinary action before the Federal Court of Canada for payment of monies owed to the respondent.

The Court thought it appropriate in the instant case to order that the hearing be reopened as it had not had the benefit of hearing the parties on the two points that it intended to consider, that is, (1) that the point at issue in this case raises the application of Part I of the Income Tax Regulations and is governed in particular by section 102 of those Regulations and (2) the absence of the power of the Minister of National Revenue to assess the appellant having regard to the circumstances of the instant case.

Draft reasons for judgment dealing with the application of Part I of the Income Tax Regulations to the facts of this case were enclosed with the letter dated August 31, 1995 issued by the Deputy Registrar of this Court confirming the reopening of the hearing. Those draft reasons for judgment were virtually identical to the portion of the present reasons that precedes the discussion of the question of the power of the Minister of National Revenue to assess the appellant in respect of the amounts withheld and deducted from the remuneration of the employees concerned. This last question was raised and briefly dealt with in the letter of August 31, 1995 mentioned above.

After considering the matter following that reopening of the hearing, I reconsidered the representations made by counsel in their supplementary arguments and I came to the conclusion that there were no grounds for altering my approach to the questions raised in these appeals.

It is therefore my view, as to the merits of the case, that the respondent is entitled to payment, in particular, of the amounts representing the tax component of the assessments at issue. The “interest” component of those assessments and the “penalty” component of the assessment of August 3, 1990 made, according to the Minister of National Revenue, under subsections 227(9) and 227(9.2) of the Income Tax Act are not valid as the appellant did not fail in its obligation to remit the amounts deducted as and when required by the Income Tax Act and the Income Tax Regulations. However, the assessments themselves are null and void on the ground that the Minister of National Revenue did not have the power to issue them. The appeals are allowed and the assessments are vacated.

There is no reason to award costs in the circumstances.

Appeals allowed.