Toitures Express Inc. v. R., [1998] 1 CTC 2861

Lamarre Proulx T.C.J.:

The appellant appealed under the informal procedure from an assessment made by the Minister of National Revenue (the “Minister”) concerning deductions made at source but not remitted during 1992 and 1993.

During those years, the appellant paid wages to employees. In accordance with subsection 153(1) of the Income Tax Act (the “Act’), the appellant withheld amounts from its employees’ wages on account of their income tax but, contrary to the aforementioned statutory provision, did not remit those amounts to the Receiver General for Canada. The amounts owed are $12,168.12 for 1992 and $1,060.16 for 1993, including interest and penalties.

The Minister’s notice of confirmation reads as follows:

[TRANSLATION]

Subsection 227(9.4) of the Act provides that a person who has failed to remit an amount deducted or withheld from a payment to another person on account of tax under subsection 153(1) of the Act on behalf of the other person is liable to pay the amount so deducted or withheld.

For the purposes of subsection 153(1) of the Act, you are jointly and severally liable in respect of the amount of $13,228.28 in accordance with the provisions of subsection 153(1.3) of the Income Tax Act.

• Assessments dated July 15, 1993, for the taxation years 1992 and 1993 for the tax portion including the penalties and interest relating thereto. Notice regarding the unemployment insurance portion is given in the enclosed letter.

Elio Morroni, the president of the appellant, represented the appellant at the hearing and testified. Paul Ashby, an auditor with the Department of National Revenue, and Diane Jutras, an employee of the Caisse Populaire de St-Noël Chabanel, testified at the request of counsel for the respondent.

Mr. Morroni explained that the appellant was not disputing the amount of the deductions at source to be paid on behalf of the employees. The problem was that, in his view, the deductions had been paid during 1992.

The appellant had contracted the management of its payroll and remittances to a firm called Comptabilité Rive-Nord. This firm was supposed to make the payments. Each week, the firm came to pick up the cheques the appellant made out to the order of Comptabilité Rive-Nord and showed it the cheques that the firm had supposedly made out to the Receiver General for Canada. Those cheques were allegedly drawn on the management company’s bank account at the Caisse Populaire de St-Noël Chabanel.

In the end, even the pay cheques of Mr. Morroni and his brother were returned to them marked insufficient funds to honour them. This sent them running to the firm’s office. There was nothing left.

Paul Ashby, an auditor for the Minister, explained that the Receiver General had received one or two cheques, but no more. The sequence numbers usually used by the Department which appeared on the copies shown to the president of the appellant during 1992 and 1993 were, according to Mr. Ashby’s testimony, imaginary numbers. The Minister’s officer said that he had indeed seen the cheques from the appellant made out to the order of Comptabilité Rive-Nord, but that the Receiver General had not received any cheques from that company.

Diane Jutras, a business adviser at the Caisse Populaire de St-Noël Chabanel, had been subpoenaed by counsel for the respondent. The cheques made out to the order of the Receiver General, which were prepared by Comptabilité Informatique Rive-Nord, signed by Guy Chartrand and allegedly drawn on an account at the Caisse Populaire de St-Noël Chabanel, never went through Comptabilité Rive-Nord’s account. That company’s bank account number was 80624. It belonged to 2951-3397 Québec Inc., doing business under the name Comptabilité Informatique Rive-Nord. The account was opened on May 20, 1992, and closed on February 18, 1993.

Analysis

Subsection 227(9.4) of the Act reads as follows:

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 re- quired 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(10.1) of the Act reads as follows:

The Minister may at any time assess

(a) any person for any amount payable under section 116 or subsection (9), (9.2), (9.3) or (9.4) by the person,

(a.l) any person for any amount payable under subsection (10.2) by the person as a consequence of a failure by a non-resident person to remit any amount, and

(b) any non-resident person for any amount payable under Part XIII by the person,

and, where the Minister sends a notice of assessment to the person, sections 150 to 163, subsections 164(1) and (1.4) to (7), sections 164.1 to 167 and Division J of Part I apply with such modifications as the circumstances require.

Subsection 227(9) of the Act reads as follows:

Subject to subsection (9.5), every person who in a calendar year has failed to remit or pay as and when required by this Act or a regulation an amount deducted or withheld as required by this Act or a regulation or an amount of tax that the person is, by section 116 or by a regulation made under subsection 215(4), required to pay is liable to a penalty of

(a) 10% of that amount; or

(b) where at the time of the failure a penalty under this subsection was payable by the person in respect of an amount that should have been remitted or paid during the year and the failure was made knowingly or under circumstances amounting to gross negligence, 20% of that amount.

Subsection 227(9.2) of the Act reads as follows:

Where a person has failed to remit as and when required by this Act or a regulation an amount deducted or withheld as required by this Act or a regulation, the person shall pay to the Receiver General interest on the amount at the prescribed rate computed from the day on which the person was. so required to remit the amount to the day of remittance of the amount to the Receiver General.

It must be kept in mind that the appellant’s agent did not dispute the obligation to pay the deductions at source made on behalf of each of its employees, or the amount of those deductions, but argued that it had already paid the amounts in question. However, the evidence revealed that the Receiver General for Canada definitely did not receive payment of the deductions made at source on behalf of the appellant’s employees for 1992 and 1993.

I am compelled to conclude that the employer must therefore still pay them and that, under subsection 227(10.1) of the Act, the Minister properly assessed the employer for the amounts described in subsections 227(9.4) and 227(9.2) of the Act, supra, respecting the amounts of the deductions made and not remitted as well as interest on those amounts.

With respect to the interest, it is my view that neither the text of the Act nor any other legal principle permits it to be reduced or cancelled. [1] The nature and purpose of interest are not the same as the nature and purpose of penalties. Interest is based on the cost of money at its normal rate. The purpose of penalties is to punish in order to secure compliance with the Act.

The penalties at issue are those provided for in subsection 227(9) of the Act. Relying on that statutory provision and on the principles stated by the Supreme Court of Canada in R. v. Sault Ste. Marie (City), [1978] 2 S.C.R. 1299 (S.C.C.), I believe that the Court has the discretion to reduce or cancel the penalties assessed under this provision. [2] It is my view that the evidence established the existence of circumstances in which punishment is not appropriate because it would not achieve the desired end, that is to correct the taxpayer’s conduct in a case where it has acted wrongfully.

The appeals are accordingly allowed in part and the assessments are referred back to the Minister for reconsideration and reassessment by deleting the amounts with respect to the penalties imposed pursuant to subsection 227(9) of the Act.

Appeal allowed in part.