14 September 2000 External T.I. 1999-0014955 - Liability of Legal Representative

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

liability of legal representative under 159(3) in light of Debou case

Position:

primary taxpayer's liability must be estatblished first within parameters of section 152

Reasons:

comments in Debou somewhat misleading wrt phrase "at any time" ; liability must be established within parameters of 152(4) first

1999-001495
XXXXXXXXXX L. Holloway
(613) 957-2104
Attention: XXXXXXXXXX

September 14, 2000

Dear Sir/Madame:

Re: Interpretation of Subsection 159(3) of the Income Tax Act ( the "Act")

This is in response to your letter requesting a technical interpretation on the operation of subsection 159(3) in relation to section 152. We apologize for the delay in responding to your letter.

You are of the opinion that, under subsection 159(3), the ability of the Canada Customs and Revenue Agency to assess the legal representative "at any time" is the ability to assess the legal representative's vicarious liability pursuant to the estate's liability and that the primary taxpayer's liability must be established first. Where the primary taxpayer's reassessment under subsection 152(2) is outside the normal reassessment period, it is your opinion that the legal representative cannot be held liable, notwithstanding the comments in the Debou case.

Our Comments

All references herein are to the Act unless otherwise indicated.

Subsection 159(3) was amended by S.C. 1998, c. 19, s. 185, applicable on Royal Assent, June 18, 1998 as follows:

(3) Personal liability

Where a legal representative (other than a trustee in bankruptcy) of a taxpayer distributes to one or more persons property in the possession or control of the legal representative, acting in that capacity, without obtaining a certificate under subsection (2) in respect of the amounts referred to in that subsection, the legal representative is personally liable for the payment of those amounts to the extent of the value of the property distributed, and the Minister may at any time (emphasis mine) assess the legal representative in respect of any amount payable because of this subsection, and the provisions of this Division apply, with any modifications that the circumstances require, to an assessment made under this subsection as though it had been made under section 152.

Subsection 159(3) formerly read:

(3) Personal liability - Where a responsible representative distributes to one or more persons property over which the responsible representative has control in that capacity without obtaining a certificate under subsection (2) in respect of the amounts referred to in that subsection, the responsible representative is personally liable for the payment of those amounts to the extent of the value of the property distributed and the Minister may assess the responsible representative therefor in the same manner and with the same effect as an assessment made under section 152.

In Debou v. The Queen 99 DTC 3530 (T.C.C.), the appellant, Mr. Debou, as executor, distributed the assets of the estate on or about March 26, 1991. As he did not obtain a clearance certificate, Mr. Debou became personally liable for the outstanding taxes of the estate pursuant to subsection 159(3). The Minister issued an original assessment to Mr. Debou dated October 5, 1992 and pursuant to subsection 152(3.1), the normal reassessment period for Mr. Debou's 1991 taxation year ended on October 5, 1995. On April 1, 1997 the Minister issued an assessment to Mr. Debou in respect of an outstanding tax liability of the estate. The facts of this case predate the amendments made to subsection 159(3).

The decision of Debou indicated the following, in respect of the addition of the words "at any time" to subsection 159(3):

[29] The Court is satisfied that the addition of these words certainly alters the meaning of the subsection. They are not merely superfluous. The earlier version, which did not contain these words, could not have been intended to mean the same thing. The Court accepts the argument of counsel for the Appellant that the addition of the words "at any time"
forms a substantive part of this assessing provision and the effect of the addition of these words is to make the normal reassessment period inapplicable. The Court is satisfied that these words should not be read into the earlier version of subsection 159(3).

[30] The argument is well taken that there are numerous other provisions of the Income Tax Act which contain the words "at any time" and that it would be reasonable to conclude that if the legislature intended those words to be included in the earlier version they would have done so. Further this subsection can be readily interpreted without the insertion of additional words insofar as this Court is concerned.

Justice Margeson concluded in the Debou case that the Minister could not reassess as the period was statute barred. His concluding comments follow:

[40] The Court accepts the argument of counsel for the Appellant that on April 1st, 1997 the Minister issued an assessment to the Appellant in respect of an outstanding tax liability of the estate. This assessment, in effect, was in respect of a tax liability personal to the Appellant which arose in 1991 but for which he could not be assessed subsequent to October 5th, 1995, since he was originally assessed for this tax liability for the year 1991 by notice dated October 5th, 1992.

[41] The Court is satisfied that the assessment is statute barred.

Based on the above comments it is reasonable to conclude that had the new wording of subsection 159(3) been introduced prior to the facts of the Debou case transpiring, the court would have found Mr. Debou liable, as such a reassessment could be made by the Minister "at any time". However, in the Debou case the court did not comment on the Wesbrook case or the amendments to subsection 159(1).

Paragraph 159(1)(b) now reads:

any action or proceeding in respect of the taxpayer taken under this Act at or after any time by the Minister may be so taken in the name of the legal representative acting in that capacity and when so taken, has the same effect as if it had been taken directly against the taxpayer and, if the taxpayer no longer exists, as if the taxpayer continued to exist.

Subsection 159(1) was amended in 1997 in response to the decision of Wesbrook Management Ltd. v. The Queen, 96 DTC 1841 (T.C.C. affirmed at F.C.A. with leave to appeal to S.C.C. refused.) In Wesbrook the court decided the Minister was not entitled to assess one person under subsection 159(3) in respect of an alleged tax liability of another person which had never been, and could never be assessed or reassessed.

The technical notes accompanying this amendment state:

Amended subsection 159(1) provides that the legal representative of a taxpayer is jointly liable with the taxpayer to pay any amount payable by the taxpayer and to perform any duty or obligation imposed under the Act. This clarifies that, for all purposes of the Act (including assessments, objections and appeals as well as collection, administration and enforcement), the legal representative is considered to be the taxpayer's agent; for example, where the legal representative carries on the business of the taxpayer, the representative will be required to deduct, withhold and remit amounts that the taxpayer would have been required to deduct, withhold and remit. Further, actions and proceedings under this Act taken by the representative (in that capacity) or taken by the Minister against the representative, will be binding on the taxpayer. For example, the issuance of a notice of assessment against a legal representative of the taxpayer (say a parent corporation that wound up its subsidiary and acquired its assets) will have the same effect as if it had been issued against the dissolved taxpayer at that time, assuming it had been in existence at the time. Conversely, the Minister will be bound by and the legal representative will benefit from, the same time limitations and safeguards as would have applied to an assessment made against the taxpayer.

The technical notes continue as follows:

These amendments clarify that the Minister of Revenue may reassess the legal representative of a taxpayer during the normal reassessment period notwithstanding that the taxpayer may have been dissolved and liquidated. Thus, where the Minister issues a reassessment in the name of a dissolved taxpayer against a legal representative of the taxpayer in the normal reassessment period, the reassessment would be valid as against the taxpayer and the liability to pay would accrue to the legal representative.

In conclusion, the assessment or reassessment giving rise to the liability of the legal representative under section 159 must be made within the parameters specified under subsection 152(4) in respect of the primary taxpayer.

We trust the above is of assistance.

Yours truly,

T. Murphy
for Director
Resources, Partnerships and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch