24 August 1993 Administrative Letter 9323106 F - Withholding Liability Re Payment by Director to Employee

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.

Source Deductions Division Personal and General A. Bissonnette Section Director

Attention:  Danielle Zion

Withholding Requirements in respect of Wage Settlement

We are replying to your memorandum of August 13, 1993 concerning an out of court settlement between an insurance company and the former employees of a bankrupt corporation.

Our understanding of the facts are as follows;

1.     XXXXXXXXXX

2.     Under section 131 of the Business Corporations Act of Ontario, the directors of the company can be held jointly and severally liable for up to 6 months of unpaid wages accrued during the period in which they were directors, provided that the employee takes appropriate action within the required timeframe.

3.     XXXXXXXXXX

4.     Neither the directors nor the committee of employees is registered as an employer with Revenue Canada. The lawyer acting on behalf of the committee of employees has requested that the source deductions required on these funds be waived because of the perceived hardship in administering the distribution, presumably based on ministerial discretion available under subsection 153(1.1) of the Act.

You have asked for confirmation that the amounts which will ultimately be received by the employees will be taxable as employment income and that the committee of employees would be required to make the appropriate withholdings as the payor of the funds.

Subsection 153(1) of the Act requires every person paying salary, wages, remuneration or other amounts listed in that subsection to withhold and remit to the Receiver General for Canada such amounts as are determined in accordance with the prescribed rules in the Regulations.

Subsection 100(1) of the Regulations defines, among others, the terms "employer" and "remuneration". Remuneration is defined to include

"any payment that is in respect of salary or wages ... paid to an officer, or employee or former officer or employee"

and employer is defined as "any person paying remuneration".

Notwithstanding that neither the insurer or the committee of employees was an employer in the sense of controlling the manner in which the work was done, the amount that is to be paid to the employees will be in respect of the unpaid wages and will thus be considered remuneration as defined in the Regulations. Accordingly, the person who makes the payment to the employees will be considered to be the employer for the purpose of the Regulations.

Where a trustee is administering or otherwise dealing with the property of another person and causes a payment described in subsection 153(1) of the Act to be made on behalf of that person, the trustee becomes jointly liable with that person (the employer) by reason of subsection 153(1.3) of the Act. In a similar manner, it is our view that an agent of the employer is jointly liable for source deductions which have been paid to the employees through the agent.

While you have not submitted the documentation necessary for us to identify the specific relationship between the insurer, XXXXXXXXXX in Trust and the committee of employees, it seems clear that the party which accepts responsibility for ensuring the distribution of unpaid wages to the employees is acting on behalf of the employer, either as agent or as trustee. Consequently, while it is our view that the insurer is ultimately responsible for ensuring that the appropriate withholding, remitting and reporting of income is done in accordance with the Regulations, the acceptance of the responsibility for the distribution of the unpaid wages will make the party accepting that responsibility jointly liable with the insurer.

B.W. Dath DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch