Date: 20100707
Docket: A-257-09
Citation: 2010 FCA 180
CORAM: BLAIS
C.J.
NADON
J.A.
EVANS
J.A.
BETWEEN:
GIOVANNI ZEN
Appellant
and
THE MINISTER OF NATIONAL
REVENUE
Respondent
REASONS FOR JUDGMENT
EVANS J.A.
A. INTRODUCTION
[1]
Giovanni
Zen was a director of Pacific Refineries Inc. in the years when, in breach of
its statutory duty, it failed to remit to the Minister of National Revenue
payroll source deductions in respect of its employees. The Minister issued
notices of assessment to Pacific Refineries for the amount owing. The Minister also
issued a notice of assessment to Mr Zen on the basis that he was jointly and
severally liable for the tax debt that Pacific Refineries incurred while he was
a director. Neither Pacific Refineries nor Mr Zen discharged the liability.
Both are liable for the interest that has continued to accrue.
[2]
The
question to be decided in this appeal is whether Mr Zen is required to pay the
interest that accrued on the unpaid debt after the Minister of National Revenue
issued the notice of assessment to him, or whether the Minister must issue
another notice of assessment with respect to that interest before he can take
steps to collect it. In other words, the question is not whether Mr Zen is
jointly liable with Pacific Refineries for the accrued interest (it is conceded
that he is), but whether the Minister can collect it without having to issue a notice
of assessment for this amount.
[3]
The
appellant says that, even though subsection 227.1(1) of the Income Tax Act,
R.S.C. 1985, c. 1 (5th Supp) (ITA), imposes on directors a
continuing liability for interest on their corporation’s unpaid tax debt and
the amount of their liability in respect of that debt has been assessed, no
provision of the ITA requires them to pay interest that accrues after the
assessment. Consequently, he argues, the Minister cannot take collection
measures without a further assessment.
[4]
The
Minister, on the other hand, submits that, once the amount owing by a director
by virtue of subsection 227.1(1) has been assessed under subsection 227(10),
those provisions, when read together, require the director to pay subsequently
accrued interest without the need for a further assessment. Accordingly,
collection measures can be taken against the director to recover both the amount
assessed and the interest that has subsequently accrued.
[5]
Mr Zen
appeals from a decision of the Federal Court (2009 FC 531), in which Justice
Blanchard (Judge) granted an application by the Minister for a compliance order
in respect of requirements for information (RFIs) issued to Mr Zen to determine
his ability to pay the interest that has accrued on Pacific Refineries’ debt
since his liability for that debt was assessed. At the same time, the Judge
dismissed an application for judicial review by Mr Zen to set aside the RFIs,
which he has challenged on the ground that he is not liable to pay the
unassessed interest that accrued after the assessment.
[6]
The Judge
held that the combined effect of subsections 227.1(1) and 227(10) of the ITA imposes
an obligation on Mr Zen to pay the post-assessment interest, and that the
Minister was therefore authorized to issue RFIs to assist in collecting it from
him. In my view, the Judge correctly interpreted the relevant provisions of the
ITA, which are appended to these reasons, and I would therefore dismiss the
appeal.
B. FACTUAL AND LEGAL BACKGROUND
[7]
The
relevant facts can be stated briefly. Mr Zen was a director of Pacific
Refineries from 1981 to 1986. Starting in 1982, the Minister issued notices of
assessment to Pacific Refineries under subsection 227(10) determining the
amount that it owed for failing to remit payroll source deductions as required
by subsection 153(1) of the ITA. The amounts in question related mainly to
income tax, but also included relatively small amounts for Canada Pension Plan
and Unemployment Insurance. The assessments issued to Pacific Refineries also
included penalties, and a substantial amount of interest, imposed at that time
by subsection 227(9) (see now subsection 227(9.2)).
[8]
On December
8, 1986, the Minister also issued a notice of assessment to Mr Zen pursuant to
subsection 227(10) with respect to his liability under subsection 227.1(1). The
amount assessed was $103,463.62, which included the amounts of the payroll
source deductions that Pacific Refineries had failed to remit, as well as
penalties and the interest that had accrued to date.
[9]
Having
filed a notice of objection to the assessment, which the Minister confirmed on
July 3, 1987, Mr Zen appealed to the Tax Court, but discontinued his appeal on
January 5, 1996. Mr Zen also unsuccessfully applied to the Minister for relief
under the “fairness package” in respect of the 1986 assessment.
[10]
Because the
amount for which Mr Zen had been assessed remained unpaid, the Minister served him
with RFIs under paragraph 231.2(1)(a) of the ITA seeking net worth
information in order to determine his ability to pay the outstanding balance
which, as of February 26, 2006, the Minister calculated to be $615,587.20.
This comprised the amount of the 1986 assessment ($103,463.62) and the interest
that had subsequently accrued over the nearly twenty years that the assessed
amount remained unpaid.
[11]
Following
the institution of the present proceedings, Mr Zen paid to the Minister on
February 21, 2007, the amount for which he had been assessed in 1986, that is, $103,463.62.
The Minister acknowledged the payment on May 15, 2008, and advised Mr Zen that
his outstanding balance was now $629,849.47, comprising the interest that had
accrued since the 1986 assessment. Because the RFIs under review in these
proceedings were issued after Mr Zen had paid the 1986 balance, they relate
solely to his ability to pay the post-1986 assessment interest. If Mr Zen is
not liable to pay the unassessed interest, the RFIs are unauthorized and must be
set aside.
C. DECISION OF THE FEDERAL COURT
[12]
The Judge
stated that subsection 227.1(1) makes directors jointly and severally liable
for the amount of any payroll source deductions that their corporation failed
to remit “and any interest or penalties relating to it”. He noted that
subsection 227(10) empowers the Minister to assess “at any time” the amount
payable under subsection 227.1(1) and provides that, when a notice of
assessment is issued, “Divisions I and J of Part I apply with any modifications
that the circumstances require.” Division I of Part I of the ITA includes
section 161, the section on interest. Among other things, subsection 161(1) requires
the taxpayer to pay interest “at the prescribed rate” on the balance of “the
taxpayer’s taxes payable” outstanding on the due date.
[13]
The Judge
held that, when subsections 227.1(1) and 227(10) are read together, it is clear
that directors are liable to pay interest accruing after their liability has
been assessed under subsection 227(10), without the need for a further
assessment. He noted that, while the ITA does not expressly impose this
liability to pay, subsection 227(10) incorporates subsection 161(1), “with any
modifications that the circumstances require”. To modify subsection 161(1) so
that it applies, not only to a taxpayer’s taxes payable, but also to a
director’s third party debt under subsection 227.1(1), would not, the Judge
held (at para. 26), be a substantive change, because Parliament clearly
intended directors to be liable on an ongoing basis for the accruing interest
and penalties owed by their corporation with respect to amounts that it had
failed to remit.
[14]
The
position adopted by the appellant, the Judge said (at para. 28),
… would
result in the Minister having to issue a new assessment in order to collect
what is clearly a
continuing liability of directors for accrued interest under the Act.
This would be
inconsistent with the clear language of the Act and the intention of Parliament.
D. ISSUE AND ANALYSIS
[15]
The issue
to be decided in this appeal is whether directors, to whom notices of
assessment have been issued under subsection 227(10) in respect of their joint
and several liability for a corporate tax debt, are required to pay interest
that has accrued after those assessments were issued, when that interest has
not itself been the subject of a notice of assessment. This issue has not
previously been considered by this Court.
(i) Appellant’s argument
[16]
Counsel
conceded that it is open to the Minister to issue a notice of assessment to Mr
Zen for the amount of interest that has accrued since the 1986 assessment was
issued. Subsection 227.1(1) provides that directors are jointly and severally
liable for an amount not remitted by a corporation in breach of the ITA “and
any interest or penalties relating to it.” Subsection 227(10) empowers the
Minister to assess a director “at any time” for an amount payable under
section 227.1.
[17]
Since Mr
Zen discontinued his appeal against the 1986 assessment, it would seem that he
could not object to an assessment of the interest that has accrued since 1986
on the ground that he was not jointly liable with the corporation for the amount
of either the source deductions not remitted by Pacific Refineries, or the
penalties and interest that had accrued up to the date of the assessment. He
could, however, refuse to pay the amount of subsequently accrued interest that
the Minister was seeking to collect, on the ground that it had not been
calculated correctly. Nonetheless, without another assessment, counsel submits,
Mr Zen is not indebted to the Minister for the interest that has accrued since
1986. Accordingly, the RFIs issued in respect of that interest are not authorized
by the ITA and must be set aside.
[18]
The
conceptual basis of the appellant’s argument is the well established legal
principle that, in the absence of a provision in the ITA to the contrary,
taxpayers are not required to pay an amount for which the ITA makes them liable
until the Minister has issued a notice of assessment of the amount payable.
[19]
Subsection
161(1) is an exception to this general principle. It provides that when a
taxpayer is late in paying the amount of her “taxes payable”, the taxpayer “shall
pay to the Receiver General interest at the prescribed rate” on the balance
owing. The effect of this provision is that, once a taxpayer has been assessed,
he or she can be required, without the need for another assessment, to pay
interest that accrues on the amount of the tax debt after the assessment was
issued.
[20]
In
contrast, counsel for Mr Zen says, subsection 227.1(1) only makes a director
jointly and severally liable for the corporation’s unpaid tax debt.
Accordingly, he argues, a director can be required to pay that debt, including
any penalty and accrued interest, only after the Minster has issued a notice of
assessment under subsection 227(10).
[21]
No
provision of the ITA, counsel submits, requires the director to pay interest
that accrues after the assessment. He says that section 161 does not apply to
interest accruing on assessments made under subsection 227(10) with respect to the
joint and several liability imposed on a director by subsection 227.1, because that
liability is not for “taxes payable”. Therefore, in order to collect from Mr
Zen the interest that has accrued since the 1986 assessment, the Minister must
issue another notice of assessment.
(ii) ITA, section 160
[22]
Counsel for
Mr Zen says that cases decided under section 160 of the ITA support his
argument. Like subsection 227.1(1), section 160 is essentially a collection
provision, in the sense that both make a third party jointly and severally
liable for the tax debt of a principal tax debtor, in order to enhance the
Minister’s ability to recover the tax owed by the principal debtor.
[23]
Subsection
160(1) provides that, when a person with an unpaid tax liability transfers
property in a non-arm’s length transaction, the transferee is jointly and
severally liable for the transferor’s tax debt, including interest payable by
the transferor. The Minister can assess the transferee under subsection 160(2)
“at any time” for the amount owing under subsection 160(1).
[24]
However,
unlike the joint and several liability imposed on a director by subsection
227.1(1), the amount of a transferee’s liability under section 160 is not
coterminous with that of the tax debtor. Thus, a transferee is not liable for
an amount that exceeds the lesser of the following two amounts: the value of
the property transferred, minus any consideration given for it by the
transferee (subparagraph 160(1)(e)(i)), and the total tax and interest
that the transferor was liable to pay in or in respect of the year of the
transfer and any preceding years (subparagraph 160(1)(e)(ii)).
[25]
Algoa
Trust v. Her Majesty The Queen, 98 DTC 1614 (T.C.C.) is a leading authority on section 160.
The transferee of property in that case, Algoa Trust, successfully appealed
against a notice of assessment issued to it under subsection 160(2). The
assessment included interest on the transferor’s unpaid tax. Algoa Trust appealed
on the ground that, when the amounts that it had already paid on account of its
liability under section 160 were included, the amount of the assessment
exceeded the value of the property transferred. Algoa Trust is thus
distinguishable from the present appeal because subsection 227.1(1) contains no
analogous cap on a director’s liability for the corporation’s debt.
[26]
However,
Justice Dussault also made the following more general statements about the
nature of the liability imposed by section 160 and the transferee’s liability
for interest.
[3] The
rule stated in s. 160 of the Act does not have the effect of creating a tax
debt. The effect of the provision is not to create a second debt: there is only
one tax debt. The wording of the Act is quite clear: the purpose of s. 160
is essentially to add another debtor who is jointly and severally liable with
the transferor. This new debtor is called the transferee. There is thus no
new debt created under the Act and the obligation arises not from the assessment
but from the Act itself. Fundamentally, therefore, there is only one debt and
only that debt can bear interest.
[4] First,
subsection (1) of s. 160 in fact states that the transferee is jointly and
severally liable and that his or her liability is limited to the lesser of the
two amounts mentioned in s. 160(1)(e)(i) and (ii), namely (i) the value
of the property transferred less the consideration, and (ii) the total of all
amounts which the transferor is liable to pay in or in respect of the year of
the transfer or any preceding year, that is to say, for the year of the
transfer and for any preceding years.
[5] Secondly,
s. 160(2) provides that the Minister of National Revenue (“the Minister”) may
at any time make an assessment. This is also quite clear. However, the limit
imposed in s. 160(1)(e) must be observed for each assessment.
[6] Thirdly,
I would say that there is no provision of the Act regarding interest that may
be applicable to an assessment issued pursuant to s. 160 of the Act. This
is logical, since there is no new tax debt and an assessment under s. 160
already incorporates the interest which the transferor owed in addition to the
tax. The assessment may also incorporate penalties and interest thereon.
(Emphasis added)
[27]
Counsel
for Mr Zen relies on these passages for two propositions. First, like the
liability imposed by section 160, the liability of a director under subsection
227.1(1) is not a tax debt. There is only one tax debt, namely that of the
corporation that failed to remit. Section 160 and subsection 227.1(1) merely
add a second debtor in order to assist the Crown in recovering the tax debt
owed by the principal debtor. I agree with this analysis, which I do not
understand the Minister to have challenged in the present appeal.
[28]
The second
proposition on which counsel for Mr Zen relies is that interest is not
applicable to an assessment under subsection 160(2) of the amount owed by the
transferee. In my opinion, however, this proposition does not assist Mr Zen. Whether
or not interest is applicable to Mr Zen’s 1986 assessment is not determinative
of his liability for accruing interest, because subsection 227.1(1) provides
that directors are jointly and severally liable to pay the amount that the
corporation ought to have remitted “and any interest … relating to it.” Thus,
even if Mr Zen is not liable to pay interest on his unpaid 1986 assessment, he
is liable to pay the interest that has accrued since 1986 on Pacific
Refineries’ unpaid tax debt.
[29]
However,
because subsection 227.1(1) is only a charging provision it cannot resolve the
issue raised by this appeal: is the Minister authorized to institute legal
proceedings to recover from a director interest on an unpaid corporate tax debt
that accrued after the director was assessed?
[30]
Counsel
relies on Ho-A-Shoo v. Attorney General of Canada, 2000 DTC 6293 (Ont.
Sup. Ct. J.) (Ho-A-Shoo), also a section 160 case, for the proposition
that the Minister cannot require the transferee to pay interest that accrues
after the transferee has been assessed under subsection 160(2). Dr Ho-A-Shoo
was the representative plaintiff in a class action against the Minister by
transferees of property from a tax debtor at less than market value. They were
seeking to recover payments that they had made to the Minister which, they
alleged, were in excess of their liability under section 160.
[31]
On a
motion by the Minister to strike the action, Justice Cumming formulated (at
para. 11) the first issue in the class action as whether the Minister was
authorized to demand from a transferee of property an amount of interest that
both exceeded the limit on her liability imposed by subparagraph 160(1)(e)(i)
(the market value of the transferred property) and had not been the subject of
a notice of assessment.
[32]
Relying on
Algoa Trust, Justice Cumming held (at paras. 12-13) that the Minister
could not assess under subsection 160(2) for an amount that exceeded the caps
that subsection 160(1) imposed on the liability of a transferee of property. To
this extent, Ho-A-Shoo is distinguishable from the present case.
[33]
However,
the Judge also addressed an argument analogous to that advanced in the present
case by Mr Zen’s counsel (who, incidentally, had also represented Dr
Ho-A-Shoo), namely that section 160 does not authorize the Minister to recover
from a transferee interest accruing after the transferee had been assessed,
unless it had been the subject of a subsequent assessment.
[34]
Relying
again on Algoa Trust, Justice Cumming held (at para. 21) that the joint
and several liability of a transferee under section 160 is not a tax debt. It
is therefore not a debt in respect of “taxes payable” for the purpose of
section 161. Accordingly, the Minister could not rely on that as the basis of the
transferee’s obligation to pay interest. See also Kirkwood v. Her Majesty The
Queen, 2003 DTC 277 (T.C.C.) at para. 26.
(iii) Summary of conclusions
[35]
First,
Pacific Refineries was liable to pay the assessed amount of payroll source
deductions that it had failed to remit, together with penalties and interest
accrued to that time.
[36]
Second, Mr
Zen was jointly and severally liable under subsection 227.1(1) for Pacific
Refineries’ tax debt and penalties, as well as the interest accruing on it.
[37]
Third, Mr
Zen’s liability under subsection 227.1(1) for the corporation’s debt arises
from his joint liability with the corporation, and is not itself a tax debt.
[38]
Fourth, by
virtue of subsection 227(10), the Minister may assess at any time the amount of
Mr Zen’s joint and several liability under subsection 227.1(1) for the
corporation’s debt, together with penalties and accrued interest.
[39]
Fifth,
subsection 161(1) as enacted does not require a director to pay interest
accruing on a corporation’s debt after the Minister has issued a notice of
assessment to the director under subsection 227(10). This is because subsection
161(1) applies to “taxes payable” under Parts I, I.3, VI or VI.1. The amount
assessed under subsection 227(10) in respect of the joint and several liability
imposed on the director by subsection 227.1(1) is not for “taxes payable”, let
alone for “taxes payable” under those Parts of the ITA, since sections 227 and
227.1 are located in Part XV.
[40]
To this
extent, I agree with the submissions of counsel for Mr Zen. However, one other
issue remains to be considered. Subsection 227(10) provides that, when the
Minister assesses the amount payable by a director under subsection 227.1(1)
and sends a notice of assessment, “Divisions I and J of Part I apply with any
modifications that the circumstances require.” Section 161 is found in Division
I of Part I of the ITA.
[41]
The
question to be decided is whether the modifications to subsection 161(1) that
would be required for it to apply to an assessment under subsection 227(10) are
permitted by the words “with any modifications that the circumstances
require.”
(iv) ITA, subsection 161(1): “with any modifications
that the circumstances require”
[42]
In order
to apply subsection 161(1) to an assessment under subsection 227(10), it would
be necessary to add to paragraphs (a) and (b) of subsection
161(1) words such as “or any amount for which a director is liable under
subsection 227.1(1)”.
[43]
I return
to a question raised, but not clearly answered, in Ho-A-Shoo. Justice
Cumming expressed dissatisfaction (at para. 16), from a policy perspective,
with a result that exempted transferees from liability for unassessed interest
on their unpaid joint and several liability for the transferor’s tax debt. He
asked himself (at para. 18) if the words of subsection 160(2) which he
italicized might not make interest chargeable “in respect of a transferee’s
unpaid fixed liability determined under s. 160”.
|
160. (2)
The Minister may at any time assess a taxpayer in respect of any amount
payable because of this section and the provisions of this Division apply,
with any modifications that the circumstances require, in respect of an
assessment made under this section as though it had been made under section
152.
|
160. (2) Le ministre peut,
en tout temps, établir une cotisation à l’égard d’un contribuable pour toute
somme payable en vertu du présent article. Par ailleurs, les dispositions
de la présente section s’appliquent, avec les adaptations nécessaires, aux
cotisations établies en vertu du présent article comme si elles avaient été
établies en vertu de l’article 152.
|
[44]
Subsection
160(2) thus deems an amount assessed under that provision to have been “tax
payable”: section 152 requires the Minister to determine the amount, if any, of
the tax payable for the year by a taxpayer. Nonetheless, Justice Cumming seems
to have concluded that these words were not enough to attract the obligation to
pay interest imposed by subsection 161(1). His reasons do not address the
possibility of modifying subsection 161(1).
[45]
In 2007, the
Government introduced an amendment to subsection 160(2) in Bill C-10 which
was intended to put beyond doubt a taxpayer’s liability to pay interest,
despite the absence of an assessment. If enacted, the amendment would have added,
after the words “the provisions of this Division”, “(including, for greater
certainty, the provisions in respect of interest payable)”. Section 161 is in
the same Division of Part I of the ITA as section 160. Bill C-10 lapsed
on the dissolution of Parliament in September 2008.
[46]
However,
even without this proposed amendment, subsection 160(2) would seem better
suited than subsection 227(10) to attract subsection 161(1). Unlike subsection
160(2), subsection 227(10) does not treat assessments made under it as though
they had been made under section 152, that is, for “taxes payable under Part
I”. Nonetheless, I do not regard the differences between subsections 160(2) and
227(10) as necessarily determinative of whether it is permissible for a court
to modify subsection 161(1) by adding words that would enable the interest
provisions of the section to apply to assessments under subsection 227(10) in
respect of a director’s liability under subsection 227.1(1).
[47]
In my
view, the modern approach to statutory interpretation should be applied to the
interpretation of the words “with any modifications that the circumstances
require” as they appear in subsection 227(10). Hence, they are to be read “in
their entire context and in their grammatical and ordinary sense harmoniously
with the scheme of the Act, the object of the Act and the intention of
Parliament”: Placer Dome Canada Ltd. v. Ontario (Minister of Finance), 2006 SCC 20, [2006] 1 S.C.R.
715 at para. 21. This is subject only to the proviso that, when tax legislation
is precise, unequivocal and detailed, and taxpayers are entitled to rely on its
clear meaning in structuring their affairs, the text of the statute should
“play a dominant role in the interpretive process”.
[48]
While the
statutory words “any modifications that the circumstances require” appear to
confer a broad power on the courts, counsel for Mr Zen submits that the
jurisprudence demonstrates that this provision, as previously worded, had
generally been regarded as quite narrow.
[49]
Thus, in Ketz
v. Her Majesty The Queen, 79 DTC 5142 (F.C.T.D.) (Ketz), the Court
refers (at 5144) to authorities interpreting the Latin phrase mutatis
mutandis, which the current drafting of subsection 227(10) replaces. These authorities
restrict the scope of the phrase mutatis mutandis to necessary changes
in points of detail, as opposed to changes to the very substance of the
provision in question.
[50]
The
current legislative phrase, “with any modifications that the circumstances
require”, has been considered in Lord Rothermere Donation v. Her Majesty The
Queen, 2009 TCC 70, 2009 DTC 312 at para. 21 (Rothermere). In that case, Justice Archambault held
that the current phrase (in the French text « avec les modifications
nécessaires ») enables more extensive changes to be made to a statutory
provision than were permitted by mutatis mutandis: no longer are they
limited to points of detail.
[51]
Justice
Archambault also noted (at para. 21) that when the words mutatis mutandis
were first replaced, the English version referred to “such modifications
as circumstances require”. The English version of the text, but not the French,
was subsequently changed again, and “any” was substituted for “such”.
Justice Archambault observed that if Parliament had intended to preserve the
narrow scope that the courts had given to mutatis mutandis, it could
easily have expressly limited permitted modifications to points of detail,
rather than permitting any modifications that circumstances require.
[52]
Whether
the changes to the statutory text also changed the law is not an easy question.
The words mutatis mutandis in subsection 227(10) seem first to have been
replaced with English and French words in 1983 by the Income Tax Act (No.
2), 29-30-31-32 Elizabeth II, 1980-81-82-83, c. 40, subsection 123(2).
The English text of subsection 227(10) was amended again by the Income Tax
Amendments Act, 1997, c. 19, subsection 226(3), which changed “such
modifications” to “any modifications” in the English version; no corresponding
change was made to the French text.
[53]
It is
reasonable to conclude that when Parliament in 1983 replaced the Latin phrase
in subsection 227(10) with “plain” English and French words it merely intended to
make the provision more accessible. This suggests that the change was in the
nature of a consolidation of the law. There is a strong presumption that
consolidations are not intended to make substantive changes to the law: Ruth
Sullivan, Sullivan on the Construction of Statutes, 5th ed. (Markham, Ontario: LexisNexis Canada Inc., 2008) at
655-59.
[54]
On the
other hand, the amendments to the pre-1983 version were enacted by Parliament
as a small part of a large series of amendments to the ITA, and the change to
the English text in 1997 was made for reasons other than the elimination of
Latin. These considerations suggest that the amendments to subsection 227(10)
may have been intended to have had a substantive effect.
[55]
However
this may be, I need express no concluded opinion on the matter. I am satisfied
that, when the modification power conferred by subsection 227(10) is viewed
contextually and purposively, the modification required to subsection 161(1) to
make it applicable to an assessment under subsection 227(10) in respect of the liability
imposed by subsection 227.1(1), is closer to a change in point of detail than
to a change to the very substance of subsection 161(1).
[56]
In
contrast, the modification refused in Ketz would have extended to
non-residents the benefit of a general averaging provision that Parliament had
provided to residents. Justice Dubé
concluded (at 5144-45):
… residence for the
previous year is an essential condition for the application of subsection
118(1), not merely a point of detail. … If it had been the intention of
Parliament to open the general averaging provisions of subsection 118(1) to
non-residents, that intention would have been clearly spelled out in the
statute.
In other words, the modification would have decreased the
amount of tax payable by non-resident taxpayers by conferring on them a benefit
that Parliament had conferred only on taxpayers resident in Canada. Since the proposed
modification would have reduced the amount of tax for which non-residents were
otherwise liable, it constituted a substantive change in the law and the statutory
scheme.
[57]
The
reasons in Ho-A-Shoo do not explain why the modification provision in
subsection 160(2) did not apply in that case. However, the plaintiff also
alleged that her payment exceeded a statutory cap on her liability under
section 160 (that is, the value of the property transferred). Therefore, the
modification required to render her liable for unassessed interest under
subsection 161(1) would have amounted to a substantive change to the ITA.
[58]
The
dispute in Rothermere concerned the date from which interest was payable
by the Minister on tax refunds. The ITA had been amended so that interest on
refunds under Part I did not start to accrue until forty five days after the
filing deadline had elapsed. This enabled the Minister to process timely
returns without incurring interest. The question was whether an “any modifications
that the circumstances require” clause enabled the provision to be applied to
refunds in respect of Part XIII tax as well. Justice Archambault held (at para.
30) that, although more than “a point of detail”, the modification proposed was
permissible, because “the result is in harmony with the scheme of the Act and
the intent of Parliament” (para. 28).
[59]
Although
he does not address the issue explicitly, Justice Blanchard’s reasons indicate
(at paras. 21-26) that he concluded that subsection 161(1) could be modified so
that it applies to assessments under subsection 227(10). For the following
reasons, I agree that the modifications required to make subsection 161(1)
applicable to assessments under subsection 227(10) in respect of liability imposed
by subsection 227.1(1) do not change the very substance of subsection 161(1).
[60]
First, as
counsel conceded, to modify subsection 161(1) so as to apply it to Mr Zen’s
liability to pay the interest accruing on Pacific Refineries’ tax debt does not
increase the amount for which he is liable under subsection 227.1(1). True, the
legal basis of the liability of a director under subsection 227.1(1) is not a
tax debt, and the amount assessed under subsection 227(10) is therefore not for
“tax payable”. Nonetheless, the single debt for which Mr Zen is jointly liable
with Pacific Refineries is a tax debt, at least to the extent that it arose
from the corporation’s failure to remit income tax source deductions.
[61]
Second, subsection
227(10) authorizes the Minister to issue an assessment of a liability under
subsection 227.1(1) “at any time”. Hence, if the Minister were to issue a
notice of assessment tomorrow requiring payment of the interest that accrued
after Mr Zen’s 1986 assessment, counsel agrees that he would be required to pay
the amount assessed, if it had been properly calculated. Thus, the modification
to subsection 161(1) does not alter the amount that the Minister can require Mr
Zen to pay pursuant to subsection 227.1(1).
[62]
Third,
counsel for the appellant also agreed that there was no reason of policy or
principle why a director who has been assessed under subsection 227(10) in
respect of a liability under subsection 227.1(1) should not be liable to pay
subsequently accruing interest as if the amount owing were “tax payable”. After
all, once the amount of a corporation’s tax debt has been assessed, for which a
director is jointly liable, the corporation is now liable to pay accruing
interest without the need for another assessment by virtue of subsection 227(9.2).
[63]
Subsection
227(10) could have been modelled on subsection 160(2), and deemed the amount
assessed under it to be tax payable under section 152, so as to make section
161 applicable. Further, the amendment proposed to subsection 160(2), which was
designed to make it quite clear that the interest provisions of Part I apply,
could have been extended to subsection 227(10). However, given the complexity
of the ITA, I draw no particular inference from these disparities in provisions
located in different Parts of the Act.
[64]
Fourth,
the effect of modifying section 161 as proposed, and thereby requiring Mr Zen
to pay the interest that has accrued since the 1986 assessment, would deprive
him of the procedural rights of objection (subsection 165(1)) and appeal (subsection
169(1)) that arise following the issue of a notice of assessment.
[65]
However,
Mr Zen has already been assessed for the amount of the corporation’s debt,
including the penalties and interest that had accrued up to the date of that
assessment in 1986. He exercised his rights to object and appeal but, with the
benefit of legal advice, discontinued his appeal. Consequently, since the
discontinuance of the appeal would seem to preclude Mr Zen from disputing the
correctness of the 1986 assessment, there would appear to be little left for Mr
Zen to appeal if the Minister were required to issue a notice of assessment
with respect to the interest that has accrued since the 1986 assessment. It
would always be open to Mr Zen, in the course of enforcement proceedings in the
Federal Court, to challenge the correctness of the Minister’s calculation of
the amount of the post-assessment interest, which is a largely mechanical
exercise.
[66]
Accordingly,
Mr Zen will not be deprived of a fair opportunity to challenge in a judicial
proceeding the calculation of the amount of interest owing if the modification
enables the Minister to start proceedings with a view to collecting the
post-1986 assessment interest without having to issue another notice of
assessment.
[67]
Fifth, modifying
section 161 so as to make it applicable to a subsection 227(10) assessment of
liability under subsection 227.1(1) enables the Minister to commence collection
measures as soon as a director had been advised by the Minister of the amount
of interest that had accrued since the last assessment was issued. Normally,
the Minister does not commence collection proceedings until an objection to a notice
of assessment has been determined and, if the Minister’s decision is appealed, the
Tax Court has decided the appeal, or the time for objecting and appealing has
elapsed. See Canada Revenue Agency, Tax Guide, P148, "Resolving
Your Dispute: Objections and Appeal Rights under the Income Tax Act"
(December 2009) at 19, online: http://www.cra arc.gc.ca/E/pub/tg/p148/p148-09e.pdf.
[68]
The loss
of an opportunity to further delay the collection of the interest that has
continued to accrue by virtue of subsection 227.1(1) may well thus be
detrimental to Mr Zen.
[69]
Nonetheless,
since, for twenty years, Mr Zen has had the use of money that the 1986
assessment required him to pay, an argument that he is entitled to further delay
the collection of the interest that has accrued since 1986 is unlikely to evoke
much sympathy among Canadian taxpayers. There seems no valid reason for treating
directors who are jointly liable with their corporation for its tax debts differently
from the corporation itself (see now subsection 227(9.4)) or, indeed, from other
taxpayers who can be required, as a result of section 161 (with or without necessary
modifications), to pay accrued interest on tax debts without the need for a
further notice of assessment and the consequential benefit of the postponement
of collection measures.
[70]
The
modification to subsection 161(1) required in the present case to enable the
Minister, without having to issue another assessment, to collect the amount for
which Mr Zen is liable would thus be consistent with the scheme of the ITA, and
would enhance its efficient administration.
[71]
On the
other hand, to adopt Mr Zen’s position that the power to modify in subsection 227(10)
does not permit the modification required here opens up the possibility of an
unending succession of notices of assessment, notices of objection, and
appeals, which are apt to serve little purpose other than to delay the
collection of tax. Thus, by the time that one notice of assessment for interest
accrued was issued, objected to, and appealed, additional interest would have
accrued, and another notice would be required before that interest could be collected.
[72]
In my
opinion, there is little to commend in an interpretation of the modification
power in subsection 227(10) that is likely to result in even more delay in the
collection of accrued interest, and serves only to deprive Mr Zen of the
opportunity to postpone the payment of an amount for which he is liable under
subsection 227.1(1).
[73]
A statutory
modification provision confers an unusual power on courts. The normal role of
the judicial branch of government with respect to legislation is to interpret
and apply the law as enacted by the Legislature. A cornerstone of parliamentary
democracy is that changes to the law require the authorization of the Legislature.
However, the exigencies of administration in the modern state have also long
required Legislatures to delegate extensive law-making powers. In Canada, these powers are most often
delegated to politically accountable bodies and officials with an institutional
expertise in public administration, such as the Governor (or Lieutenant
Governor) in Council, individual Ministers of the Crown, and municipalities.
[74]
The fact
that courts have neither of these qualities counsels a cautious approach to the
scope of the power delegated to them to modify provisions of the ITA, and
indicates that it should be interpreted more narrowly than the current text
suggests. Thus, determining whether a proposed modification is permitted by the
delegated power (to use the terminology associated with mutatis mutandis:
is it a change in detail or in substance?) requires a court to consider
whether considerations of efficiency outweigh the benefits of subjecting it to
the scrutiny of the normal legislative process.
[75]
In my
opinion, the modifications to subsection 161(1) proposed in the present case do
not warrant the costs of requiring a Parliamentary amendment. They do not involve
the kinds of technical issues, policy choices or wide ranging implications for
the administration of the ITA which our notions of democratic and responsible
government require to be left to be resolved through the legislative process.
[76]
For all
the above reasons, the modifications to subsection 161(1) required to apply it
to an assessment under subsection 227(10) of a liability under subsection
227.1(1) are, in my opinion, the very kind contemplated by Parliament when it
conferred the power to modify. They do not change the very substance of the
provision.
E. CONCLUSIONS
[77]
For these
reasons, I would dismiss the appeal with costs.
“John M. Evans”
“I
agree
Pierre
Blais C.J.”
“I
agree
M.
Nadon J.A.”
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