Tremblay v. MNR, 90 DTC 1124, [1990] 1 CTC 2237 (TCC)

Garon, T.C.J.:—These appeals concern income tax assessments dated July 6, 1987 and made by the respondent Minister of National Revenue for the taxation years 1980 to 1987 inclusive.

In making these assessments, the respondent stated that he relied on sections 212, 214 and 227 of the Income Tax Act, as indicated by the notice of ratification from the Minister of National Revenue dated February 3, 1988 with respect to these assessments. The respondent assessed the appellant for a total of $39,963.41. This total includes tax of $31,584.11, and the rest is interest.

By these assessments, therefore, the respondent found that the 25 per cent tax on non-residents should be applied in the case of the amounts paid to the appellant and covered by these assessments. These assessments were thus concerned with payments under income-averaging annuity contracts concluded by the appellant with the Manufacturers Life Insurance Company, hereinafter referred to as "Manufacturers", and Union of Canada Life Insurance, hereinafter called "Union of Canada”.

Most of the facts relating to these appeals are not in dispute. The appellant has not lived in Canada since June 20, 1980. During the eight taxation years at issue, monthly amounts were paid to the appellant's credit in an account at a branch in Canada of the National Bank of Canada, hereinafter referred to as "the Bank”.

The income-averaging annuity contracts with Manufacturers provided, inter alia, for an immediate annuity for a 15-year period in consideration of a single premium of $100,000. The contract with Union of Canada was concluded in return for a premium of $50,000, as appears from the purchase certificate issued by Union of Canada on March 14, 1980. The guaranteed term is ten years and ten months.

In June 1980, the appellant assigned to the National Bank of Canada “as subsidiary, general and permanent security” the annuity contracts with Manufacturers and Union of Canada and all his rights under these contracts. The annuity payments in both cases were to be made to a branch of the Bank at Ste- Foy, in Quebec.

During the period at issue, Union of Canada made 76 payments of $746.77 to the appellant's credit pursuant to his annuity contract. Manufacturers made 83 monthly payments of $838.37 to the appellant under the annuity contract.

It was further established that during the taxation years at issue, no tax was deducted at source on the payments made under the said annuity contracts concluded with Manufacturers and Union of Canada.

My statement of the facts would not be complete if I did not mention that the appellant sent six identical letters by registered mail, all dated June 22, 1981, to six insurance companies including Union of Canada and Manufacturers.

The text of these letters is set out below, minus the heading:

(TRANSLATION)

This is to advise you that I wish the payments of my annuities to be made after June 30, 1981 to the following address: Union des Banques Suisses, 1884 Villars, SWITZERLAND, to be then deposited into my bank account No. 865 808 01V.

If you wish further information, please contact Mr. Jocelyn Thibault at (418) 529-3721.

I trust this will be satisfactory.

Yours truly,

(signed)

Jean-Claude Tremblay

La Saraz

1803 Chardonne

Canton de Vaud

SWITZERLAND

It is worth mentioning that a letter, dated August 9, 1989, from the assistant manager of a branch of the Bank in Ste-Foy was filed on the appellant's behalf. The body of this letter states:

(TRANSLATION)

In reply to your letter of August 3 last regarding the above customer, according to the information obtained from my predecessor, Mr. Claude Gagné, who was in this position for six years, he was well aware that Mr. Tremblay was not a resident, but on the other hand, we had been given no instructions to make deductions from his accounts to pay non-resident tax.

We subsequently discussed this matter with Mr. Tremblay and he is fully aware that it is not our responsibility but that of the insurance companies to do this.

If you require further information, please do not hesitate to contact the undersigned.

The appellant's principal argument was that the respondent Minister of National Revenue should have assessed Union of Canada and Manufacturers on the ground that, under subsection 215(6) of the Income Tax Act, those companies were responsible for deducting Part XIII tax and paying it on the appellant's behalf, as he indicated in his notices of objection elated October 1, 1987 with respect to the assessments at issue. The notice of appeal relating to those assessments is also to the same effect.

According to the appellant, the letters of June 22, 1981 sent to Manufacturers and Union of Canada told those companies that the appellant had become a non-resident of Canada.

The content of this letter requires examination. The first paragraph indicates that the annuity payments were to be made to a bank in Switzerland, nothing more. In the second paragraph, it simply states that the institutions in question can contact someone whose name is given for further information. The only other point worthy of interest in this letter is the address in Switzerland, which is given after the appellant's signature.

It seems clear that it would be a misinterpretation to suggest that this letter informs the companies in question that the appellant has ceased to reside in Canada. The gist of this letter simply indicates the place in Switzerland where annuity payments must be made and gives the appellant's address in Switzerland.

It can readily be understood that, in the absence of clear instructions, the two insurance companies concerned did not take off or deduct the 25 per cent tax. It is true that the other four companies who each received an identical letter made source deductions, but there is no evidence as to whether their decision to deduct and pay the 25 per cent tax was based solely on the information contained in the letter in question.

I do not have to decide whether Union of Canada and Manufacturers should have investigated further or obtained further information following the receipt of the aforementioned letter of June 22, 1981 by each of them.

The issue in this appeal is also not to determine whether the respondent Minister of National Revenue erred in not assessing the two companies in question under subsection 215(6) of the Income Tax Act.

The point at issue in this appeal is instead whether the respondent was justified in imposing on the appellant the 25 per cent tax specified by Part XIII of the Income Tax Act in the circumstances of the instant case.

The introductory portion of subsection 212(1) of the Act is quite clear. It imposes an obligation on any non-resident person to pay a 25 per cent tax on certain amounts listed in the various paragraphs of this section. Paragraph (n) of this section deals specifically with income-averaging annuity contract payments.

There is nothing in Part XIII of the Act which makes the respondent's power to impose a tax on non-resident persons themselves under Part XIII dependent on the prior exercise of his power to set a tax in respect of the payer of the amounts in question There is no express provision on the matter in this Part of the Act; on the contrary, subsection 227(10.1) of the Act gives the Minister of National Revenue in absolute terms, without placing any limitation thereon, a power to assess any non-resident person for any amount payable by that person under Part XIII.

Subsection 227(10.1) of the Act provides as follows:

(10.1) The Minister may assess

(a) any person for any amount payable by that person under subsection (9);

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.

It is paragraph (b) of this subsection which interests us here. Before the amendment in 1985, subsection 227(10) applied, inter alia, to the 1980, 1981, 1982, 1983 and 1984 taxation years and gave the respondent the power to assess any person for any amount payable by that person under Part XIII. It is also unthinkable that it could be consistent with the scheme of Part XIII of the Act for the Minister of National Revenue to be unable to assess directly the person who must, in the final analysis, pay this tax, namely the non-resident person. In my opinion, this would be quite illogical. It would be a strange situation. This is why I do not think it is in any way necessary to determine whether the respondent could properly have assessed the two paying institutions.

In any event, though I do not have to decide the point, I do not think it is clear on the basis of the evidence submitted that the Minister of National Revenue should have assessed the two insurance companies in question.

On this point I conclude, therefore, that the respondent's assessments of the appellant for a 25 per cent tax on the amounts paid under the incomeaveraging annuity contracts by Union of Canada and Manufacturers were correct.

It remains to consider the question of assessments for interest.

First, it should be mentioned that interest was only calculated from February 16, 1984. I think the interest assessments are also correct, particularly in view of the provisions of subsections 227(8) and (8.1). Subsection 227(8.1) as it read before the amendment adopted in 1988 provided:

(8.1) Where a taxpayer has failed to deduct or withhold any amount, as required under section 215, in respect of an amount that has been paid to a person not residing in Canada, that non-resident person is jointly and severally liable with the taxpayer to pay any interest payable by the taxpayer pursuant to subsection (8) in respect thereof.

The appellant's representative did not suggest that the appellant was not bound to pay interest because the two insurance companies were not required to deduct or to pay the amounts in question under section 215 of the Act. On the contrary, he argued that the insurance companies, contrary to section 215, failed to deduct and pay the amount of the 25 per cent tax specified by Part XIII of the Act.

According to one possible interpretation of subsection 227(8.1), it could be argued that this section only applies in cases where the payers have been at fault. This interpretation would rest on the meaning of the word “fail”, which suggests that the person responsible for the failure has refrained from what he could or should have done. This possible interpretation was not discussed at the hearing of this appeal before me and I do not make any ruling on its validity.

If, as I think, subsection 227(8.1) applies in the instant case, reference must then be made to subsection 227(8) which specifies the quantum of interest payable. The latter subsection is applicable from February 16, 1984 onwards.

The assessments at issue mention a calculation of interest in accordance with subsection (8). It was not disputed that if subsection 227(8.1) applies in the instant case, the interest was correctly calculated under subsection 227(8).

However, the appellant argued that he should not be required to pay interest as he had discharged his obligation of informing the insurance companies concerned that he had become a non-resident.

As I indicated earlier, the letters of June 22, 1981 sent to these insurance companies did not clearly indicate that the appellant had ceased to reside in Canada. Secondly, assuming that those letters did constitute sufficient notice of the fact that the appellant had become a non-resident, he was still required, legally speaking, to pay the tax under subsection 212(1), if of course the paying companies failed to deduct and pay the 25 per cent tax to the Receiver General of Canada, as I attempted to show above. It may be noted in passing that these letters of June 22, 1981, which the appellant said informed the recipients of the fact that he had become a non-resident person, were sent a little over a year after the appellant ceased residing in Canada.

Returning to the question of interest, I consider, contrary to what the appellant argued, that he benefited in general from the money in question which was not deducted and paid to the Receiver General of Canada. This money was at his disposal and it was the appellant's choice to assign it to the National Bank of Canada. The obligation to pay interest under the Income Tax Act, unlike the obligation regarding penalties, does not have a punitive aspect as such. Rather, this obligation is a purely economic one, namely that on the one hand, the treasury has been deprived of the benefit of this money, and on the other hand, the taxpayer is deemed to have had the benefit of it.

No provision of the Act allows me to reduce the quantum of interest, even though in the instant case the appellant may have thought that he was not required to pay Part XIII tax on annuity payments made by the two aforementioned insurance companies, since the money in question was to remain in Canada.

I therefore conclude that the interest assessments for the eight years in question are also correct.

For these reasons, the appeals are dismissed.

Appeals dismissed.