Citation: 2007TCC579
Date: 20070928
Docket: 2004-1904(IT)G
BETWEEN:
ENCAN CONSTRUCTION LTD.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
V.A. Miller, J.
[1] This is an
appeal from Memorandum Assessment numbered 35441 dated August 28, 2003 made by
the Minister of National Revenue (the “Minister”) pursuant to section 224 and
subsection 227(10) of the Income Tax Act (the “Act”). The
assessment in the amount of $16,119.08 was made on the basis that the Appellant
failed to comply with a requirement to pay in respect of Eagle Sheet Metal
(“ESM”), the tax debtor.
[2] The issue in
this appeal is whether the Appellant was liable to make a payment in the amount
of $16,119.08 to ESM on the date that the Appellant received the requirement to
pay.
[3] In assessing the
Appellant the Minister relied on the facts set out in paragraph 10 of the Reply
to the Notice of Appeal as follows:
10. In so
assessment in the Appellant and confirming the assessment, the Minister assumed
the same facts as follows:
a) ESM (the “Tax Debtor”) was an
incorporated company that did business as a sub-contractor to the Appellant;
b) the Tax Debtor was indebted to
the Minister in the amount of $175,621.40, calculated as of October 31, 2002;
c) the Appellant received an
invoice from the Tax Debtor in the amount of $16,119.08 (the “Debt”), on
October 1, 2002;
d) the Appellant was liable to make
a payment to the Tax Debtor for the Debt from October 1, 2002, and following;
e) on October 31, 2002 the CCRA
issued a Requirement to Pay to the Appellant requiring payment of an amount not
to exceed $175,621.40 in respect of amounts owed by the Tax Debtor to the
Crown;
f) the Appellant received the
Requirement to Pay, dated October 31, 2002, on November 4, 2002;
g) the Appellant issued a cheque to
the Tax Debtor on November 5, 2002 in the amount of $16,119.08 (the “Cheque”);
h) the Cheque was issued in respect
of the Debt;
i) the Tax Debtor cashed the
Cheque on November 14, 2002; and
j) the Appellant failed to comply
with the Requirement to Pay dated October 31, 2002.
[4] Mr. Michael
Chapman, President of the Appellant, testified on behalf of the Appellant. He
stated that the Appellant was a general contractor in the construction business.
In 2002, the Appellant was the head contractor in building a Wendy’s restaurant
(“Wendy’s”) in Calgary, Alberta. The Appellant engaged Eagle Sheet Metal Inc. (“ESM”)
as a subcontractor on the project. On October 1, 2002 the Appellant received an
invoice from ESM dated September 25, 2002 for the amount of $16,119.08 (“the
amount”). The Appellant entered the data from this invoice into its computer
system on October 7, 2002. It was Mr. Chapman’s evidence that this invoice from
ESM was due and payable by October 31, 2002. He also stated that on October 31,
2002 a cheque numbered 5098 was made payable to ESM postdated to November 5,
2002 for the amount. The cheque was mailed on October 31, 2002 along with other
cheques to all subcontractors on the project. All cheques were postdated to
November 5, 2002 as very often the payments from Wendy’s were late. He wanted
to make sure that there was sufficient cash available when ESM presented the
cheque for payment. The cheque was cashed by ESM on November 14, 2002.
[5] A Requirement to
Pay (the “Requirement”) dated October 31, 2002 was received by the Appellant on
November 4, 2002. It required the Appellant to pay to the Receiver General on
account of ESM’s tax liability the monies otherwise and immediately payable to
ESM and all other monies otherwise payable to ESM which the Appellant will be,
within one year, liable to pay but not to exceed the amount of $175,621.40.
[6] Mr. Chapman
stated that the Requirement was received by ordinary mail and was opened by the
person at the front desk. It was not brought to his attention. The controller
for the Appellant went on holidays on November 8, 2002 and did not see the
Requirement until he returned on November 25, 2002. The controller informed Mr.
Chapman that all remaining funds due to ESM must be held for the Canada Customs
and Revenue Agency (“CCRA”).
[7] At the hearing
Mr. Chapman also testified that to the best of his knowledge CCRA had not been
in touch with anyone at the Appellant prior to sending the Requirement. This
statement and his testimony with respect to when the cheque was mailed to ESM
are at odds with a document prepared by Mr. Chapman that was attached to the
Notice of Appeal and included in Exhibit A-1.
[8] This raises the
issue of credibility and I refer to Chief Justice Bowman’s statement in Faulkner
v. MNR, 2006 TCC 239 at paragraph 13 where he stated:
[13]
Where questions of credibility are concerned, I think it is
important that judges not be too quick on the draw. In 1084767 Ontario Inc.
(c.o.b. Celluland) v. Canada,
[2002] T.C.J. No. 227 (QL), I said this:
8
The evidence of the two witnesses is
diametrically opposed. I reserved judgment because I do not think findings of
credibility should be made lightly or, generally speaking, given in oral
judgments from the bench. The power and obligation that a trial judge has to
assess credibility is one of the heaviest responsibilities that a judge has. It
is a responsibility that should be exercised with care and reflection because
an adverse finding of credibility implies that someone is lying under oath. It
is a power that should not be misused as an excuse for expeditiously getting
rid of a case. The responsibility that rests on a trial judge to exercise
extreme care in making findings of credibility is particularly onerous when one
considers that a finding of credibility is virtually unappealable.
[9] It is my opinion
that Mr. Chapman fully explained the differences. He was a very credible
witness and I accept his explanations.
[10] The relevant
sections of the Act are as follows:
224.(1)
Where the Minister has knowledge or suspects that a person is, or will be
within one year, liable to make a payment to another person who is liable to
make a payment under this Act (in this subsection and subsections 224(1.1) and
224(3) referred to as the “tax debtor”), the Minister may in writing require
the person to pay forthwith, where the moneys are immediately payable, and in
any other case as and when the moneys become payable, the moneys otherwise payable
to the tax debtor in whole or in part to the Receiver General on account of the
tax debtor’s liability under this Act.
…
(1.2)
Notwithstanding any other provision of this Act, the Bankruptcy and
Insolvency Act, any other enactment of Canada, any enactment of a province
or any law, but subject to subsections 69(1) and 69.1(1) of the Bankruptcy
and Insolvency Act and section 11.4 of the Companies’ Creditors
Arrangement Act, where the Minister has knowledge or suspects that a
particular person is, or will become within one year, liable to make a payment
(a) to
another person (in this subsection referred to as the “tax debtor”) who is
liable to pay an amount assessed under subsection 227(10.1) or a similar
provision, or
(b) to a
secured creditor who has a right to receive the payment that, but for a
security interest in favour of the secured creditor, would be payable to the
tax debtor,
the
Minister may in writing require the particular person to pay forthwith, where
the moneys are immediately payable, and in any other case as and when the
moneys become payable, the moneys otherwise payable to the tax debtor or the
secured creditor in whole or in part to the Receiver General on account of the
tax debtor’s liability under subsection 227(10.1) or the similar provision, and
on receipt of that requirement by the particular person, the amount of those
moneys that is so required to be paid to the Receiver General shall,
notwithstanding any security interest in those moneys, become the property of
Her Majesty to the extent of that liability as assessed by the Minister and
shall be paid to the Receiver General in priority to any such security
interest.
…
(4) Every person who fails to comply with a
requirement under subsection 224(1), 224(1.2) or 224(3) is liable to pay to Her
Majesty an amount equal to the amount that the person was required under
subsection 224(1), 224(1.2) or 224(3), as the case may be, to pay to the
Receiver General.
…
227.(10)
The Minister may at any time assess any amount payable under
(a)
subsection 227(8), 227(8.1), 227(8.2), 227(8.3) or 227(8.4) or 224(4) or
224(4.1) or section 227.1 or 235 by a person,
(b) subsection 237.1(7.4) by a person or
partnership,
(c) subsection
227(10.2) by a person as a consequence of a failure of a non-resident person to
deduct or withhold any amount, or
(d) Part XIII by a person resident in Canada,
and,
where the Minister sends a notice of assessment to that person or partnership,
Divisions I and J of Part I apply with any modifications that the circumstances
require.
[11] The cheque sent
to ESM by the Appellant was postdated to November 5, 2002. As a result, on
November 4, 2002 when the Appellant received the requirement it was still
liable to make a payment to ESM. Its debt to ESM was not paid until the cheque was
negotiated on or after the date on the cheque which in this case was November
5, 2002. This is so because prior to the date on a postdated cheque, the cheque
can always be countermanded (Keyes v. Royal Bank of Canada, [1947]
3 D.L.R. 161 (S.C.C.).
[12] As quoted by Estey, J in Keyes (supra) from the
Privy Council decision in Bk. of Baroda Ltd. v. Punjab Nat’l Bk.,
[1944] A.C. 176:
… It is impossible to treat a cheque as paid before it
is due. …
[13] The appeal is dismissed with costs.
Signed at Ottawa,
Canada this 28th day of September, 2007.
“V.A. Miller”
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