Date: 19981222

Docket: 97-1757-IT-G

BETWEEN:

ABE GITALIS REAL ESTATE LTD.,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for judgment

O'Connor, J.T.C.C.

[1] This appeal was heard at Toronto, Ontario on December 1, 1998.

Facts

[2] The facts are set forth in a Statement of Agreed Facts ("Statement") which reads as follows:

For the purposes of this appeal the parties agree to the following facts:

1. On or about October 17, 1989 the Appellant, through the Appellant's then employee Davinder Gurm ("Gurm"), negotiated a lease for Orfus Investments (the "Lease").

2. Commissions totalling $98,733.75 (the "Total Commission") were payable by Orfus Investments to the Appellant on February 1, 1990, in consideration for the negotiation of the Lease.

3. For his role in negotiating the Lease, the Appellant originally paid to Gurm a gross payment totalling $59,240.25 as employment income (the "Disputed Payment").

4. Net payment for the Disputed Payment, in the amount of $36,420.41 (the "Net Payment"), was paid by the Appellant to Gurm by way of cheque number 2467 dated February 13, 1990, (the "Cheque"), a true copy of which is reproduced at Tab I hereto.

5. The Appellant's bookkeeper deducted the following amounts from the Disputed Payment:

a) Canada Pension Plan Premiums in the amount of $335.20;

b) Unemployment Insurance Premiums in the amount of $282.41; and

c) Income Tax in the amount of $22,136.86 (the "Income Tax Deduction").

(Note, an adjusting entry was made by the Appellant's bookkeeper to account for a discrepancy of $65.37)

6. The Appellant did not remit the Income Tax Deduction to the Receiver General of Canada.

7. A true copy of the relevant portion of the payroll records of the Appellant recording the payment of the Disputed Payment to Gurm is reproduced at Tab 2 hereto. Notations in the margins, and lines stroked through lines 29 and 30 of the payroll record, were added subsequent to the events noted in paragraph 5 above.

8. The Cheque was certified by Gurm on receipt, and the Cheque was cashed by Gurm on February 14, 1990.

9. At tab 3 hereto is a true copy of a T4 information slip originally issued by the Appellant to Gurm regarding the payment of the Disputed Payment (the "Original T4).

10. In May of 1992, a dispute arose between Gurm and the Appellant, among other things, regarding the portion of the Total Commission to which Gurm was entitled:

a) the Appellant considered that Gurm was entitled to 30% of the Total Commission, totalling $29,620.13;

b) Gurm considered that he was entitled to 60% of the Total Commission totalling $59,240.25.

11. Litigation ensued between the Appellant and Gurm in the Ontario Court (General Division), Court File Number 409427/90 (the "Litigation") regarding, among other things, the Disputed Payment. Attached hereto at tabs 4 and 5 respectively are true copies of the Statement of Claim and the Amended Statement of Defence and Counter Claim in the Litigation.

12. Pursuant to the Litigation, a portion of the Total Commission was paid into Court.

13. On April 16, 1993 settlement was reached in the Litigation as set out in the attached Minutes of Settlement and Court Order reproduced at tabs 6 and 7 hereto respectively.

14. The Department of National Revenue conducted a payroll audit of the Appellant in 1993 with respect to the Disputed Payment (the " 1993 Audit").

15. As a result of the 1993 Audit the Appellant requested, and received, the letter attached hereto at tab 8 (the "Letter").

16. Based on the information contained in the Letter, the Appellant instructed its solicitors to implement the settlement of the Litigation.

17. Pursuant to the 1993 Audit, the Department of National Revenue prepared a T5 information slip to replace the Original T4. A true copy of the T5 information slip is reproduced at tab 9 hereto.

18. Subsequent to the 1993 Audit, the Department of National Revenue conducted a further payroll audit of the Respondent pursuant to which it concluded that the Appellant was required to withhold and remit the Income Tax Deduction from the Disputed Payment.

19. For the 1990 taxation year Gurm was assessed tax on the basis that the full Disputed Payment was included in the calculation of his taxable income for the year.

20. In calculating the net tax payable by Gurm for the 1990 taxation year the Minister of National Revenue gave Gurm credit for the entire amount of the Income Tax Deduction.

DATED at the City of Toronto, Ontario, this 1st day of December, 1998.

[3] No testimony was presented at the hearing of this appeal. One additional fact that emerged was that the Appellant, prior to the issuance of the T5 slip referred to in paragraph 17 of the Statement, issued to Gurm a T4-A slip which was presented to the Court and which contains the same information as the T5 slip, namely that Gurm in 1990 received a gross amount of $36,420.41 as other income with no deductions made for income tax or otherwise.

[4] The Letter (paragraph 15 of the Statement) reads as follows:

Revenue Canada Taxation

36 Adelaide St E, 10 F1 W

Toronto, ON

M5C IJ7

October 13, 1993

Abe Gitalis Real Estate Ltd.

220 Richmond St W, 2nd F1

Toronto, ON

M5V IV9

Mr Gitalis,

As requested, please accept this as notification that our audit is completed and that we do not require that you withhold the payment from Mr Divinder Gurm.

I trust that this is sufficient for your purposes and should you have any further concerns, please feel free to contact myself at (416) 375-6471.

Yours truly,

"Rob Pietersen"

Rob Pietersen

Source Deductions Auditor

[5] It will be helpful to analyze the nature of Gurm's Claim, the Counterclaim, the Minutes of Settlement and the Order of the Court filed at Tabs 4, 5, 6 and 7 of the Statement. Firstly, the Claim was made by Mr. Gurm against the Appellant and Orfus Investments ("Orfus") for damages in the amount of $23,739.24. Gurm had already been paid his commission with respect to the original leasing of the property as appears in paragraphs 3, 4 and 5 of the Statement. In other words, his claim against the Appellant and Orfus was for a further amount of damages amounting to $23,739.24. When one reads the Counterclaim of the Appellant (Tab 5 of the Statement) it is apparent that what Gurm was claiming, namely $23,739.24, represented 60% of a further total commission of $39,566.54 resulting from Orfus having taken up additional space under a lease commencing July 1, 1990. The Counterclaim alleges that Gurm was not entitled to that further amount of $23,739.24 because that commission only arose for a transaction which originated after Gurm's employment terminated. It also appears from the Counterclaim that there were several other issues and claims which the Appellant was alleging against Gurm. With respect to the February 13, 1990 payment paid to Gurm in the amount of $36,420.41, the only issue was one related to an amount of $6,800.28 being the alleged amount of the overpayment the Appellant made to Gurm on the initial transaction. The Minutes of Settlement of the Claim and Counterclaim in essence provided that the amount of $23,739.24 which Orfus had paid into Court was to be divided 50/50 between Gurm and the Appellant. The Order of the Ontario Court, dated July 22, 1993, gives effect to the Minutes of Settlement.

Position of the Appellant

[6] The Appellant's position is set forth in a written Statement of Fact and Law also filed. It is succinct and reads as follows:

STATEMENT OF FACT AND LAW

PURPOSE OF STATEMENT

1. This Statement is intended as a statement of law prepared before the trial of this matter.

FACTS

2. It is anticipated that during the trial of this matter (or by way of agreed facts), it will be established that the Minister represented, in writing, that the results of an audit showed that no withholding tax need be kept by the taxpayer from a former employee. The written representation read, in part:

... please accept this as notification that our audit is completed and that we do not require that you withhold the payment from Mr. Davinder Gurm.

The written representation was signed by a Source Deductions Auditor, who had completed an audit of the taxpayer's records. Based on this representation, the taxpayer enacted a settlement of litigation with its former employee and changed its position to its detriment. After the representation and the taxpayer enacting the settlement, the Minister conducted a further audit (without any new facts emerging) and now says monies ought to have been withheld and taxes are owing.

LAW

3. The requirements for estoppel are as follows:

(1) A representation or conduct amounting to a representation intended to induce a course of conduct on the part of the person to whom the representation was made.

(2) An act or omission resulting from a representation, whether actual or by conduct, by the person to whom the representation is made.

(3) Detriment to such person is a consequence of the act or omission.

Taylor v Her Majesty the Queen [1995] T.C.J. 414, para 20 quoting Superior Oil v Paddon Hughes, [1970] S.C.R. 932, 939

4. The taxpayer says that the Minister is estopped from claiming now that withholding tax ought to be withheld.

5. The Minister can be estopped.

Her Majesty the Queen v Langille, [1977] C. T. C. 144 cited in Taylor v Her Majesty the Queen, supra, para 28

Gibson v The Queen (1977), 77 D.L.R. (3 d) 733, 737, 738

Robertson v Minister [1948] 2 All E R 767, 770

The next question is whether the assurance is binding on the Crown. The Crown cannot escape by saying estoppels do not bind the Crown, for that doctrine has long been exploded.

The Queen v Skuttle [1964] Ex C R 311, para 4

6. That said, as a general rule, for estoppel to apply against the Minister, the representation made must be one of fact and not one of law. Put otherwise, a failure to enforce the law at one time will not bar subsequent enforcement and questions of law are for Judges and not the Minister. The role of the Courts in interpreting the law cannot be usurped by prior representations of the Minister.

Gibson v The Queen, supra

Taylor v Her Majesty the Queen, supra

7. Here, it is respectfully submitted that the assessment by the Minister amounted to a factual review of the books and records of the taxpayer and a determination that, in fact, all proper withholding amounts had been withheld. No statement of law was involved in the representation by the Minister. An accountant conducted the audit and made a determination based on that audit -- the determination was a factual one for which, at a trial, expert evidence could be called. Put otherwise, if questions of accounting arise during a jury trial, expert evidence as to those questions is proper and the trier of fact, not the trier of law, considers and decides the factual point.

Dyck v F.M.A. Farm 1996 CanRepSask 325

8. In this regard the Skuttledecision is of considerable interest. In that case estoppel was not found following an audit. The Court found this not because the determination of the audit was not one of fact, but rather because the auditor, while agreeing the taxpayer's reporting system was proper, did not make any representation that could lead to estoppel. Here such a representation was clearly made.

RELIEF SOUGHT

9. The taxpayer therefore asks the appeal be allowed.

[7] In oral argument counsel accentuated the fact that the Appellant was a prudent taxpayer who, before making the payment contemplated in the Minutes of Settlement, wanted an assurance from Revenue Canada. The Appellant thought that it had that assurance in the Letter.

[8] Counsel argued further that the actions of Revenue Canada consisting in the complete audit of the Appellant's payroll records conducted in 1993 with no assessment being raised and the T4-A issued to Gurm being replaced by a T5 (prepared by Revenue Canada but technically issued by the Appellant) and the issuing of the Letter estops the Minister from making the assessment in issue.

[9] Counsel's main submission is that the actions of the Minister constituted a representation of fact and not law and thus estoppel applies.

Position of the Respondent

[10] Counsel for the Respondent referred to certain provisions of the Income Tax Act and Regulations and argued that the obligation to withhold and remit arose in 1990 and that what a representative of the Minister says in a letter or does in 1993 cannot cancel or alter that original obligation. Therefore the Crown is not estopped. Counsel argues further that the Income Tax Act and Regulations impose the obligation to withhold and remit. Thus even if the letter and other actions of the Minister are relevant they consist of an opinion or representation on a question of law, i.e. an interpretation of the Act and Regulations

[11] The most relevant provisions of the Act quoted by Counsel for the Respondent are the following, namely:

Income Tax Act

153(1) Every person paying at any time in a taxation year

(a) salary or wages or other remuneration,

...

(g) fees, commissions or other amounts for services,

...

shall deduct or withhold therefrom such amount as may be determined in accordance with prescribed rules and shall, at such time as may be prescribed, remit that amount to the Receiver General on account of the payee's tax for the year under this Part or Part XI.3 as the case may be.

227(1) No action lies against any person for withholding or deducting any sum of money in compliance or intended compliance with this Act.

...

(4) Every person who deducts or withholds any amount under this Act shall be deemed to hold the amount so deducted or withheld in trust for Her Majesty.

...

Income Tax Regulations

100.(1) In this Part and in Schedule I,

...

"remuneration" includes any payment that is

(a) in respect of

(i) salary or wages, or

(ii) commissions or other similar amounts fixed by reference to the volume of the sales made or the contracts negotiated (referred to as "commissions" in this Part),

paid to an officer or employee or former officer or employee,

...

101. Every person who makes a payment described in subsection 153(1) of the Act in a taxation year shall deduct or withhold therefrom, and remit to the Receiver General, such amount, if any, as is determined in accordance with rules prescribed in this Part.

108(1) Amounts deducted or withheld under subsection 153(1) of the Act shall be remitted to the Receiver General on or before the 15^th day of the month next following the month in which the amounts were deducted or withheld.

...

Analysis and Decision

[12] A useful summary of the principles applying to withholding and remitting is contained in the judgment of the Federal Court of Appeal in Her Majesty the Queen v. Coopers & Lybrand Limited, agent for Mercantile Bank of Canada and Receiver and Manager of Venus Electric Limited, 80 DTC 6281 at 6287.

Section 227 deals with two distinctly different defaults by persons paying wages. First, the failure to deduct and, second, the failure to remit the amount deducted. The liability imposed in each of these instances is more easily understood if one keeps in mind that when a deduction for income tax is made from wages the employee is deemed to have received, as wages, the amount deducted and is accorded credit for the amount deducted as an instalment on account of the income tax to become due with respect to his income.

If the person paying fails to deduct, his failure has no effect on the liability of the employee for income tax it being assumed that the taxing authority will recover from the employee the full amount of the income tax; the only liability incurred by the person paying the salary or wage is a penalty calculated as a percentage of the amount he has failed to deduct.

On the other hand if a deduction is actually made and the amount deducted not fully remitted the person making the deduction becomes liable to the collector for the amount the employee is deemed to have received as his salary and credit is given to the employee on account of income tax for an amount equal to the amount deducted. In this latter event the liability of the person paying, over and above the 10% penalty which may be assessed on account of his default in remitting is an amount equal to the deductions he had failed to remit together, with interest thereon.

To fix the quantum of the liability of the Respondent, it is necessary to settle whether its conduct amounted to failure to deduct or failure to remit amount deducted.

[13] In my opinion what the Appellant initially did was to withhold an amount from Gurm in apparent conformity with the Act and Regulations but not remit that amount to the Receiver General. This failure to remit may have been enough to allow the Minister's assessment to stand.

[14] Secondly, to a certain extent the actions of the Minister in 1993 and the Letter, although involving an examination of various facts, essentially amounted to a conclusion of law based upon those facts. That conclusion was that the Appellant had no obligation to withhold. This means the auditor of the Minister examined the facts and presumably knew the law and (subject to what is stated below as to the irrelevance of the Letter to the issues in this appeal), concluded there was no legal obligation to withhold.

[15] The actions of the Minister and the Letter may have induced the Appellant to believe that there was no obligation to withhold, however, as mentioned, even if this were so, the conclusion is a conclusion of law and is not binding on the Minister. Even if the facts relied on by the Minister were erroneous, this does not transform the Letter from a conclusion of law into a statement of fact.

[16] Thirdly, even if the actions of the Minister, in particular the issuance of the Letter could be viewed as a factual review of the situation as opposed to a conclusion of law, it is clear from the above analysis of the litigation and its settlement that only a very minor part of that litigation related to the initial commission. What Gurm was claiming was an alleged commission in relation to the renting of additional space to which the Appellant contended in the Counterclaim Gurm was not entitled. Admittedly the T-5 refers to an amount of $36,420.41, the net amount actually paid to Gurm on the initial transaction as other income (with no deductions) but this settles nothing as to the obligation to withhold and remit in respect of the initial gross commission of $59,240.25. Moreover, it appears from the Counterclaim that several other issues and claims were much more important than the aspect of the alleged overpayment of the initial commission. It was all of those issues that were resolved by the Minutes of Settlement which produced the payment to Gurm in 1993. Although the Appellant contends that there was an overpayment, there was no evidence that the Appellant made any demand of Gurm for the overpayment until after the claim initiated by Gurm on August 30, 1990 to recover further commission earnings The only reference to the alleged overpayment is contained in the Counterclaim and as appears in the Minutes of Settlement the payment to Gurm in 1993 relates to Gurm's claim for a commission on the lease of additional space. It had nothing to do with the initial commission. Because of these factors the Letter cannot be taken as clearly addressing the issue in this appeal, namely the obligation of the Appellant to remit the taxes withheld on the original commission.

[17] Fourthly, the dates are important. In my opinion, what the Minister represented in 1993 and the manner in which that representation was made did not affect the pre-existing obligation arising in 1990 to remit the taxes withheld. I am not saying there can never be retroactive estoppel but the facts in this case do not justify even considering it.

[18] For all of the above reasons the appeal is dismissed with costs.

Signed at Ottawa, Canada this 22^nd day of December 1998.

"T.P. O'Connor"

J.T.C.C.