Christie,
CJTC:—The
issues
on
these
appeals
are
the
same.
So
is
the
relevant
evidence
necessary
to
determine
them.
Consequently,
they
were
heard
together
on
common
evidence.
Paragraph
153(l)(a)
of
the
Income
Tax
Act,
RSC
1952,
c
148,
(“the
Act”)
provides
that
every
person
paying
salary
or
wages
to
an
officer
or
employee
at
any
time
in
a
taxation
year
shall
deduct
or
withhold
therefrom
such
amount
as
may
be
prescribed
and
shall,
at
such
time
as
may
be
prescribed,
remit
that
amount
to
the
Receiver
General
of
Canada
on
account
of
the
payee’s
tax
for
the
taxation
year.
“Prescribed”
is
defined
by
subsection
248(1)
of
the
Act
to
mean
prescribed
by
regulation
made
by
Governor-in-Council
under
the
Act.
Secion
101
of
the
Income
Tax
Regulations
(“the
Regulations”)
requires
that
every
person
who
makes
a
payment
described
in
subsection
153(1)
of
the
Act
shall
deduct
or
withhold
therefrom
and
remit
to
the
Receiver
General
of
Canada
such
amount
as
is
prescribed
in
Part
I
of
the
Regulations.
Subsection
108(1)
of
the
Regulations
provides
that
amounts
deducted
or
withheld
under
subsection
153(1)
of
the
Act
shall
be
paid
to
the
Receiver
General
of
Canada
on
or
before
the
fifteenth
day
of
the
month
next
following
the
month
in
which
the
amounts
were
deducted
or
withheld.
In
May
and
June
1977
the
appellants
deducted
or
withheld
substantial,
but
different,
amounts
from
salaries
or
wages
payable
to
their
employees.
This
was
done
in
accordance
with
paragraph
153(
l)(a)
of
the
Act.
Subsection
227(9)
of
the
Act
provides
that
every
person
who
has
failed
to
remit
an
amount
deducted
or
withheld
as
required
by
the
Act
is
liable
to
a
penalty
of
10
per
cent
of
that
amount,
in
addition
to
the
amount
itself,
together
with
interest
on
the
amount
at
the
prescribed
rate
per
annum.
Subsection
4300(2)
of
the
Regulations
establishes
that
rate
at
10
per
cent.
Penalties
and
interest
were
assessed
against
the
appellants
in
respect
of
the
amounts
deducted
or
withheld
by
them
in
May
and
June
1977.
The
uncontradicted
testimony
of
Mr
Donald
Andrew,
an
officer
of
and
the
general
manager
of
both
appellants,
is
that
the
amounts
deducted
in
June
were
remitted
to
the
Receiver
General
of
Canada
within
the
prescribed
time.
In
remitting
these
funds,
they
were
appropriated
by
the
appellants
to
the
June
deductions.
Nevertheless
the
respondent
chose
to
allot
this
money
to
the
May
deductions
made
by
the
appellants
thereby,
at
least
in
the
opinion
of
the
respondent,
rendering
the
appellants
in
default
in
respect
of
both
the
May
and
June
deductions.
It
was
conceded
that
the
amounts
deducted
in
May
were
not
remitted
within
the
specified
limitation
period.
The
reasons
given
in
this
regard
in
the
notices
of
appeal
dated
April
29,
1981,
and
which
were
substantially
confirmed
during
the
hearing
are:
Firstly,
our
office
accountant
was
on
holidays
for
three
weeks
as
of
May
12/77
and
payment
was
overlooked
by
myself
on
June
15/77.
Secondly,
we
had
become
involved
with
two
(2)
major
bankruptcies
which
seriously
affected
our
receivables
and
thus
our
cash
flow.
In
addition
to
restricted
cash
flow,
it
was
also
a
time
of
year
when
start-up
operation
costs
become
due
and
payable.
I
refer
to
vehicle
licences,
insurance
premium
payments,
annual
payment
of
Workmen’s
Compensation
premiums
(now
paid
quarterly),
pre-payment
of
Corporation
taxes,
etc.,
all
due
at
the
same
time.
Thirdly,
not
being
100%
aware
of
the
source
deduction
payment
tax
law
and
its
penalties,
we
intended
to
remit
funds
within
a
short
time,
once
cash
flow
was
rectified.
It
is
clear
that
there
was
a
failure
on
the
part
of
the
appellants
to
remit
the
amounts
deducted
in
May
from
the
salaries
or
wages
of
their
employees
as
required
by
paragraph
153(l)(a)
of
the
Act,
section
101
and
subsection
108(1)
of
the
Regulations.
Furthermore
the
penalties
imposed
and
interest
levied
were
within
what
is
authorized
by
subsection
227(9)
of
the
Act
and
subsection
4300(2)
of
the
Regulations.
In
these
circumstances
this
Court
is
without
discretion
to
interfere
with
the
action
taken
by
the
respondent
for
reasons
of
the
kind
advanced
by
the
appellants.
Once
it
is
established
that
the
conditions
precedent
to
the
imposition
of
penalties
and
the
levying
of
interest
pursuant
to
subsection
227(9)
have
been
complied
with,
there
is
no
jurisdiction
in
this
Court
to
intrude.
It
follows
that
the
appeals
in
relation
to
the
penalties
imposed
and
the
interest
levied
respecting
the
deductions
made
in
May
1977
must
be
dismissed.
Different
considerations
apply
with
respect
to
the
deductions
made
in
June
of
1977.
As
already
mentioned,
they
were
remitted
within
the
prescribed
time
and
appropriated
to
what
was
remissible
for
June.
Section
222
of
the
Act
provides
that
all
taxes,
interest,
penalty,
costs
and
other
amounts
payable
under
the
Act
are
debts
due
to
Her
Majesty.
If
the
legal
relationship
between
the
appellants
and
the
respondent
in
respect
of
the
funds
deducted
in
June
pursuant
to
paragraph
153(1)(a)
was
that
of
creditor
and
debtor,
the
appellants
having
appropriated
these
funds
as
indicated,
the
respondent
was
bound
to
apply
them
accordingly.
In
The
Agricultural
Insurance
Company
v
Sargeant,
(1896),
26
SCR
29,
Mr
Justice
Gwynne
in
delivering
the
majority
judgment
of
the
Supreme
Court
of
Canada
said
at
36:
It
is
laid
down
thus
in
City
Discount
Co.
v.
McLean,
L.R.
9
C.P.
700,
by
Blackburn
J.,
and
expressed
by
Lord
Shelborne
in
Re
Sherry,
25
Ch.D.
702,
in
somewhat
similar
language:
“It
has
been
considered
a
general
rule
since
Clayton’s
case
that
when
a
debtor
makes
a
payment
he
may
appropriate
it
to
any
debt
he
pleases
and
the
creditor
must
apply
it
accordingly.
If
the
debtor
does
not
appropriate
it
the
creditor
has
a
right
to
do
so
to
any
debt
he
pleases
and
that
not
only
at
the
instant
of
payment
but
up
to
the
very
last
moment
as
was
decided
in
Mills
v.
Fowkes,
5
Bing
N.C.455.”
Seymour
v
Pickett,
[1905]
1
KB
715,
affords
a
graphic
illustration
of
“up
to
the
last
moment”.
In
this
case
the
plaintiff,
who
was
the
defendant’s
creditor,
appropriated
a
prior
payment
made
by
the
defendant
while
he,
the
plaintiff,
was
being
examined
as
a
witness.
Vaughan
Williams,
LJ
said
at
723-4:
We
have
to
consider
whether
there
is
anything
in
the
rule
laid
down
by
Lord
Mac-
naghten
in
The
Mecca,
[1897]
A.C.
286,
293
which
had
determined
the
plaintiffs
right
of
election.
The
noble
Lord
there
said:
“Now
,
my
Lords,
there
can
be
no
doubt
what
the
law
of
England
is
on
this
subject.
When
a
debtor
is
making
a
payment
to
his
creditor
he
may
appropriate
the
money
as
he
pleases,
and
the
creditor
must
apply
it
accordingly.
If
the
debtor
does
not
make
any
appropriation
at
the
time
when
he
makes
the
payment,
the
right
of
application
[sic]
devolves
on
the
creditor.
When
Clayton's
Case,
35
E.R.
781,
was
decided,
there
seems
to
have
been
authority
for
saying
that
the
creditor
was
bound
to
make
his
election
at
once
according
to
the
rule
of
the
civil
law,
or,
at
any
rate,
within
a
reasonable
time,
whatever
that
expression
in
such
a
connection
may
be
taken
to
mean.
But
it
has
long
been
held
and
it
is
now
quite
settled
that
the
creditor
has
the
right
of
election
“up
to
the
very
last
moment.”
Applying
that
rule
to
this
case,
in
my
opinion
there
was
nothing
done,
down
to
the
moment
when
the
plaintiff
made
his
statement
in
the
witness-box,
to
determine
his
right
of
election,
and
under
these
circumstances
he
had,
in
my
judgment,
a
right
to
make
the
appropriation.
That
being
so,
there
is
an
end
of
the
defendant’s
case.
The
law
of
appropriation
of
payments
by
a
debtor
is
stated
in
volume
9
of
Halsbury’s
Laws
of
England
4th
(1974)
Ed
at
349-50
in
these
terms:
Where
several
distinct
debts
are
owing
by
a
debtor
to
his
creditor,
the
debtor
has
the
right
when
he
makes
a
payment
to
appropriate
the
money
to
any
of
the
debts
that
he
pleases,
and
the
creditor
is
bound,
if
he
takes
the
money,
to
apply
it
in
the
manner
directed
by
the
debtor.
If
the
debtor
does
not
make
any
appropriation
at
the
time
when
he
makes
the
payment,
the
right
of
appropriation
devolves
on
the
creditor.
An
appropriation
by
the
debtor
need
not
be
made
in
express
terms,
but
must
be
communicated
to
the
creditor
or
be
capable
of
being
inferred;
it
may
be
inferred
where
the
nature
of
the
transaction
or
the
circumstances
of
the
case
are
such
as
to
show
that
there
was
an
intention
to
appropriate.
As
it
is
with
most
rules
of
general
application,
there
are
exceptions
to
the
rules
cited
respecting
the
appropriation
of
payments.
An
exception
which
is
relevant
to
these
appeals
is
that
they
do
not
apply
where
the
funds
in
question
are
impressed
with
a
trust:
Standard
Prestressed
Structures
Ltd
v
Bank
of
Montreal,
[1968]
2
OR
281.
Subsection
227(4)
of
the
Act
provides
that
every
person
who
deducts
or
withholds
any
amount
under
the
Act
shall
be
deemed
to
hold
the
amount
in
trust
for
Her
Majesty
and
subsection
227(5)
requires
that
all
amounts
deducted
or
withheld
by
a
person
under
the
Act
shall
be
kept
separate
and
apart
from
his
own
moneys.
The
legal
relationship
which
exists
between
a
debtor
and
his
creditor
is
different
than
that
existing
between
a
trustee
and
cestui
que
trust.
Reference
to
the
judgment
of
the
Ontario
Court
of
Appeal
in
HEP
Comn
v
Brown,
[1960]
OR
91,
is
sufficient
to
bring
this
point
home.
The
defendant
was
appointed
as
agent
to
collect
accounts
for
Hydro
Electric
Power
Commission
under
specified
rates
which
depended
upon
the
amount
of
the
account.
He
kept
the
collected
funds
in
a
safe
in
his
store.
One
night
the
safe
was
broken
into
and
the
money
stolen.
The
plaintiff
sued
for
the
amount
of
the
stolen
money
minus
the
defendant’s
commission.
The
defendant
denied
liability
on
the
basis
that
the
funds
were
lost
without
negligence
on
his
part.
The
Court
of
Appeal
agreed
that
the
defendant
had
satisfied
the
burden
of
proving
that
the
money
was
not
lost
through
his
want
of
care.
It
was,
however,
contended
on
behalf
of
the
plaintiff
that
if
the
property
in
the
money
was
in
the
defendant
and
if
he
was
therefore
a
debtor
of
the
plaintiff
in
respect
of
the
stolen
funds,
the
loss
of
the
money,
however
occasioned,
was
no
defence
to
the
plaintiffs
claim
for
money
had
and
received.
The
Court
of
Appeal
concluded
that,
on
the
facts,
the
relationship
between
the
plaintiff
and
the
defendant
was
that
of
creditor
and
debtor
and
not
one
of
beneficiary
and
trustee
and
that
consequently
the
plaintiff
was
entitled
to
succeed.
At
page
93,
Morden,
J
A
who
delivered
the
judgment
of
the
Court
cited
this
passage
from
Henry
v
Hammond,
[1913]
2
KB
515,
per
Channell,
J
at
521:
It
is
clear
that
if
the
terms
upon
which
the
person
receives
money
are
that
he
is
bound
to
keep
it
separate,
either
in
a
bank
or
elsewhere,
and
to
hand
that
money
so
kept
as
a
separate
fund
to
the
person
entitled
to
it,
then
he
is
a
trustee
of
that
money
and
must
hand
it
over
to
the
person
who
is
his
cestui
que
trust.
If
on
the
other
hand
he
is
not
bound
to
keep
the
money
separate,
but
is
entitled
to
mix
it
with
his
own
money
and
deal
with
it
as
he
pleases
and
when
called
upon
to
hand
over
an
equivalent
sum
of
money,
then
in
my
opinion,
he
is
not
a
trustee
of
the
money.
All
the
authorities
seem
to
me
to
be
consistent
with
that
statement
of
the
law.
Mr
Justice
Morden
went
on
at
94:
An
agent
has
been
held
to
be
a
trustee
of
moneys
he
has
received
from
or
for
his
principal
where
he
is
specifically
instructed
to
keep
such
moneys
separate
as
in
N
Elevator
Co
v.
Western
Jobbers
(1914),
20
D.L.R.
889,
affirmed
(1915),
24
D.L.R.
605.
The
result
is
the
same
where
the
agent
is
to
hold
the
money
and
invest
it
or
manage
for
his
principal
as
in
Burdick
v.
Garrick
(1870),
L.R.
5
Ch.
233,
Coyne
v.
Broddy
(1888),
13
O.R.
173,
15
A.R.
159
and
N.
Am.
Land
&
Tbr.
Co.
v.
Watkins,
[1904]
1
Ch.
242.
On
the
other
hand
and
in
contrast,
where
the
sole
duty
of
the
agent
with
respect
to
the
money
is
to
pay
it
to
his
principal,
the
relationship
between
the
parties
is
that
of
debtor
and
creditor:
Friend
v.
Young,,
[1897]
2
Ch.
421,
Henry
v.
Hammond,
supra,
and
M.A.
Hanna
Co.
v.
Prov.
Bk.,
[1935]
S.C.R.
144.
In
the
instant
case
the
defendant
was
in
my
opinion
the
debtor
of
the
plaintiff
to
the
amount
of
the
moneys
collected
less
his
commission.
He
was
under
no
duty
to
keep
this
money
separate
from
his
own
and
the
fact
that
he
did
so
cannot
alter
what
I
find
to
be
the
basic
relation
between
the
parties.
In
light
of
the
dissimilar
nature
of
the
relationships
I
do
not
believe
that
subsections
227(4)
and
(5)
can
be
regarded
as
being
additional
to
section
222,
but
must,
in
my
view,
be
construed
as
being
exclusive
of
it.
It
is
necessary,
therefore,
to
decide
whether
under
the
statutory
trust
created
by
subsection
227(4)
the
respondent,
in
his
capacity
of
cestui
que
trust,
was
permitted
to
allot
the
June
1977
deductions
in
the
manner
described.
In
my
opinion,
he
was
not.
What
we
have
here
is
a
statutory
trust
with
an
involuntary
tax
collector
designated
trustee.
I
do
not
find
the
language
of
the
legislation
to
be
such
that
it
would
be
a
deviation
from
its
plain
meaning
to
conclude
that
the
respondent
cannot
ignore
an
appropriation
made
by
the
trustee
of
the
June
deductions
and
apply
them
to
the
default
in
respect
of
the
May
deductions,
thereby
precipitating
a
condition
under
which
the
cestui
que
trust
can
impose
two
penalties
on
each
appellant
instead
of
one
and
levy
interest
on
both
appellants
on
two
amounts
instead
of
one.
It
may
be
that
the
legislation
could
be
so
construed,
but
where
statutory
provisions
are
reasonably
open
to
two
interpretations,
the
one
to
adopt
is
that
which
is
just
and
reasonable
rather
than
that
which
is
neither.
Of
the
two
possible
interpretations,
I
regard
the
interpretation
which
bars
the
respondent
from
allotting
the
June
deductions
in
the
manner
adopted
as
being
the
one
which
is
just
and
reasonable
in
contradistinction
to
the
other
interpretation.
I
do
not
consider
the
conclusion
on
this
aspect
of
the
appeals
to
involve
transgressing
any
principle
of
the
law
of
trusts.
Included
in
the
amounts
in
respect
of
which
late
remittance
penalties
and
interest
were
assessed
was
$9,214.17
(Andrew
Paving
&
Engineering
Ltd)
and
$8,853.04
(Meld
Development
Ltd).
This
total
of
$18,067.21
is
a
sum
which
the
appellants
should
allegedly
have
remitted
in
accordance
with
the
requirements
of
the
Income
Tax
Act,
RSO
1970,
c
217,
(“the
Ontario
Act”).
Except
for
minor
adjustments
related
to
the
sources
of
the
legislation
and
which
are
irrelevant
for
present
purposes,
paragraph
10(l)(a)
of
the
Ontario
Act
is
identical
to
paragraph
153(l)(a)
of
the
Act.
Subsection
34(7)
of
the
Ontario
Act
reads:
(7)
Every
person
who
has
failed
to
remit
or
pay
an
amount
deducted
or
withheld
as
required
by
this
Act
or
a
regulation
is
liable
to
a
penalty
of
10
per
cent
of
that
amount
of
$10,
whichever
is
the
greater,
in
addition
to
the
amount
itself,
together
with
interest
on
the
amount
at
the
rate
per
annum
prescribed
for
purposes
of
subsection
227(8)
of
the
Federal
Act,
but,
where
a
collection
agreement
is
entered
into,
the
Minister
may
refrain
from
levying
or
reduce
the
penalty
if
the
person
who
is
liable
therefor
is
liable
to
pay
a
penalty
under
subsection
227(9)
of
the
Federal
Act
by
reason
of
the
failure
to
pay
an
amount
described
in
paragraph
(a)
of
that
subsection.
The
‘‘Federal
Act”
is
the
Act.
Regulation
452
of
the
Revised
Regulations
of
Ontario
1970
is
made
under
the
authority
of
the
Ontario
Act.
Section
2
thereof
is
analogous
to
section
101
of
the
Regulations.
It
provides
that
any
person
who
makes
a
payment
described
in
paragraph
10(l)(a)
of
the
Ontario
Act
shall
deduct
and
withhold
therefrom,
and
remit
to
the
Receiver
General
of
Canada
such
amount
as
is
prescribed.
The
amount
to
be
deducted
is
set
out
in
section
3
of
Regulation
452.
Section
5
of
this
Regulation
also
provides
that
subsection
108(1)
of
the
Regulations
applies
to
deductions
deducted
or
withheld
pursuant
to
paragraph
10(l)(a)
of
the
Ontario
Act.
Subsection
48(1)
of
the
Ontario
Act
reads:
48.
—
(1)
The
Treasurer,
with
the
approval
of
the
Lieutenant
Governor
in
Council,
may,
on
behalf
of
the
Government
of
Ontario,
enter
into
a
collection
agreement
with
the
Government
of
Canada
pursuant
to
which
the
Government
of
Canada
will
collect
taxes
payable
under
this
Act
on
behalf
of
Ontario
and
will
make
payments
to
Ontario
in
respect
of
the
taxes
so
collected
in
accordance
with
such
terms
and
conditions
as
the
collection
agreement
prescribes.
This
Court
is
without
jurisdiction
with
reference
to
these
appeals
to
the
extent
that
they
pertain
to
penalties
imposed
and
interest
levied
in
relation
to
the
$18,067.21.
The
existence
of
a
collection
agreement
between
the
Government
of
Canada
and
the
Government
of
Ontario
cannot
alter
this.
Division
E
of
the
Ontario
Act
provides
for
appeals
to
the
Supreme
Court
of
Ontario
from
assessments
made
under
that
legislation.
Nothing
in
the
Act,
the
Tax
Court
of
Canada
Act,
or
any
other
legislation
enacted
by
or
under
the
authority
of
the
Parliament
of
Canada
purports
to
confer
such
jurisdiction
on
this
Court.
The
Tax
Court
of
Canada
is
purely
statutory
in
origin
and
the
scope
of
its
jurisdiction
is
entirely
circumscribed
by
express
or
necessarily
implied
federal
legislative
authority.
Moreover,
I
am
of
the
opinion
that
if
legislation
were
enacted
by
Parliament
which
purported
to
confer
jurisdiction
on
the
Tax
Court
of
Canada
to
hear
appeals
from
assessments
made
under
the
Ontario
Act,
it
would
be
beyond
the
constitutional
reach
of
Parliament.
The
Tax
Court
of
Canada
was
established
under
the
authority
of
section
101
of
the
Constitution
Act,
1867.
It
provides:
The
Parliament
of
Canada
may,
notwithstanding
anything
in
this
Act,
from
Time
to
Time
provide
for
the
Constitution,
Maintenance,
and
Organization
of
a
General
Court
of
Appeal
for
Canada,
and
for
the
Establishment
of
any
additional
Courts
for
the
better
Administration
of
the
Laws
of
Canada.
In
Consolidated
Distilleries
Limited
v
Consolidated
Exporters
Corporation
Ltd,
[1930]
SCR
531,
Chief
Justice
Anglin,
in
delivering
the
majority
decision
of
the
Supreme
Court
of
Canada,
said
at
534
after
quoting
section
101:
It
is
to
be
observed
that
the
“additional
courts”,
which
Parliament
is
hereby
authorized
to
establish,
are
courts
“for
the
better
administration
of
the
laws
of
Canada.”
In
the
collocation
in
which
they
are
found,
and
having
regard
to
the
other
provisions
of
the
British
North
America
Act,
the
words,
“the
laws
of
Canada,”
must
signify
laws
enacted
by
the
Dominion
Parliament
and
within
its
competence.
What
flows
from
what
has
been
said
is
this.
The
appeals
pertaining
to
the
penalties
imposed
and
the
interest
levied
under
the
alleged
authority
of
the
Ontario
Act
are
dismissed.
The
appeals
pertaining
to
the
penalties
imposed
and
the
interest
levied
under
the
authority
of
subsection
227(9)
of
the
Act
in
relation
to
the
amounts
deducted
or
withheld
pursuant
to
paragraph
153(l)(a)
during
the
month
of
May
1977
are
dismissed.
The
appeals
pertaining
to
the
penalties
imposed
and
the
interest
levied
under
the
alleged
authority
of
subsection
227(9)
of
the
Act
in
relation
to
the
amounts
deducted
or
withheld
pursuant
to
paragraph
153(
l)(a)
of
the
Act
during
the
month
of
June
1977
are
allowed
and
the
matters
are
referred
back
to
the
respondent
for
reconsideration
and
reassessment
on
the
basis
that
the
penalties
should
not
have
been
imposed
or
the
interest
levied
in
respect
thereof.
Appeals
allowed
in
part.
Email this Content