A J Frost:
1 This is an appeal from an income tax assessment dated June 6, 1974 in respect of the appellant's 1971 taxation year.
2 In his Notice of Appeal, the appellant stated that he was employed by Picketts Pharmacy at Vancouver during the years 1970 and 1971 but that his employer in 1971 had failed to fully remit the tax withheld from his wages. Since the income tax owing by him had been withheld, he denied any further liability for income tax for that year.
3 The respondent, on the other hand, contended that the only amount deducted from the appellant's wages and remitted by his employer was $496.30, and further that during the taxation year in question, due to the frequent absences of Mr Picketts, the appellant ran the day-to-day operations of the pharmacy business and paid the wages both to himself and to the other employees of Picketts Pharmacy.
4 From the evidence adduced, it appears that the employer, Mr L D Picketts, had agreed to pay the appellant the sum of $5 per hour which was to be the “net” pay, in other words, after deduction of the usual amounts to be withheld by the employer. The appellant also contended that he had contacted the Department of National Revenue during 1971 to see if he could take out his gross pay and remit the income tax personally but he was informed that his employer had to deduct it and remit it to the District Taxation Office. As reason for this request he mentioned that he wanted to remit his income tax personally because of his lack of confidence in Mr Picketts and his employer's frequent absences due to a drinking problem. In a further letter to the Department, the appellant noted that the tax audit had revealed that his gross salary had been $12,672.50. On the basis of this figure an amount of $2,585.05 should have been remitted to the District Taxation Office as income tax withheld at the source. In his assessment of the appellant's income, the respondent has apparently deducted an amount of $2,311.96 which, I presume, represented the income tax withheld and not paid out to the appellant as an employee. In other words, the appellant was assessed as if the tax withheld by his employer represented an amount not paid out as wages and therefore not taxable in his hands. The appellant, on the other hand, contended that this amount which he had not received was still in the hands of his employer who had simply neglected to remit this amount to the Income Tax Office.
5 Counsel for the respondent, in his argument, contended that this dispute was in reality a question of tax collection as the taxpayer did not, in fact, dispute the tax payable on his gross income, claiming only that the tax had already been withheld, though not remitted, by his employer. Counsel submitted that the Board did not have jurisdiction in this case and requested that the appeal be dismissed.
6 It is a well established legal principle that the Tax Review Board, like its predecessor, the Tax Appeal Board, had no jurisdiction in matters involving collection of taxes. I refer, for example, to the case of Marmaduke Earl Dickson Otty v. MNR, Tax Appeal Board decision of March 17, 1952, 6 Tax. A.B.C. 199,52 D.T.C. 163. In this case the taxpayer had complained that at least a portion of the amount assessed had already been paid by him. The issue therefore did not pertain to the assessment, the correctness of which was not disputed, but to whether or not the Minister had received the money thus assessed. In the Otty case, the Board found that such a dispute was not within its jurisdiction. In the present case, the situation is quite different. Here the appellant's employer was the respondent's statutory agent under the Act. Acting on behalf of his employer, the appellant paid himself the net amount of wages due to him, leaving the tax and the Canada pension premiums in the till for remittance by the employer to the Department. This absolved the taxpayer from his liability to the respondent and the question of whether or not the employer misappropriated the money or, in any event, did not remit the money to the Department, became a matter of dispute between the respondent and his agent. The respondent has obviously put emphasis on the fact that the appellant himself was, in fact, in charge of the till and that he should have realized that the money which he left in the till for remittance to the taxation office as income tax withheld from the appellant's salary was never fully transferred and that this made him personally liable.
7 I find it hard to accept this as a basis for liability because the appellant could not possibly have terminated the agency relationship between his employer and the Department of National Revenue and could not be held responsible for omissions which a payroll audit would have revealed. The Act distinguishes clearly between the situation in which the employer does not fully or partly deduct, in which case he must pay a penalty of 10% of the amount he should have deducted, and the situation in which he did withhold the tax but failed to remit. In that case he is liable for the entire amount of tax plus the 10% penalty (subsections 227(8) and (9)). To consider the amounts left with the employer simply as deduction from the appellant's taxable income would, in fact, mean that the respondent denies any statutory agency between him and the employer and that, in fact, employees would be guarantors for their employer in respect of the latter's obligation to remit income tax withheld at the source. In view of the incorrect manner in which the Minister has treated this assessment, considering the amount withheld as an item to be deducted from the appellant's gross income and assessing the balance as the appellant's net income, the question becomes an assessment matter in which the Board does have jurisdiction.
8 It is my opinion that the assessment as it has been submitted to me for review was incorrectly conceived and should be replaced by one which is based on the appellant's real net income, and that the tax payable thereon should be decreased by the amount of tax withheld at the source.
9 The fact that in this particular case the appellant, as an employee, had a much greater responsibility for the financial administration than he should have had if his employer had properly observed his statutory obligations is not relevant to the issue in dispute. I would also refer to Information Circular No. 75-16 dealing with the collection policy of the Department of National Revenue, though I am not referring to that policy statement as a ground for my decision herein. I therefore allow the appeal, referring the matter back to the Minister for reassessment in accordance with my findings as expressed herein.
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