Words and Phrases - "liable"
14 September 2016 External T.I. 2016-0638171E5 - Liability under section 159
The “Trustee” of a trust holds a portfolio of securities whose fair market value is $125,000 on December 31, 2014. The 2014 return of the sole beneficiary of the trust (the “Taxpayer”) was assessed on April 30, 2015, showing an unpaid amount of $150,000, at which time the FMV of the portfolio was $100,000. On January 1, 2016, a demand to pay was issued to the Trustee, the Trustee liquidated the portfolio and applied the net proceeds of $70,000 (reflecting market declines) towards the demand to pay. Is the Trustee’s liability under s. 159(1) limited to the proceeds received on the arm’s length sale of such property? In responding negatively, CRA stated:
[A] legal representative’s liability…can commence at any time a taxpayer has an amount owing under the Act that remains unpaid. …
[S]ince the Taxpayer has an amount payable of $150,000 established on April 30, 2015, that remains unpaid, the Trustee is jointly and severally… liable with the Taxpayer, to pay the amount owing by the Taxpayer at that time. Moreover, the Trustee remains…[so] liable with the taxpayer at the time when the Minister makes a demand on the Trustee for payment (i.e., January 1, 2016) and any other time the amount owing by the Taxpayer remains unpaid while the Trustee remains the taxpayer’s legal representative. …
Furthermore…the Trustee’s liability is restricted to the property in the trust…notwithstanding that between the time the taxpayer’s liability arose on April 30, 2015 and the time the Trustee liquidated the Portfolio in satisfaction of the demand to pay on January 7, 2016, the value of such property declined in value from $100,000 to $70,000.
The Queen v. National Trustco, 98 DTC 6409, [1998] 4 CTC 26 (FCA)
The respondent was liable under s. 224(4) for its failure to respond to s. 224(1) demands (made both before and after the maturity of the GIC in which the trust was invested) in respect of proceeds of an RRSP where the annuitant had instructed the respondent on maturity of the GIC held in the plan to pay the proceeds directly to him immediately after the expiry of the time covered by the last of such demands. In finding that s. 224(1) was not restricted to debtor/creditor relationships, Isaac C.J., for the majority, stated (at para. 46) that "the ordinary meaning of the word 'liable' in a legal context is to denote the fact that a person is responsible at law" and further stated (at paras. 57, 63):
The tax debtor had a contractual right, enforceable in law, to have the net proceeds paid to him. The respondent had a corresponding contractual obligation to make the payment requested. In my respectful view, this legal obligation was sufficient to bring the respondent within the scope of the phrase “a person liable to make a payment” to the tax debtor within the meaning of subsection 224(1). ...
[T[he proceeds of the RRSP were payable to the tax debtor at the time he requested payment following the maturity of the GIC.
In his concurring reasons, McDonald JA stated (at para. 4):
The only reason the respondent falls within the confines of subsection 224(1) is because the tax debtor instructed the trustee to pay the proceeds of his RRSP directly to him and because this instruction occurred within 90 days of the respondent receiving Revenue Canada’s demand letter. The respondent, therefore, became a person liable to make a payment to the tax debtor. If the terms of the trust forbid the tax debtor from cashing out the trust, the respondent would not fall within the confines of subsection 224(1). Similarly, if there had been no request for payment made by the tax debtor the respondent would not be required to make a payment as subsection 224(1) would not apply.
Exida.Com Limited Liability Company v. Canada, 2010 DTC 5101, 2010 FCA 159
A non-resident corporation which failed to file corporate income tax returns but which had no income taxes payable in Canada was not subject to the penalty under s. 162(2.1) as it was not potentially subject to any penalty under s. 162(1) or (2) and therefore was not "liable to" a penalty under such provisions. However, it was subject to a penalty in the same amount under s. 162(7).
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 162 - Subsection 162(7) | "penalty" does not include nil penalty | 92 |
| Tax Topics - Statutory Interpretation - Ordinary Meaning | purposive interpretation must be consistent with words | 93 |
| Tax Topics - Statutory Interpretation - Territorial Limits | no filing requirement if no connection with Canada | 79 |
Exida.Com Limited Liability Company v. The Queen, 2009 DTC 1278, 2009 TCC 373 (Informal Procedure), rev'd above.
The taxpayer, which was a non-resident corporation that filed tax returns for the relevant taxation years late but with no tax owing, was liable to a penalty under s. 162(2.1). The ordinary meaning of the word "liable" ("responsible at law"), the contrasting use of the terms "liable" and "payable" in the relevant provisions and the fact that this interpretation was consistent with an interpretation that the enactment of s. 162(2.1) was intended by Parliament to put some teeth into the filing requirements for non-resident corporations, suggested that a corporation would be considered to be "liable to a penalty" under s. 162(1) even if such penalty was nil.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 162 - Subsection 162(7) | 114 |