Aboriginal Federated Alliance Inc. v. The Queen

Aboriginal Federated Alliance Inc. v. The Queen Court (s) Database Tax Court of Canada Judgments Date 2004-05-11 Neutral citation 2004 TCC 336 File numbers 2000-4194(IT)G Judges and Taxing Officers Terrence O'Connor Subjects Income Tax Act Decision Content Docket: 2000-4194(IT)G BETWEEN: ABORIGINAL FEDERATED ALLIANCE INC., Appellant, And HER MAJESTY THE QUEEN, Respondent. ____________________________________________________________________ Appeal heard together on common evidence with the appeals of Aboriginal Federated Alliance Inc. (2000-4200(EI)), (2000-4201(CPP)), (2000-5208(EI)), (2000-5209(CPP)) and (2000-5210(IT)I) on September 2, 2003 at Edmonton, Alberta Before: The Honourable Justice T. O'Connor Appearances: Counsel for the Appellant: Priscilla Kennedy Counsel for the Respondent: Bonnie F. Moon ____________________________________________________________________ JUDGMENT The Appellant was correctly assessed for amounts withheld but not remitted from July, 1999 to December, 1999 totalling $44,566.50 for all appeals. Costs in the General Procedure appeal are awarded to the Respondent. Signed at Ottawa, Canada, this 11th day of May 2004. "T. O'Connor" O'Connor, J. Docket: 2000-5210(IT)I BETWEEN: ABORIGINAL FEDERATED ALLIANCE INC., Appellant, And HER MAJESTY THE QUEEN, Respondent. ____________________________________________________________________ Appeal heard together on common evidence with the appeals of Aboriginal Federated Alliance Inc. (2000-4194(IT)G), (2000-4200(EI)), (2000-4201(CPP)), (2000-5208(EI)) and (2000-5209(CPP)) on September 2, 2003 at Edmonton, Alberta Before: The Honourable Justice T. O'Connor Appearances: Counsel for the Appellant: Priscilla Kennedy Counsel for the Respondent: Bonnie F. Moon ____________________________________________________________________ JUDGMENT The Appellant was correctly assessed for amounts withheld but not remitted from July, 1999 to December, 1999 totalling $44,566.50 for all appeals. Costs in the General Procedure appeal are awarded to the Respondent. Signed at Ottawa, Canada, this 11th day of May 2004. "T. O'Connor" O'Connor, J. Dockets: 2000-4200(EI) 2000-5208(EI) BETWEEN: ABORIGINAL FEDERATED ALLIANCE INC., Appellant, And THE MINISTER OF NATIONAL REVENUE, Respondent. ____________________________________________________________________ Appeals heard together on common evidence with the appeals of Aboriginal Federated Alliance Inc. (2000-4194(IT)G)), (2000-4201(CPP)), 2000-5209(CPP)) and (2000-5210(IT)I)) on September 2, 2003 at Edmonton, Alberta Before: The Honourable Justice T. O'Connor Appearances: Counsel for the Appellant: Priscilla Kennedy Counsel for the Respondent: Bonnie F. Moon ____________________________________________________________________ JUDGMENT The Appellant was correctly assessed for amounts withheld but not remitted from July, 1999 to December, 1999 totalling $44,566.50 for all appeals. Costs in the General Procedure appeal are awarded to the Respondent. Signed at Ottawa, Canada, this 11th day of May 2004. "T. O'Connor" O'Connor, J. Dockets: 2000-4201(CPP) 2000-5209(CPP) BETWEEN: ABORIGINAL FEDERATED ALLIANCE INC., Appellant, And HER MAJESTY THE QUEEN, Respondent. ____________________________________________________________________ Appeals heard together on common evidence with the appeals of Aboriginal Federated Alliance Inc. (2000-4194(IT)G)), (2000-4200(EI)), (2000-5208(EI)), and(2000-5210(IT)I) on September 2, 2003 at Edmonton, Alberta Before: The Honourable Justice T. O'Connor Appearances: Counsel for the Appellant: Priscilla Kennedy Counsel for the Respondent: Bonnie F. Moon ____________________________________________________________________ JUDGMENT The Appellant was correctly assessed for amounts withheld but not remitted from July, 1999 to December, 1999 totalling $44,566.50 for all appeals. Costs in the General Procedure appeal are awarded to the Respondent. Signed at Ottawa, Canada, this 11th day of May 2004. "T. O'Connor" O'Connor, J. Citation: 2004TCC336 Date: 20040511 Dockets: 2000-4194(IT)G 2000-4200(EI) 2000-4201(CPP) 2000-5208(EI) 2000-5209(CPP) 2000-5210(IT)I BETWEEN: ABORIGINAL FEDERATED ALLIANCE INC., Appellant, And HER MAJESTY THE QUEEN, THE MINISTER OF NATIONAL REVENUE, Respondents. REASONS FOR JUDGMENT [1] These appeals relate to a failure to remit by the Appellant of various amounts of income tax, employment insurance and Canada Pension Plan premiums withheld by the Appellant from various employees of the Appellant. [2] The history and the facts and the issues raised in these appeals are best summarized by taking certain extracts from Respondent's Written Submissions and the Final Argument of Aboriginal Federated Alliance Inc., filed in the record. [3] The following are the relevant extracts: Respondent's Written Submissions 1. By Interim Order of Associate Chief Judge Bowman (as he then was) dated May 12, 2003, the appeals were set down for hearing on the quantum issue only. Thus the only issue before the Court at this time is whether or not the quantum of assessments dated October 1, 1999, January 17, 2000 and January 20, 2000 issued to the Appellant for amounts that it withheld, but did not remit, is correct. 2. To be clear, the Respondent maintains its position with regard to all other issues as pleaded in the Replies to Notices of Appeal. 3. To expedite the resolution of the quantum issue, the Respondent prepared schedules setting out the amounts withheld, but not remitted, based on documents provided by the Appellant. The accuracy of the schedules is admitted by the Appellant. PART I STATEMENT OF FACTS 4. In 1999, the Appellant was in the business of providing fire fighting services in the summer and bush clearing operations in the winter. 5. The Appellant employed certain people to carry on its operations and withheld amounts for EI, CPP and income tax from the salary paid to those people. 6. The Appellant remitted the amounts that it withheld for the months of January, 1999 to June 1999, but failed to remit the amounts that it withheld for the months of July, 1999 to December, 1999. 7. The assessment dated October 1, 1999 assessed amounts withheld, but not remitted, for the months of July and August, 1999. 8. The assessment dated January 17, 2000 assessed amounts withheld, but not remitted, for the month of September, 1999. 9. The assessment dated January 20, 2000 assessed amounts withheld, but not remitted, for the months of October, November and December, 1999. 10. Tbe total amount withheld, but not remitted, for the period July, 1999 to December, 1999 was $44,567.18. The three assessments in issue assess the amount of $44,566.50 (68 cents less than the amount actually withheld). 11. The Appellant has admitted the correctness of the schedules prepared by the Respondent, which set out the quantum of the amounts withheld, but not remitted. PART II STATEMENT OF THE POINTS IN ISSUE 12. The sole issue is whether or not the quantum of the assessments dated October 1, 1999, January 17, 2000 and January 20, 2000 is correct. In light of the Appellant's admission, the Respondent respectfully submits that there is no question that the assessments are correct. ... B. The Appellant is liable to remit to the Minister amounts it withheld from its employees at source 16. This portion of the argument refers to provisions of the Income Tax Act. With regard to Employment Insurance and Canada Pension, there are parallel provisions in the applicable legislation that are footnoted and included in the Respondent's authorities. 17. In general terms, every person paying salary and wages and various other amounts shall deduct or withhold a prescribed amount therefrom and remit it to the Receiver General.[1] 18. Subsection 227(1) of the Income Tax Act ensures that no action lies against an employer who deducts or withholds a portion of an employee's wage in compliance, or in intended compliance, with the Act.[2] 19. The Income Tax Act views different failures in different ways. It distinguishes between a failure to withhold and a failure to remit amounts that were withheld. A summary of the principles applying to withholding and remitting is contained in the judgment of the Federal Court of Appeals in Coopers & Lybrand Ltd. v. R: Section 227(1) 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 installment 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.(Emphasis added) Coopers & Lybrand Ltd. v. R., 80 D.T.C. 6281 (Fed. C.A.) at 6287 [TAB 8] The appeal at bar involves the latter situation. Clearly, given that the Appellant has admitted withholding the amounts set out in paragraph 10(g) of the Amended Reply in the General Procedure appeal, there is an indisputable obligation on the Appellant to remit these amounts to the Receiver General of Canada. 20. It should also be noted that the Appellant paid, and its employees received, a full wage, consisting of the net pay that the employees received and the amount withheld at source. Under subsection 153(3) of the Income Tax Act, amounts deducted or withheld are deemed received by the employee at the time of deduction or withholding.[3] Importantly, each employee was entitled to receive credits for the amounts that the Appellant withheld. 21. The Appellant's logical and legal imbalance is its apparent argument that employees who might receive refunds are not taxable and, therefore, the employer need not make withholdings at source. This is wrong. These employees are taxable and it is the employer's obligation to withhold that tax (and the other deductions). In any event, the appeal at bar does not concern a failure to withhold, but a failure to remit. The Appellant cannot avoid its obligation to remit by arguing that it should not have withheld. Simply put: amounts that have been withheld must be remitted. C. Even if the Appellant made a mathematical error in the amounts it withheld, which is denied, the Appellant is still obligated to remit the amounts it withheld 22. Subsection 227(4) of the Income Tax Act stipulates that amounts deducted or withheld under the Act (such as employees' source deductions) are deemed to be held in trust for Her Majesty and for payment to Her Majesty in accordance with the Act. The amounts deducted or withheld are deemed to be held separate and apart from the property of the person withholding or deducting the amounts.[4] 23. Furthermore, subsection 227(9.4) of the Income Tax Act states that a person who has failed to remit, as and when required by the Act or a regulation, an amount deducted or withheld from a payment to another person is liable to pay as tax under the Act the amount so deducted or withheld on behalf of the other person. 24. Finally, in a technical note published in 1988, it is pointed out that subsection 227(9.4) restates the obligation to remit an amount deducted or withheld as provided in subsection 153(1).[5] Subsection 227(9.4), in conjunction with subsection 227(10.1), enables the Minister to assess the unremited source deductions against the person who fails to remit, together with interest and penalties in respect thereof.[6] 25. Accordingly, regardless of the mathematical correctness of the Appellant's own calculations, whatever quantum it withheld is held in trust for the Minister and must be remitted. If the Appellant refuses to do so, assessments can be raised against it for the full amount that it failed to remit. ... PART IV ORDER SOUGHT 33. The Respondent requests that a judgment issue determining that the Appellant was correctly assessed for amounts withheld, but not remitted, from July, 1999 to December, 1999 in the amount of $44,566.50, with costs to the Respondent in the General Procedure appeal. Final Argument of Aboriginal Federated Alliance Inc. 1. Aboriginal Federated Alliance Inc. [hereinafter referred to as Aboriginal Federated] carried on business providing fire fighting services in the Fort McMurray area in the summer of 1999 and 2000. These tax appeals are for 2000-4194(IT)G, 2000-4200(EI), and 2000-4201(CPP) ... 2000-5210(IT)I, 2000-5208(EI) and 2000-5209(CPP) ... An Order of the Tax Court of Canada was issued on August 12, 2002 directing that all of these appeals be set down for hearing on the same day. Order of August 12, 2002. [Tab 1] 2. The majority of persons who were employed by Aboriginal Federated were either status Indians or persons who had applied for status. Most of these aboriginals were adherents to Treaty No. 8. These aboriginal persons were involved in traditional land use activities including hunting and fishing and these fire-services were in the areas where these traditional activities occurred. They were familiar with these land areas. Many of these persons are "homeless" being unable to afford housing in the Fort McMurray area. These fire fighting services performed by Aboriginal Federated were paid for pursuant to contracts made with Alberta Forestry/Environment. Testimony of John Malcolm 3. By Order of the Tax Court of Canada dated May 12, 2003, this hearing is to deal with the issue of quantum only and the constitutional issue respecting the taxation of aboriginals under Treaty No. 8 is held in abeyance pending the decision of Benoit by the Federal Court of Appeal. The Federal Court of Appeal has given judgment in the Benoit appeal however, the status of an appeal to the Supreme Court of Canada has not yet been determined. Order of May 12, 2003. [Tab 2] [4] Note that in both this Argument of Aboriginal Federated Alliance Inc. and in the Respondent's Submissions there are references to decisions of the Court of Queen's Bench of Alberta and a judgment of the Alberta Court of Appeal. The gist of these judgments is that they determine that it is the Tax Court of Canada that has jurisdiction to determine the quantum of the assessments in question. [5] Note also that the Final Argument of Aboriginal Federated Alliance Inc. and the Respondent's Written Submissions both make reference to an annual CPP exemption of $3500 and to the basic personal exemption for income tax. The Appellant's counsel argues after discussing the above that the amount in question should be reduced to $17,024.59. In my view the submissions of counsel for the Respondent are correct and the true amount in issue is $44,566.50. Analysis [6] In my opinion I have concluded that the Respondent's Written Submissions are correct and consequently I find that the Appellant was correctly assessed for amounts withheld but not remitted from July 1999 to December 1999 in the amount of $44,566.50. Costs are awarded to the Respondent in the General Procedure appeal. It is to be observed that the Supreme Court of Canada on April 29, 2004 refused to hear the appeal of the judgment of the Federal Court of Appeal inCharles John Gordon Benoit et al v. The Queen, with the result that the argument of the Appellant based on certain Aboriginals being adherents to Treaty No. 8 fails. Signed at Ottawa, Canada, this 11th day of May 2004. "T. O'Connor" O'Connor, J. CITATION: 2004TCC336 COURT FILES NOS.: 2000-4194(IT)G; 2000-4200(EI) 2000-4201(CPP); 2000-5208(EI) 2000-5209(CPP); 2000-5210(IT)I STYLE OF CAUSE: Aboriginal Federated Alliance Inc. v. Her Majesty The Queen, The Minister of National Revenue PLACE OF HEARING: Edmonton, Alberta DATE OF HEARING: September 2, 2003 REASONS FOR JUDGMENT BY: The Honourable Justice T. O'Connor DATE OF JUDGMENT: May 11, 2004 APPEARANCES: Counsel for the Appellant: Priscilla Kennedy Counsel for the Respondent: Bonnie Moon COUNSEL OF RECORD: For the Appellant: Name: Priscilla Kennedy Firm: Parlee McLaws For the Respondent: Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada [1] Subsection 153(1) of the Income Tax Act; R.S.C. 1985, c. 1 (5th Supp.) ("ITA") [TAB 1]; section 110 of the Income Tax Regulations, ("Regulations") [TAB 2]; section 82 of the Employment Insurance Act, S.C. 1996, c.23, ("EIA") [TAB 4] and section 21; Canada Pension Plan, ("CPP") [TAB 5] [2] Subsection 227(1) of the ITA, supra, [TAB 1]; subsection 89(1) of the EIA, supra, [TAB 4]; subsection 26(1) of the CPP, supra, [TAB 5]. [3] Subsection 153(3) of the ITA, supra, [TAB 1]; subsection 82(7) of the EIA, supra, [TAB 4]; subsection 21(5) of the CPP, supra [TAB 5]. [4] Subsection 227(4) of the ITA, supra, [TAB 1]; subsection 86(2) of the EIA, supra [TAB 4] and subsection 23(3) of the CPP, supra, [TAB 5] [5] Income Tax Act and Regulations - Technical Notes, Department of Finance, 4th edition, Consolidated to 1992; Carswell [TAB 3] ("Technical Notes") [6] Subsections 227(9.4) and 227(10.1) of the ITA, supra, [TAB 1]; subsection 85(1) of the EIA, supra, [TAB 4], and subsection 22(1) of the CPP, supra, [TAB 5]