Date: 20010129
Docket: 2000-2511-IT-I
BETWEEN:
DELIA VALDIS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Hamlyn, J.T.C.C.
FACTS
[1] These are appeals for the 1996 and 1997 taxation years.
[2] In computing income for the 1996 and 1997 taxation years, the Appellant failed to report employment income, before deductions, in the amounts of $22,867.23 and $11,805.01 respectively.
[3] In reassessing the Appellant for the 1996 and 1997 taxation years, by Notices of Reassessment dated March 9, 2000, the Minister increased the Appellant's income by including employment income in the amounts of $22,867.23 and $11,805.01 respectively (the "Amounts") which were received by the Appellant from Global Architectural Contracting Inc. In so reassessing the Appellant, the Minister also allowed the Appellant source deductions, in respect of the employment income she received from Global Architectural Contracting Inc., in the following amounts:
1996 1997
Canada Pension Plan contributions $ 542.28 $ 242.92
Employment Insurance premiums $ 674.58 $ 342.35
Income Tax $4,055.37 $1,214.74
[4] At the outset of the hearing the parties filed the following:
STATEMENT OF AGREED FACTS AND ISSUES (PARTIAL)
For the purposes of this appeal only, the parties agree that the following facts may be accepted by the Court as evidence at trial without further proof. The parties further agree that the issues to be decided by the Court are as set out under the heading "Issues".
FACTS
1. The Appellant moved to Canada from Germany in or about June, 1995 to commence work as an architect at the request of Axel Ulrich ("Ulrich").
2. Ulrich was the principal of Global Architectural contracting Inc. and Global Architectural Metal Design Inc. (together, the "Corporations").
3. The taxpayer agreed with Ulrich to work as an architect for $500 net per week (after taxes and other payroll deductions).
4. The Appellant was paid on a weekly basis in the form of two cheques as follows:
Global Architectural Metal Design Inc. ("GAMD") $155.00
Global Architectural Contracting Inc. ("GACI") $345.00
5. Source deductions were withheld and remitted by GAMD in respect of the cheques issued by it in arriving at the weekly amount of $155.00. GAMD issued T4 slips to the Appellant for the 1996 and 1997 taxation years, which contained the following information:
1996 1997
Gross Income $9,000.00 $15,970.00
Canada Pension Plan contributions $ 152.36 $ 374.10
Employment Insurance premiums $ 265.76 $ 463.13
Income Tax $ 350.27 $2,499.15
6. At the request of Ulrich, the Appellant signed invoices on a weekly basis prepared for her which were then submitted to GACI for payment by that Corporation of the amounts of $345.00 per week.
7. GACI did not issue T4 slips to the Appellant for the 1996 and 1997 taxation years.
8. In its books and records, GACI recorded the amounts paid to the Appellant as "Translation Services".
9. GACI did not remit any monies to the Minister in respect of source deductions relating to its payments of $345.00 per week to the Appellant.
10. Commencing in or about August, 1997 GAMD began paying the Appellant net wages of $500.00 per week. From this point forward, GACI discontinued paying wages to the Appellant.
11. In computing her income for the 1996 and 1997 taxation years, the Appellant failed to report her employment income from GACI, which was later calculated by the Minister to be in the amounts of $22,867.23 and $11,805.01 respectively (gross income before deductions).
12. In reassessing the Appellant, the Minister included the amounts of $22,867.23 and $11,805.02 in the Appellant's income for the 1996 and 1997 taxation years respectively. In calculating the gross income and balance owing by the Appellant, the Minister credited the Appellant with the following source deductions calculated in accordance with the relevant tables on the basis that she received net wages of $345.00 per week from GACI:
1996 1997
Gross Income $22,867.23 $11,805.01
Canada Pension Plan contributions 542.28 242.92
Employment Insurance premiums 674.58 342.35
Income Tax 4,055.37 1,214.74
13. The total credits allowed to the Appellant were as follows:
1996
GAMD GACI Total
(Per T4)
Gross Income $9,000.00 $22,867.23 $31,867.23
Canada Pension Plan Contributions 152.36 542.28 694.64
Employment Insurance premiums 265.76 674.58 940.34
Income Tax 350.27 4,055.37 4,405.64
1997
GAMD GACI Total
(Per T4)
Gross Income $15,970.00 $11,805.01 $27,775.01
Canada Pension Plan Contributions 374.10 242.92 917.02
Employment Insurance premiums 463.13 342.35 805.48
Income Tax 2,499.15 1,214.74 3,713.89
14. The Minister accepted that the payments by GAMD to the Appellant of $345.00 were not payments to an independent contractor, that is, they accepted that the Appellant was an employee of both GACI and of GAMD.
15. Notwithstanding that GAMD did not issue a T4 slip to the Appellant evidencing the withholding of source deductions, the Minister calculated the gross employment income and applicable source deductions which ought to have been withheld by GAMD in respect of the weekly payments of $345.00.
Issues
16. The issues are:
(a) Whether the Court has jurisdiction to determine the balance owing by a taxpayer insofar as it relates to the calculation of source deductions withheld by an employer or employers in the determination of the balance owing of a taxpayer?
(b) If the Court has jurisdiction:
(i) whether the Appellant was employed by GAMD and/or GACI; and
(ii) whether the Appellant can establish that the employer or employers withheld an amount in respect of source deductions in excess of the amount for which the Appellant has been granted credits by the Minister (and as set out in paragraph 13 above).
OTHER SIGNIFICANT FACTS FROM THE EVIDENCE
[5] The contractual arrangement between the Appellant and Ulrich was oral.
[6] The Appellant stated she believed she was working for one employer GAMD, but went along with the wishes of Ulrich in relation to the two employers because he told her it would reduce his tax liability. In relation to services rendered the Appellant maintained she was not providing translation services as was indicated in the books of GACI. She stated she provided architectural services that required knowledge of German building codes and German building regulations.
[7] There is no dispute between the Appellant and the Respondent as to the total net income (after taxes and other payroll deductions) received by the Appellant. The evidence also establishes in relation to the monies paid to the Appellant by GACI for invoiced services, there were no remittances.
ANALYSIS
[8] The Appellant asks that she should be found to have been employed by one employer, GAMD.
[9] The effect of this finding, according to the Appellant, would be to increase the applicable source deductions available to the Appellant, given the assessed method of the calculation of source deductions.
[10] The question to be determined is whether this Court has the power to determine the balance owing by a taxpayer insofar as it relates to the calculation of source deductions withheld by the taxpayer’s employer.
[11] In Brooks v. The Queen,[1] Judge Sobier considered this question in that case where the Appellant wanted a determination that all taxes owing were or should have been withheld by his employer. Judge Sobier summarized the facts of that case at paragraph 12:
From what the Appellant has said this morning, he agrees that he wishes to have a determination made that all taxes owing have been withheld and therefore he is not liable for that reason. He is not disputing the amount of the tax which is originally assessed. He is disputing that and alleging that all amounts have been paid since they have been withheld or should have been withheld.
[12] Judge Sobier went on to consider the jurisdiction of this Court. He stated at paragraph 9:
In Lamash Estate, Judge Christie cited Judge Rip in the case of McMillen Holdings Limited v. The Minister of National Revenue, 87 D.T.C. 585. Associate Chief Judge Christie states at page 16 of Lamash, and I quote:
Judge Rip held that the court did not have jurisdiction. He said at pages 591-2 (the references to "the Act" are to the Income Tax Act):
and I quote from Judge Rip's judgment:
Section 12 of the Tax Court of Canada Act grants this Court original jurisdiction to hear and determine appeals on matters arising under the Act and other statutes. Subsection 171(1) of the Act regulates how the Court may exercise its original jurisdiction to determine an appeal under the Act. Section 13 of the Tax Court of Canada Act simply grants the Court all powers, rights and privileges as are vested in a superior court of record in respect of witnesses, documents and other matters necessary or proper for the due exercise of its jurisdiction, that is, to hear and determine appeals, but section 13 does not increase the Court's jurisdiction to that of a superior court of record. The due exercise of this Court's jurisdiction on matters arising under the Act is to hear and determine an appeal from a tax assessment. I cannot over emphasize that the Court's original jurisdiction is to hear and determine appeals in matters arising under the Act; an action against the Crown based on the Act, but is not an appeal from an assessment, is not an appeal arising under the Act, which is within the jurisdiction of this Court. While this Court does not have the jurisdiction that can be exercised in an action for an accounting, [...]. (emphasis added)
[13] With respect to determining whether this Court has jurisdiction to grant an Appellant relief for source deductions that were or should have been withheld by an Appellant’s employer, Judge Sobier concluded in Brooks that it was not a matter that fell within the jurisdiction of this Court, but rather a matter for the Federal Court, Trial Division or Superior Court of Ontario to decide. He stated at paragraphs 13-15:
Again this is the matter for an action between the company and Mr. Brooks and not an appeal under the Income Tax Act.
Again this Court has no jurisdiction to make such an order since it again is not an appeal under the Act. I am quite sure that Mr. Brooks has a legitimate claim either against Revenue Canada for refusing to acknowledge that amounts have been withheld or against his former employer for either failing to remit or having withheld, not remitted. However, this is not a matter which the Tax Court of Canada may determine. This would be an action against the Crown which could be brought in the Federal Court of Canada, Trial Division or an action which could be brought in the Superior Court in the Province of Ontario for accounting or other matters.
For these reasons the motion is granted and the Amended Notice of Appeal is struck out as disclosing no reasonable grounds for appeal. (emphasis added)
[14] In Liu v. The Queen,[2] Judge Bowman considered the jurisdiction of this Court with respect to crediting an Appellant for source deductions withheld but not remitted by the employer, and stated at paragraph 14:
Even if I had concluded differently it would not have been within the power of this court to declare that in determining the balance owing to the Government of Canada by Mr. Liu there should be taken into account the amount withheld from his commissions but not remitted. This court's jurisdiction, insofar as it is relevant to this case, is to hear and determine references and appeals on matters arising under the Income Tax Act. Essentially in an appeal under the Income Tax Act the question is the correctness of an assessment or determination of loss. Here there is no issue with respect to the correctness of the assessment. The question of amount of the balance of tax owing by a taxpayer may be a matter within the jurisdiction of the Federal Court but if that court sees the substantive issue in the same manner in which I do I doubt that it could give the appellant any more relief than I can.
(emphasis added)
[15] In Neuhaus v. The Queen,[3] Judge Lamarre was not persuaded that source deductions were withheld and remitted by the Appellant’s employer. She concluded at paragraph 4 that in accordance with Judge Bowman’s decision in Liu, this Court does not have jurisdiction to consider whether an Appellant is entitled to be credited for source deductions withheld and that such jurisdiction falls with the Federal Court.
[16] In contrast to the above decisions, Ashby v. The Queen,[4] Manke v. The Queen,[5] and Ramsay v. The Queen[6], held that this Court does have jurisdiction to grant relief to an Appellant for source deductions withheld by an Appellant’s employer. In Manke, Judge McArthur agreed that this Court does not have jurisdiction with respect to collection matters. However, with regard to source deductions, Judge McArthur concluded that the ultimate question before the Court is whether the Minister's assessment of tax is correct. One of the constituent elements of the assessment is the amount of credits to which the taxpayer is entitled. Judge McArthur cited with approval a passage from Ashby, where Judge Sarchuk reasoned at paragraph 14 that section 118.7 of the Act specifically makes provision for the calculation of credits pertaining to EI and CPP amounts which reduce a taxpayer’s exigible tax, and thus the calculation of these credits are one of the constituent elements of an assessment by the Minister which properly falls within the jurisdiction of this Court. In the same passage, Judge Sarchuck also suggests that it would be inappropriate to grant relief in respect of EI and CPP and deny relief with respect to income tax withheld at source on the basis of lack of jurisdiction. In Ramsay, Judge Sarchuck followed the decisions in Ashby and Manke.
[17] With respect, while section 118.7 of the Act specificallymakes provision for the calculation of credits pertaining to EI and CPP amounts which reduce a taxpayer’s exigible tax, income tax deducted at source by an employer does not reduce exigible tax under the Act. In my view, under subsection 152(1), an “assessment” is stipulated by Parliament to “assess the tax for the year ... if any, payable” and not to assess the tax for the year owing by a taxpayer after source deductions withheld by an employer are subtracted from exigible tax as assessed for the year. I conclude it cannot be said that income tax withheld by an employer is a constituent element of an assessment that can be appealed under section 169. However, I do agree with the decision in Ashby, that to the extent that there has been an amount withheld for EI or CPP under section 118.7, such amounts are integral to an assessment, therefore this Court has jurisdiction to consider these credits in an appeal.
[18] The Appellant has appealed the assessment of tax to this Court on the basis that the Minister has not properly taken into account the source deduction withholdings to which she was entitled. The Court is entitled to make a determination on this point to the extent of determining whether the Minister's assessment of tax was correct. I conclude the decision in Neuhaus is closest to the evidence in this case and I find the reasoning in Neuhaus is persuasive. I therefore find the Court is precluded from reviewing the calculation of income tax withheld at source. However, per Ashby, I conclude that this Court has jurisdiction to review amounts withheld at source for EI or CPP under section 118.7 of the Act, as these amounts are a constituent element of the Appellant’s assessment.
[19] Despite having jurisdiction to consider amounts of EI and CPP source withholdings that the Appellant may be entitled to, in the case at hand, the Appellant is seeking a decision that would result in a higher tax liability, and this Court has no jurisdiction to entertain such an appeal. The Appellant contends that the Minister erred in calculating the gross wages and source deductions for 1996 and 1997 by treating GACI as a separate employer. The Appellant states that this has had the effect of reducing the source deductions that should have been withheld and doubling up the basic personal exemption claim implicit in the source deduction tables. The Appellant contends that for purposes of calculating the gross pay and source deductions that should have been withheld for 1996 and 1997, the Appellant should be treated as having been paid from one source. This would have the effect of increasing the amounts of source deductions reassessed, and since she was paid on a net basis, would result in a higher amount of gross pay and a higher tax liability for 1996 and 1997.
[20] In Cooper v. M.N.R.,[7] Associate Chief Judge Christie, as he was then, concluded that this Court does not have the jurisdiction under section 171 to increase an appellant’s tax liability. He stated at page 205:
This would decrease the total amount of the reassessments by $6,819 or 5.2%, but increase the reassessment in respect of the 1981 taxation year by $6,980.82. The latter, I believe, is beyond the Court's jurisdiction. Subsection 171(1) of the Act provides:
171. (1) The Tax Court of Canada may dispose of an appeal by
(a) dismissing it, or
(b) allowing it and
(i) vacating the assessment,
(ii) varying the assessment, or
(iii) referring the assessment back to the Minister for reconsideration and reassessment.
To make an order of dismissal could not give effect to the proposed exchange. On the other hand, if the appeal for 1981 were allowed then, having regard to the conjunctive nature of the relationship between allowing an appeal and subparagraphs (i), (ii) or (iii), it would be necessary to proceed further and vacate, vary or refer the reassessments back to the respondent. It would be a contradictory act to allow a taxpayer's appeal for a taxation year and couple it with an order, the effect of which is to increase his liability to tax. Such a course of action is not within the proper interpretation of subsection 171(1). It has been described as tantamount to allowing the Minister to appeal his assessment or reassessment: Louis J. Harris v. M.N.R., [1964] C.T.C. 562 at 571, 64 D.T.C. 5332 at 5337 (Ex. Ct.); Shiewitz v. M.N.R., [1979] C.T.C. 2291 at 2293, 79 D.T.C. 340 at 341 (T.R.B.) and Boyko et al. v. M.N.R., [1984] C.T.C. 2233 at 2237, 84 D.T.C. 1233 at 1237 (T.C.C.).
(emphasis added)
[21] In Millette v. The Queen,[8] Judge Lamarre Proulx reaffirmed that this Court cannot entertain an appeal that contemplates increasing an Appellant’s tax liability. She stated at paragraph 72:
It is accepted in the case law that this Court cannot increase the amount of the Minister's assessment because that would be tantamount to the Minister appealing the assessment, which he cannot do. The Minister cannot appeal his own assessment: Harris v. M.N.R., 64 D.T.C. 5332, at p. 5337; Shiewitz v. M.N.R., 79 D.T.C. 340, at p. 342; and Abed v. The Queen, 82 D.T.C. 6099, at p. 6103.
(emphasis added)
[22] I conclude that, in accordance with the above decisions, this Court has no jurisdiction to hear this appeal as it contemplates a higher tax liability which is tantamount to the Minister appealing his own assessment, which he cannot do.
[23] The appeals are dismissed.
Signed at Ottawa, Canada, this 29th day of January 2001.
"D. Hamlyn"
J.T.C.C.
[1] [1995] 1 C.T.C. 2880 (T.C.C.) [hereinafter Brooks].
[2] [1995] 2 C.T.C. 2971 (T.C.C.) (Informal Procedure) [hereinafter Liu].
[3] [2000] A.C.I. No. 821 (QL) (T.C.C.) (Informal Procedure) [hereinafter Neuhaus].
[4] 96 DTC 3212 (T.C.C.) (Informal Procedure) [hereinafter Ashby].
[5] 98 DTC 1969 (T.C.C.) [hereinafter Manke].
[6] [2000] 4 C.T.C. 2397 (T.C.C.) (Informal Procedure) [hereinafter Ramsay].
[7] 87 D.T.C. 194 (T.C.C.).
[8] [1999] T.C.J. No. 46 (QL).