Date: 20000609
Docket: 1999-602-IT-G
BETWEEN:
CHRISTOPHER JOHN ROPER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons For Order
Mogan J.T.C.C.
[1] The Appellant filed a Notice of Appeal dated January 12, 1999 in which he stated that he was appealing "in respect of the assessments in respect of Source Deduction payments for Payroll Account No. 135.172.153RP for the 1995 and the 1996 taxation years". The Respondent moved to strike out that Notice of Appeal for failure to disclose reasonable grounds for the appeal. By an Order dated May 4, 1999, Judge Sarchuk of this Court granted the Respondent's motion and struck out the Notice of Appeal. By a second Order dated May 7, 1999, Judge Sarchuk permitted the Appellant to file a fresh Notice of Appeal from the same assessments dated February 14, 1997 and February 25, 1997.
[2] The Appellant filed a fresh Notice of Appeal dated July 8, 1999 stating that he was appealing "from assessments under the Income Tax Act which are dated February 14, 1997 and February 25, 1997 in respect of the 1995 and 1996 income tax years, respectively, for the Appellant's Source Deduction Payroll Account No. 135172153RP". The Respondent has moved to dismiss the appeal on the ground that this Court does not have jurisdiction over the subject matter of the appeal. The subject matter of any appeal should be disclosed in the notice of appeal itself. In the Notice of Appeal dated July 8, 1999 there are the following headings: "Material Facts Relied Upon" (paragraphs 2 to 14) and "Issues to be decided" (paragraphs 15 to 17). In order to determine the subject matter of the appeal, I will set out paragraphs 2 to 17 inclusive from the Notice of Appeal:
MATERIAL FACTS RELIED UPON
2. The Appellant, during the calendar years 1995 and 1996, carried on the practice of law as a sole practitioner under the business name, Stewart, Roper & Associates, Barristers & Solicitors or, alternatively, the Law Office of Christopher J. Roper/ Christopher J. Roper, Barrister & Solicitor.
3. In March 1993, the Appellant filed a Creditors' Proposal (the "Proposal") pursuant to the Bankruptcy and Insolvency Act which was approved by the Appellant's creditors in April 1993. The Proposal makes reference to the amounts owing to various creditors including Source Deduction arrears. These Source Deduction arrears were a joint responsibility of the Appellant and his former law partner. The effect of the approval of the Proposal by the creditors was to remove liability for all indebtedness to creditors incurred prior to the filing of the Proposal, including any indebtedness to the Respondent for the Source Deduction arrears incurred prior to the filing of the Proposal (the "Pre-Proposal Arrears").
4. Subsequent to the approval of the Proposal, the Appellant and his former law partner were contacted by representatives of the Respondent alleging that, despite the approval of the Proposal, a portion of the Pre-Proposal Arrears remained due and owing. Both the Appellant and his former law partner disputed the Respondent's position in regards to the Pre-Proposal Arrears and retained counsel to advise the Respondent of their formal position that there was liability for the Pre-Proposal Arrears as a result of the approval of the Proposal.
5. Subsequently, the Respondent issued Requirements to Pay in an attempt to seize funds in the Appellant's and his former law partner's respective bank accounts to satisfy the Pre-Proposal Arrears. Counsel for the Appellant and his former law partner advanced the position that the Pre-Proposal Arrears were not owing. Thereafter, no further communication was received from the Respondent in regards to liability for the Pre-Proposal Arrears.
6. In January 1997, an auditor of the Respondent conducted an audit of the Appellant's law practice for the 1995 and 1996 years. The Auditor's Statement of Account dated January 29, 1997 indicated "previous arrears" of $28,182.95 relating to arrears for the pre-1995 period. No explanation was provided as to the manner in which the previous arrears were calculated. The Appellant contends that all Source Deduction payments were current prior to 1995 and, therefore the "previous arrears" as referred to in the Statement of Account could only relate to the "Pre-Proposal Arrears.
7. The Appellant continued to deal with representatives of the Respondent in an attempt to determine the manner in which the "previous arrears" has been calculated, indicating throughout that it was his position that these related to Pre-Proposal Arrears, together with accumulated penalties and interest, all of which were not due and owing as a result of the effect of the Appellant's proposal.
8. From the date of the filing of the Appellant's Proposal, the Appellant had been entitled to substantial GST refunds on an ongoing basis given his overpayment of GST on an ongoing basis. The Appellant received notifications from the Respondent to the effect that these credits were being allocated to "tax arrears" but was never provided, despite repeated requests, with specifics as to the arrears to which the GST refunds were being credited. It is the Appellant's contention that the GST refunds were being allocated to the Pre-Proposal Arrears inappropriately claimed by the Respondent.
9. Despite the Appellant's attempts to secure clarification on the issue of the "previous arrears" as referred to in the Auditor's Statement, the Pre-Proposal Arrears and, as well, the allocation of the GST refunds, the Respondent issued Notices of Assessment for 1995 and 1996 dated February 14, 1997 and February 25, 1997 respectively (the "Assessments"). Both Assessments contained reference to a "previous balance" in the amount of approximately $28,000 on which penalties and interest were accumulating.
10. Subsequent to the issuance of the Assessments, the Appellant made further requests for clarification as to the issues of the previous arrears and the allocation of GST refunds. The Appellant did not receive a satisfactory response to these requests from the Respondent. As such, the Appellant filed Notices of Objection in regards to the Assessments on May 14, 1997.
11. Subsequent to the filing of the Notices of Objection, ongoing negotiations took place between the Appellant and representatives of the Respondent with a view to resolving the issues in dispute. While these discussions and correspondence were ongoing, the Appellant's law practice was subject to a further audit by the Respondent. In furtherance of this audit, an Auditor's Statement of March 5, 1998 was issued. This statement, once again, made reference to the existence of previous arrears but in a lesser amount than indicated in the previous Auditor's Statement. This was consistent with the Appellant's position that GST refunds were being allocated to the Pre-Proposal Arrears. The Auditor's Statement also disclosed arrears for the 1995 tax year, which arrears had been satisfied by way of direct payment based on the arrears for that year as disclosed in the previous Auditor's Statement.
12. The Appellant continued to deal with representatives of the Respondent with a view to having his concerns addressed and continued to monitor the allocation of his GST refunds, requesting details of the manner in which these refunds had been allocated. At no point did he receive a satisfactory response to his enquiries. His calculations, as communicated to the representatives of the Respondent, indicated that the amount of the GST refunds which should have been allocated to his Source Deductions payroll account were more than sufficient to offset any outstanding Source Deduction arrears for the 1996 tax year, and then some, and that the Appellant was therefore entitled to a credit in his favour. Despite this, representatives of the Respondent confirmed the Assessments and the Appellant received formal Notification of Confirmation of the Assessments dated October 14, 1998 and October 21, 1998.
13. The Appellant then filed a Notice of Appeal of the Assessments on January 12, 1999. Subsequently, by way of Order of the Honourable Judge A.A. Sarchuk, the Appellant was ordered to file a new Notice of Appeal.
14. To date, ongoing GST refunds have been due and owing to the Appellant, However, he has not been in receipt of same and, therefore, it is to be assumed that the GST refunds are continuing to be allocated inappropriately to Source Deductions arrears which are not due and owing. It is therefore the Appellant's contention that the Respondent has not properly addressed the issue of the appropriateness of the "previous arrears" as referred to in the Assessments and, furthermore, has not adequately accounted for the GST refunds to which the Appellant was entitled to and continues to be entitled on an ongoing basis.
ISSUES TO BE DECIDED
15. The Appellant submits that the Respondent has erred both in fact and in law in continuing to consider the Pre-Proposal Arrears as being due and owing despite the approval of the Proposal and its effect under the Bankruptcy and Insolvency Act to removal (sic) liability for any indebtedness to creditors incurred in the Pre-Proposal period.
16. The Appellant submits that the Respondent has erred both in fact and in law in failing to properly credit GST refunds to Source Deduction arrears for the 1996 taxation year.
17. The Appellant submits that the Respondent has erred both in fact and in law in charging penalties and interest on Source Deduction arrears which are not due and owing.
[3] In paragraph 3 of the Notice of Appeal, the Appellant uses the phrase "Source Deduction arrears" without stating precisely what that phrase means. Similarly, in paragraph 7 the Appellant uses the phrase "Source Deduction payments". Those words are certainly not precise but I think the Appellant means amounts remitted to Revenue Canada by an employer with respect to payroll source deductions. If that is what the Appellant means, he does not identify the employer as to whether it is him alone or him and his former law partner. In paragraph 4, I think that the word "no" was omitted and that the second sentence was intended to state: "... that there was no liability for the ... ". In paragraph 8, there is a reference to "GST refunds" which I assume are "input tax credits" within the meaning of section 169 of the GST legislation. The Notice of Appeal is not concise or precise but it does tell a story.
[4] It is important to remember that the words "Proposal" and "Pre-Proposal Arrears" are defined in paragraph 3 of the Notice of Appeal. As I understand the issues in paragraphs 15, 16 and 17, the Appellant has asked this Court to decide (i) whether Revenue Canada has continued to consider the Pre-Proposal Arrears as due and owing by the Appellant and, if so, whether they are in law due and owing under the Bankruptcy and Insolvency Act; (ii) whether the Appellant is entitled to "GST refunds" which I assume are "input tax credits" and, if so, whether the Appellant is entitled to set off such input tax credits against Source Deduction arrears for 1996; and (iii) whether Revenue Canada has assessed penalties and interest on Source Deduction arrears and, if so, whether Revenue Canada is entitled to assess penalties and interest on Source Deduction arrears.
[5] In the Motion Record delivered to the Court by counsel for the Respondent, Tab 3 is a photocopy of a Notice of Assessment dated February 14, 1997 for account number 13517 2153 RP issued to the Appellant. The Appellant's name appears under a printed heading "Employer name". Also, the year 1995 is beside the heading "Notice of Assessment". The three significant amounts on this document are:
Previous balance $28,170.60
Federal Tax 555.83
Interest 171.51
Tab 4 is a photocopy of a similar form dated February 25, 1997 for the same account number issued to the Appellant under the "Employer" heading. The heading "Notice of Assessment" does not appear on the photocopy but I understand that it is for 1996. The significant amounts on the Tab 4 document are:
Previous balance $28,961.34
Federal Tax 12,432.48
Provincial Tax 6,518.02
Canada Pension Plan 4,616.56
E. I. 6,636.85
Penalty 3,020.39
Interest 1,459.11
Balance $63,644.75
[6] I am satisfied that the two Notices of Assessment photocopied at Tabs 3 and 4 of the Respondent's Motion Record are the assessments from which the Appellant purports to appeal in his Notice of Appeal dated July 8, 1999. I am also satisfied that those two documents are assessments against the Appellant in his capacity as "employer" because (i) the heading "Employer name" appears over the Appellant's name; and (ii) the first statement on each form is "We have assessed you for the amounts shown for failure to remit as required". The word "remit" has special significance because subsection 153(1) of the Income Tax Act requires every employer paying salary or wages to deduct a prescribed amount of tax at the source and to "remit that amount to the Receiver General".
[7] It is helpful to summarize certain provisions of the Income Tax Act:
227(9) A person who has withheld but not remitted an amount is liable to a penalty based on that amount.
227(9.2) A person who has withheld but not remitted an amount is liable to pay interest based on that amount.
227(9.4) A person who has withheld but not remitted an amount is liable to pay as tax that amount.
227(10.1) The Minister of National Revenue may assess any person for an amount payable under subsections (9), (9.2) or (9.4) of section 227; and upon sending a notice of assessment, then sections 150 to 167 (assessments and objections) and Division J (appeals) apply to such assessment.
I conclude that the two notices of assessments dated February 14 and February 25, 1997 were sent by the Minister under subsection 227(10.1). Section 167 of the Act grants to a taxpayer the right to appeal from an assessment. This is what the Appellant purports to do in his Notice of Appeal dated July 8, 1999.
[8] I will not grant the Respondent's motion because, in my opinion, this Court has jurisdiction over at least part of the subject matter of the appeal. Paragraph 17 of the Notice of Appeal states:
17. The Appellant submits that the Respondent has erred both in fact and in law in charging penalties and interest on Source Deduction arrears which are not due and owing.
The Appellant has put in issue whether Revenue Canada is entitled to assess penalties and interest on Source Deduction arrears (whatever they are). There is no doubt that the assessment of February 25, 1997 has assessed a penalty of $3,020.39 and interest of $1,459.11. I am satisfied that the Appellant is entitled to appeal to this Court so that he can challenge the basis on which he has been assessed a penalty and interest. Where else could he challenge those amounts given the exclusive jurisdiction of this Court under section 12 of the Tax Court of Canada Act?
[9] Paragraph 15 of the Notice of Appeal states:
15. The Appellant submits that the Respondent has erred both in fact and in law in continuing to consider the Pre-Proposal Arrears as being due and owing despite the approval of the Proposal and its effect under the Bankruptcy and Insolvency Act to removal (sic) liability for any indebtedness to creditors incurred in the Pre-Proposal period.
Both assessments of February 14 and February 25, 1997 begin with an amount of approximately $28,000 called "Previous balance". It is clear from the Appellant's "Material Facts Relied Upon" that he thinks that the Previous balance includes the Pre-Proposal Arrears as he has defined those words in paragraph 3. Again, I am satisfied that the Appellant may appeal to this Court so that he can challenge the source of the $28,000 amount. And if all or part of that $28,000 is what the Appellant calls Pre-Proposal Arrears, then he may argue as to whether his liability for Pre-Proposal Arrears has in law been extinguished by some transaction under the Bankruptcy and Insolvency Act.
[10] When a taxpayer appeals to this Court from an assessment under the Income Tax Act, the Court has jurisdiction to consider and decide all issues which are collateral to the appeal itself. In this appeal, the presiding judge may have to decide whether a certain liability of the Appellant has been extinguished under the Bankruptcy and Insolvency Act if that precise question has not already been decided by a court having jurisdiction in bankruptcy matters. From my own experience, in an appeal by the Anderson Estate (95 DTC 758), I was required to decide whether a woman who received certain property from the Estate had a prima facie case against the Estate for imposition of a constructive trust. Similarly, in an appeal by Bartholomew Denelzen (97 DTC 456), I was required to decide whether a letter signed by two lawyers could amend a domestic contract under the Ontario Family Law Act. This Court has jurisdiction to decide the issue raised in paragraph 15 of the Notice of Appeal.
[11] Paragraph 16 of the Notice of Appeal states:
16. The Appellant submits that the Respondent has erred both in fact and in law in failing to properly credit GST refunds to Source Deduction arrears for the 1996 taxation year.
The Appellant does not purport to appeal under the GST legislation and so he is not permitted to dispute whether he is entitled to specific input tax credits. If the Respondent admits, however, that the Appellant is entitled to specific input tax credits, then the Appellant is entitled to argue whether those input tax credits may be set off against an amount which the Appellant would otherwise owe under the Income Tax Act.
[12] The Respondent's motion to dismiss the appeal on the ground that this Court does not have jurisdiction over the subject matter of the appeal is dismissed. The Respondent shall have an extension of time to file and serve its Reply to the Notice of Appeal. Such Reply shall be filed and served on or before September 15, 2000.
Signed at Ottawa, Canada, this 9th day of June, 2000.
"M.A. Mogan"
J.T.C.C.