Category Archives: Tax Appeal

CRA Tax Appeal

What You Need To Do When Facing the CRA Tax Appeal

If you believe that the CRA have made a mistake when calculating the amount of tax you have to pay, then you need to dispute this. If the thought of doing this fills you with dread firstly you will not be the first person to feel that way, and secondly you don’t have to go into battle alone. The CRA tax appeal may be difficult for someone who has never had to submit one before but for an expert, it is are part of their daily job.

A Notice of Objection has to be raised, and as the CRA will automatically believe that it has made the right decision, you need to have the evidence to prove that they are wrong. Every step of the way must be followed correctly, and there is a time limit for you to put in the CRA tax appeal.

In the Notice of Objection, you need to give all the information you want to be taken into account as part of the CRA tax appeal. This must be accurate and clearly explained, as any mistakes will mean that the CRA will feel justified in re presenting their original bill – plus any interest and charges.

One mistake that many people make is that they believe it is up to the CRA to prove that they have sent the correct bill out, when in fact it is up to you to prove that it is wrong. Evidence is needed and it has to be watertight and backed fully by correct arguments. This is where you need to have a tax expert who will be able to use the policies that the CRA have produced to prove your case. There is no room for error in the CRA tax appeal.

If you can get a copy of the report produced by the CRA, you will be well on your way to putting together the CRA tax appeal, and regardless of what you are told, you are entitled to this. By putting together the best possible Notice of Objection package, your tax representative can both cut the timescale and prevent the need to go to court.

It may be worrying that you are paying out money to someone to help you with an appeal you may believe you can make yourself, but the reality is the money you are spending now can lead to major savings in the future. By winning the CRA tax appeal, your bill can be reduced and you don’t have to worry about how to pay.

The CRA tax appeal may revolve around issues such as the amount of expenses claimed or the belief that there is money paid into your account that cannot be explained. You need to remember that there is a limited time period in which to make the CRA tax appeal and if you miss this you are in the hands of the CRA as to whether or not they will allow a late objection.

Going About a CRA Tax Objection

If you have been contacted and told that you are going to be reassessed on the tax returns you have filed, you still have the right to defend your claims if you are not in agreement to what CRA is reassessing. If you do this it will not be a short process, as it can easily take months, and can even run into years until everything is dealt with. This is a long time to have a CRA tax objection hanging over your head, and you need to do all you can to have the problem resolved quickly and in your favor.

While not wanting to cause you too much concern, there are some people who are still waiting for a resolution to their CRA tax objection after several years and clearly this is not going to allow them to live the life they want to live. To prevent ending up in the same position, employ an tax expert who will be able to put some pressure on the CRA and in turn, they will take some of the pressure away from you.

The news is not all bad, as the reason it takes so long to deal with a CRA tax objection is that the CRA do make sure they get everything right. They don’t like admitting to mistakes, but if they have made one, it will be sorted out in your favor. The downside is that if CRA chooses to stand their grounds, your objection is denied and more time and money will be needed to do another appeal. In this sense, it is better to work with a tax professional who has experience in dealing with CRA tax objection in order for you to have the best percentage of case approval for the first time around.

The cost of losing a CRA tax objection will be high in monetary terms so you need to work closely with the people representing you and make sure you provide every scrap of information they request. Once the Notice of Objection has been filed, the wheels are in motion and there is a good side to this. There will be no attempt made to take payments from you towards your tax bill, but you will find that interest is added. Make sure that you put the money you are not paying away as if you lose the CRA tax objection you will suddenly have a bigger bill than before.

It may seem unfair that you are paying interest when the CRA tax objection took so long to decide and that was not your fault. It is possible that you can have taxpayer relief but this will not be guaranteed. Again discuss this with your representative. The initial debt will still stand, but there will be less to pay in interest and added charges.  You get two chances to apply for this, but if the second request is still not accepted that is the end of it and you need to pay the bill. Make sure you are applying for the right reason, not just because you were not aware of the issue at the time.

When to File A CRA Tax Appeal

If you receive a tax bill that you disagree with there maybe ways for the tax to be reduced. The CRA will present you with a bill in line with the Income Tax Act and will do all they can to collect the money they believe you owe. A lot of the time when there is an objection made, the reason for the disagreement is the interpretation of how the law should work, and success or failure with a CRA tax appeal will depend on whose interpretation is considered to be correct.

If you think you have a case but are not sure what to do next, then you can seek the advice of a tax experts and they will be able to go through the reasons why you may have a good case to put in a CRA tax appeal. If they don’t believe that you have a good case, then they should tell you this, and like it or not you will have to accept the tax bill is correct. Rather than a CRA tax appeal, they can still help you come to an arrangement to pay.

If a general meeting or conversation does not iron out the problems, then there is the need to escalate the issue and put in a Notice Of Objection which is important when making a CRA tax appeal. You need to make sure that you are within the deadline for doing this as each stage you follow will have a timetable and they will not all be the same. The person helping you with your case will be able to keep you up to date and will be able to reassure you that the time you are waiting is not that unusual and is not necessarily a bad omen.

A CRA tax appeal is not a short process, so there is no point trying to hurry things along. It could be six months before the appeal is heard and in some cases as long as 12 months. The person dealing with the CRA tax appeal will be new to your case so will not have any pre conceptions when going over the paper work. Throughout the appeal you will receive relevant documents and you can also ask for the whole file if you feel this will help you.

It will be in your interest to have someone helping you through this process, and as it is likely to be a long term procedure, you need to have someone who knows the tax law and is used to working within this environment. If you put in a CRA tax appeal, there are good sides and bad sides. The good is that there is no need to pay the amount owed until the appeal is decided, so you can have some breathing time. The bad side is that there is interest added. In reality it will be best to pay the balance especially if you are not 100% sure that your CRA tax appeal is going to go your way.


If you receive a notice from CRA tax and not ready to accept it, you may file Tax objection. You can either do it by yourself or can contact with an expert tax accountant to have them checked or reassessed.

How to File Tax Objection

It is fact that people most often do not have any idea about

  • If they are at all entitled to file objection to CRA tax assessment.
  • How to make the objection for reassessment,
  • What is the right time to file Tax Objection,
  • What should be the best supportive documents to boost the chance of winning the case, etc.

All the above factors make the most of the taxpayers find no other option but to swallow up the bitter pills and disburse the amount claimed by the CRASo having a skilled and veteran tax professional is an added advantage for the people who want to file Tax objection.  

You are entitled to withhold the amount till your case is officially evaluated by the CRA. In other words, if you have submitted tax objection, it is not necessary that the disputed amounts are to be paid instantly.  You can pass the time till Tax Appeal Division brings out its final decree about your case.

On the other hand, after you have submitted the objection, then you can ask for the disagreed amount of money that you have already paid to the CRA. For getting a refund of your excess money, never take it lightly by doing it yourself. It is wise to consult an expert for filing Tax Objection.

In case you receive a CRA Notice of Assessment, and want to submit a Tax Objection, you must do it within 90 days. If you want to win a tax appeal, the best thing to do is to hire a competent tax professional to appeal for you.

As there might be unusual variables in regard to the dates, it is a best idea to consult with a trained and experience tax professionals for better understanding of your situation. Always ensure that the documents in support of your Tax Objection are all valid and in correct format.

People most often ignore the idea of consultation with any of the trusted, skilled professionals that can deal with the Tax Objection successfully. Later they regret realizing the error they had made. They might face fiscal set back later because of the error committed at the time of filing.

After you file the tax objection, the Appeal Officer of CRA will review your stand. This officer is the part of the CRA but is autonomous to the Audit section that generally prepares the assessment.  Thus, it ensures that your appeal of objection is being attended by some new eyes. These people have no idea of the outcome.

You can talk to the Appeals Officer with a view to persuade the person about the authenticity of your position. You can also do the same in writing.  In reality, there is no formal “inquiry.” If the Officer is in agreement with you, the reassessment of your tax objection might be left out or might be prepared differently to reproduce your position.

Filing the CRA Notice of Objection

When you receive a Notice of Assessment from CRA and do not agree with few things in it, you may take a decision to file a CRA Notice of Objection. You can fill out your forms and send it either through your tax accountant or electronically, by using the CRA Response Program which could be found on the tax shelter source website.


When the CRA Notice of Objection is filled out, the completed forms have to be printed out at first and then mailed to the CRA. You may have to file a separate CRA Notice of Objection for each tax year if you have made deductions in more than one year and have been reassessed for those particular years. For example, if you have made deduction sin 2011 and 2012 and CRA has reassessed you in both the years, then it is necessary that you file a separate CRA Notice of Objection for each of those years.


If you have made deduction sin 2011 and 2012 and if the CRA has only reassessed the 2011 one, you have to file a notice for 2011 only. You do not have to file a CRA Notice of Objection for a year for which there has been no reassessment, for that notice will not be treated as valid.


You can always receive a reassessment for the same year at a later period. One tax year can be reassessed many times if it is still under the reassessment period that is allowed. Sometimes, the second or the third reassessment may come after a CRA Notice of Objection has already en lodged. This notice will stand invalidated by that subsequent reassessment. When a second or a third reassessment arrives, it is the responsibility of the donor to file another Notice. If you happen to get more than one reassessment for the same year, it is better to seek professional advice. You cannot leave things to chance.


When you take professional help, your adviser will have to make sufficient copies of the CRA Notice of Objection before you get it completed for every year that you have been reassessed. This Notice has to be filed with the CRA within a period of ninety days from the date that reassessment has been mailed to you. It becomes your responsibility to make sure that the Notice is filed within the time period. The date of the Notice of Assessment will appear on the left hand corner at the top on the initial page of the reassessment document. It will also inform you about the CRA Tax Services Office that has mailed the notice to you.


The CRA Notice of Objection has to be delivered to the Chief of Appeals at the same Tax Services Office that has mailed the Notice of Assessment to you. In this Notice, you have to fill out all the requested information such as your full name, your address and the Social Insurance Number, along with the tax year that you have been reassessed for. You also have to fill in all the details of your authorized representative or your tax consultant. The copy of the Notice of assessment has to be enclosed. You have to take the acknowledgment with the date stamp from the CRA Tax Services Office.

The Benefits of Getting CRA Tax Appeal Help in Toronto

The Canada Revenue Agency is a federal agency that is set in place to administer the enforcement of income tax laws that are amended in the Tax Act every year by parliament. Since the CRA does not make the law, their interpretation of the act can differ from those of taxpayers and often a taxpayer may feel as if they were told they had to pay too much. Fortunately, for taxpayers, there are steps they can take in order to go about getting a second assessment. You don’t have to let the CRA audit Toronto take you for more money than you know you should be paying.

Should you feel that the CRA audit has not correctly assessed the amount of taxes you should be paying, it’s encouraged that you promptly appeal the assessment and open a case of dispute. You’ll have 90 days to file an objection, if you miss the deadline, you legally lose your right to appeal and you’ll be stuck having to pay the assessed tax. Should you find yourself in need of a CRA appeal experts, who can assist you in determining whether or not you may have a chance of filing a successful objection based on if they believe, in fact, the CRA audit has made an error.

Tax 911 Now is dedicated to helping those located in Toronto and surrounding territories that are in need of professional tax assistance. A tax representative can be beneficial to a client in many ways; they can deal with the CRA for you, know the right questions to ask, assure that your case will be properly presented, and therefore heighten the chance of your appeal being granted. Should you fight with CRA alone, without the guidance of a tax representative, you may not have the full knowledge you need to obtain the results you desire and your appeal can likely be rejected. Let an experienced representative from Tax 911 Now help you with your CRA audit Toronto. They’re likely to know a lot more about the rules and regulations that are in the Income Tax Act than you are. They can use that knowledge in fighting against the CRA audit Toronto better to win your case. And since winning your case and getting a reassessment is what you desire, the decision in getting one should be easy.


Need a CRA Appeal expert in Toronto? 

For Toronto CRA tax appeal assistance, you should give Tax 911 Now a call at 1-877-918-2991, or just have a visit where a knowledgeable tax representative is available in person to answer any questions or concerns you may have. These professionals are ready and willing to help you, you just have to take the first step in facing your CRA appeal Toronto. The Tax 911 Now offices are located at 129 Telson Road, Suite #100, Markham, Ontario, L3R 1E4.  Tax 911 Now offers services Toronto, Calgary, Markham, Vancouver and regions across Canada.

Tax Court CRA Tax Appeal Case for Small Business

The following is a typical tax appeal case in the tax court. This tax court case demonstrates how small business owners can run into problems with Canada Revenue Agency for nearly two decades of legal battle.
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Date: 2011-03-03



[1] These appeals were begun under the informal procedure of this Court, to challenge the correctness of some 94 unspecified assessments made under the provisions of the Income Tax Act (the Act),[1] the Employment Insurance Act[2] and the Canada Pension Plan[3] in respect of amounts required by those statutes to be withheld from wages paid to employees of the appellant between April 1992 and July 1999.

[2] By the Order of Rossiter J., as he then was, made on October 23, 2007, the appeals were quashed insofar as they related to assessments under the Employment Insurance Act and the Canada Pension Plan. On June 19, 2008, at the request of the appellant, McArthur J. ordered that the remaining appeals proceed pursuant to the general procedure.

[3] The appeals from the assessments under the Income Tax Act came on for hearing before me on December 9, 2009, and it quickly became apparent that the only issue that the appellant sought to pursue was not revealed by the Notice of Appeal. I granted leave to the appellant to file a Fresh As Amended Notice of Appeal, and that was done.

[4] By the amended pleading the appellant has limited the issue to the validity of the penalties assessed under subsection 227(9) of the Income Tax Act. Specifically, it is asserted that those penalties are subject to a defence of due diligence, and that the question of due diligence has been resolved in the appellant’s favour by a judgment of O’Connor, J of this Court. By that judgment O’Connor, J. allowed the appeals of Stella Pinnock and Stainton Pinnock from assessments made against them as the directors of 741290 Ontario Inc. under section 227.1 of the Income Tax Act in respect of amounts that should have been, but were not, remitted as withholdings from the wages paid by it to its employees.[4] The relevant part of paragraph 153(1)(a) and sections 227 and 227.1 are attached as Appendix “A”.

[5] Stella Pinnock and her husband, Stainton Pinnock, have been the directors of the appellant since its inception in 1987. From then until November 1998 the appellant operated Van Del Manor Nursing Home in Toronto under a license granted by the province of Ontario under the Nursing Homes Act. In November 1998 the Ontario Ministry of Health determined that the building could no longer be operated as a nursing home. After that Ms. Pinnock operated it as a retirement home for a brief period. Since September 1999, the premises have been leased to the City of Toronto, which operates it as a seniors’ home. The nursing home license was sold by the appellant’s bank.

[6] Mrs. Pinnock gave evidence for the appellant. From the outset the Pinnock’s had difficulty meeting their payroll. Mrs. Pinnock blamed this on a number of factors. The payroll was substantially higher than they had expected, based on the financial statements that they had seen prior to buying the business. The Ministry of Health required them to make substantial repairs, renovations and upgrades to the building, at considerable cost, in order to continue to use it as a nursing home. They also were required to increase the number of staff employed beyond the level that they had expected and that the income would support. The appellant was paid on a per patient basis by the Ministry of Health, and according to Ms. Pinnock’s evidence the payments were always made after the month end, when the money was required to pay current expenses. In short, the expenses of operating the business were higher than the Pinnock’s had foreseen, and there was an acute shortage of working capital from the outset.

[7] The appellant’s major income source was the monthly payments made to it by the Ontario Ministry of Health. These, Ms. Pinnock said, were amounts paid for specific purposes or activities such as patient care or nutrition, and they had to be applied to those purposes. The appellant’s employees were paid every second Thursday. For reasons that Ms. Pinnock attributed to delays by the Ministry of Health in making its payments, the appellant was frequently in the position of being unable to meet its gross payroll, which is to say the payroll including the statutory deductions that an employer is required to make for income tax, employment insurance premiums and Canada Pension Plan contributions. Frequently it did have sufficient funds, however, to meet the net payroll only, and on these occasions it did so by paying the employees their net pay for the period, but it did not remit the income tax and other deductions to the Receiver General within the time fixed by section 108 of the Income Tax Regulations[5] (the Regulations) for doing so.

[8] In January 2000, the Minister assessed Stainton Pinnock and Stella Pinnock pursuant to subsection 227.1(1) of the Act for the unremitted withholdings, interest and penalties. They appealed from those assessments to this Court, relying on the saving provision found in subsection 227.1(3), which reads:

227.1(3) A director is not liable for a failure under subsection 227.1(1) where the director exercised the degree of care, diligence and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances.

[9] Those appeals were heard by O’Connor J on September 29, 2004, and he gave judgment orally at the conclusion of the hearing allowing the appeals. His Reasons for Judgment are brief. He refers to the extent to which decisions made by the Ministry of Health affected the appellant’s profitability by imposing requirements to spend money on the maintenance of the building and by limiting the number of patients that could be accommodated, and to the financial problems caused by union demands. He found Mr. and Mrs. Pinnock to be credible witnesses, and to have attempted in good faith to resolve their financial difficulties by negotiating with the Revenue Agency officials, and by liquidating their personal savings to invest in the business.

[10] Schedule B to the Reply to the Notice of Appeal filed by the respondent lists some 93 assessments issued by the Minister between April 13, 1992 and July 14, 1999 in respect of withholdings either not remitted at all, or remitted late. By the time of the hearing the appellant no longer disputed the particulars of any of these assessments, either as to its failure to remit withholdings or as to the computation of the interest and penalties under the Act. It contested only the penalties for late remittance of the withholdings, on the basis that Stainton and Stella Pinnock were, at the material times, the alter ego of the appellant as they were the only directors, and so theirs were the controlling minds of the corporation. The appellant argues that if they, the only directors, exercised the degree of care, diligence and skill that a reasonably prudent person would, in comparable circumstances, have exercised to prevent the failure to remit on time, then it must follow that the corporation exercised sufficient diligence to be exculpated from the penal provisions of subsection 227(9). This submission, of course, necessarily depends upon the proposition that failure to remit the statutorily required withholdings is a strict liability offence rather than an absolute liability offence, and that the degree of diligence required of directors by subsection 227.1(3) is at least as great as that required to exculpate the company under subsection 227(9).

[11] The appellant argues that it would be incongruent and lacking in consistency for Parliament to have provided a defence of due diligence for directors from their potential vicarious liability under section 227.1 for the failure of a corporation to remit amounts withheld under section 153, and yet not provide a similar defence for the corporation from its potential liability to a penalty under subsection 227(9). The argument is that since the directors are the directing mind of the corporation the legislation must be presumed to require the same standard of conduct from the corporation itself as is required from the directors.

[12] In my view the matter is not so simple as that. The reasons of the majority of the Supreme Court of Canada in Toronto (City) v. C.U.P.E. Local 79[6] were written by Arbour J. At paragraph 23 she notes that there are three conditions that must be met for issue estoppel to apply:

(i) the issue to be decided must be the same as that which was decided in the prior case;

(ii) the earlier decision must have been a final one; and

(iii) the parties to both proceedings must be the same, or their privies.

While abuse of process by litigation is a more flexible doctrine than issue estoppel, it is clear from Arbour J.’s discussion of it at paragraphs 35 to 54 that the requirement of identity of issue in the two proceedings is as necessary to abuse of process as it is to issue estoppel.

[13] The rationale underlying both doctrines includes avoiding unnecessary expense to the parties to relitigate a matter that has already been decided, conserving judicial resources, avoiding the possibility of collateral attack on a prior judgment that would otherwise be final, and protecting the integrity of the judicial system from the harm to public confidence in it that would be occasioned by inconsistent judgments in respect of the identical issue. None of these concerns arise if the issues in the first and second proceedings are not identical.

[14] The appellant’s argument in this case assumes that if failure to remit amounts deducted is not an absolute offence, admitting of no defence whatsoever, then the degree of care that a corporation must show in order to establish a defence for purposes of the penalty imposed by subsection 227(9) of the Act must be identical to the degree of care that a director must show in order to avoid vicarious liability for the default of the corporation under subsection 227.1(3). I understand this proposition to be founded on the basis that subsection 227.1(3) uses the expression “due diligence” and that phrase has been used from time to time to describe the defence available to those charged with a strict liability offence.[7]

[15] I know of only one case in which the question whether the failure to remit as and when required is an absolute or a strict liability offence has arisen. That is Weisz, Rocchi & Scholes v The Queen, [8] a decision of Bowman, A.C.J., as he then was. His conclusion was that the offence of late remitting had not been established by the evidence, and so there was no need to decide whether, if it had been established, the appellant would have been entitled to avoid liability for the penalty by proof of due diligence. He did, however, add in obiter that although the question was one for another day, if he had been required to decide it he would have found that a due diligence defence was available.

[16] For purposes of this appeal, I am prepared to assume that a “due diligence” defence is available. Nevertheless, for the reasons that follow, I conclude that neither res judicata nor abuse of process by relitigation based on the judgment of O’Connor J. is available to the appellant, and that the defence of due diligence, assuming it is available at all, has not been established.

[17] Assuming that failure to remit as and when required is not an absolute but a strict liability offence, it nevertheless requires a greater degree of “due diligence” than does subsection 227.1(3). The words of that subsection are precisely the same as those found in paragraph 122(1)(b) of the Canada Business Corporations Act,[9] and were considered by the Supreme Court of Canada in Peoples Department Stores Inc. v. Wise.[10] That Court’s conclusion as to the standard of conduct that these words mandate is found in paragraph 67 of the unanimous judgment:

67 Directors and officers will not be held to be in breach of the duty of care under s. 122(1)(b) of the CBCA if they Act prudently and on a reasonably informed basis. The decisions they make must be reasonable business decisions in light of all the circumstances about which the directors or officers knew or ought to have known. In determining whether directors have acted in a manner that breached the duty of care, it is worth repeating that perfection is not demanded. Courts are ill-suited and should be reluctant to second-guess the application of business expertise to the considerations that are involved in corporate decision making, but they are capable, on the facts of any case, of determining whether an appropriate degree of prudence and diligence was brought to bear in reaching what is claimed to be a reasonable business decision at the time it was made. (emphasis added)

Can this be said to be the same standard that applies to the obligation of an employer to remit to the Receiver General the amounts that it has withheld from its employees’ earnings for their income tax liability as required under section 153? I think not.

[18] There is a marked contrast between the standard of conduct required by the “reasonable business decision” test under subsection 227.1(3) on the one hand and what is required by section 227 on the other. Subsection 227(4) creates a trust in favour of the Crown, whereby the employer holds the amounts deducted for income tax from payments of remuneration “… in trust for Her Majesty and for payment to Her Majesty in the manner and at the time provided under this Act.”

[19] It is certainly reasonable that an employer should not be penalized under subsection 227(9) where the failure to remit in time is caused by an event beyond the employer’s control, such as a failure of the post office to deliver a remittance mailed in time, or an error made by a bank clerk in transferring funds. However, subsection 227(4) does not permit the employer, in any circumstances, to make a business decision to use the funds for some purpose of its own, no matter how dire its financial plight may be or how brief the period for which it intends to use the funds. The funds belong to the employees, not to the employer. In my view, any failure to remit withholdings when they are due that results from a deliberate decision of the employer, whether that decision is made by a director or by an employee, would necessarily be culpable. Consequently, the issues that arise under subsection 227.1(3) and subsection 227(9) are different. Neither issue estoppel nor abuse of process by relitigation can apply in this case.

[20] Was the failure of the appellant to remit its withholdings as and when prescribed under the Act the result of an event beyond the control of the corporation, or did it result from a deliberate decision? Mrs. Pinnock certainly tried by her evidence to paint a picture of a corporation that was in default only because of unforeseeable problems caused by the actions of others. The expenses were greater than she and her husband had anticipated because they were not properly revealed to them before they purchased the business, and because the Department of Health made too many demands on them to spend money on upgrades and repairs. Labour costs were inflated by staffing requirements that were imposed on the appellant by the Department of Health, and by the demands of unionized workers. The payments from the Department of Health always came after the month end, when the money was required before that in order to meet the payroll and the accounts payable. Their attempts to raise additional capital were thwarted by the banks that would not extend additional credit to the appellant after its line of credit was exhausted, and by the refusal of the Department of Health to approve a prospective investor.

[21] It is clear from the evidence of both Mrs. Pinnock and Ms. Ebanks, a CRA Collections Officer, as well as from the Amended Notice of Appeal, that the appellant habitually failed to remit the payroll withholdings as and when required under the Act, and that its failure to do so was caused entirely by the fact that it did not have the necessary funds to meet the gross payroll, and so elected to pay the net payroll to the employees and not pay the withholdings. This practice was the subject of adverse comment by the Supreme Court of Canada in Royal Bank of Canada v. Sparrow Electric Corp.:[11]

(B) The Nature of Section 227(4) and (5) Statutory Trusts

25 Section 153(1)(a) ITA places an affirmative duty upon employers to deduct and withhold amounts from their employees’ pay cheques, and remit those withholdings to the Receiver General on account of the employees’ tax payable. By virtue of s. 153(3) ITA, these withholdings are deemed to become the property of the employee:

153 …

(3) When an amount has been deducted or withheld under subsection (1), it shall, for all the purposes of this Act, be deemed to have been received at that time by the person to whom the remuneration, benefit, payment, fees, commissions or other amounts were paid.

In a perfect world, these deductions would be made, a cash fund would be set aside by the employer, and the withheld amounts would be promptly remitted to the Receiver General when due. The deducted amounts, lawfully the property of the employee, would in this way be transferred to Her Majesty to be set against his overall tax payable.

26 As a practical reality, however, these deductions are often not remitted as required under the ITA. Instead, the withholdings are commonly made solely as a book entry, and therefore the deduction of taxes from wages becomes merely a notional transaction; no cash is actually set aside for remittance and, often, the deductions are not transferred to the Receiver General: see, e.g., Re Deslauriers Construction Products Ltd., [1970] 3 O.R. 599 (C.A.), at p. 601. It is at this point which a business becomes indebted to Her Majesty for the amount of moneys only fictionally deducted. I hasten to add, however, that while it can be said Her Majesty at this point becomes de facto, if not de jure, a creditor of the non-remitting employer, the arrangement is dissimilar to an ordinary debtor-creditor situation in two fundamental respects. First, in contrast to usual negotiated credit arrangements, this transaction is of manifestly a non-consensual nature. Second, by virtue of s. 153(3), the debtor can in law be considered to be utilizing an asset which is the property of its employees. In this sense, it is not inaccurate to characterize the non-remittance of payroll deductions as a “misappropriation” of the property of another. Indeed, the authorities, correctly in my view, commonly refer to the conduct of the tax debtor in this manner: Roynat, supra, at p. 646, per Twaddle J.A.; and Pembina on the Red Development Corp. Ltd. v. Triman Industries Ltd. (1991), 85 D.L.R. (4th) 29 (Man. C.A.), at p. 48, per Lyon J.A. dissenting.

27 The economic reality of this sort of misappropriation of statutory deductions is artificially to increase the working capital of the tax debtor. By foregoing a cash payment to Her Majesty in the amount of the payroll deductions, the tax debtor is able to utilize the freed resources elsewhere in its business. The effect of non-remittance was summarized by Lyon J.A. in his dissenting reasons in Pembina on the Red Development, supra, at p. 48:

… either the tax debtor used the misappropriated deductions for its own purposes or the pool of moneys available for distribution to the tax debtor’s creditors … has been increased by the amount which the tax debtor failed to remit to the Receiver-General.

28 It is against the backdrop of this unfortunate factual scenario that the provisions of s. 227(4) and (5) can be seen to have been enacted. While it can be said that at the point of withholding the employer becomes the trustee of a fund which is in law the property of its employee, s. 227(4) has the effect of making Her Majesty the beneficiary under that trust. I agree with the observation of the mechanics of s. 227(4) made by Twaddle J.A. in Roynat, supra, at p. 646, where he states:

Although [s. 227(4)] calls the trust created by it a deemed one, the trust is in truth a real one. The employer is required to deduct from his employees’ wages the amounts due by the employees under the statute. This money does not belong to the employer anymore. It belongs to the employees. The employer holds it in a statutory trust to satisfy their obligations.

The conceptual difficulty arises, of course, when the tax debtor fails to set aside moneys which are to be remitted. At this point, the subject of Her Majesty’s beneficial interest becomes intermingled with the general assets of the tax debtor. As Twaddle J.A. rightly observed in Roynat, supra, at p. 646, “Her Majesty’s claim … then be[comes] that of a beneficiary under a non-existent trust”. In short, the misappropriation of statutory deductions conceptually problematizes the legal vehicle — the concept of the trust — which Parliament has invoked in order to regain the moneys lawfully owed to Her Majesty.

[22] Faced with a chronic insufficiency of working capital, and unable to meet its gross payroll in full from time to time, the appellant chose to solve the problem by appropriating the withholdings rather than by resorting to the mechanisms available under the statutes designed to deal with the problems of insolvent corporations. This misappropriation is surely conduct beyond the threshold of culpability under subsection 227(9) of the Act, no matter whether the offence be considered “strict liability” or something else. For this reason, like Bowman C.J., I need not decide whether the offence is one of absolute liability or not. Certainly, the appellant in this case has no basis on which to claim that it used all reasonable means, or even its best efforts, to avoid the failure to remit on time.

[23] The appeals are dismissed, with costs to the respondent.

Signed at Ottawa, Canada, this 3rd day of March, 2011.

“E.A. Bowie”

Bowie J.

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