Citation: 2006TCC603
Date: 20061103
Docket: 2001-2696(IT)G
BETWEEN:
DEAN HAMILTON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
BowieJ.
[1] This is an appeal from an assessment under the Income Tax Act[1] (theAct). Mr. Hamilton was assessed under subsection 227.1(1) as a director of the Savage Land Productions Ltd. (the company) for its unpaid obligations to withhold and remit to the Receiver General for Canada 15% of certain payments made by it to non-resident persons in respect of services rendered in Canada in the production of a motion picture (the film).
[2] This appeal has a long and sorry history of delay. I need not go into the details of it other than to say that the hearing date, October 4, 2006, was fixed peremptorily by Justice Miller at a show cause hearing in June of this year. Mr. Hamilton, who now lives in California, chose not to attend the hearing. Instead he retained counsel who appeared before me and requested an adjournment. I declined to grant the adjournment, for essentially the reasons that I gave in Solomons v. The Queen.[2]
[3] The following are the assumptions of fact made by the Minister in assessing Mr. Hamilton as they are set in the paragraphs 4 b) to g) of the Reply to the Notice of Appeal:
b) the appellant was at all material times, a director of the Company;
c) the Company failed to remit to the Receiver General of Canada federal income tax withheld on payments made to non-resident persons in respect of services rendered in Canada in the amount of $45,326.55 (the "Amount");
d) the Company failed to pay interest relating to the Amount of unremitted federal tax in the amount of $1,400.58;
e) pursuant to garnishee, payments totaling $19,078.23, were received on June 20, 1994 and June 28, 1994 and a payment by the Company in the amount of $5,240.00 (U.S.), ($9,126.04 CAN.) on July 25, 1994;
f) a certificate for the amount of the Company's liability for federal income tax and interest was registered in the Federal Court of Canada on September 23, 1994 under subsection 223(2) of the Income Tax Act, (the "Act") and execution of such amount has been returned wholly unsatisfied; and
g) the appellant did not exercise the degree of care, diligence and skill to prevent the failure to remit the Amount by the Company that a reasonably prudent person would have exercised in comparable circumstances.
[4] The following provisions of the Act and the Income Tax Regulations (the Regulations) are pertinent:
The Act
153(1) Every person paying at any time in a taxation year
(a) salary, wages or other remuneration, other than amounts described in subsection 212(5.1),
...
(g) fees, commissions or other amounts for services, other than amounts described in subsection 212(5.1),
...
shall deduct or withhold from the payment the amount determined in accordance with prescribed rules and shall, at the prescribed time, remit that amount to the Receiver General on account of the payee's tax for the year under this Part or Part XI.3, as the case may be, and, where at that prescribed time the person is a prescribed person, the remittance shall be made to the account of the Receiver General at a designated financial institution.
153(1.1) Where the Minister is satisfied that the deducting or withholding of the amount otherwise required to be deducted or withheld under subsection 153(1) from a payment would cause undue hardship, the Minister may determine a lesser amount and that amount shall be deemed to be the amount determined under that subsection as the amount to be deducted or withheld from that payment.
227.1(1) Where a corporation has failed to deduct or withhold an amount as required by subsection 135(3) or section 153 or 215, has failed to remit such an amount or has failed to pay an amount of tax for a taxation year as required under Part VII or VIII, the directors of the corporation at the time the corporation was required to deduct, withhold, remit or pay the amount are jointly and severally liable, together with the corporation, to pay that amount and any interest or penalties relating thereto.
227.1(2) A director is not liable under subsection 227.1(1), unless
(a) a certificate for the amount of the corporation's liability referred to in that subsection has been registered in the Federal Court under section 223 and execution for that amount has been returned unsatisfied in whole or in part;
(b) the corporation has commenced liquidation or dissolution proceedings or has been dissolved and a claim for the amount of the corporation's liability referred to in that subsection has been proved within six months after the earlier of the date of commencement of the proceedings and the date of dissolution; or
(c) the corporation has made an assignment or a receiving order has been made against it under the Bankruptcy and Insolvency Act and a claim for the amount of the corporation's liability referred to in that subsection has been proved within six months after the date of the assignment or receiving order.
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.
...
The Regulations
105(1) Every person paying to a non-resident person a fee, commission or other amount in respect of services rendered in Canada, of any nature whatever, shall deduct or withhold 15 per cent of such payment.
105(2) Subsection (1) does not apply to a payment described in the definition "remuneration" in subsection 100(1). SOAR/94-686, s. 49(F).
The relevant part of the definition of "remuneration" in subsection 100(1) is:
100(1) In this Part and in Schedule I,
"remuneration" includes any payment that is
(a) in respect of
(i) salary or wages, or
(ii) commissions or other similar amounts fixed by reference to the volume of the sales made or the contracts negotiated (referred to as "commissions" in this Part)
paid to an officer or employee or former officer or employee,
...
[5] The only witness for the appellant was Margaret Coe, who is Mr. Hamilton's mother and was also a director of the company. It was clear from her evidence that she had been made a director only for convenience. Other than the fact that the company was incorporated for the purpose of making a motion picture by the name of Savage Land, and that the film was shot on location in Canada using many people, both actors and production personnel, she had no knowledge at all of the affairs of the company. The only evidence she could give as to steps taken to ensure that the company complied with its obligations under the Act in respect of payments to non-residents was to say that it said it had hired a payroll company to process those payments.
[6] On consent of counsel for the respondent, I admitted into evidence a document consisting of four schedules, the first of which sets out the names of 33 people who were engaged in the production of the film, together with brief descriptions of their roles, and a computation of 15% of the payments made to each of them. This is the computation underlying the assessment of the company. For each of these people, the schedules indicate that their country of citizenship is the United States of America; the schedules do not purport to give any information as to their places of residence. I was told that this document was prepared by a former counsel for the appellant, presumably for the purpose of attempting to negotiate a settlement of the appeal. Schedule B lists 17 people who, it is said, worked "behind the camera" and were not subject to withholding tax, together with a description of their services rendered, and a summary of their earnings and the computation of the 15% withholding. Schedule C lists 16 people who are said to have worked "in front of the camera", together with the role played by each, their gross earnings from the production, and the computation of the 15% withholding. Schedule D repeats the same information in respect of five individuals said to have worked "in front of the camera", and to have had gross earnings in excess of $15,000.
[7] It was on this evidentiary foundation that Mr. Easton mounted two arguments attacking the derivative assessment. He argued that not all the persons who were employed in the production were liable to pay income tax in Canada, and so Her Majesty would be unjustly enriched if she were to recover from Mr. Hamilton all of the monies that the company failed to withhold from them. As I understood his position, it was that only the five actors who appear in Schedule D of Exhibit A-1 would be liable to pay income tax in Canada, and so the assessment of the company should have been limited to 15% of the gross earnings from the company of those five actors, the aggregate of which amounts to $23,656.71.
[8] There are two obvious reasons that this argument must fail. The first is that I have no jurisdiction to grant a remedy based only on equitable principles, and this argument is, as Mr. Easton candidly admitted, simply an appeal to equity. My jurisdiction is limited to applying the provisions of the Act to the facts of the case and determining whether the Minister's assessment is correct. I have no jurisdiction in equity.[3] Even if I had such jurisdiction, it would be impossible for me to determine that Her Majesty was unjustly enriched, and if so by what amount. Mr. Easton's argument is based on the supposition that none of the recipients of the payments made by the company, other than the five whose names appear on Schedule D, would be liable to pay income tax in Canada on those payments,[4] so that if the company had withheld and remitted the 15% from the other payees, Her Majesty would have been obliged to refund it to them in due course. On this basis, he argues that the amount collected ($19,078.23 plus $9,126.04) exceeds the tax to which Her Majesty was entitled and there is, therefore, no shortfall for which the directors could be liable. I could not reach that conclusion, however, without evidence as to the nature of the relationship of each payee to the company, and as to other circumstances including their other income, if any, derived from Canadian sources during the year that the payments were made. In effect, I am asked to assess each of these 33 individuals and determine the refunds to which they would have been entitled had they filed returns in Canada. That would be impossible in the evidentiary vacuum that exists in this case.
[9] While it is now established that a director may attack the underlying assessment of the company in aid of an appeal from an assessment under section 227.1, the director has the onus of showing that the assessment is incorrect. Mr. Hamilton has not discharged that onus. The words of section 153 of the Act and section 105 of the Income Tax Regulations[5] required the company to withhold and to remit to the Receiver General 15% of the amounts paid, unless it could be shown that some or all of the payments were salary or wages, or otherwise fell within the definition of "remuneration" in subsection 100(1) of the Regulations. I simply could not reach that conclusion on the very limited evidence before me.
[10] The other argument advanced by Mr. Easton is that the appellant exercised the due care and diligence required of a director to permit him to invoke the defense to the assessment found in subsection 227.1(3) of the Act. Again, the onus of proof is on the Appellant.
[11] The only evidence available for the appellant to rely on in support of the plea of due diligence is Mrs. Coe's statement that Mr. Hamilton hired a payroll company to process the payments to the cast and crew of the film. I held in Armstrong v. The Queen[6] that having hired an experienced accountant with a C.G.A. designation to handle the accounting and payment functions for his company did not relieve the appellant of his duty to exercise oversight. Mr. Hamilton studied business administration at Michigan State University and the University of Southern California. He had been a film producer and director for some 10 years at the relevant time. His was apparently the directing mind behind this company, and he must be taken to have had sufficient understanding of business matters to appreciate his responsibilities as a director. I do not consider that simply having the company hire a payroll company to process the payments is sufficient to establish due diligence on his part.
[12] The appeal is dismissed, with costs.
Signed at Ottawa, Canada, this 3rd day of November 2006.
"E.A. Bowie"
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