Date: 19980708
Docket: 97-2031-UI
BETWEEN:
M.S. THOMPSON AND ASSOCIATES HOLDINGS LIMITED,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasons for Judgment
McArthur, J.T.C.C.
[1] The Appellant appeals the Minister of National Revenue's (the "Minister") assessment for failure to remit unemployment insurance premiums in the amount of $31,369.52 for 1995 and $24,266.70 for 1996 with interest and penalties totalling approximately $3,000.
[2] The Appellant operates a consulting engineering and architectural design business with approximately 20 shareholders, 8 directors and 45 workers who are for the most part, professional engineers and architects. Of the 11 individuals involved in this appeal, 8 were directors.
[3] The reasons for the appeal are set out in the Appellant's Notice of Appeal as follows:
"1. We object to the assessment on a retroactive basis to 1995 and 1996, based on the difference of opinion between two assessing officers. The facts surrounding the employment of the employees-shareholders has not changed since the original ruling with respect to insurable employment, was requested in 1994.
2. If the court determines that Revenue Canada Taxation is correct in the assessment, then the assessment should apply from November 1996 (the date of the audit) and on a go forward basis, not retroactively."
[4] The issue boils down to a question of estoppel. On April 11, 1995, Revenue Canada, Customs, Excise and Taxation, issued the following ruling:
"M.S. Thompson & Associates
Attention: Payroll
1345 Rosemount Ave Ruling: 93-95-0047
Cornwall, Ontario
K6J 3E5
Account: THO400964
April 11, 1995
Dear Sir or Madam:
Re: Jean-Paul Tardif, Donald Branch, Mark Smelko, Richard Eamon, Eric Cameron, David Handy, Ricky Taylor, Gerald Walsh, Ian McLeod, William Woodside and Gerry Knight
We reviewed your request dated December 21, 1994 for a ruling on whether the above named workers are employees for Unemployment Insurance purposes.
We are of the opinion they were not employed in insurable employment in accordance with paragraph 3(2)(c) of the Unemployment Insurance Act while working for M.S. Thompson & Associates during the 1991-1993 taxation years.
We based our decision on the information you provided, and our decision applies until the facts change significantly. At that time, a Request for a Ruling (form CPT-1) will have to be submitted to your local District Taxation office.
Please contact our office at (613) 954-8222 if you require further information.
Yours truly,
D. Fife
Ottawa Taxation Centre"
[5] The Appellant relied on that ruling until November 4, 1996 when Revenue Canada reversed itself and demanded approximately $55,000 in unemployment insurance payments for 1995 and 1996 and approximately $3,000 in interest and penalties.
[6] Lengthy written submissions were given by Mark Smelko, P. Eng. and president of the Appellant. These are summarized on pages 4 and 5 of the Appellant's argument as follows:
"Subsequent Events - The Appeals Process
The appeals process is well documented however, I would like to highlight the following:
1) It is the November 4, 1996 assessment only that is being appealed.
2) We are not arguing the validity of the April 11, 1995 ruling we are simply pointing to it as a statement of fact that the 11 individuals involved were not insurable employees.
3) The ruling stipulates that it is in effect until such time as the facts change. Revenue Canada has not responded to our appeal on the basis that the facts have changed.
Primary Argument
The April 11, Ruling was based on factual information presented to Revenue Canada who in turn made a factual representation to us that these 11 individuals were not insurable employees. Our company relied on those representations in ceasing EI premium payment and made other business decisions based on cash projections based significantly on the fact that we would not be paying these EI premiums into the foreseeable future. Revenue Canada has made a representation to us in the form of the April 11, 1995 ruling. Revenue Canada should be bound by that ruling.
Supporting Arguments
1) The April 11, 1995 ruling establishes the fact that the 11 individuals were not insurable for the purposes of EI, we therefore did not fail to remit premiums.
2) The April 11, 1995 ruling was, at the very least, in effect until at the October 26, 1996. The ruling clearly indicated that Revenue Canada had intended to bind us by the ruling into the future unless the facts change significantly. The facts have not changed in a significant fashion.
3) We operated our business based on the understanding of the alleviated EI payroll burden and we are owed reasonable process in reinstatement of that burden. It is not reasonable to reinstate EI premiums retroactively because a business cannot turn back the clock and change its strategy.
We would suggest that a reasonable process would have been notification on October 26, 1996 that Revenue Canada is revising its previous ruling and request EI premium payment on a go forward basis. We would then have the opportunity to choose to appeal or not.
The current process essentially slaps us with a huge cost that we have no real choice other than to appeal - a process we don't particularly wish to be funding. Yet if we don't appeal we are out a significant sum of money. It appears to be a heavy-handed and adversarial approach to force a court ruling to over-ride their own ruling rather than attempting to establish a new ruling in co-operation with us.
4) The individuals involved did not enjoy the security afforded by the EI program for the period in question. Indeed they were specifically told that they were ineligible. In the absence of insurance coverage, at the ruling of Revenue Canada, how can premiums be retroactively assessed? Security cannot be retroactively applied. As proof of ineligibility I offer two scenarios:
i) Had the company gone bankrupt in that period, these 11 individuals would have been unable to even apply for EI. They were consciously working without the security blanket of EI and in the event of hardship would have had no recourse to EI benefits. Reinstating it retroactively has no benefit and is therefore not an appropriate course of action for Revenue Canada to pursue.
ii) Had the company remitted EI premiums for these individuals for the period in question as Revenue Canada asserts that we ought to have been doing, the individuals would likely be refused benefits on the basis of the April 11, 1995 ruling. In the absence of submitting a "Request for a Ruling" as stipulated in the original ruling, the ruling would remain in effect regardless of the submission of premiums.
5) Retroactive assessment is unjust because it requires that the ruling is not binding on Revenue Canada, yet it is clearly binding on us "until the facts change significantly". What is the purpose of a ruling if it is not binding? How can a business make decisions if a ruling is not binding?
6) We have acted in an above board and honest manner in all dealings and therefore, in any case, should be not subject to penalty and interest. Interest in this instance is equivalent to penalty."
[7] The Court was referred to the decision of Bowie, J. in Stephen D. Rogers and H.M.Q. 1998 CanRepNat 30. The case can be briefly summarized as follows:
"Taxpayer enrolled in course after receiving representation from Canada Employment Centre counsellor that portion of tuition fees paid by taxpayer would be eligible for tuition and education credits - Counsellor specifically stated that institution, which gave course, was certified educational institution for purposes of claiming credit - Minister of National Revenue assessed taxpayer and denied credit claims on grounds that taxpayer had not attended certified educational institution and that taxpayer had not filed - Taxpayer's appeal of Minister's reassessment was allowed - Crown was estopped from claiming that taxpayer was inelligible for credits since taxpayer had relied on factual representation of Crown official that institution was certified educational institution - Taxpayer was not to be denied credit for failure to provide prescribed receipt when he had requested prescribed receipt from institution and he provided to Minister the only receipt he received from institution."
[8] I agree with the reasoning of Bowie, J. and it applies equally to the present situation - at page 3 he stated:
"In these circumstances, the Crown is estopped from denying that Memorex is a certified institution. It is trite that no estoppel can override the law, and that the Minister is not bound to misapply the law simply because officials have given incorrect advice. *(8) But estoppel in pais has always applied against the Crown in a proper case. *(9) The classic statement of the requirements to raise an estoppel in pais is found in the judgment of the House of Lords in Greenwood v. Martins Bank, *(10) and was adopted by the Supreme Court of Canada in Canadian Superior Oil v. Hambly. *(11) There must be a representation of fact which was intended to induce the party asserting estoppel to act in a particular way, and that party must have acted upon it, to his subsequent detriment. In this case a Minister of the Crown, through the employment counsellor, represented that the institution was one for which the credits under the Act would be given. The Appellant was intended to, and did, act on this representation. It is a representation as to a matter of fact, because all that was in doubt when the Appellant asked Ms. Knox about the income tax treatment of his portion of the fees was whether or not Memorex was an institution which had been certified. The advice given by Ms. Knox amounted to a statement that her Minister had certified Memorex to be an institution of the kind described in subparagraphs 118.5(1)(a)(ii) and 118.6(1)(a)(ii) of the Act. Vital though it is to the operation of the statute, the certification itself is a matter of fact, not of law. But for this representation, the Appellant would have chosen another institution which was certified. His detriment, of course, lies in the reassessment from which this appeal is brought."
[9] Revenue Canada's ruling of April 11, 1995, states that the individuals were not employed in insurable employment. This representation of fact induced the Appellant to organize it's financial affairs to its detriment. It is unconscionable that the Minister be able to renege on the ruling of April 11, 1995 retroactively. The Minister may have been entitled to change positions in November of 1996 for the period after that date presuming that the Appellant would be able to reorganize its finances to meet the new assessment.
[10] The appeal is allowed for the retroactive period in 1995 and 1996. The Appellant has agreed to comply with the Minister's reversed opinion after November 6, 1996.
[11] To summarize, the named individuals are not to be considered employed in insurable employment in accordance with paragraph 3(2)(c) of the Unemployment Insurance Act for 1995 and up to November 6, 1996. They are considered to be employed in insurable employment after November 6, 1996.
[12] The appeal is allowed and the assessment is vacated in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 8th day of July 1998.
"C.H. McArthur"
J.T.C.C.