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Agency - Statutory Agency for the Crown. Jayco Inc. v. Canada (Revenue Agency)
In Jayco Inc. v. Canada (Revenue Agency) (Ont CA, 2022) the Court of Appeal considered the liability of the federal Crown to a statutory trustee required to collect GST/HST:[6] The appellant relies on s. 221(1) of the ETA, which requires a supplier to collect the tax payable by a recipient:221(1) Every person who makes a taxable supply shall, as agent of Her Majesty in right of Canada, collect the tax […] payable by the recipient in respect of the supply. [7] The appellant argues that this provision made it an agent of the respondents when it carried out the instructions of the CRA to either pay or secure the taxes claimed. Accordingly, the appellant argues that it is entitled to an indemnity owed by a principal to an agent when the principal’s instructions turn out to be based on an erroneous view of tax liability. The appellant acknowledges that the weight of authority has concluded that auditors carrying out administrative duties under the Income Tax Act, R.S.C., 1985, c. 1 (5th Supp.) [the ITA] owe no duty of care to taxpayers, but it argues that s. 221(1) of the ETA makes the present relationship different.
[8] It is plain and obvious that this claim could not succeed.
[9] The motion judge held that the Supreme Court of Canada resolved the issues of indemnity raised by this appeal in Reference re Goods and Services Tax, 1992 CanLII 69 (SCC), [1992] 2 S.C.R. 445. The appellant, however, submits that reference questions are advisory opinions which are not a decision by a court on the merits and which bind no one: In Re Statutes of Manitoba relating to Education (1894), 1894 CanLII 80 (SCC), 22 S.C.R. 577, at pp. 677-678; Reference re Secession of Quebec, 1998 CanLII 793 (SCC), [1998] 2 S.C.R. 217, at para. 25.
[10] In Reference re Goods and Services Tax, Alberta argued that since suppliers were designated as agents of the government for the collection of the GST/HST, the common law duties of principals to agents were triggered, including a duty to reimburse agents for all costs and liabilities incurred in the course of the agency. The court found this to be an exaggeration of the common law duty of principals to agents, and adopted the language of Professor Fridman in The Law of Agency (5th ed. 1983), at p. 164:The most important duty of the principal is to remunerate the agent for services rendered. The obligation to pay such remuneration – the agent’s “commission” – exists only where it has been created by an express or implied contract between principal and agent. [11] The court concluded that the duty to remunerate the agent for costs incurred in the course of the agency does not arise automatically, and only arises in cases in which the principal and the agent contract, expressly or by implication, for such remuneration to be paid. In the case of the GST/HST, it concluded that there was no contractual duty of reimbursement arising expressly or by implication, although it left open the case of whether “there could ever arise a case in which governments would be under a duty to reimburse agents unilaterally created by statute for the costs incurred in the course of their agency”: at p. 476.
[12] The court went on to consider the common law right of indemnification for agents who inadvertently cause tortious injury to others in the course of their agency, and concluded that the collection of taxes as an agent in compliance with the ETA could not give rise to a right to indemnification: at pp. 476-477.
[13] Finally, the court noted that any right to remuneration for the time and trouble involved in collecting the GST/HST would have to flow from the Act itself. The Act was silent on compensation, though it provided for a one-time transitional credit. Since Parliament had directed its mind to the issue of compensation for the costs of compliance with GST/HST collection, and established a scheme for compensation, “common law rights which might have operated but for the statute cannot be relied upon”: at p. 478.
[14] Here, there is no question of express or implied contractual entitlement to reimbursement. There is no tortious liability to a third party which is the subject of a claim for indemnification. Section 221(1) of the ETA limits the agency to the “collection” of the tax from a recipient of a supply.
[15] Both the ITA and the ETA rely on self-reporting by taxpayers. Those acts establish administrative structures for the assessment and audit of taxpayers. When the CRA delivers a Notice of Assessment or Reassessment claiming that more taxes are owing and the taxpayer delivers a Notice of Objection, the parties are taking opposing positions. Under these circumstances, it cannot be said that the taxpayer is acting as agent of the tax authority when it incurs interest or legal costs in the course of asserting its position.
[16] Interest paid to post security for the taxes claimed, and legal fees incurred to contest the assessment, are not incurred for the “collection” of the tax from a recipient of a supply.
[17] In the face of the comprehensive statutory scheme providing for Notices of Objection, appeals to the Tax Court of Canada, judicial review and some remedies for overpayment, such as interest on refunds and awards of costs, the absence of statutory provisions for indemnification for other interest paid and other legal costs is telling. Here, the Tax Court of Canada awarded solicitor and client costs to Jayco. Section 221 does not provide a basis to infer a statutory entitlement to more costs and interest beyond that provided in the ETA and the Tax Court of Canada Act, R.S.C., 1985, c. T-2.[1]
[18] Reference re Goods and Services Tax is not binding, but it is persuasive. The motion judge was correct to conclude that it is plain and obvious that there is no right of indemnity arising from s. 221 of the ETA for the expenses claimed by the appellant.
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