Anonby v. The Queen: Tax Court Does Not Have Jurisdiction Over Source Deductions or to Increase Tax Payable

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The fact situation in Anonby v. The Queen[1] (June 12, 2013) was odd.  Mr. Anonby filed his 2008 tax return on the basis that his income from his employer was $42,000 and $11,000 had been withheld at souce.  His figures were estimates because his employer did not issue him a T4.  He received a refund of $4,000.  CRA then audited his return and interviewed his employer and concluded that no tax was withheld and that his actual remuneration was only $29,100.  He was reassessed on that basis and as a result had to return the refund and pay some additional tax.  He appealed to the Tax Court to vacate the reassessment and replace it with the original assessment.

The court faced two issues:


i)      Does the Tax Court of Canada have jurisdiction to order as part of a reassessment that Income Tax Source Deductions were taken from Mr. Anonby’s paycheques?

ii)      Does the Tax Court of Canada have the authority to vacate the reassessment, effectively reinstating the original assessment?

On the first issue, the court held that it was bound by two decisions of the Federal Court of Appeal each holding that the Tax Court does not have authority to determine, for the purposes an appeal, whether source deductions have been deducted by the taxpayer’s employer:

[19]        Clearly this rejects the earlier line of cases. Two recent decisions of the Federal Court of Appeal have now explicitly provided that the Tax Court of Canada does not have the authority to determine, for purposes of the correctness of an assessment, whether Income Tax Source Deductions have been deducted by an employer. Both Neuhaus v. Canada, and Boucher v. Canada, involved taxpayers who, in appeals to the Tax Court of Canada, argued that source deductions had reduced or eliminated their net tax liability.

[Footnotes omitted]

On the second issue the court cited the well known Harris decision of the Supreme Court of Canada to the effect that in an appeal under the Act the court cannot increase the tax payable:

[28]        In Harris v. Canada (Minister of National Revenue), aff’d [1966] S.C.J. No. 28, the Minister had reassessed the taxpayer to deny Capital Cost Allowance (“CCA”) in respect of a property that the taxpayer had leased, but to allow the taxpayer a deduction in respect of rent paid on the property. On appeal, the Minister sought to amend his pleadings to argue that, if CCA was allowed by the Court, the deduction in respect of rent should be denied. At paragraph 17, the Court held that it could not allow the amendment to the pleadings sought by the Minister:

On a taxpayer’s appeal to the Court the matter for determination is basically whether the assessment is too high. This may depend on what deductions are allowable in computing income and what are not but as I see it the determination of these questions is involved only for the purpose of reaching a conclusion on the basic question. No appeal to this Court from the assessment is given by the statute to the Minister and since in the circumstances of this case the disallowance of the $775.02 while allowing $525 would result in an increase in the assessment the effect of referring the matter back to the Minister for that purpose would be to increase the assessment and thus in substance allow an appeal by him to this Court.

[Footnote omitted]

In the result, the court  concluded:

[30]        It is well-settled that the Court cannot increase the assessment under appeal. The amount of Income Tax Source Deductions do not form a constituent part of an assessment. As a result, I cannot make an order vacating a reassessment and reinstating an earlier assessment where the earlier assessment was for a larger gross tax liability (even if the earlier assessment results in a lower net amount owing to the government after accounting for Income Tax Source Deductions), since such an order would appear to result in an increase in the amount of tax assessed.

[31]        Mr. Anonby may wish to consider obtaining professional advice as to how to deal with what is basically a collection issue. Unfortunately, nothing more can be done in this Court and I must dismiss the Appeal.

There seems to be little question that this decision is correct.  What is puzzling is why the Tax Court of Canada is not given jurisdiction to determine factual issues connected with source deductions.  It seems unfair to put employed taxpayers to the time and expense of pursuing appeals in two different courts to seek relief for relatively small amounts.

[1] 2013 TCC 184.