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The Federal Court in Commissioner of Taxation v Warner (No 2) [2015] FCA 1281 held the liquidators of a group of companies to be personally liable for the Commissioner of Taxation’s costs.
The case concerned section 264 of the Income Tax Assessment Act 1936 (ITAA) and section 353-10 of Schedule 1 of the Taxation Administration Act 1953 (TAA) and how these provisions interact with section 486 of the Corporations Act 2001 (Corporations Act).
Section 264 of the ITAA and section 353-10 of the TAA provide the Commissioner with broad powers to require a person to furnish the Commissioner with information, to attend and give evidence before the Commissioner and to produce documents to the Commissioner.
Section 486 of the Corporations Act provides that:
“The Court may make such order for inspection of the books of the company by creditors and contributories as the Court thinks just, and any books in the possession of the company may be inspected by creditors or contributories accordingly, but not further or otherwise."
Anthony Warner and Steven Kugel were appointed liquidators of a group of companies (the “TJT” companies) as a result of creditors’ voluntary liquidations.
Prior to the liquidators’ appointment, the ATO had commenced a review of the TJT companies and identified various tax debts owing to the ATO. Notices were issued to the liquidators under section 264 of the ITAA and section 353-10 of the TAA to provide information and to produce documents. Although the liquidators complied with the notices to produce information, they refused to comply with the notices to produce documents. There were numerous letters exchanged between the solicitors for the liquidators and the ATO in which the liquidators’ solicitors advised the ATO of their clients’ position. Their position was that the Deputy Commissioner was a creditor of the TJT companies and that section 486 of the Corporations Act requires a creditor to obtain an order from the Court if it wishes to inspect the companies’ records held by the liquidator. The liquidators’ solicitors stated that the liquidators would only comply with the ATO notices if ordered to do so by a Court. They suggested that the Commissioner apply for such an order.
The Commissioner’s solicitors refuted the arguments and stated that the notices remained effective and had to be complied with.
A number of letters were exchanged with each party reiterating its respective position.
The Commissioner instituted proceedings on 6 June 2014 seeking declaratory relief and an order for costs against the liquidators. Subsequently, the solicitors for the liquidators wrote to the Commissioner reiterating their earlier position but stating that they objected to a costs order being made against them. The letter went on to state that, if the Commissioner did not seek a costs order, the liquidators would file a submitting appearance only and would take no active role in the proceedings.
On 19 June 2014, the Commissioner responded reiterating his position on the substantive issue. The Commissioner also indicated that the Court would be assisted by the appearance of a contradictor in the proceedings and that if the liquidators merely filed a submitting appearance, there was a risk that the court may decide there was no justiciable controversy. The letter concluded by stating that the Commissioner would agree to orders that each party pay their own costs on the condition that the liquidators take an active role in the proceedings.
No response was provided by the liquidators. Subsequently, the liquidators filed a submitting appearance.
A directions hearing was held at which the Court indicated that it would be assisted by having a contradictor appear. The Commissioner wrote to the liquidators reiterating his earlier offer as to costs in exchange for the liquidator’s active participation in the hearing. No response was provided by the liquidators.
The Commissioner then arranged for amicus curiae to make submissions as a contradictor in the proceedings.
On 1 July 2015, Perry J of the Federal Court delivered judgment holding that the notices issued under section 264 of the ITAA and section 353-10 of the TAA were not subject to, or affected by, section 486 of the Corporations Act. Her Honour held that:
On 20 November 2015, Perry J delivered judgment on the matter of costs. Her Honour found in favour of the Commissioner and made an award of costs against the liquidators personally. Her Honour was influenced by the following matters:
Importantly, Perry J made the award of costs against the liquidators personally, finding that:
The case is a reminder of the breadth of the Commissioner’s powers and the fact that the Commissioner enjoys a more privileged status to other creditors when it comes to access to information.
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