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Income tax — cancelling source deductions assessment

My client, a corporation, was a small franchisee whose finances were run by its franchisor. It was assessed for failing to remit payroll source deductions withheld from its employees. Revenue Canada takes such assessments very seriously, since source deductions are trust funds held in trust for the government. Usually it is very difficult to fight a source-deductions assessment.

I was retained after collection action had started and my client's bank account was cleaned out by Revenue Canada. My client had not even been aware that the assessment had been issued, since the assessment and collection notices had gone to the franchisor.

I filed a Notice of Objection, and demonstrated to Revenue Canada that my client did not in fact control the funds used to pay the employees. The franchisor was in charge of all revenues and finances and simply paid my client a monthly fee.

Based on my detailed submissions, the Collections manager agreed to re-examine the file, and a new audit was ordered. The auditor agreed with me that my client did not control the funds, and cancelled the assessment, issuing a new assessment against the franchisor instead. The money taken out of my client's bank account was refunded.

Problem vanished!

(1999)