Robson, J.A.:—Suits were brought in the County Court of Winnipeg by the Attorney-General (Manitoba) against the defendants, who are employed in the Civil Service of Canada for taxes, being 2% of wages under the Special Income Tax Act, 1933 (Man.), c. 44. Judgment was given against the defendants and they appealed to this Court.
Samuel Harper is an Inspector of Weights and Measures; John Henry Brookes is a senior Postal Clerk, and James Forbes is engaged in the Health of Animals Branch of the Department of Agriculture.
The argument had not proceeded far in the Worthington case (A.-G. Man. v. Worthington, ante, p. 168), heard the same day, when the apparent disqualification of the Judge below and of this Court as to one aspect was remarked upon. The same remark might be made in these cases.
In the Special Income Tax Act (i wages” includes the salaries 4 "of any judge of any Dominion or provincial court’’ (sec. 2(d) (ii)).
There occurred here a situation like that in Toronto v. Morson (1916) 37 O.L.R. 369. There Riddell, J. (now J.A.), said (p. 371) : "‘In this case we would consider ourselves disqualified except ex necessitate: but, there being no Judges who are not in like position, we must, if the matter calls for decision, follow the practice in Dimes v. Grand Junction Canal Co. (1852) 3 H.L.C. 759, 10 E.R. 301, and in our own Court of Error and Appeal in Boulton v. Church Society of the Diocese of Toronto (1868) 15 Gr. 450.”
Various objections were raised by the defendants but except two it seems to me they were disposed of at the hearing. The two remaining were, first, that the defendants were employees of the Dominion Government and therefore their salaries were not subject to reduction by means of provincial taxation, and second, that the taxation in question was indirect.
I think that it is clear that these defendants are in the relation of servants to the federal authority and that as far as this inquiry is concerned there is no substantial distinction between their relationship to the Crown and that of a servant or employee to an individual or corporate employer. It seems to me that this first question is now beyond all possible discussion, at all events in this Court, by reason of the decision in Abbott v. St. John (1908) 40 S.C.R. 597; applied in Toronto v. Morson, supra, and approved by the Judicial Committee in Caron v. The King [1924] D.L.R. 105.
With regard to the second objection, that the taxation is indirect, it seems to me that it is clear from sec. 3 of the Special Income Tax Act that the tax is placed directly on the person by whom it is intended that it shall be borne and that sees. 4, 5 and 6 merely impose a duty on an employer, if he is a person within the control of the Province, to make the collection. I do not see that see. 7 alters the case. It does not show that the employer is the person primarily to pay with the right of recoupment. It means that if the collector, 1.e., the employer, shall have failed to collect, the taxpayer, i.e., the employee, shall make the payment to the Province direct. It provides for recovery from the employer as money had and received if he has deducted it, and from the employee as tax, if he has not.. If the employer omits to collect the tax as required by the statute. he would come under the penalty named in sec. 6. It seems to me to be clear that the Act does not make the employer liable for the tax: he is liable to the Crown for the amount of the tax if he has collected it. I think that the only consequence of an employer’s neglect to levy would be what is expressed, namely, that he would be liable to the penalty.
I am quite aware that the degree of compulsion which the Act imposes on the employer as involuntary collector is, from the standpoint of his own pocket or personal liberty, in a practical sense liable for the tax. Yet I cannot say that this makes the tax indirect or that the method employed is mer ely a devi ice, in form of direct, to impose indirect taxation.
I think the case as to the penal nature of the liability of the employer is well within Erie Beach Co. v. A.-G. Ont. [1930] 1 D.L.R. 859.
I think the appeals must be dismissed.
RICHARDS, J.A::—Two important questions are raised by the appeals. They are whether the defendants are taxpayers within sec. 3 of the Special Income Tax Act and whether the tax is direct and within the Province’s power of taxation for provincial purposes, or indirect and ultra vires of the Province.
See. 3 is, in part, as follows:
“In addition to all other taxes to which he is liable under this or any other Act, every employee shall pay to His Majesty for the raising of a revenue for provincial purposes a tax of two per centum upon the amount of all wages earned by or accruing due to him on or after the first day of May, 1933 . .
"Employee” is defined by sec. 2(1)(b) as meaning "any person who is in receipt of or entitled to any wages.’’
‘“Wages’’ is defined by sec. 2(1) (d) as including ‘‘all wages, salaries, and emoluments from any source whatsoever . . .??
Harper is senior Inspector of Weights and Measures at Winnipeg under the Department of Trade and Commerce of the Dominion Government; Brookes is a senor postal. clerk under the Post Office Department of the Dominion Government; and Forbes is an Inspector of the Health of Animals branch of. the Department of Agriculture of the Dominion Government. Persons holding their positions are referred to as employees in a number of sections of the Civil Service Act, R.S.C. 1927, c. 22, which applies to the several departments of the Government of Canada. All three are paid for their services by monthly cheques or orders drawn upon the Receiver General of Canada. They are undoubtedly “employees” and ‘‘in receipt of or entitled to. wages’’ in the ordinary sense of the word and phrase and within the meaning of the Act.
The definition of direct and indirect taxes by John Stuart Mill has been accepted by the Supreme Court of Canada and the Judicial Committee as giving the sense in which the words are used in the B.N.A. Act. See Security Export Co. v. Hetherington [1923] 3 D.L.R. 519, at p. 542; revd [1924] 3 D.L.R. 779, and A.-G. B.C. v. Kingcome Navigation Co. [1934] 1 D.L.R. 31, at pp. 33-38. The definition is set out at p. 36 of the Kingcome case, and is as follows:
‘Taxes are either direct or indirect. A direct tax is one which is demanded from the very persons who it is intended or desired should pay it. Indirect taxes are those which are demanded from one person in the expectation and intention that he shall indemnify himself at the expense of another ; such are the excise or customs.
‘ " " The producer or importer of a commodity is called upon to pay a tax on it, not with the intention to levy a peculiar contribution upon him, but to tax through him the consumers of the commodity, from whom it is supposed that he will recover the amount by means of an advance in price.’ ”’
Sec. 3 imposes the tax directly upon the employee. He is not in a position to indemnify himself in respect thereto at the expense of another and there is nothing in the provisions of see. 3 bearing any resemblance to an indirect tax.
Appellant ’s counsel, however, contends that by means of see. 4, an indirect tax is, in reality, imposed upon the employer, who Shall indemnify himself at the expense of the employee. See. 4 is as follows:
“4. (1) Every employer at the time of payment of wages to an employee shall levy and collect the tax imposed on the employee by this part in respect of the wages of the employee earned or accruing due during the period covered by the payment, and shall deduct and retain the amount of the tax from the wages payable to the employee, and shall, on or before the fifteenth day of the month next following that in which the payment of wages takes place, or at such other time as the regulations prescribe, pay to the administrator the full amount of the tax. No employee shall have any right of action against his employer in respect of any moneys deducted from his wages and paid over to the administrator by the employer in compliance or intended compliance with this section.
"(2) Every employer shall, with each payment made by him to the administrator under this section, furnish to the administrator a return showing all taxes imposed by this part on the employees of the employer in respect of wages during the period covered by the return, which shall be in the form and verified in the manner prescribed by the administrator.
" "(3) Every employer who deducts or retains the amount of any tax under this part from the wages of his employee shall be deemed to hold the same in trust for His Majesty and for the payment over of the same in the manner and at the time provided under this part.”
By this section the employer is made an involuntary collecting agent for the Province, but there is nothing in its provisions which imposes any tax upon him. He is required to deduct the tax from the employee's wages and having done so is required to pay the retained moneys of the employee to the administrator of Income Tax.
Sec. 6 provides for payment of penalties by the employer, no doubt out of his own moneys, in ease of failure to comply with the provisions of sec. 4, but that is not imposing the tax upon him.
But, appellants say, that it is so imposed upon the employer is shown by the concluding lines of sec. 7, which reads as follows :
"17. In case the wages earned or accruing due to an employee are paid to him without the tax imposed thereon being deducted therefrom by his employer, it shall be the duty of the employee to forthwith pay the tax, and all the provisions of sections 23, 253A, 24 and 25 of ‘The Income Tax Act’ shall, mutatis mutandis, apply to the collection and recovery of the tax so imposed from the employer and employee, or either of them. ' ‘
Sees. 23, 23A, 24 and 25 of the Income Tax Act, C.A.M. 1924, e. 91, referred to in sec. 7, provide for collection of the taxes, penalties and costs. There is nothing in them which would impose any liability for the tax upon an employer.
I think the provisions of see. 7, so far as they affect the employer, must necessarily refer to the case where the tax has been deducted, because then, and only then, the employer is liable to pay the tax under the provisions of sec. 4. I do not think sec. 7 is any aid to the appellants’ claim that what the Act really provides is an indirect tax upon the employer hidden behind the sham front of a direct tax upon the employee.
I think the appeals should be dismissed.
Appeals dismissed.