Withholding tax on resident debtors and non-resident shareholders upheld under mandatory statutory taxing powers.

A company was treated as a Canadian debtor for withholding purposes where residence, not nationality, governed the statutory expression; because its business, control, meetings, and dividend-generating income were in Canada, the withholding duty applied. The statutory obligation to deduct and remit tax was held mandatory, and uncertainty about whether a ministerial receipt would operate as a defence in every foreign forum did not excuse compliance. The tax on non-resident shareholders was also upheld as intra vires, as Parliament had authority to legislate for taxation even with extra-territorial effect. The taxing and withholding provisions were therefore valid in their application.

---

---

Issues: (i) Whether the company was a "Canadian debtor" within the meaning of the withholding provisions, (ii) whether the withholding obligation under the taxing machinery could be avoided because the statutory discharge might not operate in every foreign forum, and (iii) whether the tax on non-resident shareholders was ultra vires the Parliament of Canada.

Issue (i): Whether the company was a "Canadian debtor" within the meaning of the withholding provisions.

Analysis: The phrase "Canadian debtor" was construed by reference to residence and not nationality in the case of an individual or place of incorporation in the case of a company. The company carried on its business, controlled its affairs, held its meetings, and earned the income from which dividends were paid in Canada, so its residence was Canadian for income tax purposes.

Conclusion: The company was a Canadian debtor and fell within the statutory language, against the appellant.

Issue (ii): Whether the withholding obligation under the statutory machinery could be avoided because the statutory discharge might not operate in every foreign forum.

Analysis: The withholding provision in Section 84(1) was treated as absolute in terms. The potential uncertainty whether the ministerial receipt would afford a defence in a foreign court did not qualify the mandatory duty to deduct and remit the tax. The statutory scheme was not confined to cases where Section 87 would protect the debtor in every possible jurisdiction.

Conclusion: The withholding obligation remained enforceable, against the appellant.

Issue (iii): Whether the tax on non-resident shareholders was ultra vires the Parliament of Canada.

Analysis: Under Section 3 of the Statute of Westminster, 1931, read with head 3 of Section 91 of the British North America Act, the Dominion Parliament had plenary power to legislate for raising money by taxation even with extra-territorial operation. Taxing non-residents by a validly enacted scheme was within legislative competence and did not become invalid merely because its enforcement might depend on local machinery.

Conclusion: The provision was intra vires the Parliament of Canada, against the appellant.

Final Conclusion: The taxing and withholding provisions were upheld in their application to the appellant, and the challenge to legislative competence failed.

Ratio Decidendi: A taxing statute may validly impose a withholding obligation on a resident debtor by reference to residence, and extra-territorial operation does not invalidate the law where the legislature is competent to enact the tax and the duty is expressed in mandatory terms.

---