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Docket: 2003-3254(IT)I |
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BETWEEN: |
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PREMAY EQUIPMENT LTD, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
____________________________________________________________________
Appeal heard on January 20, 2004, at Calgary, Alberta
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By: The Honourable Justice D.W. Beaubier |
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Appearances: |
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Agent for the Appellant: |
Darryl Zachary |
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Counsel for the Respondent: |
John-Paul Hargrove |
____________________________________________________________________
JUDGMENT
The appeal from the reassessment made under the Income Tax Act for the 2001 taxation year is dismissed in accordance with the attached Reasons for Judgment.
Signed at Kelowna, British Columbia, this 11th day of February, 2004.
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"D.W. Beaubier" |
Beaubier, J.
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Citation: 2004TCC73 |
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Date: 20040211 |
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Docket: 2003-3254(IT)I |
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BETWEEN: |
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PREMAY EQUIPMENT LTD, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
REASONS FOR JUDGMENT
Beaubier, J.
[1] This appeal pursuant to the Informal Procedure was heard at Calgary, Alberta on January 20, 2004. The Appellant's Controller, Darryl Zachary C.A., was the only witness.
[2] The particulars in dispute are set out in paragraphs 1 to 8 inclusive of the Reply to the Notice of Appeal which read:
A. STATEMENT OF FACTS
1. He admits:
(a) that the Appellant was assessed instalment interest on the basis that the Appellant was required to make twelve equal instalment payments of $140,823.91 for the 2001 taxation year; and
(b) that pursuant to the third option stated in subsection 157(1) of the Income Tax Act, a corporation can choose to make:
(i) two equal instalment payments, for the first to months, equal to one twelfth of the tax payable for the year before the preceding taxation year; and
(ii) ten equal instalment payments, for the remaining ten months, equal to one tenth of the difference between the tax payable for the preceding taxation year and the total of the first two instalment payments that were made as stated in the Notice of Appeal.
2. He denies:
(a) that interest assessed should be reduced to $430.53 from $4,738.86; and
(b) that the Canada Customs and Revenue Agency has incorrectly assessed instalment interest as option three is more advantageous to the Appellant as stated in the Notice of Appeal.
3. He states that there are no other allegations of fact stated in the Notice of Appeal to admit, deny or put in issue. However, to the extent that there are any other allegations of fact, they are denied.
4. In assessing the Appellant for the 2001 taxation year on July 22, 2002, the Minister of National Revenue (the "Minister"), among other things:
(a) assessed instalment interest in the amount of $4,621.30 as set out in Schedule A attached to and forming part of the Reply to the Notice of Appeal; and
(b) assessed arrears interest in the amount of $117.56 as set out in Schedule B attached to and forming part of the Reply to the Notice of Appeal.
5. In so assessing the Appellant, the Minister made the following assumptions of fact:
(a) at all relevant times, the Appellant operated on a fiscal period from January 1, to December 31;
(b) the Appellant's 2001 taxation year ended on December 31, 2001;
(c) the balance-due day of the Appellant for the 2001 taxation year was February 28, 2002;
(d) the instalment base of the Appellant for the 1999 taxation year was $1,082,325.00;
(e) the instalment base of the Appellant for the 2000 taxation year was $1,771,317.00;
(f) the instalment base of the Appellant for the 2001 taxation year was $1,689,887.00;
(g) the Appellant was required to make instalment payments on or before the last day of each month in the 2001 taxation year in the amount of $140,823.91, for a total of $1,689,886.92, as follows:
(h) the Appellant made total instalment payments in respect of the 2001 taxation year in the amount of $1,689,887.00, as follows:
Date Amount
January 31, 2001 $ 76,836.00
February 28, 2001 76,836.00
March 30, 2001 179,864.00
April 30, 2001 153,148.00
May 31, 2001 153,148.00
June 29, 2001 152,928.00
July 31, 2001 153,093.00
August 31, 2001 153,093.00
September 28, 2001 153,093.00
October 31, 2001 153,093.00
November 30, 2001 153,093.00
December 31, 2001 131,662.00
Total $1,689,887.00
(i) prescribed interest as a result of the failure to make all or any part of the instalment payments as and when required for the 2001 taxation year amounted to $4,621.30;
(j) prior to the date of the assessment for the 2001 taxation year, the Appellant did not make any payments in respect of the instalment interest assessed as owing; and
(k) prescribed interest on the instalment interest assessed in the amount of $4,621.30 from the balance-due day of February 28, 2002 to the date of the assessment of July 22, 2002 amounted to $117.56.
B. ISSUES TO BE DECIDED
6. The issues to be decided are:
(a) whether the Appellant has been properly assessed instalment interest in the amount of $4,621.30 for the 2001 taxation year; and
(b) whether the Appellant has been properly assessed arrears interest in the amount of $117.56 for the 2001 taxation year.
C. STATUTORY PROVISIONS, GROUNDS RELIED ON AND RELIEF SOUGHT
7. He relies on sections 157, 249 and 161 and subsections 248(1) and 248(11) of the Income Tax Act, R.S.C. 1985 (5th Supp.) c.1, as amended for the 2001 taxation year and on Parts XLIII and LIII of the Income Tax Regulations.
8. He submits that the Appellant was required to pay instalments of tax for the 2001 taxation year pursuant to subsection 157(1) of the Income Tax Act.
[3] Assumption 5(f) is wrong. The instalment base for the 2000 taxation year should read $1,711,317. In other respects, the assumptions were not in dispute.
[4] At issue are the Income Tax Act provisions and respecting the 2001 year contained in subsections 157(1) and 161(4.1). They read as follows:
157(1) Every corporation shall, in respect of each of its taxation years, pay to the Receiver General
(a) either
(i) on or before the last day of each month in the year, an amount equal to 1/12 of the total of the amounts estimated by it to be the taxes payable by it under this Part and Parts I.3, VI, VI.1 and XIII.1 for the year.
(ii) on or before the last day of each month in the year, an amount equal to 1/12 of its first instalment base for the year, or
(iii) on or before the last day of each of the first two months in the year, an amount equal to 1/12 of its second instalment base for the year, and on or before the last day of each of the following months in the year, an amount equal to 1/10 of the amount remaining after deducting the amount computed pursuant to this subparagraph in respect of the first two months from its first instalment base for the year; and
(b) the remainder of the taxes payable by it under this Part
and Parts I.3, VI, VI.1 and VIII.1 for the year
(i) on or before the end of the third month following the end of the year, where
(A) an amount was deducted by virtue of section 125 in computing the tax payable under this Part by the corporation for the year or its immediately preceding taxation year,
(B) the corporation is, throughout the year, a Canadian-controlled private corporation,
(C) a particular calendar year immediately preceded the calendar year in which the year ends, and
(D) either
(I) the corporation is not associated with another corporation in the taxation year and its taxable income for its immediately preceding taxation year (determined before taking into consideration the specified future tax consequences for that preceding year) does not exceed its business limit for that preceding year, or
(II) where the corporation is associated with another corporation in the taxation year, the total of all amounts each of which is the taxable income of the corporation or such an associated corporation for its last taxation year that ended in the particular calendar year (determined before taking into consideration the specified future tax consequences for that last year) does not exceed the total of all amounts each of which is the business limit of the corporation or such an associated corporation for that last year, or
(ii) on or before the end of the second month following the end of the year, in any other case.
161(4.1) For the purposes of subsection (2) and section 163.1, where a corporation is required to pay a part or instalment of tax for a taxation year computed by reference to a method described in subsection 157(1), the corporation shall be deemed to have been liable to pay on or before each day referred to in subparagraphs 157(1)(a)(i) to (iii) a part or instalment computed by reference to
(a) the total of the taxes payable under this Part and Parts I.3, VI and VI.1 by the corporation for the year, determined before taking into consideration the specified future tax consequences for the year,
(b) its first instalment base for the year, or
(c) its second instalment base and its first instalment base for the year,
reduced by the amount, if any, determined under any of paragraphs 157(3)(b) to (d) in respect of the corporation for the year, whichever method gives rise to the least total amount of such parts or instalments of tax for the year.
[5] As Mr. Zachary pointed out in his testimony, in a volatile business such as the Appellant's, the first option in subsection 157(1) is not capable of being estimated; as a result, the remaining options for instalments are the only ones which are open to such a taxpayer. In support of the Appellant's actions in this matter, Mr. Zachary filed that portion of the "Corporation Instalment Guide" issued by the Respondent as Exhibit A-1. "How to calculate your instalments of corporate tax" reads:
There are three options you can use to calculate the amount of tax your corporation has to pay in instalments for the current taxation year (paragraph 157(1)(a)). You can calculate:
· the estimated tax for the current year (Option 1);
· the tax for the preceding taxation year (Option 2); or
· a combination of the tax for the year before the preceding year, and for the preceding year (Option 3).
For all three options, you base the calculation on the total tax you have to pay under Parts I, I.3, VI, and VI.1 of the Act, and the tax you have to pay to your province or territory.
Unlike other provinces and territories, Quebec, Ontario, and Alberta do not have corporate tax collection agreements with the federal government. Corporations that earned taxable incomes in these provinces have to pay their provincial taxes directly to these provinces.
Note
If a year used in calculating the tax is less than 12 months, see "Short taxation years" in this section.
Option 1 - One-twelfth of the estimated tax payable for the current year is due each month of the taxation year.
Option 2 - One-twelfth of the estimated tax payable for the preceding year is due each month of the taxation year.
Option 3 - One-twelfth of the actual tax payable for the year before the preceding taxation year is due in each of the first two months of the taxation year. One-tenth of the difference between the total of the first two payments and the actual tax for the preceding year is due in each of the remaining 10 months of the taxation year.
Note
We may charge interest if you use Option 1, and your estimated tax was lower than the year's actual tax and the tax calculated using Option 2 or 3.
You can use the option that is most advantageous to you (subsection 161(4.1)). We will assess your return using the option that results in the least amount payable by instalments.
Section C includes two worksheets to help you calculate your estimated tax payable and tax credits, as well as your monthly instalment payments. Use the estimated credits for 2001 to calculate your instalment payments under Options 1, 2, or 3.
[6] However, the Respondent's counsel pointed out that subsection 161(4.1) deals with interest on instalments, and not the instalments themselves.
[7] There is no question that in this case, the Appellant's calculations of instalments was made in good faith, with the information that it had available at the time. Thus, the Appellant is entitled to the Court's sympathy respecting this assessment and its result.
[8] However, the Income Tax Act is designed for general application. It is for the taxpayer to choose the method of instalments and to use it correctly. This taxpayer was admittedly incorrect respecting the first two instalments. If the method used does not comply with the results envisioned in subsection 161(4.1), whether adopted in good faith or in bad faith, then interest is due. That is what happened in this case.
[9] For this reason, the appeal is dismissed.
Signed at Kelowna, British Columbia, on this 11th day of February, 2004.
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"D.W. Beaubier" |
Beaubier, J.
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CITATION: |
2004TCC73 |
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COURT FILE NO.: |