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Docket: 2004-1532(IT)I |
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BETWEEN: |
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I.G. (ROCKIES) CORP., |
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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 December 16, 2004 at Calgary, Alberta
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Before: The Honourable Justice Gordon Teskey |
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Appearances: |
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Counsel for the Appellant: |
David E. Spiro |
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Counsel for the Respondent: |
Lesley Akst |
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JUDGMENT
The appeal from the assessment made under the Income Tax Act for the 2002 taxation year is allowed, with costs, and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the interest of $66,697 is to be deleted therefrom, and interest on $1,564,589.58, at the prescribed rate for the five days the payment was late in April 2002, be added to the assessment, all in accordance with the attached Reasons for Judgment.
Signed at Toronto, Ontario, this 9th day of February, 2005.
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"Gordon Teskey" |
Teskey, J.
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Citation: 2005TCC51 |
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Date: 20050209 |
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Docket: 2004-1532(IT)I |
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BETWEEN: |
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I.G. (ROCKIES) CORP., |
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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
Teskey, J.
[1] The Appellant in its Notice of Appeal, wherein it appealed an assessment of tax made under the Income Tax Act (the "Act") for the year ending December 31, 2002, elected the informal procedure.
Issue
[2] The sole issue before the Court is the interpretation to be placed on subsections 157(1), 161(2) and 161(4.1) of the Act.
[3] Subsection 157(1) is the provision in the Act that requires corporations to make instalment payments of tax. It contains three different options and reads:
157(1) Payment by corporations - 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 XIII.1 for the year on or before its balance-due day for the year.
[4] I will be referring to (i) as "Option 1" and (ii) as "Option 2" and (iii) as "Option 3".
[5] Subsection 161(2) of the Act is the provision that allows the Minister of National Revenue (the "Minister") to assess interest against a corporation for failure to pay all or any part of its required instalments and provides:
161(2) Interest on instalments - In addition to the interest payable under subsection (1), where a taxpayer who is required by this Part to pay a part or instalment of tax has failed to pay all or any part thereof on or before the day on or before which the tax or instalment, as the case may be, was required to be paid, the taxpayer shall pay to the Receiver General interest at the prescribed rate on the amount that the taxpayer failed to pay computed from the day on or before which the amount was required to be paid to the day of payment, or to the beginning of the period in respect of which the taxpayer is required to pay interest thereon under subsection (1), whichever is earlier.
[6] Subsection 161(4.1), under the heading "Limitation - corporations", limits how interest on default is to be calculated and provides:
(4.1) Limitation - corporations - 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.
Facts
[7] The Appellant's tax for the year ending December 31, 2002 was $18,775,075.00.
[8] Because the Appellant was only incorporated in the middle of 2001, thus there was no instalment base for the second preceding year. Thus, for the second preceding year, the instalment base is zero.
[9] The Appellant was required to pay instalments of tax for the year ending December 31, 2002.
[10] Option 1 would have required the Appellant to pay $1,564,589.58 on the last day of each month in the year.
[11] Twelve instalments of $1,564,589.58 would total $18,775,074.96.
[12] The Appellant decided to make payments pursuant to Option 3 of subsection 157(1), which required it to pay $2,030,697.00 on the last day of March 2002 and on the last day each month thereafter, which if paid in full, would have resulted in payments totalling $20,306,970.00. Since the instalment base for the second preceding year is zero. No payments had to be made in January or February of the year 2002. No issue is taken by the Respondent on this point.
[13] The payment of $2,030,697.00 due on the last day of March 2002 was paid on April 5, 2002, thus being five days late.
[14] The December 31 payment was only $730,697.00 and thus was $1,300,000.00 short. The Appellant paid by instalments a total of $19,006,970.00.
[15] The assessment of income tax is not challenged; the addition thereto of $66,697.86 of interest is what is challenged.
Basis of Assessment and Respondent's Position
[16] The Respondent's position is that subsection 161(4.1) requires a corporation to make instalments using the option in subsection 157(1) that gives rise to the least total amount of tax.
[17] Since a corporate taxpayer must pick the option contained in subsection 157(1) that gives rise to the least total amount of tax, the Appellant should have paid pursuant to Option 1, 12 equal payments of $1,564,589.58. The Minister has charged interest on what he claims are the two missing payments due at the end of January and February 2002.
[18] When counsel for the Respondent was asked if the Appellant had paid the March payment on time and the full amount of the December payment, would the Minister's position be the same? The answer was "yes", the taxpayer must choose the option that gives rise to the least amount of tax paid.
Appellant's Position
[19] The Appellant argues that subsection 157(1) gives a corporate taxpayer the right to use either Option 1, 2 or 3, that subsection 161(4.1) is a limiting section and directs the Minister to assess interest on missing payments that should have been paid that would produce the lowest amount of tax paid.
[20] If Parliament intended to require a corporation to use the option that gave rise to the least amount of tax, similar words to the last 19 words of subsection 161(4.1) would have been inserted in subsection 157(1), after subparagraph (a)(iii), namely: "whichever method gives rise to the least total amount of such parts or instalments of tax for the year".
Analysis
[21] Anglin C.J.C., in the Supreme Court of Canada decision of Canada Westinghouse Co. Ltd. v. Grant, [1927] S.C.R. 625, said at page 630: "Repeal by implication is never favoured. ..."
[22] The Quebec Court of Appeal, in the decision Duval v. The King, (1938) 64 Que K.B. 270, at page 273, when dealing with a statute which was never formally repealed, said:
Repeal by implication is not favoured. It is a reasonable presumption that the Legislature did not intend to keep really contradictory enactments on the statute book or, on the other hand, to effect so important a measure as the repeal of a law without expressing an intention to do so. Such an interpretation, therefore, is not to be adopted unless it be inevitable. Any reasonable construction which offers an escape from it, is more likely to be in consonance with the real intention (1).
[23] On a question of statutory interpretation, Iacobucci J. said in the Supreme Court of Canada decision Ludco Enterprises v. The Queen, [2001] 2 S.C. 1082, at page 1100 under the heading "Principles of Statutory Interpretation":
B. Principles of Statutory Interpretation
36 The modern rule of statutory interpretation was put succinctly by E.A. Driedger in Construction of Statutes (2nd ed. 1983), at page 87:
Today there is only one principle or approach, namely the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of Act and the intention of Parliament.
[24] The Respondent referred me to a decision of my colleague Beaubier J., of Premay Equipment Ltd. v. The Queen, released February 11, 2004 (2004 UDTC 58). Beaubier J. said in paragraph 6 that:
However, the Respondent's counsel pointed out that subsection 161(4.1) deals with interest on instalments, and not the instalments themselves.
[25] Then, he said in paragraph 8 thereof:
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.
[26] It seems to me that the second sentence is in conflict with the fourth sentence in paragraph 8 above, and therefore I am not sure what this decision actually says. If it supports the Respondent's position herein, I respectfully disagree.
[27] If a corporation elects an option for instalments and uses it correctly and makes the correct payments on time pursuant to the option chosen even though the option chosen does not result in the least amount payable, that is the end of the matter, as no interest would be payable.
[28] Thus, I agree with my colleague to the extent that a corporation can choose any one of the three options in subsection 157(1) and if used correctly and on time, then that is the end of the matter (if this is what he decided).
[29] It appears that my late colleague Taylor, T.C.J., in the 1984 case of Genstar Marine Ltd. and Seaspan International Ltd. (Appellants) v. Minister of National Revenue, 84 DTC 1075, when dealing with these same subsections said:
... It is fundamental to my perspective of sections 157 and 161, that if a choice of instalment payment method was legitimately available to a corporation at the critical date (the last day of the first month of the fiscal year) and instalments were made according to that method, that no recourse is available to the Minister to re-examine that choice in the light of subsequent information (e.g.: the actual profit as opposed to an estimated profit); or to determine that the corporation should have made a choice of a different method of instalment payments. ...
[30] In this appeal, the Appellant was five days late on the March payment and the December payment was not sufficient according to Option 3.
[31] The interpretation of subsection 161(4.1) of the Act must be coherent with subsection 157(1). This is reached only when you apply subsections 161(2) and 161(4.1), after the application of subsection 157(1).
[32] I disagree with the Respondent's position that subsection 161(4.1) limits a corporation's choice to the one that results in the least amount of tax paid. Such an interpretation is contrary to the obvious intent of Parliament.
[33] I am satisfied that on reading subsection 161(4.1) in its entire context and in its grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act and the intention of Parliament, it is clear that if Parliament intended in subsection 157(1) to require a corporation to use only the method that would result in the least total amount of tax being paid, it would have included clear statutory language to that effect in the body of subsection 157(1) itself.
[34] The Appellant's March payment of $2,030,697 was five days late. Subsection 161(4.1) limits the amount of interest that the Minister can assess to interest on the payment that would have paid the least total tax. Herein, that amount was $1,564,589.50. Thus, interest should be assessed pursuant to subsection 161(4.1) on $1,564,589.50 at the prescribed rate for five days.
[35] The December 31 payment was short $1,300,000. Yet, on that date, the Appellant's tax payable was $18,775,075 and the Appellant had paid a total sum of $19,006,970.
[36] So the question is: should the Appellant be assessed interest on $833,892.50 (being $1,564,589.50 less $730,697.00 = $833,892.50) to the due date for filing its corporate return, when it has in fact overpaid the tax by $231,895? No submissions were made on this point, I do not believe that interest should run against the Appellant on the $834,590 since the Appellant at that point in time had overpaid its 2002 tax by $231,895.
[37] I am satisfied that pursuant to subsection 164(1) of the Act, the Appellant is entitled to a refund of the overpayment of tax and interest thereon pursuant to subsection 164(3), therefore even though the December payment pursuant to Option 3 was $1,300,000 short, there is no liability attached thereto.
[38] The appeal is allowed, with costs, and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the interest of $66,697.86 is to be deleted therefrom, and interest on $1,564,589.58, at the prescribed rate for the five days the payment was late in April 2002, be added to the assessment.
Signed at Toronto, Ontario, this 9th day of February, 2005.
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"Gordon Teskey" |
Teskey, J.
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CITATION: |
2005TCC51 |
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COURT FILE NO.: |
2004-1532(IT)I |
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STYLE OF CAUSE: |
I.G. (Rockies) Corp. and Her Majesty the Queen |
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PLACE OF HEARING: |
Calgary, Alberta |
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DATE OF HEARING: |
December 16, 2004 |
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REASONS FOR JUDGMENT BY: |
The Hon. Justice Gordon Teskey |
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DATE OF JUDGMENT: |
February 9, 2005 |
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APPEARANCES: |
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Counsel for the Appellant: |
David E. Spiro |
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Counsel for the Respondent: |
Lesley Akst |
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COUNSEL OF RECORD: |
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For the Appellant: |
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Name: |
David E. Spiro |
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Firm: |
Blake Cassels & Graydon LLP Toronto, Ontario |
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For the Respondent: |
John H. Sims, Q.C. Deputy Attorney General of Canada Ottawa, Canada |