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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.
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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.
Teskey, J.
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