Citation: 2013 TCC 111
Date: 20130416
Docket: 2011-912(IT)G
BETWEEN:
SIGRID STELLWAAG,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Docket: 2011-913(IT)G
BETWEEN:
REINER KUNZI,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Docket: 2011-914(IT)G
BETWEEN:
HUGO KUNZI,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
D'Auray J.
[1]
The appeals of Mr. Hugo Kunzi,
Mr. Reiner Kunzi and Ms. Sigrid Stellwaag were heard under
common evidence.
[2]
The question in these appeals is whether the appellants
are liable to pay Part XIII tax on the gross rental income that were paid
or credited to them by their Canadian agent for the 2007 taxation year.
[3]
The appellants are non-residents.
[4]
The appellants each owned one
third (1/3) of a rental property located at 2100, Saint‑Marc Street in Montreal, Quebec.
[5]
During the 2007 taxation year, Mr. Uri Peretz was the
Canadian agent of the appellants.
[6]
On or about December 21st,
2006, the appellants filed an undertaking under subsection 216(4) of the Income
Tax Act (the “Act”) (NR6 Form), to file an income tax return under Part I
of the Act within six months after the end of their 2007 taxation year.
[7]
The appellants’ 2007 taxation years ended on December 31,
2007. Accordingly, the six (6) month period ended on June 30, 2008.
[8]
The appellants’ income tax returns for 2007 were not
filed within the required six month period after the end of their 2007 taxation
year.
[9]
The appellants’ 2007 income tax returns were sent with a
covering letter dated July 21st, 2008 to the Canadian accountant of
the appellants, Mr. Noftall, for filing purposes with the Canada Revenue
Agency (the “CRA”).
[10]
According to the testimony of Mr. Hugo Kunzi, the delay was
attributable to the illness of his sister, Ms. Stellwaag.
[11]
It is not clear from the evidence as
to when the appellants’ tax return under Part I were filed with CRA by Mr.
Noftall. According to Counsel for the appellants, the income tax returns would
have been filed by the end of July 2008 or in August 2008.
[12]
The appellants’ 2007
income tax returns were filed within two (2) years after the end of the 2007
taxation year. This is not contested by the respondent.
[13]
The gross rents paid or credited in 2007 to each of the
appellants by Mr. Peretz amounted to $321,668, which is one third (1/3) of
the gross rental income from the property.
[14]
Mr. Peretz withheld Part I tax of $32,000 on behalf
of each appellant.
[15]
Sometime after June 30, 2008, the
Minister of National Revenue advised the appellants that he could not process
the appellants’ Part I income tax returns since they were filed late.
Statutory Scheme
[16]
The provisions applicable are subsections 212(1), 216(1),
216(4) and paragraph 212(1)(d) of the Act.
[17]
Subsection 212(1) under Part XIII is the charging
provision, which states that every non-resident shall pay an income tax of 25%
on every amount that a person resident in Canada pays or credits to the non-resident
person.
[18]
Paragraph 212(1)(d) deals
with amounts received by a non-resident as rental income. Accordingly, in this appeal if the appellants had not chosen the optional method
of payment pursuant to subsection 216(4), the Canadian agent would have had to
withhold 25% of the gross rental income received during the year, pursuant to
paragraph 212(1)(d).
[19]
Subsection 216(4) allows the
non-resident to choose another method of payment if the non-resident
undertakes to file within six months after the end of his or her taxation year
an income tax return under Part I instead of Part XIII. Under 216(4),
the Canadian agent will be able to withhold amounts based on the net rental
income instead of withholding amounts based on the gross rental income.
[20]
Another alternative is
offered to a non-resident under subsection 216(1). Under subsection 216(1),
where an amount has been paid to a non-resident on account of rent on real
property in Canada, the non-resident may within two years after the end of the
year, file an income tax return under Part I. In doing so, the
non-resident will pay tax on net income under Part I in lieu of paying Part XIII
tax at 25% on the gross rental income as required by paragraph 212(1)(d).
[21]
Counsel for the appellants argued
that his clients should not be prevented to file their income tax returns under
Part I pursuant to subsection 216(1), even if they undertook to file under
subsection 216(4). He argued that the appellants fall within the ambit of
subsection 216(1), since they filed their income tax returns within two (2)
years after the end of their 2007 taxation year.
[22]
Subsections 216(1) states:
216. (1) Where
an amount has been paid during a taxation year to a non-resident person or to a
partnership of which that person was a member as, on account of, in lieu of
payment of or in satisfaction of, rent on real property in Canada or a timber
royalty, that person may, within 2 years (or, where that person has filed
an undertaking described in subsection 216(4) in respect of the year, within 6
months) after the end of the year, file a return of income under Part I
in the form prescribed for a person resident in Canada for that year and the
non-resident person shall, without affecting the liability of the non-resident
person for tax otherwise payable under Part I, thereupon be liable, in lieu of
paying tax under this Part on that amount, to pay tax under Part I for the year
as though
(a) the
non-resident person were a person resident in Canada and not exempt from tax
under section 149;
(b) the
non-resident person’s income from the non-resident person’s interest in real
property in Canada, timber resource properties and timber limits in Canada and
the non-resident person’s share of the income of a partnership of which the
non-resident person was a member from its interest in real property in Canada,
timber resource properties and timber limits in Canada were the non-resident
person’s only income;
(c) the
non-resident person were entitled to no deductions from income for the purpose
of computing the non-resident person’s taxable income; and
(d) the
non-resident person were entitled to no deductions under sections 118 to 118.9
in computing the non-resident person’s tax payable under Part I for the year.
[23]
The difference between subsections
216(4) and 216(1) is that under subsection 216(4), the Canadian agent
will withhold and remit to the Receiver General amounts based on net income during
the year. Pursuant to subsection 216(1), the Canadian agent will withhold and
remit to the Receiver General amounts based on gross income during the year. In
most cases, Part I tax liability pursuant to subsection 216(1) will result
in a subsequent refund to the non-resident.
[24]
Counsel for the appellants argued
that I should give a liberal interpretation to subsection
216(1) of the Act.
[25]
I disagree with the submissions of
Counsel for the appellants. The wording of subsection
216(1) is clear. Where a person has filed an undertaking under 216(4), the
person has to file his or her income tax return within six months after his or
her year end.
[26]
The Supreme Court of Canada stated in the decision of Canada
Trustco Mortgage Co. v. Canada, [2005] 2 S.C.R. 601,
that when the words of a provision are clear and unambiguous the words should
be given a dominant role in the interpretative process. Chief Justice McLachlin
and Justice Major, writing for an unanimous Court, stated the following at
paragraph 10 on principles of statutory interpretation as they apply to tax
legislation:
10 It
has been long established as a matter of statutory interpretation that “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 the
Act, and the intention of Parliament”: see 65302 British Columbia
Ltd. v. Canada, [1999] 3 S.C.R. 804, at para. 50. The interpretation
of a statutory provision must be made according to a textual, contextual and purposive
analysis to find a meaning that is harmonious with the Act as a whole.
When the words of a provision are precise and unequivocal, the ordinary meaning
of the words plays a dominant role in the interpretive process. On the
other hand, where the words can support more than one reasonable meaning, the
ordinary meaning of the words plays a lesser role. The relative effects of
ordinary meaning, context and purpose on the interpretive process may vary, but
in all cases the court must seek to read the provisions of an Act as a
harmonious whole.
[27]
The taxation year-end of the
appellants was December 31, 2007. The appellants’ income tax returns
were to be filed by June 30, 2008. Since the income tax returns were not
filed within the six months after their taxation year-end, the appellants lost
the benefits of subsection 216(4). Subparagraph 216(4)(b) states that if
a non-resident person does not file a return in accordance with the
undertaking, on the expiration of the time for filing, the non‑resident
will have to pay to the Receiver General Part XIII tax.
[28]
The respondent provided the
legislative history of subsections 216(1) and 216(4) for the years applicable
to taxation years 1952 to 2007. It is interesting to note that for a certain
period, there were no references to subsection 216(4) in 216(1). It would have
then been possible to argue that subsection 216(1) could apply even if an
undertaking was given under 216(4). However, this is not the case for the year
under appeal, the wordings of both subsections 216(1) and 216(4) are clear.
[29]
As it was pointed out during the
trial by the respondent, the appellants could ask the Minister of National
Revenue to extend the time for filing an income tax return under subsection
220(3).
[30]
The appeals are dismissed with
costs.
Signed at Ottawa, Canada, this 16th day of April 2013.
“Johanne D’Auray”
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