REASONS
FOR JUDGMENT
Pizzitelli J.
[1]
This matter involves the legal interpretation of
subsection 187(2) of the Income Tax Act, a provision that charges
arrears interest on outstanding Part IV tax under the Act and in
particular is a dispute regarding the end date to which interest is to be
calculated.
[2]
The parties filed an Agreed Statement of Facts
in this matter and there are really no facts in dispute. The Appellant was
assessed Part IV taxes in connection with dividends received for its 1993 and
1995 taxation years, initially as filed. There is no dispute that the balance
due date for payment of Part IV taxes for the 1993 year was June 30, 1993 and
that the balance due date for payment of such taxes for the 1995 year was June
30, 1995. There is also no dispute that the Appellant tendered payment of $13,333,059
on account of such taxes payable in 1995 when he filed his 1995 T2 tax return
on June 10, 1995.
[3]
On January 31, 2000 the Minister of National
Revenue (the “Minister”) reassessed the Appellant for both its 1993 and 1995
taxation years with the effect that the Minister increased the Appellant’s Part
IV taxes for 1993 substantially but reduced the Appellant’s 1995 Part IV taxes
by $6,333,059 (the “Overpayment”). On February 3, 2000 the Minister applied the
Overpayment to the Appellant’s 1993 taxation year without having been asked to
do so prior to that time as she was permitted. The Appellant objected to the
reassessments which were confirmed, and after several reassessments and
objections thereto in respect of the 1993 taxation year, the final reassessment
in 2012 assessed the Appellant’s 1993 Part IV taxes at $11,221,656 more than
originally filed in 1993, which is not in dispute, as well as arrears of
interest pursuant to subsection 187(2). With respect to the Overpayment, the
Minister treated the said sum as “paid” on February 3, 2000 for the purpose of
calculating the arrears interest for the 1993 taxation year under said
provision and the Appellant appeals on the basis that an amount equal to said
sum should be treated as having been paid on June 10, 1995 being the date of
its actual initial payment in respect of the 1995 taxation year which was
subsequently found to have been overpaid and applied to its 1993 tax bill.
[4]
Subsection 187(2), found under Part IV of the Act,
reads as follows:
187(2) Interest. Where a corporation is
liable to pay tax under this Part and has failed to pay all or any part thereof
on or before the day on or before which the tax was required to be paid, it
shall pay to the Receiver General interest at the prescribed rate on the amount
that it failed to pay computed from the day on or before which the tax was
required to be paid to the day of payment.
[5]
In effect, the Appellant takes the position that
on the plain reading of the subsection, interest is computed from the day it
was required to be paid, being June 30, 1993 to the date of payment, which it
says was June 10, 1995 with respect to a portion of the tax liability equal to
the Overpayment. There is no question interest on the increased liability in
excess of the Overpayment is subject to interest under 187(2). The Appellant
argues that regardless of the date on which the Minister decided to apply the
Overpayment in 1995 to the 1993 taxation year, being February 3, 2000, the
amount was actually paid on June 10, 1995 and thus the Minister had the use of
the money from such time and it would be unfair and contrary to the policy of
interest obligations to pay interest on an amount already in the Minister’s
possession. Moreover says the Appellant, subsection 187(2) does not contain a
requirement that the Minister must apply the payment as does subsection 161(1)
which deals with interest on arrears of Part I and other Parts, but not Part
IV. By analogy argues the Appellant, if Parliament intended that the amount in
the Minister’s possession must be applied to a specific year or Part IV
assessment, it should have said so. The Respondent, argues the Appellant, is
ignoring the distinction between amounts “paid” and amounts “applied” both found
in subsection 161(1) and not in subsection 187(2) which does not require that
the Minster must apply the payment to any year or account. In fact, subsection
161(1) reads as follows:
161(1) General. Where at any time after a
taxpayer's balance-due day for a taxation year
(a) the total of the taxpayer's taxes payable under this
Part and Parts I.3, VI and VI.1 for the year
exceeds
(b) the total of all amounts each of which is an amount paid
at or before that time on account of the taxpayer's tax payable and applied as
at that time by the Minister against the taxpayer's liability for an amount
payable under this Part or Part I.3, VI or VI.1 for the year,
the taxpayer shall pay to the Receiver General
interest at the prescribed rate on the excess, computed for the period during
which that excess is outstanding.
[6]
The Appellant relied on the decision of this
Court in Livergant v Minister of National Revenue, [1989] TCJ No. 502, 89
DTC 362 where an appellant who submitted instalments that exceeded the amount
of tax for which he was reassessed, argued he should not pay interest on that
portion of the instalments that were erroneously refunded to him. Goetz J.
found that such position would be untenable after the April 19, 1983 amendment
to subsection 161(1), which amendment required that the Minister actually apply
those amounts paid to the taxes owing. In paragraph 23 the learned Justice
paraphrased the amended subsection as follows:
…the subsection provides that where, at any
time, a taxpayer’s tax payable for a taxation year exceeds the aggregate of
those amounts paid by the taxpayer on account of his tax payable and applied as
such by the Minister, interest shall be payable on the difference.
[7]
As there was no requirement for the Minister to
apply such refund to taxes owing prior to the 1983 amendment, Goetz found that
when the Minister issued a refund in error of taxes already paid and hence
didn’t apply those funds to the taxes, the Minister could not claim interest on
the refunded amount until the date of its reassessment setting aside the
refund.
[8]
I have some difficulty accepting that the
subsection 161(1) changes should be assumed to inform the interpretation of
subsection 187(2). Firstly, the Livergant decision dealt with whether
interest should be charged on an erroneously refunded amount of Part 1 tax. This
case has nothing to do with taxes that are not by their nature intended to be
refunded and that were refunded in error and so there is no factual similarity
to that case. In the case at hand, we are dealing with Part IV taxes, which by
their nature are intended to be refunded in the future through the workings of
the refundable dividend tax on hand provisions of section 129 of the Act
that effectively returns these Part IV taxes when dividends are paid out by the
corporation receiving them. The Part IV tax is inherently a refundable tax. It
stands to reason that subsection 161(1) deals with Part I and other Parts of
the Act in assessing arrears interest but does not specifically deal with
Part IV taxes. I am not satisfied with the Appellant’s argument that I should
accept that the failure of subsection 187(2) to have a requirement to “apply”
the taxes paid by the Minister as does subsection 161(1) as reason enough to
interpret subsection 187(2) in the manner suggested.
[9]
On the plain meaning of the words “to the date
of payment” as the end date for the calculation of arrears interest, I am not
swayed that the initial date of payment in respect of an entirely different
year, i.e. 1995, should apply as the date of payment for a year, 1993, two
years before the payment was even made. Frankly, this suggests an illogical and
ridiculous result suggesting the plain meaning of date of payment cannot be as
the Appellant suggests. Moreover, as the term “payment” is not defined in the Act,
it seems equally plausible that it can refer to an amount paid on behalf of an
outstanding debt, such as the application of the 1995 tax year refund to the
1993 debt at the Minister’s choosing pursuant to subsection 164(2) of the Act.
It seems far more logical to assume that the application of the Overpayment that
crystallized on January 31, 2000 due to the reassessment of the 1995 taxation
year is the “payment” in question contemplated by subsection 187(2) rather than
the initial payment in 1995 which until such reassessment stood as owing on
account of the 1995 taxation year assessed as filed by the Appellant. It defies
logic that the same amount can be said to contemporaneously apply to two
different debts. In my opinion, the reasonable and plain meaning of “date of
payment” refers to the date the debt in question was extinguished; the date the
Appellant received a reduction in its 1993 tax liability due to the Minister’s
decision to apply the 1995 Overpayment to such debt.
[10]
In fact, the Minister did not and could not
apply the Overpayment to the Appellant’s 1993 tax liability until it exercised
it rights to do so under subsection 164(2) on February 3, 2000, a few days
after the Overpayment crystallized on January 31, 2000, being the date of the
last reassessment for the 1995 taxation year in question. Until such time, the
prior assessment for the 1995 taxation year is deemed to be valid and binding
according to the provisions of subsection 152(8) and subsection 248(2) treats
the tax payable by a taxpayer to be fixed by an assessment. Accordingly, the
tax paid by the Appellant on June 10, 1995 assessed as filed, was fixed for the
1995 tax year and not any other year and did not and could not become an
overpayment until the date of reassessment for such year on January 31, 2000.
In short, an overpayment did not exist prior to January 31, 2000 so no amount
existed to be applied to an assessment fixed for 1993. Parliament has in fact
said so through the above provisions. Accordingly, the date of payment could
simply not have been June 10, 1995 for the purposes of crediting the
Overpayment to the taxpayer’s 1993 tax liability.
[11]
I frankly do not agree with the Appellant’s
interpretation of the plain meaning of subsection 187(2) and find no ambiguity in
the interpretation of same; however even if I agree that the Appellant’s
position creates an ambiguity in interpretation, I could not find in the
Appellant’s favour based on a textual, contextual and purposeful approach to
interpretation for several of the reasons the Respondent has well argued.
[12]
Both parties relied on the Supreme Court of
Canada’s decision in Canada Trustco Mortgage Co v Canada, [2005] 2 SCR
601, 2005 SCC 54 for the principles of statutory interpretation found at paragraph
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 whole. When the words of a provision are precise and
unequivocal, the ordinary meaning of the words play 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.
[13]
Firstly, I do not agree with the Appellant’s
argument that using the textual, contextual and purposive approach to
interpretation that the Respondent’s position on subsection 187(2) would render
the amendments to subsection 161(1) meaningless and result in contradictory and
unharmonious interest on arrears schemes. As I stated above, the two sections
deal with different parts of the Act with different roles and so there
is justification for a different approach and no need for concern that the two
subsections conflict in any way. Subsection 187(2) specifically deals only with
Part IV taxes and subsection 161(1) with Part I and other specific parts.
[14]
Secondly, taking a simple contextual approach to
Part IV, which only consists of a few sections, namely from section 186 through
187, it is clear that the liability to pay tax under Part IV is a liability to
pay tax for a specific year so that the arrears of interest are calculated with
respect to that specific year.
[15]
Subsection 186(1) is the provision that imposes
Part IV taxes on assessable dividends and reads as follows:
186(1) Tax on assessable dividends. Every
corporation (in this section referred to as the “particular corporation”) that
is at any time in a taxation year a private corporation or a subject
corporation shall, on or before its balance-due day for the year, pay a tax
under this Part for the year equal to the amount. …
[16]
It is clear the liability to pay tax is by the balance
due date “for the year” and the tax is to be paid “for the year”. I agree with
the Respondent that there is no ambiguity in that Part IV tax is tied to a particular
year. Likewise, the obligation to pay arrears interest under subsection 187(2)
is in respect to “liability to pay tax under this Part”, which under subsection
186(1) is for a particular year, where there has been a failure to pay it by a
required date, namely under subsection 186(1), the balance due date. The two
subsections are contextually linked and must be read together with the logical
and reasonable result that the “day of payment” referred to in subsection
187(2) must be the day the corporation’s liability for a particular year was
paid.
[17]
The Appellant admits in paragraph 5 of the Agreed
Statement of Facts that the June 1995 payment was “on account of its 1995
taxation year’s Part IV tax liability on the amounts it reported under Part IV
of the Act.” Moreover, the Appellant’s T2 income tax return entered into
evidence shows the payment made on account of 1995 and the parties agree it was
paid on June 10, 1995.
[18]
Accordingly, based on a textual, contextual and
purposive approach, it would be inconsistent and unharmonious to interpret
subsection 187(2) to mean that any payment made in connection with a particular
year can apply to any other year, as the Appellant alleges. There is no basis
to assume that a payment made in regard to a particular year can concurrently
be treated as a payment on account of another year, which is essentially the
result of the Appellant’s position, neither on a plain and reasonable meaning approach
nor in the textual, contextual and purposive analysis dictated by the Supreme
Court in Canada Trustco.
[19]
Finally, I must agree with the Respondent that
to interpret subsection 187(2) in a manner as to require application of funds
as in subsection 161(1) discussed above, would result in rendering many other
provisions of the Act inconsistent and useless or create unnecessary
conflicts within the Act.
[20]
As the Respondent has pointed out, section 221.2
of the Act is a specific section that allows the Minister, on
application by the taxpayer, to transfer a payment made on account of one year
to another year and treat the payment as if always having been made on account
of the other year, the same result the Appellant is trying to reach here.
Section 221.2 is a mechanism in the Act that allows just the result the
Appellant here seeks, except that the Appellant has never made any such
application before February 3, 2000 when the Minister applied the Overpayment
in 1995 to the 1993 tax liability. If subsection 187(2) were to be read as
automatically achieving this result as a matter of simple interpretation then
there would be no need for section 221.2 and its existence would create
conflict within the Act. As the Minister under section 221.2 may only
exercise his discretion to reapportion a payment on application of the taxpayer,
then to allow such apportionment to occur without application of the taxpayer
under subsection 187(2) can lead to conflict and absurd results. Surely if the
Minister argued that he could avail himself of such reapportionment of tax
payments for Part IV tax so that an earlier payment should be applied to a
later tax liability so as to create a greater arrears interest amount for the
earlier year’s tax liability this would be challenged as abusive. It certainly
justifies why the taxpayer should have to ask for such treatment.
[21]
Moreover, as the Respondent has also pointed
out, many provisions of the Act contain similar interest charging
language to “date of payment” found in subsection 187(2) including subsections 131(3.2),
132(2.2), 133(7.02), 159(7), paragraph 164(4)(b), subsections 185(2), 202(5), 227(8.3)
and 227(9.3). It would seem these would all render section 221.2 redundant as
well if they also allowed automatic reapportionment of payments between years
or different tax accounts. I would agree that the Appellant’s proposed
interpretation cannot be intended by Parliament as both subsection 187(2) or
any of the above referenced other provisions cannot regulate the reapportionment
of the taxpayer’s payments at the same time section 221.2 does. It is trite law
as the Supreme Court of Canada informed us in The King v Assessors of Sunny
Brae (Town), [1952] 2 S.C.R. 76 at 97 that “a statute is
to be construed, if at all possible, so that there may be no repugnancy or
inconsistency between its portions…”. This goal is accomplished when
reapportionment is allowed only under section 221.2 and not subsection 187(2)
or any of the other above provisions mentioned that contain “to date of
payment” language in calculating interest.
[22]
It should also be noted that as section 221.2 is
a specific provision dealing with reapportionment of payments, containing
specific requisite elements such as the need for taxpayer request and specific
outlined mechanisms including rendering a past payment as never having been
made; it is clear that such a specific provision should override an arguable
general provision such as 187(2) which contains no prerequisite elements or
mechanisms to achieve the goal of reapportionment. In fact, Canada Trustco
at paragraph 11 stated:
…Where Parliament has specified precisely what
conditions must be satisfied to achieve a particular result, it is reasonable
to assume that Parliament intended that taxpayers would rely on such provisions
to achieve the result they prescribe.
[23]
Consequently, I agree with the Respondent that
subsection 187(2) cannot operate to treat part of the June 1995 payment on
account of the Appellant’s 1995 tax liability as a concurrent payment on
account of its 1993 Part IV tax liability, regardless of whether such part was
an ultimate overpayment or not for such year.
[24]
The Minister did not and could not apply the
Overpayment to the Appellant’s 1993 tax liability until it exercised it rights
to do so under subsection 164(2) on February 3, 2000, as explained above so
that the date of payment could simply not have been June 10, 1995 for the
purposes of crediting the Overpayment to the taxpayer’s 1993 tax liability and
the Appellant did not apply for any reapportionment of the tax paid on account
of the 1995 taxation year pursuant to section 221.2 at any time to allow it to
do so.
[25]
I also wish to comment on what I perceive to be
the Appellant’s main underlying argument in this matter, that it is patently
unfair for the Minister to have been in possession of the Overpayment since
January 10, 1995 and still allow the taxpayer to be assessed interest at a rate
2 percent higher on that sum of money than the Minister paid out due to the
workings of interest calculation under Regulations 4301(a) and (b)
respectively. The Appellant has not questioned the validity of these provisions
nor am I aware of any basis for doing so. If there was no interest differential
between interest charged on taxes owing to the Minister and interest paid on
overpayments of tax liabilities, the Appellant would not have any reason to
have appealed this reassessment. Unfortunately, such interest differential
results in the Appellant being required to pay more in interest on the same
amount he was paid interest on. This however is the law as enacted by
Parliament to encourage prompt payment of taxes owing and only Parliament has
the right to change it. This Court has no jurisdiction to allow a different
calculation based outside the law.
[26]
The appeal is dismissed with costs to the
Respondent.
Signed at Toronto, Ontario, this 12th day of February 2015.
“F.J. Pizzitelli”
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