Citation: 2009 TCC 70
Date: 20090203
Docket: 2007-1938(IT)G
BETWEEN:
LORD ROTHERMERE DONATION,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Archambault J.
[1]
Lord Rothermere Donation
(LRD) is appealing two assessments dated February 5, 2007 issued by
the Minister of National Revenue (Minister) pursuant to Part XIII
of the Income Tax Act (Act). The assessments were with respect to
the refund of the Part XIII tax on a non-resident which had been remitted
to the Minister on July 13, 2001 and September 19, 2001. The only
issue raised by these appeals is whether the Minister computed the interest on
the tax refund in accordance with subsections 227(7) and 164(3) of the Act.
More particularly, the point to be determined is what the proper starting day is
for computing the interest on the refund of the Part XIII tax.
[2]
The appeal proceeded on
the basis of a Partial Agreed Statement of Facts. I reproduce here
paragraphs 1 to 12 of this statement, which I believe are relevant for our
purpose:
1. The Appellant
was established in 1930 under the laws of the Province of Quebec by the
First Viscount Rothermere, on behalf of his issue.
2. In June of
2001, in conjunction with the imminent repeal of the non‑resident owned
investment corporations (the "NRO") regime, the Appellant
caused the winding up and received the distributed assets of two (2) NRO's of
which it was the sole shareholder.
3. The Appellant
had sought an advance income tax ruling to obtain confirmation that no non‑resident
withholding tax was payable pursuant to section 104(11) of the Income
Tax Act, R.S.C. 1985, c. 1 (5th Supp.), as amended
(the "I.T.A."), on the basis that there were no
definitively ascertainable persons to whom payments were deemed to be made. The
Rulings Directorate of the Canada Customs and Revenue Agency, as it was named
then, (the "Agency") declined to rule on the issue.
4. In view of the
apparent uncertainty of the Agency as to whether withholding tax was payable, the
Appellant remitted, with forms NR4: Statement of amounts paid or
credited to non‑residents of Canada, $14,163,648.75 (25% of a
$56,654,595 deemed dividend) to the Agency on July 13, 2001 and
$302,917.15 (25% of a $1,211,688.61 deemed dividend) on September 19,
2001, as a prudent measure to avoid potential interest and penalties
pursuant to subsection 227(9) I.T.A.
5. On
December 7, 2001, the Appellant filed two (2) forms NR7‑R:
Applications for Refund of Non‑Resident Part XIII Tax
Withheld pursuant to subsection 227(6) I.T.A. for the refund of
the non‑resident withholding tax above.
6. The
applications were received by the Agency on December 10, 2001
for the amount of $14,163,648.75, and on December 13, 2001 for the
amount of $302,917.15.
7. On
February 12, 2003, the Agency issued two (2) assessments denying the
Appellant's applications.
8. On or about
May 7, 2003, the Appellant objected to the two (2) assessments above.
9. On
February 5, 2007, the Agency issued two (2) reassessments to the
Appellant pursuant to subsection 165(3) I.T.A., cancelling the
earlier two (2) assessments and granting the refund of the withholding
tax above.
10. The two
(2) reassessments were sent by mail.
11. On
February 15, 2007, the Agency sent to the Appellant a refund cheque dated
February 14, 2007, in the aggregate amount of $17,807,906.03, by mail at
the address appearing on the notices of objection:
Lord Rothermere Donation
15001
c/o
Mr. Alec Anderson, Conyers, Dill & Pearman
Clarendon House
2 Church Street
Hamilton, HM CX
Bermuda
12. The refund of
the withholding tax above was calculated by the Agency as follows:
|
Amount of remittance
|
$14,163,648.75
|
$302,917.15
|
|
Date of the remittance by the Appellant
|
July 13, 2001
|
Sept. 19, 2001
|
|
Date the applications were received by the Agency
|
Dec. 10, 2001
|
Dec. 13, 2001
|
|
Date of the reassessments granting the refund
|
Feb. 5, 2007
|
Feb. 5, 2007
|
|
Interest from date of the applications to the date of the
reassessments (at rate prescribed by the Income Tax Regulations)
|
$ 4,362,056.97
|
$ 93,063.20
|
|
Withholding tax pursuant to part XIII on interest
|
($1,090,514.24)
|
($ 23,265.80)
|
|
Total amount refunded:
|
$17,435,191.48
|
$372,714.55
|
. . .
[My emphasis.]
Statutory provisions
[3]
First, it is useful to
reproduce the key relevant provisions of the Act in order to resolve the issue
raised by these appeals :
|
227(6) Excess withheld, returned or applied. Where a person on whose
behalf an amount has been paid under Part XII.5 or XIII
to the Receiver General was not liable to pay tax under that Part or where
the amount so paid is in excess of the amount that the person was liable to
pay, the Minister shall, on written application made no later than 2
years after the end of the calendar year in which the amount was paid, pay
to the person the amount so paid or such
part of it as the person was not
liable to pay, unless the person is or is
about to become liable to make a payment to Her Majesty in right of Canada,
in which case the Minister may apply the amount otherwise payable under this
subsection to that liability and notify the person of that
action.
|
227(6) Restitution ou application de l'excédent. Lorsqu'une personne pour le compte de qui un montant a été
versé au receveur général en vertu des parties XII.5 ou XIII n'était pas
redevable d'un impôt en vertu de cette partie, ou que le montant ainsi versé
excède l'impôt dont elle était redevable, le ministre doit, sur demande
écrite faite au plus tard deux ans suivant la fin de l'année civile où le
montant a été versé, payer à cette personne le montant ainsi versé ou la partie de ce
montant dont elle n'était pas redevable, à moins qu'elle ne soit tenue de faire
un paiement à Sa Majesté du chef du Canada, ou soit sur le point de l'être,
auquel cas le ministre peut appliquer le montant par ailleurs payable selon
le présent paragraphe à ce paiement et avise la personne en conséquence.
|
|
227(7) Application for
assessment. Where, on
application under subsection (6) by or on behalf
of a person to the Minister in respect
of an amount paid under
Part XII.5 or XIII to the Receiver General, the Minister is not satisfied
(a) that the person was not liable to pay any tax
under that Part, or
(b) that the amount paid was in
excess of the tax that the person was liable to
pay,
the Minister shall assess any amount payable under
that Part by the person and send a
notice of assessment to the person, and
sections 150
to 163,
subsections 164(1) and (1.4) to (7), sections 164.1
to 167
and Division J of Part I apply with any modifications that the
circumstances require.
|
227(7) Demande
de cotisation. Le ministre établit une cotisation pour tout montant payable par une personne en vertu des parties XII.5 ou XIII
et lui envoie un avis de cotisation si, après étude d'une demande faite par
la personne, ou en son nom, en application du
paragraphe (6), relativement à un montant versé au receveur général en vertu de
cette partie, il n'est pas convaincu :
a) soit que la personne n'était pas redevable d'un impôt en vertu
de cette partie;
b) soit que le montant versé au receveur général excédait
l'impôt dont la personne était redevable.
Les articles 150 à 163, les paragraphes 164(1) et (1.4) à (7), les articles 164.1 à 167 et la section J de la partie I
s'appliquent alors, avec les adaptations nécessaires.
|
|
164(3) Interest on refunds and repayments. Where under this section an amount in respect of a taxation year (other
than an amount or portion thereof
that can reasonably be considered to arise from the operation of section
122.5, 122.61 or 126.1) is refunded or repaid to a taxpayer or applied
to another liability of the taxpayer, the Minister shall pay or apply interest
on it at the prescribed rate for
the period beginning on the day that is the latest of
(a) where the taxpayer is an individual, the day
that is 45 days after the individual's balance-due day for the year,
. . .
(c) where the taxpayer is
. . .
(ii) an individual, the day
that is 45 days after the day on which the individual's return of income for the
year was filed under section 150,
(d) in the case of
a refund of an overpayment, the
day the overpayment arose, and
. . .
|
164(3) Intérêts sur les sommes
remboursées. Lorsque, en vertu du présent article,
une somme à l'égard d'une année d'imposition est remboursée à un contribuable ou imputée sur un autre montant dont il est redevable, à l'exception de tout ou partie de la somme
qu'il est raisonnable de considérer comme découlant de l'application des
articles 122.5, 122.61 ou 126.1, le ministre paie au contribuable les intérêts afférents à cette somme au taux prescrit ou les impute sur ce montant, pour la période allant du dernier en date des jours visés aux
alinéas suivants jusqu'au jour où la somme est remboursée ou imputée, sauf si
les intérêts ainsi calculés sont inférieurs à 1 $, auquel cas aucun
intérêt n'est payé ni imputé en vertu du présent paragraphe :
a) le quarante-cinquième jour suivant la date d'exigibilité du
solde qui est
applicable au contribuable pour l'année, s'il est un particulier;
[...]
c) si le contribuable est :
[...]
(ii) un particulier, le quarante-cinquième jour suivant celui
où sa déclaration de revenu pour l'année a été produite en conformité avec
l'article 150;
d) dans le cas d’un remboursement d'un paiement en trop d'impôt, le jour où il y a eu paiement en trop;
[...]
|
|
164(7) Definition of
"overpayment". In this
section, "overpayment" of a taxpayer for a taxation year means
(a) where the taxpayer is not a corporation, the
total of all amounts paid on account of the taxpayer's liability under this Part
for the year minus all amounts payable in respect thereof; and
. . .
|
164(7) Sens de
paiement en trop. Au
présent article, un paiement en trop fait par un contribuable pour une année d'imposition est égal au montant suivant :
a) si le contribuable n'est pas une société, le total des sommes versées sur les
montants dont le contribuable est redevable en vertu de la présente
partie pour l'année, moins ces mêmes montants;
[...]
|
|
150(1) Filing returns of income − general
rule. Subject to subsection (1.1), a return
of income that is in prescribed form and
that contains prescribed
information shall be filed with the Minister, without
notice or demand for the return, for each taxation year of a taxpayer,
. . .
(c) Trusts or estates −
in the case of an estate or trust, within
90 days from the end of the year;
. . .
|
150(1) Déclarations−
règle générale. Sous
réserve du paragraphe (1.1), une déclaration de revenu sur le formulaire prescrit et contenant les renseignements prescrits
doit être présentée au ministre, sans avis ni mise en demeure, pour
chaque année d'imposition d'un contribuable :
[...]
c) Successions ou fiducies − dans le cas d'une succession ou d'une fiducie, dans les 90 jours suivant la fin de
l'année;
[...]
|
|
150(2) Demands for returns. Every person, whether or
not the person is liable to
pay tax under this Part for a taxation year and
whether or not a return has been filed under subsection (1) or (3), shall, on
demand from the Minister, served
personally or by registered letter, file, within such reasonable time as may
be stipulated in the demand, with the Minister in prescribed form and
containing prescribed
information a return of the income for the taxation year
designated in the demand.
|
150(2) Mise en demeure de produire une
déclaration. Toute personne, qu'elle soit ou non assujettie à l'impôt visé par la présente
partie pour une année d'imposition et qu'une déclaration ait été produite ou non en vertu du paragraphe
(1) ou (3), doit, sur mise en demeure du ministre, signifiée à personne ou envoyée sous pli recommandé, produire auprès du ministre, dans le délai raisonnable fixé par la mise en demeure, une
déclaration de revenu pour l'année d'imposition y mentionnée, selon le formulaire prescrit et renfermant les renseignements prescrits.
|
|
248(1) In this Act
"balance-due
day" of a taxpayer for a taxation year means,
(a) where the taxpayer is a trust, the day that
is 90 days after the end of the year,
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248(1) Les définitions qui suivent s'appliquent à
la présente loi.
« date d'exigibilité du solde » L'une des dates suivantes applicable à un
contribuable pour une année d'imposition :
a) si le contribuable est une fiducie, le 90e jour suivant la fin de
l'année;
|
[My emphasis.]
Position
of the parties
[4]
Pursuant to subsection 227(7)
of the Act (Part XIII), the computation of interest payable as result of
assessments made by the Minister must be done in accordance with subsection 164(3)
of the Act (Part I) "with any modifications that the circumstances
require" (" avec les
adaptations nécessaires ").
[5]
The dispute between the
parties results from the different interpretation and scope that they give to
the words "with any modifications that the circumstances require" (disputed
expression) as applicable to subsection 164(3) of the Act. A reading
of this subsection in the context of Part I reveals that the Minister is
to start computing interest from the latest of several specified days. According
to counsel for the respondent, it is apparent that its purpose is to allow the
Minister an "interest‑free period" including an "interest‑free
processing period". The reasons for adopting the rule for the interest‑free
processing period were set out at page 145 of The Budget 1992, Budget
Papers, tabled in the House of Commons by the Honourable
Don Mazankowski, Minister of Finance, on February 25, 1992:
INTEREST FREE
PROCESSING PERIOD
Each year the government issues over
12 million personal income tax refunds. Currently, interest is paid on tax
refunds as of the filing deadline, which is generally April 30th of the
following year. Late returns earn refund interest as of the date filed. In
other countries, there is an interest free period after the filing deadline
for processing returns and sending out refunds. It is proposed that the same
approach be adopted in Canada.
Under the proposed procedure, interest
will not start to accumulate until 45 days after the filing deadline (or
45 days after actual filing if it is later). The change is to become
effective for tax returns filed after 1992.
[My emphasis.]
[6]
The operation of
subsection 164(3) is summarized at pages 243-44 of the Amendments to
the Income Tax Act and Related Statutes, Explanatory Notes, issued
by the Honourable Don Mazankowski, Minister of Finance, in June 1992,
as follows:
Subsection 164(3) of the Act provides
for the payment of interest on tax refunds. For individuals, the interest is
computed for the period beginning on the latest of (i) the day the taxpayer's
return for the year is required to be filed (the "due date") (ii) the
day the return is filed and (iii) the day the overpayment arose, and ending on
the day the refund is made. The amendments to subsection 164(3), which
apply to refunds relating to returns of income filed after 1992, provide that,
in the case of individuals, no interest is paid on tax refunds for the 45‑day
period after the later of the due date of the return and the day on which the
return is filed.
[7]
In applying
subsection 164(3) of the Act to the facts of this case, counsel for LRD
argued that paragraph 164(3)(a) was not applicable because there
was no "balance‑due day". Nothing could be owing after the end
of the year by a non‑resident taxpayer liable for Part XIII tax
because all the tax has been withheld at source. Indeed, pursuant to
sections 212 and 215 of the Act, any income tax payable is required to be remitted
forthwith at the time a person pays an amount that is subject to
Part XIII.
A person liable for Part XIII tax does not have to wait until the end of
the year to see what other income might be subject to Part XIII tax. In
addition, there are no deductions that are relevant in computing the
Part XIII tax given that it is computed on the gross amount paid to the
non-resident.
[8]
Counsel for the respondent
stated that she was not relying on paragraph 164(3)(a) of the Act
to justify the Minister's assessments. Instead, she relied on
subparagraph 164(3)(c)(ii). In her view, the Form NR7‑R ,
Application for Refund of Non-Resident Part XIII Tax Withheld, should be treated
as a return of income for the purposes of that subparagraph and therefore
interest should be calculated from a day that is 45 days after the day on
which these applications were filed, that is, 45 days after December 10
and 13, 2001. That day would be later than the date determined pursuant to
paragraph 164(3)(d), which is the day on which the overpayment
arose. Here, the overpayment arose when the $14,163,648.75 and the $302,917.15
were paid to the Minister on July 13, 2001 and September 19, 2001
respectively.
[9]
Counsel for the respondent
argued that the written application (the NR7‑R) used to obtain the refund
should be treated as a return of income because subsection 227(7) states
that section 150 applies "with any modifications that the
circumstances require". I fail to see how a reference to section 150,
which requires certain taxpayers to file a return of income, helps the
Minister's case. I asked both counsel to
give me an example of the usefulness of section 150 for the purposes of
subsection 227(7), but was not given any.
[10]
In support of her
argument, counsel for the respondent also cited the following analysis made by
an author in commenting on the scope of the application of the rules found in subsections
227(6) and 227(7) of the Act:
67 It is not entirely clear how
paragraphs 164(3)(a) and (c) will be interpreted when necessary
modifications are made. Since there is no date, however, by which a return
under part XIII must be filed, it appears that paragraph 164(3)(c)
(referring to the date on which the return [application] is filed) would produce the date from which credit interest would run.
[My emphasis.]
[11]
Counsel for LRD disagreed
with this interpretation of the respondent’s because, under Part XIII, a
non‑resident does not have to file any income tax return. Income tax returns
are clearly for taxpayers who are liable for Part I tax. An NR7‑R form
is not a return of income. A non‑resident individual would be required to
file a return of income only if he had tax payable by virtue of his having been
employed in Canada, having carried on a business here or having disposed of
taxable Canadian property.
Counsel also stated that the NR7‑R is not a prescribed form pursuant to
section 150 of the Act. Rather, it is prescribed by
subsection 227(6).
[12]
So the issue here is whether
subparagraph 164(3)(c)(ii) is applicable as a result of subsection 227(7)
of the Act. Is the rule that subsection 164(3) applies "with any
modifications that the circumstances require" broad enough to support the
computation of interest made by the Minister on the refund of the Part XIII
tax?
[13]
Counsel for LRD cited many
court decisions in support of his position that it is not. All these decisions
deal with the Latin expression mutatis mutandis (Latin expression)
which, in counsel's view, is equivalent to the disputed expression, which has
been used in the Act since the amendment made to subsection 227(7) in 1985. The part
following paragraph (b) in subsection 227(7) formerly read as
follows:
. . . the minister shall assess that person
for any amount payable by him under Part XIII and send a notice of
assessment to that person, whereupon Divisions I and J of
Part I are applicable mutatis mutandis.
[My emphasis.]
[14]
The approach taken by
these court decisions is well illustrated in Ketz v. The Queen,
79 DTC 5142. In Ketz, the taxpayer was a non‑resident who made
an election pursuant to subsection 216(1) of the Act (Part XIII) to
pay taxes on his rental income under Part I as though he were a person
resident in Canada. This allowed him to have his taxes computed
on his rental income on a net basis as opposed to having them computed on a
gross basis in accordance with the rule applicable under Part XIII of the
Act. When he sold the property in 1976, recaptured capital cost allowance was
added to his income. Mr. Ketz claimed the benefit of the general averaging
clause to alleviate the impact of recapture. The relevant provision was
subsection 118(1), which read in part as follows:
118(1) Notwithstanding
section 117, where, in the case of an individual who was resident in Canada
throughout the taxation year immediately preceding a particular taxation
year (which particular taxation year is hereafter in this section referred to
as the "year of averaging"), any excess remains when
. . .
[My emphasis.]
[15]
The Minister denied
Mr. Ketz the benefit of this provision on the basis that he was not a
resident of Canada throughout the taxation year immediately
preceding the particular year. The claim by Mr. Ketz was based on
subsection 216(3), which provided that "Part I is applicable mutatis
mutandis to payment of tax under this section". Justice Dubé of
the Federal Court — Trial Division, summarized the argument of the
taxpayer Ketz as follows at page 5144:
Plaintiff's learned counsel provided the
Court with some definitions of mutatis mutandis which were quite
acceptable to counsel for the Minister and to the Court.
Hausman v. Waterhouse, 182 N.Y.S. 249, 251, 191 App. Div. 850.
The words "mutatis mutandis"
mean "with the necessary changes in detail to conform to a single
vital change".
Copeland v. Eaton, 95 N.E. 291, 209, Mass. 139, Ann. Cas. 1212B, 521.
Where profits are defined by a certain
article, all the provisions of which are to apply to the relations between the
parties springing into existence after the expiration of the Contract "mutatis
mutandis", these latter words mean "necessary changes in
details to conform to a single vital alteration", and suggest a
reversal of the relative positions of the parties under the Contract, which was
to continue the same in all other respects.
Re Kipnes and Attorney-General for Alberta, (1966) 4 C.C.C. 387 (C.A.).
Earl Jowitt's Dictionary of English Law defines "mutatis mutandis" as "with the
necessary changes in points of detail", and Black's Law
Dictionary, 4th Edition, "with the necessary changes in points of
detail, meaning that matters or things are generally the same, but to be
altered when necessary, as to names, offices, and the like". (Hausman
v. Waterhouse cited with approval.)
Petit Larouse [sic],
1976.
mutatis mutandis :
en changeant ce qui doit être changé; en faisant les changements nécessaires.
Plaintiff proposed a draft of subsection
118(1) which would include the added words necessary to obtain the desired
results. The proposed "changes in detail" appear in italics. For
brevity's sake, the paragraphs and subparagraphs of 118(1) are not reproduced.
118. (1) Notwithstanding section 117,
where, in the case of an individual who was not resident in Canada
throughout the taxation year immediately preceding a particular taxation year
(which particular taxation year is hereafter in this section referred to as the
"year of averaging"), but had, during the year immediately
preceding the year of averaging, elected to file a return of income under this
Part in the form prescribed for a person resident in Canada for that taxation
year, any excess remains
[My emphasis.]
[16]
The
position of the Crown was summarized thus by Dubé J., at page 5144:
. . . The Income Tax Act provides that
Part I is applicable mutatis mutandis to a person paying tax under
section 216(1), that is with the necessary changes in detail, not with
changes of substance.
But, whereas subsection 216(1) applies
to a non-resident person, subsection 118(1) applies to an individual who
was a resident in Canada throughout the preceding year: it is common ground
that the plaintiff was not a resident of Canada during his 1975 taxation year.
Therefore, the defendant submits, subsection 216(3)
is of no assistance to the plaintiff since residence for the
previous year is an essential condition for the application of
subsection 118(1), not merely a point of detail.
[My emphasis.]
[17]
Dubé J.
rejected the argument of the taxpayer as follows at pages 5144-45 :
In my view, in order to so transform
subsection 118(1) as to have it apply to a non-resident, changes
have to be brought about which would indeed go to the very substance of the
provision. In the construction of statutes, words must be interpreted in
their ordinary grammatical sense, in harmony with the scheme of the Act and the
intention of Parliament, unless there be something in the context to show
otherwise. Subsection 118(1) clearly applies to an individual who was a
resident in Canada throughout the taxation year immediately preceding a
particular taxation year. Plaintiff was not a resident of Canada in 1975, he merely had
elected to file a return of income for that year under Part I as if he were a
resident. If it had been the intention of Parliament to open the general
averaging provisions of subsection 118(1) to
non‑residents, that intention would have been clearly spelled out
in the statute.
[My emphasis.]
Analysis
[18]
As for all, or almost
all, appeals from a tax assessment, the starting point is the key wording of
the Act. I make this statement because too many times lawyers take the case law
as their starting point in attempting to justify their position. Although the
difficulty that this Court must resolve here is the proper interpretation of
the disputed expression found in paragraph 227(7) of the Act, counsel for LRD
referred only to decisions in which the courts had to apply the Latin expression.
At the relevant time, this expression was no longer in the provisions to be
applied.
[19]
The disputed expression
does provide a certain element of subjectivity, and therefore of uncertainty, as
regards its application. To determine its scope, reference to rules of
statutory interpretation is required.
[20]
One key rule of interpretation
is that referred to by Dubé J. in Ketz, supra, at page 5144 :
"words [in a statute] must be interpreted in their ordinary grammatical
sense, in harmony with the scheme of the Act and the intention of
Parliament." Another such rule is enunciated by Madam Justice
McLachlin, as she then was, at paragraph 40 of Shell Canada Ltd.
v. Canada, [1999] 3 S.C.R. 622: " Where the provision
at issue is clear and unambiguous, its terms must simply be applied".
[21]
Before determining what
scope should be given to the disputed expression, it is useful to review the amendments
that have been made by Parliament to subsection 227(7) of the Act. When
subsection 227(7) was amended in 1985, the Latin expression was replaced by
"with such modifications as the circumstances require". This
wording was changed again in 1997 when the word "such" was replaced by
"any".
In the The New Shorter Oxford English Direction on CD‑ROM,
"any", when used as an adjective in the plural form, is defined as "some —
no matter which, of what kind, or how many". No equivalent amendment was
made to the French version. In my view, the disputed expression in the French
and the English versions of subsection 227(7) does not obviously require
that the modifications be limited to "points of detail" as was held
to be the case in such decisions as Ketz. Had Parliament intended in
1985 that the former approach (restrictive interpretation), namely that
taken by the courts with respect to the Latin expression, continue to be applied
after 1984, it would have been easy to state "with such modifications in
points of detail that the circumstances require". However, there must
be some limits as to what modifications may be made as "the circumstances
require".
[22]
In determining what
scope should be given to the disputed expression, it must first be noted that Parliament
does not state, as it did prior to the amendment made in 1985, that
Division I of Part I is applicable. With respect to the relevant
year, the Act specifies which particular provisions of Division I are applicable
for the purposes of subsection 227(7) of the Act, section 164 being
among those provisions. Furthermore, not all of section 164 is applicable,
only subsections 164(1) and (1.4) to (7). For example,
subsection 164(1.1) allows a taxpayer who disputes an assessment under the
Act by filing a notice of objection to obtain, in most cases, until the amount owing
is settled, the repayment of his disputed taxes or the return of the security that
he provided.
This provision does not apply to a non‑resident subject to Part XIII
tax pursuant to subsection 227(7) of the Act.
[23]
By specifically
referring to subsection 164(3) of the Act, Parliament intended, in my
view, to apply to non‑residents subject to Part XIII the tax policy
governing the payment of interest to taxpayers (including non‑residents)
subject to Part I tax. This policy has been clearly described above and under
it the Minister is entitled to an interest‑free period, including an
interest‑free processing period, when a taxpayer subject to Part I
tax claims a refund of taxes, whether paid by withholding at source, by
instalment or by payment on the balance‑due day. Under this policy, an
ordinary individual taxpayer who files his tax return on April 1 and claims a
refund of taxes previously paid by instalment that exceed his tax liability
will not be able to receive interest from the day the overpayment arose, but
only 45 days after April 30. It would be strange that the Act would
treat non‑resident taxpayers subject to Part XIII tax better than
non‑residents who are liable to Part I tax, and all the more so when
one considers that a non‑resident subject to Part XIII who makes a
refund application pursuant to subsection 227(6) of the Act and whose claim
is not contested by the Minister will not be entitled to any interest. However,
it makes sense to me that the Minister would have to pay interest to a non‑resident
whose claim has first been denied by the Minister and later allowed by him, or
by this Court (or a higher court). Given that administrative and judicial
contestations of such a refund application may take several months or years, as
was the case here, it is only normal that a non‑resident be compensated
for having lost the enjoyment of the amount of his overpayment.
[24]
The interpretation put
forward here by the Minister appears reasonable. The Minister contends that the
following modifications (indicated in italics) that the circumstances require
are to be made to subparagraph 164(3)(c)(ii):
(ii) an individual, the day that is
45 days after the day on which the individual's written application
for the year was filed under subsection 227(6).
In other words, "return of
income" is replaced by "written application" and "section 150"
by "subsection 227(6)".
[25]
It is true that a
return of income is a document quite different in scope from a written
application, such as an NR7‑R. A return of income must be filed by
taxpayers who are subject to Part I for the purpose of disclosing all their
different sources of income and claiming all the relevant allowable deductions.
A non‑resident subject to Part XIII determines his tax payable not on
a net amount but on a gross amount, and that amount is taxed at a flat rate
which does not vary depending on the level of income. There is no need to have
in the NR7‑R a statement of all the sources of income subject to
Part XIII tax.
[26]
However, there is
similar information that has to be provided in both a tax return, such as a T1 filed
by a non‑resident, and an NR7‑R application for a refund of
Part XIII tax withheld. For instance, in the NR7‑R, a taxpayer must
provide details regarding the type of payment on which Part XIII tax was
paid, the amount of such payment together with the amount of tax remitted, the
amount of tax payable and the amount of the refund. In a T1, the taxpayer
indicates on page 4 the net tax payable, deducts from that amount the
total income tax deducted, including tax paid by instalments and, if
applicable, enters the amount of the refund he is claiming.
[27]
Given these similarities,
it is not unreasonable, for purposes of subsection 227(7), to substitute
for " return of income" in subsection 164(3) the words "written
application" (e.g., an NR7‑R). The result is, in my view, in harmony
with the scheme of the Act and the intent of Parliament.
[28]
In addition, given that
tax under Part XIII of the Act is payable in full forthwith on payment of
the income subject to that tax, a balance‑due date is irrelevant. All Part
XIII tax will already have been remitted on payment of any income and no
balance will be owing after the end of the year, given that, for Part XIII tax
purposes, level of income is not taken into account and no deductions are
allowed in computing such Part XIII tax. Therefore, it is appropriate for the
purposes of the application of subsection 227(7) to ignore the rule in paragraph
164(3)(a) of the Act. This is a modification that "the
circumstances require". This result is also in harmony with the scheme of
the Act and the intent of Parliament.
[29]
Therefore, only two days
are relevant here : the day that is 45 days after the day on which the application
for a refund was received and the day on which the overpayment arose. Given
that the NR7‑Rs were received on December 10 and 13, 2001, which are
obviously days that are later than July 13 and September 19, 2001,
the Minister was entitled to compute the interest starting 45 days after
the receipt of the NR7‑Rs. In point of fact, the interest was computed
starting on the day on which the NR7‑Rs were received and LRD therefore
benefited from an additional period of interest over and above what was
provided for in the Act.
[30]
If this interpretation
that I have adopted were to be considered ill‑founded and if the
restrictive interpretation adopted by the
courts when applying the Latin expression were to be adhered to, as counsel
for LRD claimed it should, then it could be said, in my view, that the
modification suggested by the respondent would indeed go to the very substance
of the provision, as Dubé J. put it in Ketz. Given that a tax
return prescribed by section 150 is quite different from a written
application under subsection 227(6) of the Act, a substitution of one for
the other would not be a mere point of detail.
[31]
However, if this restrictive
interpretation were adopted, it would not assist LRD in having its appeal
allowed. In my view, paragraph 164(3)(a) of the Act would then be
applicable because to ignore its application would likewise amount to a
modification going to the very substance of the provision. Read literally, this
paragraph says that one of the days to be taken into account is the "balance-due
day" and this term is defined in subsection 248(1) to mean, for a
trust, "90 days after the end of the year", so the day
determined under 164(3)(a) of the Act would be 45 days after March
31, 2002.
[32]
Since the phrase "balance-due
day" used in paragraph 164(3)(a) of the Act is not defined in
subsection 248(1) by any reference to an amount being outstanding or a
balance being owing at a certain date, there would be no reason not to apply
such a clearly expressed rule. The expression "balance-due day" implies a balance of taxes
being due on that day, but does not require that such a balance actually be
owed or that it could be owing. To be clearer, balance‑due day is not
defined by stating that "where the taxpayer is a trust and the trust has a
balance owing at the end of the year, the day that is 90 days after the end of
the year". The definition simply states that the balance‑due day is 90 days
after the end of the year. Ignoring such a clearly worded definition in subsection
248(1) and a similarly clearly worded provision in paragraph 164(3)(a)
of the Act would be tantamount, in my view, to a modification going to "the
very substance of the provision".
[33]
So, if the restrictive
interpretation were adopted, a day that is 45 days after March 31,
2002 would still be a day that would be later than July 13, 2001 and September
19, 2001. Therefore, not only would LRD fail to obtain the additional interest
that it is seeking through these appeals, but the amount of interest determined
pursuant to subsections 227(7) and 164(3) of the Act would be less than that
actually paid by the Minister.
[34]
For
all these reasons, LRD's appeals are dismissed, with costs.
Signed at Ottawa, Canada, this 3rd day of February 2009.
"Pierre Archambault"
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