Gary and Joan Montgomery v. Her Majesty the Queen, [1995] 1 CTC 196, 95 DTC 5032

Stone J.A.:-The issue in this appeal involves the construction of certain provisions of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (the "Act"), and is concerned with whether the learned motions judge erred in upholding a decision of the Minister of National Revenue that, in the circumstances presented to him by the appellants, he lacked authority to waive interest payable by them in respect of unpaid tax for their 1984 taxation years.

The appellants’ request for what is admittedly discretionary relief was submitted to the Minister in October 1993 and was rejected by him in November of that year. The basis given for the rejection was that subsection 220(3.1) of the Act did not authorize the Minister to take the requested action. It is obvious from the record that a waiver of the interest otherwise payable would have resulted in a significant reduction in the amounts owing by the appellants in respect of their 1984 taxation years.

Until 1991, the Act made no provision for the waiver of interest. This was changed with the adoption of subsection 181(1) of S.C. 1991, c. 49, by virtue of which subsection (3.1) was added to section 220 of the Act. That subsection read:

(3.1) The Minister may at any time waive or cancel all or any portion of any penalty or interest otherwise payable under this Act by a taxpayer or a partnership.

This new subsection was repealed in 1993, by virtue of subsection 127(2) of S.C. 1993, c. 24. The subsection thereby substituted reads:

(3.1) The Minister may at any time waive or cancel all or any portion of any penalty or interest otherwise payable under this Act by a taxpayer or a partnership and, notwithstanding subsections 152(4) to (5), such assessment of the interest and penalties payable by the taxpayer or partnership shall be made as is necessary to take into account the cancellation of the penalty or interest.

This is followed by subsection 127(5) of the same statute, which reads:

(5) Subsection (2) applies to the 1985 and subsequent taxation years.

The appellants’ core argument may be briefly summarized. The language of subsection 220(3.1) is perfectly broad in conferring a discretion upon the Minister for the waiver of "interest that is otherwise payable under this Act". The interest in question, although in respect of unpaid tax for the 1984 taxation year, was "otherwise payable" in "the 1985 and subsequent taxation years". This is made clear by subsection 161(1) which imposes the obligation to pay the interest and by subsection 248(11) which requires the interest to be compounded daily. Subsection 220(3.1), standing alone, in no way qualifies or limits the period during which the discretionary power can be exercised. The limitation, if there is any, must be found in subsection 127(5) of the 1993 legislation. But this subsection contains no real limitation either because it merely makes the subsection 220(3.1) discretion applicable "to the 1985 and subsequent taxation years". This becomes clear from the definition of "taxation year" in subsection 249(1) of the Act which reads in part:

249(1) For the purpose of this Act, a "taxation year" is

(a) in the case of a corporation, the fiscal period, and

(b) in the case of an individual, a calendar year,

As applied to the appellants as individual taxpayers, the subsection 127(5) limitation must be read as "the 1985 and subsequent calendar years". Therefore, subsection 127(5) imposes no restriction on the discretionary relief available under subsection 220(3.1) because the interest in question was indeed "payable under this Act" in the 1985 and subsequent calendar years even though the tax liability in respect of which it was imposed arose in the 1984 taxation year.

A secondary argument that subsection 127(2) is to be so read is that under the scheme of the Act, as applied to the appellants, no interest could ever become payable in the taxation year 1985 in respect of any balance of unpaid tax for that year. This results from the fact that the appellants’ income for that year would have been reported after the end of the calendar year and, accordingly, no interest could have been assessed until after their income tax returns were processed and notices of assessment sent to them by the Minister. There is thus an intention on the part of the drafter that subsection 127(2) permits the waiver of interest in any calendar year regardless of the taxation year to which the unpaid tax relates. I would only observe that the subsection, of course, applies to all taxpayers and that it simply cannot be said, as counsel acknowledged, that there could never be circumstances in which interest was payable in the 1985 taxation year. For example, interest may be imposed in the case of unpaid instalments of tax required to be remitted periodically by a taxpayer throughout a taxation year. In any event, if no interest was payable by the appellants in the 1985 taxation year in respect of unpaid tax for that year, the question would remain of whether the subsection permits any interest thereafter assessed to be waived-a question which is not squarely before us in this case but the answer to which appears quite clear.

The appellants submit, in any event, that the relevant statutory provisions referred to above are at best ambiguous in the sense that there is reasonable doubt as to their intention and, as this doubt is not resolved by the application of the ordinary rules of interpretation, the interpretation most favourable to the appellants should be presumed (see Québec Communauté urbaine et autres v. Corporation Notre-Dame de Bon- Secours (1994), 171 N.R. 161 (S.C.C.), at pages 178-80). As the motions judge was of the view that the relevant statutory language was not ambiguous, he found no necessity of resorting to this residual presumption in favour of taxpayers.

I too am of the view that these provisions of the Act are clear. All that subsection 249(1) does, in my view, is to define the period of time that is, for the purpose of the Act, to be a taxpayer’s "taxation year" be that taxpayer an individual or a corporation. It is evident that this definition cannot be divorced from the Act as a whole but must be read with reference to the income tax consequences under the Act for taxpayers in the defined period; otherwise, the definition would make little sense. Thus, in Division B of Part I of the Act which is concerned with the computation of an individual taxpayer’s income, it is made clear that this income is "for a taxation year" (section 3) and that it is a taxpayer’s salary, wages or other remuneration received by him that is his income from an office or employment in the "taxation year" (subsection 5(1)). Examples could be mul- tiplied. Take this case. The waiver of interest under subsection 220(3.1), being in relation to interest that is "otherwise payable under the Act", brings into play the provisions of subsection 161(1) which creates the obligation to pay interest on the difference between the amount of tax owing by a taxpayer and of tax already paid by him "for a taxation year". [1]

In my view, the motions judge was correct in determining that subsection 127(5) of the 1993 legislation is not ambiguous. By limiting the application of subsection 220(3.1) to the "1985 and subsequent taxation years", Parliament obviously intended to restrict ministerial discretion to the waiving of interest otherwise payable under the Act for a taxation year that is either the 1985 taxation year or any taxation year subsequent thereto.

I agree with the motions judge that if Parliament had intended the discretion to be available in the 1985 and subsequent taxation years regardless of the year, prior to the 1985 taxation year, for which the unpaid tax arose, it could easily have expressed that intention in clear language. As he put it, at page 4 of his reasons:

I believe Parliament’s intent, in subsection 127(5)...was to limit the Minister’s discretion to waive interest payable on those returns filed for the 1985 taxation year, and for subsequent taxation years.

Whereas tax returns are filed once a year, every year, interest, on the other hand, is compounded daily. There would have been no need to include "taxation year" or "subsequent taxation year", if the cutoff point were to be determined by reference to the accruing of interest and not the year for which a return was filed. Instead, the legislature would have limited subsection (2) to "applies after January 1, 1985" or perhaps more specifically to "applies to interest accrued after January 1, 1985". Alternatively, if Parliament had intended to refer to interest payable in a specific period of time, namely a taxation year, it could have used, as it did in S.C. 1991, c. 49, the following wording:

180(2) Subsection (1) is applicable with respect to interest and penalties paid in the 1988 and subsequent taxation years.

[Emphasis added.]

While the result for the appellants may appear arbitrary, this can only be so because Parliament, in its wisdom, selected the 1985 taxation year as the cutoff year rather than an earlier or later taxation year. In my opinion, the clear language it adopted leads to the conclusion that the Minister was granted no authority under the Act to waive the interest which the appellants sought to have waived.

I would dismiss the appeal. As the respondent does not request costs, no costs should be allowed.

Appeal dismissed.