Gordon Parker v. Minister of National Revenue, [1985] 1 CTC 2129, 85 DTC 143

Taylor, TCJ:—This is an appeal heard in Calgary, Alberta on December 18, 1984, against an income tax assessment for the year 1982 in which the Minister of National Revenue included an amount for interest on unpaid instalments in the taxpayer’s assessment. The critical phrase from the notice of appeal reads:

I understand now that I should have made instalment payments for this period. However, at the time, I was under the impression that instalments were only required if you did not have tax deducted from your pay cheque on a regular basis. I did have income tax deducted and remitted to Revenue Canada every two weeks. Therefore, I thought that any additional tax was due and payable at the time of filing.

In his reply to notice of appeal, the respondent asserted that:

In declaring his income for the 1982 taxation year, the appellant reported, inter alia, as follows:

Taxation Year	1982
Employment income	$38,261.00
Total Income	$70,071.00

In filing his 1982 tax return dated April 25, 1983, the Appellant made a payment of the balance of tax payable in the amount of $11,818.94.

In assessing the Appellant’s instalment interest, the Respondent relied, inter alia, upon the following assumptions of fact:

(a) in his 1982 taxation year, the Appellant’s employment income amounted to less than 75% of his total income:

(b) that the Appellant was required to make payment of tax by instalments in the amount of $2,987.38 on March 31, 1982, June 30, 1982, September 30, 1982 and December 31, 1982; and

(c) that the Appellant failed to make any payment of tax by instalments on the above mentioned dates for the taxation year here in issue.

The evidence brought out that during the taxation year 1981 the source of his income had changed, and for that year a substantial portion of his income was not subject to income tax deductions at source. Therefore, whether the appellant also might have been liable for similar interest charges for the 1981, in compliance with the Minister’s interpretation of the Act, such interest had not been assessed. However, the situation for 1982 (when 1981 is considered) was clear. The issue, which arose, concerned the amount of the interest properly chargeable under the Income Tax Act, SC 1970-71-72, c 63, as amended, and the calculation thereof. In this aspect of the matter, subsection 153(2), section 156, and subsection 161(2) of the Act became significant. Counsel for the Minister raised the case of Ramsay v MNR, [1984] CTC 2341; 84 DTC 1284, and noted the difficulty which the application of these sections posed to the Minister. That indeed there existed such a difficulty was noted in Ramsay (supra). To set up a theoretical situation, the Court considered the problem facing a taxpayer who received an amount of income on December 30 of a taxation year — which amount was in excess of 25 per cent of his total income (presuming tax had been deducted at the source from the balance). Leaving aside any possible impact of subparagraph 156( l)(a)(ii) on the situation, in addition to the income tax ultimately payable on the December 30 amount, (due on April 30 6f the following year), it would appear the taxpayer would be liable for interest as outlined backdated to March 31, June 30, September 30 and December 31, as if he had the use of the funds during the entire period. That is in essence, the difficulty noted in Ramsay (supra) together with the prospect that a taxpayer might not know until after the end of the year whether the secondary income had been in excess of 25 per cent of his total income.

However, I do not find the dilemma as acute as it was portrayed at this hearing or in Ramsay (supra). First, no taxpayer is required (by virtue of subparagraph 156(l)(a)(ii)) to make instalments unless there is an “instalment base” arising out of a similar situation from the previous year. The Act does not mandate the payment of instalments under subparagraph 156(l)(a)(i) unless there was an “instalment base” in the previous year, and even then, as I read the Act, the taxpayer can choose to pay the instalments which arise out of that instalment base, not out of the current income, if it is to the taxpayer’s advantage so to do. (See Genstar Marine Ltd, et al v MNR, [1984] CTC 2102; 84 DTC 1075.) Therefore, once faced with the existence of an “instalment base” a taxpayer who does not send in instalments at least to that level, does so on the assumption and presumption that he will not have such secondary income in a current year in excess of 25 per cent of the total income. If he turns out to be wrong, that responsibility rests with him. The fact that he may not have been charged interest on the prior year’s unpaid instalments (because of paragraph 156( l)(a)(ii), or just because the Minister chose not to do so) does not relieve the taxpayer of the interest obligation in the current year.

In the instant case, Mrs Linda Parker, wife of the appellant, represented him at the hearing, and I would not wish her to think that she was less “eloquent” than Joan Patricia Ramsay (supra) whose appeal was allowed. Mrs Parker was both eloquent and rational. It just happens that her argument is not legal and correct.

The appeal is dismissed.

Appeal dismissed.