Gordon W Smith v. Minister of National Revenue, [1983] CTC 2021, 83 DTC 18

Guy Tremblay:—This appeal was heard on September 28, 1982, at the City of Ottawa, Ontario.

1. The Point at Issue

The point is whether the appellant is correct in contending that he did not owe the amount of $173.31 in interest charged by the respondent for the 1980 taxation year.

The respondent contends that he charged the said amount because the appellant did not pay the instalment base provided in section 156 of the Income Tax Act, SC 1970-71-72, c 63, as amended.

2. The Burden of Proof

2.01 The burden is on the appellant to show that the respondent’s assessment is incorrect. This burden of proof results especially from several judicial decisions, including the judgment delivered by the Supreme Court of Canada in Johnston v MNR, [1948] CTC 195; 3 DTC 1182.

2.02 In the same judgment the Court decided that the assumptions of fact on which the respondent based the assessment are also deemed to be correct. In the present case, in paragraph 3(a) to (d) of the reply to the notice of appeal, the respondent described the facts on which he based his assessment:

3. In assessing as he did, the Minister of National Revenue relied, inter alia, on the following assumptions of fact:

(a) the Appellant signed a 2 year contract with the Department of Indian Affairs on February 10, 1978 for $20,000 per year;

(b) at all relevant times during 1980, the Appellant was still employed by the government of Canada although the contract mentioned in (a) was only formally extended on August 26, 1980;

(c) on September 2, 1980, the Appellant received a cheque in the amount of $20,000 in respect of the said extended contract;

(d) the Appellant made interim payments with respect to his 1980 income taxes on September 17, 1980 ($4,000), October 23, 1980 ($1,500) and January 21, 1981 ($2,000).

3. The Facts

3.01 The appellant, an historian and former teacher, admitted the facts alleged in subparagraph (a), (c) and (d) quoted above. Concerning subparagraph (b), he said that it was a new contract passed in 1980 and not an extension.

3.02 The appellant explained the manner in which he paid his taxes from 1970 to 1980. He sent instalments two or three times during the year involved but not in four (4) regular instalments, at the end of March, June, September and December, as provided for in the Income Tax Act. However, the respondent never levied penalties or interest against the taxpayer.

3.03 In 1979 the gross income and the tax paid were as follows:

3.04 The contract between the appellant and the Department of Indian Affairs signed on February 10, 1978, for a two-year period was filed as Exhibit A-1 and the one signed on July 30, 1980, also for a two-year period, was filed as Exhibit A-2.

The appellant said he was not an employee but “in the employ” of the government. No amount was withheld from the payments made to the appellant by the Department of Indian Affairs. The payments pursuant to Exhibit A-1 and A-2 were made on the following dates: February 10, 1978 ($10,000), before June 30, 1978 ($10,000), January 1, 1979 ($10,000), June 30, 1979 ($10,000), August 1, 1980 ($20,000), January 1, 1981 ($10,000), and on December 31, 1981 ($10,000).

4. Law — Analysis

4.01 Law

The main provisions of the Income Tax Act are subsections 156(1), 161 (2) and 161(4). They read as follows:

Sec 156 Other Individuals

(1) Subject to section 156.1, every individual, other than one to whom subsection 153(2) or section 155 applies, shall pay to the Receiver General of Canada

(a) on or before March 31, June 30, September 30 and December 31, respectively, in each taxation year, an amount equal to % of

(i) the amount estimated by the individual to be the tax payable under this Part by him for the year, or

(ii) his instalment base for the immediately preceding taxation year, and

(b) on or before April 30 in the next year, the remainder of his tax as estimated under section 151.

Subsec 161(2)

(2) Interest on instalments. In addition to the interest payable under subsection (1), where a taxpayer, being required by this Part to pay a part or instalment of tax, has failed to pay all or any part thereof as required, he shall, on payment of the amount he failed to pay, pay interest at the rate per annum prescribed for the purposes of subsection (1) from the day on or before which he was required to make the payment to the day of payment or the beginning of the period in respect of which he becomes liable to pay interest thereon under subsection (1), whichever is earlier.

Subsec 161(4)

(4) Limitation respecting individuals. For the purposes of subsection (2), where an individual is required to pay a part or instalment of tax for a taxation year computed by reference to

(a) the amount estimated by him to be the tax payable under this Part by him for the year, or

(b) his instalment base for the immediately preceding taxation year,

he shall be deemed to have been liable to pay a part or instalment computed by reference to the lesser of

(c) the tax payable under this Part by him for the year, and

(d) his instalment base for the immediately preceding taxation year.

4.02 Analysis

4.02.1 A taxpayer is required to make instalment payments of income tax unless:

(a) tax is deducted at source from at least three-quarters of his net income (subsection 153(2) of the Act);

(b) his chief source of income is farming and fishing (section 155 of the Act); or

(c) either the federal income tax for the preceding year or the estimated federal income tax for the year involved does not exceed $400 (section 156.1 of the Act).

The evidence shows that the appellant meets none of these requirements (paras 3.01, 3.03 and 3.04). Therefore, at first glance, he is required to make instalment payments.

4.02.2 The appellant quoted the Form T-7B issued by Revenue Canada and entitled “1979 Instalment Guide for Individuals”, concerning the calculation of income tax instalments.

You may base your instalment payments of income tax for 1979 on either (a) your actual tax payable for 1978 (Option A-page 1), or (b) your estimated tax payable for 1979 (Option B-pages 3 and 4).

He admitted it was mutatis mutandis the same wording for the 1980 taxation year. According to the appellant, as the words used in the beginning of the said quotation are “you may”, this means, he said, that it is not an obligation to use one of the two methods. Therefore, he could choose another one which is what he did. He added that the legislator, in using the words “shall pay” in subsection 156(1) of the Act, was clearer in the sense of the respondent’s thesis.

4.02.3 The appellant said he paid in August when he received the $20,000 pursuant to the contract (Exhibit A-2).

He did not know before August that there was to be another contract, therefore he had estimated his income for 1980 to be smaller than his 1979 income which was $31,449.69 (para 3.03).

4.02.4 The Board must point out that a taxpayer can choose not to make the instalments provided for in subsection 156(1) of the Act. However, by doing so, he also chooses to have interest charged pursuant to subsection 161(2) of the Act.

The appellant who chose to pay only part of the instalments had to accept to have interest charged.

4.02.5 The appellant who had the burden or proof did not show that the amount of $173.31 was ill-calculated.

4.02.6 The Board, being bound by the Income Tax Act, must conclude that the appellant, despite any reason given to explain the fact that he had not paid the four (4) instalments provided in the Act, in fact and in law had chosen to have interest charged. The assessment must be maintained.

5. Conclusion

The appeal is dismissed in accordance with the above reasons for judgment.

Appeal dismissed.