14 February 2001 External T.I. 2000-0044895 - CALCULATION OF INSTALMENT INTEREST

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Why the full amount of instalment interest was charged even though a taxpayer overpaid Canada Pension Plan contributions and Employment Insurance premiums.

Position: CPP contributions and EI premiums do not reduce instalment interest.

Reasons: Based on the law.

XXXXXXXXXX 	J. Gibbons, CGA
		2000-004489
February 14, 2001

Dear XXXXXXXXXX:

We are replying to your letter dated October 16, 2000, concerning the rules for calculating instalment interest. As we understand it, you are concerned that you were charged instalment interest for 1999 and were not given any credit interest for the overpayments you made for the year for Canada Pension Plan ("CPP") contributions and Employment Insurance ("EI") premiums. As well, you seek our comments on why the Canada Customs and Revenue Agency (the "CCRA") pays 8% interest on income tax refunds but charges 10% interest on income tax owing.

The requirement to remit instalments, as well as the imposition of interest on deficient instalments, are based on specific rules in the Income Tax Act (the "ITA"). As well, the ITA, along with the Income Tax Regulations, sets out the interest rate to be used on income taxes owing and income tax refunds. The requirement to remit CPP contributions and EI premiums is found in the Canada Pension Plan Act (the "CPPA") and the Employment Insurance Act (the "EIA") respectively. These Acts, as well as their related regulations, also set out the rules for refund interest on employee overpayments of CPP contributions and EI premiums.

Based on the limited information provided by you, it was not possible to determine whether the interest rules were correctly applied in your case. Furthermore, questions regarding your assessment should be directed to the toll-free number provided on your notice of assessment, or, alternatively, you may contact your local tax services office. However, we can point out that the fact that you were charged interest for the year on deficient income tax instalments, even though you overpaid your CPP contributions and EI premiums for the year, is quite possible under the rules established in the applicable statutes described above. This is because instalment interest is charged from the date the particular instalment was due (March 15, June 15, September 15 and December 15 of the particular taxation year) whereas refund interest on overpayments of CPP and EI will only be paid, at the earliest, from May 1 (for CPP) and June 15 (for EI) of the calendar year following the particular taxation year.

The role of the CCRA is to administer and enforce the ITA as passed by Parliament. As well, the CCRA is responsible for collecting CPP contributions and EI premiums. On the other hand, the Department of Finance is generally responsible for establishing the law and the policy concerning these matters. Accordingly, if you have concerns related to the rules themselves, rather than the administration of them, you should contact the Department of Finance. In this regard, the Tax Policy Branch of the Department of Finance may be contacted by writing to L'Esplanade Laurier, 140 O'Connor Street, Ottawa, Ontario, K1A 0G5.

We trust that these comments will be of assistance.

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate

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