17 October 1994 External T.I. 9425415 - DEPARTMENT POLICY RE. PRIOR YEAR INSTALMENT

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:

change to department's policy re. 156(1)(a)(ii) or "prior year" calculation

Position TAKEN:

correspondence to advise taxpayer that policy change introduced in 1992 by T1 Interest Programs was not reflected in correspondence 940165. For 1992 and subsequent taxation years, the greater of current or prior year tax deductions are not used in the prior year instalment base calculation (prior year tax deductions only are now used)

Reasons FOR POSITION TAKEN:

As a result of the Instalment Reminder System (INNS), major changes were made to the instalment interest calculation logic performed by OLINT. See directive ASG-92-14 dated July 29, 1992

		942541
XXXXXXXXXX	Sandra Short

October 17, 1994

Dear XXXXXXXXXX:

Re: Our file 940165 dated May 4, 1994

This is further to our correspondence to you on May 4, 1994 which discussed the (then) proposed amendments to subsections 156(1) and section 156.1 of the Income Tax Act (the Act) as these amendments were originally released in Bill C-136, reintroduced in Bill C-9 and assented to May 12, 1994.

In the final paragraph of page 3 of our correspondence to you commences the statement: "It is the Department's policy to allow a taxpayer who is calculating instalments in accordance with subparagraph 156(1)(a)(ii) of the Act to reduce the aggregate of instalment payments required by the greater of the prior year's tax withheld from the taxpayer's remuneration and other amounts and the current year's estimated tax withheld at source from such amounts". We erred in advising you of this policy as it was rescinded with the introduction of the Instalment Reminder System which was introduced in 1992. As a result, the 1991 Instalment Guide, the last year in which an instalment guide was printed, is the last publication wherein the abovenoted policy can be found. A review of the revised form T1033-WS, as referred to in our correspondence, will make the revised position clear: line 6 simply makes a reference to line 437 of your income tax return (total income tax deducted). That is, when calculating instalments in accordance with subparagraph 156(1)(a)(ii) of the Act, current policy accommodates a reduction to the aggregate of instalments payments due only to the extent of the prior year's tax withheld at source. Where an individual chooses the option found in subparagraph 156(1)(a)(i) of the Act, an estimate for the current year's tax deducted at source continues to be used. We regret any inconvenience this oversight may have caused you.

The comments discussed above were in response to a situation described by you in your letter of January 18, 1994 as follows: An Ontario resident individual (not a farmer or fisherman) has a 1995 "net tax owing" of more than $2,000. Approximately $10,000 (over and above source deductions) will be owing April 30, 1996 in respect of a capital gain realized in 1995 if no tax instalments are paid. You asked that we assume no capital gains deduction was available in respect of the gain and suggested we ignore both the transition rules for 1994 and the option to follow the Revenue Canada "no calculation" method found in paragraph 156(1)(b) of the Act. You asked that, given the above situation, and if we assume that taxes have been withheld at source on 1995 wages in an amount at least equal to the 1994 Part I tax liability (amount of the 1994 instalment base as defined in Regulation 5300), whether it can be concluded that

(i)no 1995 tax instalments are payable by the individual (because an amount equal to his instalment base - 1994 total Part I tax - has been remitted through withholding taxes) and

(ii)the $10,000 of tax owing on the 1995 capital gain will be payable in a single amount on April 30, 1996.

As discussed in our letter of May 4, if this individual's net tax owing for each of (both) 1993 and 1994 was less than or equal to $2,000, then no quarterly instalment payments are required for 1995. However, if, in either 1993 or 1994, or in both 1993 or 1994, the individual's net tax owing was more than $2,000, the individual is required to remit quarterly tax instalments in 1995. If it is determined that the individual is required to remit instalments, the individual can choose between the "current year" option as found in subparagraph 156(1)(a)(i) of the Act and the "prior year" option as discussed in subparagraph 156(1)(a)(ii) to determine the quantum of each instalment.

As you may be aware, Regulation 5300 requires instalments calculated by reference to a preceding taxation year to be based on actual total tax liability with no allowance for amounts withheld at source or for tax credits. It is believed that the current administrative position of permitting the total tax payable for instalment purposes to be reduced by the amount of the prior year's tax credits and income tax deducted at source reflects a fair and reasonable position.

Again, our apologies for any inconvenience caused to you.

Yours truly,

P.D. Fuoco
for Director
Business and General Division
Rulings Directorate
Policy and Legislation Branch