Matte v. The Queen, docket 2001-2704-IT-I (Informal Procedure)

[OFFICIAL ENGLISH TRANSLATION]

2001-2704(IT)I

BETWEEN:

PAUL MATTE

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeal heard on June 26, 2002, at Montréal, Quebec, by

the Honourable Judge P.R. Dussault

Appearances

For the Appellant:                                         The Appellant himself

                                                                  

Counsel for the Respondent:                         Mounes Ayadi

JUDGMENT

The appeal from the assessment made under section 160.1 of the Income Tax Act in respect of the 1999 taxation year is dismissed in accordance with the attached Reasons for Judgment.

Signed at Ottawa, Canada, this 4th day of July 2002.

"P.R. Dussault"

J.T.C.C.

Translation certified true

on this 9^th day of October 2003.

Sophie Debbané, Revisor

[OFFICIAL ENGLISH TRANSLATION]

Date: 20020704

Docket: 2001-2704(IT)I

BETWEEN:

PAUL MATTE,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

REASONS FOR JUDGMENT

P.R. Dussault, J.T.C.C.

[1]      This is an appeal from an assessment made by the Minister of National Revenue (the "Minister") under section 160.1 of the Income Tax Act (the "Act") in respect of the 1999 taxation year.

[2]      In his income tax return for the 1999 taxation year, the appellant erroneously considered a federal dividend tax credit of $269.91 appearing on a T5 form as being an amount of tax withheld at source. Thinking that no tax had to be paid for the year, he accordingly claimed this amount as a tax refund for the year.

[3]      The initial assessment for the 1999 taxation year was made on May 11, 2000, without the error having been noted. The notice of assessment accordingly showed a net federal tax and a total payable of $0.00 from the total tax withheld of $269.91 and, therefore, a credit for that amount. The explanation for the changes, however, states as follows:

          [TRANSLATION]

We must retain your refund. For more information, please contact the tax collections department in our Tax Services Office.

[4]      In point of fact, instead of making a refund to the appellant, the tax authorities applied the amount of $269.91 to an amount for which he was allegedly liable jointly with two business corporations, ARECO Inc. and ÉPINGLERIE Ltée, under the Customs Act (R.S., 1985, c. 1 (2nd Supp.). The application of a payment in this fashion is provided for in subsection 164(2) of the Act as follows:

(2)         Application to other debts. Instead of making a refund or repayment that might otherwise be made under this section, the Minister may, where the taxpayer is, or is about to become, liable to make any payment to Her Majesty in right of Canada or in right of a province, apply the amount of the refund or repayment to that other liability and notify the taxpayer of that action.

[5]      Paragraph 164(7)(a) defines "overpayment" as follows:

(7)         Definition of "overpayment". In this section, "overpayment" of a taxpayer for a taxation year means

(a)         where the taxpayer is not a corporation, the total of all amounts paid on account of the taxpayer's liability under this Part for the year minus all amounts payable in respect thereof; and

(b)         ...

[6]      A number of months later, the error was somehow discovered by the tax authorities. Since the appellant had received no refund, it might have been logical to think that it would have sufficed to reverse the accounting transaction and thus cancel the application of the payment of $269.91. However, even though the appellant had no income tax payable in respect of the 1999 taxation year, the correct application of what was in fact a federal dividend tax credit resulted in there no longer being an overpayment for the 1999 taxation year and, consequently, the amount of $269.91 became instead an amount in excess of the refund to which the appellant was entitled for the year.

[7]      Where an excess has been refunded, subsection 160.1(1) provides as follows:

(1)         Where excess refunded. Where at any time the Minister determines that an amount has been refunded to a taxpayer for a taxation year in excess of the amount to which the taxpayer was entitled as a refund under this Act, the following rules apply:

(a)         the excess shall be deemed to be an amount that became payable by the taxpayer on the day on which the amount was refunded; and

(b)         the taxpayer shall pay to the Receiver General interest at the prescribed rate on the excess (other than any portion thereof that can reasonably be considered to arise as a consequence of the operation of section 122.5 or 122.61) from the day it became payable to the date of payment.

[8]      The Minister is entitled to make a special assessment with respect to an excess refund by virtue of subsection 160.1(3), which reads:

(3)         Assessment. The Minister may at any time assess a taxpayer in respect of any amount payable by the taxpayer because of subsection (1) or (1.1) or for which the taxpayer is liable because of subsection (2.1) or (2.2), and this Division applies, with such modifications as the circumstances require, in respect of an assessment made under this section as though it were made under section 152.

[9]      Moreover, where there was no refund of an excess amount but rather an application of payment of an amount in excess of the amount to which the taxpayer could have been entitled, subsection 160.1(4) applies. That subsection reads:

            (4)         Where amount applied to liability. Where an amount is applied to a liability of a taxpayer to Her Majesty in right of Canada in excess of the amount to which the taxpayer is entitled as a refund under this Act, this section applies as though that amount had been refunded to the taxpayer on the day it was so applied.

[10]     It was that provision specifically that was used to make the assessment at issue on December 27, 2000, in order to recover the amount of $269.91 erroneously applied to another debt of the appellant, the whole with interest.

[11]     Although this procedure may appear unusual and particularly frustrating for a taxpayer who has not received a refund directly and who was, as it were, the victim of an erroneous application by the tax authorities, I must confirm the validity of the assessment because it was made in accordance with the Act.

[12]     If the appellant wishes to challenge the amount for which he is allegedly liable under the Customs Act, he must do so in accordance with the mechanisms applicable to that legislation.

[13]     Having regard to the foregoing, the appeal is dismissed.

Signed at Ottawa, Canada, this 4th day of July 2002.

"P.R. Dussault"

J.T.C.C.

Translation certified true

on this 9^th day of October 2003.

Sophie Debbané, Revisor