Citation: 2011 TCC 325
Date: June 27, 2011
Docket: 2010-3552(IT)I
BETWEEN:
BRENDA THARLE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Little J.
A. FACTS
[1]
In 2007, the Canada
Revenue Agency (the “CRA”) carried out a net worth assessment on the Appellant
for her 2002 and 2003 taxation years.
[2]
The assessments issued for
the 2002 and 2003 taxation years included Canada Pension Plan (“CPP”) premiums
payable on self-employment income.
[3]
The Appellant paid the
CPP premiums ($3,346.40 for 2002 and $3,284.06 for 2003) and the Appellant
then filed tax returns for the 2002 and 2003 taxation years.
[4]
Based on the
information provided to him, the Minister of National Revenue (the “Minister”)
reassessed the Appellant on May 4, 2009, for her 2002 and 2003 taxation
years.
[5]
In the reassessment, the
Minister reduced the amount of CPP premiums payable by the Appellant for those
years. However, the Minister did not issue a refund of the overpayment to the
Appellant.
[6]
On December 8, 2009,
the Appellant filed Notices of Objection to the Reassessments.
[7]
The Minister confirmed
the Reassessments on August 19, 2010.
[8]
The Appellant filed
Notices of Appeal with the Tax Court.
B. ISSUE
[9]
The issue in these
appeals is: When does the four-year limitation period on mandatory refunds of
CPP overpayments (on self-employed income) commence? Is it the year in which
the payments are made or the year in which contributions are owed?
C. ANALYSIS AND DECISION
[10]
During the hearing, Counsel
for the Respondent consented to the Appellant being reassessed for the 2002
taxation year, reducing the CPP contributions at issue to zero. This means that
this Court must review the 2003 taxation year.
[11]
The Appellant argued
that the four-year limitation period contained in subsection 38(4) of the Canada
Pension Plan (the “Plan”) does not start until the contributions
owing for a year are paid. Since the payments were made on June 18, 2007,
the Appellant argued that the limitation period had not yet expired when the
refund was requested and, therefore, the refund is payable. The Appellant
maintained that saying the period begins immediately after the year in which the
premiums were due is unjust. She noted that this interpretation would mean that
an overpayment for a year outside the limitation period would not be
refundable.
[12]
Counsel for the
Respondent argued that subsection 38(4) of the Plan prescribes a
four-year time limit within which a taxpayer may demand a refund of
overpayments to the CPP. He said that the time limit begins to run at the end
of the taxation year for which the premiums were due. Therefore, Counsel for
the Respondent maintained that the Appellant is too late to ask for a refund.
[13]
‘Year’ is defined in
the Plan as “means calendar year.” Subsection 38(4) of the Plan
defines when overpayments to the CPP for self-employment income can be
refunded:
38 (4) Where a person has paid, on account of the contribution
required to be made by him for a year in respect of his self-employed earnings,
an amount in excess of the contribution, the Minister
(a) may refund that part of the amount so paid in excess of
the contribution on sending the notice of assessment of the contribution,
without any application having been made for the refund; and
(b) shall make a refund after sending the notice of
assessment, if application is made in writing by the contributor not later than
four years — or, in the case of a contributor who is notified after the coming
into force of this paragraph of a decision under subsection 60(7), 81(2),
82(11) or 83(11) in respect of a disability pension, ten years — after the end
of the year.
[14]
The Plan
provides that to be in a position to
compel the Minister to refund an excess contribution on self-employment income
in respect of a particular “year”, an application must be filed within four
years of “the end of the year.” According to the Plan, ‘year’ simply
means calendar year. The problem in this provision is, which year was
Parliament referring to when it stated “the end of the year”? Was it the
calendar year in which the premiums were payable or the year in which
the overpayment was made? The issue thus becomes a question of statutory
interpretation.
[15]
Subsection 38(4) of the Plan begins
with the words “where a person has paid, on account of the contribution
required to be made by him for a year…”. It is clear that the section is
referring to a contribution made for a particular calendar year, and not in
that year. The confusion arises further on in paragraph 38(4)(b) where
it ends with “…after the end of the year”.
[16]
If the reference to “year” in
paragraph 38(4)(b) refers to the calendar year in which payments are
owed, then there are two consequences that arise. One, it provides that the
Minister can only be forced to make a rebate for a limited period of time. This
interpretation provides certainty and finality for potential rebates.
[17]
However, this can also lead to the
problem that the Appellant has placed before this Court. Should the Minister
reassess and make an error once the four year limitation period has expired,
the Minister can keep any overpayment resulting from that reassessment without
having to refund it.
[18]
The injustice or unfairness arising
from paragraph 38(4)(b) can be remedied by paragraph 38(4)(a) which
gives the Minister discretion to refund an overpayment without a request by the
taxpayer at the time of assessment. There is no time limit on this discretion.
Therefore, the time limit in (b) is reasonable given that a refund could
still be given under (a), and the absurdity claimed by the Appellant is
preventable. In this situation, the Minister chose not to exercise that
discretion. We do not know why the Minister did not exercise the discretion
found in (a). It is possible that the Minister did not apply paragraph (a)
because the Appellant did not file income tax returns until forced to do so by
a net-worth assessment issued by the Minister several years later.
[19]
However, I suggest that the
Minister should not be allowed to keep overpayments of contributions to which
he is not otherwise entitled. To conclude that the Minister should keep excess
contributions caused by his own net-worth assessment is acceptable because the
Appellant did not file returns on time is like trying to turn two wrongs into a
right. I suggest that the assessment system should not work in that manner.
[20]
I maintain that retaining the
excess contributions is not justified as a punitive measure either. The
Minister has plenty of options if he should choose to punish a party for not
making contributions, but keeping excess payments made in good faith by the
Appellant should not be one of them.
[21]
In my opinion, the Appellant’s appeal
fails, since the wording of the section is clear enough that it does not
produce absurd and unintended consequences. I have concluded that the four-year
limit to demand a refund for excess CPP contributions begins to run at the end
of the calendar year for which those payments were owed. It therefore follows
that the Appellant did not file a request for a refund within the time
specified.
[22]
During the trial, the Appellant
said that she has other outstanding tax debts owing to the Minister and a lien
has been placed against her property by the CRA as a result of those tax debts.
I suggest that the Appellant might write to the Minister, asking for the excess
contributions for 2003 to be applied against those other tax debts. This process
would not require the Minister to give a refund but, rather, simply shuffle
funds between the accounts. The letter to the Minister should state that the
Minister received “excess contributions” which should not have been made
and the refund of those “excess contributions” is blocked by the
four-year time limit contained in the Plan.
[23]
I suggest that this approach
would remedy an unfair result, since the Appellant only became aware of the
“excess contributions” to which she was entitled on May 4, 2009,
i.e., some two years after the deadline for applying for a refund.
[24]
As noted, the Minister
maintains that the Appellant should have applied for a refund in 2007,
i.e., two years before she realized that she was entitled to a refund. This is
an unfair result because she was not aware of the excess contributions until
2009.
[25]
Under a situation such
as this where a taxpayer is unable to apply for a refund because she was not
aware that she was entitled to a refund until two years after the deadline had
expired, it may be appropriate for the Minister to apply the provisions of
section 23 of the Financial Administration Act, R.S.C. 1985, c. F‑11,
(the “Act”). Section 23 of the Act, reads as follows:
23. (1)
In this section,
…
Remission of taxes and
penalties
(2) The
Governor in Council may, on the recommendation of the appropriate Minister,
remit any tax or penalty, including any interest paid or payable thereon, where
the Governor in Council considers that the collection of the tax or the
enforcement of the penalty is unreasonable or unjust or that it is otherwise in
the public interest to remit the tax or penalty.
Remission
of other debts
(2.1) The
Governor in Council may, on the recommendation of the Treasury Board, remit any
other debt, including any interest paid or payable thereon, where the Governor
in Council considers that the collection of the other debt is unreasonable or
unjust or that it is otherwise in the public interest to remit the other debt.
…
[26]
I suggest that the
Appellant request that the Minister apply the provisions of the Financial
Administration Act to correct the unfairness in this situation.
[27]
The appeal is
dismissed, without costs.
Signed at Vancouver, British Columbia, this 27th day of June 2011.
“L.M. Little”
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