Citation: 2008 TCC 501
Date: 20080909
Docket: 2008-83(IT)I
BETWEEN:
EMCON SERVICES INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Little J.
A. Facts
[1]
The Appellant is a
company incorporated under the laws of the Province of British Columbia.
[2]
For its fiscal year ending
October 31, 2005, the Appellant was required to make monthly tax instalments of
$150,930.83. The said instalment payments were to commence in November 2004.
[3]
Since the Appellant had
a credit balance in its instalment account for the fiscal year ending October
31, 2004, the Appellant did not make an instalment payment with respect to its
fiscal year ending October 31, 2005 until September 12, 2005 when the Appellant
made a lump sum payment of $800,000.00.
[4]
Pursuant to a Notice of
Assessment dated February 24, 2006, the Appellant was assessed for Federal and
Provincial tax in the total amount of $1,812,418.00 for the fiscal year ending
October 31, 2005.
[5]
The Appellant filed a
Notice of Appeal to the Reassessment.
[6]
Prior to the Hearing,
the Parties filed an Agreed Statement of Facts. The Agreed Statement of Facts
reads as follows:
AGREED STATEMENT OF FACTS
The Appellant and the Respondent agree to the facts set out herein,
and the documents in the Joint Book of Documents, for the purposes of these
appeals and for the purposes of any appeals from decisions rendered by the
Court herein.
1.
In 2004 and 2005, Emcon Services Inc. (the
“Company”) was required to pay its income taxes on an instalment basis pursuant
to section 157 of the Income Tax Act (the “Act”).
The 2004 Taxation Year
2.
The Company’s 2004 fiscal year end was October
31, 2004.
3.
The Company’s first monthly instalment payment
for the 2004 taxation year was due on November 30, 2003. The Company’s first
instalment payment with respect to the 2004 taxation year was made on June 15,
2004, in the amount of $2,362,000.
4.
Since the Company had made no payments to its
instalment account between November 30, 2003, and June 15, 2004, instalment
interest accrued on the unpaid balance during that time. Tab 1 of the Joint
Book of Documents is a print-out of the electronically generated
reproduction of the Company’s Statement of Interest Calculated for the 2004
taxation year.
5.
The June 15, 2004, payment for $2,362,000 was
for more than what the Company owed to that date; consequently, the Company’s
instalment account was put into a credit position. As a result, the Company
accrued credit interest on its declining credit balance for the remainder of
the 2004 taxation year as detailed in Tab 1 of the Joint Book of
Documents.
6.
On December 23, 2004, the Company made a second
payment to the 2004 instalment account, this time in the amount of $500,000.
Consequently, the total amount paid to the Company’s 2004 instalment account
for the 2004 taxation year was $2,862,000.
7.
The Appellant filed its 2004 T2 Tax Return on
April 20, 2005, (the “2004 Return”). In its 2004 Return, the Appellant reported
total tax payable of $1,841,122 on line 770 and reported tax instalments paid
of $2,862,000, resulting in an overpayment of $1,020,878 (the
“2004 Overpayment”).
8.
The Company entered the refund code “2” on line
894 of the 2004 Return. Tab 2 of the Joint Book of Documents
is a copy of the Company’s electronically filed 2004 T2 Return. Tab 3 of
the Joint Book of Documents is a copy of the Agency’s 2004 Corporate
Instalment Guide.
9.
The Company’s 2004 Return was assessed pursuant
to a Notice of Assessment dated June 3, 2005, (the “2004 Assessment”). Tab 4
of the Joint Book of Documents is the print-out of the electronically
generated reproduction of the 2004 Assessment.
10.
The 2004 Assessment resulted in the Company
having a net credit balance for its 2004 taxation year of $1,020,878 as a
result of the 2004 Overpayment. Also, as a result of the Overpayment, the
Company accrued refund interest of $13,371.30 resulting in a total credit
balance for the 2004 taxation year of $1,034,249.30 (the “2004 Credit
Balance”).
11.
The 2004 Assessment showed the 2004 Credit
Balance as an “amount transferred” and stated “We have transferred your credit
to the instalment segment of your next reporting period as requested.”
12.
The 2004 Credit Balance was transferred and
applied to the Company’s 2005 taxation year on the date of the 2004 Assessment,
which was June 3, 2005.
The 2005 Taxation Year
13.
The Company’s 2005 fiscal year end was October
31, 2005.
14.
The Company’s first monthly instalment payment
for the 2005 taxation year was due on November 30, 2004. There were two credits
posted to the Company’s 2005 instalment account:
a)
the 2004 Credit Balance transferred to the 2005
instalment account on June 3, 2005; and
b)
an $800,000 payment made by the Company on
September 12, 2005.
15.
Instalment interest began to accrue on the
Company’s 2005 instalment account after November 30, 2004, on the basis that
the 2004 Credit Balance was not transferred to the 2005 taxation year until the
2004 Assessment date on June 3, 2005. Instalment interest continued to
accrue until the Company made the September 12, 2005, payment. Tab 5
of the Joint Book of Documents is a print-out of the electronically
generated reproduction of the Company’s Statement of Interest Calculated for
the 2005 taxation year.
16.
The $800,000 payment on September 12, 2005, was
for more than the Company owed at that time. Consequently, the Company began to
accrue credit instalment interest on its credit balance as detailed in Tab 5
of the Joint Book of Documents.
17.
The Company’s 2005 taxation year was assessed
pursuant to a Notice of Assessment dated February 24, 2006, (the “2005
Assessment”). Tab 6 of the Joint Book of Documents is the
print-out of the electronically generated reproduction of the 2005 Assessment.
Pursuant to the 2005 Assessment:
a)
the Company was assessed for total federal and
provincial taxes owing of $1,812,418 (the “2005 Tax Liability”);
b)
the Company was assessed for instalment interest
of $21,897.39, instalment penalties of $741.50, and arrears interest of $8.56
for a total of $22,647.45 (cumulatively, the “2005 Interest and Penalties”);
c)
the 2005 Tax Liability and the 2005 Interest and
Penalties totalled $1,835,065.45;
d)
the Company was credited for having remitted $1,834,249.30
against its 2005 balance which amount consisted of the 2004 Credit Balance
which the Agency transferred on June 3, 2005, and the $800,000 payment made on
September 12, 2005; and
e)
the Company’s total amount owing for the 2005
taxation year on the assessment date was $816.15 ($1,835,065.45 -
$1,834,249.30).
18.
Before the 2005 Interest and Penalties were
applied, the Company’s instalment account had a credit balance of $21,831.30.
Fairness Request
19.
The Company made a first and second level
fairness request to the Minister under subsection 220(3.1) of the Act to
waive the 2005 Interest and Penalties (the “Fairness Request”). The
Minister denied the Company’s Fairness Request and the Company applied to the
Federal Court of Appeal for judicial review of the Minister’s decision. The
judicial review proceedings have been held in abeyance pending the outcome of
the Company’s Tax Court appeal. Tab 7 of the Joint Book of Documents
is a copy of the Company’s Fairness Request. Tab 8 of the Joint Book
of Documents is a copy of the Agency’s first Fairness Report.
B. Issue
[7]
The issue is whether
the Minister of National Revenue (the “Minister”) properly assessed instalment
interest, instalment penalties and arrears interest with respect to the Appellant’s
2005 taxation year.
C. Analysis
[8]
In this situation we
are dealing with the following amounts:
1. Instalment interest $21,897.39
2. Instalment penalties 741.50
3. Arrears interest
8.56
$22,647.45
[9]
Appellant’s Counsel
maintains that the Appellant has complied with the obligations set out in the
guides regarding transfer of the overpayment.
[10]
Counsel for the
Respondent maintains that the Minister properly assessed the Company pursuant
to the Income Tax Act (the “Act”). Counsel for the
Respondent said that the Tax Court does not have jurisdiction to determine
whether section 221.2 of the Act should have been applied because a
decision under that section is made separate from the assessment of tax,
interest, or penalties.
[11]
Counsel for the
Respondent stated that the Tax Court’s jurisdiction is limited to
determining the correctness of an assessment. Counsel said that the manner in
which a refund is paid or credited to a taxpayer is not part of the assessment
and is not within the jurisdiction of the Tax Court. In support of his position
counsel for the Respondent referred to Paradis v. The Queen, 2004 TCC
676 and said:
… This Court's jurisdiction is,
pursuant to section 12 of the Tax Court of Canada Act ("TCCA")
and sections 169 and 171 of Income Tax Act, restricted to having
assessments vacated or varied if the amounts assessed are erroneous. If they
are not, this Court can only confirm the assessment. The collection of taxes or
the manner in which the government handles tax refunds are not matters within
this Court's jurisdiction under the legislation.
4
As
mentioned above, the appellant does not challenge the validity of the
assessment made by the Minister of National Revenue ("Minister")
insofar as the computation of tax, interest or penalty for his 2002 taxation
year is concerned, but rather he challenges how the federal government handled
his tax refund.
[12]
Counsel for the Respondent
said that in the case at bar the Appellant is challenging the way in which the Canada
Revenue Agency (the “CRA”) handled the Company’s refund and is in effect asking
the Court to direct the Minister to handle it differently. As in Hrab v.
Canada, [1996] 2 C.T.C. 2239 (TCC), this is not a challenge to the way
in which the tax liability was calculated. Rather, it is “… a challenge to
the manner in which the taxpayer’s liability will be paid and thus is a
question of collection of tax, not the assessment of tax”. Counsel for the
Respondent said: “this Court lacks jurisdiction to give the relief sought”.
[13]
Counsel for the
Respondent also said that decision by the Minister to “re‑appropriate an
amount” is discretionary.
[14]
Counsel for the
Respondent noted that the modern approach to the interpretation of taxing
statutes, like all statutes, required “the words of an Act … to be read
in their entire context and in their grammatical and ordinary sense
harmoniously with the scheme of the Act, the object of the Act, and
the intention of Parliament.”
However, where the words of an Act are “precise and unequivocal” there
is no need to resort to a purposive analysis; rather, the particular words are
to play a dominant role and the provision should be simply applied.
[15]
Counsel for the
Respondent submits that the Minister is not required to re‑appropriate
the amount. This is because the words of section 221.2 state that “… on
application, the Minister may, appropriate…”. The word “may” gives the
Minister the discretion to do a particular thing but does not require the Minister
to do that thing. He said that this interpretation is consistent with the
ordinary meaning of the word “may” and the Supreme Court of Canada’s decision
in R. v. Johnson, 2003 SCC 46 at paragraph 16, where the Court
stated “…on its face, the word “may” denotes a discretion, while the word
“shall” is commonly used to denote an obligation”.
[16]
Counsel for the
Respondent said that interpreting the word “may” as connoting a discretion is
consistent with section 11 of the Interpretation Act which reads: “…the
expression “shall” is to be construed as imperative and the expression “may” as
permissive”.
He said that Parliament would have used the word “shall” instead of “may” if it
had intended the provisions of section 221.2 to be mandatory.
[17]
Respondent’s counsel submits
that it is not necessary to resort to the context of the provision, or to
extrinsic aids to interpret the purpose of the precise and unequivocal words of
section 221.2. He said that additional support for the Respondent’s
interpretation is found in two documents which, in addition to the Act,
were available to the Appellant:
i. the Agency’s Corporation
Instalment Guide;
and
ii. The Agency’s Technical Note dated
June 1992 which states in part:
New section 221.2 is intended to provide explicit authority for the
Minister of National Revenue to accept transfers of payments from one tax
account to another, and from one year to another. Under this new provision, any
amount transferred – at the taxpayer’s request and with the Minister’s
concurrence – from one account to another will be treated as though it had
never been paid on account of the first account, and had initially been a
payment made in respect of the second.
[Emphasis added]
[18]
Respondent’s counsel further
said that “… interpreting section 221.2 as being a discretionary section is
consistent with the scheme of the Act”. Section 221.2 is found in Part
XV of the Act which is entitled “Administration and Enforcement”. More
precisely, it is found under the sub‑heading, “Administration” along with
sections 220, 221 and 221.1. Section 220 sets out the duties of the Minister
and provides the Minister with a number of discretionary powers including
waiving the filing of documents, extending the time for filing returns or
making various elections.
The waiver of interest and penalties, which are undisputedly discretionary, are
also found here in subsection 220(3.1); these are commonly referred to as the
Taxpayer Relief or Fairness Provisions. Section 221 provides the authority for
the promulgation of regulations and section 221.1 provides for some special
rules concerning the application of interest where amendments have been made to
the Act or its regulations.
[19]
A taxpayer’s liability
for interest or penalties is calculated pursuant to sections found in Part I,
Division I, under the specific subheadings, “Interest” and “Penalties”. The
Respondent submits that to be consistent with the scheme of the Act,
section 221.2 would be found in Part I, Division I, instead of in Part XV, if
it was in fact intended to be applied as part of the mandatory calculation of
the Appellant’s tax liability.
Conclusion
[20]
I have concluded that
the Tax Court’s jurisdiction is limited to determining the correctness of an
assessment and therefore the manner in which a refund is paid or credited is
not within the jurisdiction of the Tax Court. In the event that I am not
correct in my determination that the Tax Court lacks jurisdiction, I have also
concluded that the decision by the Minister to “re‑appropriate” is
discretionary for the reasons outlined above.
[21]
This appeal is
dismissed with costs.
Signed at Vancouver, British Columbia, this 9th day of September 2008.
“L.M. Little”
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