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Citation: 2004TCC73
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Date: 20040211
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Docket: 2003-3254(IT)I
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BETWEEN:
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PREMAY EQUIPMENT LTD,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Beaubier, J.
[1] This appeal pursuant to the
Informal Procedure was heard at Calgary, Alberta on January 20,
2004. The Appellant's Controller, Darryl Zachary C.A., was
the only witness.
[2] The particulars in dispute are set
out in paragraphs 1 to 8 inclusive of the Reply to the Notice of
Appeal which read:
A. STATEMENT OF
FACTS
1.
He admits:
(a) that the Appellant
was assessed instalment interest on the basis that the Appellant
was required to make twelve equal instalment payments of
$140,823.91 for the 2001 taxation year; and
(b) that pursuant to
the third option stated in subsection 157(1) of the Income Tax
Act, a corporation can choose to make:
(i) two equal
instalment payments, for the first to months, equal to one
twelfth of the tax payable for the year before the preceding
taxation year; and
(ii) ten equal
instalment payments, for the remaining ten months, equal to one
tenth of the difference between the tax payable for the preceding
taxation year and the total of the first two instalment payments
that were made as stated in the Notice of Appeal.
2.
He denies:
(a) that interest
assessed should be reduced to $430.53 from $4,738.86; and
(b) that the Canada
Customs and Revenue Agency has incorrectly assessed instalment
interest as option three is more advantageous to the Appellant as
stated in the Notice of Appeal.
3.
He states that there are no other allegations of fact stated in
the Notice of Appeal to admit, deny or put in issue. However, to
the extent that there are any other allegations of fact, they are
denied.
4.
In assessing the Appellant for the 2001 taxation year on July 22,
2002, the Minister of National Revenue (the
"Minister"), among other things:
(a) assessed
instalment interest in the amount of $4,621.30 as set out in
Schedule A attached to and forming part of the Reply to the
Notice of Appeal; and
(b) assessed arrears
interest in the amount of $117.56 as set out in Schedule B
attached to and forming part of the Reply to the Notice of
Appeal.
5.
In so assessing the Appellant, the Minister made the following
assumptions of fact:
(a) at all relevant
times, the Appellant operated on a fiscal period from
January 1, to December 31;
(b) the
Appellant's 2001 taxation year ended on December 31,
2001;
(c) the balance-due
day of the Appellant for the 2001 taxation year was February 28,
2002;
(d) the instalment
base of the Appellant for the 1999 taxation year was
$1,082,325.00;
(e) the instalment
base of the Appellant for the 2000 taxation year was
$1,771,317.00;
(f) the
instalment base of the Appellant for the 2001 taxation year was
$1,689,887.00;
(g) the Appellant
was required to make instalment payments on or before the last
day of each month in the 2001 taxation year in the amount of
$140,823.91, for a total of $1,689,886.92, as follows:
(h) the Appellant
made total instalment payments in respect of the 2001 taxation
year in the amount of $1,689,887.00, as follows:
Date
Amount
January 31,
2001
$
76,836.00
February 28,
2001
76,836.00
March 30,
2001
179,864.00
April 30,
2001
153,148.00
May 31,
2001
153,148.00
June 29,
2001
152,928.00
July 31,
2001
153,093.00
August 31,
2001
153,093.00
September 28,
2001
153,093.00
October 31,
2001
153,093.00
November 30,
2001
153,093.00
December 31,
2001
131,662.00
Total
$1,689,887.00
(i) prescribed
interest as a result of the failure to make all or any part of
the instalment payments as and when required for the 2001
taxation year amounted to $4,621.30;
(j) prior to
the date of the assessment for the 2001 taxation year, the
Appellant did not make any payments in respect of the instalment
interest assessed as owing; and
(k) prescribed
interest on the instalment interest assessed in the amount of
$4,621.30 from the balance-due day of February 28, 2002 to the
date of the assessment of July 22, 2002 amounted to $117.56.
B. ISSUES
TO BE DECIDED
6.
The issues to be decided are:
(a) whether the
Appellant has been properly assessed instalment interest in the
amount of $4,621.30 for the 2001 taxation year; and
(b) whether the
Appellant has been properly assessed arrears interest in the
amount of $117.56 for the 2001 taxation year.
C. STATUTORY
PROVISIONS, GROUNDS RELIED ON AND RELIEF SOUGHT
7.
He relies on sections 157, 249 and 161 and subsections 248(1) and
248(11) of the Income Tax Act, R.S.C. 1985 (5th Supp.)
c.1, as amended for the 2001 taxation year and on Parts XLIII and
LIII of the Income Tax Regulations.
8.
He submits that the Appellant was required to pay instalments of
tax for the 2001 taxation year pursuant to subsection 157(1) of
the Income Tax Act.
[3] Assumption 5(f) is wrong. The
instalment base for the 2000 taxation year should read
$1,711,317. In other respects, the assumptions were not in
dispute.
[4] At issue are the Income Tax
Act provisions and respecting the 2001 year contained in
subsections 157(1) and 161(4.1). They read as follows:
157(1) Every corporation shall, in respect of each of its
taxation years, pay to the Receiver General
(a) either
(i) on or before the last day of each month in the year, an
amount equal to 1/12 of the total of the amounts estimated by it
to be the taxes payable by it under this Part and Parts I.3, VI,
VI.1 and XIII.1 for the year.
(ii) on or before the last day of each month in the year, an
amount equal to 1/12 of its first instalment base for the year,
or
(iii) on or before the last day of each of the first two
months in the year, an amount equal to 1/12 of its second
instalment base for the year, and on or before the last day of
each of the following months in the year, an amount equal to 1/10
of the amount remaining after deducting the amount computed
pursuant to this subparagraph in respect of the first two months
from its first instalment base for the year; and
(b) the remainder of the taxes payable by it under this
Part
and Parts I.3, VI, VI.1 and VIII.1 for the year
(i) on or before the end of the third month following the end
of the year, where
(A) an amount was deducted by virtue of section 125 in
computing the tax payable under this Part by the corporation for
the year or its immediately preceding taxation year,
(B) the corporation is, throughout the year, a
Canadian-controlled private corporation,
(C) a particular calendar year immediately preceded the
calendar year in which the year ends, and
(D) either
(I) the corporation is not associated with another corporation
in the taxation year and its taxable income for its immediately
preceding taxation year (determined before taking into
consideration the specified future tax consequences for that
preceding year) does not exceed its business limit for that
preceding year, or
(II) where the corporation is associated with another
corporation in the taxation year, the total of all amounts each
of which is the taxable income of the corporation or such an
associated corporation for its last taxation year that ended in
the particular calendar year (determined before taking into
consideration the specified future tax consequences for that last
year) does not exceed the total of all amounts each of which is
the business limit of the corporation or such an associated
corporation for that last year, or
(ii) on or before the end of the second month following the
end of the year, in any other case.
161(4.1) For the purposes of subsection (2) and section 163.1,
where a corporation is required to pay a part or instalment of
tax for a taxation year computed by reference to a method
described in subsection 157(1), the corporation shall be deemed
to have been liable to pay on or before each day referred to in
subparagraphs 157(1)(a)(i) to (iii) a part or instalment
computed by reference to
(a) the total of the taxes payable under this Part and
Parts I.3, VI and VI.1 by the corporation for the year,
determined before taking into consideration the specified future
tax consequences for the year,
(b) its first instalment base for the year, or
(c) its second instalment base and its first instalment
base for the year,
reduced by the amount, if any, determined under any of
paragraphs 157(3)(b) to (d) in respect of the
corporation for the year, whichever method gives rise to the
least total amount of such parts or instalments of tax for the
year.
[5] As Mr. Zachary pointed out in his
testimony, in a volatile business such as the Appellant's,
the first option in subsection 157(1) is not capable of being
estimated; as a result, the remaining options for instalments are
the only ones which are open to such a taxpayer. In support of
the Appellant's actions in this matter, Mr. Zachary filed
that portion of the "Corporation Instalment
Guide" issued by the Respondent as Exhibit A-1.
"How to calculate your instalments of corporate
tax" reads:
There are three options you can use to calculate the amount of
tax your corporation has to pay in instalments for the current
taxation year (paragraph 157(1)(a)). You can
calculate:
· the
estimated tax for the current year (Option 1);
· the tax for
the preceding taxation year (Option 2); or
· a
combination of the tax for the year before the preceding year,
and for the preceding year (Option 3).
For all three options, you base the calculation on the total
tax you have to pay under Parts I, I.3, VI, and VI.1 of the Act,
and the tax you have to pay to your province or territory.
Unlike other provinces and territories, Quebec, Ontario, and
Alberta do not have corporate tax collection agreements with the
federal government. Corporations that earned taxable incomes in
these provinces have to pay their provincial taxes directly to
these provinces.
Note
If a year used in calculating the tax is less than 12 months,
see "Short taxation years" in this section.
Option 1 - One-twelfth of the estimated tax payable for the
current year is due each month of the taxation year.
Option 2 - One-twelfth of the estimated tax payable for the
preceding year is due each month of the taxation year.
Option 3 - One-twelfth of the actual tax payable for the year
before the preceding taxation year is due in each of the first
two months of the taxation year. One-tenth of the difference
between the total of the first two payments and the actual tax
for the preceding year is due in each of the remaining 10 months
of the taxation year.
Note
We may charge interest if you use Option 1, and your estimated
tax was lower than the year's actual tax and the tax
calculated using Option 2 or 3.
You can use the option that is most advantageous to you
(subsection 161(4.1)). We will assess your return using the
option that results in the least amount payable by
instalments.
Section C includes two worksheets to help you calculate your
estimated tax payable and tax credits, as well as your monthly
instalment payments. Use the estimated credits for 2001 to
calculate your instalment payments under Options 1, 2, or 3.
[6] However, the Respondent's
counsel pointed out that subsection 161(4.1) deals with interest
on instalments, and not the instalments themselves.
[7] There is no question that in this
case, the Appellant's calculations of instalments was made in
good faith, with the information that it had available at the
time. Thus, the Appellant is entitled to the Court's sympathy
respecting this assessment and its result.
[8] However, the Income Tax Act
is designed for general application. It is for the taxpayer to
choose the method of instalments and to use it correctly. This
taxpayer was admittedly incorrect respecting the first two
instalments. If the method used does not comply with the results
envisioned in subsection 161(4.1), whether adopted in good faith
or in bad faith, then interest is due. That is what happened in
this case.
[9] For this reason, the appeal is
dismissed.
Signed at Kelowna, British Columbia, on this 11th day of
February, 2004.
Beaubier, J.
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