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Citation: 2003TCC213
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Date: 20030404
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Docket: 2002-98(IT)I
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BETWEEN:
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GEORGE ANDREW WOWK,
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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
Mogan J.
[1] This appeal is from an assessment
of interest and penalty with respect to the Appellant's 1999
taxation year. The principal fact underlying the assessment of
the penalty is a number of income tax returns for years preceding
1999 which were filed late. Certain relevant facts were stated by
the Appellant during his brief testimony. Other relevant facts
were assumed by the Minister of National Revenue as set out in
the Reply to the Notice of Appeal, and not challenged by the
Appellant. Copies of the Appellant's income tax returns for 1998
and 1999 are part of the Appellant's Exhibit A-1. A copy of a
letter dated September 11, 2001 (a date now famous in North
American history!) from Canada Customs and Revenue Agency
("CCRA") to the Appellant, with attached schedules, is
Exhibit A-2. Relying on these documents and the Appellant's
oral testimony, I will attempt to summarize the relevant
facts in a chronological order.
[2] Concerning the 1994 taxation year,
the Minister issued a request on February 27, 1996 to file a
return. On April 12, 1996, the Minister issued a demand to file a
return. The Appellant filed his 1994 return on May 6, 1996, about
one year late.
[3] Concerning the 1995 taxation year,
the Minister issued a request on January 23, 1997 to file a
return. On March 20, 1997, the Minister issued a demand to file a
return. The Appellant filed his 1995 return on October 9, 1997,
about seventeen months late.
[4] Concerning the 1996 taxation year,
the Appellant was in business and therefore not required to file
his return until June 15, 1997. The Appellant filed his 1996
return on February 26, 1998, about eight months late. When
assessing the Appellant with respect to his 1996 taxation year,
the Minister assessed a late-filing penalty in the amount
of $84.79.
[5] Concerning the 1999 taxation year
(the year under appeal), the Appellant was in business and
therefore not required to file his return until June 15, 2000. On
September 7, 2000, the Minister issued to the Appellant a demand
to file a return for the 1999 taxation year. The Appellant filed
his 1999 return on January 15, 2001, more than six complete
calendar months after the due date. When assessing the Appellant
with respect to his 1999 taxation year, the Minister assessed a
late-filing penalty in the amount of $1,499.70.
[6] The Appellant's tax payable for
the 1999 taxation year was not fully paid when the return was
required to be filed on June 15, 2000. The amount unpaid at June
15, 2000 was $6,816.83 computed as follows:
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Provincial Tax
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$5,977.05
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Federal Tax
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12,684.86
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Total Tax
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18,661.91
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Less: Tax Deductions at Source
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11,845.08
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1999 Tax Payable
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$6,816.83
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[7] The Minister assessed a
late-filing penalty for 1999 in the amount of $1,499.70 computed
as follows:
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Tax Payable x 10% = $6,816.83 x 10%
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$681.68
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Plus:
Tax Payable x (2% x number of complete months, not
exceeding 20, from the date on which the return was
required to be filed to the date the return was filed) =
$6,816.83 x 12%
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818.02
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Late Filing Penalty
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$1,499.70
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[8] The Appellant has appealed against
the late-filing penalty for 1999 and certain interest for
late-paid taxes. In particular, he objects to the double penalty
of 10% plus 2% for each complete month after due date. The
late-filing penalty is imposed under subsection 162(2) of the
Income Tax Act which provides:
162(2) Every person
(a) who fails
to file a return of income for a taxation year as and when
required by subsection 150(1),
(b) on whom a
demand for a return for the year has been served under subsection
150(2), and
(c) by whom,
before the time of failure, a penalty was payable under this
subsection or subsection (1) in respect of a return of income for
any of the 3 preceding taxation years
is liable to a penalty equal to the total of
(d) an amount
equal to 10% of the person's tax payable under this Part for
the year that was unpaid when the return was required to be
filed, and
(e) the
product obtained when 2% of the person's tax payable under
this Part for the year that was unpaid when the return was
required to be filed is multiplied by the number of complete
months, not exceeding 20, from the date on which the return was
required to be filed to the date on which the return was
filed.
[9] Subsection 162(2) is one of the
relatively few provisions of the Income Tax Act which is
clear as to its meaning and application. The Appellant has
satisfied the first three conditions because (a) he failed
to file his 1999 return as and when required; (b) the
Minister issued a demand to the Appellant on September 7, 2000 to
file a return for 1999; and (c) before the time of failure
(June 15, 2000), the Appellant was liable to pay a penalty under
subsection 162(1) for the 1996 taxation year (one of the three
preceding years). The late-filing penalty described in paragraph
7 above is an exact application of paragraphs (d) and
(e) of subsection 162(2) because the 10% is prescribed;
and 2% for each complete month of "lateness" works out to 12% for
six complete months. The Appellant's appeal is dismissed with
respect to the late-filing penalty.
[10] The interest which may be assessed for
late-paid taxes is set out in section 161 of the Act
which provides in subsection (1):
161(1) Where at any time after a taxpayer's
balance-due day for a taxation year
(a) the total
of the taxpayer's taxes payable under this Part and
Parts I.3, VI and VI.1 for the year
exceeds
(b) the total
of all amounts each of which is an amount paid at or before that
time on account of the taxpayer's tax payable and applied as
at that time by the Minister against the taxpayer's liability
for an amount payable under this Part or Part I.3, VI or VI.1 for
the year,
the taxpayer shall pay to the Receiver General interest at the
prescribed rate on the excess, computed for the period during
which that excess is outstanding.
The "balance-due day" is defined as follows in subsection
248(1):
248(1) In this Act
"balance-due day" of a taxpayer for a taxation year means,
(a)
...
(b) where the
taxpayer is an individual who died after October in the year and
before May in the following taxation year, the day that is 6
months after the day of death,
(c) in any
other case where the taxpayer is an individual, April 30 in the
following taxation year, and
(d)
...
[11] Because the Appellant is a living
individual, his balance-due day for 1999 is April 30, 2000
without regard to whether his 1999 income tax return was required
to be filed by April 30 or June 15, 2000. Part of Exhibit A-1 is
a copy of the Appellant's 1998 income tax return which was
required to be filed either by April 30 or June 15, 1999. The
Appellant in fact filed his 1998 income tax return on or about
October 3, 2000, more than 15 months late. In his 1998 return, he
claimed a refund of $3,510.50 and made the following hand-written
notation on page 4 of his return: "I may owe for 1999 so please
do not refund me the $3,510.50".
[12] The Notice of Assessment for 1998 (also
part of Exhibit A-1) shows that the Minister determined that the
Appellant was entitled to a refund of $3,586.78 for 1998. The
Appellant argued that, in assessing the interest payable by him
for 1999, he should have been given credit for his 1998 refund of
$3,586.78 from April 30, 2000 (his "balance-due day" for 1999).
According to the computations set out on Schedule "B" to the
Respondent's Reply, the Minister gave the Appellant credit for
the 1998 refund of $3,586.78 only from October 30, 2000.
[13] Respondent's counsel argued that the
Minister was not authorized to apply the 1998 refund of $3,586.78
to the Appellant's 1999 taxation year until the Minister received
the Appellant's 1998 return in early October 2000 (late-filed)
with the handwritten notation described in paragraph 11 above. In
other words, the Minister was not instructed to apply the 1998
refund to 1999 taxes until October 2000; and the Minister gave
the Appellant credit for the 1998 refund effective October 30,
2000. I accept the argument of Respondent's counsel.
[14] Schedule "B" to the Respondent's Reply
contains a careful, detailed explanation of the way in which the
Minister determined that the Appellant owes interest in the
amount of $536.41 with respect to his 1999 taxation year to the
date of the Notice of Assessment (March 1, 2001). In particular,
there is a footnote which describes why the interest was reduced
by $121.73 from the amount of interest ($658.14) actually
assessed on March 1, 2001. The footnote states:
The arrears interest assessed in the amount of $658.14 as
calculated in Schedule A was assessed pursuant to the Notice
of Assessment dated March 1, 2001.
Subsequent to the Notice of Assessment, the Appellant was
credited with a payment in the amount of $3,586.78, with an
effective interest date of October 30, 2000.
As a result, the arrears interest assessed from April 30, 2000
to the date of the Notice of Assessment of March 1, 2001 was
reduced by $121.73 from $658.14 to $536.41, as calculated
above.
[15] I am satisfied that the Appellant has
been given the best possible credit for his 1998 refund as being
applied to his 1999 tax owing. The Appellant offered no other
evidence or argument which would persuade me to adjust the
interest owing from April 30, 2000 to March 1, 2001 from the
amount ($536.41) shown in Schedule "B" to the Reply. The appeal
for the 1999 taxation year is dismissed.
Signed at Ottawa, Canada, this 4th day of April, 2003.
J.T.C.C.
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