Date: 20010516
Docket: 2000-989-IT-I
BETWEEN:
MARTIN WRIGHT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor
Judgment
Watson, D.J.T.C.C.
[1]
This appeal was heard in Montréal, Quebec, under the
Informal Procedure on March 27, 2001.
[2]
The Minister of National Revenue (the "Minister")
assessed the Appellant with respect to the 1994 taxation year by
Notice of Assessment dated June 18, 1999; the Appellant was
assessed for interest with respect to the period from
January 15, 1995 to December 31, 1996 inclusively on 25% of
gross rental income in the amount of $47,585.63 that was not
remitted to the Receiver General of Canada as required by
subsection 215(1) of the Income Tax Act
(the "Act").
[3]
At the hearing of the appeal, the parties provided the Court with
the following Agreed Statement of Facts:
"The parties hereby agree on and admit the following
facts for the sole and only purpose of adjudication on this
matter and without any other admissions regarding their
respective position.
1.
At all material times, the Appellant was a non-resident of
Canada.
2.
During his 1994 taxation year, the Appellant owned a share in
commercial properties located at 4370 Boul. Des Grandes Prairies,
St. Léonard, Québec, and 154 Laurier Ouest,
Suite 210, Montréal, Québec.
3.
The Appellant was credited with gross rents of $190,342.50 which
was collected by his agent during the 1994 taxation year with
respect to his share in the properties referred to in paragraph 2
above.
4.
The Appellant's Canadian agent did not deduct or withhold any
income tax with respect of the gross rents referred to paragraph
3 herein.
5.
The Appellant filed a T-1 for the 1994 and 1995 taxation years in
accordance with subsection 216(1) of the Income Tax
Act (the "Act") on June 23, 1997. And the
1994 return was not filed within two years of the end of the year
as required by the said subsection of the Act.
6.
The Minister extended the time for filing the 1994 return
referred to in paragraph 5 pursuant to subsection 220(3) of the
Act.
7.
The 1994 T-1 return filed pursuant to subsection 216(1) of the
Act was assessed on July 7, 1999 and federal tax of
$5,393.02 plus arrears interest of $6.64 was levied under
Part I of the Act.
8.
The Minister assessed the Appellant for interest with respect to
the period from January 15, 1995 to December 31, 1996
inclusively on 25% of gross rental income in the amount of
$47,585.63 that was not remitted to the Receiver General of
Canada.
9.
The Minister issued the assessment in dispute herein in
accordance with the following calculation:
Gross rents
received
$190,342.50
25% required to be
withheld
$ 47,585.63
Interest from 01-15-95 to
12-31-96
$ 10,494.55"
[4]
In the 1999 assessment, the Minister exercised his discretion
under subsection 220(3) of the Act and granted the
Appellant an extension to file his income tax return under
section 216 of the Act. Having accepted the belated income
tax return, the Minister did not assess the Appellant for taxes
and penalties under Part XIII of the Act, but pursuant to
subsection 216(1) of the Act, the Minister assessed the
Appellant in accordance with Part I of the Act. The
Minister submits that the Appellant continues to be liable to pay
interest on the Part XIII income tax that should have been
withheld and remitted forthwith.
[5]
The only issue before the Court is whether the Minister properly
assessed the Appellant for interest in the amount of $10,494.55
pursuant to subsection 227(8.3) and
paragraph 227(10)(a) of the Act and sections
4300 and 4301 of the Income Tax Regulations.
[6]
Subsection 215(1) of the Act reads as follows:
"Deduction and payment of tax - When a person
pays or credits or is deemed to have paid or credited an amount
on which an income tax is payable under this Part, the person
shall, notwithstanding any agreement or law to the contrary,
deduct or withhold therefrom the amount of the tax and forthwith
remit that amount to the Receiver General on behalf of the
non-resident person on account of the tax and shall submit
therewith a statement in prescribed form."
[7]
Subsection 216(1) of the Act reads in part as follows:
"Alternatives re rents and timber royalties - Where
an amount has been paid during a taxation year to a
non-resident person or to a partnership of which that
person was a member as, on account of, in lieu of payment of or
in satisfaction of, rent on real property in Canada or a timber
royalty, that person may, within 2 years (or, where that person
has filed an undertaking described in subsection (4) in respect
of the year, within 6 months) after the end of the year,
file a return of income under Part I in the form prescribed
for a person resident in Canada for that year and the
non-resident person shall, without affecting the liability
of the non-resident person for tax otherwise payable under
Part I, thereupon be liable, in lieu of paying tax under this
Part on that amount, to pay tax under Part I for the year as
though
(a)
the non-resident person were a person resident in Canada and not
exempt from tax under section 149;
..."
[8]
Subsection 215(1) provides that where a taxpayer is liable to pay
an amount of income tax under Part XIII, he is liable to withhold
and forthwith remit that amount to the Minister; the taxpayer is
only liable to withhold and remit an amount under this subsection
if he is liable for an amount of income tax under Part XIII of
the Act. Subsection 216(1) suggests that once a
non-resident taxpayer files a valid income tax return under Part
I of the Act for a taxation year, he is no longer liable
to pay Part XIII income tax in that year on his gross rental
income from Canadian property but he will be liable to pay Part I
income tax in that same year on his gross rental income from
Canadian property as if he were a resident of Canada.
[9]
In the present appeal, after the Appellant filed a valid income
tax return under Part I of the Act in respect of his
rental income from Canadian property in 1994, it would seem that
he should be treated as a resident of Canada in respect of such
income; he is only liable to pay Part I income tax on his rental
income from Canadian property and is not liable for Part XIII
income tax in respect of this income. It follows that pursuant to
subsection 216(1) of the Act, the Appellant in this appeal
is not liable for interest accrued on an amount that he did not
have to withhold and remit in the first place.
[10] In
conclusion, subsection 215(1) requires the Appellant to withhold
Part XIII income tax on the gross rental income from a
Canadian property for the year, but only if he is liable for Part
XIII income tax; subsection 216(1) clearly states that where a
taxpayer files an income tax return under Part I of the
Act, he is liable for Part I income tax on the said amount
"in lieu of" Part XIII income tax and is to be treated
as though he was a resident of Canada during that period.
[11] In the
facts of this appeal, the Appellant filed an income tax return
under Part I of the Act which was later accepted by the
Minister; as such the Appellant was to be treated as a resident
of Canada during this period and become liable for Part I income
tax on the rental income instead of Part XIII income tax on this
rental income. It follows that the Appellant was not subject to
Part XIII income tax and that he is not liable to pay interest on
an amount that he was not required to withhold and forthwith
remit under subsection 215(1) of the Act. Liability
for interest under subsection 227(8.1) and paragraph
227(10)(a) of the Act and sections 4300 and
4301 of the Regulations does not come into play.
[12] I have
benefited from the principles set out in the following two
cases:
-
Minister of National Revenue v. Bessemer Trust Company and
Ogden Phipps as Trustee (1957) Trust, 73 DTC 5045,
-
Moses Deitcher v. Her Majesty The Queen, 79 DTC 5415.
[13] For the
above reasons, the appeal is allowed.
Signed at Ottawa, Canada, this 16th day of May 2001.
"D.R. Watson"
D.J.T.C.C.
COURT FILE
NO.:
2000-989(IT)I
STYLE OF CAUSE:Martin
Wright and Her Majesty the Queen
PLACE OF
HEARING:
Montréal, Quebec
DATE OF
HEARING:
March 27, 2001
REASONS FOR JUDGMENT
BY:
Honourable Deputy Judge D.R. Watson
DATE OF
JUDGMENT:
May 16, 2001
APPEARANCES:
Agent for the
Appellant:
David Wilkenfeld
Counsel for the
Respondent:
Anne-Marie Desgens
COUNSEL OF RECORD:
For the
Appellant:
Name:
Firm:
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2000-989(IT)I
BETWEEN:
MARTIN WRIGHT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on March 27, 2001 at
Montréal, Quebec, by
the Honourable Deputy Judge D.R. Watson
Appearances
Agent for the
Appellant:
David Wilkenfeld
Counsel for the
Respondent:
Anne-Marie Desgens
JUDGMENT
The
appeal from the assessment made under the Income Tax Act
for the 1994 taxation year is allowed and the assessment is
referred back to the Minister of National Revenue for
reconsideration and reassessment in accordance with the attached
Reasons for Judgment.
Signed at Ottawa, Canada, this 16th day of May 2001.
D.J.T.C.C.
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