Simon v. R., [1996] 1 CTC 2384

Beaubier J.T.C.C.:— This appeal pursuant to the Informal Procedure was heard at Toronto, Ontario on April 24, 1995. The appellant was the only witness.

Part of the appeal related to a condominium allegedly purchased by the appellant in a complex known as Carlyle II. The appellant heard the appeals of Netto Kefentse v. The Queen and Monica Kefentse v. The Queen which were conducted by the Crown counsel having the conduct of his case. The appellant testified that his case was substantially the same in every respect and the parties agreed that the decisions in the Kefentse cases would apply to the appellant. Therefore, that portion of the appellant’s appeal is dismissed.

However the appellant gave evidence respecting his appeal relating to the interest levied by Revenue Canada on the tax assessed relating to the Carlyle condominium assessment.

The appellant is employed as an administrator. He is a completely credible witness and his evidence is not disputed. He does not pay any income tax by instalments. Rather, all of his income tax is paid by way of employee remittances.

The appellant was assessed interest on the income tax respecting his “Carlyle” deduction claimed for his 1987 taxation year. When he learned of this he began making payments as soon as he could. When he made the payments he instructed Revenue Canada to apply them on his 1987 income tax liability as assessed. Revenue Canada did not do this. Instead it placed these payments in an “instalment account” in his name and continued to charge him interest on his 1987 assessment.

The Court is satisfied that the officials of the Minister of National Revenue acted improperly when they failed to apply his payments of $5,000, $500, $400, $300, and $350 directly to the appellant’s 1987 assessment on the dates when they were paid. The appellant fits within subsection 156.1(1) of the Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1 (the “Act”). It was the appellant’s right to have his payments applied to his 1987 assessment as he requested. This right is summarized by Halbury’s Laws of England, 4th Edition, Volume 9, (1974), para. 505 as follows:

Where several distinct debts are owing by a debtor to his creditor, the debtor has the right when he makes a payment to appropriate the money to any of the debts that he pleases, and the creditor is bound, if he takes the money, to apply it in the manner directed by the debtor. If the debtor does not make any appropriation at the time when he makes the payment, the right of appropriation devolves on the creditor.

An appropriation by the debtor need not be made in express terms, but must be communicated to the creditor or be capable of being inferred; it may be inferred where the nature of the transaction or the circumstances of the case are such as to show that there was an intention to appropriate.

The appellant also complained that he could not obtain a break-down of the interest claimed by Revenue Canada which applied taxes levied and interest thereon and credited the moneys paid, all in a chronological order, so that the appellant could verify the calculations. Banks and other financial institutions are required to do what this appellant asks for. In JSC International Systems Consultants Ltd. v. Canada, [1994] F.C.J. No. 500, Mahoney J. stated:

The Notices of Assessment were found insufficient and fatal to the assessments only by reason of the failure to allocate the interest and penalties separately to the UI premiums and the CPP contributions assessed. Yet the Tax Court judge found, correctly, that the interest rates and penalty rates as to each are identical. A cursory inspection of the Notices discloses that the total penalty assessed is, in each case, 10% of the total of the two principal amounts. Its allocation ought not have challenged the Respondent. The allocation of the interest to each ought also to be a simple arithmetic exercise.

Verification of the correctness of the interest assessed, of course, depends not only on the rates prescribed for particular periods but on knowing the days upon which remittance of portions of the principal amounts was required and the amounts required to have been remitted on those days. The Respondent is certainly entitled to the Minister’s information needed to permit it to verify that the interest charged was correctly calculated according to the law that prescribed it and to challenge any assumptions it wishes. That information may be obtained upon inquiry after the Notice of Assessment has been delivered. The failure to deliver it before confirmation of an assessment is not fatal to the assessment. A Notice of Assessment is not deficient because it does not provide such information on its face or does not allocate interest and penalty assessed among the principal items assessed as being in arrears.

[Emphasis added.]

In Ontario the Consumer Protection Act, R.S.O. 1990, c. C-31, section 25, requires this information to be provided to a borrower by any commercial lender. This Court finds that the appellant is entitled to the information he requested respecting the breakdown. There is a second question, however, and that is how long the Minister of National Revenue should have in which to supply that information to a taxpayer? In Mister Broadloom Corp. (1968) Ltd. v. Bank of Montreal, (1983), 44 O.R. (2d) 368, 4 D.L.R. (4th) 74, the Ontario Court of Appeal allowed an action by a debtor to proceed against a creditor for damages where the creditor had failed to give the debtor reasonable time for repayment of a demand loan. Section 41 of the Bills of Exchange Act, R.S.C., c. B-4 provides that a lender on a bill, which is not payable on demand, shall permit three days grace for payment where the bill does not provide otherwise.

These offer some guidance in order to determine the amount of time which the Minister should have for the purpose of supplying a taxpayer with a calculation of principal debt, interest, and payments on the debt, in a chronological fashion, capable of verification by the appellant. Revenue Canada levies interest on a daily basis and compounds it daily. Therefore it is obvious that the Minister has the ability to calculate interest daily.

In these circumstances it appears to the Court that three clear working days is a reasonable time within which the Minister of National Revenue should provide such information to a taxpayer. Thus, where a demand of the calculations is made at the time of payment by cheque, three clear working days after the cheque has cleared is reasonable. Where the demand is made without any payment being made or when payment is made by cash, a maximum time of three clear working days thereafter is reasonable time within which to supply the chronological record of moneys owed, payments thereon, and interest accrued.

Therefore the Court finds that the appellant has a right to request the aforesaid calculations in chronological order, balanced monthly, for the appellant to verify.

This matter is adjourned. The respondent is granted 15 days from this date in which to deliver to the appellant and the Court a calculation of the present balance owed by the appellant on the 1987 assessment in accordance with the foregoing provisions. The appellant is granted until 25 days from /this date in which to verify the calculations of the Minister of National Revenue and to file his response with both the Court and the respondent. Filings with the Court may be by fax.

When the Court has received the response by the appellant, the Registrar shall contact the parties in order that the Court may conduct a telephone conference concerning these submissions prior to issuing judgment.

Order accordingly.