Walter G. Corse v. Her Majesty the Queen (Informal Procedure), [1993] 2 CTC 2017

Garon, T.C.C.J. (orally):—This is an appeal from an assessment dated July 5, 1990, made by the Minister of National Revenue in respect of the 1989 taxation year. This is a case where the appellant has elected to have the informal procedure provided by sections 18.1 to 18.28 of the Tax Court of Canada Act apply to his appeal. The appellant disputes the assessment of interest in the amount of $1,255.35 in respect of two instalment payments, one to be made on or before March 15, 1989, and the other on or before June 15, 1989, on the ground that he was not required to make such payments.

The relevant facts for the determination of this appeal are not in dispute. The appellant was, during the 1989 taxation year, employed by Truck All Depot Ltd. as a warehouse or depot manager. His employment income for the year in question was $62,060. An amount of $14,668.75 was deducted at source from this remuneration in accordance with the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") and the Income Tax Regulations (the "Regulations"). On August 15, 1989, the appellant sold a rental property which gave rise to a capital gain and to a recapture of depreciation, as it is commonly called, with the result that the appellant's total income for the year was increased by about $11,000. The appellant's total income for the year from his sources of income, namely, employment, interest on certain types of investments and finally recaptured depreciation and a taxable capital gain arising out of the sale of the above-mentioned property, amounted to $92,592.

It was also established that the appellant was not required by subsection 156(1) to make instalment payments during the 1987 and 1988 taxation years. It is also common ground that the appellant’s net federal tax payable for the 1989 taxation year was $20,269.80, and that the appellant's net federal tax payable for the 1988 taxation year, on which the Minister of National Revenue based his computation of the required instalment payments for 1989, was $17,872.34.

The appellant contends that prior to the sale of his rental property on August 15, 1989 he was not required to make instalment payments in respect of income tax owin for his 1989 taxation year because tax had been withheld at source from more than 3/4 of his 1989 income earned up to August 15, 1989”. In coming to this conclusion the appellant’s Agent relied on the decision of Judge Lamarre Proulx of this Court in the case Paquette v. M.N.R., [1990] 2 C.T.C. 2016, 90 D.T.C. 1474.

Counsel for the respondent relied on subsection 156(1) of the Act and stressed that this subsection lays down a general principle which should be given effect here since the two exceptions mentioned therein are, according to her, not applicable here. In support of her position Counsel for the Minister referred to the following decisions of this Court: Culham v. M.N.R., [1985] 1 C.T.C. 2227, 85 D.T.C. 165; Steer v. M.N.R., [1985] 2 C.T.C. 2265, 85 D.T.C. 589 and Hutchins v. M.N.R., [1991] 1 C.T.C. 2510, 91 D.T.C. 790. The position adopted in these three decisions would appear to differ from the position adopted by this Court in the Paquette case mentioned earlier.

In examining the relevant provisions of the Act, I find it convenient to start with an analysis of subsection 153(2) of the Act, which reads as follows:

Where amounts have been deducted or withheld under this section from the remuneration or other payments received by an individual in a taxation year, if the aggregate of the remuneration and other payments from which such amounts have been deducted or withheld and which he had received in the year is equal to or greater than 3/4 of his income for the year, he shall, on or before April 30 in the next year, pay to the Receiver General the remainder of his tax for the year as estimated under section 151.

Subsection 153(2) is one of the exceptions expressly mentioned in subsection 156(1). One other exception is that set out in section 155 which deals with the obligation to make instalment payments for an individual whose chief source of income is farming or fishing. Obviously this provision has no application in the present case. There is a third exception which applies where the aggregate of taxes payable for a particular year or the immediately preceding year is not more than the aggregate of $1,000 and the amount, if any, determined in respect of the year under subsection 120(2) of the Act. This third exception is found in section 156.1 of the Act.

Reverting to my analysis of subsection 153(2) of the Act, I am of the view that this enactment is of no assistance to the appellant in the present case. The reason is that subsection 153(2) deals with a precise factual situation that does not obtain here. In effect this subsection refers to a case, generally speaking, where the remuneration and other payments received by an individual for a year that is subject to deduction at source in accordance with the Act and the Regulations is at least equal to 3/4 of the individual's total income for the year. This subsection goes on to say that in such a situation the individual shall on or before April 30 in the next year pay to the Receiver General the remainder of his tax for the year as estimated by him in his return of income as required by section 151 of the Act. Therefore, in the precise factual situation covered by subsection 153(2), there is no requirement for an individual to make quarterly instalments, but he ts, of course, required to pay the balance of the tax owing on or before April 30 of the following year. It also follows from the foregoing that subsection 153(2) does not deal with the converse situation, that is, where the remuneration and other payments received by an individual from which deductions are made at source are less than 3/4 of the individual’s total income for the year.

In my analysis of subsection 153(2) of the Act, l should add that it appears to be obvious that the point in time at which the calculations required by this subsection must be made by the individual concerned is after the end of the appropriate taxation year in respect of which the income tax is payable. The different elements involved in making these calculations required by subsection 153(2) cannot be ascertained with the required degree of certainty before the end of the year in question. Subsection 153(2) does not speak of estimated remuneration or of estimated income, but contemplates the computation of the actual total remuneration and actual income for the year in question. It is therefore clear in my view that subsection 153(2) does not apply to a case like the present case where after the end of the year in question the total remuneration of an individual subject to the withholding provisions of the Act and Regulations is less than 3/4 of his total income for the year.

From the above it therefore follows that the appellant's obligation, if any, to make instalment payments on account of income tax in the particular circumstances of this case must be found in subsection 156(1) of the Act. This section in general terms provides, that an individual must make instalments on account of income tax four times during the year. Each payment must be made on or before one of the four dates mentioned in that subsection. This subsection further provides that the individual must pay, leaving out certain qualifications which are not applicable here, 1/4 of the amount estimated by him to be the tax payable under Part I of the Act for the year, which I will describe later as the first formula or 1/4 of instalment base for the immediately preceding taxation year, to which reference will be made later as the second formula. The individual in question may select the lesser of the two amounts. This subsection further enacts that the remainder of the tax estimated by him under section 151 of the Act is payable on or before April 30 in the next year.

Since there is no dispute here about the computation of the amount contemplated by the second formula that relates to the instalment base, it remains to determine how the amount referred to in subparagraph 156(1)(a)(i) of the Act is arrived at.

The interpretation of subparagraph 156(1)(a)(i) advanced on behalf of the appellant is to the effect that since the first instalment must be made on or before March 15 of the year in question, the individual is required to make an estimate of his tax payable for the year no later than March 15 of that year. This estimate can only be based on known facts and reasonable assumptions. One of such assumptions would have been in the present case that the appellant would continue to be employed at the same salary or at a different salary if such a situation was likely to happen. It follows from the first interpretation of subparagraph 156(1)(a)(i) that the taxpayer would be required to make three other estimates of the tax payable for the year, each time on or before the three other dates spelled out in paragraph 156(1)(a), being June 15, September 15 and December 15. These estimates could vary from one another if there has been a change in circumstances having a bearing on the tax payable for the year under Part I of the Act. In the case of each estimate it would of necessity be an approximate calculation based on probabilities.

A second possible interpretation of subparagraph 156(1)(a)(i) is that propounded by counsel for the respondent. According to the latter interpretation, a taxpayer could resort to two methods under paragraph 156(1)(a). The first method, which is spelled out in subparagraph 156(1)(a)(i), requires him to make a single estimate of the tax payable under Part I of the Act. This method, according to counsel for the respondent, is risky in the sense that the taxpayer's estimate could turn out to be wrong. For instance, if the amount of the tax payable under Part I of the Act is larger than anticipated and larger than the instalment base for the preceding year, the taxpayer would be required by subsection 161(2) of the Act to pay interest on the amount representing the difference between the quarterly payments, if any, he has made and the quarterly payments that he should have made if he had correctly estimated the tax payable for the year. This result is subject to the limitation placed on subsection 161(2) of the Act by subsection 161(4) of this statute. If the taxpayer is convinced that the tax payable under Part I of the Act will be lower than the instalment base for the preceding year he may make his quarterly payments according to his estimate, knowing full well that because of unforeseen circumstances his estimate may in the final analysis be incorrect.

It is therefore necessary to determine which of these two interpretations is to be preferred.

If the first interpretation of paragraph 156(1)(a) is accepted this would imply that in some situations the taxpayer may be called upon during the year in question to make four different estimates of the tax payable for the year, as many unforeseen events may have occurred in the course of a single year. This situation does not seem to be contemplated by subparagraph 156(1)(a)(i), since the wording of this subparagraph rather suggests a single estimate for the entire year. In saying this, I am not overlooking the enactment in section 33 of the Interpretation Act which provides that "words in the singular include the plural, and words in the plural include the singular". This point that there should be only one estimate of the tax payable for a particular taxation year has been accepted by Chief Judge Couture in the Steer case referred to above. Judge Couture said at page 2267 (D.T.C. 591):

The appellant's interpretation of the provisions of subsection 156(1) is also erroneous as they do impose a duty on a taxpayer to make four equal instalments at prescribed dates during the taxation year based not on estimates established quarterly, but on an estimate of his tax payable for the year (under Part I) or on his instalment base for the immediately preceding year.

[Emphasis in original.]

Another difficulty with the first interpretation is the precise point in time at which the taxpayer's estimate of the tax payable for the year under Part I is to be made. Paragraph 156(1)(a) provides that quarterly payments must be made on or before certain specific dates, but nothing is said as to when the amount of the tax payable is to be estimated by the taxpayer. If the estimate is to be made at the time of each quarterly payment, then it would be easy for a taxpayer to make a particular quarterly payment a few days ahead of a particular transaction but prior to the relevant specific date mentioned in paragraph 156(1)(a). If the first interpretation were to be retained, there would be a gap or missing element relating to the time at which these estimates must be made by the taxpayer.

There is another possible difficulty with the first interpretation. It is that the taxpayer when making his fourth estimate on or before December 15 of the particular year would not be required to take into account between the date of the fourth instalment and the end of the taxation year subsequent events having a bearing on the tax payable for the year unless those events could be reasonably anticipated.

The first interpretation has the advantage of achieving a fair result for the taxpayer, in that he could from time to time revise his estimates of the tax payable for the year if unforeseen developments occur in the course of the year. Thus, the taxpayer will not be required to increase quarterly payments in the first part of the year if an unforeseen event materializes only in the second part of the year.

I shall now advert to the second interpretation advanced on behalf of the respondent. Obviously this interpretation does not have the types of difficulties from a statutory construction viewpoint which I have outlined earlier relating to (a) the possible requirement in some situations that there be four estimates of the tax payable for the year; (b) the precise time during the year at which these estimates of the tax payable for the year are to be made and (c) the events occurring after the fourth instalment payment but prior to the end of the year.

With respect to the suggestion that the second interpretation leads to an unfair and unintended result, I would agree with this conclusion if the taxpayer was forced by subsection 156(1) to necessarily adopt the first formula referred to in subparagraph 156(1)(a)(i). This is not, however, the case since the method set out in subparagraph 156(1)(a)(ii) is also available to him. If the taxpayer does not want to indulge in speculation, in guesswork or in calculation of the probabilities, as he is in a sense confronted when he, resorting to the first method, makes his estimate of the tax payable for the year under Part I of the Act, he simply uses the second formula which does not carry with it this high degree of uncertainty.

This second interpretation also has the advantage of being consonant in my view with the scheme of the Act established by subsections 161(2) and 161(4) of the Act with respect to the obligation of a taxpayer to pay interest on deficient quarterly payments. Subsection 161(2) provides in substance that if a taxpayer is deficient in his quarterly remittances he must pay interest at the prescribed rate on the portions of the payments he has not made. Subsection 161(4) places a limitation on the rule laid down in subsection 161(2) in that the interest is payable on the lesser of the amount of the tax payable for the year under Part I of the Act subject to certain qualifications set out therein, and the instalment base for the immediately preceding taxation year. In other words, if a taxpayer has made a wrong estimate in applying the formula set out in subparagraph 156(1)(a)(i) he is not penalized in the area of interest, since the interest is to be computed on the missing part of the quarterly payments that should have been made in accordance with the formula that produces the lower amount.

I therefore conclude, having regard to the weight of the case law and my own analysis of subsection 156(1), that the appellant was required to make quarterly payments in accordance with the second formula which relates to the instalment base for the preceding taxation year since the tax payable in accordance with the first formula for the 1989 taxation year would represent a larger amount.

The assessment of the Minister of National Revenue dated July 5, 1990, of interest is therefore confirmed. For these reasons, the appeal is dismissed.

Appeal dismissed.