Astrid E. Flaska v. Her Majesty the Queen, [1993] 2 CTC 2973, 93 DTC 1254

Bonner, T.C.C J.:—This is an appeal from an assessment under the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") for the appellant's 1990 taxation year. On assessment the appellant was found liable:

1. to pay interest under subsection 161(2) of the Act on tax remaining unpaid after April 30, 1991; and

2. to pay a penalty under section 163.1 of the Act in respect of late or deficient instalments.

The appellant contends that she needed Particulars of the assessment to inform her of the amount required to be paid by her, that the assessment for 1990 was abnormally late and that she should not be liable for the interest which accrued during the period of delay. She contends further that she should not be liable to the penalty assessed.

Essentially there was no dispute about the facts. The appellant testified that she was employed as a legal secretary for a number of years and that during that period income tax was deducted at source. In 1986 however, her mother died. Commencing in 1987 the appellant became entitled to a substantial income from her mother's estate. The appellant then ceased to be a person to whom subsection 153(2) of the Act applied but she did not pay tax by quarterly instalments. She handled her own income tax affairs without professional advice or assistance. She adopted the practice of estimating the tax payable on amounts received from time to time from the estate and of setting aside in a separate bank account, as an informal reserve, amounts which she calculated would be sufficient to enable her to pay the tax owing when filing her return of income on April 30 of the following year.

The appellant's assessments for the years 1987, 1988 and 1989 were made on luly 25, 1988, July 24, 1989, and July 5, 1990 respectively. The period between the April 30, 1991 tiling deadline and the appellants assessment for the 1990 taxation year was, however, much longer than usual. The assessment for 1990 was not made until December 27, 1991. The appellant testified that she made enquiries at the Department of National Revenue and was informed that the delay was caused by strike action taken by Revenue employees and by the failure of a Revenue computer. The appellant argues that if only she had received her assessment in July, she would have been able to pay any tax and interest owing then thereby avoiding further interest for the months of August, September, October, November and December 1991. The assessment was delayed through no fault of her own and, she reasoned, she should not be liable for interest during that period.

The failure of the appellant to comply with subsection 156(1) of the Act lies at the root of the problem. Subsection 156(1) imposes an obligation to make quarterly instalment payments. It reads:

156(1) Subject to section 156.1, every individual, other than one to whom subsection 153(2) or section 155 applies, shall pay to the Receiver General

(a) on or before March 15, June 15, September 15 and December 15 on each taxation year, an amount equal to 1/4 of

(i) the amount estimated by the individual to be the tax payable under this Part by him for the year computed without reference to sections 127.2 and 127.3, or

(ii) his instalment base for the immediately preceding taxation year, and

(b) on or before April 30 in the next year, the remainder of his tax estimated under section 151.

It will be observed that the requirement that quarterly instalments be paid is not made to depend on the taxpayer's knowledge or understanding of it (see Canada v. Ritchie, [1993] 2 C.T.C. 24, 93 D.T.C. 5160 (F.C.A.).

Section 163.1 which imposes the penalty to which the appellant objects reads:

163.1 Every person who fails to pay all or any part of an instalment of tax for a taxation year on or before the day on or before which the instalment is required by this Part to be paid is liable to a penalty equal to 50 per cent of the amount, if any, by which

(a) the interest payable by him under section 161 in respect of all instalments for the year exceeds the greater of

(b) $1,000, and

(c) 25 per cent of the interest that would have been payable by him under section 161 in respect of all instalments for the year if no instalment had been made for that year.

Liability under this provision arises from failure to pay an instalment on time. The cause of the failure is irrelevant. There is simply no basis on which this Court can find that the penalty was wrongly imposed.

The interest in issue was assessed under subsection 161(2) of the Act. That provision reads:

161(2) In addition to the interest payable under subsection (1), where a taxpayer who is required by this Part to pay a part or instalment of tax has failed to pay all or any part thereof on or before the day on or before which the tax or instalment, as the case may be, was required to be paid, he shall pay to the Receiver General interest at the prescribed rate on the amount that he failed to pay computed from the day on or before which the amount was required to be paid to the day of payment, or to the beginning of the period in respect of which he is required to pay interest thereon under subsection (1), whichever is earlier.

The respondent, in paragraph 9 of the reply to the notice of appeal, has conceded that the amount of arrears interest owing is $2,408.32 and not $3,600.78 as assessed and to this extent the appeal will succeed. The question remains, however, whether the appellant is liable for any interest at all accruing during the period from August to December. The short answer, in my view, is that she is because the statutory conditions laid down in subsection 161(2) of the Act have been met. The appellant did not suggest any basis on which I can conclude that the assessment was not made in accordance with the statute and I can conceive of none.

The appeal will therefore be allowed and the assessment referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the appellant's liability to interest under subsection 161(2) of the Act is $2,408.32. The respondent conceded that at an early stage in the litigation that the appellant was entitled to the only relief which she did succeed in getting. Accordingly the respondent will have her costs.

Appeal allowed in part.