W. Grant Thompson v. Minister of National Revenue, [1989] 1 CTC 2134, 89 DTC 66

Rip, T.C.J.:—Mr. Thompson appeals his income tax assessment from 1985 on the basis that in calculating net federal tax payable, the Refundable Quebec Abatement is deducted from the basic federal tax prior to computing the federal surtax in accordance with section 180.1 of the Income Tax Act ("Act"), thus reducing the amount of tax payable. The Minister of National Revenue, the respondent, calculated the net federal tax payable as the aggregate of the basic federal tax and federal surtax payable; the Refundable Quebec Abatement was deducted from the net federal tax payable.

The facts are not in issue. Mr. Thompson is a retired chartered accountant who in 1985 was a partner in a national accounting firm with offices in all the provinces of Canada, including Quebec. The sole question before the Court was to determine whether the Refundable Quebec Abatement is to reduce the basic federal tax or the net federal tax payable.

The appellant calculated his 1985 tax and was assessed tax as follows: The relevant provisions of the Act are sections 120(2), 180.1(1) and (2)(b) and 248(2), which read as follows:

120(2) Amount deemed paid in prescribed manner. Each individual is deemed to have paid, in prescribed manner and on prescribed dates, on account of his tax under this Part for a taxation year an amount that bears the same relation to 3% of the tax otherwise payable under this Part by him for the year that

(a) his income earned in the year in a province that, on the 1st day of January, 1973, was a province providing schooling allowances within the meaning of the Youth Allowances Act,

bears to

(b) his income for the year.

180.1(1) Every individual (other than a mutual fund trust) liable to pay tax under Part I for a taxation year shall pay a tax equal to,

(a) for the 1986 taxation year, the aggregate of

(i) 5% of the amount, if any, by which his tax payable under Part I for the year exceeds $6,000, and

(ii) 5% of the amount, if any, by which his tax payable under Part I for the year exceeds $15,000; and

(b) for the 1985 taxation year, 50% of the aggregate that would be determined under paragraph (a) if the reference therein to "1986" were read as a reference to "1985".

180.1(2) For the purposes of subsection (1), the tax payable under Part I’ by an individual for a taxation year is,

(b) in any other case, the amount that would be his tax payable under that Part for the year if that Part were read without reference to subsections 120(1) and

(3.1) and sections 122.3, 126, 127 and 127.2 to 127.4.

248(2) In this Act, the tax payable by a taxpayer under any Part of this Act by or under which provision is made for the assessment of tax means the tax payable by him as fixed by assessment or reassessment subject to variation on objection or on appeal, if any, in accordance with the provisions of that Part.

Mr. Thompson's submission was that since paragraph 180.1 (2)(b) provides that for the purpose of subsection 180.1(1) the amount of "tax payable under Part I" means tax payable without reference to certain provisions of the Act, any provision not so excluded must be included in tax payable when calculating the surtax. Since subsection 120(2) is not excluded from tax payable, it must, he says, be included in computing tax payable, the amount of tax on which the surtax under paragraph 180.1(2)(b) is calculated.

In Mr. Thompson's view subsection 120(2) provides for a payment of tax but the payment is deemed to be made prior in time to the tax payable by subsection 180.1(1). He finds support in his position, he says, because "subsection 120(2) is in Division E of the Act which is headed "Computation of Tax", not in Division I, which includes Payment of Tax". Subsection 120(2), he adds, is subject to definitions relating to terms in Division E, including the definition of "tax otherwise payable under this Part” in paragraph 120(4)(c), which reads as follows:

. . /tax otherwise payable under this Part’, in relation to a taxation year, means the amount that, but for this section and subsection 117(6), would be the tax payable by a taxpayer under this Part for the taxation year if the taxpayer were not entitled to any deduction under any of sections 126, 127, 127.2 and 127.4.

The words "payable by him as fixed by assessment" in the definition of "tax payable" in subsection 248(2) mean, according to Mr. Thompson, the amount of tax a taxpayer must pay on assessment and if he has been deemed to have paid some amount, then that amount is no longer payable by the taxpayer.

Mr. Thompson concludes as follows:

So Subsection 248(2) which specifies taxes payable by him, together with Subsection 120(4)(c) which determines the tax payable other than for that Section, defines the tax that is payable under Section 180 after the Abatement is deemed to be paid and the only purpose of Subsection 120(2) is to confirm that liability has been liquidated on time, because that is not stated anywhere else—such as it is for share purchase and R&D credits.

There is a difference between a tax and a tax payable, he says. For example, when a taxpayer deducts a share purchase tax credit under paragraph 127.2(1)(a) or a scientific research and experimental development tax credit under paragraph 127.3(1 )(a), he is deemed in accordance with subsection 161(10), for the purpose of interest on instalments of tax (subsection 161(2)) to have paid an amount of tax equal to the tax credit on the last day of the year if he filed his tax return as required by section 150, and in any other case on the day when he filed his return for the year. In his view, therefore, a deemed payment of tax can be a deduction from tax for the purpose of calculating interest.

Part of the appellant's argument was also based on there being "imprecise" drafting in the Act. More specifically, Mr. Thompson pointed out that paragraph 180.1(2)(b), in referring to subsection 120(3.1), was imprecise because subsection 120(3.1) was repealed by virtue of the same amending legislation (S.C. 1986, c. 6) which added the reference [to subsection 120(3.1)] within paragraph 180.1(2)(b). This contention, however, appears to be incorrect. Section 180.1 was to be applicable to the 1985 and 1986 taxation years. However, the repeal of subsection 120(3.1) was to be applicable to the 1986 and subsequent taxation years. Thus, at least as regards the 1985 taxation year, the reference to subsection 120(3.1) found in paragraph 180.1(2)(b) is not superfluous. The legislator found it administratively more convenient that both amendments in question be passed at the same time (S.C. 1986, c.

6) rather than amend one provision [subsection 180.1(2)] in 1985 or 1986, and then "re-amend" subsection 180.1(2) in 1986, as of the repeal of subsection 120(3.1).

Mr. Thompson also questioned the authority of the respondent to exclude the 16.5 per cent Quebec Tax Abatement from the surtax calculation. Subsection 120(2) provides for a deemed payment of 3 per cent of tax otherwise payable, not 16.5 per cent. In his view the difference of 13.5 per cent is an imposition of tax under a statute, the Federal-Provincial Fiscal Arrangements and Established Programs Financing Act, 1977, S.C. 1976-77, c. 10, other than the Income Tax Act and appears to override the Act.

Counsel for the respondent submitted that subsection 180.1(1) levies a surtax and the formula for calculating the base on which the surtax is levied is found in subsection (2). What is deleted in paragraph 180.1(2)(b) are provisions of the Act which impose additional taxes on income earned outside a province or grant additional deductions from tax otherwise payable under Part I of the Act. Prior to the 1980 taxation year subsection 120(2) read as follows:

There may be deducted from the tax otherwise payable under this Part by an individual for a taxation year an amount that bears the same relation to 3% of the tax otherwise payable under this Part by him for the year that

(a) his income earned in the year in a province that, on the 1st day of January, 1973, was a province providing schooling allowances within the meaning of the Youth Allowances Act,

bears to

(b) his income for the year.

For the 1985 taxation year subsection 120(2) did not provide for a deduction from the tax otherwise payable; subsection (2) deemed an individual taxpayer to have paid an amount on account of his tax in the prescribed manner and on prescribed dates and formulates the amount. Subsection (2) does not form part of calculating taxes under Part I. The deemed payment of an amount on account of tax is not the same as a deemed payment of tax which may entitle a taxpayer to deduct the amount from taxes payable. Subsection (2) is not relevant to calculating tax payable.

“Tax payable” defined by subsection 248(2) means the tax payable by a taxpayer as fixed by assessment or reassessment. The tax payable by a taxpayer is fixed by assessment in many cases after the taxpayer has paid money "on account of his tax". Employees, for example, have part of their salary deducted by their employer who is to remit the withheld amount to the Receiver General for Canada "on account of the payee's tax" for the year: subsection 153(1). Section 158 of the Act provides that "where the Minister mails a notice of assessment of any amount payable by a taxpayer, that part of the amount assessed then remaining unpaid is payable forthwith. . .”. A person who has made payments by instalment is assessed a "tax payable”, notwithstanding he previously may have paid all the tax payable, part of it or an amount in excess of the tax payable as fixed by assessment.

The result of subsection 120(2) in effect is no different from that of subsection 153(1): an amount of money is deemed to have been paid "on account of his tax”. Conceivably, as counsel for the respondent suggested, the deemed payment in subsection 120(2) may result in a reimbursement by the Receiver General if the tax payable fixed by assessment is less than amounts paid by the taxpayer on account of tax for the particular taxation year.

As previously stated subsection 120(2) does not levy a tax. Sections 29 and 30 of the Federal-Provincial Fiscal Arrangements and Federal Post-Secondary Education and Health Contributions Act, 1977, R.S.C. 1970, c. E-6, amended by S.C. 1980-81-82-83, c. 48, which increases the abatement by 13.5 per cent also do not levy a tax. I therefore have had difficulty in appreciating Mr. Thompson's submission that tax has been levied by a statute other than the Income Tax Act.

In my view the respondent's calculation of the appellant's surtax is correct. The “tax payable under Part I" for 1985 is an amount of tax fixed by assessment and adjusted to take into account the provisions of the Act contained in paragraph 180.1(2)(b); the tax payable is not reduced by subsection 120(2).

The appeal is dismissed.

Appeal dismissed.