David G Steer v. Minister of National Revenue, [1985] 2 CTC 2265, 85 DTC 589

Couture, CJTC:—This appeal was heard in Ottawa on April 25, 1985 and is in respect of the appellant’s 1982 taxation year. The appellant acted on his own behalf.

The Minister in his assessment for the taxation year in question levied an amount of $90.86 in interest against the appellant on the basis that he was deficient in his quarterly instalments for the said taxation year.

The appellant admitted that his payments for the year from which taxes were deducted at source was less than three quarters of his income for the year as envisaged by the provisions of subsection 153(2) and, therefore, he was subject to the provisions of subsection 156(1) and had to pay his taxes for the year on a quarterly basis. While not disputing that he was subject to the provisions of subsection 156(1) for the taxation year under appeal, he contended that the formula he used in computing his instalments which, of course, differed from the one applied by the Minister, was nonetheless in compliance with the requirements of the provisions of the said section.

The evidence disclosed that the appellant who is an engineer and who was residing in British Columbia during the taxation years 1981 and 1982 was unemployed during the 1982 taxation year. In 1981 he had applied for a post-graduate scholarship to the Natural Sciences and Engineering Research Council of Canada and in February and June 1982 was the recipient from the Council of amounts of $3,125 and $3,153 respectively. These amounts, while taxable, were not subject to income tax deductions at the source and according to his testimony were the only income he anticipated for the said taxation year.

However, in October 1982 he also received an apparently unsolicited and unexpected bursary from the University of British Columbia in the amount of $3,600, again without any deductions at the source for taxes.

In addition to his grants and bursary the appellant declared in his income tax return investment income of $4,501. Furthermore, during the same taxation year, he terminated or cancelled a Registered Retirement Savings Plan and received a reimbursement of $4,900.58 less a $10 cancellation fee for a net of $4,890.58 from which income tax in the amount of $489.06 was deducted at the source. On October 10, 1982 he made an instalment payment on account of his income taxes for the year of $1,000.

The $4,890.58 is obviously less than three quarters of his income for the year as prescribed by subsection 153(2).

In assessing the appellant, the Minister levied interest in the amount of $90.86 with the notation on the notice of assessment reading:

instalment interest charges based on a remittance requirement of 4 payments of $428.61 under option B as detailed in the instalment guide.

The appellant filed a notice of objection against the said assessment which was confirmed by notification of confirmation by the Minister dated November 30, 1983. A notice of appeal was subsequently filed by the appellant on December 28, 1983.

While he did not raise it in his notice of appeal he argued that in fact he had paid income tax during 1982, ($489.06 deducted from the payment out of his registered retirement savings plan, and a voluntary payment of $1,000 on October 10) on more than three quarters of his income for the year, as the said income was received by him, and, therefore, had complied with the requirements of the provisions of subsection 153(2). The remainder of his tax payable for the year had to be paid at the latest on April 30, which he did. He added that in having paid $1,489.06 of taxes during the taxation year 1982 he had also complied with the provisions of subsections 153(2) and 156(1) because according to his estimates on the 31st of March, 30th of June and 30th of September his tax payable was $235, $235 and $297, and, therefore, exempt from effecting instalments by virtue of subsection 156.1.

In so far as subsection 156(1) is concerned he submitted that the said subsection simply requires taxpayers to estimate their taxes at the end of each quarter and pay instalments on the basis of these estimates. He claimed that there is no requirement that these instalments be of equal amounts.

Dealing with the provisions of subsection 153(2) first, the Court cannot accept the appellant’s interpretation and application of these provisions. They appear abundantly clear and deal with a factual situation.

If the payments received by a taxpayer for a taxation year from which income tax was deducted at the source are equal to or greater than three quarters of his income for the year, then he must pay the remainder of his tax as estimated under section 151 on or before April 30 of the next year. If this test is not met by the taxpayer, he becomes subject to the provisions of subsection 156(1) which apply to all individuals except those covered by subsections 153(2), 156.1 and 155(1) and should make quarterly instalments to prevent being subject to interest as provided by subsection 161(2). The fact that a taxpayer may have effected instalment payments on three quarters or more of his annual income has no bearing on the application of subsection 153(2), and if such payments were not made in accordance with the requirements of subsection 156(1) then he becomes liable to an interest levy.

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. Once the estimated tax payable for the year has been established then on the dates mentioned in the subsection the taxpayer should pay one quarter of the amount of tax as estimated. If his tax payable for the year was underestimated he will be deficient in his quarterly remittances and consequently subject to an interest charge as provided by subsections 161(2) and

(4) of the Act. If, on the other hand, he has overestimated his tax payable for the year then his quarterly instalments will be overpaid and following an assessment by the Minister the amount of overpayment is reimbursable together with interest as provided by subsections 164(1) and (3).

Admittedly in some instances it is impossible for an individual to estimate his income for the year accurately and in some situations the disparity between the estimated tax payable for the year and the actual liability for the year could be substantial. Subparagraph 156(1)(a)(ii), however, provides that instalments may also be established on the basis of the taxpayer's instalment base for the immediately preceding year which amount should normally be known by March 31 of the year, barring a subsequent upward reassessment by the Minister, in which event the taxpayer has no recourse under the Act and would be liable to the provisions of subsection 161(2).

In my opinion this is how these various sections operate, and, therefore, I cannot accept the appellant’s interpretation of the provisions of the said sections and his submission as to their application.

For these reasons the appeal is dismissed.

Appeal dismissed.