Leach Bros Stores LTD v. Minister of National Revenue, [1985] 1 CTC 2067, 85 DTC 94

Christie, ACJTC:—The appellant appeals from a late filing penalty imposed in relation to its April 1, 1979 — March 31, 1980 fiscal year which, by operation of paragraph 249(l)(a) of the Income Tax Act (“the Act”) is its 1980 taxation year.

Pursuant to paragraph 150(l)(a) of the Act a return of income for each taxation year is required to be filed by or on behalf of a corporation within six months from the end of its taxation year. Subsection 152(1) states, inter alia, that the respondent shall, with all due dispatch, examine a taxpayer’s return of income for a taxation year, assess the tax for the year, and the penalties, if any, payable. Subsection 162(1) of the Act provides:

162(1) Every person who has failed to file a return as and when required by subsection 150(1) is liable to a penalty equal to the aggregate of

(a) an amount equal to five per cent of the tax that was unpaid when the return was required to be filed; and

(b) the product obtained when one per cent of the tax that was unpaid when the return was required to be filed is multiplied by the number of complete months, not exceeding twelve, in the period between the date on which the return was required to be filed and the date on which the return was filed.

The appellant’s 1980 income tax was required, by paragraph 150(l)(a), to be filed by September 30, 1980. It was received by the respondent on August 19, 1982. By notice of assessment dated February 3, 1983 he assessed a late filing penalty of $2,542.22 and, by notice of objection dated February 16, 1983, the appellant objected on the ground that its taxable income for 1980 was nil. On April 14, 1983, the respondent mailed a notice of reassessment to the taxpayer in which he recited that the appellant’s previously assessed taxable income of $29,067 was being reduced by $1,452 plus $27,615 with the result that the appellant’s revised taxable income was stated in the notice of reassessment to be nil. The $1,452 is not in dispute and the penalty was adjusted accordingly from $2,542.22 to $2,415.23. The $27,615 is a non-capital loss carried back from the appellant’s 1981 taxation year. It is this amount which gave rise to the appeal.

The issue is whether the appellant is correct in asserting that there was a legal obligation on the respondent to take into account the carried back non-capital loss of $27,615, thereby eliminating the foundation upon which a penalty could be calculated. It followed, in the view of the appellant, that as no penalty could be calculated none could be assessed.

What subsection 162(1) does is to allow for the imposition of a penalty on a taxpayer for failing to file a return in accordance with the requirements of subsection 150(1). The only relevance that unpaid tax has is to provide the basis for a formula for the calculation of the quantum of the penalty.

Whatever the date may be when a penalty is levied pursuant to subsection 162(1), these three steps must be taken. First, the time when the return was required to be filed is determined. Second, the amount of tax that was unpaid at that time is calculated. Third, the amount of the penalty is settled upon by adding five per cent of the amount arrived at in the second step and the product obtained when one per cent of the tax that was unpaid when the return was required to be filed is multiplied by the number of complete months, not exceeding 12, between the date on which the return was required to be filed and the date on which it was filed. I can find no place in this legislative scheme for taking into account non-capital losses which arose after the time when the return was required to be filed.

Assume, for example, that a taxpayer was one month late in filing his return and the respondent proceeded, as is required, “with all due dispatch” to assess a

penalty under subsection 162(1) which is done two months later. In these circumstances the respondent could not possibly take into account the taxpayer’s non-capital losses for the year in which the penalty is imposed because, at the time the penalty is assessed, the amount of these losses, if any, would be unknown. In my opinion the relevant legislation cannot be construed to place a taxpayer in a better position in respect of a penalty to be imposed pursuant to subsection 162(1) if he chooses to file his return not one month late but a year or more late, at which time his non-capital losses which can be carried back have been ascertained.

The appeal is dismissed.

Appeal dismissed.