Subsection 187(2) - Interest
In February 2000, the Minister reassessed the taxpayer for its 1993 and 1995 taxation years, substantially increasing its 1993 Part IV taxes but reducing its 1995 Part IV taxes by a lesser amount. Several days later, the Minister applied the "Overpayment" for the 1995 taxation year to the 1993 taxation year. The Minister calculated the taxpayer's interest on the basis that it began accumulating in 1993 and a portion stopped accumulating in February 2000 when the 1995 overpayment was applied.
Webb JA rejected the taxpayer’s position that the "day of payment" of the Overpayment portion for purposes of s. 187(2) was when the taxpayer paid its taxes for the 1995 year (on June 10, 1995), rather than in February 2000 when the Minister applied the Overpayment. Respecting the significance attached by the taxpayer to the contrast between the reference in s. 187(2) to the time of “payment” and the reference in s. 161(1), which does not apply for Part IV tax purposes, to the time at which an amount is paid, or “applied” by the Minister, Webb JA indicated that the addition of the “applied” wording there was explicable by the need to override Rath, and “should [not] inform the interpretation of ‘day of payment’ for the purposes of subsection 187(2)” (para. 18).
Moreover, s. 164(3), which provided for the payment of interest on amounts that are refunded, repaid or applied to another liability of a taxpayer, applied to the Overpayment in relation to the 1995 taxation year – and the taxpayer’s argument implied that for this purpose as well, the day of payment was on June 10, 1995 rather than in February 2000. He stated (at paras. 23-24):
It could not have been the intention of Parliament that a single amount could, for the same period of time, give rise to both a reduction of interest payable on overdue taxes for one year and also give rise to refund interest for another year.
As a result…the “day of payment” in subsection 187(2)… is the day that payment is applied to the particular taxation year in issue. Since the Overpayment was treated as a payment towards the 1993 Part IV tax liability of Bakorp on February 3, 2000, this is the day of payment for the purposes of applying subsection 187(2) of the Act to determine the amount of interest payable by Bakorp on its Part IV tax liability for 1993.
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|Tax Topics - Income Tax Act - Section 248 - Subsection 248(28)||presumption against double generation of interest refund and reduction of interest payable||107|
Bakorp Management Ltd. v. The Queen, 2015 TCC 36, aff'd supra.
In 2000, the Minister reassessed the taxpayer for 1993 and 1995, substantially increasing its 1993 Part IV taxes but reducing its 1995 Part IV taxes. Several days later, the Minister applied the 1995 "overpayment" to the 1993 taxation year. The Minister calculated the taxpayer's interest on the basis that it began accumulating in 1993 and a portion stopped accumulating in 2000 when the 1995 overpayment was applied.
Pizzitelli J found no merit in the taxpayer's argument that the "day of payment" of the overpayment portion was when the taxpayer paid its taxes for the 1995 year, rather than in 2000 when the Minister applied the overpayment. The taxpayer was effectively asking for a payment made in regard to 1995 to be concurrently treated as a payment in regard to 1993, which had no basis in the Act (para. 18). Moreover, the Minister's right under s. 164(2) to apply the overpayment to the taxpayer's 1993 liability did not exist until the 2000 reassessment (para. 10). A contrary interpretations of s. 187(2) and a host of similar provisions "would all render section 221.1 redundant" (para. 21).