Date: 19991026
Docket: 98-1730-IT-I
BETWEEN:
EUGENE M. YAREMY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Mogan J.T.C.C.
[1] Under subsection 164(3) of the Income Tax Act, the Minister of National Revenue is required to pay interest on any amount of tax that is refunded or repaid to a taxpayer. In this case, an amount of tax was repaid to the Appellant with respect to his 1991 taxation year. There is no dispute concerning the amount of such tax. The Appellant claims, however, that the Minister did not pay enough interest on the repaid tax.
[2] The Appellant has already contested an assessment with respect to his 1991 taxation year and his prior appeal is reported at 95 DTC 177. It is only a coincidence that I happened to hear both the prior appeal and this appeal. In the prior appeal, the Appellant had attempted to revoke an election under subsection 217(2) of the Act but it was too late to revoke that election. Although the prior appeal was dismissed by a judgment of this Court dated July 29, 1994, the Minister issued a Notice of Reassessment to the Appellant on July 21, 1997 with respect to 1991 in which the Minister:
(i) reduced the total tax payable from $5,928.10 to $1,645.10; and
(ii) allowed refund interest in the amount of $72.48.
The Appellant claims in this appeal that the refund interest of $72.48 is too small.
[3] The following are the circumstances behind the reassessment of July 21, 1997. When the Appellant filed his 1991 income tax return (Exhibit R-1) in March 1992, he was a non-resident of Canada living in Austria. In that 1991 return, the Appellant elected to be taxed as a resident of Canada thinking that certain deductions would be available to him. When he learned that a particular deduction of $6,000 would not be available to him, he attempted to revoke his election (to be taxed as a resident) but his prior appeal (95 DTC 177) determined that it was too late to revoke his election. Therefore, the Appellant was stuck with his election to be taxed as a resident but he could not deduct the $6,000 which he had counted on.
[4] Pursuant to an Order-in-Counsel (P.C. 1994-1780) dated October 25, 1994 (Exhibit A-1) the Minister of National Revenue was authorized to remit any income tax, interest and penalty that would not be payable by a non-resident for 1991 if a 1991 amendment to section 217 of the Income Tax Act (dealing with tax on pensions) were not applicable to 1991. When the Appellant learned of the Order-in-Council, he wrote to Revenue Canada on March 27, 1997 (Exhibit R-4) asking that his 1991 income tax return be reconsidered in light of the Order-in-Council. In response to his letter, Revenue Canada issued to the Appellant a Notice of Reassessment dated July 21, 1997 (Exhibit R-5) which had the effect of assessing tax consistent with the Appellant's original 1991 income tax return (Exhibit R-1). The total tax assessed was $1,645.10 as stated in paragraph 2 above and the refund interest was $72.48.
[5] The Appellant and the Respondent are in agreement that the refund interest in the reassessment was in fact computed with respect to the period from April 2,1997 to July 21, 1997. The Appellant claims, however, that the interest should be computed for the period from March/April 1992 when he filed his 1991 income tax return to July 21, 1997 when he was finally reassessed for tax in a manner consistent with the total income and total tax reported on his 1991 return. The issue in this appeal is the length of the period for which refund interest should be computed.
[6] Certain document, not described above, are important in deciding this appeal. The Minister first assessed the Appellant for the 1991 taxation year on June 3, 1992 (Exhibit R-2) and in that assessment the Minister disallowed the $6,000 deduction which was the issue in the prior appeal (95 DTC 177). That assessment of June 3, 1992 started the time running for the "normal reassessment period" as defined in subsection 152(3.1) of the Act. For an individual like the Appellant, the normal reassessment period would run for 36 months from June 3, 1992 to June 3, 1995.
[7] When the Appellant received the Notice of Reassessment for 1991 dated July 21, 1997 (Exhibit R-5), he filed a Notice of Objection dated August 11, 1997 (Exhibit A-2) claiming that the refund interest was too small. In response to the Objection, Revenue Canada sent a letter to the Appellant dated April 1, 1998 (Exhibit A-3) stating (i) that the reassessment dated July 21, 1997 (Exhibit R-5) was issued under subsection 152(4.2) of the Act; (ii) that the refund interest was calculated starting on April 2, 1997, the date when the Appellant's letter of request (Exhibit R-4) was received by Revenue Canada; and (iii) that the recent reassessment (Exhibit R-5) was not subject to objection or appeal because it was issued after the normal reassessment period. In response to the Revenue Canada letter of April 1, 1998 (Exhibit A-3), the Appellant filed a Notice of Appeal to this Court.
[8] In the Reply to the Notice of Appeal herein, the following Preliminary Objection is taken:
It is respectfully submitted that the Appellant's Appeal for the 1991 taxation year ought to be dismissed as the Appellant's return of income for the 1991 taxation year was reassessed beyond the normal three year period under the provisions of subsection 152(4.2) of the Income Tax Act (the "Act") and the Appellant is precluded from appealing such reassessment by the provisions of subsection 165(1.2) of the Act.
The Respondent then proceeds to plead, in the alternative, that the reassessment of July 21, 1997 was valid and ought to be upheld. I will consider first the Preliminary Objection. The relevant provisions of the Act are:
152(3.1) Paraphrased
The normal reassessment period for an individual in respect of a taxation year is the period that ends 3 years after the day of mailing of a notice of original assessment for the year.
152(4.2) ... for the purpose of determining, at any time after the expiration of the normal reassessment period for a taxpayer who is an individual ... in respect of a taxation year,
(a) the amount of any refund to which the taxpayer is entitled at that time for that year, or
(b) a reduction of an amount payable under this Part by the taxpayer for that year,
the Minister may, if application therefor has been made by the taxpayer,
(c) reassess tax, interest or penalties payable under this Part by the taxpayer in respect of that year, and
(d) ...
165(1.2) Notwithstanding subsections (1) and (1.1), no objection may be made by a taxpayer to an assessment made under subsection 118.1(11), 152(4.2), 169(3) or 220(3.1) nor, for greater certainty, in respect of an issue for which the right of objection has been waived in writing by the taxpayer.
[9] Referring to subsection 152(3.1), the day of mailing of a notice of original assessment for the Appellant's 1991 taxation year was June 3, 1992. See Exhibit R-2. Therefore, the Appellant's normal reassessment period for 1991 ended on June 3, 1995 in accordance with subsection 152(3.1). The reassessment under appeal made on July 21, 1997 (Exhibit R-5) is clearly after the normal reassessment period. Having regard to the Appellant's letter of request dated March 27, 1997 (Exhibit R-4), the reassessment under appeal was issued in response to that request because it reduced the tax payable and provided for a refund. Also, the reassessment under appeal explicitly states that an adjustment has been made according to the Appellant's letter dated March 27, 1997. I am satisfied that the reassessment under appeal was made under subsection 152(4.2) because it was made at the Appellant's request; and there is no evidence that any of the conditions described in subsection 152(4) which might otherwise permit the Minister to assess after the normal reassessment period have been satisfied. In other words, on the evidence, the only authority for the Minister to make the reassessment under appeal is found in the Appellant's request in Exhibit R-4 and the provisions of subsection 152(4.2).
[10] Having found that the reassessment under appeal was made under subsection 152(4.2), I conclude that subsection 165(1.2) applies and no valid objection could be made by the Appellant to that reassessment. If no valid objection can be made, then no valid appeal can be commenced under subsection 169(1). I uphold the Respondent's preliminary objection and will quash the appeal.
[11] Because the Appellant represented himself and the Respondent's preliminary objection is technical, I will briefly respond to some of the Appellant's arguments and explain why I think the Minister has used the correct period to compute refund interest.
[12] In paragraph 5 of the Notice of Appeal, the Appellant states that the intent of the three-year normal reassessment period is to give an individual three years to make adjustments to his income tax return. That is not so. The intent is to give the Minister three years during which a reassessment may be made without any need to prove a misrepresentation by or fault of the taxpayer. See subsection 152(4).
[13] The Minister computed interest on the refund for the period from April 2, 1997 (the date when the Appellant's request letter, Exhibit R-4, was received by Revenue Canada) to July 21, 1997 (the date of the Notice of Reassessment, Exhibit R-5, which granted the Appellant's requested adjustment). The amount of that refund interest was $72.48 and the Minister claims to have computed it under subsection 164(3.2) of the Act which states:
164(3.2) Notwithstanding subsection (3), where the amount of an overpayment of a taxpayer for a taxation year is determined because of an assessment made under subsection 152(4.2) or 220(3.1) or (3.4) and an amount in respect thereof is refunded to, or applied to another liability of, the taxpayer under subsection (1.5) or (2), the Minister shall pay or apply interest thereon at the prescribed rate for the period beginning on the day the Minister received the application therefor, in a form satisfactory to the Minister, and ending on the day the amount is refunded or applied, unless the amount of the interest so calculated is less than $1, in which case no interest shall be paid or applied under this subsection.
Applying the provisions of subsection 164(3.2), I am satisfied that interest did not begin to run until the Minister received the Appellant's request for an adjustment and that request was not received until April 2, 1997. See Exhibit R-4. See also in subsection 164(3.2) the words " ... for the period beginning on the day the Minister received the application ...". In paragraph 2 of the Notice of Appeal, the Appellant claimed that Revenue Canada was obliged to review his original 1991 income tax return (Exhibit R-1) following the 1994 Order-in-Council (Exhibit A-1) because the Order-in-Council had invalidated the original assessment of June 3, 1992 (Exhibit R-2). That is not so. The Appellant's original assessment was not invalidated. The Order-in-Council only authorized the Minister to remit tax and interest. The Appellant had to ask for such remission.
[14] And finally, the Appellant entered as Exhibit A-7 some documents concerning Robert C. Day of Sidney, B.C., a friend of the Appellant's who was a non-resident of Canada in 1991 in circumstances similar to the Appellant. The Appellant attempted to argue that Mr. Day had received interest on his tax refund right back to the time of filing his return. In my opinion, the documents in Exhibit A-7 are not relevant but I looked at them and observed (i) that Mr. Day's year of dispute was 1992; and (ii) that his original Notice of Assessment for 1992 was issued on June 9, 1995. His "normal reassessment period" for 1992 would not end until June 9, 1998 and, unlike the Appellant, it appears that Mr. Day requested his tax refund within his normal reassessment period. In any event, Mr. Day's documents are not relevant. The purported appeal is quashed
Signed at Ottawa, Canada, this 26th day of October, 1999.
"M.A. Mogan"
J.T.C.C.