Date: 20010516
Docket: 2000-989-IT-I
BETWEEN:
MARTIN WRIGHT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor Judgment
Watson, D.J.T.C.C.
[1] This appeal was heard in Montréal, Quebec, under the Informal Procedure on March 27, 2001.
[2] The Minister of National Revenue (the "Minister") assessed the Appellant with respect to the 1994 taxation year by Notice of Assessment dated June 18, 1999; the Appellant was assessed for interest with respect to the period from January 15, 1995 to December 31, 1996 inclusively on 25% of gross rental income in the amount of $47,585.63 that was not remitted to the Receiver General of Canada as required by subsection 215(1) of the Income Tax Act (the "Act").
[3] At the hearing of the appeal, the parties provided the Court with the following Agreed Statement of Facts:
"The parties hereby agree on and admit the following facts for the sole and only purpose of adjudication on this matter and without any other admissions regarding their respective position.
1. At all material times, the Appellant was a non-resident of Canada.
2. During his 1994 taxation year, the Appellant owned a share in commercial properties located at 4370 Boul. Des Grandes Prairies, St. Léonard, Québec, and 154 Laurier Ouest, Suite 210, Montréal, Québec.
3. The Appellant was credited with gross rents of $190,342.50 which was collected by his agent during the 1994 taxation year with respect to his share in the properties referred to in paragraph 2 above.
4. The Appellant's Canadian agent did not deduct or withhold any income tax with respect of the gross rents referred to paragraph 3 herein.
5. The Appellant filed a T-1 for the 1994 and 1995 taxation years in accordance with subsection 216(1) of the Income Tax Act (the "Act") on June 23, 1997. And the 1994 return was not filed within two years of the end of the year as required by the said subsection of the Act.
6. The Minister extended the time for filing the 1994 return referred to in paragraph 5 pursuant to subsection 220(3) of the Act.
7. The 1994 T-1 return filed pursuant to subsection 216(1) of the Act was assessed on July 7, 1999 and federal tax of $5,393.02 plus arrears interest of $6.64 was levied under Part I of the Act.
8. The Minister assessed the Appellant for interest with respect to the period from January 15, 1995 to December 31, 1996 inclusively on 25% of gross rental income in the amount of $47,585.63 that was not remitted to the Receiver General of Canada.
9. The Minister issued the assessment in dispute herein in accordance with the following calculation:
Gross rents received $190,342.50
25% required to be withheld $ 47,585.63
Interest from 01-15-95 to 12-31-96 $ 10,494.55"
[4] In the 1999 assessment, the Minister exercised his discretion under subsection 220(3) of the Act and granted the Appellant an extension to file his income tax return under section 216 of the Act. Having accepted the belated income tax return, the Minister did not assess the Appellant for taxes and penalties under Part XIII of the Act, but pursuant to subsection 216(1) of the Act, the Minister assessed the Appellant in accordance with Part I of the Act. The Minister submits that the Appellant continues to be liable to pay interest on the Part XIII income tax that should have been withheld and remitted forthwith.
[5] The only issue before the Court is whether the Minister properly assessed the Appellant for interest in the amount of $10,494.55 pursuant to subsection 227(8.3) and paragraph 227(10)(a) of the Act and sections 4300 and 4301 of the Income Tax Regulations.
[6] Subsection 215(1) of the Act reads as follows:
"Deduction and payment of tax - When a person pays or credits or is deemed to have paid or credited an amount on which an income tax is payable under this Part, the person shall, notwithstanding any agreement or law to the contrary, deduct or withhold therefrom the amount of the tax and forthwith remit that amount to the Receiver General on behalf of the non-resident person on account of the tax and shall submit therewith a statement in prescribed form."
[7] Subsection 216(1) of the Act reads in part as follows:
"Alternatives re rents and timber royalties - Where an amount has been paid during a taxation year to a non-resident person or to a partnership of which that person was a member as, on account of, in lieu of payment of or in satisfaction of, rent on real property in Canada or a timber royalty, that person may, within 2 years (or, where that person has filed an undertaking described in subsection (4) in respect of the year, within 6 months) after the end of the year, file a return of income under Part I in the form prescribed for a person resident in Canada for that year and the non-resident person shall, without affecting the liability of the non-resident person for tax otherwise payable under Part I, thereupon be liable, in lieu of paying tax under this Part on that amount, to pay tax under Part I for the year as though
(a) the non-resident person were a person resident in Canada and not exempt from tax under section 149;
..."
[8] Subsection 215(1) provides that where a taxpayer is liable to pay an amount of income tax under Part XIII, he is liable to withhold and forthwith remit that amount to the Minister; the taxpayer is only liable to withhold and remit an amount under this subsection if he is liable for an amount of income tax under Part XIII of the Act. Subsection 216(1) suggests that once a non-resident taxpayer files a valid income tax return under Part I of the Act for a taxation year, he is no longer liable to pay Part XIII income tax in that year on his gross rental income from Canadian property but he will be liable to pay Part I income tax in that same year on his gross rental income from Canadian property as if he were a resident of Canada.
[9] In the present appeal, after the Appellant filed a valid income tax return under Part I of the Act in respect of his rental income from Canadian property in 1994, it would seem that he should be treated as a resident of Canada in respect of such income; he is only liable to pay Part I income tax on his rental income from Canadian property and is not liable for Part XIII income tax in respect of this income. It follows that pursuant to subsection 216(1) of the Act, the Appellant in this appeal is not liable for interest accrued on an amount that he did not have to withhold and remit in the first place.
[10] In conclusion, subsection 215(1) requires the Appellant to withhold Part XIII income tax on the gross rental income from a Canadian property for the year, but only if he is liable for Part XIII income tax; subsection 216(1) clearly states that where a taxpayer files an income tax return under Part I of the Act, he is liable for Part I income tax on the said amount "in lieu of" Part XIII income tax and is to be treated as though he was a resident of Canada during that period.
[11] In the facts of this appeal, the Appellant filed an income tax return under Part I of the Act which was later accepted by the Minister; as such the Appellant was to be treated as a resident of Canada during this period and become liable for Part I income tax on the rental income instead of Part XIII income tax on this rental income. It follows that the Appellant was not subject to Part XIII income tax and that he is not liable to pay interest on an amount that he was not required to withhold and forthwith remit under subsection 215(1) of the Act. Liability for interest under subsection 227(8.1) and paragraph 227(10)(a) of the Act and sections 4300 and 4301 of the Regulations does not come into play.
[12] I have benefited from the principles set out in the following two cases:
- Minister of National Revenue v. Bessemer Trust Company and Ogden Phipps as Trustee (1957) Trust, 73 DTC 5045,
- Moses Deitcher v. Her Majesty The Queen, 79 DTC 5415.
[13] For the above reasons, the appeal is allowed.
Signed at Ottawa, Canada, this 16th day of May 2001.
"D.R. Watson"
D.J.T.C.C.
COURT FILE NO.: 2000-989(IT)I
STYLE OF CAUSE:Martin Wright and Her Majesty the Queen
PLACE OF HEARING: Montréal, Quebec
DATE OF HEARING: March 27, 2001
REASONS FOR JUDGMENT BY: Honourable Deputy Judge D.R. Watson
DATE OF JUDGMENT: May 16, 2001
APPEARANCES:
Agent for the Appellant: David Wilkenfeld
Counsel for the Respondent: Anne-Marie Desgens
COUNSEL OF RECORD:
For the Appellant:
Name:
Firm:
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2000-989(IT)I
BETWEEN:
MARTIN WRIGHT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on March 27, 2001 at Montréal, Quebec, by
the Honourable Deputy Judge D.R. Watson
Appearances
Agent for the Appellant: David Wilkenfeld
Counsel for the Respondent: Anne-Marie Desgens
JUDGMENT
The appeal from the assessment made under the Income Tax Act for the 1994 taxation year is allowed and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 16th day of May 2001.
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"D.R. Watson" |
D.J.T.C.C.