A-179-79
Otto John Rath (Appellant) (Plaintiff)
v.
The Queen (Respondent) (Defendant)
Court of Appeal, Thurlow C.J., Urie J. and Kerr
D.J.—Ottawa, April 20 and 28, 1982.
Income tax — Income calculation — Deductions — Interest
liability — Appeal from Trial Judge's decision that loss by
fire of household goods in storage not "moving expense" in
natural and ordinary meaning of term — Trial Judge did not
err — Neither loss by fire nor expenditures to replace goods
destroyed moving expenses under s. 62(1) of the Act, nor
storage expenses under s. 62(3)(b) — S. 161 provides that
taxpayer shall pay interest on unpaid taxes — Interest
assessed on basis that refunds, paid as result of erroneous
assessments allowing deductions claimed for loss by fire as
moving expense, treated as unpaid taxes — Appellant submits
that Court has jurisdiction under s. 177 to vary assessment
and under s. 178(1) to order repayment of interest — Reason
ing in Peter Birtwistle Trust v. Minister of National Revenue
applies — Court's powers confined to seeing that tax, interest
and penalties charged only in strict accordance with Act — As
to calculation of interest, no statutory provision imposes obli
gation to pay interest for use of refunds until errors corrected
by reassessments — Taxpayer not liable for interest assessed
— Appeal allowed in part — Minister to reassess interest —
No costs awarded — Income Tax Act, S.C. 1970-71-72, c. 63,
ss. 62(1),(3)(b), 161(1), 164(1),(3), 177, 178(1).
CASE JUDICIALLY CONSIDERED
APPLIED:
Peter Birtwistle Trust v. Minister of National Revenue,
[1940] A.C. 138; [1939] S.C.R. 125; [1938] Ex.C.R. 95;
[1938-39] CTC 356, 363, 371.
APPEAL.
COUNSEL:
James O'Grady for appellant.
Wilfred Lefebvre and Beverly J. Hobby for
respondent.
SOLICITORS:
Soloway, Wright, Houston, Greenberg,
O'Grady & Morin, Ottawa, for appellant.
Deputy Attorney General of Canada for
respondent.
The following are the reasons for judgment
rendered in English by
THURLOW C.J.: This is an appeal from a judg
ment of the Trial Division [[1979] 2 F.C. 387]
which dismissed an appeal from the Tax Review
Board which had confirmed reassessments of
income tax and interest for the years 1974 and
1975.
On the principal question that arises on the
appeal I agree entirely with the opinion of the
learned Trial Judge that the loss sustained when
household and other goods belonging to Otto John
Rath were destroyed by fire when in a warehouse
in Ottawa in the course of their transit from the
Rath residence in Berkeley, California to a new
residence in Ottawa "is simply not a moving
expense in the natural and ordinary meaning of
that term". I am also of the view that expenditures
necessitated by the loss and made after the fire to
buy household goods are simply not moving
expenses within the ordinary meaning of that
expression. Further, in my opinion, neither the loss
by fire nor the expenditures to buy household or
other goods to replace goods lost in the fire can be
regarded either as amounts paid "as or on account
of moving expenses" within the ordinary meaning
of that expression in subsection 62(1)' of the
Income Tax Act, S.C. 1970-71-72, c. 63, or as
expenses incurred "as or on account of ... the cost
... of ... storing household effects in the course of
moving from his old residence to his new resi-
62. (1) Where a taxpayer
(a) has, at any time,
(i) ceased to carry on business or to be employed at the
location or locations, as the case may be, in Canada at
which he ordinarily so carried on business or was so
employed, or
(Continued on next page)
Bence" within the meaning of paragraph 62(3)(b) 2
of the Act.
(Continued from previous page)
(ii) ceased to be a student in full-time attendance at an
educational institution in Canada that is a university,
college or other educational institution providing courses
at a post-secondary school level,
and commenced to carry on a business or to be employed at
another location in Canada (hereinafter referred to as his
"new work location"), or
(b) has, at any time, commenced to be a student in full-time
attendance at an educational institution (hereinafter referred
to as his "new work location") that is a university, college or
other educational institution providing courses at a post-
secondary school level,
and by reason thereof has moved from the residence in Canada
at which, before the move, he ordinarily resided on ordinary
working days (hereinafter referred to as his "old residence") to
a residence in Canada at which, after the move, he ordinarily so
resided (hereinafter referred to as his "new residence"), so that
the distance between his old residence and his new work
location is not less than 25 miles greater than the distance
between his new residence and his new work location, in
computing his income for the taxation year in which he moved
from his old residence to his new residence or for the immedi
ately following taxation year, there may be deducted amounts
paid by him as or on account of moving expenses incurred in
the course of moving from his old residence to his new resi
dence, to the extent that
(c) they were not paid on his behalf by his employer,
(d) they were not deductible by virtue of this section in
computing the taxpayer's income for the preceding taxation
year,
(e) they would not, but for this section, be deductible in
computing the taxpayer's income,
(/) the aggregate of such amounts does not exceed
(i) in any case described in paragraph (a), the taxpayer's
income for the year from his employment at his new work
location or from carrying on the new business at his new
work location, as the case may be, or
(ii) in any case described in paragraph (b), the aggregate
of amounts required to be included in computing his
income for the year by virtue of paragraphs 56(1)(n) and
(o), and
(g) any reimbursement received by him for such expenses has
been included in computing his income for the year.
z62....
(3) In subsection (1), "moving expenses" includes any
expense incurred as or on account of
(b) the cost to him of transporting or storing household
effects in the course of moving from his old residence to his
new residence,
On the principal issue therefore, that is to say,
the deductibility of the fire a loss in computing
income for tax purposes, the appeal, in my opinion,
fails.
A further issue, however, was raised as to the
liability of the taxpayer for the interest included in
the reassessments. On this two submissions were
made, one of which was that the Court has a
discretion under section 177 of the Income Tax
Act to vary an assessment and, under subsection
178(1), to order repayment to the taxpayer of
interest paid and that in the circumstances of this
case the discretion should be exercised by ordering
repayment of the interest assessed and paid. While
the wording of the relevant statutory provisions
has changed on a number of occasions since the
decision in Peter Birtwistle Trust v. Minister of
National Revenue 3 , in my opinion its reasoning on
the point as to the Court's powers is still appli
cable. On the appeal to the Privy Council Lord
Romer said [at pages 150-151]:
It only remains to deal with the question of the interest
charged upon the tax prior to the date of assessment. The
question turns upon ss. 48, 49 and 66 of the Act.
Section 48 is in these terms: "Every person liable to pay any
tax under this Act shall send with the return of the income
upon which such tax is payable not less than one-quarter of the
amount of such tax, and may pay the balance, if any, of such
tax, in not more than three equal bimonthly instalments
thereafter, together with interest at the rate of six per centum
per annum upon each instalment from the last day prescribed
for making such return to the time payment is made."
Section 49 provides as follows: "If any person liable to pay
any tax under this Act pays as any instalment less than
one-quarter of the tax as estimated by him, or should he fail to
make any payment at the time of filing his return or at the time
when any instalment should be paid, he shall pay, in addition to
the interest at the rate of six per centum per annum provided
for by the last preceding section, additional interest at the rate
of four per centum per annum upon the deficiency from the
date of default to the date of payment."
In each of the years 1919 to 1934 the respondents failed to
make any payment at the time of filing their returns or at the
time when subsequent instalments under s. 48 should have been
paid. They became, therefore, chargeable with the additional
interest prescribed by s. 49 in addition to the interest mentioned
in s. 48. This they do not deny. Their contention that in the
3 [1940] A.C. 138; [1939] S.C.R. 125; [1938] Ex.C.R. 95;
[1938-39] CTC 356, 363, 371 at 378-379.
circumstances the interest should not be charged is based upon
s. 66 which is in these terms: "Subject to the provisions of this
Act, the Exchequer Court shall have exclusive jurisdiction to
hear and determine all questions that may arise in connection
with any assessment made under this Act and in delivering
judgment may make any order as to payment of any tax,
interest or penalty or as to costs as to the said Court may seem
right and proper."
It is contended that this provision gives to the Court a
discretion to determine whether interest shall or shall not be
exacted from the taxpayer.
Their Lordships cannot accede to this contention. The powers
given to the Court by the section are in terms given subject to
the provisions of the Act and therefore subject to the provisions
of ss. 48 and 49. The Court has no more power under the
sections to waive the payment of the interest than it has to
waive the payment of any tax imposed by the Act, or to impose
a greater rate of interest or a larger amount of tax than the Act
provides. The section is merely an enactment conferring upon
the Exchequer Court exclusively the jurisdiction of dealing with
disputes arising in connection with assessments made under the
Act; and, as regards tax, interest and penalties, its powers are
confined to seeing that they are only charged in strict accord
ance with the Act. As regards costs the Court has no doubt a
complete discretion.
The reasoning of Maclean J. 4 in the Exchequer
Court and of Kerwin J. in the Supreme Court of
Canada is to like effect.
The other submission, which was not put for
ward in the appellant's memorandum, challenges
the calculation of the interest assessed. To describe
the point it will be convenient to cite the applicable
statutory provision and to state certain facts
appearing in the record.
The only applicable provision of the Act impos
ing liability for interest on unpaid taxes that was
cited, and I have not found any other, is subsection
161(1). It reads:
161. (1) Where the amount paid on account of tax payable
by a taxpayer under this Part for a taxation year before the
expiration of the time allowed for filing the return of the
taxpayer's income is less than the amount of tax payable for the
year under this Part, the person liable to pay the tax shall pay
interest at a prescribed rate per annum on the difference
between those two amounts from the expiration of the time for
filing the return of income to the day of payment.
4 [1938] Ex.C.R. 95; [1939] S.C.R. 125; [1938-39] CTC
356, 363.
At the material time the rate of interest as
prescribed by Regulation 4300(1) [Income Tax
Regulations, SOR/72-68] was 6% per annum.
In the taxation years in question Otto John Rath
was an employee of the Government of Canada
from whose salary deductions on account of
income tax were being made. When filing his
income tax returns for 1974 and 1975, which were
due on the 30th of April 1975 and 1976 respective
ly, he was entitled to and claimed credit for the
amounts of such deductions. For the year 1974 his
total credit for deductions amounted to
$11,756.50. His taxes for the year, as finally reas
sessed on March 4, 1977, were $13,514.70. It
would seem therefore that the difference, in
respect of which he was liable to pay interest for
somewhat less than two years was at most
$1,758.20. Nevertheless he was assessed an
amount of $736.50 for interest.
For the year 1975 his total credits were
$12,275.30 and the taxes assessed on March 8,
1977 were $13,779.10 leaving a balance of
$1,503.80 on which at most, as it seems to me,
interest for ten months and eight days would be
payable. Interest assessed, however, was $722.31. I
have said "at most" with respect to the amount for
each year as it is not clear and no point was made
relating to it, that the amounts should not be
further reduced by the amounts of Ontario Tax
Credits.
The explanation for the apparently excessive
interest assessments is that when filing his income
tax returns the taxpayer claimed deductions for
moving expenses which included the loss sustained
as a result of the fire and in the original assess
ments deductions of amounts in respect of the loss
had been allowed. The result in respect of both
years was to show an overpayment of tax for which
a refund was paid under subsection 164(1) and
probably with interest, as provided in subsection
164(3) 5 . As I understand the explanation given by
counsel for the respondent, upon reassessment the
refunded amounts were treated as taxes that were
unpaid as of the 30th of April 1975 and 1976 when
the returns for 1974 and 1975 respectively were
due and interest was computed and assessed
accordingly.
I can find nothing in the wording of subsection
161(1) which authorizes such a computation or
imposes an obligation to pay interest so computed.
The wording which, as it seems to me, is as plain
and ordinary as any that is in the Act, has been
virtually unchanged since the coming into force of
the 1948 Income Tax Act, S.C. 1948, c. 52.
Immediately prior to that a corresponding provi
sion of the Income War Tax Act, R.S.C. 1927, c.
97, as amended by S.C. 1944-45, c. 43, section 14,
had been somewhat differently worded. It read:
54....
(3) Unless otherwise provided, all taxes found due and
unpaid shall bear interest at the rate of four per centum per
annum from the day prescribed for the filing of the return to
the day of payment.
There was also a provision in section 56 for
refunding overpayments of tax but not with inter
est thereon. It may have been possible to justify a
computation and assessment such as was made in
this case under the wording of subsection 54(3)
5 164....
(3) Where an amount in respect of an overpayment is
refunded, or applied under this section on other liability, inter
est at a prescribed rate per annum shall be paid or applied
thereon for the period commencing with the latest of
(a) the day when the overpayment arose,
(b) the day on or before which the return of the income in
respect of which the tax was paid was required to be filed,
and
(c) the day when the return of income was actually filed,
and ending with the day of refunding or application aforesaid,
unless the amount of the interest so calculated is less than $1,
in which event no interest shall be paid or applied under this
subsection.
but it does not appear to have been contemplated
by that Act, the 1948 Act or the present Act that
refunds would be made that would later be found
to have been unwarranted. In any case, no provi
sion imposing an obligation to pay interest on such
amounts appears to have been enacted in either the
1948 Act or the present Act.
The facts as I view them are that as of the 30th
of April 1975 and 1976 the amounts of the deduc
tions had been paid on account of the taxes pay
able by the taxpayer for the previous year, within
the meaning of subsection 161(1), and in my
opinion neither an erroneous assessment nor a
refund made as a result of it can avail to change
these facts or render unpaid what had in fact been
paid by the relevant date. It may be that when a
refund with interest has been made as a result of
an erroneous assessment, and more particularly
where the error results at least in part from an
erroneous claim by the taxpayer for deductions in
computing income, a taxpayer, who has had the
use of the refunded amount for a time until the
erroneous assessment was corrected, should in
equity pay interest on the refund for that period.
But this is not a matter of equity. There is no
equity in a tax. Under a taxing statute the Crown
is entitled only to such exactions as the statute
imposes. The case, as I see it, is simply one in
which the Department, with full knowledge of the
facts, made erroneous assessments and unwarrant
ed refunds. As there was no statutory provision
imposing an obligation to pay interest for the use
of the refunds until the errors were corrected by
reassessments, the taxpayer, in my opinion, was
not liable for such interest or to be assessed for it.
I would allow the appeal in part and refer the
reassessments back to the Minister for reconsider
ation and reassessment on the basis that the
amounts of taxes for the years 1974 and 1975 in
respect of which Otto John Rath was liable to pay
interest under subsection 161(1) of the Income
Tax Act were not more than the amounts of
$1,758.20 and $1,503.80 respectively.
As the appeal succeeds only to a minor extent
and on a point not raised in the appellant's memo
randum of argument, I do not think an award of
costs against the Crown is warranted. The Crown
does not ask for costs. In these circumstances no
costs should be awarded to either party.
URIE J.: I agree.
KERR D.J.: I agree.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.