BAKORP MANAGEMENT LTD. Appellant v. THE MINISTER OF, 2016 FCA 74

Date: 20160304 Docket: A-132-15 Citation: 2016 FCA 74 CORAM: RYER J.A. WEBB J.A. RENNIE J.A. BETWEEN: BAKORP MANAGEMENT LTD. Appellant and THE MINISTER OF NATIONAL REVENUE Respondent Heard at Toronto, Ontario, on February 10, 2016. Judgment delivered at Ottawa, Ontario, on March 4, 2016. REASONS FOR JUDGMENT BY: WEBB J.A. CONCURRED IN BY: RYER J.A. RENNIE J.A. Date: 20160304 Docket: A-132-15 Citation: 2016 FCA 74 CORAM: RYER J.A. WEBB J.A. RENNIE J.A. BETWEEN: BAKORP MANAGEMENT LTD.

Appellant and THE MINISTER OF NATIONAL REVENUE Respondent REASONS FOR JUDGMENT WEBB J.A. [ 1 ] Bakorp Management Ltd. (Bakorp) has appealed the decision of Pizzitelli J. of the Tax Court of Canada ( 2015 TCC 36 ) in relation to his

interpretation of subsection 187(2) of the Income Tax Act, R.S.C. 1985, c.1 (5th Supp.) (the Act ) in relation to the facts of this case. [ 2 ] For the reasons that follow, I would dismiss this appeal. I. Background

[3] The facts in this case are not in dispute. Bakorp filed its tax returns for 1993 and 1995 and reported a

Part IV tax liability ineach return. The balance due date for the purposes of the Act for the payment of Bakorp’s

Part IV tax liability for 1995 was June 30,1995. Bakorp, in its tax return for 1995, determined that its

Part IV tax liability for that year was $13,333,059. On June 10, 1995 (whichwas before the balance due date), Bakorp paid the balance that it had determined was due for 1995 (the 1995 Final Payment). The PartIV tax liability for 1993 and 1995 was originally assessed as filed. [4] However, as a result of subsequent reassessments, the

Part IV tax liability for 1993 was increased significantly and the PartIV tax liability for 1995 was reduced by $6,333,059 (the Overpayment). On February 3, 2000, the Minister applied the Overpayment tothe outstanding

Part IV tax liability for 1993. The Overpayment was less than the 1995 Final Payment. [5] The Tax Court Judge determined that, for the purposes of calculating the amount of interest payable under subsection 187(2)of the Act in relation to the amounts reassessed for 1993, the “day of payment” of the Overpayment was February 3, 2000. II.

Statutory Provision [6] The relevant provision of the Act is subsection 187(2) which provides that: 187(2) Where a corporation is liable to pay tax underthis Part and has failed to pay all or any part thereof onor before the day on or before which the tax wasrequired to be paid, it shall pay to the Receiver Generalinterest at the prescribed rate on the amount that itfailed to pay computed from the day on or before whichthe tax was required to be paid to the day of payment. 187(2) Une société qui n’a pas payé tout ou

partie d’unimpôt dont elle est redevable en vertu de la présentepartie, au plus tard à la date où elle était tenue de lepayer, doit verser au receveur général des intérêts sur lemontant qu’elle n’a pas payé, calculés au taux prescritpour la période allant de la date où elle était tenue depayer l’impôt jusqu’à la date du paiement. III. Issue [7] The only issue in this appeal is whether the interest charged in relation to the amounts reassessed for the

Part IV tax liabilityfor 1993 should be calculated on the basis that the “day of payment” of the Overpayment is the date that the Overpayment was applied tothe

Part IV tax liability for 1993 (February 3, 2000) or the earlier date (June 10, 1995) on which Bakorp paid the 1995 Final Payment tothe Minister of National Revenue (Minister), albeit on account of its 1995

Part IV tax liability at that time. IV. Analysis [8] Bakorp acknowledges that under

Part IV of the Act, each year is assessed separately. Bakorp also acknowledges that theOverpayment was not applied to its 1993

Part IV tax liability until February 3, 2000. However, Bakorp submits that a distinction shouldbe drawn between when the Overpayment was applied and the day of payment of that amount. Bakorp submits that the 1995 FinalPayment was greater than the Overpayment and the “day of payment”, for the purposes of determining the interest amount undersubsection 187(2) of the Act in relation to the reassessment issued for 1993, should be June 10, 1995. [9] On the issue of statutory

interpretation, the Supreme Court of Canada in The Queen v. Canada Trustco Mortgage Company,2005 SCC 54, 2005 D.T.C. 5523 (Canada Trustco), has given us this guidance: [10] It has been long established as a matter of statutory

interpretation that 'the words of

an Act are to be read in their entire contextand in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention ofParliament': see 65302 British Columbia Ltd. v. Canada, (SCC), [1999] 3 S.C.R. 804, at para. 50. The

interpretation ofa statutory provision must be made according to a textual, contextual and purposive analysis to find a meaning that is harmonious withthe Act as a whole. When the words of a provision are precise and unequivocal, the ordinary meaning of the words play a dominant rolein the interpretive process. On the other hand, where the words can support more than one reasonable meaning, the ordinary meaning ofthe words plays a lesser role. The relative effects of ordinary meaning, context and purpose on the interpretive process may vary, but inall cases the court must seek to read the provisions of

an Act as a harmonious whole. [10] Bakorp submits that the words “day of payment” refer to the date that Bakorp made the 1995 Final Payment – June 10, 1995.However, Bakorp does acknowledge that it may be possible to also interpret “day of payment” as the day that the payment amount isapplied to the tax liability for 1993 – February 3, 2000. [11] Bakorp then submits that any such ambiguity can be resolved by the contextual analysis. In this case, Bakorp refers tosubsection 161(1) of the Act as support for its argument that “paid” should be distinguished from “applied”.

This subsection providesthat: 161(1) Where at any time after a taxpayer’s balance-dueday for a taxation year 161(1) Dans le cas où le total visé à l’alinéa a) excèdele total visé à l’alinéa b) à un moment postérieur à ladate d’exigibilité du solde qui est applicable à uncontribuable pour une année d’imposition, lecontribuable est tenu de verser au receveur général desintérêts sur l’excédent, calculés au taux prescrit pour lapériode au cours de laquelle cet excédent est impayé :

(

a) the total of the taxpayer’s taxes payable under thisPart and Parts I.3, VI and VI.1 for the year

a) le total des impôts payables par le contribuable pourl’année en vertu de la présente

partie et des parties I.3,VI et VI.1;exceeds (

b) the total of all amounts each of which is an amountpaid at or before that time on account of the taxpayer’stax payable and applied as at that time by the Ministeragainst the taxpayer’s liability for an amount payableunder this Part or

Part I.3, VI or VI.1 for the year, the taxpayer shall pay to the Receiver General interestat the prescribed rate on the excess, computed for theperiod during which that excess is outstanding.

b) le total des montants représentant chacun un montantpayé au plus tard à ce moment au

titre de l’impôtpayable par le contribuable et imputé par le ministre, àcompter de ce moment, sur le montant dont lecontribuable est redevable pour l’année en vertu de laprésente

partie ou des parties I.3, VI ou VI.1. [12] Bakorp submits that because paragraph 161(1)(

b) of the Act refers to both “an amount paid” and “applied”, that two differentactions are contemplated. Although

section 161 does not apply to

Part IV, Bakorp submits that Parliament still contemplated twodifferent actions for the purposes of the Act. Since subsection 187(2) of the Act only refers to “payment”, Bakorp submits that only theaction of payment is relevant for that subsection. [13] I am unable to accept the argument of Bakorp for two reasons.

One is related to the history of subsection 161(1) of the Act andthe other is related to the wording of subsection 164(3) of the Act. [14] Prior to April 20, 1983, subsection 161(1) of the Act only referred to the “day of payment” and provided that the ending datefor the calculation of interest on overdue amounts was the “day of payment”. It was amended, applicable after April 19, 1983, followingthe decision of this Court in Rath v. The Queen, (FCA), [1983] 1 F.C. 42, [1982] F.C.J. No. 71. In Rath this Courtaddressed the

interpretation of the former subsection 161(1) of the Act which provided as follows: 161(1) Where the amount paid on account of taxpayable by a taxpayer under this Part for a taxation yearbefore the expiration of the time allowed for filing thereturn of the taxpayer's income is less than the amountof tax payable for the year under this Part, the personliable to pay the tax shall pay interest at a prescribedrate per annum on the difference between those twoamounts from the expiration of the time for filing thereturn of income to the day of payment. 161(1) Lorsque la somme, versée au

titre de l’impôtpayable par un contribuable pour une annéed’imposition en vertu de la présente

Partie avantl’expiration du délai accordé pour l’envoi de ladéclaration de revenu du contribuable, est inférieure aumontant de l’impôt payable pour l’année en vertu de laprésente Partie, la personne responsable du paiement del’impôt doit acquitter des intérêts, au taux annuelprescrit, sur la différence entre ces deux sommes, pourla période allant de l’expiration du délai imparti pour ladéclaration du revenu au jour du paiement. [15] The taxation years in issue in that case were 1974 and 1975. For each year Mr. Rath was an employee.

His employer deductedamounts from his salary and remitted such amounts on his behalf as payment towards his tax liability for those years. In filing his returnsfor those years he claimed significant amounts for moving expenses which initially were accepted as deductions in computing hisincome. As a result, he received refunds for each year. [16] Mr. Rath was later reassessed and he was required to repay the refunds (or a significant part of such refunds).

In applyingsubsection 161(1) of the Act, as it was then worded, this Court simply compared the amount that he had paid, as a result of the sourcedeductions, towards his tax liability for 1974 and 1975 to his tax liability for those years, as finally determined. This Court found thatinterest could only be charged on the difference between those two amounts, even though Mr. Rath had received a refund for both 1974and 1975 that he had to subsequently repay.

As a result, he was not required to pay interest on the amount that he had received as arefund and which he was required to repay, for the period that he had such refund. [17] Subsection 161(1) of the Act was amended in 1983 to refer to amounts that not only had been paid but also, at the particulartime in question, had been applied against a tax liability. For the period of time that Mr.

Rath had his “refund”, this amount would nothave been applied, at that time, against his tax liability. [18] Since subsection 161(1) of the Act was amended to address a particular situation which is not applicable in this case, I do notagree that its use of “paid” and “applied” should inform the

interpretation of “day of payment” for the purposes of subsection 187(2) ofthe Act. [19] The second reason that I am unable to accept Bakorp’s argument is also related to the contextual analysis contemplated byCanada Trustco. While subsection 161(1) of the Act does not apply for the purposes of

Part IV, subsection 164(3) of the Act does applyfor the purposes of

Part IV as a result of the provisions of subsection 187(3) of the Act. [20] Subsection 164(3) of the Act provides for the payment of interest on amounts that are refunded, repaid or applied to anotherliability of a taxpayer. Therefore, this provision will apply to the Overpayment in relation to 1995. In reading “the provisions of

an Act asa harmonious whole”, it is necessary to consider how interest will be calculated on the Overpayment for 1995 to determine whetherBakorp could be getting an unintended benefit if its

interpretation of subsection 187(2) of the Act is adopted in relation to 1993. [21] This subsection is as follows:

(3) If, under this section, an amount in respect of a taxation year (other than an amount, or a portion of the amount, that can reasonably be considered to arise from the operation of

section 122.5 or 122.61) is refunded or repaid to a taxpayer or applied to another liability of the taxpayer, the Minister shall pay or apply interest on it at the prescribed rate for the period that begins on the day that is the latest of the days referred to in the following paragraphs and that ends on the day on which the amount is refunded, repaid or applied: 164

(3) Si, en vertu du présent article, une somme à l’égard d’une année d’imposition est remboursée à un contribuable ou imputée sur tout autre montant dont il est redevable, à l’exception de tout ou

partie de la somme qu’il est raisonnable de considérer comme découlant de l’application des articles 122.5 ou 122.61, le ministre paie au contribuable les intérêts afférents à cette somme au taux prescrit ou les impute sur cet autre montant, pour la période commençant au dernier en date des jours visés aux alinéas ci-après et se terminant le jour où la somme est remboursée ou imputée : (

a) if the taxpayer is an individual, the day that is 30 days after the individual’s balance-due day for the year;

a) si le contribuable est un particulier, le trentième jour suivant la date d’exigibilité du solde qui lui est applicable pour l’année; (

b) if the taxpayer is a corporation, the day that is 120 days after the end of the year;

b) si le contribuable est une société, le cent vingtième jour suivant la fin de l’année; (

c) if the taxpayer is

c) si le contribuable est : (

i) a corporation, the day that is 30 days after the day on which its return of income for the year was filed under

section 150, unless the return was filed on or before the corporation’s filing-due date for the year, and (

i) une société, le trentième jour suivant celui où sa déclaration de revenu pour l’année a été produite en conformité avec l’article 150, sauf si la déclaration a été produite au plus tard à la date d’échéance de production qui lui est applicable pour l’année, (ii) an individual, the day that is 30 days after the day on which the individual’s return of income for the year was filed under

section 150; (ii) un particulier, le trentième jour suivant celui où sa déclaration de revenu pour l’année a été produite en conformité avec l’article 150; (

d) in the case of a refund of an overpayment, the day on which the overpayment arose; and

d) dans le cas du remboursement d’un paiement en trop d’impôt, le jour où il y a eu paiement en trop; (

e) in the case of a repayment of an amount in controversy, the day on which an overpayment equal to the amount of the repayment would have arisen if the total of all amounts payable on account of the taxpayer’s liability under this Part for the year were the amount by which

e) dans le cas du remboursement d’une somme en litige, le jour où il y aurait eu un paiement en trop égal à la somme remboursée si le total des sommes payables sur ce dont le contribuable est redevable en vertu de la présente

partie pour l’année était égal à l’excédent du total visé au sous-alinéa (

i) sur la somme visée au sous- alinéa (ii) : (

i) the lesser of the total of all amounts paid on account of the taxpayer’s liability under this Part for the year and the total of all amounts assessed by the Minister as payable under this Part by the taxpayer for the year exceeds (

i) le total des sommes versées sur ce dont il est redevable en vertu de la présente

partie pour l’année ou, s’il est moins élevé, le total des sommes qui, selon la cotisation établie par le ministre, sont à payer en vertu de la présente

partie par le contribuable pour l’année, (ii) the amount repaid. (ii) la somme remboursée. [ 22 ] Although the exact date for the commencement of the interest paid to Bakorp in relation to the Overpayment for 1995 is not certain, it was before February 3, 2000 as Bakorp acknowledged that it had been paid interest in relation to the Overpayment. Bakorp’s argument related to the “day of payment” , in applying subsection 187(2) of the Act to the calculation of interest payable by Bakorp in relation to Bakorp’s

Part IV tax liability for 1993, would not affect the commencement date for the payment of interest by the Crown to Bakorp under subsection 164(3) of the Act in relation to the Overpayment for 1995. [ 23 ] Subsection 164(3) of the Act provides that the ending date for the payment of interest for 1995 is the date the Overpayment is applied to another liability of Bakorp (in this case Bakorp’s liability for 1993). The date the Overpayment was applied to Bakorp’s liability for 1993 was February 3, 2000. Therefore, if Bakorp’s argument that the “day of payment” of the Overpayment is June 10, 1995 when applying subsection 187(2) of the Act to its 1993

Part IV tax liability, then Bakorp would not only have the benefit of a reduction in interest payable by it for its liability for 1993 based on the amount of the Overpayment from June 10, 1995, but it would also have the benefit of a payment of interest to it for 1995 for a significant overlapping period in relation to the same amount.

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. [ 24 ] As a result, in my view, in reading “the provisions of an Act as a harmonious whole” , the “day of payment” in subsection 187(2) of the Act 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. [ 25 ] I would therefore, dismiss the appeal with costs. "Wyman W. Webb" J.A. “I agree. C. Michael Ryer J.A.” “I agree.

Donald J. Rennie J.A.” FEDERAL COURT OF APPEAL NAMES OF COUNSEL AND SOLICITORS OF RECORD Docket: A-132-15 (APPEAL FROM A JUDGMENT OF THE HONOURABLE MR. JUSTICE PIZZITELLI OF THE TAX COURT OF CANADA DATED FEBRUARY 12, 2015, DOCKET NUMBER 2013-2882(IT)

G) STYLE OF CAUSE: BAKORP MANAGEMENT LTD. v. THE MINISTER OF NATIONAL REVENUE PLACE OF HEARING: toronto, Ontario DATE OF HEARING: February 10, 2016 REASONS FOR JUDGMENT BY: WEBB J.A. CONCURRED IN BY: RYER, RENNIE JJ.A. DATED: march 4, 2016 APPEARANCES : Matthew G. Williams Rebecca Potter For The Appellant Jenny P. Mboutsiadis For The Respondent SOLICITORS OF RECORD : Thorsteinssons LLP Toronto, Ontario For The Appellant William F. Pentney Deputy Attorney General of Canada For The Respondent