We are writing in reply to your letter of 24(1) wherein you requested our views as to whether or not a taxpayer would be required to make quarterly income tax instalment payments in the following situation.
As we understand it, a situation has arisen where Federal taxes, less the Refundable Quebec Abatement, is greater than $1,000. When the Federal Sales Tax Credit (FSTC) under section 122.4 of the Income Tax Act (the Act) is taken into account, the tax payable is less than $1,OOO. On the assumption that the FSTC is included in computing "the aggregate of the taxes payable under this part and part I.1" as set out in section 156.1 of the Act, it would appear in your view, that the taxpayer in this situation would not be required to make quarterly instalment payments.
Our Comments
It is our opinion that the FSTC cannot be taken into account in computing estimated net federal tax payable for instalment purposes. The reasons for our view are as follows.
The FSTC is a refundable tax credit that is considered to be an amount paid on account of tax owing similar to deductions at source and quarterly instalment payments. Since these amounts are not, by definition, amounts that may be deducted in computing tax otherwise payable under Part I of the Act, this credit, other similar credits and amounts paid on account of tax owing, can be refunded to the taxpayer in situations where there is no federal tax payable under Part I. On the other hand, the dividend tax credit, for example, is by definition an amount that may be deducted in computing tax otherwise payable under Part I of the Act that would not be refundable to the taxpayer in situations where no federal tax was payable. To illustrate this difference, section 121 of the Act (dividend tax credit) states that
"there may be deducted from the tax otherwise payable under this Part ... any amount ...", whereas subsection 122.4(3) of the Act (FSTC) states that "... the amount ... shall be deemed to be an amount paid ... on account of ... tax under this part ... ". As a consequence of this wording the FSTC cannot be included in the computation of the net federal tax payable for instalment purposes.
We trust our comments will be of assistance to you.
Yours truly,
for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch