Tax Court confirms that arrears interest on taxes resulting from GAAR assessment accrue from the taxpayer’s balance-due day
In Quinco Financial Inc. v. R. (2016 TCC 190), the Minister of National Revenue had assessed Quinco under section 245 (the “GAAR”) of the Income Tax Act (Canada) (“ITA”) to deny certain claimed capital losses. Arrears interest on the resulting tax due was also assessed, which the Minister computed from Quinco’s “balance-due day”. The “balance-due day” is the deadline by which a taxpayer is required to pay to the Receiver General certain amounts payable under the ITA for a particular taxation year. For a corporate taxpayer, it is either two or three months after the end of the particular taxation year, depending on the circumstances.
Quinco took the position that it should not be liable for arrears interest on the assessed tax debt for the period prior to the assessment date. It proffered numerous arguments to support its position. The most interesting argument was that, although a GAAR assessment requires a determination of the tax consequences reasonably necessary to deny the tax benefit, it does not permit or extend to the recharacterization of the transaction for any other tax purposes; therefore, a taxpayer’s liability for interest does not arise until the date of the reassessment.
Justice Bocock rejected this argument and explained that an assessment under the GAAR,
“whether alone or in conjunction with another technical omission or non-compliant act, is not an assessment divorced from the other provisions of the Act.”
Here, the assessment was raised utilizing the GAAR, but the assessment “insinuated itself into Part I of the Act to reassess the taxpayer otherwise in the normal course.” Justice Bocock held that subsection 161(1) arrears interest accrues on any tax payable determined under the GAAR from the balance-due day until the GAAR assessment issuance date (and onwards until payment of the tax payable).