Imperial Oil Resources Limited: FCA rules that there is no refund interest on amounts subject to remission

The Federal Court of Appeal’s decision in Imperial Oil Resources Limited  v. Canada (Attorney General)[i] concerns refund interest on amounts relating to remission orders.  The specific issue before the Court was whether, in computing the amount required to be paid by Imperial Oil Resources on account of its tax liability pursuant to the Income Tax Act (Canada) (the “ITA”), the Minister of National Revenue was required to credit the amount of a tax debt remitted to it pursuant to the Financial Administration Act[ii] (the FAA) and pay refund interest on the resulting overpayment.

As a bit of background, the ITA requires a taxpayer to include in its income resource royalties receivable by a province and prohibits the deduction of resource royalties payable to a province.  The Federal government passed the Syncrude Remission Order[iii] (the SRO), which granted to each participant of the Alberta Syncrude Project remission of any tax payable with respect to related royalties.

Imperial Oil Resources had been a participant in the Alberta Syncrude Project and the Minister credited to it the remission amount after its total tax payable for the particular taxation year was determined.  However, Imperial Oil Resources took the position that the credit should have been applied effective as of the balance due date for its tax payable and that it was owed refund interest for the period between the balance due date and the credit date.  A “balance-due day” is the day a taxpayer is required to pay to the Receiver General of Canada 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.

Imperial Oil Resources applied to the Federal Court for a judicial review of the Minister’s decision not to grant refund interest.  The Federal Court dismissed the judicial review application for numerous reasons, including that the remission order does not create, in and of itself, an “overpayment” as defined in subsection 164(7) of the ITA.  As there is no over payment there would not be any refund interest under section 164.

Imperial Oil Resources appealed its loss to the Federal Court of Appeal.  The key question before the FCA was whether the remission of a tax debt pursuant to a remission order can give rise to an “overpayment” as defined in subsection 164(7) of the ITA.  The FCA affirmed the lower court’s decision.  The FCA explained that an overpayment of taxes payable cannot result without some form of payment being made beforehand, and that the effect of a remission order is limited to forgiving a debt once it has arisen pursuant to the relevant provisions of the ITA.  Therefore, no payment of taxes can result from a remission order because its sole effect is to prevent the collection of what is, and remains, a validly assessed tax debt.  The FCA held that there is no refund interest on amounts subject to remission.

[i] 2016 FCA 139.  This decision applies to two related appeals involving Imperial Oil Resources Limited and Imperial Oil Resources Ventures Limited (collectively, Imperial Oil Resources).

[ii] R.S.C. 1985, c. F-11.

[iii] C.R.C., c. 794.