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Tax Court: arrears interest after GAAR assessment accrue from the taxpayer’s balance-due day

October 31, 2016 Jenny P. Mboutsiadis

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).

Analysis, Canada, Ontario

[UPDATE] No need to delay rectification applications: Ontario Superior Court

October 19, 2016 Jenny P. Mboutsiadis

[The original post was published on July 25th, 2016 – This is an updated version.]

The Ontario Superior Court of Justice’s recent decision in Slate Management Corporation v. Attorney General of Canada^[1] indicates that applicants do not have to wait for the Supreme Court of Canada’s pending judgments in two high profile rectification cases before seeking rectification orders. However, appeals to the Ontario Court of Appeal concerning rectification matters will be held in abeyance until the Supreme Court renders the awaited decisions.

On May 19, 2016, the SCC heard arguments in Jean Coutu Group (PJC) Inc. v. Attorney General of Canada^[2] and Attorney General of Canada v. Fairmont Hotels Inc., et al.^[3] It is anticipated that the SCC will take the opportunity made available by these cases, the former being from Quebec and the latter being from Ontario, to provide national clarity and direction on the law of rectification. The case law has been wildly inconsistent across the country since the Ontario Court of Appeal’s landmark decision in Juliar v. Canada (Attorney General)^[4], the case that paved the way for rectification to be used to alter completed transactions in order to avoid unintended tax results. Many in the tax community thought that there would be a moratorium on rectification applications and that those in progress would be held in abeyance until the SCC had spoken.

Addressing this issue directly, Justice Hainey in Slate Management did not accept the SCC’s pending decisions as justification for adjourning the application and proceeded to hear the matter. He even went so far as to rely on the Ontario Court of Appeal’s decision in Fairmont^[5], which is the exact case in which the SCC has reserved judgment.

The issue in Slate Management was straightforward. The applicant argued that it had intended that its amalgamation of three corporations would achieve a specific tax outcome by using the “tax bump rules” under paragraph 88(1)(d) of the Income Tax Act (Canada). However, it failed to attain the sought after tax outcome because it undertook the amalgamation in one step instead of sequential amalgamations in two steps. The question before the Court was whether the applicant had a continuing intention to achieve the tax outcome by using the tax bump rules. The Court found that, on a balance of probabilities, there was a continuing intention. The application was allowed and the applicant was awarded $20,000 in costs.

The Attorney General of Canada appealed Justice Hainey’s decision to the Ontario Court of Appeal and immediately made a motion to have the matter held in abeyance until after the Supreme Court delivers the Fairmont and Jean Coutu judgments. The Court of Appeal agreed and ordered that the appeal be held in abeyance until 30 days following the release of the Supreme Court decisions.^[i]

[1] 2016 ONSC 4216 (Commercial List).

[2] Docket number 36505. Summary of the case.

[3] Docket number 36606. Summary of the case.

[4] [2001] 4 CTC 45 (Ont. C.A.).

[5] 2015 ONCA 441.

[i] Attorney General of Canada v. Slate Management Corporation (August 30, 2016), Toronto C62491 (Ont. CA).

Canada

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

October 12, 2016 Jenny P. Mboutsiadis

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.