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Evidence - Hypotheticals. Bank of Nova Scotia v. Canada
In Bank of Nova Scotia v. Canada (Fed CA, 2024) the Federal Court of Appeal allows the use of hypothetical examples, essentially as evidence - apparently here as a technique in making legal submissions:(c) Anomalous consequences
[44] It is also worth noting that the Bank’s position appears to lead to potentially anomalous results. A hypothetical example given by the Crown in the Tax Court involved a situation in which the Minister implements the audit adjustment and the loss carryback in two separate reassessments rather than one (as occurred in this case). This example appears to lead to different interest calculations if the interpretation suggested by the Bank is accepted: the single reassessment scenario would see the "“interest clock”" stop when the return for the loss year was filed, but the two reassessment scenario would see the "“interest clock”" continue until the loss carryback was requested, potentially many years later. There is no principled reason why the issuance of one or two reassessments should lead to diverse outcomes and I agree with the Crown that Parliament likely did not intend this result.
[45] The Bank responds to this argument in a couple of ways. First, it suggests that interest is calculated in the same manner regardless of whether there are one or two reassessments because all the reassessments stem from the audit adjustment. In effect, the Bank suggests that Parliament envisaged that there would be an inquiry as to the ultimate cause of a reassessment. In my view, this interpretation is highly unlikely as it brings more uncertainty into the application of subparagraph (b)(iv). If anything, this argument illustrates a weakness with the Bank’s position.
[46] Second, the Bank briefly submitted in oral argument that the hypothetical example may be an unlikely scenario because a separate reassessment could be statute barred. This argument was not fully fleshed out and was too brief to merit a considered response. In any event, even if unlikely, the possibility of anomalous results is a factor weighing against the Bank’s interpretation.
[47] In sum, the hypothetical example illustrates that the Bank’s suggested interpretation may well give rise to anomalous results. In my view, this is another strong factor in favour of the Crown’s position.
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