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Federal Tax - Statutory Interpretation. Bank of Nova Scotia v. Canada
In Bank of Nova Scotia v. Canada (Fed CA, 2024) the Federal Court of Appeal dismissed a tax appeal, here from "a decision of the Tax Court of Canada which confirmed a reassessment imposing interest for late payment of tax".
Here the court comments on 'loss carryback' requests, and the statutory interpretation doctrine that bars "similarly-situated taxpayers being treated differently":(b) Technical note
[40] Second, the Bank suggests that its position is supported by the relevant Department of Finance technical note that accompanied the enactment of the legislative provision at issue. The note explains that subparagraph (b)(iv) applies if "“the Minister of National Revenue later accedes to the taxpayer’s written request to reassess the earlier year”": Canada, Minister of Finance, Technical Notes to a Notice of Ways and Means Motion Relating to Income Tax, (Ottawa: Department of Finance, 9 September 1985) at 92 [emphasis added].
[41] According to the Bank, the use of the term "“accedes”" in the technical note reinforces that subparagraph (b)(iv) does not apply where the Minister proposes to reassess for her own reasons (i.e., an audit adjustment). The argument is that the Minister has no ability to refuse the carryback request in these circumstances because a taxpayer has a statutory right to claim a loss carryback by virtue of paragraph 111(1)(a). However, where the Minister does not propose to reassess for her own reasons, the Bank submits that the term "“accedes”" is appropriate because a taxpayer generally does not have the right to require the Minister to reassess after an original assessment that follows the filing of the return. In those circumstances, the Minister has the discretion not to accede to a carryback request if this would require a new reassessment. The Bank suggests, therefore, that the use of the term "“accedes”" in the technical note supports its position.
[42] I disagree with this argument. The Minister has the right to reject a taxpayer’s request for a loss carryback. The point was made in Greene v. Minister of National Revenue (1995), 95 D.T.C. 5684, 1995 CarswellNat 1841 (F.C. App. Div.) that the Minister only has to consider a request, not necessarily issue a reassessment granting the request.
[43] Indeed, read alongside the legislation, it becomes clear that the essence of the technical note is that subparagraph (b)(iv) applies if the Minister reassesses to accede to the taxpayer’s request for a loss carryback. This favours the Crown’s position.
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(e) Lack of harmony
[51] The Bank suggests that the Tax Court decision results in similarly-situated taxpayers being treated differently. It explains that "“where taxpayers have discretionary deductions other than loss carrybacks available and claim those discretionary deductions to offset audit adjustments, the Act does not impose interest. … It is difficult to imagine that Parliament would treat such similarly situated taxpayers so differently.”" In support, the Bank cites a technical interpretation letter of the Canada Revenue Agency dated May 11, 2023 (No. 2022-093670), and an article by Ian Crosbie, "“Amended Returns, Refunds, and Interest”" (2012) Tax Dispute Resolution, Compliance, and Administration Conference Report (Canadian Tax Foundation) 27:1 at 27:22.
[52] I am not satisfied that these authorities support the broad principle stated by the Bank. With respect to loss carryforwards in particular, typically the authorities above cite administrative positions on facts that are materially different from those in this appeal. Often, the facts involve a taxpayer that reports a capital gain and applies a deduction to offset it. After an audit, the capital gain is changed to income, and the taxpayer then substitutes the previous offsetting deduction with a non-capital loss carryforward. The Canada Revenue Agency position is that arrears interest is not imposed in these circumstances. The facts in the present case are quite different in that nothing was originally reported by the Bank.
[53] Although the Bank may have overstated the administrative position, I acknowledge the Crown’s position may result in different treatment between loss carrybacks and certain other deductions such as loss carryforwards. I also acknowledge that the Court must presume that Parliament intended the ITA to work as a harmonious scheme. However, the provisions of the ITA work against that presumption and suggest that Parliament did not intend a harmonious scheme for the calculation of interest in these circumstances. For example, Parliament enacted a specific provision dealing with loss carrybacks, and it chose not to adopt an analogous provision for loss carryforwards. There could be many reasons for this, and there is no point in speculating why this is so. It certainly was Parliament’s prerogative to treat other types of deductions more favourably.
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Conclusion and disposition
[67] In light of the factors considered above, I conclude that the Crown’s position is to be preferred. While the text connotes both a temporal and causal element, the text leaves the application of the causal element ambiguous. The context and purpose, however, strongly favour the Crown’s position. In my view, the Tax Court did not err in dismissing the Bank’s appeal. . Canada (Attorney General) v. Collins Family Trust
In Canada (Attorney General) v. Collins Family Trust (SCC, 2022) the Supreme Court of Canada canvassed principles of tax law on the extent to which taxpayers may intentionally, even retroactively, structure their situations to avoid tax - here involving the use of equity [paras 12-27].
. FLK Institute of Taoism v. MPAC
In FLK Institute of Taoism v. MPAC (Div Ct, 2021) the Divisional Court examined the statutory interpretation of a non-federal tax statute (here the Ontario Assessment Act):[13] The Act is directed at raising revenue for municipal governments from taxes on real property in the Province. The Legislature designed the Act to provide that all land in Ontario is liable to assessment and taxation except if it falls into express categories of exempt land. The exemption provisions exist at various places in the Act but are predominately contained in section 3. In this case, the exemption at issue is subparagraph 1 i of subsection 3(1) which states:Land that is owned by a church or religious organization or leased to it by another church or religious organization that is,
i. a place of worship and the land used in connection with it. [14] The application judge reviewed the evidence before her on the application. There were disputed facts in her view. Nevertheless, the parties agreed to proceed on the basis of a written record.
[15] FLK cites paragraph 73 of the decision as evidencing a palpable and overriding error by the application judge. In that paragraph the application judge stated:[73] The exemption for places of worship is strictly construed. Holy Theotokos Convent v. Corporation of the Town of Whitchurch-Stouffville et al, [2007] O.J. No. 542 (Sup. Ct). [16] FLK argues that this paragraph indicates the application judge misdirected herself as to the basic test of statutory interpretation when dealing with a taxing statute such as the Act. FLK submits this reference to “strict construction” is contrary to the modern approach to statutory interpretation. In the past, courts constructed taxing statutes strictly. Historically this so called “strict” approach was taken by taxing authorities and government litigants, like MPAC. It was highlighted in the decision of the Ontario Court of Appeal in Ottawa Salus Corp. v Municipal Property Assessment Corp. (2004), 2004 CanLII 14620 (ON CA), 69 O.R. (3d) 417, at para 14. In that decision, the Court of Appeal expressly disagreed with this strict approach. It adopted an interpretation of taxation laws in the context of exemptions from property tax for charitable organizations as set out by the Supreme Court of Canada in Québec (Communauté urbaine) v. Corp. Notre-Dame de Bon-Secours, 1994 CanLII 58 (SCC), [1994] 3 S.C.R. 3.
[17] At paragraph 15 of Salus, the Court of Appeal quoted page 18 of Notre-Dame de Bonsecours:I should like to stress that it is no longer possible to apply automatically the rule that any tax exemption should be strictly construed. It is not incorrect to say that when the legislature makes a general rule and lists certain exceptions, the latter must be regarded as exhaustive and so strictly construed. That does not mean, however, that this rule should be transposed to tax matters so as to make an absolute parallel between the concepts of exemption and exception. With respect, adhering to the principle that taxation is clearly the rule and exemption the exception no longer corresponds to the reality of present-day tax law, Such a way of looking at things was undoubtedly tenable at a time when the purpose of tax legislation was limited to raising funds to cover government expenses. In our time it has been recognized that such legislation serves other purposes and functions as a tool of economic and social policy. By submitting tax legislation to a teleological interpretation it can be seen that there is nothing to prevent a general policy of raising funds from being subject to a secondary policy of exempting social works. Both are legitimate purposes which equally embody the legislative intent and it is thus hard to see why one should take precedence over the other. [18] The decision of the Ontario Superior Court in Holy Theotokos did not consider Notre-Dame de Bonsecours. Counsel for MPAC urges a closer reading of Holy Theotokos to support its argument that the application judge in the present case did not misapply the test set out in Notre-Dame de Bonsecours. MPAC argues the application judge’s comments reflect that when considering an exemption from taxation, it is appropriate to ensure that the applicant squarely and fully fits within the meaning of the exemption section. This is not an application of the strict construction approach. Rather it is to be contrasted with an interpretive approach that could be described as more broad and liberal.
[19] The granting of an exemption means other ratepayers will be picking up a burden left by the exempt property. While a legitimate social goal may be at issue, nevertheless a strict or careful approach is required as the exercise involves placing an additional burden on others. This is to be contrasted with the traditional approach which favoured revenue generation over the granting of exemptions. MPAC argues the application judge was simply stating that in considering a claim for exemption it is important for the ratepayer to demonstrate that the property falls within the four corners of the exempting provisions as advocated by the Court of Appeal in Salus. Otherwise, the application judge did not apply impermissible reasoning. . Canada v. Loblaw Financial Holdings Inc.
In Canada v. Loblaw Financial Holdings Inc. (SCC, 2021) the Supreme Court of Canada considered statutory interpretation, particularly in the federal tax context:[41] This narrow question of statutory interpretation requires us to draw upon the well-established framework that “statutory interpretation entails discerning legislative intent by examining statutory text in its entire context and in its grammatical and ordinary sense, in harmony with the statute’s scheme and objects” (Michel v. Graydon, 2020 SCC 24, at para. 21). Where the rubber hits the road is in determining the relative weight to be afforded to the text, context and purpose. Where the words of a statute are “precise and unequivocal”, their ordinary meaning will play a dominant role (Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54, [2005] 2 S.C.R. 601, at para. 10). In the taxation context, a “unified textual, contextual and purposive” approach continues to apply (Placer Dome Canada Ltd. v. Ontario (Minister of Finance), 2006 SCC 20, [2006] 1 S.C.R. 715, at para. 22, quoting Canada Trustco, at para. 47). In applying this unified approach, however, the particularity and detail of many tax provisions along with the Duke of Westminster principle (that taxpayers are entitled to arrange their affairs to minimize the amount of tax payable) lead us to focus carefully on the text and context in assessing the broader purpose of the scheme (Placer Dome, at para. 21; Canada Trustco, at para. 11). This approach is particularly apposite in this case, where the provision at issue is part of the highly detailed and precise FAPI regime. I must emphasize again that this is not a case involving a general anti-avoidance rule. The provision at issue is part of an exception to the definition of “investment business” within the highly intricate, highly defined FAPI regime. If taxpayers are to act with any degree of certainty under such a regime, then full effect should be given to Parliament’s precise and unequivocal words. . Stonehouse Group Inc. v. Ontario (Minister of Finance)
In Stonehouse Group Inc. v. Ontario (Minister of Finance) (Ont CA, 2021) the Court of Appeal clarified a new (from 2006) tax statutory interpretation approach:[13] It is agreed that there is no longer a special rule regarding the interpretation of taxing statutes, that is, such statutes are not to be interpreted strictly against the taxing authority as was once the case. Rather, taxing statutes are to be interpreted as any other statute would be, that is, “the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament”: Placer Dome Canada Ltd. v. Ontario (Minister of Finance), 2006 SCC 20, [2006] 1 S.C.R. 715, at para. 21. . Roofmart Ontario Inc. v. Canada (National Revenue)
In Roofmart Ontario Inc. v. Canada (National Revenue) (Fed CA, 2020) the Federal Court of Appeal upheld Canada's responding position to an interesting appeal about use of compelled disclosure (essentially 'warrant') provisions [s.231.2(3) of the Income Tax Act, s.289(3) of the Excise Tax Act] of federal tax law that compelled the subject of the order to disclose third party dealings, here invoices of building materials. The Orders were referred to as "unnamed persons requirements" (UPR), and the information and documents were sought, not as part of a specific audit, but as part of an industry sector investigation. The Court of Appeal makes several legal observations, one relating to general interpretation of tax law:[20] Where the words of a provision are clear and unambiguous, as they are here, the words must simply be applied (Shell Canada Ltd. v. Canada, 1999 CanLII 647 (SCC), [1999] 3 S.C.R. 622 at para. 40). Where Parliament has specified precisely which conditions must be satisfied to achieve a particular result, it is reasonable to assume that Parliament intended that taxpayers and the Minister would rely on those conditions (Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54, [2005] 2 S.C.R. 601 at para. 11). Additional conditions cannot be read into the legislation. Nor can a supposed purpose "“be used to create an unexpressed exception to clear language,”" or to supplant clear language (Placer Dome Canada Ltd. v. Ontario (Minister of Finance), 2006 SCC 20, [2006] 1 S.C.R. 715 at para. 23). . Canada (National Revenue) v. Al Saunders Contracting & Consulting Inc.
In Canada (National Revenue) v. Al Saunders Contracting & Consulting Inc. (Fed CA, 2020) the Federal Court of Appeal stated this interpretive principle in federal tax law:[26] The Supreme Court has held that the evolution of legislation is part of the entire context in which statutes are to be read (Merk v. International Association of Bridge, Structural, Ornamental and Reinforcing Iron Workers, Local 771, 2005 SCC 70, [2005] 3 S.C.R. 425, at paragraph 28).
[27] Prior to 1991, part (vii) of paragraph 6(1)(b) did not refer to "“reasonable allowances for travel expenses”". Instead, it provided an exemption from inclusion in the calculation of income for "“allowances (not in excess of reasonable amounts) for travel expenses”" (Income Tax Act, R.S., 1952, c. 148, as amended by R.S.C. 1985, 5th Supp., c. 1, s. 6).
[28] The Technical Note issued by the Department of Finance in May 1991 to explain the amendments made then to the Act, including amendments to subparagraphs 6(1)(b)(x) and (xi) relating to allowances for the use of a motor vehicle, stated that:These [sub]paragraphs are amended to provide that reasonable allowances in respect of travelling expenses and motor vehicle expenses will be excluded in computing the income of an individual from an office or employment. Thus allowances that are not reasonable, rather than only those in excess of a reasonable allowance, may be included in income. In these circumstances, the taxpayer may be entitled to a deduction with respect to travelling expenses under paragraph 8(1)(f) or (h).
(underlining added) [29] The Technical Notes are a relevant, extrinsic interpretive aid that adds context to the interpretation of subparagraph 6(1)(b)(vii). It reflects a policy decision made by Parliament that when an allowance is paid in respect of a travelling expense that is not reasonable, all of the allowance is to be included in the computation of income.
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