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Federal Tax - Loss Carryback. 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.
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