On March 12, 2015, the taxpayer Bank wrote to the Minister to ask that $54 million of non-capital loss from its 2008 taxation year be carried back to its 2006 taxation year to offset the increase to its income for the 2006 year that would occur when the Minister implemented a concurrent settlement agreement regarding a transfer-pricing audit. The Minister did so, but calculated interest on the increased balance of tax owing for the Bank’s 2006 year for the period of approximately eight years ending pursuant to s. 161(7)(b)(iv) with the date of the Bank’s carryback request, rather than (pursuant to s. 161(7)(b)(ii)) with the return filing date for the loss year. The Bank submitted that s. 161(7)(b)(iv) was inapplicable because the reassessment of its 2006 year did not occur “as a consequence of [its carryback] request” as required by s. 161(7)(b)(iv) but “[r]ather, the reassessment was made in order to process the audit adjustment” (para. 35).
In rejecting the Bank’s position, Woods JA indicated:
- Given that “Parliament seeks certainty, predictability and fairness in tax legislation … [i]f Parliament did not intend to impose interest when a loss carryback is claimed as a result of an audit adjustment, it is likely that Parliament would have provided for this with explicit language” (para. 39).
- The “essence” of the Explanatory Notes was that “subparagraph (b)(iv) applies if the Minister reassesses to accede to the taxpayer’s request for a loss carryback” (para. 43).
- The Bank’s position could produce anomalous results, e.g., if the Minister implemented the audit adjustment and the loss carryback in two separate reassessments rather than one, the “interest clock” would continue until the loss carryback was requested, whereas with a single reassessment, the “interest clock” would stop when the return for the loss year was filed: “There is no principled reason why the issuance of one or two reassessments should lead to diverse outcomes …” (para. 44).
- It was “likely that Parliament knew that subparagraph (b)(iv) could function in a manner similar to a penalty … [and] that substantial interest could accrue under subparagraph (b)(iv) if the carryback request resulted from an audit” (para. 50).
- Although the Crown’s position could “result in different treatment between loss carrybacks and …. loss carryforwards … Parliament enacted a specific provision dealing with loss carrybacks, and it chose not to adopt an analogous provision for loss carryforwards” (para. 53).