Case information

Taxation — Income tax — Computation of interest payable — Minister’s reassessment taking into account audit adjustment and carryback requested by taxpayer to offset a loss — Minister applying s. 161(1)(b)(iv) of Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) to compute taxpayer interest up until day taxpayer requested loss carryback — Taxpayer appealing applicability of provision Minister relied on — Courts dismissing taxpayer’s appeal — Whether the event set out in s. 161(7)(b)(iv) occurred when the Minister reassessed taxpayer’s previous taxation year at a later date — What is the proper construction of s. 161(7)(b)(iv) and the words “where, as a consequence of a request in writing, the Minister reassessed the taxpayer’s tax for [a previous year] to take into account the deduction” of a loss? — Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), s. 161(7)(b)(iv).

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The appellant, Bank of Nova Scotia (“taxpayer”), filed its return for the 2006 taxation year, reported taxable income, and paid such taxes as it calculated to be owing. The Minister of National Revenue (“Minister”) later audited the taxpayer’s 2006 to 2010 taxation years. In March 2015, the taxpayer and the Minister entered into a settlement agreement which required additional amounts to be included in the taxpayer’s 2006 income. The day before entering into the settlement agreement, the taxpayer wrote to the Minister to request to carryback a loss from its 2008 taxation year to apply it to offset the increase in its 2006 income. The Minister reassessed the taxpayer, implementing the audit adjustment and the requested loss carryback, and imposing interest resulting from the reassessment. The Minister applied a provision that requires that, for a specified period of time, interest is calculated by ignoring the loss carryback. The computing of interest that ignores the loss carryback ceases to apply 30 days after the latest of four end dates listed in s. 161(7)(b)(i)-(iv) of the Income Tax Act. The Minister computed interest by applying s. 161(7)(b)(iv) to ignore the loss carryback until the date the taxpayer requested it. The taxpayer appealed to the Tax Court of Canada, taking the position that s. 161(7)(b)(iv) did not apply because the Minister’s reassessment of its tax for 2006 was not “as a consequence” of its request to carryback losses from 2008 to offset its 2006 tax liability. The Tax Court of Canada and the Federal Court of Appeal dismissed the taxpayer’s appeal.