https://decisions.fca-caf.gc.ca/fca-caf/decisions/en/item/316264/index.do
Quinco Financial Inc. v. Canada (July 20, 2018 – 2018 FCA 137, Stratas, Webb (author), Laskin JJ.A.).
Précis: The taxpayer argued unsuccessfully in the Tax Court that interest on a GAAR assessment should not commence to run until the date of the issuance of the assessment. The taxpayer appealed to the Federal Court of Appeal which dismissed the appeal with costs.
Decision: Justice Webb’s decision is quite succinct:
[30] When GAAR is applied, a tax benefit is denied. This could be realized, as was the case in this matter, by the denial of a deduction for allowable capital losses. The denial of the tax benefit will result in an increase in taxes payable for the particular taxation year. There is nothing in the Act that stipulates that the increased liability as a result of a reassessment based on GAAR only arises when the reassessment is issued. Since the denial of a tax benefit for a particular taxation year will increase the tax liability for that year, the question is what is the date that such liability was payable (which would determine the period during which the excess referred to in subsection 161(1) of the Act was outstanding)?
[31] Section 157 of the Act (which is in Part I) provides that all taxes for a particular year are payable on the balance-due date:
157(1) Subject to subsections (1.1) and (1.5), every corporation shall, in respect of each of its taxation years, pay to the Receiver General
(a) either
(i) on or before the last day of each month in the year, an amount equal to 1/12 of the total of the amounts estimated by it to be the taxes payable by it under this Part and Parts VI, VI.1 and XIII.1 for the year,
(ii) on or before the last day of each month in the year, an amount equal to 1/12 of its first instalment base for the year, or
(iii) on or before the last day of each of the first two months in the year, an amount equal to 1/12 of its second instalment base for the year, and on or before the last day of each of the following months in the year, an amount equal to 1/10 of the amount remaining after deducting the amount computed pursuant to this subparagraph in respect of the first two months from its first instalment base for the year; and
(b) the remainder of the taxes payable by it under this Part and Parts VI, VI.1 and XIII.1 for the year on or before its balance-due day for the year.
(emphasis added)
[only English version of statute reproduced]
[32] In this case the reassessments that were issued denied the allowable capital losses that were claimed for the year ending August 27, 2004. The result of the reassessments was that the Part I taxes payable for that year were increased for each of the two predecessor corporations. As the Part I taxes were payable for the year ended August 27, 2004, these taxes were payable under section 157 by the balance-due date for that year. Therefore, they were outstanding immediately following that date and interest commenced to accrue immediately following the balance-due date and not from the date that the reassessment was actually issued.
[33] In The Queen v. Simard-Beaudry Inc., [1971] F.C. 396 at 403, 71 D.T.C. 5511 at 5515, the Federal Court also confirmed that “the assessment does not create the debt, but is at most a confirmation of its existence”. This comment is equally applicable to a reassessment arising as a result of the application of GAAR as such reassessment simply confirms the tax debt that is owing for a particular taxation year.
[34] As a result I would dismiss this appeal, with costs.