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Bank of Nova Scotia v. The Queen 2021TCC70
KEYWORDS: INTEREST * LOSSES * TIMING * STATUTORY INTERPRETATION
INTRODUCTiON
In Bank of Nova Scotia,1 the Tax Court of Canada considered the application of the rules for computing interest payable under the Income Tax Act (Canada)2 where a taxpayer had requested the deduction of non-capital loss carrybacks shortly before receiving an adverse reassessment on audit. The court held that the non-capital loss carryback, in accordance with subsection 161(7), did not affect the computation of interest until the later of, inter alia, the date the loss return was filed and, where the reassessment permitting the deduction was made as a consequence of a written request by the taxpayer, the date of the request. The court further held that the phrase as a consequence of did not contemplate a causal relationship between the reassessment itself and the written request. As a result, the court found that the interest computation correctly disregarded the loss carrybacks until the date of the request.
Facts
From 2012 to 2014, the Canada Revenue Agency (CRA) undertook an audit of the appellants 2006-2010 taxation years. On February 12, 2015, the CRA issued a proposal letter in respect of the appellants 2006 taxation year. Negotiations proceeded, and on March 13, 2015 the appellant and the CRA entered into a settlement agreement that, among other things, would result in an increase of $54,916,616 in the appellants part I income for the 2006 taxation year.
On March 12, 2015, the day before entering into the settlement agreement, the appellant wrote to the CRA to request the carryback of $54,000,000 of non-capital losses from its 2008 taxation year to its 2006 taxation year in order to offset the pending increase in its part I income. On March 20, 2015, the CRA reassessed the appellant in order to implement the settlement agreement and to apply the requested non-capital loss deduction.
In computing interest, the CRA relied on subsection 161(7) to disregard the reduction of tax from the non-capital loss deduction until March 12, 2015-the date of the appellants request to deduct losses.
The Issue
The issue before the Tax Court was simple: On which date should the effect of noncapital loss deductions be considered in computing interest where a...