



COURT
    OF APPEAL FOR ONTARIO

CITATION: Stonehouse Group Inc. v. Ontario
    (Finance), 2021 ONCA 10

DATE: 20210111

DOCKET: C67441

Lauwers, Miller and Nordheimer
    JJ.A.

BETWEEN

Stonehouse
    Group Inc.

Appellant/Moving Party

(Appellant)

and

The Minister
    of Finance

Respondent/Responding Party

(Respondent)

Justin Kutyan and Thang Trieu, for the
    appellant

Arnold H. Bornstein and Jesse
    Epp-Fransen, for the respondent

Heard: December 4, 2020 by
    video conference

On appeal from the order of Justice Sean
    F. Dunphy of the Superior Court of Justice dated August 20, 2019, with reasons
    reported at 2019 ONSC 4876, [2020] C.T.C. 21.

Nordheimer J.A.:

[1]

Stonehouse Group Inc. appeals from the order of
    the motion judge who answered the following question of law in the negative:

In determining a corporations entitlement to
    an enhanced refund interest rate under subsection 82(5) of the
Corporations
    Tax Act
, must tax payable take a deduction from a loss carried back into
    account?

[2]

The appeal proceeded pursuant to r. 21 of the
Rules
    of Civil Procedure
, R.R.O. 1990, Reg. 194, based on an agreed statement of
    facts.

[3]

The background facts can be stated briefly.

[4]

On July 22, 2013, and as a result of some
    reassessments done by the federal tax authorities, the respondent reassessed the
    appellant, with respect to its 2008 taxation year, to disallow a deduction for
    a loss carried back under the
Corporations Tax Act
, R.S.O. 1990, c.
    C.40 (the 
CTA
). This resulted in $560,000 of taxes, plus interest,
    owed by the appellant for the 2008 Taxation Year. On October 11, 2013, the
    appellant paid the $560,000 of taxes, plus interest, as it was statutorily
    required to do regardless of the fact that an objection was outstanding.

[5]

On September 22, 2015, as a result of the
    reversal of the federal reassessments, the respondent reassessed the appellant
    for the 2008 Taxation Year to allow 100% of the loss carry back. On October 4,
    2015, the respondent made a refund payment to the appellant, without any refund
    interest.
[1]

[6]

The appellant objects to the respondents
    failure to pay refund interest on the tax overpayment of $560,000. The
    appellant says that interest ought to be paid calculated at the enhanced rate
    that is applicable when taxes have been overpaid as a result of a compelled
    payment while an objection is outstanding. It is the respondents failure to pay
    that enhanced refund interest that is at the heart of this dispute.

[7]

Two sections of the
CTA
are central to
    the question raised. One is s. 82(5) which reads:

Where, by a decision made under section 84 or
    92 or by a court, it is finally determined that the tax payable under this Act
    by a corporation for a taxation year is less than the amount assessed under
    section 80 to which the objection was made or from which the appeal was taken,
    and as a result of the decision there is a surplus in the corporations tax
    account for a taxation year or in the corporations instalment account for a
    taxation year, the interest rate prescribed by the regulations for the purposes
    of this subsection, and not the rate prescribed for the purposes of subsection
    (4) or 83 (1), as the case may be, shall be used to determine the amount of
    interest for the purposes of those subsections, for each day that the surplus
    in the account is attributable to the decision.

[8]

The other is s. 79(7) which reads;

For the purposes of calculating interest
    payable or allowed under this section or section 82 or 83 in respect of a
    particular taxation year, and for the purpose of determining the amount of a
    penalty, if any, to be assessed under subsection 76 (1) or (2) and the amount
    of tax payable under subsections 78 (4) and (6),

(a) the tax payable by the corporation under
    this Act for a taxation year shall be deemed to be the amount that would
    otherwise be determined if all amounts deducted by the corporation for that
    year under section 111 of the
Income Tax Act
(Canada), as it applies
    for the purposes of this Act, in respect of a loss for a taxation year after
    the particular year (in this section referred to as the loss year) were not
    deducted; and

(b) the amount, if any, by which the tax
    payable by the corporation under this Act for the particular taxation year is
    reduced as a result of a deduction referred to in clause (a) shall be deemed to
    be an amount paid by the corporation on account of its liability under this Act
    for the particular year on the day that is the latest of,

(i) the first day of the taxation year after
    the loss year,

(ii) the day on which the corporations return
    for the loss year is delivered to the Minister, or

(iii) the day on which the Minister receives a
    request in writing from the corporation to reassess the particular taxation
    year to take into account the deduction referred to in clause (a).

[9]

The appellants position is that it is entitled
    to interest calculated at the enhanced rate under s. 82(5) because, after the
    reassessment in 2013, it had a surplus in its tax account, namely, the amount
    of tax that it had been required to pay because of the respondents refusal to
    permit the loss carry back when that tax was not, in fact, properly payable.

[10]

The respondents position is that s. 79(7) is a
    special provision relating to loss carry backs that, according to the respondent,
    takes this situation out of the effect of s. 82(5). It says that the effect of
    s. 79(7) is that the tax payable is deemed to be the same as it was before the
    deduction of the loss.

[11]

The motion judge agreed with the respondent. He concluded,
    at para. 38:

The consequence of applying the deeming
    provision to s. 82(5) of the CTA is that refunds arising from one type of
    successful objection (tax losses) do not receive the benefit of the enhanced
    rate of interest prescribed by s. 82(5) of the CTA while refunds arising from
    other types of successful objections do receive the benefit.

Analysis

[12]

The appeal involves a question of law and thus
    the proper standard of review is correctness:
Housen v. Nikolaisen
,
    2002 SCC 33, [2002] 2 S.C.R. 235, at para. 8.

[13]

It is agreed that there is no longer a special
    rule regarding the interpretation of taxing statutes, that is, such statutes
    are not to be interpreted strictly against the taxing authority as was once the
    case. Rather, taxing statutes are to be interpreted as any other statute would
    be, that is, the words of an Act are to be read in their entire context and in
    their grammatical and ordinary sense harmoniously with the scheme of the Act,
    the object of the Act, and the intention of Parliament:
Placer Dome Canada
    Ltd. v. Ontario (Minister of Finance)
,
2006 SCC 20, [2006] 1 S.C.R.
    715, at para. 21.

[14]

I begin my analysis by noting that s. 79(7) is
    not a model of legislative clarity. If one reads s. 79(7)(a) alone, it would
    tend to support the position of the respondent. Indeed, on its face, s. 79(7)(a)
    would deem the tax payable by a corporation to be the tax payable without taking
    into account any deduction allowed as a result of a loss carry back with the
    result that there would not be any surplus in the taxpayers account on which
    interest would be payable.

[15]

However, the difficulty with that interpretation
    is that it would operate to deny a corporation
any
refund interest, not
    just refund interest at the enhanced rate. On the respondents interpretation,
    the tax payable is deemed not to take into account the deduction of the loss
    carry back and, thus, the tax payable is not reduced from the amount that the
    appellant was compelled to pay. There is, consequently, deemed to be no surplus
    in the appellants tax account resulting from its payment of the $560,000 in taxes.

[16]

That this becomes the result follows from the
    use of the word surplus in s. 82 of the
CTA
. I note that it is s. 82
    that directly addresses refunds within the
CTA
. It provides the
    general right to interest on a refund in s. 82(4), which reads:

Interest at the rate prescribed by the
    regulations shall be calculated and allowed daily to a corporation on the
    surplus in the corporations tax account for a taxation year, for each day
    there is a surplus in the tax account after the end of the instalment period
    for the taxation year

[17]

It is of no consequence how a surplus arises for
    the purpose of the general right to interest under s. 82(4) because that
    subsection only gives a right to interest at the normal rate, which is set at
    below market rates. It is the role of s. 82(5) to provide for the enhanced
    interest rate where the surplus results from a successful objection to an
    assessment. Thus, in order to restrict the operation of s. 82(5) to only those
    cases, it is necessary to refer to the reason why the tax payable under this
    Act by a corporation for a taxation year is less than the amount assessed.

[18]

The respondents position is that the appellant
    was entitled to normal interest under s. 82(4) but not to the enhanced interest
    under s. 82(5). However, that is not the logical result of the interpretation of
    these sections that the respondent advances. Rather, as I have said, that
    interpretation would deny interest altogether, because s. 79(7)(a) would deem
    there to be no surplus in the corporations tax account.

[19]

As was observed in
Placer Dome
, at
    para. 22, where the words of a statute give rise to more than one reasonable
    interpretation, the ordinary meaning of words will play a lesser role, and
    greater recourse to the context and purpose of the Act may be necessary. It is
    clear from the argument before us that the words used in these sections,
    especially s. 79(7), give rise to more than one reasonable interpretation.

[20]

The context in which the provisions regarding
    refund interest are to be considered requires us to go back to the report of The
    Ontario Committee on Taxation,
The Provincial Revenue System
, vol. III
    (Toronto: Queens Printer, 1967). It was this report that led to the adoption
    of the legislation that provided taxpayers with the right to receive interest
    on overpayments of tax.
[2]
The report noted, in chapter 25, that under provincial revenue statutes there
    was a very uneven balance between the rights of government and the rights of
    the taxpayer when it came to the obligation to make payments.

[21]

The Committee concluded that it was
    fundamentally unfair for taxpayers not to receive interest on overpayments of
    tax. The Committee also concluded that, where the overpayment was the result of
    a compelled payment arising from a dispute as between the taxpayer and the
    government, the taxpayer should receive interest at an enhanced rate, if the
    taxpayer was ultimately successful in disputing the tax. Regarding the payment
    of interest, the Committee recommended the following, ch. 25 at para. 21:

Where the taxpayer has overpaid, equity
    demands that he receive interest on the amount refunded. If the amount has been
    mutually agreed upon by the taxpayer and the government, the rate of interest
    should be somewhat below current borrowing rates. This is to avoid a situation
    where taxpayers might consider themselves invited to use the government as a
    savings deposit institution by making deliberate overpayments. On the other
    hand, where overpayment is not determined until after a dispute between the
    government and the taxpayer, it is only fair that the taxpayer receive interest
    on overpayment and penalties, if any, at a rate comparable to going market
    rates.

[22]

Thus, it can be seen that the fundamental
    principle put forward by the Committee, and ultimately adopted by the
    government through amendments to the
CTA
, is that a taxpayer should
    receive interest on overpayments of tax. The only difference, in the level of
    interest to be paid, was between overpayments arising from mistake, voluntary
    overpayments, or other ordinary events, and overpayments due to a compelled
    payment arising from a dispute between the taxpayer and the government.

[23]

I have already noted that the interpretation
    advanced by the respondent would, taken literally, preclude any payment of
    interest due to a compelled tax overpayment arising from a loss carry back.
    While the respondent attempts to restrict its interpretation to only a
    difference in the rate of interest, normal versus enhanced, that effort cannot
    be logically rationalized with what the respondent asserts is the effect of s.
    79(7)(a).

[24]

The respondents position also cannot be
    rationalized easily with the presence of s. 79(7)(b). If the respondent is
    correct in what it says is the effect of s. 79(7)(a), then there would appear
    to be little need for s. 79(7)(b), at least as it relates to loss carry backs. If
    the effect of s. 79(7)(a) is that the tax payable is deemed not to be reduced
    by the loss carry back deduction, then one wonders why it is necessary to
    establish a date by which the tax is deemed to have been paid. If, on the other
    hand, s. 79(7) is interpreted as simply a provision, in cases involving loss
    carry backs, that postpones the date when the deduction in the tax payable
    arises, and thus when interest would begin to accrue, then s. 79(7)(a) and (b) work
    together in a harmonious fashion.
[3]

[25]

Yet another problem arises with respect to the
    respondents position. The respondent would carve out of the governments obligation
    to pay interest at the enhanced rate arising from a taxpayers successful objection,
    all situations where the taxpayers success involves the application of a loss
    carry back. Indeed, as I have already said, the respondents position would result
    in this carve out eliminating any right to interest at all. However, the
    respondent is unable to point to any justification offered by anyone anywhere
    that explains why this carve out was considered to be necessary. There is no
    explanatory note to the legislation. There is no report from a legislative or
    other advisory committee. There is no statement by the Minister in the Legislature.
    There is no policy statement from the Ministry. There is nothing that explains
    why this is a desirable result in this one particular situation  a result that
    appears to be directly at odds with the recommendation of The Ontario Committee
    on Taxation regarding the payment of interest that was otherwise adopted
    through amendments to the
CTA
.

[26]

On that point, the respondents reliance on the
    principle that governments have the right to legislate illogically is not a
    persuasive one.
[4]
It is also not a principle of statutory interpretation to be readily invoked.

[27]

The motion judge relied on
Connaught
    Laboratories Ltd. v. Canada
(1994), 94 D.T.C. 6697 (F.C.T.D.), as
    supporting his interpretation of s. 79(7). However, it does not. That decision
    involved a section of the
Income Tax Act
, R.S.C. 1985, c. 1 (5th
    Supp.), not the
CTA
. It was not a section dealing with the payment of
    interest on overpaid taxes. In addition, the concerned section mirrored the
    language of an earlier version of s. 79(7), not the version that is at issue in
    this case. Still further, the decision in
Connaught
addressed the
    liability for tax in the period from the original taxation year, not from the
    later date when the taxpayer sought to apply other deductions. The appellant
    does not seek to take its claim for interest back to that earlier period.
    Simply put, the decision in
Connaught
is not helpful here.

[28]

The motion judge concluded, at para. 40:

It is not my role to second-guess the very
    specific and unambiguous language the Legislature has chosen to use. There is
    neither absurdity nor manifest error that can be pointed to as resulting.

[29]

In fact, as I have already illustrated, there is
    a manifest error in the interpretation urged by the respondent, and adopted by
    the motion judge, and that is that the appellant would be disentitled to
any
interest payment. That result is not only manifestly unfair, it is directly
    contrary to the legislative context in which the interest payment provisions
    were adopted more than 60 years ago. And, as I have already mentioned, there is
    no explanation offered for why the Legislature would have desired that result
    in this particular situation.

[30]

The language in s. 79(7) is not unambiguous when
    read in its entire context. While it is not necessary to resort to it in this
    case, I would note that there remains a residual presumption in favour of the
    taxpayer:
Placer Dome
, at para. 24. Given the history of the
    legislative provisions regarding the payment of interest, an interpretation
    which favours the underlying policy choice of fairness to the taxpayer is to be
    preferred.

Conclusion

[31]

I would allow the appeal, set aside the order
    below, and answer the question posed in the affirmative. The parties advised us
    that they had agreed on the disposition of the costs of the appeal with the
    result that we do not have to address that issue.

Released: January 11, 2021 PL

I.V.B.
    Nordheimer J.A.
I agree. P. Lauwers J.A.
I agree. B.W. Miller J.A.





[1]
For the sake of clarity, I would note that there are two interest
    rates used for the purpose of paying interest on refunds. One is what I will
    refer to as the normal rate of interest and the other is the enhanced rate
    of interest. Because of the current state of low interest rates, the
    calculation of the normal interest rate results in a zero percent rate.



[2]
At common law, absent a statutory or contractual requirement to do
    so, the Crown was not obligated to pay interest on money that it owed:
Whitefish Lake Band of Indians v. Canada (Attorney
    General)
, 2007 ONCA 744, 87 O.R. (3d) 321, at para. 86.



[3]

It should be noted that the appellant is only seeking
    interest for the period from the time that it was compelled to pay the
    additional tax in 2013 and the time when the Government refunded that tax. It
    does not seek interest going back to the 2008 taxation year.



[4]

R. v. McIntosh
, [1995]
    1 S.C.R. 686, at para. 41.


