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

As a result of being reassessed in 2013 to deny the carryback of a loss, the taxpayer was required to pay the reassessed taxes for 2013, notwithstanding its filing of a notice of objection. When this reassessment was reversed in 2015, as a result of the reversal of this reassessment, it received a refund, but without refund interest.

Nordheimer JA noted (at para. 14) that the effect of Ontario’s interpretation of s. 79(7) of the Corporations Tax Act was that “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 carryback,” and stated (at para. 15):

[T]he difficulty with that interpretation is that it would operate to deny a corporation any refund interest, not just refund interest at the enhanced rate [for successful objections to an assessment]. …

After noting (at para. 24) that an alternative interpretation was that “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,” he found in favour of the latter interpretation, stating (at paras. 26, 29-30):

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

… [T]here is a manifest error in the interpretation … 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. …

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.

As a result of being reassessed to deny the carryback of a loss, the taxpayer was required to pay the reassessed taxes – but, following success in its objection, later was refunded the tax. The logical application of an interpretation of a Corporations Tax Act (Ontario) provision advanced by the Ontario Ministry of Finance would have been to deny any interest to the taxpayer on this refund.

After noting that the provision could also potentially be interpreted more narrowly so as to avoid this result, and before finding for the taxpayer, Nordheimer JA stated (at paras. 26, 30):

[T]he respondent’s reliance on the principle that governments have the right to legislate illogically is not a persuasive one. It is also not a principle of statutory interpretation to be readily invoked. …

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 … there remains “a residual presumption in favour of the taxpayer” … . 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.