Stonehouse Group – Ontario Court of Appeal considers “the principle that governments have the right to legislate illogically” to be “not … persuasive”

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:

[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.

Neal Armstrong. Summary of Stonehouse Group Inc. v. Ontario (Finance), 2021 ONCA 10 under Corporations Tax Act. s. 79(7).