Bakorp – Tax Court of Canada finds that an overpayment of tax for Year 2 did not cut off interest for underpayment in Year 1 before application of the overpayment by CRA

Bakorp was found by CRA to have underpaid its Part IV tax for 1993, and overpaid for 1995. When CRA reassessed in 2000, it applied the 1995 overpayment to the 1993 year and assessed interest from the 1993 underpayment date up to 2000.

Bakorp unsuccessfully argued that interest should be computed as if the overpayment for its 1995 year had been retroactively applied at that time (i.e., June 1996 rather than February 2000) to the underpayment for its 1993 year. After an inexorable demolition of this argument, Pizzitelli J also noted that a contrary interpretation would clash with s. 221.2, which provides a specific procedure for CRA, on the taxpayer’s application, to transfer a payment on account of one year to another.

Neal Armstrong. Summary of Bakorp Management Ltd. v. The Queen under s. 187(2).