A.J. Giles Investments Limited v. Minister of National Revenue, [1991] 1 CTC 2360, 91 DTC 606

Margeson, T.C.J. [Orally]:—It was agreed at the outset by the parties that the facts as set out in the pleadings would be accepted by both parties as the facts in the case, and the case proceeded on the basis of an argument on the interpretation of the relevant sections of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act"). This, of course, has cut down immensely the trial time required, and I thank counsel for the Minister and also the representative for the taxpayer for their diligence in allowing this to proceed in this way.

Section 160.1 of the Income Tax Act deals basically with the matter of refunds, an excess refund, and it says as follows:

160.1 (1) Where at any time the Minister determines that . . . an amount has been refunded to a taxpayer for a taxation year in excess of the amount to which he was entitled as a refund, the following rules apply:

(a) the excess shall be deemed to be an amount that became payable by the taxpayer on the day on which the amount was refunded; and

(b) the taxpayer shall pay interest at the rate prescribed for the purposes of subsection 161(1) on the excess from the day it became payable to the date of payment.

Section 161.1 of the Act is referred to by the Minister and deals generally with the requirement to pay interest on unpaid amounts. Further, subsection 161(7) delineates the effects of carryback losses and so on.

The facts in the pleadings and as agreed here disclose that the appellant's 1986 T-2 tax return claimed a dividend refund in the amount of $12,548, which was reassessed by the respondent to allow $12,380.14. In its taxation year ending December 31, 1988, the appellant incurred a non-capital loss of $16,599 and an allowable capital cost of $2,786. The appellant requested that the allowable capital cost be carried back to its 1985 taxation year ending December 31,1985. The Minister permitted this carryback, as it was allowed under the Act. As a result, the appellant's refundable dividend tax on hand at December 31, 1985 was changed from $9,699.56 to $6.930.81, a difference of some $2,768.75, which was the amount the appellant had to refund to Revenue Canada as a result of the reassessment at his request. The Minister charged interest arrears of $920.28 and refund interest [of] $21.23 from the date of the original refund. The Minister, of course, is relying basically upon the provision of section 160.1 of the Act, as set out in his argument here today.

The appellant argues that the taxpayer was fully entitled to the 1986 dividend refund at the time it was made and, therefore, there was no refund in excess of the taxpayer's legitimate entitlement. The appellant says the arrears interest was improperly charged because the appellant was entitled to the refund on the date he received it—that is the earlier date—and the refund was only reduced because of facts which occurred in 1989 which enabled him or allowed him under the appropriate sections of the Act to have the carryback loss. In his argument here the appellant's representative said that if the Minister's position is correct, the statute words should have read, "When he became disentitled or if he becomes disentitled," rather than the term that is there in subsection 1 of 160.1, ” . . . in excess of the amount to which he was entitled as a refund". Again, he says that should read something to the effect of "becoming disentitled" or "he had been entitled and then became disentitled". He says a fair interpretation of the section then demands that the Minister's interpretation is incorrect. He can cite no statutory authority for such, and obviously it is just a proposition that he puts forward. He puts it forward on the basis of reasonableness and equity.

The Minister's position is that basically it is a question of interpretation of the Act. He says the statute is clear, the wording is there, and it says exactly what I have read in section 160, and there is no question of what it means.

It seems to me that the appellant's position appears to beg the question that the carryback was brought about as a result of the taxpayer's request and the fact that he had the benefit of the refund moneys from the time they were initially refunded until they had been repaid. Nobody is arguing that he was not entitled to them, because the Act, as it applied to him in that year, entitled him to have the refund. There certainly was not anything wrong with what the appellant did. It seems further that the Minister's interpretation is reasonable under subsection 160.1(1.1) where the words read:

Where at any time the Minister determines that . . . an amount has been refunded to a taxpayer for a taxation year in excess of the amount to which he was entitled . . .

Obviously, the appellant is saying, yes, it says, "Any time the Minister determines,” but it also says, “to which he was entitled,” and his argument being that he was entitled. At first blush, it would seem that maybe the two phrases are contradictory one to the other. However, to me, this subsection would appear to refer to the subsequent assessment which was allowed after the request of the taxpayer to carry back the loss, which was the triggering mechanism which enabled him to gain the benefit of the carryback, and any results flowing therefrom surely do not apply to change that. It would seem to me that a proper interpretation of subsection 160.1(1.1) would be that once the carryback was requested and the carryback allowed so as to reduce the refund, then the entitlement relates to the original taxation year of 1986, even though the reduction was not triggered until the 1989 facts were disclosed. Under the circumstances then, I find that the Minister's interpretation was correct, the Minister was properly entitled to charge the interest and the appeal is dismissed.

Appeal dismissed.