Interest Payable On GAAR Assessment

Quinco Financial Inc. v. The Queen, 2016 TCC 190, is a Tax Court of Canada decision concerning a Rule 58 question of mixed fact and law related to an assessment of tax and interest payable under the general anti-avoidance provision ("GAAR"). The appellant objected to the arrears interest payable that accrued between the appellant's balance-due day for the taxation year and the issuance of the reassessment.

The Court held that the interest was payable because the GAAR is an integral part of the Income Tax Act ("Act"), one that must be anticipated and considered by taxpayers in all situations. Accordingly, a GAAR reassessment is no different from another reassessment and does not create a tax liability only its issuance.

Background

On April 7, 2009 ("Assessment Date"), the Minister of National Revenue ("Minister") reassessed the Appellant under the GAAR for its taxation year ending August 27, 2004 ("Taxation Year") to deny a capital loss. This resulted in federal tax payable for the Taxation Year. Under the same reassessment, the Minister assessed arrears interest payable by the Appellant beginning on October 28, 2004 ("Balance-Due Day").

The Appellant's objection to the reassessment did not dispute the application of the GAAR, focusing solely on the correct commencement date for the calculation of arrears interest payable.

Law at issue

The main issue was whether arrears interest accrued starting from the Balance-Due Day or from the Assessment Date. The Appellant argued that interest only began on the Assessment Date and identified three sub-issues:

Whether GAAR reassessments are a distinct basis for tax assessment under the Act; Whether taxpayers may self-assess under the GAAR; and Whether a specific provision for imposing interest pursuant to GAAR reassessments is necessary. Conclusions

The Court rejected all three of the Appellant's arguments.

1. The GAAR is Part of the Whole

   The Appellant argued that the nature of the GAAR is to override "strict compliance and technical conformity" with the Act and that the GAAR imposes tax consequences sufficient to deny the tax benefit, but "does not permit or extend to the recharacterization of the transaction for any other tax purposes". The GAAR reassessment itself thus created new tax consequences and a new tax liability that had not existed until the Assessment Date.

   The Court rejected this argument, noting that while the "GAAR is "quite a different sort of provision"... "engrafted" upon the Act, it...