Icanda Limited (Appellant)
v.
Minister of National Revenue (Respondent)
Trial Division, Collier J.—Montreal, March 16;
Ottawa, March 29, 1972.
Income tax—Foreign tax deduction—Foreign loss carry-
back provision—Taxpayer receiving refund of tax paid for
eign country—Re-assessment of Canadian tax—Income Tax
Act, sections 41(1)(a) and 46(4).
In 1965 appellant company, which carried on business in
Canada and the U.S.A., was allowed under section 41(1)(a)
of the Income Tax Act a deduction of $168,397 from its
Canadian tax for income tax paid to the U.S. on its U.S.
profits. In 1967 appellant suffered a loss on its U.S. opera
tions and under the loss carry-back provisions of U.S. law
received a refund of its 1965 U.S. tax, $168,397. Appellant
was thereupon re-assessed for Canadian income tax for
1965 and the previously allowed tax credit of $168,397
disallowed. In addition, appellant was assessed to interest of
$36,129.
Held, the Minister was entitled under section 46(4) of the
Income Tax Act to re-assess as he did. The Court can do
nothing regarding the assessment of interest: the Minister
was merely following the provisions of the Income Tax Act.
INCOME tax appeal.
Robert H. E. Walker, Q.C. and Stephen S.
Heller for appellant.
Alban Garon and Louise Lamarre-Proulx for
respondent.
COLLIER J.—The appellant is a Canadian cor
poration which, in 1965, 1966 and 1967, carried
on business both in Canada and the United
States with a permanent establishment in both
countries.
In 1965, it earned profits in both countries
and under section 41 of the Income Tax Act it
deducted the Canadian equivalent of tax paid to
the United States on the profits made in that
country. This deduction was $168,397.75.
In 1966, the appellant had no profits or losses
in the United States.
In 1967, it suffered a loss in its operations in
the United States and, under United States law,
a part of the loss was carried back to the 1965
taxation year.
In fact, the appellant suffered an overall loss
in all its operations in 1967 but could only carry
back part of its loss in Canada to the year 1966.
The carry back under United States law of the
1967 loss to the 1965 taxation year resulted in
the appellant being paid a refund which had a
Canadian equivalent of $168,397.75. This
refund was paid on April 15, 1968.
The respondent, by notice of re-assessment
dated March 16, 1970, re-assessed the appellant
in respect to its income for the 1965 taxation
year and disallowed the foreign tax credit previ
ously granted. In addition, the Minister levied
interest on this re-assessment; this amounted to
$36,129.89.
The appellant contends that it, in 1965, did
precisely what it was authorized to do under
section 41(1)(a)': deducted income tax actually
paid by it to another country. The appellant
further contends that because it suffered a
subsequent loss in the United States which
allowed some tax relief, the respondent cannot
go back to 1965 and re-assess.
Counsel for the Minister relies on section
46(4) 2 of the Income Tax Act and takes the
position that the Minister can re-assess at any
time within 4 years and as often as the circum
stances require. The respondent argues that
new facts or new circumstances arose when the
United States gave the appellant the tax refund
in 1968.
I sympathize with the taxpayer in this case
but in my view the meaning of section 46(4) is
clear and the respondent was entitled to do
what he did.
Some inequities may result in cases of this
kind. For example, a Canadian taxpayer may
carry on business in some country where busi
ness losses can be charged back for, say, 5
years. In that hypothetical case it would be my
opinion the Minister could not re-assess in
respect to an earlier tax credit which was even
tually refunded if the 4-year period stipulated in
section 46(4) had expired. Another possible
inequity might arise where the foreign country,
under its tax statutes, re-assessed the taxpayer
2 or 3 years later and increased the tax payable
for a previous year. There might be some dif
ficulty on the part of the Canadian taxpayer in
subsequently claiming the benefit of that re
assessment in Canada, in view of the time limi
tation periods in the Income Tax Act.
Regardless of possible inequities, however, to
my mind section 41(1)(a) and section 46(4) are
unambiguous and in my view the Minister prop
erly re-assessed the appellant in this case.
The appeal will therefore be dismissed with
costs.
There remains the question of the assessment
of interest in the sum of $36,129.89. Mr.
Walker for the appellant concedes that there is
nothing this Court can do in that regard. The
respondent, in assessing interest, is merely fol
lowing the provisions of the Income Tax Act.
In my opinion, in the circumstances of this
case, the assessment of interest is unjust. The
appellant here paid for 1965 all the Canadian
taxes rightfully owing at that time and it is
unfair that the appellant, because of a relief
provision in another country, the unexpected
effect of which occurred 2 years later, should
pay interest over the period of time involved
here. I point out the Minister's re-assessment
was not made until March 16, 1970.
As I have said, this Court is powerless to
assist. Perhaps relief will be granted elsewhere.
41. (1) A taxpayer who was resident in Canada at any
time in a taxation year may deduct from the tax for the year
otherwise payable under this Part an amount equal to the
lesser of
(a) any income or profits tax paid by him to the govern
ment of a country other than Canada for the year (except
any such tax or part thereof that may reasonably be
regarded as having been paid by him in respect of divi
dends received from that country, by reason of which he
is entitled to a deduction under subsection (1) of section
28 for the year in which they were received), ...
2 46. (4) The Minister may at any time assess tax, interest
or penalties under this Part or notify in writing any person
by whom a return of income for a taxation year has been
filed that no tax is payable for the taxation year and may,
(a) at any time, if the taxpayer or person filing the return
(i) has made any misrepresentation or committed any
fraud in filing the return or in supplying any informa
tion under this Act, or
(ii) has filed with the Minister a waiver in prescribed
form within 4 years from the day of mailing of a notice
of an original assessment or of a notification that no tax
is payable for a taxation year, and
(b) within 4 years from the day referred to in subpara-
graph (ii) of paragraph (a), in any other case,
re-assess or make additional assessments, or assess tax,
interest or penalties under this Part, as the circumstances
require.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.