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FEDERAL INCOME TAX - Administration and enforcement - Penalties and interest - Interest - Refund interest

Thursday, September 07, 2017 @ 8:47 AM  

Lexis Advance® Quicklaw®
Application by the taxpayer from the dismissal of his application for judicial review of the Minister’s decision denying him interest on an amount that had been refunded to him. Some time prior to March 7, 2013, the appellant was reassessed under the Income Tax Act (Act). His alleged outstanding tax liability under the Act by February 2014 was over $200 million. The reassessment was currently under appeal. On March 7, 2013, the Minister obtained a Jeopardy Order under s. 225.2 of the Act for immediate collection action. Following the issuance of the Jeopardy Order, on March 27, 2014, the appellant paid $12.75 million to the Receiver General on account of his tax liability. A subsequent consent order, dated July 15, 2014, set aside and vacated the Jeopardy Order. The appellant then requested repayment of the $12.75 million. The amount was refunded to him in 2015 without interest. The Federal Court judge found that the decision of the Minister was reasonable based on his view that Parliament’s intention was to treat voluntary payments more generously than involuntary ones.

HELD: Appeal allowed. The Minister’s interpretation of s. 164(1.1) of the Act, that no interest was payable as provided in s. 164(3) of the Act on the refunded amount, was incorrect and unreasonable. The Minister was obligated to pay interest to the appellant under s. 164(3) of the Act on the $12.75 million refunded to him. Where a Jeopardy Order was set aside by the court, the Minister lost authority to take any further collection action on the strength of the Jeopardy Order and also for any collection actions already taken. The loss of that authority necessarily meant that such actions were undercut and that any amounts collected by such actions must be repaid to the taxpayer. Setting aside the Jeopardy Order in this case meant that s. 164(1.1) of the Act should be read as if the Jeopardy Order had never been issued. Since any interest paid on the amount refunded to the appellant would have to be repaid with interest if the result of the appeal was that all or a portion of the refunded amount was still payable, there was no loss to the federal government if interest was paid on the refunded amount, absent any collection concerns. Since the Jeopardy Order was set aside and the amount was refunded to the appellant and no order was sought under s. 164(1.2) of the Act, presumably there were no collection concerns in this case.

Grenon v. Canada (Minister of National Revenue - M.N.R.), [2017] F.C.J. No. 795, Federal Court of Appeal, W.W. Webb, A.F.J. Scott and M.J.L. Gleason JJ.A., August 9, 2017. Digest No. TLD-Sept42017008