Tax Court of Canada Judgments

Docket: 2001-3555(PGRT)G

BETWEEN:

EXXONMOBIL CANADA LTD.,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

____________________________________________________________________

Appeal heard on September 9, 2003, at Toronto, Ontario

By: The Honourable Justice E.A. Bowie
Appearances:
Counsel for the Appellant:	Susan L. Van Der Hout and D'Arcy A. Schieman
Counsel for the Respondent:	Eric Noble and Meghan Castle

____________________________________________________________________

JUDGMENT

          The appeal from the assessment made under the Petroleum and Gas Revenue Tax Act for the 1986 taxation year is dismissed, with costs.

Signed at Ottawa, Canada, this 9th day of January 2004.

"E.A. Bowie"

Bowie J.

Citation: 2004TCC33

Date: 20040109

Docket: 2001-3555(PGRT)G

BETWEEN:

EXXONMOBIL CANADA LTD.,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

REASONS FOR JUDGMENT

Bowie J.

[1]      On April 26, 2000, the Minister of National Revenue (the Minister) reassessed the Appellant's liability for tax under the Petroleum and Gas Revenue Tax Act[1] (PGRTA) for the 1986 taxation year. The result of the reassessment was that the Appellant became entitled to a refund of tax paid amounting to $913,022.47. The Minister credited the Appellant with simple interest on this refund, which amounts to $1,088,532.30 for the period of approximately 13 years between the date of payment of the tax and the date of the refund. The Appellant is content with the reassessment of its liability for tax, but says that it is entitled to have the interest compounded daily; the Minister maintains that she was correct to pay only simple interest. That is the narrow issue for decision in this appeal. The amount at issue is substantial, because if the Appellant is correct the compounding would be daily.

[2]      The Appellant's case is based entirely on the applicable legislation. A reference to interest must be taken to mean simple interest unless compound interest is specified.[2] The authority for paying interest on a refund of tax under the PGRTA is found in subsection 18(3):

18(3)     Where an amount in respect of an overpayment is refunded to a taxpayer or applied under this section on other liability, interest at the rate per annum referred to in subsection 15(1) shall be paid or applied thereon for the period commencing with the latest of

(a)         the day when the overpayment occurred,

(b)         the day on or before which the return of the production revenue in respect of which the tax was paid was required to be filed, and

(c)         the day when the return of the production revenue was actually filed,

and ending with the day of the refund or the application on the other liability, as the case may be, unless the amount of the interest so calculated is less than one dollar, in which event no interest shall be paid or applied under this subsection.

Subsection 15(1) reads:

15(1)     Where at any particular time after the day on or before which a return of a taxpayer's production revenue was required to be filed under this Part for a taxation year,

(a)         the amount of the taxpayer's tax payable for the year under this Part

            exceeds

(b)         the aggregate of all amounts each of which is an amount paid at or before the particular time on account of the taxpayer's tax payable and applied as at that time by the Minister against the taxpayer's liability for an amount payable under this Part for the year,

            the person liable to pay the tax shall pay interest on such excess, for the period during which it is outstanding, at such rates per annum prescribed for the purposes of subsection 161(1) of the Income Tax Act as are in effect from time to time during the period.

The parties are agreed that the effect of the concluding words of this subsection is to make the provision an ambulatory one, which is to say that as the rate that is prescribed for the purposes of subsection 161(1) of the Income Tax Act (the Act) is changed then the rate to be applied for purposes of the PGRTA changes as well. That seems to me to be obvious, but it does little to clarify the issue before me.

[3]      Counsel for the Appellant provided me with a comprehensive written argument. Paragraphs 14 to 20 of it are entitled "Overview". They express her argument succinctly, and so are worth reproducing here. Before I do so, however, it would be useful to set out the relevant parts of Regulation 4301 made under the Act, as well as subsection 161(1), the definition of the word "prescribed" found in subsection 248(1), and subsection 248(11) of that Act, because the essence of her argument is that it is not just Regulation 4301 but all of these provisions that the PGRTA adopts by reference

[4]      Income Tax Regulations, section 4301:

4301     Subject to section 4302, for the purposes of

            (a)         ...

(b)         every provision of the Act that requires interest at a prescribed rate to be paid or applied on an amount payable by the Minister to a taxpayer, the prescribed rate in effect during any particular quarter is the total of

(i)          the rate determined under subparagraph (a)(i) in respect of the particular quarter, and

(ii)         2 per cent; ...

Income Tax Act, sections 161 and 248

161(1) Where at any time after a taxpayer's balance-due day for a taxation year

(a)         the total of the taxpayer's taxes payable under this Part and Parts I.3, VI and VI.1 for the year

exceeds

(b)         the total of all amounts each of which is an amount paid at or before that time on account of the taxpayer's tax payable and applied as at that time by the Minister against the taxpayer's liability for an amount payable under this Part or Part I.3, VI or VI.1 for the year,

the taxpayer shall pay to the Receiver General interest at the prescribed rate on the excess, computed for the period during which that excess is outstanding.

248(1) In this Act,

"prescribed" means

(a)         ...

(b)         in any other case, prescribed by regulation or determined in accordance with rules prescribed by regulation.

248(11) Interest computed at a prescribed rate under any of subsections ... 161(1), (2) and (11), ... shall be compounded daily and, where interest is computed on an amount under any of those provisions and is unpaid or unapplied on the day it would, but for this subsection, have ceased to be computed under that provision, interest at the prescribed rate shall be computed and compounded daily on the unpaid or unapplied interest from that day to the day it is paid or applied and shall be paid or applied as would be the case if interest had continued to be computed under that provision after that day.

[5]      Paragraphs 14 to 20 from the Appellant's written submission state:

14.        The PGRTA contains no separate legislative scheme for the payment of interest but specifically adopts the legislative scheme regarding the payment of interest, including refund interest, as provided by the ITA. The use of the legislative tool of "incorporation by reference" makes clear Parliament's intent that the mechanic for calculating interest under the ITA determines interest payable by and to taxpayers under the PGRTA without any additional legislative action on the part of Parliament. Given the frequency with which the ITA is amended, this ensures that the PGRTA, like the ITA, remains current without any specific legislative action. The Respondent should not challenge that statement of Parliamentary intent.

15.        The Appellant submits that the structure of the law in the PGRTA clearly anticipates "anticipatory incorporation by reference". That is, Parliament intended that as the provisions for interest calculation under subsection 161(1) of the ITA changed, interest as calculated under the PGRTA would follow suit. This must be acknowledged by the Respondent. Without that ambulatory intent, interest would be frozen in time.

16.        Given the agreement between the parties that the intention of Parliament in relation to the PGRTA is that the law be ambulatory and guided by the ITA, the only legal issue is whether the Court in interpreting the ambit of the language used in relation to subsection 161(1) in the PGRTA should have regard only to Regulation 4301 and disregard Parliament's explicit and mandatory direction regarding the compounding of interest for the purposes of subsection 161(1) in the body of the statute itself.

17.        The Appellant says that to do so would be to ignore the most basic of principles applicable to statutory construction - that an Act should be read as a whole and that the Court in interpreting an act should have regard to the words used, related provisions and the scheme of the act as a whole - and that regulations are to be read in the context of both the regulation and the enabling act as a whole.

18.        The Respondent would have the Court truncate its analysis contrary to the most basic principles of statutory interpretation on the astounding theory that compounding is not relevant to rates of interest on amounts payable by or to taxpayers under the ITA. The Appellant submits that this approach is and should be found to be at odds with the Parliamentary intent that interest under the ITA reflect the commercial reality of compounding rates and that the PGRTA follow suit and that absent a specific direction in a statute, the ordinary principles of interpretation apply. Nothing in the PGRTA or ordinary principles of interpretation of statutes directs a departure of the magnitude the Respondent urges.

19.        The Appellant submits that from its introduction into the ITA, subsection 248(11) was a critical and mandatory feature of subsection 161(1). It is an integral part of the statutory regime regarding interest in subsection 161(1). To ignore it, would fundamentally and erroneously change the legislative landscape. As a matter of law, regard must be had to it for the purposes of both subsection 161(1) of the ITA and hence subsection 18(1) of the PGRTA.

20.        Having regard to the overall legislative context: the specific words used in the PGRTA; and the principles of statutory interpretation; the Appellant submits that it is clear that the PGRTA payment of compound interest on tax arrears and overpayments was intended by Parliament.

[6]      The Appellant's argument then turns to an examination of the history of not only the PGRTA and the ITA but the Canada Pension Plan (CPP) and the Unemployment Insurance Act (UIA) as well, all in support of the proposition that Parliament intended that generally, where there are to be refunds of overpayments made under a statute, compound interest as provided for in the ITA would be payable. Certainly this was the case so far as the CPP and the UIA were concerned. Provision for the payment of compound interest under the ITA, the CPP and the UIA were all introduced by S.C. 1986 c. 6. Section 126 of that Act added subsection 248(11) to the ITA, and sections 132 and 137 adopted it by reference into the CPP and the UIA, respectively. It is significant, I think, that although S.C. 1986 c.6 made certain amendments to the PGRTA, it did not adopt subsection 248(11) into that Act. This, the Appellant argues, is because the wording of subsection 15(1) already had the effect of adopting into the PGRTA the entire legislative scheme in relation to interest on overpayments and underpayments found in the ITA, and Parliament would not enact a tautologous provision. That explanation, of course, is valid only if one accepts the Appellant's initial submission that the words "... such rates per annum prescribed for the purposes of subsection 161(1) of the Income Tax Act as are in effect from time to time ..." in subsection 15(1) refer not only the percentage rate of interest that is to be applied, but also the method of computation by which it is to be applied. In my view, this argument founders at the outset on the most basic rule of statutory construction, which is that there is no place for interpretation unless an ambiguity is first identified.

[7]      In my view, the words "... such rates per annum prescribed for the purposes of Income Tax Act as are in effect from time to time ..." are simply not capable of bearing the meaning that the Appellant would give them, and the Courts have no mandate to alter the words used by Parliament if they are clear and unambiguous: see Friesen v. Canada, [1995] 3 S.C.R. 103 at paragraph 11. The operative words that subsection 15(1) adopts by using the phrase "... such rates per annum prescribed for the purposes of subsection 161(1) of the Income Tax Act as are in effect from time to time" are simply the words of section 4301 of the Regulations. Those deal with the rate per annum and nothing more.

[8]      There are two separate, although related, concepts that together will always govern the computation of interest on a capital sum between two dates. One of these is the rate per annum to be paid, and the other is whether the interest is to be compounded, and if so at what interval. I have found no dictionary that combines these two concepts within the meaning of the words "rate", "interest rate", or "rate per annum", and certainly none was cited to me in argument.

[9]      That rate and compounding are two separate concepts may be seen by examining the words of subsections 161(1) and 248(11) of the ITA and Regulation 4301. Subsection 161(1) is a substantive provision creating the right to receive interest, and delegating to the Governor-in-Council the authority to fix the rate at which it shall be computed from time to time. For the most part, section 248 is a definition section, but subsection (11) is a substantive provision creating the right to have the interest computed by the compound method. In enacting[3] it, and later in amending[4] it, Parliament itself fixed the periodic interval for compounding. Subsection 15(1) of the PGRTA unequivocally adopts the former, but not the latter. Nor must they go hand in hand. Subsection 161(1) was enacted prior to subsection 248(11), and was able to operate perfectly well alone until January 1, 1987 when subsection 248(11) came into force. It is simply untenable to say, as the Appellant does here, that Parliament could not adopt by reference the rate prescribed by the Governor-in-Council, but not the compounding of it that is provided for in subsection 248(11) of the Act. Indeed, to adopt the compound method of computation into the PGRTA, Parliament would have had to add the words "... and computed in accordance with subsection 248(11) of that Act ..." at the end of subsection 15(1). It chose not to do so, and it is trite that I cannot do so, however socially or economically beneficial I might consider such an addition to be: see Friesen[5] and Markevitch v. Canada.[6]

[10]     The appeal is dismissed, with costs.

Signed at Ottawa, Canada, this 9th day of January, 2004.

"E.A. Bowie"

Bowie J.

CITATION:

2004TCC33

COURT FILE NO.:

2001-3555(PGRT)G

STYLE OF CAUSE:

Exxonmobil Canada Ltd. and Her Majesty the Queen

PLACE OF HEARING:

Toronto, Ontario

DATE OF HEARING:

September 9, 2003

REASONS FOR JUDGMENT BY:

The Honourable Justice E.A. Bowie

DATE OF JUDGMENT:

January 9, 2004

APPEARANCES:

Counsel for the Appellant:

Susan L. Van Der Hout and D'Arcy A. Schieman

Counsel for the Respondent:

Eric Noble and Megan Castle

COUNSEL OF RECORD:

For the Appellant:

Name:

Susan L. Van Der Hout

Firm:

Osler, Hoskin & Harcourt

For the Respondent:

Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada

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