An Absurd Result
A couple of days ago I came across this 2019 case (I subsequently came across this 2019 case and this 2020 case that clarifies the court’s interpretation) in which the Ontario taxpayer wrongly claimed the New Housing Rebate and was denied the amount under subsection 297(1) of Part IX of the Excise Tax Act, was required to repay the denied amount under section 264, was reassessed under subsection 297(2.1) and assessed interest under section 280 on the benefit of the $24,000 credit that they had received upon closing with the builder.
Setting aside the validity of all the other arguments made by the appellant in this case, the last argument that subsection 296(2.1) should apply to have the “allowable” rebate, in this case, the New Residential Rental Property Rebate (NRRPR), reduce the amount owing seems correct to me based on a couple of important related cases Humber College v. The Queen and more recently Canada v. Villa Ste – Rose Inc.. In both these cases it was established that the purpose of subsection 296(2.1) was a remedial mechanism for where mistakes in paying amounts owed as net tax or other amounts that are overdue could be rectified by rebates that were not previously paid and were outside the statutory claim period and therefore, short of this remedial provision, would not be available to reduce amounts owing. Further, to not apply subsection 296(2.1) for someone who claimed another allowable rebate prior to the reassessment would result in an absurd result in the calculation of the interest owing under section 280.
“It’s curious as to why the judge didn’t at least mention the decision in Humber College (2013) in their decision because it almost surely would have come up in their research”
In the case mentioned at the top of this post, the judge concluded that subsection 296(2.1) did not apply:
“In this instance, it is not disputed that the Appellant filed his Rental Rebate application prior to the issuance of the Notice of Assessment denying the New Housing Rebate. As noted by Justice Miller in Ok Payday Loans #2 (see paragraph 37 above), this runs afoul of paragraph 296(2.1)(b) and is fatal to the request for relief.”
It’s curious as to why the judge didn’t at least mention the decision in Humber College (2013) in their decision because it almost surely would have come up in their research on subsection 296(2.1). Particularly the finding, that to exclude a taxpayer from the benefit of the subsection because of paragraph 296(2.1)(b) would lead to an absurd result where a person who didn’t make the application gets the benefit of the provision for the purposes of calculating interest under section 280 whereas a person who does apply is excluded from that benefit.
Of course, I may be missing some key difference that would be spotted by a more skilled tax professional, but to the naked eye, it appears to me that the argument that the NRRPR should be allowed under subsection 296(2.1) despite violating paragraph 296(2.1)(b) is the correct one. It seems most in line with the legislator’s intent to create a remedial mechanism that allows even statute barred rebates to be allowed in reducing amounts and interest to be paid by the taxpayer.
If you are under audit or want to know your probability of success at appeals, get in touch with a ZheroTax pro and let them help you understand your options and offer to represent you on contingency.