In The Bank of Nova Scotia v The Queen,
the Tax Court of Canada (TCC) considered how to calculate arrears
interest on an audit adjustment that is offset by a loss carryback.
The Court endorsed the Canada Revenue Agency's (CRA's)
practice of charging arrears interest on the adjustment through to
the year of the audit, not the year of
the loss. The CRA's approach can result in
substantial amounts of interest, which can exceed the amount (if
any) of actual additional tax due. Taxpayers under audit that have
losses available for carryback should carefully consider their
potential arrears interest liability and take steps to minimize
it.
Background
Following a transfer pricing audit, the Bank of Nova Scotia
(BNS) entered into a settlement with the CRA on March 13, 2015,
whereby certain amounts would be included in its income for the
2006 to 2014 taxation years. At the same time as the settlement,
BNS asked that the balance of its non-capital losses available from
its
