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Case Comment on BMLex Avocats Inc. c. Le Roi, 2026 CCI 107 (“BMLex”)1
In BMLex, the Tax Court of Canada (“TCC”) confirmed the assessment of arrears interest on unpaid GST instalments, even though the taxpayer had a credit balance from prior periods that more than offset the instalments owing. The decision is consistent with prior case law that the taxpayer sought—unsuccessfully—to distinguish in reliance on particularities of Quebec civil law.
The decision provides an important reminder to taxpayers—across the country—that taxpayers must provide express instructions to the relevant tax authority if they wish to have tax credits and refunds allocated against specific amounts owing, or else those amounts owing will be considered delinquent and continue to accrue interest and penalties.
The Facts
BMLex Avocats Inc. (“BMLex Avocats”) owed quarterly GST instalments under the Excise Tax Act (“ETA”)2 for the 2023 reporting period that it did not remit on time and, accordingly, was assessed arrears interest.3
BMLex Avocats claimed that it was not liable for this arrears interest since it had a credit balance that vastly exceeded its 2023 remittances that had arisen from the overpayment of GST instalments for the 2019 reporting period.4 It appeared that BMLex Avocats had deliberately maintained this credit balance with the intention that it would serve as payment of its instalment obligations in subsequent years.5
Preliminary Objection
The Crown raised a preliminary objection to the TCC’s jurisdiction to hear the appeal, on the grounds that the case concerned a question of whether a tax debt had been paid.6 The Court rejected this objection, noting that while the TCC generally does not have jurisdiction over the question of whether an amount of tax has been paid, and it does not have jurisdiction over discretionary decisions, it does have jurisdiction to determine whether arrears interest has been calculated correctly.7
The TCC’s decision is consistent with prior case law that has recognized that—as an exception to the rule that the TCC has no jurisdiction over “collection issues”—the TCC can adjudicate collection-related questions (such as whether a refund is owing, or whether an amount has been paid) where such questions affect the arrears interest which a taxpayer is assessed in a particular taxation year.8 The exception can prove very arbitrary in practice and is a well-known source of difficulty for taxpayers in determining the appropriate venue to hear their dispute.9
The Judgment
BMLex Avocats advanced four overlapping arguments (the fourth of which the Court found to be a variant of the third)10 in support of its position that its credit balance for 2019 offset its unpaid 2023 instalments and negated any liability for arrears interest, namely:
- In the French version of the ETA, subsection 237(1) requires a person to turn over (“verser”) instalments, while subsection 280(2) of the ETA imposes arrears interest in respect of instalments that a person fails to pay (“payer”) (note that the English version of the ETA renders both “verser” and “payer” as “pay”). Accordingly, a taxpayer can fulfil instalment obligations by means other than turning over the funds, consistent with article 1553 of the Civil Code of Quebec (“CCQ”), which provides that “payment” (“paiement”) means not only the turning over (“versement”) of a sum of money, but “also the actual performance of whatever forms the object of the obligation”.11
- By refraining from requesting a refund of the 2019 instalment overpayment, in effect, the 2023 instalment obligations were pre-paid.12
- The 2019 excess instalments qualified as advance or excess instalments for the purposes of subsection 280(3) of the ETA, which allows a taxpayer to offset instalment interest with the interest accruing on advance or excess instalments, at the same rate.13
Following a review of the case law,14 the Court rejected these arguments, noting that:
- Although credit balances can exist, tax authorities are not financial institutions that maintain a “bank account” for the taxpayer and thus cannot be required to manage payments from that account on the taxpayer’s behalf.15
- In substance, BMLex Avocats was relying on the doctrine of “compensation” (i.e., the Quebec civil-law counterpart to “set-off” in the common law), to assert that the 2019 credit balance set off the 2023 instalment obligations. However, article 1672 CCQ provides that “Compensation may not be claimed from the State”.16
- Article 1554 CCQ provides that “every payment presupposes an obligation”—a principle understood to mean that an obligation cannot be discharged before it has arisen. Because the 2023 instalment obligations could not have arisen, at the earliest, until the beginning of the 2023 reporting period, no “pre-payment” in 2019 could have taken place.17
- Subsection 280(3) of the ETA establishes an offset mechanism that limits the total amount of interest payable on late instalments by netting it against compensatory interest accrued from early or excess instalments.18 However, the offset mechanism applies only to instalments paid in respect of the relevant reporting period, not payments from prior periods.19
- As an exception to the general rule that credit balances do not excuse a taxpayer from making tax payments that are due, the case law has recognized that a taxpayer can give specific instructions for a credit or refund to be applied against another tax liability.20 In this case, however, no instructions had been provided.21
Observations
While the decision does not make new law, BMLex offers an important reminder that simply maintaining a credit balance with the revenue authorities (be it the Canada Revenue Agency, Revenu Québec, or another agency) does not relieve a taxpayer from making remittances and other payments when due, and that if a taxpayer wishes to apply a credit amount against an amount owing, they should do so expressly, lest they find themselves subject to potentially onerous amounts of arrears interest or penalties.
This said, it remains intuitively difficult to accept that BMLex Avocats should have been liable for “arrears interest” when, on the whole, it was owed money. The assessment of “arrears interest” on taxpayers who owe no tax is a recurring issue in Canadian tax administration (including in the ongoing case of Bank of Nova Scotia v Canada,22 currently on reserve before the Supreme Court of Canada), and as noted in a our prior bulletin, “if one assumes that the overarching policy objective of charging arrears interest on tax liabilities is to provide fair compensation to the State for the use of its money, charging interest on notional amounts of tax that are not actually owing is absurd and calls into question the fairness of the tax administration system. A comprehensive review of the interest provisions in the ITA is long overdue.”23
Footnotes
1 BMLex Avocats Inc c. Le Roi, 2026 CCI 107.
2 RSC 1985, c. E-15.
3 BMLex, at para 1.
4 Ibid at para 2.
5 Ibid.
6 Ibid at para 3.
7 Ibid at paras. 4-7.
8 See M.H. Lubetsky, “The Fractured Jurisdiction of the Courts in Income Tax Disputes”, in Tax Disputes in Canada, Canadian Tax Foundation (2022), at pages 8, 39-41.
9 Ibid.
10 BMLex, at para 6. BMLex Avocats advanced a fourth argument that the Court held was variant of the third (Ibid, at para 21).
11 Ibid at paras. 8-11.
12 Ibid at para 14-16.
13 Ibid at para 17-21.
14 Ibid at para 6-7.
15 Ibid at para. 7.
16 Ibid at paras 6 and 12.
17 Ibid at para 15. The Court noted that the objection to pay 2023 instalments only arose if various conditions outlined in section 237 of the ETA were fulfilled, such as BMLex Avocats having to be a GST registrant during the relevant period, and having a net tax for the prior reporting period.
18 Ibid at para 17.
19 Ibid at para 20. This interpretation of the Court was reinforced by the fact that subsection 280(3) of the ETA was intended to replicate a parallel mechanism under subsection 166(2.2) of the Income Tax Act (“ITA”)—and the ITA provision expressly limits compensatory interest only to instalments paid for the tax year in question.
20 Ibid at para 13.
21 Ibid.
22 SCC Docket #41643.
23 “Federal Court of Appeal Upholds Arrears Interest on Non-Existent Tax Debts: Bank of Nova Scotia v Canada, 2024 FCA 192” (November 27, 2024).
The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.
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