CRA reassessed Nottawasaga for about $150,000 in extra income. Half of that arose because CRA thought Nottawasaga claimed too much deduction for capital cost allowance because N wrongly classified some of its depreciable properties. N. agreed that about half of CRA's reassessment was proper but it disputed the half relating to the CCA classification. Still, presumably to avoid collection issues, N asked CRA to apply accumulated non-capital losses to eliminate the $150,000 is taxable income for the year. N. also filed a Notice of Objection to the reassessment.
As is CRA's policy, N's loss carryback request was sent to the Appeals Branch for review along with N's objection. CRA agreed to allow the loss carryback, so that no tax would be owing, but it refused the objection to the tax reassessment, so that, under the interest rules, N owed about $6,000 of interest. The Appeals Branch sent out a new reassessment showing the $6,000 due. N. appealed that interest reassessment.
Justice Pizzitelli agreed with CRA that N. had no right to appeal the interest reassessment in a technically complicated decision. The TCC judge agreed that N. could appeal an interest reassessment, but only on the basis that CRA wrongly applied the interest calculation rules. N. could not dispute the underlying tax assessment because it was a "nil assessment". Justice Pizzitelli's decision is a bit hard to accept, because it seems to force a taxpayer to avoid using losses to eliminate a tax debt, if it wants to appeal. But the taxpayer has other options.
N. could have applied just $75,000 of losses against the amount it accepted for the first reassessment. Then, N. would appeal the remaining $75,000 in dispute, to try to get the TCC to accept N's CCA classification. But as Pizzitelli J. noted (para. 33), N. had the right to challenge CRA's CCA classification in later years. Tax laws allow N to continue claiming CCA and it could continue to apply its view of the proper classification, challenging CRA if CRA reassessed those later years.
 ... the Appellant was the one who chose to pursue the path of requesting the application of loss carry-backs to his 2007 taxation years, presumably to eliminate payment of taxes or reduce interest on outstanding balances at such time, rather than pursue the appeal on that issue at this time so must accept the consequences of its decision."
The decision means one must be a little careful in how one chooses to challenge and pay a CRA reassessment. Oddly, if N. had carried back losses that covered less than the full $150,000 of taxable income assessed, leaving even just one dollar of taxable income assessed, it could have carried through its tax appeal on the interest issue, while also essentially eliminating any collection and ongoing interest problem. That possibility seems to make this TCC decision an excessively technical one.
See Nottawasaga Inn Ltd. v. The Queen, (2013 TCC Pizzitelli)