3 June 2014 Internal T.I. 2013-0489471I7 - Subsection 171(1)

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: 1. Does the Act permit the Minister to issue a reassessment in order to give effect to a Court's order to vacate or vary an assessment pursuant to subsection 171(1)? 2. Would the taxpayer have any rights of objection to the assessment that is restored following the Court vacating a later assessment?

Position: 1. No 2. No

Reasons: 1. Subsection 171(1) provides for three alternatives. The Court only vacated the assessment which had the effect of validating the former assessment. The Minister's power to issue a reassessment must be provided for in the Act. 2. The taxpayer would be able to appeal the decision to the Federal Court of Appeal.

June 3, 2014

Headquarters – Appeals Branch HEADQUARTERS
Tax & Charities Appeals Directorate Income Tax Rulings
250 Albert St Directorate
Ottawa ON K1A 0L5 Katharine Skulski
(613)957-8585

Attention: Barry Hassar and Domenic Amendola

2013-048947

Assessments vacated or varied by the Tax Court of Canada

We are writing in response to your memorandum and subsequent meeting concerning the implications of the Tax Court of Canada's decision Blackburn Radio Inc. v The Queen, 2012 TCC 255 (the "2012 Blackburn Decision"). Specifically, you have asked whether the Income Tax Act (the "Act") permits the Minister to issue a reassessment in order to give effect to a Court's order to vacate or vary an assessment pursuant to subsection 171(1) of the Act.

Subsection 171(1) provides that,

The Tax Court of Canada may dispose of an appeal by

(a) dismissing it; or
(b) by allowing it and
(i) vacating the assessment,
(ii) varying the assessment, or
(iii) referring the assessment back to the Minister for reconsideration and reassessment.

In Blackburn Radio Inc. v The Queen, 2009 TCC 155, the Tax Court of Canada allowed the appeal and vacated the third reassessment of the 1999 taxation year on the basis that it was statute-barred. The decision was not appealed by the Minister. The Minister subsequently reassessed the taxpayer to give effect to the Court's decision and that fourth reassessment mirrored the second reassessment. It is this fourth reassessment that was at issue in the 2012 Blackburn Decision.

The term vacated is defined in Black's Law Dictionary as "to nullify or cancel; make void; invalidate". Further, subsection 171(1) provides that the Tax Court may allow an appeal and either vary, vacate or refer the matter back to the Minister for reconsideration and reassessment. The Crown argued in the 2012 Blackburn Decision that the Minister had the inherent authority to issue the fourth reassessment in order to give effect to the Tax Court's decision. The Court disagreed and confirmed that the Minister's power to issue a reassessment must be provided for in the Act. For example, subsection 152(4.3) allows the Minister to reassess beyond the normal reassessment period. Given the meaning of the term vacate, as well as the fact that referring the matter back to the Minister for reassessment is an alternative to the other options, the Court correctly determined that the Minister does not have the authority to issue a reassessment to give effect to the Court's order to vacate or vary the assessment. Further, if a reassessment by the Minister is permitted or required in order to give effect to the Court's order to vacate or vary the assessment, this would render subparagraphs 171(1)(b)(i) and (ii) meaningless.

You expressed a concern that a taxpayer would not have any rights of objection to the assessment that was restored following the Court vacating the later assessment. In our view, a taxpayer's right to object would be no different than it would be in a situation where the Court allows a taxpayer's appeal by referring the assessment back to the Minister for reassessment. If a taxpayer is not satisfied with the Tax Court's decision, the taxpayer can appeal the decision to the Federal Court of Appeal.

Finally, you have asked for our views on whether a taxpayer is prohibited from appealing to the Tax Court under subsection 169(1) where the Minister varies an assessment pursuant to subsection 165(3). Subsection 165(3) provides that where a taxpayer files a notice of objection under subsection 165, the Minister shall reconsider the assessment and vacate, confirm or vary the assessment or reassess. Subsection 169(1) of the Act provides that:

Where a taxpayer has served notice of objection to an assessment under section 165, the taxpayer may appeal to the Tax Court of Canada to have the assessment vacated or varied after either

(a) the Minister has confirmed the assessment or reassessed, or

(b) 90 days have elapsed after service of the notice of objection and the Minister has not notified the taxpayer that the Minister has vacated or confirmed the assessment or reassessed,

but no appeal under this section may be instituted after the expiration of 90 days from the day notice has been sent to the taxpayer under section 165 that the Minister has confirmed the assessment or reassessed.

Paragraph 169(1)(b) does not refer to the Minister varying an assessment. As such, if the Minister were to vary the assessment, then after 90 days have elapsed, the Minister would not have notified the taxpayer that the Minister has vacated or confirmed the assessment. As a result, the condition in paragraph 169(1)(b) would be met, thus allowing the taxpayer to appeal to the Tax Court. As such, it is our view that, in the unlikely event that the Minister varies an assessment, as opposed to reassessing, a taxpayer would not be prohibited from appealing to the Tax Court.

We trust that these comments will be of assistance.

Yours truly,

Terry Young, CPA, CA
Manager, Administrative Law Section
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch