Rio Tinto Alcan – Tax Court of Canada confirms the validity of a reassessment made without a proper audit in order to beat statute-barring
When the normal reassessment period for one of the taxation years of Rio Tinto Alcan (RTA) was about to expire, CRA had not received any waiver from RTA in connection with the items under review (SR&ED expenditures incurred through a joint venture, whose manager was uncooperative with CRA) because the form of waiver demanded by CRA was unreasonable. CRA then reassessed within the deadline by denying recognition of all the expenditures. RTA did not object in time, but argued that the reassessment was invalid because it had been made before any audit of the items to be reviewed had really commenced and the reassessment had simply denied all the items. In rejecting this submission, D'Auray J agreed with a statement of C. Miller J that “there is no law…to the effect that a protective assessment is invalid if issued for the sole purpose of leaving the door open to conduct or continue an audit.”
The reassessment in question was followed by a further reassessment (made within the extended-by-three-years period for transactions with foreign affiliates) to reassess RTA for foreign accrual property income for the same taxation year, so that the further reassessment reflected the additional FAPI but otherwise did not change the previous reassessment. It was agreed by all that the further reassessment replaced the previous reassessment rather than being an additional assessment. D'Auray J rejected a submission of RTA that the effect of s. 152(4.01) was that the Minster could only reassess in the further reassessment for FAPI and was precluded from maintaining the effect of the previous denial of the SR&ED expenditures.