CRA confirms that reassessing to increase closing inventory permits a s. 152(4.3) reassessment to increase the following year’s COS

CRA confirmed that a reassessment to increase closing inventory for Year 1 permits a consequential reassessment under s. 152(4.3) to reassess Year 2's taxes to reflect an increased cost of sales for Year 2 (which otherwise would be statute-barred).

The point of interpretation was that the definition of "balance" includes things like income and taxes payable for Year 1, but not Year 1's closing inventory balance. CRA appears to have effectvely treated the reassessment as increasing the taxes payable for Year 1 (viewed as a "balance,") and this balance can reasonably be considered to relate to the taxes payable balance for Year 2. Note that the increased Year 1 balance might not be exactly reversed in Year 2 if the effective tax rate changed.

Neal Armstrong. Summary of 29 May 2017 External T.I. 2014-0537111E5 Tr under s. 152(4.3).