Freitas – Federal Court of Appeal finds that a statute-barred reassessment was valid for the purpose of being objected to and vacated on substantive grounds
The taxpayer, a retired Deloitte partner, was assessed by CRA in 2009 to impose a CPP contribution obligation on an amount of income that was distributed to him under ITA s. 96(1.1). CRA denied the taxpayer’s request four years later for a refund of this amount on the grounds that this request had not been made within the required three-year period – and in the resulting 2014 reassessment it in fact denied some deductions/credits that had been initially allowed in its 2009 assessment.
A threshold issue was whether the 2014 reassessment had been made pursuant to ITA s. 152(4.2) (also applicable for CPP purposes), which deals with a reassessment made “for the purpose of determining … the amount of any refund.” Characterization as a s. 152(4.2) reassessment would have meant that ITA s. 165(1.2) would have invalidated the taxpayer’s objection to it. Webb JA stated that “a reassessment that increases a person’s tax liability is not one that was made for the purpose of determining a refund but instead would be made for the purpose of determining that person’s liability.”
In response to a further Crown argument that the 2014 reassessment was statute-barred, Webb JA noted that the reassessment was deemed by s. 152(8) to be valid subject to being vacated. Accordingly it could be objected to on substantive grounds (in addition to being vacated on the grounds that a reassessment outside the normal reassessment period cannot increase the taxpayer’s liability in the absence of misrepresentation.)
The reassessment was vacated on substantive grounds since a s. 96(1.1) distribution did not satisfy the applicable requirement in s. 14 of the CPP Act that it be “his income for the year from all businesses … carried on by him” (he instead was retired).