1455257 Ontario – Tax Court of Canada suggests that a CRA policy to adjust loss carrybacks, to a reassessed year, beyond the s. 152(6) period, has no statutory authority

The validity of a s. 160 assessment of the taxpayer turned on whether the affiliate from which the taxpayer had received a transfer of property in 2003 should be regarded as having had its taxable income for 2000 reduced by a portion of its non-capital loss for 2002 that the affiliate had not claimed because the taxpayer and the affiliate had not found out about that additional loss until 2011, when the taxpayer made an ATIP request following the s. 160 assessment of it.

The taxable income of the affiliate for 2000 had arisen as a result of a 2005 settlement which had reduced a 2001 non-capital loss (and, thus, reduced the loss carryback to 2000), thereby leaving 2000 unsheltered. Although St-Hilaire J considered that there was no statutory authority for this (given the time limits in s. 152(6)), the CRA policy in such circumstances was to allow a taxpayer (i.e., the affiliate) to increase loss carry backs from other years, to offset the increased 2000 income. It made a request to carry back a loss from 2003 to 2000 (which CRA ultimately acceded to), but this was not enough to fully offset the 2000 taxable income.

Because it did not request the carryback of the additional 2002 loss in 2005 (even though CRA knew about it), this policy was to no avail. Furthermore, it was not possible to somehow treat the original request shortly after 2002 to carryback a smaller loss from that year to 2000 as carrying with it an implied request to carry back a larger loss (“discovered” in 2011) when, as a result of the 2005 settlement, use of that additional loss was now required.

In dismissing the taxpayer’s appeal, St-Hilaire J stated:

…[T]he Court is left with legislation that does not satisfactorily address the circumstances and an administrative policy that seemingly seeks to address the lacunae but for which there is no legislative authority. …

Neal Armstrong. Summaries of 1455257 Ontario Inc. v. The Queen, 2020 TCC 64 under s. 152(6), s. 160(1)(e)(ii) and General Concepts – Onus.