Building Products – Federal Court confirms CRA’s refusal to grant more than partial interest relief for failure of CRA to point out an ability to apply NCLs

When the taxpayer was assessed to deny SR&ED deductions or credits for its 2009 taxation year, the CRA auditor failed to follow the requirement in the Audit Manual to obtain a written response from the taxpayer as to whether the taxpayer wished to apply available non-capital losses (NCLs) to offset the assessed taxable income and eliminate the tax and interest. Although there were sufficient NCLs to this end, their specific amount was unclear until January 2015, at which time the taxpayer filed its request to have the NCLs so applied. This request was denied as being filed after the end of the normal reassessment period, which ended on September 3, 2014.

Shore J considered that it was reasonable of the Minister’s delegate to grant only partial interest relief under s. 220(3.1) respecting the assessed interest, on the basis that it was ultimately the taxpayer’s responsibility to decide whether it wished to apply its NCLs before the end of the normal reassessment period, which it had failed to do. He also considered that there was no procedural unfairness in the failure of the Minister’s delegate to consult the above Manual policy before granting only partial interest relief, indicating that the delegate should not have been expected to be aware of this policy and it was up to the taxpayer to bring the Manual to the delegate’s attention, which it did not do (i.e., it is the taxpayer’s duty to bring largely internal CRA documents to CRA’s attention?).

Unlike 1455257 Ontario, Shore J did not suggest that there was no statutory authority for the CRA policy in the Manual – a policy which is broadly consistent with the right to claim discretionary reserves from reassessed income (see the Trial decision referenced in Abed Estate) and make late designations (Nassua Walnut, Lussier – also narrowly construing s. 152(6)).

Neal Armstrong. Summary of Building Products of Canada Corp. v. Canada (Attorney General), 2020 FC 784 under s. 220(3.1).