984274 Alberta – Federal Court of Appeal finds that nil assessment was an “assessment” giving rise to an s. 164(3.1) overpayment
The taxpayer (“984”) reported a capital gain on its 2003 sale of land on the basis that it had acquired it from its parent (Henro) on a rollover basis. In 2010, the Minister assessed Henro (to include an income account gain) and 984 (to reverse the previously reported capital gain and refund the capital gains tax plus interest, totalling $1.7M) on the basis that the 2003 drop-down had occurred on a non-rollover basis. On March 23, 2015, the Minister implemented a settlement agreement (effectively agreeing with 984’s and Henro’s initial filing position) by inter alia assessing 984 to claim back the 2010 payment, including the refund interest, plus arrears interest since 2010, in what Noël CJ found (contrary to the Tax Court below) to be in proper reliance on ss. 160.1(1), 160.1(3) and 164(3.1).
Noël CJ noted that, although the 2010 assessment of 984 was a nil assessment, and although Okalta found that a nil assessment is not appealable, nonetheless:
[A]n assessment that levies tax and a nil assessment have the same legal effect i.e. both start the limitation period when issued as the original notice, both replace a prior assessment or reassessment when issued as the last notice, and both fix the tax payable for the year.
Given that the 2010 nil assessment was an “assessment” including for the purposes of s. 164(1)(a)(iii), it followed “that the 2010 payment was a refund authorized to be made pursuant to subparagraph 164(1)(a)(iii)”, from which it further followed “that the refund interest paid by the Minister to the respondent in 2010 can be recovered pursuant to subsection 164(3.1)”.
Furthermore, it did not matter that the 2010 assessment was issued more than three years after the previous 2003 (re)assessment of 984, given that the “three-year limit [in s. 152(4)] does not apply to a notice that no tax is payable.”
Finally, it did not matter that no reassessment had been issued to bring the 2003 tax payable back from zero, as per the 2010 nil assessment, to the amount initially assessed, given that inter alia “ Markevich makes it clear that an excessive refund can be assessed even if the power to issue a reassessment for the year pursuant to subsection 152(4) has expired” (para. 77).
Accordingly, the 2015 assessment for an overpayment and interest was valid.
Noël CJ in passing agreed with the taxpayer that the FCA’s finding in Freitas that a statute-barred reassessment was voidable rather than void, was not to be followed “as the Court manifestly overlooked [the] established line of cases”.