Savics – Federal Court of Appeal finds that s. 152(5) permits the restoration of an initial assessment of income that had been previously reversed by reassessment
To present simplified facts, a taxpayer reported losses from a film distribution LP of $300 per year in Years 1 through 3 and also reported (and was initially assessed for) the $100 of income-account gains that was allocated to him by the LP for Year 4. On audit, CRA determined that the LP did not exist and reversed all of the above amounts in Year 7 (i.e., within the normal reassessment period.) In Year 19, CRA implemented a settlement agreement by inter alia reversing the Year 7 reassessment and restoring the originally-reported income allocation to the taxpayer.
The taxpayer then argued that the Year 19 reassessment was invalid because it did not satisfy s. 152(5), which prohibits the Minister from reassessing beyond the normal reassessment period to include income that “was not included in computing the taxpayer’s income for the purposes for an assessment, reassessment or additional assessment made … before the end of [that] period.” His point was that the Year 4 reassessment nullified the initial assessment, so that the latter ceased to exist for purposes of satisfying the s. 152(5) requirement.
In rejecting this argument (and thus finding that the Year 19 restoration of the initially assessed income was valid), Webb JA stated:
Abrahams, Bowater Mersey and TransCanada Pipelines do not stand for the proposition that when a subsequent reassessment is issued it is as if the prior assessment or reassessment had never been made. Rather, the prior assessment or reassessment would still have been made and would have been valid for the period from the date it was issued until the subsequent reassessment was issued. Therefore, even though Mr. Savics was reassessed in [Year 7], the initial assessment … was still an assessment that was made before the end of his normal reassessment period. …
I do not accept that the purpose of subsection 152(5) … is to prevent the Minister, in reassessing a taxpayer under subsection 165(3) … from restoring a taxpayer to their original filing position by reinstating a particular source and amount of income that had been reported by the taxpayer, assessed as filed, and then subsequently deleted as a result of a reassessment.