Wallster – Tax Court of Canada finds that the failure of an issuer to comply with CRA’s demand to allocate its over-renunciation of CEE precluded extending the normal reassessment period

The taxpayer was renounced Canadian exploration expense (CEE) by an issuer (Quattro) that the Minister subsequently determined had substantially overstated the renounced CEE. Although the Minister gave a notice to Quattro pursuant to s. 66(12.73)(a)(i) requiring it to issue the prescribed form allocating the CEE reduction amongst its flow-through subscribers, Quattro never did so. The Minister reassessed the taxpayer shortly after the expiry of the normal reassessment period to deny the applicable amount of CEE claims of the taxpayer, taking the position that the period for reassessing had been extended by 3 years pursuant to s. 152(4)(b)(v) on the basis that such reassessment was “made as a consequence of a reduction under subsection 66(12.73)” of the purportedly renounced CEE.

Russell J found that the normal reassessment period was not so extended due to such failure of Quattro to allocate the reduced CEE. In this regard, he noted that, in contrast to the prior version of s. 66(12.73), the current version did not explicitly authorize the Minister to reduce the renounced amounts if the issuer failed to do so, and stated (at para. 45) that “[t]here must be finality in the taxation appeal process.”

Neal Armstrong. Summary of Wallster v. The King, 2022 TCC 124 under s. 152(4)(b)(v).