26 June 2000 Internal T.I. 2000-0010747 - LOSS APPLICATION & RESCINDMENT

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Can a corporate tax payer object to a reassessment after the normal reassessment period has expired? The request involves a loss application and loss rescindment?

POSITION TAKEN:

No and Fairness Legislation would not apply.

Reasons FOR POSITION TAKEN:

152(3.1)
152(6)
165(1.1)

		June 26, 2000

	North York TSO	HEADQUARTERS
	Audit Division	C. Tremblay
		957-2139
	Attention:  John Cunningham
		2000-001074

XXXXXXXXXX

This is in reply to your memorandum of February 28, 2000, requesting our views on whether a corporate taxpayer ("XXXXXXXXXX") who has been denied a request to amend a XXXXXXXXXX return from an income to a loss position could then appeal the XXXXXXXXXX loss application to obtain its requested result. The taxpayer wishes to have the previous XXXXXXXXXX loss that has been applied to XXXXXXXXXX rescinded and made available for subsequent years in the hopes of amending the XXXXXXXXXX return as well.

You describe the facts of the situation as follows:

XXXXXXXXXX.

The taxpayer's representative wrote on September 22, 1998 to request revision of the XXXXXXXXXX return (to a loss) and the freeing up of the previously applied XXXXXXXXXX loss so that it would be available for subsequent years. The request was denied and a subsequent representative has written to you to protest the decision.

The decision to deny the request was based on the following.

• The normal reassessment period expired prior to the taxpayer's request.
• There is no redress under the "Fairness Legislation" for corporations.
• The taxpayer may apply for rescinding the XXXXXXXXXX loss application under subsection 152(6) of the Act, as that aspect is open for three years past the normal reassessment period.
• Any such reassessment would not incorporate revisiting the other aspects of that year's return, however, the original income would be reinstated, notwithstanding the taxpayer's belated request for review.
• The taxpayer could appeal this reassessment.

Your local Appeals office has confirmed that such an appeal would not succeed, as it would not be directly related to the loss rescindment.

Our Comments

Assuming XXXXXXXXXX is a Canadian-controlled private corporation, we agree that the normal reassessment period has expired on XXXXXXXXXX, pursuant to subsections 152(3.1) and (4) of the Act. Information Circular 75-7R3 sets out the Department's general policy with respect to the reassessment of returns. However, unless the circumstances described in subsections 152(4.3) or 152(6) of the Act are present, once the return is beyond the normal reassessment period as defined in subsection 152(3.1) of the Act, the tax return may not be reassessed.

The Fairness Legislation deals mainly with waivers of interest, penalties and late, amended or revoked elections and generally applies to taxpayers whether individuals or corporations. The Fairness Legislation also introduced subsection 152(4.2) of the Act which enables the Canada Customs and Revenue Agency (the "CCRA") to make a reassessment or a re-determination beyond the normal reassessment period when so requested by a taxpayer who is an individual (other than a trust) or a testamentary trust. However, it does not apply to a request for a corporate taxpayer for a requested revision of his return from an income to a loss beyond the normal reassessment period. Accordingly, we agree that as a corporate taxpayer, subsection 152(4.2) of the Act is not available to XXXXXXXXXX.

Pursuant to subsection 152(6) of the Act, the taxpayer may apply for rescinding of the XXXXXXXXXX loss application, as that application is open for three years past the normal reassessment period. We agree that any such reassessment would not allow the corporate taxpayer to revisit any other aspect of the XXXXXXXXXX taxation year. Although the taxpayer could appeal this reassessment, CCRA officials would simply be acting on the taxpayer's instructions to apply or free up the XXXXXXXXXX loss to subsequent years and that is, in our view, the only matter the taxpayer could appeal. In this regard, we refer you to subsection 165(1.1) of the Act and, more particularly, the 1991 Technical Notes from the Department of Finance pertaining thereto which reads, in part, as follows:

"Where the Minister issues a notice of assessment or a determination pursuant to subsection 67.5(2), subparagraph 152(4)(b)(i) or subsection 152(6), 164(4.1), 220(3.4) or 245(8) or in accordance with an order of a Court, pursuant to subsection 165(3) where the underlying objection relates to those provisions or circumstances or pursuant to other statutory provisions authorizing reassessments beyond the normal reassessment period, the taxpayer may, through the application of subsection 165(1), attempt to object with respect to issues other than those raised in the assessment or determination. New subsection 165(1.1) restricts the matters to which the taxpayer may object in such cases to those which gave rise to the assessment or determination."

For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on CCRA's mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version, or they may request a copy severed using the Privacy Act criteria, which does not remove client identity. Request for this latter version should be made by you to Jackie Page at (819) 994-2898. The severed copy will be sent to you for delivery to the client.

We trust you will find our comments of some assistance.

for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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