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:
Whether the ability to make consequential adjustments as a result of a reassessment of an earlier taxation year expires one year after all rights of objection or appeal by the taxpayer expire with respect to that particular issue or one year after all rights of objection or appeal with respect to the taxation year giving rise to the consequential adjustment.
Position TAKEN:
One year after all rights of objection or appeal with respect to the taxation year giving rise to the consequential adjustment.
Reasons FOR POSITION TAKEN:
Wording of subsection and technical notes.
TEI Conference
December 6, 2000
Question 19
Interpretation of subsection 152(4.3)
Subsection 152(4.3) is intended to afford the taxpayer and the government a period of time following the issuance of a reassessment to request and process a reassessment for a subsequent year where the subsequent year's tax liability is affected by the reassessment of the first year. Two conditions must be satisfied in respect of the subsequent year's reassessment. First, the issues reassessed in the subsequent year must relate to the issues reassessed in the previous year. Second, there is a time limit for issuing the reassessment. Specifically, subsection 152(4.3) states that a reassessment must be issued within "one year after the day on which all rights of objection and appeal expire. . . in respect of the particular year."
Consider the following scenario. In settling a plethora of issues with respect to Taxation Year 1, there are two issues in dispute. Both issues are reassessed by the CCRA in Year 5. Issue 1 results in a consequential adjustment to Taxation Year 2, but the consequential adjustment is not made at that time. Issue 2 does not result in a consequential adjustment to any subsequent taxation years. The taxpayer objects to Issue 2 only. Issue 2 is litigated and is settled (i.e., no further rights of objection or appeal) in Year 10 at which time a reassessment of Year 1 is issued.
In what year do the taxpayer's rights of objection and appeal expire for purposes of subsection 152(4.3) i.e., is it Taxation Year 6 or 11? Given the grammatical structure of the subsection, it seems that the time limitation is with respect to the issues that give rise to the consequential adjustment; hence, it is reasonable to believe that the one-year limitation also applies with respect to those same issues. Under the assumed facts, this would result in the taxpayer's rights of objection and appeal expiring in year 6. Would the Agency confirm this result?
Agency's Position
The time limitation set out in subsection 152(4.3) states: "... and the end of the day that is one year after the day on which all rights of objection and appeal expire or are determined in respect of the particular year, ...". In our opinion, the phrase "in respect of the particular year" does not restrict the Minister's right to make a reassessment to Year 2, to the day that is one year after all rights of objection and appeal expire in respect of the issue that was settled in Year 5. That is, subsection 152(4.3) should be interpreted as meaning one year after the rights of objection and appeal expire or are determined in respect of all matters relating to the particular year (i.e., Year 1).
This is consistent with the technical notes that accompanied Bill C-92 (Royal Assent June 10, 1993 S.C. 1993, c.24.), which read in part:
"A reassessment of a taxation year under new subsection 152(4.3) outside the normal reassessment period for that year may not be made after the end of one year after all rights of objection and appeal have expired or been determined with respect to the other year."
Therefore, in the scenario you described, the Minister's right to make a reassessment of Year 2, would not expire until Year 11. However, for greater certainty, any reassessment to Year 2 in Year 11 as a consequence of the application of subsection 152(4.3) would be limited to those consequential adjustments arising from Issue 1.
Author: Terry Young
Division: Income Tax Rulings Directorate
Phone number:: 952-1506
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