26 May 2005 Roundtable, 2005-0164681C6 - Sections 165 and 152

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.

Principal Issues: CRA's responsibility to provide explanations for adjustments made to the original filing or the last reassessment.

Position: See document

Reasons: See document

2005-016468
CLHIA Conference - May 26, 2005
Revised- 13 June 2005

Question 2

Sections 165 and 152

Section 152 provides the authority for the Minister of National Revenue to make assessments of tax, interest and penalties and to make other formal determinations. It imposes an obligation on the Minister to examine a taxpayer's return and issue an assessment. Section 165 provides that a taxpayer who objects to an assessment may deliver or mail a written notice of objection in respect thereof. The objection must be limited to matters giving rise to the assessment.

For a large corporation objecting to an assessment under Part I, subsection 165(1.11) imposes the following requirements:

? the notice of objection must reasonably describe each issue to be decided;

? in respect of each issue, the notice must specify the relief sought and this must be expressed as the amount of a change in a "balance", within the meaning of subsection 152(4.4), or as a change in a balance of undeducted outlays, expenses or other amounts;
and

? in respect of each issue, the notice must provide the facts and reasons the corporation is relying on.

In order for the taxpayer to comply with these requirements, it must know what are the issues in dispute.

Questions

(a) If the assessment or reassessment merely establishes the taxes, interest and penalties, with no further information, it is difficult to see how a large corporation can file a notice of objection in compliance with subsection 165(1.11). Does the CRA have an obligation to specify each adjustment made to the original filing or the last assessment with the assessment or reassessment?

(b) There are occasions where it is possible to alter the positions regarding particular items without altering the assessment of tax, interest or penalties. For example, a taxpayer's expense might be reduced but such reduction offset by allowing additional MTAR (maximum tax actuarial reserves). Does the CRA consider that it has the power to make such a change in the position of a taxpayer without issuing an assessment or reassessment? Without informing the taxpayer of the change? Within or outside the normal reassessment period?

Agency's Response

(a) CRA has a responsibility to provide an explanation for any adjustment made to the original filing or the last reassessment. Procedures are in place within the audit division of CRA which require audit staff to specify and to provide explanations for adjustments made to the original filing or to the last assessment. This is normally done by way of form T7WC, a 30 day letter and/or proposed adjustment sheets.

Admittedly, there may have been occasions where explanations provided by CRA concerning assessments or reassessments may not have been sufficient. We are currently working internally to improve the explanations provided in such situations. In the event of insufficient explanations, you may wish to contact the Large File Case Manager in charge of your file for more information regarding the adjustments made. Alternatively, you may file a Notice of Objection based on the information available. Appeals will then review the Objection and provide an explanation of the adjustments made, and allow the company 60 days pursuant to subsection 165(1.12) to comply with the provisions of subsection 165(1.11).

(b) With respect to offsetting adjustments that do not alter a positive amount of tax previously assessed, the CRA will generally issue a new reassessment for the same amount of tax. Such a reassessment will generally only be made within the normal reassessment period. Changes to a taxpayer's revenue and expenses outside the normal reassessment period are normally made only by way of a reassessment specifically authorized by the Act. For example, that period may be extended as a result of a taxpayer filing an acceptable waiver within the appropriate period or as a result of a consequential assessment under subsection 152(4.3).

With respect to offsetting adjustments that do not alter a loss or nil taxable income previously reported, the CRA normally issues a new nil notice of assessment. Such adjustments may be made within the normal reassessment period or outside that period, except where a notice of determination has been issued by the CRA under subsection 152(1.1).

In all situations, the CRA would provide explanations of the adjustments made although we would expect that the taxpayer would be aware of adjustments involving an offsetting deduction in respect of MTAR as this deduction is elective in nature and as such, would only be allowed upon written request from the taxpayer.