Principal Issues: "Corporation Inc." has a fiscal period ending on December 31. It filed its income tax return for the fiscal period ending December 31, 20X0. On July 1, 20X1, there is an acquisition of control of Corporation Inc., but it was not made aware of this situation. It therefore files its income tax return for the period from January 1 to December 31, 20X1. The CRA issues a notice of assessment for the year in question. The same occurs for the year 20X2 and subsequent years. Question a): Could the 20X1 taxation year, that is, the period from January 1 to December 31, become statute barred following the issuance of a notice of assessment? Question b): Since a return was filed as of December 31, 20X1, will the CRA assume that December 31 will be the date chosen for the end of the new fiscal period? Question c): The corporation makes a loss carry-back from the year 20X3 to the year 20X1. In 20X6, in the course of an audit for the year 20X3, the CRA revises the loss and realizes that there was a deemed year end on June 30, 20X1. However, the year 20X1, being the period from January 1 to December 31, became statute barred because it was assessed. How will the CRA treat the loss carry-back? Could the CRA require that the 20X1 year be modified and that the corporation files two returns, which are for the period from January 1 to June 30 and for the period from July 1 to December 31?
Position: Answer to question a): A taxation year of Corporation Inc. for the period from January 1, 20X1 to December 31, 20X1, does not exist for the purposes of the ITA. Therefore, the limitation periods provided in the ITA would not be applicable in this respect. By reason of the application of subsection 249(4), Corporation Inc. would have two taxation years for the purposes of the ITA in 20X1, the first commencing January 1, 20X1 and ending June 30, 20X1, and the second commencing July 1, 20X1 and ending December 31, 20X1. Technically, Corporation Inc. would not have filed income tax returns in respect of these two taxation years. The Minister would not have made an assessment or given notification that no tax is payable with respect to one or the other of these two taxation years. Consequently, the limitation periods provided in the ITA would not have technically begun in regard to the aforesaid taxation years of Corporation Inc. Answer to question b): The CRA would generally consider that Corporation Inc. would have established its fiscal year end as of December 31 for the taxation years ending after the acquisition of control. Answer to question c): It would be necessary that Corporation Inc. file income tax returns for each of the taxation years ending on June 30, 20X1 and December, 31, 20X1, respectively, pursuant to paragraph 150(1)(a). In this respect and as needed, the CRA, pursuant to subsection 150(2), could request, on demand, that Corporation Inc. file, within a reasonable time, income tax returns for each of these two taxation years. It would also be necessary that Corporation Inc. makes a new loss carry-back request, clearly indicating in computing the taxable income of which taxation year ending in 20X1 Corporation Inc. would want to deduct the loss incurred in taxation year 20X3.
Reasons: Wording of the Act.