28 February 2023 Internal T.I. 2019-0791421I7 - Appl of 165(1) where no change to tax payable

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: Where a taxpayer request to amend a return of income is denied, which results in no change to any element of the return and no change is made to tax payable previously assessed, is the notice of a denial of the request a reassessment to which the objection rights provide by subsection 165(1) of the Income Tax Act are applicable.

Position: No.

Reasons: Adjustments to a return as filed that are denied, and therefore do not result in a change to taxable income and tax payable for the year in question, do not require a reassessment of the return by the Minister. In addition, where a Notice of Reassessment is issued by the Minister that does not indicate a change of the taxable income or tax payable previous assessed, this is a repetition of the previous assessment, and does not constitute a reassessment of the tax liability. According to the provisions of 165(1) of the Income Tax Act, the taxpayer has the right to object to an assessment (or reassessment). Therefore, where there has not been a reassessment or where there is a repetition of a previous assessment the taxpayer has no right to object.

								February 28, 2023

Guy Mercure							HEADQUARTERS
Program Management Division					Income Tax Rulings Directorate
SR&ED Directorate						G. Godson
Compliance Programs Branch					

								2019-079142	

Objections to letters denying Scientific Research and Experimental
OBJET Development Claims

We are writing in reply to your email of January 7, 2019, requesting our views concerning the right of a taxpayer to file a notice of objection pursuant to subsection 165(1) of the Income Tax Act (the “Act”) to a “Notice of Reassessment”, where no change has been made to the tax payable, penalties and interest previously assessed. We also acknowledge our meeting on October 19, 2022 (Mercure, Chris Boucouvalas, Tyler Chalmers / Godson, Young). We apologize for the delay in responding.

In your email, you provided the following example:

• A corporate taxpayer files its T2 return of income for the taxation year.
• The CRA assesses the return as filed.
• At a later date within the prescribed time limit in subsection 37(11) of the Act, the taxpayer files a request to amend its T2 to include a claim for Scientific Research and Experimental Development (SR&ED) expenses.
• The CRA denies the SR&ED claim in its entirety and sends a letter advising the taxpayer that the claim has been denied. A Notice of Reassessment (NOR) is not issued as there is no change to tax payable previously assessed.
• As a result, an objection provided by subsection 165(1) of the Act is not available.

You have asked us if the CRA were to issue a “Notice of Reassessment” that shows no changes from the initial Notice of Assessment if the taxpayer would be able to file an objection pursuant to subsection 165(1).

Our comments

In general, subsections 165(1) and 169(1) of the Act provide that a taxpayer’s right to object and appeal may be asserted when the Minister makes an assessment. As a result, there must be a valid assessment or reassessment in order that the taxpayer may exercise this right. Where there has been no assessment or reassessment made by the Minister of tax, interest or penalties, such as where the tax payable is nil, the taxpayer has no right of objection.

The Courts have established that changes to elements of income and expense items requested beyond the normal reassessment period that do not affect tax payable do not result in a reassessment. For example, the court held in Clibetre Exploration Ltd v. R, 2003 FCA 16 there is no need for the Minister to reassess in a situation such that the taxable income and thus tax payable remain unchanged, despite changes made to the return of income. As a result, the provisions of subsection 152(4) of the Act do not apply to any resulting notification by the CRA because there is no assessment or reassessment.

Although the term “assessment” is defined by the Act simply to include the term “reassessment”, the term has been defined by the Courts as fixing or determining the tax payable of a taxpayer. In that regard, where requested changes to elements of the taxpayer’s return of income are denied, and there is no change to the tax payable previously assessed, in our view there has been no “reassessment” of tax by the Minister.

In addition, the Courts have established that a “Notice of Reassessment” issued by the Minister which does not indicate a change of the tax payable or taxable income previous assessed, and no change has been made to any of the elements of the return, is a restatement of the previous assessment, and does not constitute a reassessment of the tax liability. For example, in Orlando Corporation v. R, 94 DTC 1046 the issue before the Court was whether the reiteration of an assessment without any changes to the elements in the calculation of the Part IV tax, was a reassessment of tax within the meaning of subsection 152(4) of the Act. The Court concluded that the repetition of the Part IV tax was not a reassessment, and therefore subsection 152(4) of the Act was not applicable.

Accordingly, it is our view that where the CRA notifies a taxpayer that it has denied the taxpayer’s request for adjustments to a taxation year thus resulting in no changes to the amounts assessed, such notification is simply a notification that a reassessment has not been done. Our view remains the same even if the notification is titled a “Notice of Reassessment”. Consequently, the objection and appeal rights provided by subsections 165(1) and 169(1) of the Act are not applicable in these circumstances as no reassessment has been made by the Minister.

We trust these comments will be of assistance.

Yours truly,

Terry Young, CA, CPA
Section Manager
for Director
Specialty Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch