7 October 2022 APFF Roundtable Q. 11, 2022-0942751C6 F - Changement de fin d'exercice et opposition

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152, 165, 171, 249 et 249.1 L.I.R.

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This translation was prepared by Tax Interpretations Inc. The CRA did not issue this document in the language in which it now appears, and is not responsible for any errors in its translation that might impact a reader’s understanding of it or the position(s) taken therein. See also the general Disclaimer below.

Principal Issues: Whether the minister may, by virtue of subsection 165(3), vacate an assessment for the sole purpose of allowing, in accordance with the position described in question 2 of CRA document 2020-0874951I7, a change to the time when the first fiscal period of a taxpayer ends.

Position: No.

Reasons: For the purposes of subsection 165(3), an assessment can only be vacated following the submission of additional information or conclusive arguments, which CRA did not have when the assessment was made, and which can demonstrate that the assessment is either not valid, namely an assessment that is not made in compliance with the procedural provisions of the Act, or incorrect, namely an assessment in which the amount of tax assessed is not based on the applicable provisions of the Act, correctly interpreted and applied to the relevant facts.

FEDERAL TAX ROUNDTABLE, OCTOBER 7, 2022
APFF CONFERENCE 2022

11. Change of year-end and time limit to object

When a company is newly incorporated, it can choose its fiscal period end for filing its tax returns, but without the fiscal period exceeding 53 weeks. Once this date has been set, it cannot be changed unless a request is made by sending a letter to the Tax Services Office stating the business reasons why the change is necessary. Indeed, under subsection 249.1(7), no change can be made to the time at which a fiscal period ends without the concurrence of the Minister.

In Technical Interpretation 2020-0874951I7,[20] the CRA pronounced on whether or not the date of the end of the first fiscal period can be changed retroactively after the tax return for that year has been filed.

Based on that technical interpretation, we understand that if this request for a retroactive change is made after the tax returns have been filed, but before the initial notice of assessment for that year is issued, it will generally be granted. However, if this request for a retroactive change to the end date of the first fiscal period occurs after the notice of assessment for that fiscal period has been issued, it will be refused.

Pursuant to paragraph 165(1)(b), a corporation may object to an assessment no later than the 90th day after the date the notice of assessment was sent. Case law has even shown that a taxpayer can object to the taxpayer’s own return, i.e., the taxpayer can object to elements of a tax return that the taxpayer has filed. Upon receipt of the notice of objection, the Minister must, by virtue of subsection 165(3), with all due dispatch reconsider the assessment and vacate, ratify or vary it or reassess.

For example, consider the following situation. A corporation incorporated on June 1, 2021 initially chose December 31, 2021 as its fiscal period end and filed its tax returns accordingly. It was assessed by the CRA on February 20, 2022. With the benefit of hindsight, its first fiscal period end election was not optimal and it wishes instead to file its first period end tax returns for the period June 1, 2021 to March 31, 2022. This would change its fiscal period end to March 31 of each year, rather than December 31.

Depending on the date of the notice of assessment received from the CRA for the tax return filed on December 31, 2021, the corporation has until May 24, 2022 to file a notice of objection to request cancellation of the assessment issued on February 20, 2022. Once this assessment is cancelled, it would then be possible to file a tax return for the desired period, i.e. from June 1, 2021 to March 31, 2022. Subsequent years' tax returns would be filed for the period ending March 31 of each year.

Question to the CRA

Can the CRA confirm whether it is possible to file a timely objection to an assessment issued following the filing of the tax return for the first fiscal period, so as to request its cancellation and be able to retroactively change the fiscal period end date chosen?

CRA Response

For the purposes of subsection 165(3), an assessment may generally be vacated upon receipt of a Notice of Objection if a taxpayer submits additional facts or compelling arguments that were not before the Minister at the time the assessment was made and that demonstrate that the assessment is either invalid (i.e., it would not have been made in accordance with the procedural provisions of the Income Tax Act), or was unfounded (i.e., it assessed an amount of tax that was not based on the applicable provisions of the Income Tax Act as properly interpreted and applied to the relevant facts).

In the present case, we are of the view that there is nothing to suggest that the assessment of February 20, 2022 would be invalid or unfounded so as to justify its cancellation by the Minister under subsection 165(3) More specifically, the mere fact that the corporation wishes to change the timing of its fiscal period end after tax has been assessed for the year corresponding to the fiscal period, even if it is the corporation's first fiscal period, does not, in and of itself, invalidate or render unfounded the assessment of February 20, 2022.

[Editors' note: the following was deleted from this final version of the response (see preliminary response): It should be noted that once the taxpayer has filed the taxpayer’s return for the year, an election as to the fiscal period end has been made. In this regard, we are of the view that an amended tax return with a different fiscal period end, filed before a notice of assessment is issued, constitutes a request for a change of fiscal period end that must be accepted by the Minister.]

Jean-Bernard Dion
October 7, 2022
2022-094275

FOOTNOTES

Due to our system requirements, footnotes contained in the original document are reproduced below:

1 CANADA REVENUE AGENCY, Technical Interpretation 2020-0874951I7, 24 December 2020.

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Text of Severed Letter

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.

Principales Questions: Whether the minister may, by virtue of subsection 165(3), vacate an assessment for the sole purpose of allowing, in accordance with the position described in question 2 of CRA document 2020-0874951I7, a change to the time when the first fiscal period of a taxpayer ends.

Position Adoptée: No.

Raisons: For the purposes of subsection 165(3), an assessment can only be vacated following the submission of additional information or conclusive arguments, which CRA did not have when the assessment was made, and which can demonstrate that the assessment is either not valid, namely an assessment that is not made in compliance with the procedural provisions of the Act, or incorrect, namely an assessment in which the amount of tax assessed is not based on the applicable provisions of the Act, correctly interpreted and applied to the relevant facts.

TABLE RONDE SUR LA FISCALITÉ FÉDÉRALE DU 7 OCTOBRE 2022

APFF - CONGRÈS 2022

11. Changement de fin d’exercice et délai pour s’opposer

Lorsqu’une société est nouvellement constituée, elle peut choisir sa fin d’exercice pour la production de ses déclarations de revenus, sans toutefois que l’exercice ne dépasse 53 semaines. Une fois cette date établie, il n’est pas possible de la changer, à moins de faire une demande en envoyant une lettre au bureau des services fiscaux en y indiquant les raisons commerciales pour lesquelles ce changement est nécessaire. En effet, selon le paragraphe 249.1(7) L.I.R., aucun changement ne peut être apporté au moment où un exercice se termine sans l’assentiment du ministre.

Dans l’interprétation technique 2020-0874951I7 (footnote 1) , l’ARC s’est prononcée sur la possibilité ou non de modifier rétroactivement la date de fin du premier exercice après que la déclaration de revenus pour cet exercice ait été produite.

Selon cette interprétation technique, nous comprenons que si cette demande de modification rétroactive est effectuée après la production des déclarations de revenus, mais avant que le premier avis de cotisation pour cet exercice ne soit émis, elle sera généralement acceptée. Cependant, si cette demande de modification rétroactive de la date de fin du premier exercice survient après que l’avis de cotisation aura été émis pour cet exercice, elle sera refusée.

En vertu de l’alinéa 165(1)b) L.I.R., une société peut s’opposer à une cotisation au plus tard le 90e jour suivant la date d’envoi de l’avis de cotisation. La jurisprudence a même démontré qu’un contribuable peut s’opposer à sa propre déclaration, à savoir qu’il peut s’opposer à des éléments d’une déclaration de revenus qu’il a lui-même produite. Lors de la réception de l’avis d’opposition, le ministre doit, en vertu du paragraphe 165(3) L.I.R., examiner de nouveau la cotisation avec diligence pour l’annuler, la ratifier ou la modifier ou encore pour établir une nouvelle cotisation.

Prenons pour exemple la situation suivante. Une société constituée le 1er juin 2021 a d’abord choisi le 31 décembre 2021 comme fin d’exercice et a produit ses déclarations de revenus en conséquence. Elle a été cotisée par l’ARC le 20 février 2022. Avec le recul, son choix de premier exercice ne s’avère pas optimal et elle souhaite plutôt produire les déclarations de revenus de son premier exercice pour la période du 1er juin 2021 au 31 mars 2022. Sa fin d’exercice deviendrait ainsi le 31 mars de chaque année, plutôt que le 31 décembre.

Selon la date de l’avis de cotisation reçu de l’ARC pour la déclaration de revenus produite au 31 décembre 2021, la société a jusqu’au 24 mai 2022 pour produire un avis d’opposition pour demander l’annulation de la cotisation émise le 20 février 2022. Une fois cette cotisation annulée, il serait alors possible de produire une déclaration de revenus pour la période souhaitée, à savoir du 1er juin 2021 au 31 mars 2022. Les déclarations de revenu des années suivantes seraient produites pour l’exercice se terminant au 31 mars de chaque année.

Question à l’ARC

L’ARC peut-elle confirmer s’il est possible de faire opposition, dans le délai imparti, à une cotisation émise à la suite de la production de la déclaration de revenus pour le premier exercice, de façon à demander son annulation et pouvoir modifier rétroactivement la date de fin d’exercice choisie?

Réponse de l’ARC

Aux fins du paragraphe 165(3) L.I.R., une cotisation pourra généralement être annulée sur réception d’un avis d’opposition si un contribuable soumet des faits supplémentaires ou des arguments décisifs dont le ministre ne disposait pas au moment d’établir la cotisation et qui démontrent que la cotisation est soit invalide (c’est-à-dire qu’elle n’aurait pas été établie conformément aux dispositions procédurales de la Loi de l’impôt sur le revenu), soit infondée (c’est-à-dire qu’elle fixerait un montant d’impôt qui ne serait pas fondé sur des dispositions applicables de la Loi de l’impôt sur le revenu qui ont été interprétées correctement et appliquées aux faits pertinents).

En l’espèce, nous sommes d’avis que rien ne suggère que la cotisation du 20 février 2022 serait invalide ou infondée de manière à justifier son annulation par le ministre en vertu du paragraphe 165(3) L.I.R. Plus précisément, le simple fait que la société souhaite changer le moment où se termine son exercice après que l’impôt ait été fixé pour l’année correspondant à l’exercice, même s’il s’agit du premier exercice de la société, n’a pas pour effet, en soi, d’invalider ou de rendre infondée la cotisation du 20 février 2022.

Jean-Bernard Dion
Le 7 octobre 2022
2022-094275

FOOTNOTES

En raison des exigences de nos systèmes, les notes de bas de page contenues dans le document original sont reproduites ci-dessous :

1 AGENCE DU REVENU DU CANADA, interprétation technique 2020-0874951I7, 24 décembre 2020.

Summaries

Summary Under

Tax Topics - Income Tax Act - Section 249.1 - Subsection 249.1(7)

a corporation cannot change its year end by objecting to the 1st year’s initial assessment

2020-0874951I7 indicated that if a request for a retroactive change to a taxation year is made after the corporate tax returns are filed but before the first Notice of Assessment for that year is issued, it will generally be granted – but not if such request is made after such issuance.

Suppose that a corporation incorporated on June 1, 2021 initially chose December 31, 2021 as its fiscal period end, and such calendar taxation year was assessed by CRA on February 20, 2022. With a view to having its first taxation year end instead on March 31, 2022, it files a timely Notice of Objection to the assessment. Once such assessment was cancelled, a tax return could be filed for the desired (June 1, 2021 to March 31, 2022) period.

In rejecting this approach of filing a timely objection to the initial assessment of the first taxation year in order to request the cancellation of that year end, so as to be able to retroactively change it, CRA stated:

For the purposes of subsection 165(3), an assessment may generally be vacated upon receipt of a Notice of Objection if a taxpayer submits additional facts or compelling arguments that were not before the Minister at the time the assessment was made and that demonstrate that the assessment is either invalid (i.e., it would not have been made in accordance with the procedural provisions of the Income Tax Act), or was unfounded (i.e., it assessed an amount of tax that was not based on the applicable provisions of the Income Tax Act as properly interpreted and applied to the relevant facts).

[Here] … there is nothing to suggest that the assessment of February 20, 2022 would be invalid or unfounded so as to justify its cancellation by the Minister under subsection 165(3) More specifically, the mere fact that the corporation wishes to change the timing of its fiscal period end after tax has been assessed for the year corresponding to the fiscal period, even if it is the corporation's first fiscal period, does not, in and of itself, invalidate or render unfounded the assessment of February 20, 2022.

Summary Under

Tax Topics - Income Tax Act - Section 165 - Subsection 165(3)

CRA will not vacate an assessment that was not invalid or unfounded

What if, after such initial assessment of the first year, a timely objection is filed to request cancellation of the initial assessment pursuant to s. 165(3), so that the taxpayer is now free to file a fresh first-year return with a changed year end? In rejecting this approach, CRA stated:

For the purposes of subsection 165(3), an assessment may generally be vacated upon receipt of a Notice of Objection if a taxpayer submits additional facts or compelling arguments that were not before the Minister at the time the assessment was made and that demonstrate that the assessment is either invalid … or was unfounded … .

[Here] … the mere fact that the corporation wishes to change the timing of its fiscal period end after tax has been assessed for the year corresponding to the fiscal period, even if it is the corporation's first fiscal period, does not, in and of itself, invalidate or render unfounded the [initial] assessment … .

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7 October 2022 APFF Roundtable Q. 11, 2022-0942751C6 F - Changement de fin d'exercice et opposition

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