12 December 1989 Income Tax Severed Letter 32682 F - Gross Negligence where Failure to Include Taxable Capital Gain

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.

Dear Sirs:

Re:  24(1)  Advance Income Tax Ruling 3-2682

We are writing to acknowledge your letter of November 15, 1989 wherein you advised that you wish to withdraw the above-noted request for an advance income tax ruling which was outlined in your letter of August 30, 1989 and subsequently revised in your letter of September 14, 1989.

We have now closed our file on this matter and our billing for the time spent servicing this request will be forwarded to you under separate cover.

With respect to your request for an opinion outlined in your letter of November 7, 1989 regarding the application of subsection 55(2) of the Income Tax Act (the "Act") in relation to the provisions of subsection 152(5) of the Act, we would like to point out that it is a question of fact whether the failure by a taxpayer to include a taxable capital gain in his income as a result of the application of subsection 55(2) of the Act would have resulted from any misrepresentation that was attributable to negligence, carelessness or wilful default or from any fraud in filing the taxpayer's return of income.

The facts of a particular situation can only be determined with reference to all the circumstances surrounding that situation.  Inasmuch as we do not have all the facts of the particular situation referred to in your letter, we are unable to express an opinion on whether subsection 152(5) of the Act might apply to prevent a reassessment under subsection 55(2) of the Act to that particular situation.

Where, however, a taxpayer files his return of income for a year on the basis that subsection 55(2) of the Act does not apply to a particular transaction and at the time of filing that return the taxpayer knows that he will at some future date implement a transaction which would result in subsection 55(2) of the Act applying to that transaction, it is our view that a good argument could be made that paragraph 152(5)(b) would not apply to preclude the Department from reassessing that earlier return to apply subsection 55(2).

We trust that the above comments will be of assistance.

Yours truly,

for DirectorReorganizations and Non-Resident DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch