10 March 1994 Internal T.I. 9336616 - REASSESSMENT PERIOD

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

		March 10, 1994

	Assessment of Returns 	HEAD OFFICE
	 Directorate	Rulings Directorate
	T2 Programs Section		D. Zion
(613) 957-8953
	Attention: C. Ritchie

		933661

Reassessment Period

This is in reply to your memorandum of December 13, 1993 in which you request our opinion regarding whether the provisions of paragraph 152(4)(b) as opposed to 152(4)(c) of the Income Tax Act (the "Act") would be applicable in determining the reassessment period in your situation.

You have outlined a situation in which one of a group of associated corporations (Corp. A) incurred a loss in the 1992 taxation year and requested that this loss be carried back to 1989. The reassessment of Corp. A reduced its taxable income and the associated corporations filed amended Forms T2013 (T2013's) changing the allocation of the business limits for 1989 within 90 days of the reassessment of Corp. A. You have questioned whether the associated corporations would be subject to a reassessment period as determined by subparagraph 152(4)(b)(ii) or paragraph 152(4)(c) of the Act. This would in turn determine whether or not the return of the particular associated corporation (Corp. B) is statute-barred for the purpose of the Department's practice as outlined in paragraph 49 of Interpretation Bulletin IT-64R3 Corporations: Association and Control - After 1988. This paragraph outlines the Department's position that it will accept a revised T2013 for the associated corporations and assess accordingly subject to certain conditions, one of which is that the associated corporation's return cannot be statute-barred for the purposes of reassessment pursuant to subsection 152(4) of the Act.

In the discussion set out in your memorandum, you outline arguments that can be made in favour of both positions and you have asked us to advise which of these arguments is correct or whether some other interpretation applies in the circumstances.

The first argument suggested by you is that the reassessment period is extended an additional three years by virtue of subparagraph 152(4(b)(ii) of the Act. Paragraph 49 of IT-64R3 seems to acknowledge that the Department considers a reallocation of business limits to be a direct consequence of a change to the taxable income of any one of the corporations in the associated group. Therefore, it could be argued that for Corp. B, "there is reason, as a consequence of the assessment or reassessment of another taxpayer's tax" to reassess, in which case the extended reassessment period provided by subparagraph 152(4(b)(ii) of the Act would apply. If this subparagraph applies, then the condition in subparagraph 49(b) of IT-64R3 would be met and we would accept the amended T2013's.

On the other hand, you state that the contention could be made that subparagraph 152(4)(b)(ii) is not applicable but that the time frame for reassessment in the circumstances is restricted by paragraph 152(4)(c) of the Act. It could be argued that there is no reason as a consequence of the loss carry-back to Corp. A's 1989 taxation year to reassess Corp. B's tax for 1989. Changing Corp. A's taxable income bears no direct effect on Corp. B's tax. Therefore, Corp. B is statute-barred because the period to reassess as outlined in paragraph 152(4)(c) of the Act has elapsed. Accordingly, the amended T2013's cannot be accepted in accordance with the practice set out in paragraph 49 of IT-64R3.

Our Comments

We agree with the second argument set out above that the carry-back of Corp. A's loss to 1989 does not, in and by itself, provide a reason to reassess Corp. B 's tax for the 1989 taxation year. However, the Department's practice of accepting amended T2013's should also be considered. While there is no provision in the Act specifically related to the filing of amended T2013's, the Department has historically accepted them in situations outlined in the above mentioned IT-64R3. If an amended T2013 is accepted for Corp. A for a reallocation of the business limit for the 1989 taxation year, this will also result in a reassessment. It could then be argued that this subsequent reassessment does provide the reason to reassess Corp. B's tax for the 1989 taxation year if Corp. B's business limit allocation is changed as a result of the amended T2013 filed by Corp. A.

Therefore, in our opinion, the extended period provided for in subparagraph 152(4)(b)(ii) of the Act would be applicable in the circumstances outlined above in determining the time within which Corp. B can be reassessed as a result of the filing of an amended T2013 by Corp. A.

We trust that our comments have been of assistance.

B.W. Dath
Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch