5 November 1996 Internal T.I. 9627917 - CONSEQUENTIAL REASSESSMENT OF STATUTE-BARRED RETURN

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.

Principal Issues:

Whether or not subsection 152(4.3) of the Act would be applicable to allow the reassessment of otherwise statute barred years of the corporate taxpayer. In the event that it is our view that subsection 152(4.3) of the Act is not applicable, what should by the tax treatment of certain leasing commissions which are a leasehold inducement.

Position TAKEN:

Yes.

Reasons FOR POSITION TAKEN:

The wording of the provision authorizes a reassessment as long it
is (1) a consequence of a decision on appeal in respect of a
particular previous year, (2) completed within the time frame set
out in the provision and (3) there is a reasonable connection to
the change in the particular year. In the case at hand, it is
the Department's view that all three criteria are met.

Previous correspondence 940050, 953002

			November 5, 1996
	TORONTO WEST T.S.O,	HEADQUARTERS
	Audit Division	D. Zion
(613) 957-8953
	Attention: Leo Merwiak
			962791

XXXXXXXXXX

This is in reply to you memorandum of August 20, 1996, in which you requested our opinion as to whether or not subsection 152(4.3) of the Income Tax Act (the "Act") would be applicable to allow the reassessment of otherwise statute-barred years of the above-noted taxpayer. In the event that it is our view that subsection 152(4.3) of the Act is not applicable, you have asked for comments regarding the tax treatment of certain leasing commissions which are a leasehold inducement.

Facts

XXXXXXXXXX

Issue

It is XXXXXXXXXX position that subsection 152(4.3) of the Act is applicable and authorizes the reassessment of the 1990 and 1991 taxation years.

XXXXXXXXXX

Our Comments

Subsection 152(4.3) of the Act was added in 1994 applicable to reassessments and redeterminations in respect of taxation years made after June 10, 1993, relating to changes in balances for other taxation years made as a result of assessments made, or decisions on appeals rendered, after December 20, 1991. In order for subsection 152(4.3) to be applicable and allow a redetermination, an assessment, which includes a reassessment, or a decision on an appeal which has changed the particular balance of a taxpayer for a particular year must exist. If such is the case, the reassessment must be completed within a certain time frame and reasonably be considered to relate to the change in the balance in the particular year resulting from the assessment (reassessment) or decision on appeal. The focus of subsection 152(4.3) is the change to "a particular balance" in a particular year, where that balance is defined by subsection 152(4.4) to include income and losses of a particular year.

It is our view that subsection 152(4.3) of the Act would apply to permit a reassessment of the 1990 and 1991 taxation years in the circumstances under review. As a result of the reassessment of the 1988 and 1989 taxation years of XXXXXXXXXX, there was a change in the "particular balance" in each of the particular years. The request by XXXXXXXXXX to reassess the 1990 and 1991 taxation years in order to amortize the remaining capitalized leasing commissions can be reasonably considered to relate to the change in the balance resulting from the Department's reassessment of the corporation's 1988 and 1989 taxation years. In setting out the time frame within which a consequential reassessment can be made, subsection 152(4.3) of the Act does not provide a specific starting point such as the reassessment date of the particular year (1988 and 1989), but rather, it must be completed by a certain point in the future, that being one year from the day that appeal rights expire with respect to the reassessment of the particular year (1988 and 1989). It is our understanding that XXXXXXXXXX request for a reassessment of the 1990 and 1991 taxation years was made prior to the expiration of the appeal rights for the 1988 and 1989 taxation years so as to fall within the required time limitations.

Since subsection 152(4.3) of the Act will permit a reassessment of the 1990 and 1991 taxation years in order to attribute the applicable capitalized leasing commissions to those years, the second issue with which you were concerned is no longer applicable and thus has not been addressed.

We trust that our comments have been of assistance.

John F. Oulton
Section Chief
Business, Property & Personal Section
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch