Robert Kopstein, Rebecca Levi, "When Should the Courts Allow Reassessments Beyond the Limitation Period", Canadian Tax Journal, (2010) Vol. 58, No. 3, 475-527

After a lengthy review of the jurisprudence on late assessments, the authors stated (at pp. 509-11):

The following circumstances were found by the courts not to justify late reassessment:

• The taxpayer filed on the basis of an honestly held belief after careful consideration of the statutory reporting requirements, [fn 90: Reilly Estate v. The Queen, 84 DTC 6001, at 6018 (FCTD); and Central Interior Incorporated v. The Queen, 2005 DTC 144, at paragraph 44 (TCC)] or in circumstances where the particular factual characterization adopted was intended, and was carefully and thoughtfully planned. [fn 91: 1056 Enterprises Ltd. v. The Queen, 89 DTC 5287, at 5293 (FCTD
• The taxpayer believed that an amount should not be included as income and had received legal advice that there was an argument under the Act to support its position [fn 92: Louis Sheff (1984) Inc. et al. v. The Queen, 2003 DTC 1120 (TCC) and Bradley v. R. [1996] 1 CTC 2237 (TCC)]
• The taxpayer adopted a reasonable interpretation of the Act where the proper application of the provisions was not entirely clear, [fn 93: Can-Am Realty Limited et al. v. The Queen, 94 DTC 293 (FCTD); and Bondfield Construction Company (1985) Limited v. The Queen, 2005 TCC 78. Bondfield was decided under the parallel provision of the Excise Tax Act, RSC 1985, c. E-15.] or adopted an interpretation of the Act or a treaty where there was a legitimate question as to its application and some foundation for the position taken.[fn 94: Chaumont v. The Queen, 2009 TCC 493]
• The taxpayer filed on the basis of a reasonable interpretation of the facts given the state of the law at the time of filing, [fn 95: Donato v. The Queen, 2009 DTC 2111 (TCC)] or adopted a filing position that was reasonable and bona fide where the characterization of the transaction or its effects was not clear.[fn 96: MNR v. Bison, 72 DTC 6374 (FCTD), Savard v. The Queen, 2008 DTC 5026 (TCC), M.D. Glazier Ltd. v. MNR, 83 DTC 48 (TRB), The Queen v. Regina Shoppers Mall Limited, 91 DTC 5101, at 5105 (FCA; aff'g. 90 DTC 6427 (FCTD), Gauthier v. MNR, 93 DTC 748 (TCC)]
• The taxpayer was reassessed on the basis of a "misrepresentation" that was effectively a judgment call and was not so unreasonable that it could not have been honestly held. [fn 97:Ver v. The Queen, [1995] TCJ no. 593 (TCC), Petric et al. v. The Queen, 2006 DTC 3082 (TCC), The Queen v. Regina Shoppers Mall Limited, 91 DTC 5101, at 5105 (FCA; aff'g. 90 DTC 6427 (FCTD)]
• The taxpayer used a valuation method that the CRA did not endorse, where there was legitimate disagreement as to the proper valuation method to be used in the circumstances. [fn 98: Petric et al. v. The Queen, 2006 DTC 3082 (TCC)]

In the following circumstances, the courts have upheld the reassessment under subparagraph 154(4)(a)(i):

• The taxpayer's filing position was inconsistent with clear law, either as to the application of a particular provision of the Act or as to the characterization to be given to a particular transaction or expenditure. [fn 99: Produits Forestiers St-Armand Inc. v. The Queen, 2004 DTC 4294, at paragraph 59 (TCC), Froese v. MNR, 81 DTC 240, at 245 (TRB), Srougi v. The Queen, 2008 DTC 3793 (TCC)]
• The taxpayer's filing position was divorced from reality and entirely unreasonable in light of the facts, [fn 100: Pearlman et al. v. The Queen, 97 DTC 565 (TCC)] or was based on a transaction that was actively structured so that it could be reported in a way that clearly did not reflect the reality of the situation. [fn 101: Farm Business Consultants Inc. v. The Queen, 95 DTC 200, at 205 (TCC); aff'd 96 DTC 6085 (FCA), Prévost v. Minister of National Revenue, [1996] 1 CTC 2701 (TCC)]
• The taxpayer failed to take any, or adequate, steps to understand the relevant provisions or their proper application. [fn 102: Fukushima et al. v. The Queen, 99 DTC 553 (TCC), Boyer v. the Queen, 2008 DTC 4891 (TCC), Sobolev v. The Queen, 2002 DTC 1217 (TCC), Edible What Candy Corp. v. R. [2002] 1 GSTC 33 (TCC)]
• The taxpayer withheld facts from the tax preparer that would have affected the filing position taken, or withheld the existence of the transaction entirely. [fn 103: Can-Am Realty Limited et al. v. The Queen, 94 DTC 293 (FCTD), Sidhu v. The Queen, 2004 DTC 2540 (TCC), Angus v. The Queen, 96 DTC 1823, at paragraph 39 (TCC), aff'd 98 DTC 661 (FCA)]
• There was no true ambiguity in the characterization to be given on the basis of the existing facts. [fn 104: Pearlman et al. v. The Queen, 97 DTC 565 (TCC), Produits Forestiers St-Armand Inc. v. The Queen, 2004 DTC 4294, at paragraph 59 (TCC)]
• The taxpayer's filing position was not taken in good faith, since the taxpayer either new that the position he was adopting was not supported by the facts [fn 105: Prévost v. Minister of National Revenue, [1996] 1 CTC 2701 (TCC)] or law [fn 106: Breslaw v. AG of Canada, 2005 DTC 5683 (FCA)] or the taxpayer would have known had he not chosen to avoid inquiry. [fn 107: Dalphond v. The Queen,2009 DTC 1395 (TCC), Sidhu v. The Queen, 2004 DTC 2540 (TCC)]
• There was no indication that the taxpayer had even considered the statutory basis asserted before the court at the time the return was actually filed. [fn 108: Ridge Run Developments Inc. v. The Queen, 2007 DTC 734, at paragraph 93 (TCC)]

What appears from this review is that the courts have upheld late reassessments in circumstances where the taxpayer's filing position was not supportable in the legal landscape existing at the time of filing, either because the position taken was contrary to clear law, or because it would have been had unambiguous facts been properly characterized, and where diligent and careful consideration would have made this evident at that time. ... On the other hand, where the taxpayer was conscientious in his approach to filing, and had at least some basis to support his bona fide position that was not unreasonable given the facts and law, the courts have refused to find that there has been any misrepresentation within the scope of subparagraph 152(4)(a)(i), whether or not they would ultimately have agreed with the taxpayer's treatment.

Regarding the question of whether a taxpayer is entitled to rely on competent advice that presents an uncertain tax position, the authors stated (at p. 514):

[W]e submit that a taxpayer should be entitled to rely on an opinion that is below the "more-likely-than-not" standard, so long as there is a realistic possibility that the taxpayer's position will be successful.

The authors proceeded to consider what a realistic possibility means (at p. 518):

In order to support a "realistic possibility" opinion, there must be a reasonable basis for the filing position that is taken. … we believe that a reasonable basis exists where there is some authority for the filing position taken, and no obvious authority to the contrary.