18 November 2014 TEI Roundtable, 2014-0550351C6 - 2014 TEI Liaison Meeting, Q.E1

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.

Principal Issues: Whether the Minister may issue a loss determination under subsection 152(1.1) at the time of filing the income tax return if the Minister accepts the return as filed

Position: No.

Reasons: Subsection 152(1.1) requires that the Minister ascertain that the loss is different from the loss reported by the taxpayer on its return of income.

2014 TEI-CRA Liaison Meeting
November 18, 2014

Question E1 - Statute of Limitations: Loss Years

In a year where a taxpayer has section 3 income, the CRA is obliged to make an initial assessment "with all due dispatch." The government's ability to reassess (absent deliberate or negligent misrepresentation by the taxpayer) expires within specified periods following the initial assessment. The same rules apply for a year when a taxpayer has a non-capital loss or a net capital loss, but the rules do not have the same effect because losses carry forward and their quantum remains open to adjustment until the year in which the losses are used or become statute barred.

Subsection 152(1.1) of the Act affords a process for fixing the quantum of a loss, but traditionally this process has not been engaged until after an audit. The process can begin only after the CRA has "ascertained" that the loss differs from the amount reported by the taxpayer. That can be a long time and the losses may be relevant for 20 or more years after the year the loss is incurred, thereby creating substantial uncertainty for taxpayers about their tax position and subjecting taxpayers to a burdensome requirement to maintain records of the year of the loss until the loss amount is "ascertained."

In 2013, TEI recommended that the Department of Finance consider an amendment to the Act that would require the CRA to make initial determinations of losses for a taxation year at the same time and in the same manner as the initial determination of income for that year. The response, captured in minutes of the meeting prepared by TEI members and subsequently reviewed by Finance, was, as follows:

Finance would support an interpretation of subsection 152(1.1) that allowed a taxpayer to request that the amount of a loss be determined when the taxpayer files its return. If this interpretation is correct, Finance sees no need for an amendment. If the provision does not allow this, it may be worth considering an amendment.

Is the CRA prepared to issue a determination of loss to a taxpayer who requests one upon the filing of its return?

Response:

Subsection 152(1.1) of the Act provides that two conditions must be satisfied for the Minister to issue a notice of loss determination.

These conditions are:

(a) the Minister ascertains the amount of a taxpayer's non-capital loss for a taxation year to be an amount that differs from the one reported in the taxpayer's income tax return; and
(b) the taxpayer requests that the Minister determine the amount of the loss.

When a taxpayer files its return of income and the Minister accepts the return as filed, the amount of the taxpayer's loss has not been "ascertained" by the Minister in an amount that differs from the one reported in the return. Therefore the first condition required for a loss determination is not met, and the Minister cannot issue a loss determination upon the request of the taxpayer at the time of filing its return of income.

We note that this interpretation has been confirmed by the courts.

The Act would need to be amended in order to require the Minister to issue a notice of loss determination where a taxpayer requested one at the time of filing its return of income.

Gillian Godson
2014-055035