10 November 1994 Internal T.I. 9421446 - REASSESSMENT TO REDUCE PENALTY UNDER FAIRNESS LEGISLAT

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 a taxpayer can file a valid notice of objection to a reassessment made under the fairness package within the normal reassessment period

Position TAKEn: no

Reasons FOR POSITION TAKEN:

220(3.1) is the authority to reassess under the fairness package rather than 152(4)

				November 10, 1994

	Client Assistance Directorate		Rulings Directorate
H. K. Beauchemin		A. Humenuk
	Director General		957-8953

	Attention:  Rick Owen
				942144

Notice of Objections in respect of the Fairness Legislation

We are responding to your memorandum of August 22, 1994 (your file number HDM 4012-3) concerning the validity of a notice of objection filed in respect of a reassessment made to reduce or cancel a penalty as permitted by subsection 220(3.1) of the Income Tax Act (the Act), particularly where such a reassessment is made within the "normal reassessment period" as defined in subsection 152(3.1) of the Act. Reference is also made to our telephone conversation of October 19, 1994 (Owen/Humenuk).

Please note that, while the comments which follow represent our considered opinion of the technical merits of the issue, the responsibility for determining the validity of any particular notice of objection rests with Appeals Branch.

In our telephone conversation of October 19, 1994 (Owen/Humenuk), you advised that a notice of reassessment issued to reflect the waiver of a penalty under the fairness package contains a statement of the taxpayer's appeal rights. You ask whether a taxpayer is entitled to file a notice of objection in respect of a reassessment made within the normal period of reassessment where the reassessment relates solely to the partial reduction of a penalty under the fairness package legislation.

It is your view that a taxpayer is entitled to file a notice of objection in respect of such a reassessment because you feel that the Minister's authority for reassessing a penalty within the normal period of reassessment, including a reassessment under the discretionary provisions of subsection 220(3.1) of the Act, is found in subsection 152(4) of the Act. It is also your view that a notice of reassessment to reflect the Minister's use of discretion to waive or cancel a penalty beyond the normal period of reassessment is found in subsection 152(4.2) of the Act. Since the restriction on filing a notice of objection under subsection 165(1.2) includes a reassessment under subsection 152(4.2) as well as a reassessment under 220(3.1) of the Act, you are not concerned with reassessments beyond the normal period of reassessment.

The authority to reassess penalties or interest pursuant to the Minister's discretion under the fairness package both during and after the normal reassessment period is found in subsection 220(3.1) of the Act. A reassessment of interest or penalties under the authority of section 152 is limited to those situations where the reassessment is required to correct a previous assessment which was not in accordance with the Act. This is the significance of the phrase "as the circumstances require" found in subsection 152(4) of the Act. Because subsection 220(3.1) of the Act is discretionary in its nature, the circumstances under which penalty or interest could be waived, cancelled or reduced by reason of that provision could never be "required" under the Act. While the Minister is required to act equitably towards all taxpayers in exercising that discretion, the discretionary nature of the provision does not permit the Minister's decision to be overturned as a matter of law.

Subsection 220(1) imposes on the Minister the obligation to administer and enforce the provisions of the Act. This obligation includes the requirement under subsection 152(1) of the Act to assess tax, interest and penalties as applicable with all due dispatch upon the receipt of a taxpayer's return as well as the authority to reassess or make additional assessments under subsection 152(4) within the time frames set out in that provision where that original assessment is not in accordance with the provisions of the Act. While subsection 152(4.2) of the Act permits the Minister to reassess beyond the time limits set out in subsection 152(4) of the Act, it does not extend his authority to reassess otherwise than in accordance with the provisions of the Act. In case I did not express Rick Owen's views well, he argues that 220(3.1) is a provision of the Act & its existence justifies an assessment under 152(4).It was in recognition of this limitation and the apparent unfairness that could result from a strict enforcement of the provisions of the Act that the fairness legislation was introduced.

Although penalty and interest can be waived, reduced or cancelled at the Minister's discretion under subsection 220(3.1) of the Act, the application of that discretion does not alter the correctness of any assessment already issued. Accordingly, it is our view that subsection 220(3.1) is the proper authority for making a reassessment to take into account the exercise of ministerial discretion under that provision and subsection 165(1.2) of the Act would preclude the filing of a valid notice of objection in respect of any such a reassessment.

Such a view is consistent with the intent of the fairness package which was to give the Minister the authority to waive or reduce penalties where the circumstances warrant without also resurrecting the taxpayer's right to object in respect of matters of valuations or interpretation of law where the normal period of time for making such an objection has expired.

Although a taxpayer does not have the right to file a notice of objection in respect of a reassessment made under subsection 220(3.1) because of subsection 165(1.2) of the Act as amended by schedule VIII of chapter 7 of the 1994 Statutes of Canada, the taxpayer may seek a judicial review of the decision at the Federal Court - Trial Division under paragraph 18(1)(b) of the Federal Court Act. Not only does the judicial review process not require the filing of a notice of objection in respect of a decision which is to be reviewed, section 18.5 of the Federal Court Act prohibits the court from considering a judicial review where the decision can by appealed under some provision of an Act of Parliament (e.g. The Tax Court of Canada Act). Accordingly, since subsection 169(1) of the Act grants a taxpayer the right to appeal to the Tax Court of Canada where a taxpayer has served a valid notice of objection, a taxpayer would not be entitled to a judicial review of a reassessment where the taxpayer was entitled to file a notice of objection with respect to that reassessment.

A decision taken prior the enactment of subsection 220(3.1) to reassess a penalty to reflect the Minister's discretionary authority would presumably have been made under the assumption that the authority to do so was contained in subsection 152(4) of the Act. However, the coming into force of the amendment to subsection 220(3.1) of the Act provides the correct authority for such reassessments as may have been issued during that time. It is interesting to note that the published cases involving reassessments which were made prior to the introduction of the amendment to subsection 220(3.1) of the Act were decided at the Federal Court -Trial Division as a judicial review of the Minister's decision (see Guimont v. MNR (93 DTC 5497). In Guimont, a case involving the reassessment of at least one return within the normal reassessment period, the court limited its review to the issue of whether the Minister had acted reasonably, fairly and in a consistent manner as outlined in the Information Circular.

You also asked us to comment on the use of the phrase "notwithstanding subsection 152(4) to (5)" found in subsection 220(3.1) of the Act. The preposition "notwithstanding" is defined in the Concise Oxford Dictionary to mean "without regard to" or "without prevention by". Thus, a provision of the Act which includes a prepositional phrase commencing with "notwithstanding" will generally supersede any other provision of the Act so named in the prepositional phrase. Thus, the Minister may waive or cancel a penalty or interest by reassessment under subsection 220(3.1) of the Act without regard to or irrespective of whether such a reassessment would be permitted under the authority of subsection 152(4) to (5) of the Act.

B.W. Dath
Director
Business and General Division
Rulings Directorate
Policy and Legislation Branch

c.c. Peter Meerberg,
Chief of Policy and Programs Division
Appeals Branch