28 August 2000 Internal T.I. 2000-0019437 - STATUTE-BARRED REASESSMENTS

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: As the taxpayer-corporation sent a letter to the TSO requesting an adjustment to the 1996 tax return within 90-days of the date of reassessment of that return but after the date the return became statute-barred for reassessment under ITA152(4), can the TSO reassess to adjust the 1996 return?

Position: Yes, if the letter qualifies as an objection for purposes of ITA165(1).

Reasons: ITA 165(5) provides that the time limitations in ITA 152(4) do not apply to reassessments originating from a notice of objection. Whether the letter qualifies as an objection depends on the wording content (e.g., use of words such as object, dispute, disagree) and, as stated in ITA 165(2), the manner in which it was served (i.e., served by being addressed to the Chief of Appeals and either mailed or delivered). Under ITA 165(6), the Minister may accept an objection even if it was not served in the manner set out in ITA 165(2).

		August 28, 2000

	XXXXXXXXXX  Tax Services Office 	HEADQUARTERS
	Verification & Enforcement Division	S. Parnanzone
	Assistant Director 	(613) 957-9232

	Attention:  XXXXXXXXXX
		2000-001943

Statute-barred Reassessments

This is in reply to your correspondence of April 10, 2000, concerning the application of non-capital losses in the circumstances which we understand to be as follows:

1. XXXXXXXXXX (the "Taxpayer"), a Canadian-controlled private corporation, reported a non-capital loss for its 1996 taxation year. This non-capital loss together with the unapplied balance of non-capital losses for the 1993 and 1994 taxation years were applied by the Taxpayer to reduce the net income realized in the 1998 taxation year.

2. As a result of a tax audit, the XXXXXXXXXX Tax Services Office (the "TSO") reassessed the Taxpayer's 1996 taxation year so that 1996 became a taxable year. The audit actions necessitated reassessing the 1998 taxation year to remove the 1996 non-capital loss claimed in that year.

3. At the time of processing the audit adjustments, the Taxpayer's representative did not request that any portion of the 1993 and 1994 non-capital losses claimed in 1998 should be removed from that year and transferred to reduce the taxable income that was being proposed to be reassessed for the 1996 taxation year.

4. The TSO reassessed the Taxpayer's 1996 income tax return on September 16, 1999, and that return become statute-barred for reassessment under subsection 152(4) of the Income Tax Act ("Act") on September 19, 1999.

5. The Taxpayer's representative sent a letter to the TSO dated October 4, 1999, requesting that the 1993 and 1994 non-capital losses claimed in 1998 be removed from that year and transferred to reduce the reassessed 1996 taxable income. In your correspondence you indicated that this letter was not received in the TSO until March 2000. We shall assume that the letter was mailed and it was not delivered in person.

6. The TSO's Appeals Division has advised you that the time frame for filing a notice of objection to the 1996 reassessment has expired but that the Taxpayer could request an extension of time to file an objection pursuant to section 166.1 of the Act.

You asked the following question:

Can we adjust a statute-barred return to revise the loss calculations when the request was received within the normal time frame for filing a Notice of Objection?

We understand this question to ask if the TSO can accede to the Taxpayer's request in the October 4, 1999, letter to remove the 1993 and 1994 non-capital losses applied to the 1998 taxation year, which is still "open", and transfer them to reduce the taxable income reassessed for the 1996 taxation year, which became statute-barred for reassessment under subsection 152(4) on September 19, 1999.

XXXXXXXXXX

Our Comments

Whether the TSO can reassess the Taxpayer's 1996 taxation year after the statute-barred date of September 19, 1999, depends on whether the Taxpayer's letter of October 4, 1999, can be considered as an objection to the 1996 reassessment or should simply be treated as a taxpayer's general request for an adjustment. In our view, only if the letter qualifies as an objection filed within the 90-day time frame for objecting to reassessments stipulated in subsection 165(1) can the TSO reassess the Taxpayer's 1996 taxation year. This is because, pursuant to subsection 165(5), the time limitations in subsection 152(4) do not apply to a reassessment that ensues from a valid objection.

As to whether the October 4, 1999, letter qualifies as an objection, there are two aspects to be considered. The first concerns determining whether the content of the letter could be treated as an objection to the 1996 reassessment for purposes of subsection 165(1). This determination is a question of fact. Factors to be considered include the type of wording used in the letter and the manner in which it was addressed. If the wording conveys the Taxpayer's disagreement with the TSO's reassessment by the use of words such as "object", "disagree", "dispute", and the letter is addressed to the Chief of Appeals, the content may be such that the letter can be considered an objection. On this matter, we suggest that you consult your Appeals Division.

The second aspect is whether the October 4, 1999, letter, if it otherwise qualifies as an objection based on its content, was filed within the time frame for filing an objection under subsection 165(1). In our view, the objection would have been filed on time if it was filed not later than 90 days after the September 16, 1999, date of reassessment of the 1996 taxation year, even though it may have been filed after the 1996 income tax return became statute-barred for reassessment under subsection 152(4) on September 19, 1999.

From the information provided, it is unclear what meaning we should give to your reference that the October 4, 1999, letter was not received by the TSO until March 2000, which date is clearly outside the 90-day time frame for a valid objection to the 1996 reassessment. That is, we are unsure if you mean, for example, that the letter was in fact prepared sometime in March 2000 but was backdated to October 4, 1999, or that the letter was in fact mailed in October 1999 but was only received or discovered by the TSO in March 2000. However, we would note that subsection 165(3) provides that an objection can be mailed (or delivered) to the Chief of Appeals and that, if the objection is sent by first class mail, it is deemed to have been received by the addressee on the day it was mailed, in accordance with the provisions of subsection 248(7). The mailing date can be determined with reference to the date of the post office stamp on the letter's envelope.

Accordingly, if the date of the post office stamp on the envelope is a day within the 90-day period following the September 16, 1999, reassessment date and if the letter would otherwise qualify as an objection based on its content, as determined by the Appeals Division, the TSO can reassess the 1996 taxation year to reduce that year's taxable income by the 1993 and 1994 losses transferred from the 1998 taxation year.

On the other hand, if the October 4, 1999, letter does not qualify as a valid objection under subsection 165(1) either because of its content or because it was not filed within the required 90-day period as determined with reference to the post office stamp on the envelope, the letter would simply be regarded as a taxpayer's general request for an adjustment. In such case, the only route that we are aware of to re-open the 1996 taxation year in order to process the loss application request is for the Taxpayer to first obtain an extension of time to file an objection pursuant to section 166.1.

For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Canada Customs and Revenue Agency's mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version, or they may request a copy severed using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Mrs. Jackie Page at (613)994-2898. A copy will be sent to you for delivery to the client.

Roberta Albert
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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