4431472 Canada – Federal Court sets aside a CRA decision not to reassess on the basis that it was unclear whether it was a final decision

A Canadian corporation (“443 Inc”) filed its tax returns on the basis that distributions received by it from a trust were distributions of fee income (the “GAM fees”). However, it changed its view and filed amended returns for those years requesting that CRA reassess and issue refunds based on the GAM fees not being income from a source. CRA did not reassess those returns.

Subsequently, CRA assessed the sole individual shareholder of 443 Inc. on the basis that the GAM fees were includible in his income under s. 56(2). He appealed those reassessments to the Tax Court.

443 Inc. sought judicial review of a decision whereby the Minister appeared to make a “final” determination not to proceed with the processing of the amended tax returns of 443 Inc. Pamel J set this decision aside on the basis that it in fact was unclear whether what was decided was (1) an outright refusal to exercise the Minister’s discretion to reassess 443 Inc, so as to issue the requested refunds, or (2) a “finalization” of her earlier proposal to postpone her decision on processing the amended returns until the issue as to whether the GAM fees were income was judicially determined.

In explaining the significance of the distinction between these two alternatives, Pamel J had earlier noted the statement in IT-335R2 regarding s. 56(2) that “it is normally the … CRA … practice not to assess the same income twice." He indicated that if indeed the Minister had made a final determination not to reassess (i.e., the 1^st alternative), so that the effect was to clearly impose double taxation (i.e., inclusion of the GAM fees in the hands both of 443 Inc. and its shareholder), “the reasonable corollary decision would be for Minister to take a consistent position in respect of [the shareholder’s] appeal of his reassessments” (i.e., it would be “reasonable” for the Minister to reverse the s. 56(2) reassessments for those years.

Pamel J stated that he would “not order that the matter be returned to the CRA for redetermination at this time,” so that, for the time being, the matter was left to the parties to see if a resolution was possible.

Neal Armstrong. Summary of 4431472 Canada Inc. v. Attorney General of Canada 2021 FC 812 under s. 164(1).