Subsection 152(4)

Cases

3087-1883 Québec Inc. v. Canada (National Revenue), 2019 CF 785

a determination of CRA not to reassess a taxpayer is a reviewable decision

The two affiliated plaintiffs (9027 and 3097) received $8.7 million in expropriation proceeds in their 2012 taxation years for the expropriation of a property co-owned by them, and paid $5.45 million of those proceeds to an affiliated corporation (“CAI”) to which the property had been leased respecting damages such as for dislocation. The three companies reported their respective shares of the proceeds in their returns for their 2012 taxation years. However, about a year later, CAI filed an amended return to reduce its proceeds of dispositions and apply that amount to reduce the capital cost of a replacement property under s. 13(7.4). CRA denied this claim on the basis that CAI had received its portion of the proceeds under s. 9 rather than s. 12(1)(x). On February 4, 2015, a representative of the three companies requested CRA to amend their returns by excluding the $5.45 million form CAI’s income and treating it (in the applicable portions) as capital gains of 9027 and 3097.

On March 16, 2017, CRA refused this request on the grounds that the $5.45 million was income of CAI for its 2012 taxation year, although it then reassessed CAI to make adjustments of a more minor nature. On December 8, 2017, the three companies’ lawyer sent a demand letter to a Justice lawyer asking why no reassessment had been made, and the Justice lawyer responded on January 9, 2018 in a “courtesy letter” stating that CRA was not taking a position in response to the demand letter. On February 6, 2018, the plaintiffs brought this application for judicial review on the basis that the refusal in the January 7, 2018 letter to reassess deprived them of appeal rights.

In dismissing their application, Walker J found that the Minister’s letter of March 16, 2017 constituted a discretionary decision to not reassess the plaintiffs’ 2012 taxation year that was within the Court’s jurisdiction to review, stating (at para.52, TaxInterpretations translation):

The discretionary character of such a decision is not different from that of a decision rendered by the Minister under subsection 152(4.2) of the Act (JPMorgan at para 96). Without however concluding on the correctness or validity of the assessment, the Court can pass on the procedure (as to a violation of equitable procedural rights) or as to the substance (unreasonableness).

Conversely, the Justice lawyer’s letter did not constitute a reviewable decision. She then found that the application of the plaintiffs, which was made beyond the 30-day period set out in s. 18.1(2) of the Federal Courts Act, did not satisfy the criteria in Hennelly, 1999 CanLII 8190, for extending that period.

In any event, the Minister had no legal obligation to issue a reassessment notice following the February 4, 2015 request. Walker J stated (at para. 76) that “the use of the word ‘may’ denotes a discretionary power of the Minister which contrasts sharply with the obligatory requirements of subsections 152(1) and (23) of the Act (see also, subsection 152(6), “the Minister shall reassess the taxpayer’s tax”). Accordingly, the plaintiffs had not met the first requirement for a mandamus order (the existence of a legal obligation of a public character) – nor had they demonstrated that the Minister’s decision was unreasonable.

Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Federal - Federal Courts Act - Subsection 18(12) determination not to reassess was a reviewable decision that started the 30-day period 249

6075240 Canada Inc. v. Canada (National Revenue), 2019 FC 642

normal reassessment period also starts running following an arbitrary assessment

The Minister made arbitrary assessments of the taxpayer following its failure to file returns for its 2010 to 2012 years. More than three years after such assessments, the taxpayer filed returns for those years, which the Minister refused to process on the grounds that they were received beyond the normal reassessment period. The taxpayer sought judicial review of this refusal.

In declining the taxpayer’s application, Grammond J. stated (at paras. 9 – 11):

One of the objectives of section 152 … is to ensure the finality of assessments by precisely setting out the circumstances in which a reassessment can be issued. To that end, Parliament has established the normal reassessment period … . The starting point of the normal reassessment period is “the day of sending of a notice of an original assessment” (paragraph 152(3.1)(a)), not the end of the taxation year or the filing of a tax return.

Having established such a system, Parliament could not have intended for a significant category of assessments not to be subject to any time limit with respect to the making of a reassessment. … [T]he Act does not create different categories of assessments. The expression “[arbitrary] assessment” … is not defined in the Act. Subsection 152(4) applies to all assessments, whether they were issued following the filing of a tax return or not.

After referring to the submission of the taxpayer that the Act should be interpreted similarly to s. 1010(2)(a) of the Quebec Taxation Act, which provided:

The Minister may … make a reassessment … within three years after the day of sending of an original assessment … for a taxation year or the day on which a fiscal return for the taxation year is filed, whichever is later

Grammond J stated (at para. 16):

[S]ubsection 152(3.1) … does not provide that the normal reassessment period can begin at the time when the taxpayer files a tax return, if that time is after a first notice of assessment is sent. The federal statute and the Quebec statute set out different rules. Therefore, the Quebec statute cannot be used to interpret the federal statute.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(3.1) - Paragraph 152(3.1)(b) s. 152(3.1), unlike its Quebec equivalent, does not give a taxpayer longer to respond to an arbitrary assessment than a normal assessment 168

Mammone v. Canada, 2019 FCA 45

CRA could not retroactively validate a reassessment made in reliance on an invalid RPP revocation by issuing a valid retroactive revocation after the normal reassessment period

In June 2009, the taxpayer transferred the commuted value of his current (OMERS) pension to a new pension plan of a number company 1723586 Ontario Inc. (the “New Plan”), of which he was the only member and which had been registered effective January 1, 2009. In 2013, the Minister gave notice of her intention to revoke the New Plan’s registration, mailed November 14, 2013, and on December 12, 2013, the Minister issued a notice of revocation which purported to revoke the registration of the New Plan effective January 1, 2009. The attempted revocation was ineffective because the notice of revocation was erroneously sent before the required 30-day notice period under s. 147.1(12) had passed. On December 12, 2013 (which was the last day of the normal reassessment period for the taxpayer’s 2009 taxation year), the Minister also reassessed that year to include the commuted value of the OMERS pension in his income pursuant to s. 56(1)(a)(i). In June 2017, following the commencement of the taxpayer’s appeal to the Tax Court, the Minister issued a proper notice of revocation, which revoked the registration of the New Plan effective January 1, 2009.

After noting the statement in Gramiak “that allowing the Minister to raise an argument based on a legal and factual basis that is different from the one underlying the assessment after the normal reassessment period has expired would in effect do away with the limitation period,” Woods JA stated (at paras. 34-35, 37):

Without the notice, the new pension plan would be a “registered pension plan” that qualifies for a tax-free transfer of funds between plans. Therefore, the revocation notice was a factual element that was necessary in order to support the legal basis of the income inclusion … .

…[T]he applicable revocation notice was sent in 2017, which is long after the limitation period had expired. Clearly, this was not a factual basis on which the reassessment was based when it was issued, or when the limitation period expired. …

[T]he Minister’s position impermissibly avoids the limitation period for the 2009 taxation year. The Minister’s reliance on the 2017 revocation notice was a new factual basis underlying the reassessment raised long after the limitation period had expired.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(9) s. 152(9) did not permit CRA to change the factual basis for its reassessment beyond the normal reassessment period 363

Canada v. Gray, 2008 DTC 6641, 2008 FCA 284

didn't matter whether 1st reassessment invalid

The Tax Court quashed a reassessment of the taxpayer made less than three years after an alleged initial assessment of the taxpayer, on the basis that the taxpayer never received a first assessment. In allowing the Crown's appeal, Noël J.A. noted that the second assessment was valid whether the alleged first assessment was valid (in which case the second reassessment was made within the normal reassessment period) or it was not valid (in which case the normal reassessment period had not commenced to run).

Ludmer v. The Queen, 95 DTC 5311 (FCA)

undertaking contrary to law not binding on CRA

The taxpayer pleaded that the Minister's decision to allow an interest deduction for taxation years of the taxpayer prior to 1981 constituted an admission that was binding on the Minister for the 1981 to 1985 taxation years of the taxpayer and that, in reliance on this initial approach of the Minister, the taxpayer had organized his affairs accordingly. In striking out this pleading, Chevalier D.J. referred, inter alia to the statement of Marceau J.A. in Canada v. Lidder, [1992] 2 F.C. 621 at 625, that "a public authority may be bound by its undertakings as to the procedures that it will follow, but in no case can it place itself in conflict with its duty and forego the requirements of the law".

Chevalier D.J. also found that the Minister had no duty to act in accordance with the rules of natural justice. In contrast with the situation in the United Kingdom, "neither the Minister of National Revenue nor his employees have any discretion whatever in the way in which they must apply the Income Tax Act" (p. 5317).

The Queen v. Regina Shoppers Mall Ltd., 91 DTC 5101 (FCA)

The Minister submitted that s. 152(8) prohibited the taxpayer from (indirectly) challenging the validity of a reassessment by the Minister of its 1978 taxation year (in which the Minister treated a gain of the taxpayer as being on income account and deducted a reserve in respect of the gain under paragraph 20(1)(n)), by not filing its tax return for the following year (1979) on the basis that there was an income inclusion to it under s. 12(1)(e). MacGuigan J., in rejecting this submission, indicated (at p. 5104) that "the 'notwithstanding' phrase restricts the meaning of the preceding words to the case (and in despite) of any error, defect or omission", so that such preceding words were only curative provisions allowing for validity despite errors, defects or omissions, rather than precluding challenges to such assessments.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(8) 122

Optical Recording Corp. v. The Queen, 86 DTC 6465, [1986] 2 CTC 454 (FCTD), aff'd 87 DTC 5248, [1987] 1 CTC 417

notice of assessment that did not assess tax that was yet due was a nullity

A purported assessment which merely indicated that the taxpayer was "technically liable" to pay an amount, but that Revenue Canada would not take collection action provided that the liability was eliminated through the making of expenditures by the taxpayer by year end, was a nullity. After stating (at p. 6473) that "To 'assess' in terms of the Act must mean all or either of 'to calculate, to compute and to fix and to determine,'" and that since the computation and determination of the amount due under s. 195(2) already had been done by Parliament, there was nothing for the Minister to assess, Muldoon J stated (at p. 6474):

One wonders why the Minister, or his Deputy or their officials, in conveying whatever message they intended to convey on June 3, 1985, chose to make a Notice of Assessment form the vehicle. There was no Part VIII tax due to assess at that time. Nor was the Minister then demanding payment as his words and deeds amply demonstrate. Since that form of Notice of Assessment signified neither demand nor assessment it amounts to a double nulllity.

Words and Phrases
assess

Hadler Turkey Farms Inc. v. The Queen, 86 DTC 6013, [1986] 1 CTC 81 (FCTD)

The taxpayer was reassessed for its 1973 to 1975 taxation years after computing its farming income in accordance with the accrual method. The reassessments were held not to have the effect of opening the entire question of taxability for those taxation years, and the reassessments accordingly did not permit the taxpayer to file amended returns computing its farming income in accordance with s. 28.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 28 - Subsection 28(1) 49

Abrahams [No. 1] v. MNR, 66 DTC 5451, [1966] CTC 690 (Ex Ct)

The Minister made a further reassessment of the taxpayer after the taxpayer had objected and appealed to the Exchequer Court from a previous reassessment. Jackett P. found that on the assumption that the second reassessment was valid, it followed that the first reassessment was displaced and therefore was a nullity. Accordingly, there was no relief that the court could grant on the appeal from the first reassessment because it had ceased to exist. He noted that a different result would have obtained if the second reassessment had been an additional assessment, rather than a reassessment made in order to fix the taxpayer's total tax for the year.

See Also

Mammone v. The Queen, 2018 TCC 24, rev'd 2019 FCA 45

RPP revocation beyond the normal reassessment period retroactively validated an unsupportable reassessment under s. 56(1)(a)(i)

The taxpayer was a member of the Ontario Municipal Employees Retirement System (“OMERS”) pension plan. On January 1, 2009, 1723586 Ontario Inc. established and registered effective January 1, 2009, the Pension Plan for Senior Executives. In June 2009, the taxpayer transferred the commuted value of his current (OMERS) pension to a newly-registered pension plan of 1723586 Ontario Inc. (the “New Plan”), of which he was the only member. In 2013, the Minister gave notice of her intention to revoke the New Plan’s registration, mailed November 14, 2013, and on December 12, 2013, the Minister issued a notice of revocation which purported to revoke the registration of the New Plan effective January 1, 2009. The attempted revocation was ineffective because the notice of revocation was erroneously sent before the required 30-day notice period under s. 147.1(12) had passed. On December 12, 2013, the Minister also reassessed the taxpayer’s 2009 taxation year to include the commuted value of the OMERS pension in his income pursuant to s. 56(1)(a)(i). In June 2017, the Minister issued a proper notice of revocation, which revoked the registration of the New Plan effective January 1, 2009. The taxpayer argued that the New Plan was still a registered plan when the Minister reassessed him and that the June 2017 notice of revocation was a new basis for reassessment that was prohibited by s. 152(9).

Graham J found that the facts necessary to support the reassessment were in place when the reassessment was issued and that the reassessment stood, stating (at paras 14, 15, 17, and 19):

In my view, Mr. Mammone’s argument fails because of the retroactive effect of the revocation. The facts necessary to support the reassessment did exist when the reassessment was issued because subsection 147.1(12) caused them to exist retroactively.

… The retroactive nature of the revocation altered history, causing an altered timeline to replace the original timeline. … Had the appeal come to trial before the Minister issued the June 2017 notice of revocation, I would have been dealing with the original timeline and would have come to a different conclusion. In the original timeline, the revocation would not have occurred, the registration would still have been in place and the reassessment could therefore not have stood.

… I do not see any practical difference between a law being given retroactive effect and a fact deemed by law to exist retroactively being given retroactive effect.

…Parliament enacted legislation which gave the Minister the power to retroactively change facts. There is no suggestion that Parliament was unaware what it was doing.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(9) subsequent retroactive deregistration of RPP also retroactively validated an assessment factually made on basis of plan’s invalidity 200
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) - Paragraph 152(4)(a) - Subparagraph 152(4)(a)(i) subsequent retroactive deregistration of RPP would not establish carelessness in previous return filing 185
Tax Topics - General Concepts - Effective Date subsequent deregistration of RPP retroactively validated reassessment 223
Tax Topics - Income Tax Act - Section 147.1 - Subsection 147.1(12) subsequent deregistration of RPP beyond normal reassessment period nonetheless retroactively validated reassessment 91
Tax Topics - Income Tax Act - Section 56 - Subsection 56(1) - Paragraph 56(1)(a) - Subparagraph 56(1)(a)(i) valid assessment for transfer to an RPP that was retroactively deregistered 83

Aubrey Dan Family Trust v. Minister of Finance, 2016 ONSC 3801, aff'd 2017 ONCA 875

original assessment not dealing with Ontario tax starts the normal Ontario reassessment period

In 2011, and shortly before the third anniversary of the original assessment in 2008 of the taxpayer’s 2007 federal and Alberta return, the trustees of the taxpayer (“ADFT”) provided a waiver on form T2029 to CRA in order for CRA to grant it an extension (beyond that third anniversary date) for ADFT to make representations that it was resident in Alberta rather than Ontario. Early in 2012, the federal Minister issued a notice (styled as a Notice of “Reassessment”) reversing the Alberta tax in the 2008 assessment and assessing ADFT instead for Ontario tax.

S. 48(15) of the Income Tax Act (Ontario) (the “Ontario Act”) provided:

Every form purporting to be a form prescribed or authorized by the Provincial Minister shall be deemed to be a form prescribed by order of the Provincial Minister [effectively defined in s. 1(1) to be the federal Minister] under this Act… .

ADFT argued that this provision required “that the form itself must purport to be prescribed” for the provision to be operative (para. 31). Before rejecting this submission, Lederman first found against a Crown argument that, as the 2008 assessment had not dealt with Ontario taxes, it was the 2012 “reassessment” which in fact was the original assessment of the taxpayer’s Ontario tax (so that the normal reassessment period did not start running until then). He stated (at para 17):

… If the original notice does not constitute notification of no tax payable in all provincial or territorial jurisdictions, then a taxpayer receiving such a notice, could be assessed for income taxes in any other province or territory indefinitely. …

He also indicated that it was contradictory to treat the same (2012) Notice as a reassessment of Alberta tax and as an original assessment of Ontario tax.

Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Ontario - Taxation Act 2007 - Section 158 federal form with CRA insignia purported to be a prescribed form 328
Tax Topics - Income Tax Act - Section 244 - Subsection 244(16) form bearing CRA insignia purported to be prescribed form 76

Hall v. The Queen, 2016 TCC 221 (Informal Procedure)

assessment of Part I tax returns does not engage the running of statute-barring for taxes under other Parts

The taxpayer had $12,029 of excess contributions in his RRSP since the end of 2008. He failed to file a Return for RRSP Excess Contributions (“Return”) on form T1-OVP for his 2008 to 2013 years as required by s. 204.3(1). The Minister assessed the taxpayer in 2015 for the tax owing and arrears interest.

In dismissing the taxpayer’s argument that he had not been reassessed within the normal reassessment period, D’Auray J stated (at paras. 18, 23):

Since Part X.1 outlines a separate tax, requiring a separate return from Part I, a return filed under Part I is not applicable to the timing requirements set out in subsection 204.3(1). …

As a result of subsection 204.3(2), the limitation periods in subsection 152(3.1) apply to Part X.1, with modification. The three year assessment period begins on the sending of a notice of an original assessment.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 204.1 - Subsection 204.1(4) waiver of tax of mentally ill taxyaer recommended 120
Tax Topics - Income Tax Act - Section 204.3 - Subsection 204.3(2) assessment of Pt I returns did not start Pt X.1 statute-barring period running 69

684761 B.C. Ltd. v. The Queen, 2015 DTC 1228 [at 1507], 2015 TCC 288

penalty assessment was an additional assessment

The Minister reassessed the taxpayer’s 2008 year within the normal reassessment period, and then issued a “Notice of Additional Assessment” assessing penalties under ss. 163(1) and (2) beyond the normal reassessment period. In rejecting the taxpayer’s submission that the Minister had inappropriately “bifurcated one assessment process into two distinct products” and that this additional assessment was in substance a reassessment, so that it displaced the previous reassessment, Rip J stated (at para. 14):

Notwithstanding that the assessed penalty may be based on events culminating in the reassessment, it is still an amount, a penalty, in addition to tax previously assessed for 2008. There is nothing esoteric about the additional assessment. It is a procedure available to the Minister.

Klemen v. The Queen, 2014 DTC 1170 [at 3613], 2014 TCC 244

s. 165(5) cannot be used to increase an assessment

The Minister assessed the taxpayer for his 2004 taxation year within the normal reassessment period on the basis that the taxpayer had realized a gain on income rather than capital account on selling equipment to his corporation and that the cost of the transferred equipment was lower than reported. After the taxpayer objected, the Minister made an additional reassessment beyond the normal reassessment period to include additional income in the taxpayer's hands on the basis that the transferred equipment had a higher fair market value than the sale price.

The Minister argued that s. 165(5) validated the second reassessment as the taxpayer had previously filed a notice of objection. Hogan J found that Anchor Point establishes that s. 165(5) cannot be used to add income in a reassessment made beyond the normal reassessment period. As the Crown also did not advance any evidence of "neglect" etc. by the taxpayer, the second reassessment was statute-barred.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Commercial Activity equipment licensed at no charge was held in commercial activity 84
Tax Topics - Income Tax Act - Section 165 - Subsection 165(5) s. 165(5) cannot be used to increase an assessment 151
Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Machinery and Equipment licensed equipment internally transferred in one-off transaction 176

Fio Corporation v. The Queen, 2014 TCC 58

implied undertaking of confidentiality during discovery

The taxpayer was reassessed for its 2007 and 2008 taxation years, appealed to the Tax Court and then was further reassessed based on documents which it had provided on discovery.

The further reassessments had breached the rule in Juman v. Soucette, 2008 SCC 8, para. 4 that "both documentary and oral information obtained on discovery…is subject to the implied undertaking [that] it is not to be used by the other parties, except for the purpose of that litigation, unless and until the scope of the undertaking is varied by court order," as the further reassessments "gave rise to new litigation" (para. 44). To the extent that there was a public interest in assessing the taxpayer with the best available information, such arguments should have gone into an application for judicial leave, rather than a unilateral decision by the Minister (52-53).

D'Arcy J did not vacate the further reassessments as it was not clear that they had been based only on the discovered documents. He instead ordered that the discovered documents could not be used in any other proceeding, after previously noting (at para. 56) that such leave should only be granted "in exceptional circumstances."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 171 - Subsection 171(1) inherent jurisdiction to void reassessments which breach undertaking 139
Tax Topics - Income Tax Act - Section 241 s. 241 does not override implied undertaking rule 143
Tax Topics - Other Legislation/Constitution - Federal - Tax Court of Canada Act - Section 17.2 time of commencement of appeal 138

Nottawasaga Inn Ltd. v. The Queen, 2014 DTC 1021 [at 2628], 2013 TCC 377 (Informal Procedure)

In 2011 the Minister reassessed the taxpayer's 2007 taxation year (the old reassessment) by denying the deduction of various expenses and capital cost allowance claims. After being requested to carry back subsequent losses to 2007, the Minister reassessed to reduce the tax payable in 2007 to nil. Under the new reassessment, the taxpayer was still required under s. 161(7) to pay the interest that had accrued on the additional income from 2007 before the loss carry-back. The taxpayer appealed on the basis that the old reassessment overstated the 2007 income, so that the resulting interest was too high.

Pizzitelli J found that the Tax Court lacked the jurisdiction to grant the relief the taxpayer sought on the basis that the new reassessment was a nil assessment. The interest owing did not transform the nil assessment into an assessment. Pizzitelli J stated (at para. 19):

A nil assessment does not in my mind describe circumstances where no total taxes, interest and penalties are assessed. It more properly describes the situation where no taxes are claimed.

Although the term "nil assessment" has been used to refer to an assessment that is for a nil amount (and therefore cannot be appealed), more accurately, an "assessment" for a nil amount is not an assessment at all, but rather a notice under s. 152(4) that "no tax is payable" (para. 20, citing Interior Savings Credit Union and Okalta Oils). Moreover, an assessment of interest (or penalties) is distinct from an assessment of tax (paras. 22-23, citing McFadyen).

To vary an interest assessment, a taxpayer must either show that interest was computed incorrectly (which was not in issue), or show that the underlying tax was incorrect (which the taxpayer could not do because there was no assessment in effect for 2007).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 169 285

Yazdani v. The Queen, 2012 DTC 1303 [at 3983], 2012 TCC 371 (Informal Procedure)

The taxpayer invested money with a rogue (operating a business under the name "Regions"), and ultimately recovered only $6950 of his $31,000 outlay. The Minister assessed him beyond the normal reassessment period for investment deductions relating to Regions. In discussions with CRA officials, the taxpayer stated that he could not recall making the investments. Furthermore, testimony from the taxpayer in his wife's Tax Court appeals proved that he knew that Regions had a cash flow problem, and he was unable to explain why, knowing that, he would continue to invest in Regions. Favreau J. found that the taxpayer had made misrepresentations attributable to neglect, and therefore upheld the Minister's out-of-limitations-period assessments.

Blackburn Radio Inc. v. The Queen, 2012 DTC 1213 [at 3580], 2012 TCC 255

Woods J. found that a reassessment made beyond the limitations period is void rather than voidable. Therefore, the taxpayer was under no duty to file an objection. She stated (at para. 62):

In my view, Canadian Marconi is strong authority that an out-of-time reassessment is void absent an allegation of fraud or misrepresentation. There is no such allegation in this case.

She also noted obiter that she questioned the common agreement of the parties that "a so-called nil assessment is still an assessment for purpose of the Act," and noted that in Interior Savings Credit the Court had stated that "an assessment which assesses no tax is not an assessment."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4.3) no further reassessment permitted if order to vacate or vary 286
Tax Topics - Income Tax Act - Section 171 - Subsection 171(1) no further reassessment permitted if order to vacate or vary 173

Administrative Policy

5 October 2018 APFF Roundtable Q. 15, 2018-0768861C6 F - Share exchange and statute of limitation

a price adjustment clause can operate re statute-barred transactions to affect a tax attribute that is used in the current year

In the 2017 taxation year, an individual effects a s. 85 share-exchange rollover transaction (with a timely election filing and reporting of the disposition in the return), a s. 86 share-exchange rollover (reported in the 2017) return or a s. 51 share-exchange rollover (not required to be reported) - and received the notice of assessment for that year on April 15, 2018. At what time would such transactions be considered to have become statute-barred assuming no misrepresentation described in s. 152(4)(a)(i) and assuming price adjustment clauses (PAC).

CRA responded:

The statute-barring period requirement relates to the determination of tax consequences for a particular taxation year and not to a particular transaction. … Thus, as soon as a transaction creates legal impacts in a taxpayer's taxation year that are not otherwise statute-barred, the resulting tax consequences may be determined by the Minister. Thus, we are of the view that a taxable attribute, such as the ACB of a capital property, that was determined by a taxpayer to give effect to a rollover that occurred in a statute-barred taxation year, but for which a valid PAC or deeming provision, such as paragraph 85(1)(c), applies, may be adjusted for a taxation year that is otherwise not statute-barred if it has an impact on the tax consequences for that year. On the other hand, although a valid PAC may have retroactive effect, it does not, however, permit the Minister to reopen an otherwise statute-barred taxation year, except where one of the exceptions listed above applies.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Effective Date retroactive ACB adjustment under PAC to statute-barred transaction may be taken into account in a current relevant transaction 57

17 April 2018 Internal T.I. 2018-0739141I7 - Amending a statute barred partnership return

CRA can treat late T5013 amendment request as one for direct partner assessments/partner returns generally can be amended beyond three years if no change in tax payable

The partnership with three principal partners (Partners 1, 2 and 3, all corporations) filed an amended T5013, requesting an increase in capital cost allowance and cumulative eligible capital deductions, so as to change the partnership’s reported income to a loss for 2012, following the passage of the three year period under s. 152(1.4). CRA made no such determination.

The partners requested that their respective 2012 returns be amended to reflect their share of the partnership loss. CRA only accepted this request for Partner 2 whose taxation year (unlike Partners 1 and 3) was not statute-barred.

The Directorate indicated that in situations where the Minister has not made a determination of partnership income or loss under s. 152(1.4) and the three-year limitation period specified therein has expired, the Minister may only make a determination under s. 152(1.4) where one of the exceptions specified in s. 152(4) applies, e.g., a timely waiver. However, the receipt of a request to amend a T5013 return can be taken into account to assess the returns of the partners directly if they are not statute-barred.

The presented situation also involved Partner 1then asking CRA to amend its income tax return to reflect the partnership loss and remove the deduction for a non-capital loss from a prior taxation year that was originally claimed. The changes would not result in any change to taxable income (i.e., taxable income would remain nil). The Directorate stated:

[I]n a situation where a taxpayer has been issued a notification that no tax is payable and the requested changes will not result in tax payable, the Minister may consider the request to amend the return because the change does not require the Minister to reassess the taxpayer. … Whether the Minister agrees to the request would depend on the particular facts of the situation.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(1.4) CRA can treat a late request for a T5013 amendment (which cannot be dealt with under s. 152(1.4)) as a request to assess the partner returns directly 306

S3-F4-C1 - General Discussion of Capital Cost Allowance

UCC adjustment for 1st non-statute barred year

1.113 It may be necessary to revise the capital cost of a depreciable property acquired during a tax year that is now statute-barred. This might occur, for example, because of a reallocation of the total purchase price of a piece of real estate between land and buildings or where an error was made by claiming CCA on a property that is not considered depreciable property. In such cases, the capital cost and the amount of CCA actually deducted in respect of the depreciable property in any statute-barred year will not be adjusted unless one of the conditions described in paragraph 152(4)(a) applies. Instead, the CRA will recalculate the UCC as of the beginning of the first non-statute-barred year by using the revised capital cost of the property (rather than the original capital cost) for purposes of element A of the definition of UCC. The actual CCA deducted in each statute-barred year will still be used for purposes of element E of the definition of UCC.

Recapture adjustment

1.115 In some cases, a revision to a property's capital cost might result in the UCC decreases to exceed the UCC increases as of the end of a tax year that is now statute-barred. Provided paragraph 152(4)(a) does not apply, the recapture of the excess amount will not be added into the taxpayer's income for that or a subsequent statute-barred year. However, if an excess of UCC decreases over increases still exists at the end of the first non-statute-barred tax year, an income inclusion under subsection 13(1) will be necessary in order to resolve the negative UCC balance. All CCA claimed in that year, and in subsequent non-statute-barred years, will be reassessed accordingly. This treatment applies to property acquired or transactions entered into to acquire property after December 31, 2015.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Expenditure v. Expense - Improvements v. Repairs or Running Expense 476
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Undepreciated Capital Cost - A 669
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Depreciable Property 170
Tax Topics - Income Tax Act - Section 16.1 - Subsection 16.1(1) 248
Tax Topics - Income Tax Act - Section 13 - Subsection 13(28) 194
Tax Topics - Income Tax Act - Section 13 - Subsection 13(27) 178
Tax Topics - Income Tax Act - Section 13 - Subsection 13(29) 145
Tax Topics - Income Tax Regulations - Regulation 1100 - Subsection 1100(2) 184
Tax Topics - Income Tax Regulations - Regulation 1100 - Subsection 1100(2.2) 267
Tax Topics - Income Tax Regulations - Regulation 1100 - Subsection 1100(3) 60
Tax Topics - Income Tax Act - Section 18 - Subsection 18(3.1) 140
Tax Topics - Income Tax Act - Section 13 - Subsection 13(7.5) 167
Tax Topics - Income Tax Act - Section 261 - Subsection 261(2) 53
Tax Topics - Income Tax Act - Section 128.1 - Subsection 128.1(1) - Paragraph 128.1(1)(b) 204
Tax Topics - Income Tax Regulations - Regulation 1102 - Subsection 1102(1) - Paragraph 1102(1)(c) 150
Tax Topics - Income Tax Act - Section 13 - Subsection 13(7) - Paragraph 13(7)(e) 55
Tax Topics - Income Tax Act - Section 43 - Subsection 43(1) 142
Tax Topics - Income Tax Act - Section 68 153
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21.1) - Paragraph 13(21.1)(a) 65
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21.1) - Paragraph 13(21.1)(b) 117
Tax Topics - Income Tax Act - Section 13 - Subsection 13(1) 403
Tax Topics - Income Tax Act - Section 8 - Subsection 8(2) 65
Tax Topics - Income Tax Act - Section 20 - Subsection 20(16.1) 142
Tax Topics - Income Tax Act - Section 13 - Subsection 13(9) 207
Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 8 214
Tax Topics - Income Tax Act - Section 13 - Subsection 13(5) 259
Tax Topics - Income Tax Act - Section 13 - Subsection 13(6) 191

29 July 2015 Internal T.I. 2015-0575921I7 - Recapture arising in statute-barred years

negative UCC balance arising in statute-barred year becomes recapture in 1st open year

If, as a result of the erroneous inclusion of acquired property (e.g., property which was not acquired for an income-producing purpose) in a class of depreciable property the bogus CCA claims thereon cause the UCC of the class, on a proper determination, to have become a negative amount, CRA now considers that the negative balance for the class will be recognized as recapture of depreciation in the first year following the acquisition which is not statute-barred. This is a change of position from IT-478R2, para. 14, which stated that a negative balance arising in a statute-barred year "will not be added into the taxpayer's income for that year or a subsequent year."

This new position will be reflected in an imminent Folio, but "will apply on a prospective basis to property acquired or transactions entered into after December 31, 2015."

See summary under s. 13(1).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 13 - Subsection 13(1) negative UCC balance arising in statute-barred year becomes recapture in 1st open year 438
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Undepreciated Capital Cost - E negative UCC balance arising in statute-barred year becomes recapture in 1st open year 227

15 September 2015 Internal T.I. 2015-0572771I7 - T1135 - Normal Reassessment Period

unlike s. 216 returns, the assessment of s. 162(7) penalties is subject to the same normal reassessment period as for the Part I return

Is the normal reassessment period for a T1135 considered separately from that of the return of income to which it relates? CRA stated:

[A]n assessment…for amounts assessable under subsection 216(1) is considered separate and distinct from an assessment of other sources of income taxable under Part I. [T]here are two separate and distinct normal reassessment periods for these two returns of income.

…Unlike section 216…, section 233.3 does not require the income associated with the foreign property to be reported in a separate return of income. …

The failure to file the Form T1135 return on time results in the assessment of penalties under subsection 162(7), which is in Part I of the Act. Therefore, if the taxpayer is liable to a penalty under subsection 162(7) for a late filed Form T1135, the assessment must be made within the normal reassessment period, pursuant to subsection 152(3.1), for Part I unless one of the exceptions provided in subsection 152(4) applies.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 162 - Subsection 162(7) unlike s. 216 returns, the assessment of s. 162(7) penalties is subject to the same normal reassessment period as for the Part I return 89

18 November 2014 TEI Roundtable, 2014-0550381C6 - 2014 TEI Liaison Meeting, Q.E2 - Capital Cost Allowance (CCA) Claimed under Paragraph 20(1)(a)

CCA adjustments before acquisition of control

Are the guidelines outlined in IC 84-1 still valid, and would CRA's practice differ if a request for revision of CCA were made respecting a pre-acquisition of control period? After noting a previous comment that "while to a certain extent IC 84-1 outlines situations…[of] retroactive tax planning…, we have, in recent years, noted more situations that…lead to inappropriate results," CRA stated: "a request for adjustments to a period prior to an acquisition of control could raise some concerns for us."

14 April 2014 External T.I. 2014-0521341E5 - Unclaimed interest expense

amending return

When a taxpayer wishes to claim an interest deduction for a previous taxation year in respect of which a return has already been filed, the taxpayer may request a reassessment of the previous year tax return. You can find information on how to request a reassessment of a previous year return on the CRA web site at the link below:

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/chngrtrn-eng.html

7 February 2014 Internal T.I. 2013-0512601I7 - Clarification of 2013-0481151I7

110.5 addition not a permissible 84-1 adjustment

In "clarifying" 2013-0481151I7, CRA stated:

In that letter, we stated that an addition to income under section 110.5… is a permissive amount in the context of… IC84-1… .

To clarify, for the purposes of IC84-1 a permissive deduction is a deduction that is permissible in the computation of income and the amount of the deduction claimed is at the discretion of the taxpayer, but subject to a maximum amount determined by a specific provision in the Act. A permissive amount in the context of IC84-1 would not include a tax credit, such as a foreign tax credit under subsection 126(1) or 126(2), nor would it include the income inclusion provided in section 110.5 of the Act.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 110.5 110.5 addition not a permissible 84-1 adjustment 117

11 October 2013 Internal T.I. 2013-0475761I7 - Deadline for filing a waiver of tax credit – ORDTC

waiver of credit after return due date

A corporation filed its original 2011 T2 return somewhat after the filing due date, and then requested an adjustment to amend the return by waiving the full amount of the previously-claimed Ontario Research and Development Tax Credit. The Taxation Centre denied this request, stating that the corporation had missed the filing due date for the original T2 return. The Directorate stated:

[A] corporation can file a waiver of the tax credit to waive all or part of the tax credit for a taxation year until the expiration of the normal reassessment period for the taxation year.

12 December 2013 Internal T.I. 2013-0497231I7 - Penalties on Foreign Asset Reporting

S. 152(4)(a) applies to Part XV returns

What are the time limitations for assessing a penalty on foreign asset reporting? Before discussing particular penalties, CRA noted:

[I]f the taxation year has not been assessed (for example, the taxpayer has not filed a return for the year), the normal reassessment period would not have begun, and the Minister would be able to assess at any time.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 162 - Subsection 162(10.1) normal reassessment period does not apply 52
Tax Topics - Income Tax Act - Section 162 - Subsection 162(10) normal reassessment period does not apply 132
Tax Topics - Income Tax Act - Section 162 - Subsection 162(7) s. 152(4)(a) applies to Part XV returns 81

16 July 2013 Internal T.I. 2013-0481151I7 - Application of 152(4)(b)(iv) and 110.5

s. 110.5 addition

Respecting whether an addition to income under s. 110.5 is considered a permissive amount for purposes of IC 84-1, so that the Minister may allow this adjustment beyond the period provided in s. 152(4)(b)(iv), CRA agreed that this amount is permissive. However, where an adjustment under s. 110.5 increases provincial tax payable, the adjustment would not satisfy the requirement, for the Minister to accept such request, that there be no change in the tax payable for the year.

25 March 2013 Internal T.I. 2013-0474111I7 - Amendment to Prior Years' CCA

reversing CCA claims before acquisition of control

The taxpayer wished to restore non-capital losses which had expired by reversing capital cost allowance claims for statute-barred years ending prior to an acquisition of control, with the resulting increased undepreciated capital cost balances then effectively being converted into "fresh" non-capital losses by virtue of being written down under s. 111(5.1) on the acquisition of control. In rejecting this request, the Directorate noted that Clibetre Exploration Ltd. v. The Queen, 2003 DTC 5073 (FCA) (respecting reclassification of expenses) was distinguishable and that "to amend CCA claims for taxation years to reinstate losses that have already expired is retroactive tax planning."

11 December 2012 Internal T.I. 2012-0459341I7 - Adjustments Beyond Normal Reassessment Period

substituting unclaimed expenses for non-capital losses

The taxpayer had deducted non-capital losses from prior years to reduce taxable income to nil for the 2003 to 2008 taxation years. The taxpayer now wished to instead deduct previously unclaimed business expenses for those years. Such adjustments would neither change taxable income nor tax payable, but would increase the non-capital losses available to reduce taxable income in the current taxation year (2011).

After citing Clibetre Exploration Limited v. The Queen, 2003 D.T.C. 5073 (F.C.A.), the Directorate concluded that the Minister was not precluded from processing the request notwithstanding that those taxation years were beyond the normal reassessment period, as the request did not require a reassessment.

31 October 1994 Memorandum 941233

"Where the original notice of 'nil' assessment is statute-barred, the Department is still entitled to revise the loss as long as it does not create taxes payable so that a notice of reassessment is required. The revision of the loss in this manner can be due to a reduction in overstated expenses, inclusion of previously unreported income and, in our view, may include an amendment to the nature of the income itself."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(3.1) 35

28 February 1991 T.I. 8621-4

"We concur that a notification that no tax is payable (also known as a nil assessment) does constitute an assessment to identify the date from which the statute of limitation for reassessment begins".

88 C.R. - Q.77

Where a taxpayer has sustained a non-capital loss in a taxation year, that non-capital loss can be reviewed in any of the taxation years referred to in s. 111(1)(a). However, the time limitation imposed by s. 152(4) will be applicable where such revision of the non-capital loss results in a change in the tax payable for the year in which the loss was sustained.

84 C.R. - Q.88

Where the taxpayer wishes to deduct an additional amount that he had omitted to claim for a particular loss year, then the additional deduction will be allowable upon writing to the local Director even though the particular loss year is statute-barred, provided that there is no change in the tax payable for any year in respect of which the time has expired for filing a notice of objection.

IC 84-1 "Revision of Capital Cost Allowance Claims and Other Permissive Deductions"

10. Where a taxpayer requests a revision of capital cost allowance claimed in a taxation year for which a notification that no tax is payable had been issued (e.g. because of a non-capital loss in that year, the application of a non-capital loss of another year, or the fact that income was exempt from tax in that year), such request will be allowed provided there is no change in the tax payable for the year or any other year filed, including one that is statute barred, for which the time has expired for filing a notice of objection. Such request will not be allowed, however, where...the Minister has issued a notice of determination pursuant to subsection 152(1.1). A taxpayer who wishes to revise the capital cost allowance in a year for which a notice of determination has been issued should do so within 90 days from the day of mailing the notice of determination for that year.

79 C.R. - Q.14

Where the taxpayer has refused to provide a waiver, then RC will reassess to protect its interests, and in an amount which may be greater than that which would have been assessed if all information were available.

IC75-7R3 Reassessment of a Return of Income

reassessment to generate refund

4. A reassessment to create a refund ordinarily will be made upon receipt of a written request by the taxpayer, even if a notice of objection has not been filed within the prescribed time, provided that

(a) the taxpayer has, within the four year filing period required by subsection 164(1), filed the return of income;

(b) the Department is satisfied that the previous assessment or reassessment was wrong;

(c) the reassessment can be made within the four year period or the seven-year period, as the case may be, referred to in paragraph 1 above or, if that is not possible, the taxpayer has filed a waiver in prescribed form;

(d) the requested decrease in taxable income assessed is not based solely on an increased claim for capital cost allowances or other permissive deductions, where the taxpayer originally claimed less than the maximum allowable; and

(e) the application for a refund is not based solely upon a successful appeal to the Courts by a taxpayer.

Articles

Beith, "Fairness Package", 1992 Conference Report, c.7.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 220 - Subsection 220(3.1) 0

Paragraph 152(4)(a)

Subparagraph 152(4)(a)(i)

Cases

Revera Long Term Care Inc. v. Canada (National Revenue), 2019 FC 239

CRA required to reconsider whether a taxpayer’s negligence in over-reporting income in a statute–barred year permits CRA to reassess that year

The appellant (Revera LTC), was a taxable entity which operated nursing and retirement homes, and was owned by a corporation (Revera Inc.) that was exempt under s. 149(1)(d) and by a trust. Revera LTC received provincial grants on behalf of Revera Inc. to fund the construction costs of long-term care facilities. These grants were erroneously reported as taxable income of Revera LTC rather than of Revera Inc. After the normal reassessment period for the years in question had passed, Revera LTC requested that the Minister reassess it for those years to exclude the grants from its income - on the basis that the error was due to negligence so that such reassessments were permitted under s.152(4)(a)(i). The Minister declined this request, based on a determination by the CRA Legislative Applications Section (LAS) that the Minister did not have discretion under s.152(4)(a)(i) in situations where the taxpayer’s negligence leads to over-reported income.

Ahmed J found that the decision was unreasonable, stating (at 23-25):

… [T]he LAS Officer’s opinion letter lacks any real analysis of … whether the exception to statute barred dates in section 152(4)(a)(i) could be applied. … [This] is an inadequate analysis.

The second reason provided is that allowing the Minister to reassess the statute barred years would render sections 152(3.1) [Definition of normal reassessment period] and 152(4)(a)(ii) [waiver] of the ITA meaningless. This is conclusory and suggests that the exception to the statute barred dates does not apply in this matter because the years are statute barred. There is no explanation or analysis provided about why the LAS Officer believed sections 152(3.1) and 152(4)(a)(ii) would become meaningless.

In light of the conclusory analysis which does not conduct any textual, contextual, and purposive analysis as the Supreme Court of Canada requires, I agree with the Applicant that the decision is unreasonable. …

Ludmer v. Attorney General of Canada, 2018 QCCS 3381

nature of the legal advice relied upon was unclear

Two of the taxpayers (“Ludmer” and Steinberg”) were invested along with family, friends and acquaintances (all resident in Canada) in a BVI company (“SLT”) whose investments were managed by a non-resident hedge fund manager (“GAM”). When GAM proposed that SLT be merged with another fund managed by GAM in which non-residents were investors, it was agreed that, in light of the merged fund being subject to a higher level of fees than those to which SLT had been subject, that a Bermuda company owned indirectly by two Steinberg and Ludmer non-resident trusts would receive annual “fees” from the time of the 1994 merger that effectively represented a rebate of the higher fees imposed on the Canadian investors (although they were described to be consideration for services that, in fact, were never provided). This arrangement was replaced in 2007 by a new agreement in which the “fees” were paid directly to two newly-established Canadian-resident family trusts.

In finding that it was not unreasonable for CRA to assess on the basis that taxation years beyond the normal reassessment period were open to reassessment and that gross negligence penalties could be imposed for failure to report the amounts for inclusion in the hands of Steinberg and Ludmer under s. 56(2) or 246(1), Hamilton JCS stated (at paras. 637-638):

It is fair to infer that their lawyers created the Sandringham structure and drafted the contracts and that they advised Ludmer and Steinberg that they were not required to pay any tax. However, the legal advice was not produced and therefore the facts on which the advice was based and any limitations on the advice are not before the Court. Moreover, there is also the issue of the contracts which state that Sandringham was receiving the payments in consideration for “investment consultancy services”. Ludmer and Steinberg now argue that no such services were ever provided and it was never the intention to provide such services, suggesting that the contracts were shams. Ludmer and Steinberg must have known that the contracts were shams. It is difficult to reconcile the sham contracts with legal advice.

In these circumstances (very substantial payments, no tax, no disclosure, sham contracts and reliance on legal advice not produced), and subject to the comments below in the section entitled “Settlement offer”, the Court is of the view that the CRA’s position on opening up statute-barred years and penalties is not unreasonable. It will be for the Tax Court to decide.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 56 - Subsection 56(2) recurring fee reduction amounts received for no work were income and taxable under s. 56(2) when directed to controlled company 275
Tax Topics - Income Tax Act - Section 152 - Subsection 152(1) improper advancing of “settlement” elements that were not sustainable 43
Tax Topics - Income Tax Act - Section 94.1 - Subsection 94.1(1) equity-linked notes held in BVI company were portfolio investments held with a tax avoidance purpose, but were not subject to 7000(2)(d) interest accrual 540
Tax Topics - Income Tax Regulations - Regulation 7000 - Subsection 7000(2) - Paragraph 7000(2)(d) mere possibility of locking in value accretion each year did not crystallize the maximum amount of interest respecting the year 454
Tax Topics - General Concepts - Negligence and Fiduciary Duty damages awarded against CRA for inter alia making unreasonable reassessments 252
Tax Topics - Income Tax Act - Section 3 - Business Source/Reasonable Expectation of Profit recurring fee reduction amounts received for no work were income from a source 299

Inwest Investments Ltd. v. The Queen, 2015 BCSC 1375

reasonable filing position position cannot be a “misrepresentation”

In order to avoid B.C. provincial income tax on a capital gain of $336.2 million which was realized on a sale in 2002 of a control block of a TSX-listed company (Future Shop), before closing the holders transferred their Future Shop shares to a newly-incorporated Yukon company (”Wesbild”) with non-resident directors. Its 2002 return indicated “OC” [outside Canada] as its jurisdiction. CRA commenced to audit the transaction more than four years after the initial assessment of the 2002 year and reassessed Wesbild in December 2011 for the difference on the taxable capital gain between the 13.5% B.C. tax rate and the 10% federal tax abatement credit.

Wesbild brought a summary-trial application respecting whether the Minister was statute-barred from issuing the reassessment. After noting (at para. 85) that “fairness is achieved for the Minister if the taxpayer is required to file its return in a manner that sufficiently identifies its filing position so that the Minister can assess that position, noting (at para. 101) that the French version of s. 152(4)(a)(i) refers to “soit a fait une présentation erronée des faits”, which translated as “has made a misrepresentation of facts,” and referring inter alia to Ver, Fitzpatrick J. stated (at para. 126):

[A] statement of a filing position that, even if that position may be incorrect, involves a determination of law or mixed fact and law will not be a misrepresentation if that filing position is reasonable; …the fairness objective of the legislation is achieved if that reasonable filing position is evident from the tax return… .

Here, the CRA position was that “business” as used in Reg. 400(2) was “’ very broad and wide enough to capture corporations that generate income from sources that include income from… property or capital gains’” (para. 136), whereas Wesbild argued that “the Marconi test applies and that it had no ‘business’” and, therefore, no permanent establishment in B.C. (para. 138).

In finding that Wesbild had not made a misrepresentation, Fitzpatrick J. concluded (at para. 143):

[The 2002 Return] indicated a filing position that was clearly more than arguable based on the… jurisprudence on the issue. There is no suggestion that Wesbild failed to disclose to the CRA all that it was required to disclose. The CRA was, of course, more than able to understand that filing position and take whatever steps it wished to challenge that position. … Simply, the filing position in the 2002 Return was certainly a representation, but it was not a misrepresentation of any kind. … Accordingly… s. 152(4)(as)(i) is not available… to allow the CRA to reassess outside of the normal reassessment period.

In any event, the Crown had not established neglect or carelessness. The in-house tax lawyer (Mr. Zien), in addition to considering the plan carefully himself, had “obtained outside legal advice on the issue to supplement his own views as to the viability of the Tax Plan” from Robert Kopstein at Blakes (para. 169). Furthermore (para. 181):

Wesbild’s filing position conformed to the Marconi test… . There is no indication that the CRA’s currently-advanced dictionary definition of “business” had any support at all in 2001/2002 or even at this time.

Words and Phrases
misrepresentation
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 232 - Subsection 232(1) - Solicitor-Client Privilege not necessary to provide legal opinion to rely on having consulted legal counsel 215
Tax Topics - Income Tax Regulations - Regulation 400 - Subsection 400(2) no fixed place of “business” if no source of business income 165
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Business Marconi test of "business" applied outside source-of-income context 136
Tax Topics - Statutory Interpretation - French and English Version "misrepresentation" informed by narrower French version 103

Vine Estate v. Canada, 2015 DTC 5063 [at 5880], 2015 FCA 125

filing amended return does not nullify previous lack of reasonable care/quaere whether neglect can be vicarious though outside accountants

The deceased had a 50% co-ownership interest in a rental property ("Victoria Park"). His terminal return should have shown $1.07 million of capital gain and $2 million recapture of depreciation for Victoria Park. Instead, it did not report recapture and reported a capital gains total which included a $2.92 million capital gain from Victoria Park, but did not list this property or that gain in the Schedule of dispositions (i.e., the total capital gains reported on line 132 of the return was $2.92 million higher than the total of the property-specific listed capital gains).

Five months later, the accountants discovered the failure to report recapture of depreciation, and the executors filed an amended return which reported the $1.07 million capital gain and $2 million of additional rental income (i.e., arithmetically equal to the unreported recapture for Victoria Park), but failed to back out the $2.92 million capital gain, as they did not realize it had been included in the previously reported total. As the amended return was filed under s. 164(6)(e) to carry back a capital loss, and the covering letter did not draw CRA's attention to the missing recapture, CRA did not assess for the recapture. In connection with a subsequent audit, CRA obtained a waiver, but only respecting capital gains. After the normal reassessment period expired, the failure to back out the $2.92 million capital gain was discovered and reported by the accountants (but not the unassessed recapture). Two years later, CRA reassessed for the correct amount of capital gains and recapture respecting Victoria Park. The executors argued that the reassessed recapture amount was statute-barred as it was not covered by the waiver.

In rejecting an argument that the misrepresentation in the terminal return (the failure to report the recapture) was corrected by filing the amended return, Webb JA stated (at para. 32):

Even if, notwithstanding the wording of the covering letter, the Minister could have examined the amended return and discovered that the Victoria Park Recapture was now being included in Stanley Vine's final return, there was still a misrepresentation in the original final return for Stanley Vine that had been filed.

After noting that the trial Judge, in reliance on Aridi, had found that a misrepresentation had to be that of the taxpayer (the Estate) rather than of its accountants, Webb JA noted (at para. 44) that the words of s. 152(4)(a) "could mean that the person filing the return must be the one who was negligent, careless or wilfully in default," but found (at para. 46) that it was not necessary to resolve this point as there was a sufficient basis for Campbell J's finding that the failure to report the recapture in the original return was a misrepresentation attributable to the Estate's neglect: any detailed review of the terminal return by the executor would have caused him to query the accountants as to why the Victoria Park property did not appear on the disposition Schedule – which, in turn, likely would have resulted in their identification of the recapture-reporting error (para. 50).

Webb JA also found that there was an onus on the Minister to establish both branches (misrepresentation, and neglect etc.) of the test in s. 152(4((a)(i). See summary under General Concepts – Onus.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Onus onus does not shift to taxpayer to disprove neglect, carelessness, or wilful default 160

Vachon v. Canada, 2014 FCA 224

carelessness at filing time not established
annulling 2014 DTC 1070 [at 3023], 2013 TCC 330

The taxpayer, who was a consultant, provided signed cheques to his accountant without filling in the recipient. The accountant misappropriated the funds, and apparently filed returns on behalf of the taxpayer which were different than the versions which he showed to the taxpayer. The taxpayer did not contact CRA after having received various demands from CRA and after having been told by the accountant that the accountant had lost his file yet again.

In annulling the decision of Tardif J, who had found that reassessing beyond the normal reassessment period was warranted in the light of the taxpayer's failure to follow up respecting the CRA demands, and in remitting the file to the Chief Justice for assigning a new hearing, Scott JA noted (at para. 3) that the parties agreed that "the judge had to examine the conduct of the appellant at the moment he filed the returns in determining if he had established due diligence" and stated (at para. 54, TaxInterpretations translation):

[T]he judge did not specify what facts were erroneously presented in the tax returns, nor what the appellant knew or ought to have known on this subject at the moment of their filing.

Middlebrook v. Canada, 2013 DTC 5001 [at 5501], 2012 FCA 264

spurious receipts

The Court affirmed the trial judge's finding of fact that a number of the taxpayers' receipts for inventory were spurious - no inventory was delivered, or was ever meant to be, and funds for the ostensible inventory were rerouted back to the taxpayers. Among the reasons for affirming the judge's findings were that the witnesses gave vague testimony and the taxpayers failed to call witnesses that ought to have been able to support the taxpayers' claims. The misrepresentations also warranted reassessment beyond the limitations period.

Canada v. Johnson, 2013 DTC 5004 [at 5515], 2012 FCA 253

failure to seek confirmatory independent advice

The taxpayer realized gains of $1.3 million from periodically placing funds with a rogue ("Lech") who, it was later discovered, had not invested the funds in options trading but instead used them in a ponzi scheme. The taxpayer did not report the gains after being assured by Lech that the options trading had occurred in a trust which paid the taxes on the gains.

After finding that the taxpayer's gains were income from property (rather than income with no source), the Court found that the taxpayer's failure to report her income was attributable to carelessness. Sharlow J.A. stated (at para. 58):

[The taxpayer] had no factual basis for assessing the reliability of [Lech's] assurances, and she failed to do what any reasonable person in her position would have done, which was to seek independent advice (and here I agree with the Crown that seeking assurances from a fellow investor, even one who is a bookkeeper, is not the kind of independent advice that would demonstrate reasonable care). Having failed to take that obvious and simple step, she cannot claim to have considered the matter thoughtfully, deliberately and carefully as a wise and prudent person would have done.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 3 - Business Source/Reasonable Expectation of Profit contractual payments derived from Ponzi scheme were income 249
Tax Topics - Income Tax Act - Section 9 - Exempt Receipts/Business taxable gains from contract with Ponzi operator 249

Lacroix v. Canada, 2008 FCA 241

no credible explanation for net worth appreciation

The Minister determined, under a net worth assessment, that the taxpayer had $559,673 of unreported income over four years, and thus reassessed the taxpayer beyond the normal limitations period and imposed penalties, pursuant to ss. 152(4)(a) and 163(2). The taxpayer argued that the alleged income was actually a loan from a friend, but the trial judge did not find the claim credible. The taxpayer further argued that a net worth assessment could not support a finding of willful default because, by its very nature, a net worth assessment does not directly point to any specific default.

The Court upheld the Minister's assessments. There were two separate questions to be decided. The first was whether, leaving aside s. 152(4), the Minister was required to prove the additional sources of the income determined under the net worth assessment. Pelletier JA stated (at para. 20):

Applying the net worth method changes nothing in [the ordinary] method of proof. Where the Minister presumes that the income detected using the net worth method is taxable income, the onus is on the taxpayer to demolish this presumption. If the taxpayer presents credible evidence that the amount in question is not income, the Minister must then go beyond these assumptions of fact and file evidence proving the existence of this income.

The second question was whether a net worth assessment could, by itself, support assessments under s. 152(4) or penalties under s. 163(2). Pelletier JA stated (at paras. 29-30):

In the case at bar, the Minister found undeclared income [by way of a net worth assessment] and asked the taxpayer to justify it. The taxpayer provided an explanation that neither the Minister nor the Tax Court of Canada found to be credible.

... Clearly, there must be some other explanation for this income. It must therefore be concluded that the taxpayer had an unreported source of income, was aware of this source and refused to disclose it, since the explanations he gave were found not to be credible. In my view, given such circumstances, one must come to the inevitable conclusion that the false tax return was filed knowingly, or under circumstances amounting to gross negligence.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 163 - Subsection 163(2) net worth assessment 352

Gebhart v. Canada, 2008 DTC 6581, 2008 FCA 206

failure to verify allegedly confusing data

A year in which the Estate failed to include in the Estate's income the $40,953 proceeds of a collapsed RRSP were not statute-barred. Any confusion in the mind of the executor as to the number of RRSPs of the deceased could easily have been cleared up by a visit or telephone call to the financial institution in question.

Ridge Run Developments Inc. v. The Queen, 2007 DTC 734, 2007 TCC 68

failure to question material deduction

The agent of the taxpayer, who signed its return, did not question why $1.7 million of forgiveness income reported in the financial statements had been deducted in computing income for purposes of the Act. The agent in his evidence had as much as admitted that he was neglectful and careless in not doing so. Accordingly, the subsequent taxation year in which the resulting (incorrectly computed) non-capital loss was deducted was not statute-barred.

Naguib v. Canada, 2004 DTC 6082, 2004 FCA 40

failure to plead normal reassessment period

The onus was not on the Minister to lead evidence establishing a misrepresentation by the taxpayer given that the taxpayer failed to raise the making of the reassessments beyond the normal reassessment period as a ground of appeal in the Tax Court.

Can-Am Realty Ltd. v. The Queen, 97 DTC 5070 (FCTD)

Crown to present neglect etc. case first

In granting an application of the taxpayer for an extension of time to appeal a finding of the trial judge that the taxpayer was required at trial to present its case first, Hargrave P. found that the taxpayer had an arguable case that where the Minister had reassessed taxation years that were prior to the normal reassessment period, the Minister was required to proceed first to tender the evidence to meet the onus on him to show misrepresentation attributable to neglect, carelessness or wilfull default.

Nesbitt v. The Queen, 96 DTC 6045 (FCTD)

typo was a misrepresentation

In preparing the taxpayer's return, the taxpayer's accountant erroneously reported the taxpayer's share of a capital gain as $71,139.42 rather than $711,394.25.

Before going on to find that the taxpayer had made a misrepresentation attributable to neglect or carelessness, Heald D.J. rejected the view that a number reached through a mathematical calculation is not a fact and, therefore, cannot constitute a misrepresentation. He instead accepted the Crown's submission (at p. 6049) that "any incorrect statement amounts to a 'misrepresentation'".

Words and Phrases
misrepresentation

Can-Am Realty Ltd. v. The Queen, 94 DTC 6293 (FCTD)

honest belief re appropriateness of cost recovery method

In finding that a corporation and its individual shareholder could be reassessed beyond the normal reassessment period for unreported gains or shareholder appropriations in the case of some real estate transactions of the corporation, but not others, Rouleau J. applied the principles (p. 6300) that the ultimate responsibility of a taxpayer for ensuring his tax returns contain accurate data cannot be altered by the fact he engages the professional services of an accountant and (p. 6302) and that once the Minister has reopened a year, he is not free to reassess other errors in the tax return unless he can establish that they too constitute a misrepresentation due to carelessness, negligence or wilful default. In this case, there had been a failure of the individual shareholder (who also was manager of the corporation) to inform the accountant of pertinent details of various real estate joint ventures or to ensure that his bookkeeping staff was adequately apprised. However, an error resulting from an honest, albeit possibly erroneous belief, that the corporation was entitled to use a profit from a disposition to reduce the cost base of the remaining property and inventory pursuant to ss.18(2) and (3) of the Act, did not constitute a misrepresentation.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 163 - Subsection 163(2) 95

1056 Enterprises Ltd. v. The Queen, 89 DTC 5287 (FCTD)

honest and diligent view that no association

After finding that two corporations were not associated given that an oral agreement between two brothers each of whom owned substantially all the shares of one of the corporations, that the second brother would be given a 50% interest in the others corporation, was not actually implemented, Muldoon J. went on to find that even if he were not correct in his finding that the two corporations were not associated, s. 152(4)(a)(i) did not permit the Minister to reassess beyond the normal reassessment period on the basis that the two corporations were associated given that (p. 5293):

"Subsection 152(4) protects such conduct, and perhaps only such conduct, where the taxpayer thoughtfully, deliberately and carefully assesses the situation as being one in which the law does not exact the reporting of that which the taxpayer bona fide believes does not exist."

Davis v. The Queen, 84 DTC 6518, [1984] CTC 564 (FCTD)

proof of misrepresentation not required before settlement agreement

"The Minister is not required to prove misrepresentation before he sends out a notice of reassessment which is dated beyond the 4 year [now 3 year] time period provided for in the statute. Misrepresentation must be proved only if the matter goes to trial." After minutes of settlement were entered into by the taxpayer and the Minister with respect to share transactions which had taken place outside the normal limitation period, the taxpayer unsuccessfully argued that the Minister was required to prove misrepresentation before a settlement judgment could be entered.

Patricio v. The Queen, 84 DTC 6413 (FCTD)

wilful blindness

Wilful blindness to the necessity of keeping careful records of revenues was sufficient to bring the taxpayer within s. 152(4)(a)(i).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 163 - Subsection 163(2) 99

Venne v. The Queen, 84 DTC 6247, [1984] CTC 223 (FCTD)

failure to review return with obvious errors

The phrase "misrepresentation that is attributable to neglect" refers to being negligent with respect to one or more aspects of a taxpayer's tax return. The taxpayer was found not to have exercised reasonable care in the completion and filing of his returns in two respects: (1) he did not read his returns before signing them; and (2) the errors in his returns would have been obvious to a reasonable man of even his limited education.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 163 - Subsection 163(2) 67

Reilly Estate v. The Queen, 84 DTC 6001, [1984] CTC 21 (FCTD)

careful but erroneous view of accountant

There was no "neglect, carelessness or wilful default" by the taxpayer where his accountant, after a careful reading of a Revenue-Canada Guide, concluded that it was not necessary to report a capital disposition of land that did not give rise to a capital gain because of what was believed by him to be a high V-Day value.

MNR v. Bisson, 72 DTC 6374 (FCTD)

reasonable mistake

After finding that the taxpayer had received a taxable benefit from a corporation of which he was a major shareholder as a result of the corporation paying, over a number of years, amounts to the other major shareholder corresponding to the amounts that the taxpayer owed to that shareholder, Pratte J. went on to find that the taxpayer did not know that the sum so paid to the other shareholder by the corporation formed part of the taxpayer's income, that this error was "one which a normally wise and cautious taxpayer could have committed" (p. 6380) and that there was no "misrepresentation" for purposes of s. 46(4)(a)(i) of the pre-1972 Act "when the taxpayers made an innocent misrepresentation involving no negligence on his part." Accordingly, the taxpayer could not be assessed for shareholder benefits in the years for which the four-year normal reassessment period had passed.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 15 - Subsection 15(1) 220

MNR v. Foot, 64 DTC 5196 (Ex Ct), briefly aff'd 66 DTC 5072 (SCC)

reticence or incorrectness as misrepresentation

The taxpayer, who underreported his income in his returns but pleaded (p. 5197) that "he honestly believed in the truth of the information contained therein" at the time he filed them, was validly reassessed by the Minister beyond the six-year limitation period referred to in s. 42(4) of the 1948 Act, which permitted the Minister to reassess at any time where the taxpayer had "made any misrepresentation or committed any fraud in filing the return". Dumoulin J. stated (at p. 5198) "that 'any misrepresentation' is synonymous with the expression 'incorrect' in the Income or Tax Act (the predecessor of s. 42(4)). He also stated (at p. 5199) that "reticence can constitute misrepresentation in circumstances where there is a duty on the representor to state certain matters, if they exist, and where, therefore, the representee is entitled as against the representor to infer the non-existence of such matters from the representor's silence as to them".

Words and Phrases
misrepresentation

MNR v. Taylor, 61 DTC 1139 (Ex Ct)

failure to complete portion of return was misrepresentation

Failure of the taxpayer to include various items of income in his returns constituted misrepresentations for purposes of s. 42(4) of the 1948 Act. In response to a submission that a misrepresentation was required to be fraudulent, Cameron J. stated (at p. 1143) that "misrepresentations may be either fraudulent or innocent" and that "an innocent misrepresentation is one which is not fraudulent; it is a false statement made in the honest believe that it is true."

After noting (at p. 1147) that "silence may in some cases constitute falsity", Cameron J. found, in light of the fact that the taxpayer certified that the information in his return was complete in all respects, that failure of the taxpayer to complete the gift tax portion of his returns, notwithstanding his gift of property to his wife, also constituted a misrepresentation.

Accordingly, the Minister had satisfied the burden of proof that lay on him to establish the presence of misrepresentation.

See Also

Mikhail v. The Queen, 2019 TCC 49 (Informal Procedure)

failure to properly account for near-cash rebates was neglect under s. 152(4)(a)(i)

Rebates (in the form of traveller’s cheques, gift cards and prepaid credit cards) were received by an incorporated pharmacy from generic pharmaceutical drug manufacturers, and not reported by it or the two shareholders (a married couple) as income. In finding that the corporation could be reassessed beyond the normal reassessment period to include the amounts in its income, Monaghan J stated (at paras 36):

In my view, the Corporation should have known that In-Kind Rebates are required to be included in its income, just as Rebates paid by cheque were, particularly given that the In-Kind Rebates are “near” cash items. … The Corporation should have taken steps to ensure that any amounts received as Rebates, regardless of form, were properly accounted for and reflected in its books and records. In my view, the failure to do so was negligent and resulted in the understatement of the Corporation’s income.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 15 - Subsection 15(1) taxpayers could resile from their admission that they received funds from their corporation 394

Prima Properties (92) Ltd. v. The Queen, 2019 TCC 4

negligence by accountant does not establish negligence of taxpayer

CRA assessed the taxpayer on the basis that there was a change in use of its rental property from commercial activity to exempt rental activity, when it started to rent the property to an NPO for homeless people, thereby triggering GST equal to the previously claimed input tax credits for the property. Paris J found that the Crown had failed to establish the basis under ETA s. 298(4)(a) for making this assessment beyond the four-year statute-barring period.

First, no “misrepresentation” had been established, as the Crown had failed to establish that in fact the users of the facility had exempt leases or licences, i.e., for continuous occupancy of over one month.

Second, there was no “carelessness” or “neglect.” The taxpayer’s principal, as a lay person, could not be expected to recognize the issue of triggering a change of use – and to expect him “to initiate a discussion with [the company’s accountant] concerning the possible application of a highly technical provision of the Act would be to hold him to an unrealistically high standard of care” (para. 46).

Finally (at para. 49):

Aridi … found that it was not sufficient to show negligence on the part of the taxpayer’s professional advisor in making the misrepresentation, and that the taxpayer must also be shown to have acted in a negligent or careless manner.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 298 - Subsection 298(4) - Paragraph 298(4)(a) a taxpayer was not negligent in failing to ask its accountant about a change in use of its rental property 541

Mammone v. The Queen, 2018 TCC 24, rev'd 2019 FCA 45

subsequent retroactive deregistration of RPP would not establish carelessness in previous return filing

The CRA revocation of a registered pension plan (the “New Plan”) was invalid due to inadvertent failure to comply with the 30-day notice requirement in s. 147.1(12). Graham J found that the contemporaneous reassessment of the taxpayer under s. 56(1)(a)(i) for having purportedly transferred the commuted value of his (OMERS) pension plan to the New Plan was valid since the CRA’s subsequent issuance (well beyond the normal reassessment period) of a further retroactive deregistration of the New Plan effectively also retroactively validated such reassessment.

Graham J then stated (at para. 26, obiter):

[I]f the reassessment in question [instead] had been made after the normal reassessment period … it would be inappropriate for me to attribute knowledge of that revocation to Mr. Mammone when determining whether he had made a misrepresentation attributable to carelessness, neglect or wilful default in filing his 2009 tax return. I accept that Parliament intended that the fact of the revocation be retroactive, but I would need to see something very clear in the Act before I would accept that Parliament also intended a taxpayer to retroactively have knowledge of that retroactive fact.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) RPP revocation beyond the normal reassessment period retroactively validated an unsupportable reassessment under s. 56(1)(a)(i) 398
Tax Topics - Income Tax Act - Section 152 - Subsection 152(9) subsequent retroactive deregistration of RPP also retroactively validated an assessment factually made on basis of plan’s invalidity 200
Tax Topics - General Concepts - Effective Date subsequent deregistration of RPP retroactively validated reassessment 223
Tax Topics - Income Tax Act - Section 147.1 - Subsection 147.1(12) subsequent deregistration of RPP beyond normal reassessment period nonetheless retroactively validated reassessment 91
Tax Topics - Income Tax Act - Section 56 - Subsection 56(1) - Paragraph 56(1)(a) - Subparagraph 56(1)(a)(i) valid assessment for transfer to an RPP that was retroactively deregistered 83

Thompson v. The Queen, 2017 TCC 115

failure to keep asking questions constituted carelessness

The taxpayer incorporated a mortgage sourcing business in the “Corporation,” and hired a chartered accountant, Mr. Halford, to assist him and his wife to account for the income earned under the Corporation. After the first year of operation, the taxpayer questioned why the income reported in his personal return was less than the cash received from the Corporation, and Mr. Halford explained that this was because shareholder advances had not yet been converted into bonuses, so that taxpayers’ income had been deferred for at least one year. In late 2009 and early 2010 Mr. Thompson discovered significant errors in the draft financial statements prepared by Mr. Halford in respect of the Corporation’s 2009 financial year-end, and subsequently hired Ruben Jeffery, a CPA at Ernst and Young (“EY”) to finalize the Corporation’s 2009 financial statements. Mr. Jeffery discovered that the taxpayers had failed to report income amounts in 2006 to 2008. He added the unreported income to the income that they received from the Corporation in 2009, and reduced the Corporation’s management expenses for 2009 to account for the fact that it had expensed the unreported income in prior years. CRA did not accept this treatment, and instead the unreported income was added to the taxpayers’ incomes for 2006 to 2008.

Hogan J stated (at para 25):

… In Aridi, I held that an accountant’s neglect or carelessness in preparing a tax return is not sufficient in and of itself to allow the Minister to reassess beyond the Normal Reassessment Period. The taxpayer must also be shown to have acted in a neglectful or careless manner.

Hogan J dismissed the appeal, finding (at para 31):

When a taxpayer hires an accountant to prepare his tax return and is aware that tax planning involving a deferral strategy … is being used to secure a tax advantage for the taxpayer’s benefit, a minimum degree of attention to or oversight over the accountant’s work must be exercised by the taxpayer. …[T]he Appellants exercised oversight in 2005 but failed to pay reasonable attention to the reporting of the Deferred Income thereafter. In my opinion, the absence of oversight constitutes carelessness on the part of the Appellants. Had they paid attention to the matter by asking questions, the errors on their returns could have been avoided.

Mont-Bruno C.C. Inc. v. The Queen, 2016-1152(IT)G, 21 March 2017

Minister’s Reply lacked cogent factual allegations to justify a statute-barred assessment

The taxpayer was a non-profit organization established for the purpose of operating a golf course for its members. In 2006 it disposed of a parcel of land and realized a gain of $1,742,500 on that disposition. The taxpayer reported the disposition on its T1044 Return which it filed in 2006. However, the taxpayer did not report the gain in its T3 trust return. The Minister reassessed in 2015 to include the gain in the computation of 2006 income on the basis that the land did not satisfy the test for exemption in s. 149(5)(e)(ii) that it was “used exclusively for and directly in the course of providing the dining, recreational or sporting facilities provided by it for its members.”

At issue was whether the Minister’s reply contained factual allegations which, if found to be true, could establish that the taxpayer had made a misrepresentation of fact in its return of income and had acted carelessly, negligently or willfully in making the misrepresentation. Paris J found that a pleading that the land was never used exclusively for and directly in the course of providing dining, recreational or sporting facilities for the members should be ignored as it was nothing more than a paraphrase of s. 149(5)(e)(ii) and that a statement that the taxpayer’s directors knew or ought to have known that the taxpayer’s filing position was incorrect should be struck as not disclosing what filing position was alleged to be incorrect. The remaining factual allegations relevant to the statute-barring issue were that that taxpayer’s board was sophisticated, aa resolution to obtain professional advice on the tax treatment of the sale was not followed through on, a gain on the sale of a similar property 14 years’ previously had been reported as giving rise to a taxable gain, and the land sold in 2016 was zoned residential and was separated by a road from the gold course. Paris J stated (at para.26) that these did not represent:

sufficient facts to enable me to conclude that the Appellant made a misrepresentation due to carelessness, negligence or willful default in its T3 Return. Therefore, the Amended Reply should be struck as disclosing no reasonable cause of action.

He concluded (at para 29) by allowing the respondent 60 days to file an amended Reply, as the taxpayer had"not shown that it would be impossible for the Respondent to amend to support the reassessment."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 149 - Subsection 149(5) - Paragraph 149(5)(e) - Subparagraph 149(5)(e)(ii) not clear negligence to not report sale of adjoining wooded lands 171

Krenbrink Estate v. The Queen, 2014 DTC 1065 [at 2996], 2014 TCC 22

executor failed to notice missing item in return worth 70% value of property to be distributed

The taxpayer had a registered retirement income fund worth $228,164 at his time of death, which the estate's tax preparers forgot to include in his terminal return. Graham J found that the Minister could reassess the taxpayer beyond the ordinary period, as the executor had been neglectful in only giving the return a cursory reading before signing it. An executor exercising reasonable care would have noticed the absence of the RRIF and made inquiries with the tax preparer (para. 31), given especially that the RRIF represented 70% of all assets distributed to the estate's beneficiaries (para. 32).

Francis & Associates v. The Queen, 2014 DTC 1146 [at 3468], 2014 TCC 137 (Informal Procedure)

taxpayers held to standard of wise and prudent law partner

A review of a law firm's accounts in 2005 by its external accountant revealed various substantial errors for the 2002 to 2004 years. The appellant partners filed revised tax returns for those years in 2007, in which they claimed additional bad debt deductions, with the Minister apparently disallowing those deductions and assessing for additional income in resulting 2007 reassessments.

In finding that the 2002 and 2003 years could be reassessed beyond the normal reassessment period, Bocock J stated (at para. 24):

[T]he Appellants' conduct was not consistent with that of a wise and prudent law partner. Mr. Francis…co-chaired the Partnership's monthly budget meeting. He supervised internal accounting staff. In doing so, he failed to ensure that the amounts reported by the Partnership were correct… .

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(p) - Subparagraph 20(1)(p)(i) subsequently discovered bad debts not claimable; unbilled disbursements deductible under s. 9 235

Desmarais v. The Queen, 2013 DTC 1044 [at 2804], 2013 TCC 356 (Informal Procedure)

substantial valuation uncertainty

The taxpayer was assessed a penalty for failure to file T1134 forms, which provided that filing was not required if the corporation had gross receipts of less than $25,000 in a year and at no time in the year did its assets exceed $1,000,000. As the reassessment was made outside the normal reassessment period, the Crown had the burden of establishing misrepresentation based on neglect etc. After describing the very substantial uncertainties associated with valuation of the corporation in question, Favreau J stated (at para. 37) that the taxpayer "made a thoughtful, deliberate and careful assessment of the value of OREX's investment."

832866 Ontario Inc. v. The Queen, 2014 TCC 93 (Informal Procedure)

failure to query GST treatment of self-supply

The appellant, a small custom-home builder, was held equally by a married couple (the DeMarcos). In 2006, the couple sold their home and moved into the appellant's model home. This change in use triggered an obligation of the appellant to pay GST on the fair market value of the home under the ETA s. 191 self-supply rule.

Rip CJ allowed the Minister's reassessment beyond the normal limitations period, finding that the appellant had been neglectful in its failure to report this transaction in its GST return. The appellant argued that it was unreasonable to expect the DeMarcos to spot the self-supply issue.

Rip CJ pointed out that the appellant did not ask its chartered accountant for guidance (paras. 21, 40) and instead relied on a bookkeeper who was unfamiliar with tax matters (paras. 25, 40), and stated (para. 41):

The fact that the move by the family into the model home was a transaction the DeMarcos and the appellant had never experienced before in the over the 20 years existence of the company ... did not disturb [Mrs. DeMarco] sufficiently to ask questions.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 298 - Subsection 298(4) - Paragraph 298(4)(a) failure to query GST treatment of self-supply 174

Ross v. The Queen, 2013 DTC 1250 [at 1400], 2013 TCC 333

misrepresentation must be in return

Bocock J found that misrepresentations made by the taxpayer on audit in 2003 respecting the appropriateness of registering a single-employee registered pension plan in 2001 did not have the effect of allowing CRA to reassess the 2001 year, which was before the normal reassessment period. See the summary under s. 152(4.01). He went on to deal obiter with a submission of the taxpayer (contrasting misrepresentations made in returns with those relating to information supplied under the Act such as a pension plan registration) "that misrepresentations made in supplying information under the Act do not, in the absence of misrepresentations in the return, allow the Minister to reassess outside the normal period"(para. 70), and stated (para. 77):

[T]he Minister would not be entitled to reassess outside the normal period under paragraph 152(4) where the taxpayers' only misrepresentations were made outside the returns and occurred solely in supplying information under the Act.

Bandula v. The Queen, 2013 DTC 1225 [at 1238], 2013 TCC 282

failure to keep receipts

The taxpayer had limited English skills and no understanding of the Canadian tax system or appropriate record-keeping standards. Bocock J found that reassessment beyond the normal period was justified given the failure to keep material receipts.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 163 - Subsection 163(2) new immigrant 67

De Couto (Alco Windows Inc.) v. The Queen, 2013 DTC 1161 [at 880], 2013 TCC 198 (Informal Procedure)

inscrutable bookkeeping

Bocock J found that the taxpayer, having failed to maintain adequate records and having engaged in "inscrutable" tracking of expenses, shareholder advances and shareholder benefits, could be reassessed beyond the normal period. (The taxpayer's appeal from gross negligence penalties was allowed, as the taxpayer's failure to maintain adequate records reflected colossal disorganization rather than duplicity.)

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 163 - Subsection 163(2) dismal records but no deceit 104

Aridi v. The Queen, 2013 DTC 1189 [at 1015], 2013 TCC 74

reliance on negligent advice

The taxpayer had disposed of half his interest in a rental property. His accountant informed him that a "rollover" was available for this disposition, such that he would not realize a capital gain on the disposition until he disposed of the other half. No such rollover provision in fact existed, and the Minister reassessed the taxpayer beyond the normal period.

After finding (at para. 26) that the phrase "person filing the return" referred to an authorized signatory of a taxpayer described in s. 150 rather than a person who merely prepares the return, and finding (at para. 34) that "it is not the accountant's neglect that makes it possible to disregard the limitation period," Hogan J granted the taxpayer's appeal, as he found no neglect etc. by the taxpayer, given that the taxpayer had carefully reviewed the return and asked probing questions about the "rollover." Hogan J stated (at para. 47):

The appellant knew the normal tax treatment of the transaction he had just completed. A specialist, namely his accountant, told him of another treatment, one that was more complicated but advantageous. The appellant asked some questions [in a meeting lasting more than an hour] and accepted the specialist's advice. He then reviewed the return and signed it. What more would a wise and prudent person have done?

Lenneville v. The Queen, 2013 DTC 1196 [at 1045], 2013 TCC 56

misrepresentation onus not met in net worth assessment

The taxpayers ran a commercial fishing business. Because a substantial portion of that business was operated on a cash basis, a CRA auditor used a net worth assessment to determine that the taxpayers' income was under-reported. One of the three taxation years was beyond the normal assessment period, and the Minister assessed penalties under s. 163(2).

Tardif J agreed with the Minister's income adjustments (subject to small corrections) but not with the penalties or out-of-period reassessment. The net worth assessment was warranted in the circumstances, and it had been performed soundly. However, there was no evidence of dishonesty or negligence. Moreover, a disparity between the taxpayers' reported income and the amount determined under the net worth assessment did not in itself prove misrepresentation.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 163 - Subsection 163(2) net worth assessment did not prove misrepresentation 122

Roud Estate v. The Queen, 2013 DTC 1057 [at 309], 2013 TCC 36 (Informal Procedure)

ignorance of non-rollover treatment no defence

The deceased ("Roud") held shares in a corporation that was converted into an income trust. With no rollover treatment available, she realized a capital gain of approximately $71,000. Neither she nor another individual ("Murphy"), who had her power of attorney, was aware of the gain, and consequently Murphy omitted it from Roud's return.

Boyle J. found that the failure to report the gain was a misrepresentation attributable to neglect or carelessness, so that the limitations period did not apply. The taxpayer had applied for discretionary relief, and Boyle J. stated (at para. 14) that the situation was a "compelling case for the Minister to consider relief of at least some of the interest."

Schmidt v. The Queen, 2013 DTC 1063 [at 337], 2013 TCC 11

"loan" defence was credible

The Minister imputed additional income to the taxpayer based on deposits into his bank account that he had not included in his return, and on that basis reassessed the taxpayer beyond the normal limitations period and imposed penalties. Hogan J. accepted the taxpayer's explanation that the amounts represented loans from his brother, and the accommodation of deposits of cheques from his brother's business. Unlike in Lacroix, the explanation of a loan from a sibling was credible - the taxpayer's brother had a hold on his account and was unable to make immediate withdrawals, whereas the taxpayer could. The Minister's assumptions were thus demolished.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 163 - Subsection 163(2) alleged family loan was credible 103

Grossett v. The Queen, 2012 DTC 1185 [at 3465], 2012 TCC 179 (Informal Procedure)

implausibly large charitable receipts

The taxpayers relied on charitable receipts which showed donations amounting to approximately 25% of their annual income, and which had been obtained from a tax planner who had subsequently been convicted for selling fraudulent charitable receipts to taxpayers. Paris J. found that the taxpayers had made misrepresentations on their returns, and reassessment beyond the normal period was justified.

Mullen v. The Queen, 2012 DTC 1154 [at 3358], 2012 TCC 139 (Informal Procedure)

non-residence claim was implausible

The taxpayer was reassessed in respect of income from stock options exercised in 1997, 1999, and in 2001. He argued that he was not a Canadian resident in those years. V.A. Miller J. agreed that the taxpayer was not resident in Canada in 1997, when he was employed and customarily living in China, but dismissed the 1997 appeal on other grounds.

V.A. Miller J. found that the taxpayer was a Canadian resident in 1999 and 2001, and V.A. Miller J. found that his assertions to the contrary amounted to wilful default, for which he should be reassessed under s. 152(4)(a)(i) outside the normal period and pay penalties under s. 163(2). The taxpayer's severing of his ties to Canada was largely superficial - he ostensibly sold a Belleville estate to his children in exchange for a mortgage, but never actually requested payment from them. The core of his social and family life, as well as his finances, remained in Canada, and his personal investment in China, and subsequently Thailand, was only enough to maintain a particular lifestyle during his periodic sojourns there. Moreover, there was evidence to indicate that the taxpayer had spent more time in Canada than he claimed.

9067-9051 Québec Inc., Vincent v. The Queen, 2012 DTC 1073 [at 2842], 2011 TCC 456

taxpayer unaware of factual basis for shareholder benefit

The individual taxpayer ("Vincent") was the sole shareholder and director of the corporate taxpayer ("9067"). Vincent's home, which was owned by 9067 and also used for business purposes, burned down. The insurance policy on the property, under which 9067 received a total of $1,170,800, stipulated that living expenses paid under the policy would not exceed $86,400 - however, Hogan J. found that none of the $1,170,800 were in fact living expenses. Therefore, by depositing $86,400 of the insurance benefits into his personal account, Vincent had received a shareholder benefit.

However, Hogan J. went on to find that Vincent could not be reassessed beyond the normal reassessment period. He stated (at para. 78):

The evidence shows that the insurance adjuster, Mr. Gingras, did not have to resort to a claim for living expenses to secure a final settlement equal to the maximum coverage of $1,170,800. However, the Respondent has not shown that the Appellant was informed of this fact. The fact that an amount of $30,000 was advanced before the final settlement could have led the Appellant to believe that the final benefits included living expenses. The Respondent has not satisfied me that the Appellant had reasons to doubt that this was so.

D'Andrea v. The Queen, 2011 DTC 1234 [at 1356], 2011 TCC 298

fraud conviction did not establish neglectful reporting

The taxpayer was convicted of fraud for arranging, in his capacity of manager of a company, for a sale of a property of the company at a substantial under-value to a purchaser in which his personal holding company had a 50% interest.

V.A. Miller J. found that the Minister had not met the burden under s. 152(4)(a)(i) to reassess the taxpayer for a benefit received beyond the normal reassessment period. The Minister had relied heavily on conclusions reached in the taxpayer's fraud trial. V.A. Miller J. stated (at paras. 42-43):

The statements, in McGarry J.'s Reasons for Judgment which the Respondent has relied on, ought to have been posed to the Appellant so that he could offer an explanation. It would then have been up to me whether or not I accepted that explanation.

The evidence relied on by the Minister has left me with more questions than it has answered. Did the Appellant seek advice prior to filing his 1999 income tax return? Was the Appellant's view of the transaction so unreasonable that it could not have been honestly held?

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 56 - Subsection 56(2) 146

Ha v. The Queen, 2011 TCC 271

net worth assessment

The registrant's assessment beyond the normal period, for unreported income of $91,232, $50,125, $64,540 and $66,596 in successive years, and unremitted GST totaling $19,074.51 over the same period, was upheld subject to minor adjustments. The registrant had not kept proper records and the amounts were arrived at by a net worth assessment. V.A. Miller J. found that the net worth assessments were consistent with the registrant's lifestyle. The registrant's evidence to the contrary was not credible because his explanations to different CRA officials and the Court were largely unsubstantiated and mutually inconsistent.

Palardy v. The Queen, 2011 DTC 1188 [at 1050], 2011 TCC 108

income account treatment in "grey zone"

The taxpayer sold a residence eight months after the point at which she had completed its construction and moved in. The Minister reassessed beyond the normal reassessment period on the basis that the gain was realized on income account. Hogan J. stated (at para. 16):

[T]he real question is whether subparagraph 152(4)(a)(i) applies to a taxation year that is otherwise time-barred when the facts considered incorrect are presented because the taxpayer interpreted the circumstances to favour the non-taxation theory since they fall in the grey zone of tax law. I believe, in view of the case law, the question can be answered in the negative where the taxpayer's position is not unreasonable.

Here, the taxpayer's position was not unreasonable, and the reassessment was statute-barred.

Cameron v. Queen, 2011 DTC 1166 [at 914], 2011 TCC 107

principal residence exemption in "grey zone"

The taxpayer purchased a lot and built a house on it. Over a period of less than two years, he moved in with his family, rented the property out, and finally sold it. The Minister sought to reassess the taxpayer beyond the normal reassessment period for profit realized on the sale, on the basis that the taxpayer had misrepresented the sale as being a sale of principal residence.

After finding that the sale fell into the "grey zone" of tax law, Hogan J. found that the Minister had not met the test in s. 152(4)(a)(i). Given that the taxpayer's position was not, on the balance of probabilities, unreasonable, he was free to report his income in a manner that would lead to a favourable tax treatment. Therefore, even assuming the taxpayer had made a misrepresentation, it did not amount to neglect, carelessness, or willful default. Hogan J. stated (at para. 26):

[A]dopting a thoughtfully considered position that contradicts the Minister's position does not in itself mean the taxpayer made a misrepresentation that would allow the Minister to assess outside the normal period.

Stanislao Calandra o/a Calandra Hair Studio v. The Queen, 2011 DTC 1049 [at 142], 2011 TCC 7 (Informal Procedure)

net worth assumptions inconsistent with reverse onus

The taxpayer reported successive business losses, arousing the Minister's suspicion as to how the taxpayer could support his family when he purportedly had essentially no income. Paris J. disallowed the assessment for the year outside the normal reassessment period, notwithstanding that the taxpayer was uncooperative with the reassessment. (Para. 17):

The allegation that the Appellant misrepresented his income is based on on a net worth audit in which the great majority of the figures used were not verified by the auditor because the [taxpayer] did not cooperate. ... The assumptions made by the auditor in reassessing cannot be relied on by the [Minister] for the purpose of meeting the onus to prove a misrepresentation. ... It may have been possible for the Minister, during the audit, to obtain such evidence, if it existed, by issuing requirements to the Appellant and third parties, but for whatever reason, this was not done.

Misiak v. The Queen, 2011 DTC 1048 [at 237], 2011 TCC 1 (Informal Procedure)

benefit of reverse onus where net worth assessment

The Minister reassessed the taxpayer in respect of several taxation years by way of a net worth assessment, on the assumption that the taxpayer had taken money out of his wholly-owned corporation to pay for personal expenses without reporting those receipts as income. However, Hogan J. disallowed the assessment for the year that was outside the normal reassessment period, given that no misrepresentation had been proven. At para. 17:

When a taxation year is statute-barred, the Minister cannot simply assume a figure for the taxpayer's living expenses and claim victory if the taxpayer does not demolish this assumption. The Minister can only do this if the reassessment has been issued within the normal reassessment period. The ITA does not require taxpayers to keep records of their personal expenditures.

Envision Credit Union v. The Queen, 2010 DTC 1399 [at 4585], 2010 TCC 576, aff'd 2012 DTC 5055 [at 6842], 2011 FCA 321, aff'd 2013 DTC 5144 [at 6275], 2013 SCC 48

incorrect position was thoughtfully taken

The filing position of the taxpayer that tax attributes of predecessor corporations did not flow through to it on an amalgamation that did not qualify as an amalgamation under s. 87(1) did not represent a misrepresentation attributable to neglect or carelessness given that this filing position was based on considerable thought and deliberation taking into account a published position of the CRA.

Labow v. The Queen, 2010 TCC 408, 2010 DTC 1282 [at 3956], aff'd 2012 DTC 5001 [at 6501], 2011 FCA 305

taxpayers appreciated the spurious factual underpinnings

The taxpayers disguised a tax deferral scheme as a health plan for their employee wives. Bowie J. found that the plans had not been entered into with considered judgment as to their commercial benefit to the taxpayers' firm: the amounts paid to the plan were set without regard to the actual benefit of the services; no attempt was made to seek competing bids from actual medical insurance providers; and the plan was not extended to non-spouse employees. Bowie J. found that the taxpayers had clearly understood that the amounts contributed were not business expenses; therefore, reporting them as such was a misrepresentation attributable to neglect or carelessness.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Income-Producing Purpose health plan was disguised deferral scheme 54

Létourneau v. The Queen, 2010 DTC 1232 [at 3656], 2010 TCC 203

resignation backdated

The taxpayer could be reassessed under s. 227.1 beyond the normal reassessment period in light, inter alia, of a finding that she had tampered with the minute books in order to back-date her resignation as director.

Chaumont v. The Queen, 2010 DTC 1014 [at 2599], 2009 TCC 493 (Informal Procedure)

incorrect interpretation had "a modicum of foundation"

After noting that the taxpayer's submissions as to his exemption under the Canada-France Convention on interest income earned by him from a French source "were unusual and even surprising" (para. 15), and that the taxpayer was taxable on such interest income. Tardiff, J. went on to find (at para. 22) that "the case at bar did not involve stubbornness or capriciousness; rather, it involved a legitimate question and a principled concern that had a modicum of foundation" so that the penalty did not apply.

Donato v. The Queen, 2009 DTC 1384 [at 2111], 2009 TCC 590

reasonable not to foresee rectification order

After finding that donations of cartoon drawings by the taxpayer did not qualify as dispositions of personal-use property, Woods, J. went on to find that there had been no negligence in reporting those drawings as having been donated as personal-use property by the taxpayer's wife given that at that time they could not have foreseen that the taxpayer would have successfully obtained a rectification order to have those drawings treated as never having been transferred by the taxpayer to his wife, and as instead having been donated by him directly to universities.

Sljivar v. The Queen, 2009 DTC 1381 [at 2103], 2009 TCC 581

didn't review return

The taxpayer was negligent in not even making a cursory review of his tax return, which claimed expenses which he clearly was not entitled to, for example, an office in his home and capital cost allowance on personal property.

Wachsmann v. The Queen, 2009 TCC 420

taxpayer was unaware of disposition

The Minister was able to reassess the taxpayer beyond the normal reassessment period in respect of mortgage interest expenses claimed by her in her returns given that she had never reviewed them. However, the Minister could not assess her for a capital gain that she had failed to report given that she did not find out that the property had been disposed of until after she filed her return for that year.

College Park Motor Products Ltd. v. The Queen, 2009 DTC 1469, 2009 TCC 409

responsibility for accountant's ignorance of Part I.3 tax

The taxpayer, which made a voluntary disclosure in respect of its failure to report large corporations tax liabilities and its improper claiming of small business deductions, could be reassessed beyond the normal reassessment period. These errors were attributable, at least in part, to the taxpayer's accountant not having any knowledge of Part I.3 tax, and Bowie, J. quoted with approval (at para. 13 from Snowball v. The Queen, 97 DTC 512) that "negligence in the preparation of an income tax return retains its consequences under subparagraph 152(4)(a)(i) whether it is the negligence of the taxpayer personally or that of the accountant ...".

Dalphond v. The Queen, 2009 DTC 1395, 2008 TCC 427, aff'd 2010 DTC 5016 [at 6589], 2009 FCA 121

sophisticated taxpayer failed to seek advice

The taxpayer, who had retired from a long career of managing pension funds (and, therefore, was considered to be sophisticated), made a misrepresentation attributable to neglect when he claimed the enhanced capital gains disposition with respect to a sale by him of shares of a corporation which was controlled by non-residents (a fact of which he professed to be unaware) at a time that was less than two years from the date of his acquisition of the shares. A simple check would have enabled him to see that the disposition did not qualify.

O'Dea v. The Queen, 2009 DTC 912, 2009 TCC 295

reliance on professional opinions for technical matter

After finding that the taxpayers did not have limited recourse amounts for promissory notes they gave as consideration for the limited partnership units offered with the offering memoranda given the absence of any arrangements for payment of interest on the notes on a timely basis and other deficiencies, Campbell, J. found (at para. 104) that the taxpayers could not be reassessed beyond the normal reassessment period:

"I believe they were acting in a reasonable and prudent manner in placing reliance on the various professional opinions before making a decision to invest and should not be held to a higher standard. To do so would be to insist that they must personally investigate the technicalities of the various structures and arrangements of public offering documents."

Séguin Boyer v. The Queen, 2008 DTC 4891, 2008 TCC 88

failure to report large gain

The failure of the taxpayer, who was an accounting secretary, to report taxable capital gains of approximately $168,000 realized by her in both her 2000 and 2001 taxation years from the disposition of shares of BCE Emergis Inc. represented neglect or carelessness.

Savard v. The Queen, 2008 TCC 62

mere error is insufficient

The failure of the taxpayer to include in his income the reimbursement by a corporation of expenses incurred by him in connection with a criminal prosecution of him did not permit the Minister to assess the year in question beyond the statute-barring period, given that the correct treatment of such reimbursements was by no means clear. Tardif, J. also stated (at para. 59):

"I do not believe that evidence of a single error resulting from the presence of an inaccurate fact is sufficient to preclude the effect of the time limit in the Act. Rather, I think that there needs to be evidence of a more serious wrongdoing than mere error."

Abakhan & Associates Inc. v. Canada (Attorney General), 2008 DTC 6028, 2007 FC 1327

insufficient evidence of misrepresentation

O'Reilly J. indicated that he saw nothing preventing a company from making a request for judicial review of a decision of the Minister not to accede to the corporation's request for a reassessment of a taxation year (preceding the normal reassessment period) in which the taxpayer allegedly had exaggerated its own taxable income. However, in the circumstances, it had been reasonable for the Minister to conclude that there was insufficient evidence to assess whether a misrepresentation had in fact occurred for those earlier taxation years or, if so, to determine the actual amount of tax owing, if any.

Mensah v. The Queen, 2008 DTC 4358, 2008 TCC 378

no copy of return - no evidence

In noting that the Minister had not discharged the onus placed on the Minister under s. 152(4)(a)(i), Bowman C.J. stated (at para. 37) that "there has been no basis shown to justify opening up the statute-barred 1993 taxation year, even if the respondent had been able to find a signed copy of the return".

McKellar v. The Queen, 2007 DTC 1007, 2007 TCC 266

reliance on professional consultation

The Crown did not discharge the onus on it of establishing that a misrepresentation by the taxpayer (relating to claiming losses from the disposition of bonds by a partnership of which he was a member on the basis that the bonds had a cost equal to the maturity value rather than the amount paid for them) was due to carelessness given that when the taxpayer first received the partnership's financial statements, he consulted with a chartered accountant (who was also a member of the partnership) to confirm the propriety of claiming his share of the reported losses.

Peek v. The Queen, 2007 DTC 602, 2007 TCC 152

material unreported profits

Profits realized by the taxpayer from a fraudulent cheque-kiting operation were not statute-barred given the materiality of the amounts involved.

Petric v. The Queen, 2006 DTC 3082, 2006 TCC 306

under-valuation not a "clear-cut issue"

In finding that the Minister was statute-barred in assessing a corporation and its shareholder on the basis that property had been transferred from the corporation to the shareholder at an undervalue, Lamarre J. indicated that it was plausible that the taxpayers judged the method used by their appraiser to be the proper one for estimating the property's fair market value, after having noted (p. 3089) that "the matter of fair market value is a controversial issue" rather than a "clear-cut issue".

S.E.R. Contracting Ltd. v. The Queen, 2006 DTC 2212, 2006 TCC 6 (Informal Procedure)

burden on Minister

After indicating that where the Minister assessed under s. 152(4)(a)(i) the burden of proof was on him to establish that the taxpayer had made a misrepresentation, Bonner J. went on to find that the Minister had not met this burden.

Succession de Feu Cléophas Saint-Aubin c. La Reine, 2005 DTC 912, 2003 TCC 608

deemed disposition rule was explained in CRA Guide

The trustee of an estate (who was a lawyer) made a misrepresentation in completing a return of the trust for the year in which the 21-year rule applied by indicating "zero" in the line for taxable capital gains, and by answering "no" to a question as to whether the trust had disposed of capital property during the year. Archambault J. noted (at para. 32) that the trustee would have been negligent in answering this question without referring to the Revenue Canada guide and, on the other hand, if he had consulted the guide and read the passages dealing with the 21-year rule, then his failure to report capital gains from the deemed disposition under this rule would have constituted willful neglect.

Riordan v. The Queen, 2005 DTC 397, 2005 TCC 150

no T4s for $1M in receipts

The Minister had the right to reassess the taxpayer after the normal reassessment notwithstanding that the taxpayer had not been issued any T4 slips in respect of his failure to report over $1 million in employee stock option benefits realized over a period of four years.

Central Interior Incorporated v. The Queen, 2005 DTC 144, 2004 TCC 725

messy record keeping

Errors of the taxpayer were attributable to the state of mess of its records. The keeping of records in this fashion was negligent, with the result that its relevant taxation years were not statute-barred under s. 152(4)(a)(i).

Jencik v. The Queen, 2004 TCC 295 (Informal Procedure)

burden on CRA

The Minister, who sought to reassess the taxpayer beyond the normal reassessment period in respect of alleged unreported income from businesses, was unable to establish that bank deposits were revenues of a business or that costs of earning any revenues of the business did not exceed such revenues. Accordingly, the Minister failed to discharge the onus placed on him.

Sidhu v. The Queen, 2004 DTC 2540, 2004 TCC 174

didn't inform return preparer of gain

The taxpayer was grossly negligent in seeking professional assistance in preparing his tax returns which reported rental and business losses while at the same time not informing the advisor that he had disposed of a rental property at a gain of $160,000 that had been used briefly as a temporary residence shortly before the disposition.

Produits Forestiers St-Armand Inc. c. La Reine, 2004 DTC 2494, 2003 TCC 696

blatant expense claims

The taxpayer had shown an indifference to the accuracy of its returns in classifying expenses relating to the acquisition of vehicles and certain equipment, and to the acquisition of land and obtaining changes to zoning as current expenses. The Minister could reassess beyond the normal reassessment period.

Snowball v. The Queen, 97 DTC 512 (TCC)

vicarious negligence

The taxpayer did not report his share of the profits realized by a real estate partnership. Although this failure would not have been negligent simply by reason of an erroneous assumption by him that the partnership interest in question was held by a corporation of which he was a shareholder, he was negligent in not checking that the corporation, in fact, had declared this income. Furthermore, even if the taxpayer's accountant had been negligent in failing to include the profits in the income of the corporation (which did not appear to be the case): "negligence in the preparation of an income tax return retains its consequences under subparagraph 152(4)(a)(i) whether it is the negligence of the taxpayer personally or that of the accountant or other tax return preparer who is his or her agent." (p. 514)

Farina v. The Queen, 97 DTC 487 (TCC)

reported goodwill as personal rather than corporate asset

The taxpayers had made a misrepresentation attributable to "neglect, carelessness or wilful default" in taking the position that customer goodwill belonged to them rather than to their company that had carried on the business in question almost as long as it had existed and for whom they worked exclusively.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 163 - Subsection 163(2) 47

Prévost v. MNR, [1996] 1 CTC 2701 (TCC)

capital account reporting clearly would be incorrect

The taxpayer agreed to act as nominee for a bankrupt individual ("Gingras") and Gingras' wife in purchasing shares of a corporation ("Dalhousie") from the trustee in bankruptcy for a fee of $100,000 (later agreed to be increased to $210,000). The taxpayer made a misrepresentation attributable to neglect, carelessness or wilful default in reporting the sum of $210,000 received by it on the transfer by it of the shares of Dalhousie to a corporation held for the benefit of Gingras as a capital gain rather than as business income. Archambault TCJ, after quoting from Gauthier v. MNR, 93 DTC 728, at 756-57, stated (p.2711):

"I agree with Judge Tremblay who states that a taxpayer cannot be reproached for having made a misrepresentation when that error results from a mischaracterization of the income or misinterpretation of a provision of the Act. I hasten to add, however, that that error must be an error made in good faith."

Archambault TCJ noted that even if he had concluded that the taxpayer had purchased the Dalhousie shares for its own account and not as a nominee for Gingras (or Gingras' wife), that a transfer of the Dalhousie share one day after their acquisition by the taxpayer would be "considered as part of the normal operations of [the taxpayer], which carried on a real estate brokerage and a real estate purchase and resale business." Accordingly, reporting the amount received as a capital gain rather than business income, would have constituted misrepresentation.

Ver v. Canada, [1995] TCJ No. 593

failure to plead the precise misrepresentation (which means misrepresentation of fact)

The Minister's reassessment of the taxpayers' 1988 taxation year beyond the normal reassessment period, on the basis that various claimed expenses were household expenses, was not permitted. Bowman T.C.J. stated (at para. 13) that "a misrepresentation within the meaning of subparagraph 152(4)(a)(i) means a misrepresentation of fact", and that judgments as to the allocation of expenses between business and personal are not the subject of misrepresentation, that it had not been established that the taxpayers had suppressed any material facts and that the bold assertion in the Reply of the Minister that the Minister had "assumed" a misrepresentation was inappropriate where the Minister must prove a misrepresentation. He further stated:

"The precise misrepresentation alleged to have been made must be set out with particularity in the reply and proved with specificity. Three essential components must be alleged in pleading misrepresentation: (i) the representation; (ii) the fact of its having been made; and (iii) its falsity."

Words and Phrases
misrepresentation

Farm Business Consultants Inc. v. The Queen, 95 DTC 200 (TCC), briefly aff'd 96 DTC 6085 (FCA)

goodwill consideration misrepresented as fees

The taxpayer was found to have made a misrepresentation attributable to neglect, carelessness or wilful default when it deducted "management fees" in its tax returns paid pursuant to a consulting agreement whose legal substance was the provision of consideration for the purchase of goodwill.

Bowman TCJ. also found that in a case (such as here) where there was not only an issue as to the correctness of the assessment but also as to whether there was a misrepresentation described in s. 152(4)(a)(i), the Crown should present evidence and argument first on the misrepresentation point in order to establish the Minister's right to assess.

Abogado v. The Queen, 96 DTC 3254 (TCC)

exaggerated expense claims

In finding that the Minister was entitled to reassess the taxpayers for business losses claimed by them with respect to an Amway distributorship business (whose revenues were minuscule relative to the expenses claimed by them), Beaubier TCJ. noted that they were "careful, frugal, comprehending individuals" (p. o), that no vouchers or documents for the claimed expenses were submitted to the Court and that the expenses were "so exaggerated as to comply, at least, with the description that they were filed 'carelessly'". (p. o)

Gauthier v. MNR, 93 DTC 758 (TCC)

mere misinterpretation of the Act

The taxpayer did not make a misrepresentation attributable to carelessness or wilful default in following a cash basis of accounting rather than accrual basis of accounting or in treating advances made by him as running expenses. A taxpayer cannot be reproached for having made a misrepresentation when that error results from a mischaracterization of the income or misinterpretation of a provision of the Act.

Poulin v. MNR, 87 DTC 113 (TCC)

taxpayer not responsible for spouse's sloppy bookkeeping

The taxpayer, who did not have much education or accounting background, would spend periods of up to six months at a time in the bush cutting wood, while his wife did the accounting for his affairs and that of a family logging company. Various amounts earned by the company were deposited by her directly to their personal account.

In finding that there have been no misrepresentation by the taxpayer in connection with not including these amounts in his income, Mr. Taylor stated (p.116):

"that the Minister has not shown that Mr. Poulin made any single misrepresentation regarding his taxable income as it was known to him at that time. Further, I fail to see how it can be said that Mrs. Poulin's failure to bring the bank deposits issued to the attention of the accountant, or the accountant's failure to inquire into the affairs of Mr. Poulin sufficiently to uncover them, can be attributed to Mr. Poulin ... ."

Markakis v. MNR, 86 DTC 1237 (TCC)

no copy of return: no proof

The Minister made net worth reassessments of the taxpayer for his 1974 to 1976 taxation years beyond the normal reassessment. The Minister could not establish a misrepresentation in respect of the 1974 and 1975 tax returns because the Minister had destroyed copies of the taxpayer's returns for those years and was unable to prove that computer records that purported to contain information identical to those contained in the returns in fact were accurate. In also finding that the Minister had failed to establish negligence of the taxpayer in respect of his 1976 taxation year, Rip T.C.J. stated (at p. 1239):

"For the Minister to show the taxpayer has not exercised reasonable care requires, in my view, something more than simply submitting evidence that a taxpayer has made deposits to his bank accounts in amounts greater than his employment income and advising the Court that he, the Minister, does not accept the taxpayer's explanation of the source of funds."

N.D. Glazier Ltd. v. MNR, 83 DTC 48 (TRB)

incorrect reporting was explained in return

When the taxpayer reported in its 1974 return a sale by it of a real estate option, it treated the cost to it of the option as being equal to its estimated fair market value of approximately $86,000 at the end of 1971, and reported an income-account loss on the sale of the option of approximately $46,000 based on proceeds of disposition of approximately $40,000.

In finding that the taxpayer had not made a misrepresentation, Mr. Taylor noted (at p. 50) that an argument might well be made that the nature of the option could have changed from capital to income at some time during the taxpayer's holding of the option and that the taxpayer had explained the transaction (albeit not in great detail) and its possibly problematic nature in a Schedule to the return, and stated that "a mistake is different from misrepresentation" and that there was not "neglect of carelessness to the degree that one might not expect to find in the work of a normally cautious and wise taxpayer".

Administrative Policy

30 July 2012 Internal T.I. 2012-0436711I7 F - Reassessment beyond the normal reassessment period

CRA could reassess beyond normal reassessment period based solely on an ARQ audit report showing error and carelessness of the taxpayer

CRA obtained a copy of an audit report of the Ministère du Revenu du Québec ("MRQ") as part of the information exchange program between it and the MRQ. Could CRA issue a Notice of Reassessment after the expiry of the normal reassessment period in respect of the audited Corporation based solely on the information obtained from the MRQ and without an audit? After noting that the “Minister must establish a more serious breach than a simple error,” the Directorate stated:

[A] sufficiently substantiated MRQ audit report can provide the Minister with conclusive evidence for the purposes of subparagraph 152(4)(a)(i). This will be the case where the information obtained from the MRQ shows that the taxpayer made any misrepresentation that is attributable to neglect, carelessness or wilful default. The burden of proof is the same as when the information was obtained during an audit by the CRA.

6 October 2017 APFF Financial Strategies and Financial Instruments Roundtable Q. 14, 2017-0708511C6 F - T1135 and 162(7) penalty

failure to file a T1135 treated as a misrepresentation – but neglect etc. ground to be determined

In 2015-0588971C6, CRA indicated that the proposition that “the late-filing penalty of $2,500 under subsection 162(7) applies automatically… is currently under study.” CRA has now indicated that having completed that study, it is:

still of the opinion that [the penalty] applies automatically where all the conditions of that subsection are satisfied. …

CRA went on to acknowledge the six-year normal reassessment period under s. 152(4)(b.2), and referenced the exception thereto for neglect etc., and stated:

Failure to file Form T1135 when required by subsection 233.3(3) constitutes, in the CRA's view, a misrepresentation. However, whether this misrepresentation is due to neglect, carelessness, or willful default or to any fraud committed by the taxpayer or person filing the return is a question of fact determinable on a case-by-case basis.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 162 - Subsection 162(7) penalty for late-filing of a T1135 will be imposed automatically 206

May 2016 Alberta CPA Roundtable, Q.17

onus on CRA re assessing T1135 penalties outside normal statute-barring periods

Respecting whether a s. 162(7) penalty for failure to file a T1135 can be assessed beyond the normal reassessment period, CRA stated that although such failure to file was a misrepresentation, in order to establish carelessness, it would be necessary to establish that the failure:

was an error that a prudent and conscientious person would not have made.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 220 - Subsection 220(3.1) T1135 filings for all years required 33
Tax Topics - Income Tax Act - Section 162 - Subsection 162(7) penalty not an absolute liability penalty 87

26 May 2016 Alberta CPA Roundtable, 2016-0645001C6 - Failure to file Form T1135

onus to establish carelessness or neglect where failure to file a T1135

Can a taxpayer who failed to file Form T1135 be assessed a penalty under s. 162(7) after the normal reassessment period? After referring to the s. 152(4)(b.2) (three-year extension) and s. 152(4)(a)(i) exceptions, CRA indicated that in order to reassess beyond the normal reassessment period under s. 152(4)(a)(i):

Generally, the Minister would have to, at least, prove that the taxpayer or the person filing the return made an error in failing to file the Form T1135 and, although that error may have been made in good faith, it was an error that a prudent and conscientious person would not have made.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 162 - Subsection 162(7) failure to file a T1135 may not indicate carelessness or neglect 83

4 December 2014 Internal T.I. 2014-0526451I7 F - Assessment beyond the normal reassessment period

taxpayer failure to file was a "misrepresentation"

A resident individual failed to respond to a demand under s. 150(2) to file a return for his 2008 year, so that in 2009 CRA assessed under s. 152(7). In 2013 and thus beyond the (three year) normal reassessment period for the 2008 year, CRA discovered further income which it had not assessed in 2009. Could it assess this additional income? The Directorate stated (TaxInterpretations translation):

Subsection 152(3.1) does not distinguish between assessments issued by virtue of subsection 152(1) and those under subsection 152(7). … The normal reassessment period thus commenced…from the assessment…in 2009. … The conditions for the application of the subparagraph [152(4)(a)(i)] do not require the making of a return by the taxpayer in order to accord the right to the Minister to issue an assessment outside the normal reassessment period. …

[W]here a taxpayer has been assessed under subsection 152(7) after having received a demand…under 150(2), the taxpayer has made a misrepresentation ["présentation erronée des faits"] by virtue of wilful default ["omission volontaire"]. … Thus…the Minister can reassess respecting the 2008 year…in order to take into account the new information… .

30 June 2014 Internal T.I. 2013-0508411I7 F - Part IV Tax and the Dividend Refund

failure to circularly calculate Part IV tax and dividend refund is neglect given published TIs

Investments and XX each held shares in the other. Investments, which had an RDTOH balance at year end, redeemed shares held by XX during the year, thereby giving rise to a deemed dividend; and XX also paid a dividend in that year to Investments. Each dividend resulted in a dividend refund and a Part IV tax liability. The RDTOH balance reported by Investments was incorrect. Moreover, it did not take into account the circular effect of the cross-dividends, so that it did not take this circularity into account in computing its dividend refunds and Part IV tax liability for the year. A reassessment of that year would now be beyond the normal reassessment period. In finding that the year could be reassessed, the Directorate stated (TaxInterpretations translation):

[W]hen a taxpayer has made a misrepresentation attributable to negligence, it does not matter that the Minister could have determined the true facts prior to the expiration of the normal reassessment period [citing Regina Shoppers Mall v. M.N.R., 90 DTC 6427 (F.C.T.D.), aff'd 91 DTC 5101 (F.C.A.)]. … [S]ince the necessity to effect the circular calculation…is well known, we believe that a reasonable and prudent person would have effected the circular calculation in order to report (in the income tax return filed) the correct figures to the Minister.

In finding that the year could be reassessed, the Directorate noted that the requirement for a circular calculation had been addressed in various Technical Interpretations and that, thus, "the necessity to effect the circular calculation…is well known… ."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 186 - Subsection 186(1) when to stop circular calculation for cross dividends arising after tuck under 216

14 July 2014 Internal T.I. 2014-0537701I7 F - Voluntary disclosure - T1134 and FAPI

no time limitation for s. 162(10) penalty

Representatives of a taxpayer initiated a voluntary disclosure for a taxpayer who had not filed T1134s and who had failed to report foreign accrual property income (or related FAPL or FACL deductions). Without being asked about the penalties that would apply if a disclosure did not meet the requirements of the voluntary disclosure programme, Headquarters noted that a T1134 is required for each foreign affiliate for each post-1995 year, and that a s. 162(7) assessment "must be made by the Minister before the expiration of the normal reassessment period," but referred to the exception for carelessness etc. and the potential three-year extension under s. 152(4)(b)(iii). However, the penalties under ss. 162(10) or (10.1), or s. 163(2.4), which could be engaged only in circumstances of gross negligence etc., generally could be imposed without time limitation.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 162 - Subsection 162(10) s. 162(10) penalty for failure to file T1134s 132
Tax Topics - Income Tax Act - Section 162 - Subsection 162(7) penalties under ss. 162(10), (10.1) or 163(2.4) for failure to file T1134s 132
Tax Topics - Income Tax Act - Section 163 - Subsection 163(2.4) penalties for failure to file T1134s 132
Tax Topics - Income Tax Act - Section 220 - Subsection 220(3.1) requirements where undisclosed FAPI 197
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) - Paragraph 152(4)(b) - Subparagraph 152(4)(b)(iii) Ho acknowledged 88

5 June 2014 Internal T.I. 2013-0509051I7 - Penalties beyond the Normal Reassessment Period

carelessness sufficient to assess beyond normal reassessment period

The level of culpability required to assess beyond the normal reassessment period (in this case, a penalty under s. 162(7)) pursuant to s. 152(4)(a)(i) (i.e., "neglect, carelessness or wilful default") is lower than that required to assess a penalty for gross negligence such as under s. 163(2) or 162(10) (i.e., "knowingly, or under circumstances amounting to gross negligence").

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 162 - Subsection 162(7) carelessness sufficient to assess beyond normal reassessment period 58

11 June 2014 Internal T.I. 2014-0519701I7 - Filing a NIL return to avoid late-filing penalties

return with substantive missing elements

Can CRA refuse to accept either a NIL tax return (which does not report any of the transactions on which tax is payable) or a substantially incomplete tax return? CRA stated:

[W]here all or some of the necessary and substantive elements on the prescribed form are missing, or incorrectly stated…subparagraph 152(4)(a)(i) would apply to the filing of such a return in these circumstances. Therefore, even if the CRA has issued a notice that no tax is payable as a consequence of the NIL tax return, thus starting the taxpayer's normal reassessment period, the CRA's ability to reassess the taxpayer beyond the normal reassessment period would not be limited.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 162 - Subsection 162(1) return with substantive missing elements 119
Tax Topics - Income Tax Act - Section 163 - Subsection 163(2) return with substantive missing elements 55

9 November 2012 CTF Atlantic Roundtable, 2012-0465921C6 - CTF Atlantic - Statute Barred Years

"misrepresentation"
1. What is "misrepresentation"?

There is no requirement that the person providing the information intended to deceive the CRA ... . ... [T]he information simply has to be incorrect at the time it is supplied to the CRA.

2. May only related issues be reassessed?

S. 152(4.01) makes it clear that, barring a waiver, CRA can "only reassess ... issues issues arising from a misrepresentation."

3. Would a tax avoidance arrangement generally be considered a misrepresentation?

There is no [such] general presumption... .

[A]lthough statute-barred years were assessed in project files like "Ontario Fincos", "Quebec Truffles" [sic, Shuffles?] and "Broken Amalgamations", in general the reassessment of statute-barred years where GAAR is the assessing authority should be rare. The GAAR Committee ... will not authorize an assessment of an otherwise statute-barred year unless there are compelling reasons provided which meet the negligence threshold.

Words and Phrases
misrepresentation

21 September 2012 Internal T.I. 2012-0447401I7 - Minister's ability to reassess under 152(4)

no misrepresentation in amended return

The Minister initially made arbitrary assessments under s. 152(7) of a CCPC that had not filed returns. The CCPC then filed returns for some or all of these years which were accepted by CRA and reassessed accordingly. After the normal reassessment period, the CCPC filed amended returns for those years, arguing that "the taxpayer was grossly negligent in not filing its tax returns," so that the years were still open to reassessment. Headquarters stated:

Subparagraph 152(4)(a)(i) permits the Minister to make an assessment, reassessment or additional assessment of tax at any time for a taxation year in order to remedy any misrepresentation that is attributable to neglect, carelessness or wilful default. However, assuming the changes requested by the taxpayer are otherwise permitted under the Act, there would be no misrepresentation in the "amended return" to remedy. As such, the Minister would not be able to re-open the statute barred years.

2 February 2005 Internal T.I. 2005-011324 -

no obligation to file amended return

Given that under s. 152(4)(a)(i), "any misrepresentation must be made at the time that the return was filed", it followed that an inadvertent error in a return that the taxpayer did not become aware of until after the filing of the return did not open up the return: there was no obligation on the taxpayer to file an amended return.

October 1992 Central Region Rulings Directorate Tax Seminar, Q. I (May 1993 Access Letter, p. 230) Discussion comparing the conduct described in s. 163(2) and s. 152(4)(a)(i).

Articles

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.

Brent F. Murray, "Extending the Assessment Limitation Period", Canadian GST Monitor, No. 275, August 2011, p. 1.

Krishna, "Reassessments Based on Fraud or Misrepresentation", Canadian Current Tax, October 1992, p. A25.

Subparagraph 152(4)(a)(ii)

Cases

Mitchell v. Canada, 2002 DTC 7502, 2002 FCA 407

CRA "obliged to treat any document as a waiver, providing it contains the necessary information"

Counsel for the taxpayers had agreed with Revenue Canada that the taxpayers' files would be held by Revenue Canada in abeyance pending the conclusion of a test case without prejudice to their receiving the same treatment as in the test case and without the need for further steps or documentation.

This agreement was found to be a waiver notwithstanding that no prescribed form was used, in light of section 32 of the Interpretation Act, given that a statement in correspondence by counsel had been intended to constitute a waiver and the written material contained all that was substantively necessary to constitute a waiver.

Mitchell v. Attorney General of Canada, 2001 DTC 5290 (FCTD)

Letters sent by counsel for the taxpayers to Revenue Canada which contained essentially all the information required for a waiver did not qualify as such because, when they were sent to Revenue Canada, they were not intended to function as waivers.

Solberg v. The Queen, 92 DTC 6448 (FCTD)

Reed J. concluded that a reference in a waiver to "Part III" of the Act was a technical defect which did not impair the substance of the waiver, with the result that the Minister was entitled to reassess the taxpayer under Part I in relation to a V-day valuation dispute.

Cal Investments Ltd. v. The Queen, 90 DTC 6556 (FCTD)

A waiver signed by the V-P Finance of the taxpayer with the implied authority to do so but not under seal, was binding on the taxpayer, i.e., "the corporate seal is a discretionary provision for the Minister's benefit ... [and] the deficiency in the waiver does not create a nullity."

See Also

984274 Alberta Inc. v. The Queen, 2019 TCC 85

reassessment made pursuant to late waiver was void

An assessment made of the taxpayer beyond the normal reassessment period was void as the waiver pursuant to which it purportedly was made had also been given beyond the normal reassessment period.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(8) reassessment made pursuant to late waiver could not be cured by s. 152(8) 45
Tax Topics - Income Tax Act - Section 169 - Subsection 169(3) voidness of assessment against 2nd taxpayer to a settlement agreement meant that it could not be assessed under s. 169(3) 279
Tax Topics - Income Tax Act - Section 164 - Subsection 164(1) invalid reassessment could not establish a refund amount 259
Tax Topics - Income Tax Act - Section 160.1 - Subsection 160.1(1) refund made pursuant to a void reassessment was not made pursuant to the Act (and also was not a “refund” on ordinary principles) so that s. 160.1(1) unavailable 472

Kerry (canada) Inc. v. Canada (Attorney General), 2019 FC 377

request to hold objections to subsequently nullified reassessments in abeyance constituted implied waiver

A Canadian company (Kerry Canada) was reassessed under s. 247 to increase its income from product sales to a US affiliate and disallow deductions for royalties paid to an Irish affiliate. Kerry Canada objected to these reassessments, but requested that its objections be held in abeyance pending a decision by the Canadian competent authority (CCA) of these transfer-pricing issues. In its ensuing application to the CCA, Kerry Canada reiterated that it had requested such abeyance.

After the CCA agreed with Kerry Canada on the product transfer pricing issue, CRA issued second reassessments to give effect to that adjustment. Kerry Canada did not object to the second reassessments. Subsequently, the CCA also agreed with Kerry Canada on the deductibility of the royalties, but CRA refused to implement this favourable decision because the taxation years in question were now statute-barred.

Walker J found that Kerry Canada’s request to keep the objections in abeyance until a CCA decision on the two issues amounted to an implied waiver for those years, so that CRA was still permitted under s. 152(4)(c)) to reassess those years by virtue of having received the waivers. Kerry Canada had made the mistake of not objecting to the second reassessments. However, this was essentially irrelevant to the point that the implied waivers nonetheless had been given (albeit, in connection with objecting to reassessments that were replaced by, and, therefore, voided by, the second reassessments.)

Since CRA had not addressed this point, the matter was referred back to CRA for reconsideration of the request of Kerry Canada to reassess it to implement the favourable CCA decision.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) - Paragraph 152(4)(c) request to hold notices of objection in abeyance pending Canadian competent authority review amounted to implied waivers 468

Radelet v. The Queen, 2017 TCC 159

the threat of a gross negligence penalty imposition was not “duress” vitiating a waiver

At issue was whether the taxpayer could be reassessed beyond the normal reassessment period for failure to report a capital gain of $445,551 realized on the disposition of a commercial property. The reassessment was made in reliance on a waiver which the taxpayer had given within the normal reassessment period. The taxpayer asserted that the waiver was invalid as it had been executed under duress (being the threat of s. 163(2) penalties) or during a period of mental incapacity or while there was a failure to understand that the normal reassessment period was being extended.

Before concluding that the waiver was valid, Bocock J found (consistently with Nguyen, 2005 TCC 697, at para. 33) that the taxpayer “was not unduly pressured, mislead or unduly influenced to the extent of nullifying his executed consent to the waiver” (para. 15). Furthermore, Bocock J found (at paras. 18 and 23):

The inclusion of the prospect of gross negligence penalties in the initial written correspondence…to Mr. Radelet was not unreasonable given the CRA’s position that the 2008 disposition of a valuable real property had not been reported in the 2008 tax return.

… Objectively, the letters and positions of CRA were not inconsistent, unreasonable or particularly ominous given the presence of an unreported capital disposition of some magnitude from Mr. Radelet’s tax return. … [T]he CRA … reasonably granted the extension, but in exchange for a waiver relevant to the upcoming reassessment period. This seems a normal quid pro quo involving mutual benefits to both parties.

Bocock J also found (at para 29) that none of the medical reports suggested that the taxpayer lacked mental capacity, and (at para. 41):

… One can reasonably and objectively conclude, given the relative ease, precision and detail exercised by Mr. Radelet in completing the [waiver] form without consulting his retained solicitor that he knew its contents… .

Remtilla v. The Queen, 2015 TCC 200

T1 adjustment request was a waiver

The taxpayers, a married couple, bought and sold stock options through a joint account with an investment firm ("Canaccord"). They had reported their modest losses in 2005 and gains in 2006 and 2007 on capital account but then characterized their substantial loss for 2008 as on income account, and made a T1 adjustment request that their 2005-2007 years reflect the same characterization.

CRA lost the adjustment request but accepted in 2012 that it had in fact been made in 2009. In a settlement covering all outstanding objections the taxpayers had with the Minister, the Minister reached a settlement agreement with the taxpayers to treat all years on capital account and reassessed accordingly. The taxpayers appealed the reassessments for 2006 and 2007 on the basis that they were statute-barred.

VA Miller J dismissed the taxpayers' appeal, agreeing with the Minister that the adjustment request constituted a waiver. Mitchell applied. The adjustment request form together with the accompanying letter contained all the necessary information. After having stated (at para. 36) that "the standard for determining a taxpayer's intention to waive…the normal reassessment period is from the perspective of the objective reasonable bystander," she noted (at para. 48) that, notwithstanding the husband's insistence that the request was not intended to act as a waiver, "a reasonable person observing Mr. Remtilla's interactions with the CRA in 2009 and in 2012 would infer that he always intended the T1 Adjustment Requests to be acted upon, even after the 2006 and 2007 years became statute-barred."

Rémillard v. The Queen, 2011 DTC 1286 [at 1617], 2011 TCC 327

McArthur J. dismissed the taxpayer's argument that his waiver of the normal limitations period on reassessments applied only to the first reassessment issued beyond the limitations period and thus excluded the second. The words "at any time" in s. 152(4) mean "from time to time" and allow for multiple reassessments both inside and outside the limitations period. (Canada v. Agazarian, 2004 DTC 6366, 2004 FCA 32 at para. 33.)

Words and Phrases
at any time

Sljivar v. The Queen, 2009 DTC 1381 [at 2103], 2009 TCC 581

A waiver signed by the taxpayer was valid given that he had the ability to read the title of the form (and if he did not understand what "waiver" meant he could have asked the CRA auditor); and there was no evidence that the auditor had resorted to trickery to have the taxpayer sign the waiver).

Arpeg Holdings Ltd v. The Queen, 2007 DTC 131, 2006 TCC 593

The taxpayer was unsuccessful in establishing that its vice president did not have authority to sign a waiver on its behalf. He had the ostensible authority to do so given that the taxpayer had allowed him to represent himself as the person in charge of tax-related matters, and he also had the implied authority to sign given that he was one of the two people who ran the business and was the one who had chief responsibility for corporate administrative and tax matters.

Brown v. The Queen, 2006 DTC 3274, 2006 TCC 381

Although a waiver signed by the taxpayer referred to tax under Part XI.3 and XVI of the Act, whereas the reassessment by the Minister beyond the normal reassessment period was under Part I, the narrative description in the waiver referred to capital gains (clearly a Part I matter) and the taxpayer knew what was in issue. Accordingly, the references to the wrong Parts of the Act were a technical defect which did not preclude the subsequent reassessment by the Minister. Mogan D.J. also stated (at p. 3278) that "a waiver is not a contract between a taxpayer and Revenue Canada, excluding extrinsic evidence as to its interpretation."

Chafetz v. The Queen, 2006 DTC 2119, 2005 TCC 803

After an initial review of the taxpayer's deduction of Canadian exploration expense ("CEE") in respect of the acquisition of seismic data the taxpayer signed a waiver drafted by a Revenue Canada auditor referring to "income ... as affected by application of Canadian Exploration and Development Expense". After referring (at p. 2123) to the doctrine that "where both parties know what is at issue, a technical error will not invalidate the waiver", Miller J. found that since the term CEDE in the context of a 1992/1993 waiver was in its strict technical sense an outmoded term, it should be interpreted as meaning CEE and CDE. Furthermore, even if "CEDE" could only mean pre-1974 expenditures as described in the definition of that term, the CEE claim of the taxpayer could "reasonably be regarded as relating to" CEDE given that CEDE was the statutory predecessor to CEE and CDE.

Villeneuve v. The Queen, 2004 DTC 2258 (TCC), rev'd 2004 DTC 6077 (FCA)

Assessments could be made of the taxpayer beyond the normal assessment period in respect of an arrangement under which he paid an individual $8,000 in cash for making a claim on his behalf for a tax refund of $12,364 in respect of deductions for fictitious dependants. Lamarre Proulx T.C.J. stated (at p. 2261):

"According to the theory of mandate, the mandator agrees to the act performed by the mandatary when he ratifies it. In accepting the refund of the overpayment of tax and handing most of it back to the person responsible for the payment, the appellant ratified that person's wrongful act."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 163 - Subsection 163(2) 75

Mierins v. The Queen, 96 DTC 1140 (TCC)

After stating (at. p. 1142) that he could not "think of any good reason why (at least before the introduction of subsection 152(4.1)) a section 152 waiver ought to be construed as conferring on the Minister a right to defer reassessing action beyond the period reasonably required in all the circumstances of the case", Bonner TCJ. went on to find here that the Minister had not acted in a dilatory fashion by reassessing approximately seven months after the relevant court action had been withdrawn.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(1) 84

Loukras v. MNR, 90 DTC 1557 (TCC)

Taxpayer's counsel was unsuccessful in a submission that a reassessment of the Minister was void because the Minister is only permitted to make one reassessment pursuant to a waiver and is required to make such reassessment in an expeditious manner.

Administrative Policy

15 June 2015 Internal T.I. 2015-0583081I7 - Refund Request - Normal Reassessment Period

inferring refund request from waiver

In clarifying the indication in 2012-0468081I7 that "where a refund request is based on issues that are covered by a valid waiver, a refund may be issued notwithstanding that the refund request may have been made after the required time frame provided by paragraph 164(1)(b)," the Directorate stated:

[A] waiver does not extend the period within which a taxpayer may request a refund. Nevertheless, where…it is reasonable to conclude the waiver also contains an implicit request for a refund for the particular issue outlined in the waiver, the waiver may also be accepted as a request for a refund for the purposes of this paragraph. … [W]here a waiver does not identify the specific issue in dispute, and/or the specific issue may not result in an overpayment, the Minister would not issue a refund.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 164 - Subsection 164(1) inferring refund request from waiver 137

15 March 2013 Internal T.I. 2012-0468081I7 - Paragraph 164(1)(b)

refund request not related to issues in waiver issues

Does s. 164(1)(b) permit a refund to be made where a taxpayer has filed a valid waiver to allow a reassessment beyond the normal reassessment period but its request for a refund was made after the normal reassessment period? After noting that the taxpayer made the "request for a refund based on issues that are unrelated to those covered by the waiver," the Directorate stated:

[T]he Minister is not permitted to issue a refund in these circumstances. …[W]here a refund request is based on issues which are covered by a valid waiver, a refund may be issued notwithstanding that the refund request may have been made after the required time frame.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 164 - Subsection 164(1) refund request not related to issues in waiver issues 113

14 May 1991 T.I. (Tax Window, No. 3, p. 26, ¶1232)

RC may revise paragraph 14 of IT-270R2 to take into consideration s. 152(4)(b)(iv).

87 C.R. - Q.44

A taxpayer may file more than one waiver at the same time for a particular taxation year.

87 C.R. - Q.45

A notice of revocation of waiver cannot be withdrawn once it has been filed.

85 C.R. - Q.2

Taxpayers will not be requested to file waivers solely for the purpose of assisting RC to meet the 3-year time limit.

IT-270R2 "Foreign Tax Credit", para. 14

A taxpayer should file a waiver where the normal reassessment period may expire before an expected foreign tax assessment is received.

IC 75-7R3 "Reassessment of a Return of Income"

Articles

Pound, "Remedial Tax Planning: How to Fix It When It's Broke", 1993 Conference Report, c. 9, pp. 9:9 - 12

Includes a reference to the decision of the Quebec Court of Appeal in Banque Nationale du Canada v. Quebec, in which it was held that the Minister was entitled to make only one assessment on the strength of a waiver.

Paragraph 152(4)(b)

Cases

Canada v. Agazarian, 2004 DTC 6366, 2004 FCA 32

Within the normal reassessment period, the Minister reassessed the taxpayer's 1987 taxation year to permit the deduction, at the taxpayer's request, of a loss carry back from 1988 and then, beyond the normal reassessment period but within the extended reassessment period, the Minister reassessed the taxpayer's 1987 taxation year to disallow the deduction of the loss carry back from 1988. The Tax Court had determined that the Minister was not entitled to so reassess because s. 152(4)(b)(i) only authorized a single reassessment.

The Court held (at p. 6377) "that the Minister had the power to reassess the respondent more than once beyond the normal assessment period, providing that the reassessments took place within the extended reassessment period". The phrase "at any time" when used in relation to a power to do a thing was not confined to just one execution; and although the equivalent phrase was missing from the French version of the preamble, the phrase "à un moment donné" was implicit in the French version.

Words and Phrases
at any time

Clibetre Exploration Ltd. v. Canada (Minister of National Revenue), 2003 DTC 5073, 2003 FCA 16

The taxpayer, which had claimed non-capital losses from its mining business, sought more than three years later to have the expenses giving rise to the losses characterized as Canadian exploration expenses in order that it could take deductions beyond the seven-year carryforward period for non-capital losses. Before referring the matter back to the Minister for reassessment on the basis that the previous years' expenditures qualified as Canadian exploration expense, Sharlow J.A. stated (at p. 5074) that there was no need for the Minister to reassess the taxpayer for the years in question in order to characterize the amounts as Canadian exploration expenses "because the taxable income and thus the tax payable for each of those years would be nil whether the expenses for the year are claimed as deductions in computing a non-capital loss, or treated as Canadian exploration expenses".

Agazarian v. The Queen, 2003 DTC 435 (TCC)

After reassessing the taxpayer's 1987 taxation year pursuant to the taxpayer's request for carry back of a non-capital loss allegedly realized by the taxpayer in 1988, the Minister purported to reassess, outside the normal reassessment period, the taxpayer's 1987 taxation year to disallow the deduction of the 1988 loss carry back. Bell T.C.J. found that having considered and allowed the initial request for a loss carry back, the Minister was foreclosed from further reassessing the 1987 taxation year.

Paramount Productions Inc. v. The Queen, 93 DTC 5285 (FCTD)

The Crown was unable to establish that an assessment issued on December 28, 1981 in respect of the July 30, 1980 taxation year of the taxpayer should instead be regarded as an assessment of the corporation (having a different name) with which the taxpayer amalgamated on July 31, 1980. Accordingly, given that a further assessment of the taxpayer was made on December 12, 1984, a reassessment of the taxpayer dated October 26, 1987 was statute-barred.

Placer Dome Inc. v. The Queen, 91 DTC 5115 (FCTD)

After the taxpayer had carried a non-capital loss for his 1981 taxation year back to 1980, s. 152(4)(b) was amended "applicable after April 19, 1983" to provide that the taxation year to which a loss is carried back may be reassessed within seven years rather than four years of the date of mailing of a notice of assessment. Before the expiration of seven-year period but after April 19, 1983 and the expiration of the four-year period, the Minister reassessed the 1980 taxation year to reduce the amount of the non-capital loss which was deductible in computing taxable income for that year. MacKay J. found that the power to reassess for up to seven years only applied when an application was made, after April 19, 1983, under subsection 152(6) as amended after that date, to carry back a loss, with the result that the Minister was precluded from reassessing the 1980 taxation year beyond the expiration of the four-year period. MacKay noted (p. 5123):

"The defendant's interpretation would imply, for example, that Parliament intended that under the amending statute the Minister's authority to reassess for a period of seven years would permit in 1984, after enactment of the statute, reassessment of the 1975 or 1976 taxation year to which a taxpayer had carried back a loss from 1976 or 1977, the reassessment of which had been closed in 1980 or 1981 under section 152(4) as it then was."

Locations of other summaries Wordcount
Tax Topics - Statutory Interpretation - Retroactivity/Retrospectivity change prejudicial so that presumption applied 123

See Also

Leola Purdy Sons Ltd. v. The Queen, 2009 DTC 220, 2009 TCC 21

In a year that was now statute-barred, the taxpayer reported losses on trading futures as being on capital account, and was assessed for the year in question on the basis that its gains from futures trading were on income account. In finding that the taxpayer could carryforward losses from the statute-barred year (which the Crown conceded were on income account) to the taxation year in question, Rep, C.J. stated (at para. 28):

"If an error was made in the assessment of the statute-barred year which affects another year, the Minister, in assessing the other year, must follow the Act and if there was an error in law in a previous year, including a statute-barred year, that error ought to be corrected so that the assessment for the current year is correct ..."

Papiers Cascades Cabano Inc. c. La Reine, 2006 DTC 2305, 2005 TCC 396

After the 1995 taxation year the taxpayer became statute-barred, the Minister determined that the taxpayer had claimed an excessive investment tax credit entitlement in respect of its 1995 year. Accordingly, the Minister took the position that the opening ITC balance of the taxpayer for its 1996 taxation year was negative $206,364 on the basis that paragraph (c) should reflect the amounts which the taxpayer should have claimed, and paragraph (f) should reflect the amounts actually deducted by the taxpayer in the preceding years. Lamarre Proulx J. indicated that this approach of the Minister amounted "to asserting that a taxpayer may have to pay back in a subsequent year an ITC that he or she claimed as a deduction from tax payable for a year and that was considered in the assessment for that year" and that, accordingly, this approach was not permitted.

VIH Logging Ltd v. The Queen, 2004 DTC 2090, 2003 TCC 732

A notice of reassessment was given by CCRA to a courier before the taxpayer became statute-barred, but was not received by the taxpayer until after the expiration of that period. Woods J. noted that an assessment is made when notice has been sent by the Minister, and found that this requirement had been satisfied when the assessment was picked up by the courier as it was at that point that it had left the Minister's possession for transmission to the taxpayer.

Administrative Policy

10 March 2016 Internal T.I. 2015-0614161I7 - Extended reassessment period 152(4)(b)

extended reassessment period ends on the assessment anniversary date

Where Canadian-controlled private corporation was issued an original notice of assessment for a particular taxation year on December 31, 2013, a reassessment may be made under the extended reassessment period stipulated in s. 152 (4)(b) on December 31, 2019, consistently with 27(3) of the Interpretation Act.

Locations of other summaries Wordcount
Tax Topics - Statutory Interpretation - Interpretation Act - Section 27 - Subsection 27(3) normal or extended reassessment period ends on the anniversary date 190
Tax Topics - Income Tax Act - Section 152 - Subsection 152(3.1) normal reassessment period ends on the assessment anniversary date 35

1993 A.P.F.F. Round Table, Q.9

Where the taxpayer is subject to Part IV tax under s. 186(1)(b) as a result of a dividend payment to it by its subsidiary generating a dividend refund, and the subsidiary subsequently carries back a business loss from a subsequent taxation year to eliminate the dividend refund, a reassessment can be issued under s. 152(4)(b)(ii) and s. 187(3).

20 January 1993 Memorandum Tax Window, No. 28, p. 23, ¶2393)

Where two notices of assessment are issued in respect of the same return, with the second notices of reassessment being issued to correct the amount of instalment interest, RC will view the first assessment notice as the original assessment for purposes of calculating the normal reassessment period.

Subparagraph 152(4)(b)(i)

Administrative Policy

11 October 2017 External T.I. 2016-0673171E5 - Foreign tax credit - former resident

waiver generally not granted to extend 6-year period to permit s. 126(2.21) credit

Where a Korean immigrated to Canada while holding appreciated Korean real property and then emigrated from Canada 10 years later after it had further appreciated, thereby realizing a capital gain from its deemed disposition under s. 128.1(4)(b), he would be potentially eligible under s. 126(2.21) to claim a Canadian foreign tax credit for Korean taxes that become payable on a subsequent sale respecting the gain that accrued in Canada, provided that this credit is assessed within the extended reassessment period of six years following the emigration year. However, the Korean property might be sold more than six years later. Can this period be extended by filing a waiver with CRA?

CRA, in clarifying its comments in 2016-0660421E5, indicated that it generally would not accept a waiver beyond this six-year period, but that, as a limited exception to this proposition:

[I]f any of the circumstances to support the deduction under subsection 126(2.21) of the Act (e.g., disposition of the property and/or foreign taxes paid) are present within the statutory assessment period referred to in paragraph 152(4)(b) of the Act, it may be appropriate for the Minister to consider a taxpayer’s waiver request for the emigration year to allow the Minister sufficient time to review and process any potential reassessment for this deduction beyond the aforementioned reassessment period.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 126 - Subsection 126(2.21) emigration-year return generally cannot be opened up more than 6 years later to allow a FTC for foreign tax imposed on a subsequent sale 320

11 October 2017 External T.I. 2016-0660421E5 - Foreign tax credit – former resident

waivers generally cannot be used to extend the 6-year period for claiming a FTC under s. 126(2.21)

The taxpayer, who had been resident in Canada for over five years, realized a capital gain from the deemed disposition of real property situated outside Canada under s. 128.1(4)(b) on emigrating from Canada. Upon the actual disposition of the property, which might be 20 years later, the taxpayer will be subject to foreign income tax on the total gain, accrued from the original acquisition date, including the period of Canadian residency. Although a foreign tax credit under s. 126(2.21) is available for the individual’s emigration year, provided the individual is taxed in another country on a gain that accrued while the individual was resident in Canada and was taxed in Canada in the emigration year under paragraph 128.1(4)(b) , by virtue of ss. 152(6)(f.1) and 152(4)(b)(i), such relief is only available for three years following the end of the normal reassessment period in respect of the emigration year. Is it possible for the taxpayer to keep the emigration year open by filing a Form T2029 Waiver? After noting that “an assessment to take into account a foreign tax credit under subsection 126(2.21) … in respect of foreign taxes paid is permitted only where the assessment is made within 3 years after the normal reassessment period,” CRA stated:

[A] blanket waiver request without sufficient details of a transaction would likely not be considered valid. …[I]f any of the circumstances to support the deduction under subsection 126(2.21) of the Act (e.g., disposition of the property and/or foreign taxes paid) are present within the statutory assessment period referred to in paragraph 152(4)(b) …, it may be appropriate for the Minister to consider a taxpayer’s waiver request for the emigration year to allow the Minister sufficient time to review and process any potential reassessment for this deduction beyond the aforementioned reassessment period.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 126 - Subsection 126(2.21) waiver cannot be used to extend period in which foreign tax must be triggered 164

Subparagraph 152(4)(b)(iii)

See Also

Ho v. The Queen, 2010 DTC 1214, 2010 TCC 325

"transaction" requires act

Webb, J. found that the Minister was not entitled to reassess the taxpayer on the basis that s. 75(2) imputed income of a family trust to the taxpayer with such income of the family trust, in turn, arising under the "fapi" provisions of the Act, given that there was no transaction involving the taxpayer and the non-resident corporation that gave rise to the alleged fapi. Webb, J. quoted, with approval a statement in MNR v. Dufresne, 67 DTC 5105 (Ex. Ct.) that "transaction" meant "any act having operative effect in relation to a business or property" and stated (at para. 23) that "'transaction' would not include the operation of certain provisions of the Act that deem income of one person to be the income of the other person".

Words and Phrases
transaction

Shaw-Almex Industries Limited v. The Queen, 2009 DTC 1377 [at 2080], 2009 TCC 538

The taxpayer had obtained a guarantee by a Canadian bank of the liabilities of a US sister corporation ("Fusion") to a US bank. Fusion then became insolvent and the US bank indicated that it would call on the taxpayer's guarantee. In order to avoid this result (which would have prejudiced its relationship with the Canadian bank), the taxpayer entered into a "Forbearnace Agrement" with the US bank and Fusion pursuant to which it agreed to repay the loan owing by Fusion.

The Forbearance Agreement was found to be a "transaction" (eg, a "piece of ... commercial business") (para. 29) involving Fusion, so that the three-year addition to the normal reassessment period applied to permit the Minister to reassess the taxpayer by disallowing the deduction by the taxpayer of payments made by it to the US bank.

Administrative Policy

16 January 2017 Internal T.I. 2016-0651411I7 - Reassessment period – transfer pricing

s. 152(4)(b)(iii) permits a reallocation of taxable income among provinces where a taxpayer’s sales revenue has been increased under s. 247(2)

Two years after the normal reassessment period, a transfer-pricing adjustment (“TPA”) is made under s. 247(2) respecting sales of goods to a non-resident affiliate at an undervalue, with the TPA increasing the “gross revenue” of the corporate taxpayer. Following a provincial allocation audit, it is determined that the pre-TPA amount of the sale should have been allocated to the Ontario permanent establishment rather than Manitoba PE of the taxpayer, and a Quebec PE was identified. Accordingly, it is proposed to reattribute the original sale, as well as attribute the TPA, to the Ontario PE, except that taxable income will also be allocated to the Quebec PE under Part IV of the Regulations. Does s. 52(4)(b)(iii) permit such a reassessment? In responding that this was the case, the Directorate stated:

We recognize that an assessment or reassessment to reallocate taxable income earned in the taxation year in each province may not result in a change to the aggregate taxable income of the corporation for the taxation year and consequentially, Part I tax would likely be unaffected.

However, since Part IV of the Regulations applies to determine the amount of taxable income earned in a taxation year in each province, any changes made under this Part with respect to the allocation of taxable income earned in each province would likely impact the related provincial income tax to the extent that the tax legislation of a province adopts (or refers to) rules similar to those in Part IV of the Regulations…. [T]he CRA administers the tax legislation for several provinces. …

Accordingly… the Minister may assess or reassess a taxpayer within 3 years after the normal reassessment period in respect of the computation of taxable income earned in the year in a province… to the extent of any transaction involving the taxpayer and a non-arm’s length non-resident person. Such an assessment or reassessment includes the reattribution of gross revenue between provinces with respect to any transaction reported in gross revenue involving the taxpayer and a non-arm’s length non-resident person.

Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Regulation 402 - Subsection 402(3) - Paragraph 402(3)(a) - Subparagraph 402(3)(a)(i) reallocation of gross revenue consequential on s. 247(2) assessment 94

14 July 2014 Internal T.I. 2014-0537701I7 F - Voluntary disclosure - T1134 and FAPI

Ho acknowledged

In connection with a failure of a taxpayer to report foreign accrual property income, CRA noted that the application of s. 152(4)(a)(i) is a question of fact, and then stated:

The same applies to the application of subparagraph 152(4)(b)(iii), which involves a transaction entered into between the taxpayer and a non-resident person with whom the taxpayer was not dealing at arm's length. In this regard, you referred us, among other things, to the decision of the Tax Court of Canada in Ho v. The Queen, 2010 DTC 1214.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) - Paragraph 152(4)(a) - Subparagraph 152(4)(a)(i) no time limitation for s. 162(10) penalty 132
Tax Topics - Income Tax Act - Section 162 - Subsection 162(10) s. 162(10) penalty for failure to file T1134s 132
Tax Topics - Income Tax Act - Section 162 - Subsection 162(7) penalties under ss. 162(10), (10.1) or 163(2.4) for failure to file T1134s 132
Tax Topics - Income Tax Act - Section 163 - Subsection 163(2.4) penalties for failure to file T1134s 132
Tax Topics - Income Tax Act - Section 220 - Subsection 220(3.1) requirements where undisclosed FAPI 197

22 April 2013 Internal T.I. 2013-0478121I7 - Application of 152(4)(b)(iii)

In noting that the extended reassessment period (respecting an assessment to increase the capital gain) applied to the sale by a Canadian subsidiary of the shares of its wholly-owned foreign subsidiary to a Canadian sister company, CRA stated:

there is no requirement in subparagraph 152(4)(b)(iii) that the transaction in question be between the taxpayer and the non-arm's length non-resident person. The provision requires that the assessment or reassessment is made as a consequence of a transaction "involving" the taxpayer and the non-resident person.

5 December 2012 Internal T.I. 2012-0439301I7 F - Reassessment beyond the normal reassessment period

s. 17 assessment of loan made by Canco to non-resident LP was re a transaction with the non-resident partners for s. 152(4)(a)(iii) purposes

In a particular taxation year, a taxable Canadian corporation ("Canco") made a loan ("Loan") to a limited partnership ("LP") governed by provincial law whose two partners (including Usco) were non-residents who did not deal at arm's length with Canco. For the taxation year following the particular taxation year (the "Year"), the conditions for the application of s. 17(1) were all met with respect to the Loan. Before concluding that it would be permitted by virtue of s. 152(4)(b)(iii) to reassess Canco under s. 17 on the basis that the loan by Canco to LP was a loan made to LP’s partners with whom Canco did not deal at arm’s length, the Directorate stated:

[I]t is reasonable to consider that the issuance of a notice of reassessment to Canco for the Year for which an amount should be included in the calculation of its income by virtue of subsection 17(1) would result directly from the transaction which was the Loan provided by Canco in the particular taxation year.

The only remaining question is whether this was a transaction between Canco and a non-resident person with whom it was not dealing at arm's length.

…Paragraph 96(1)(a)[‘s] … presumption that a partnership is a separate person … does not apply for the purposes of section 152. ...

Furthermore …., under civil and common law, a partnership … is simply the relationship that exists between persons or partners who carry on a business in common for profit. [Furthermore] under the … laws of XXXXXXXXXX and the jurisprudence, a partnership does not have the power to contract debts. ...Klein ... stated:

…[T]he partnership itself does not have the capacity to be indebted. The debt of the partnership is owed by the partners … .

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 96 partnership lacks power to contract debts 188

22 March 2012 External T.I. 2011-0407731E5 - Application of Subparagraph 152(4)(b)(iii)

Regarding a hypothetical scenario where a wind-up of a Canadian subsidiary into a Canadian parent causes shares of a foreign subsidiary previously held by the Canadian subsidiary to be distributed to the Canadian parent, CRA stated:

It is our view that there is no requirement in the subparagraph that the transaction in question be between the taxpayer and the non-arm's length non-resident person. Instead the provision requires that the assessment or reassessment is made as a consequence of a transaction "involving" the taxpayer and the non-resident person. It is our view that a wind-up that results in the distribution of the shares of a wholly-owned foreign subsidiary from a Canadian subsidiary to its Canadian parent, is such a transaction and subparagraph 152(4)(b)(iii) is applicable provided the assessment or reassessment is made "as a consequence" of that transaction.

In particular, CRA considered a reassessment to be made "as a consequence of" a transaction if made in respect of income arising from that transaction.

Articles

Subparagraph 152(4)(b)(iv)

Administrative Policy

16 July 2013 Internal T.I. 2013-0481151I7 - Application of 152(4)(b)(iv) and 110.5

Respecting whether s. 152(4)(b)(iv) would allow an assessment to be issued beyond the normal reassessment period in response to the taxpayer's request to increase its taxable income under s. 110.5 in order to generate a foreign tax credit, CRA stated:

[I]t is no longer our view that the provisions of [s.] 152(4)(b)(iv) would not be applicable. As noted above, the purpose of section 110.5 is to allow a taxpayer to claim a foreign tax credit in situations where they would not otherwise be able to fully utilize the foreign income or profits taxes that were paid. Therefore, there is a causal connection between the foreign tax paid and the adjustment to claim the foreign tax credit, regardless of whether the adjustment includes an addition to income under the provisions of section 110.5.

Respecting whether an addition to income under s. 110.5 is considered a permissive amount for purposes of IC 84-1, so that the Minister may allow this adjustment beyond the period provided in s. 152(4)(b)(iv), CRA agreed that this amount is permissive. However, where such adjustment increases provincial tax payable, the adjustment would not satisfy the requirement, for the Minister to accept such request, that there be no change in the tax payable for the year.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 110.5 extended s. 152(4)(b)(iv) period/IC 84-1 207
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) s. 110.5 addition 77

9 December 2010 Internal T.I. 2010-0379801I7 - Additions to taxable income to utilize FTCs

After the normal reassessment period for its 2005 taxation year had expired, the company submitted a request for an addition to its 2005 taxable income pursuant to s. 110.5, in order to utilize available FTCs. This proposed increase to its 2005 taxable income would result in no additional tax liability once the FTCs were utilized. Under the definition of "non-capital loss" in subsection 111(8), the proposed addition to its 2005 taxable income, would be a non-capital loss, which it requested be carried forward to its 2006 return.

Does s. 152(4)(b)(iv) extend the normal reassessment period to six years on a s. 110.5 addition to taxable income? CRA stated:

[S.] 152(4)(b)(iv) does not apply to extend the normal reassessment period on a section 110.5 addition to taxable income. A section 110.5 addition of income does not result in a payment or reimbursement of any income or profits tax to or by the government of a country other than Canada or a government of a state, province or other political subdivision of any such country.

Respecting whether such s. 110.5 increase nonetheless could be made on the basis that it was a permissive adjustment contemplated by IC 84-1, CRA stated:

An addition to income under section 110.5 is not permissive in that sense, because the taxpayer can choose only to use that section or not to use it, but cannot vary the amount of inclusion, which amount is that which absorbs the FTCs, no more or less. Furthermore, this circular deals with deductions in computing income, while section 110.5 involves an income increase with an offsetting change to a federal tax credit, so it is not neutral from the standpoint of provincial tax.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 110.5 non-extended adjustment period/84-1 not available 270

Paragraph 152(4)(b.2)

Administrative Policy

10 June 2013 STEP Roundtable, 2013-0485761C6 - 2013 STEP CRA Roundtable Question 3

The extension of the normal reassessment period under draft s. 152(4)(b.2) - where (a) there has been a failure to file the T1135 as and when required or to provide therein the required information in respect of a specified foreign property, and (b) to to report an amount, in respect of a specified foreign property, that is required to be included in the taxpayer's income - applies for all purposes and not just to income derived from the unreported foreign assets.

Paragraph 152(4)(c)

Cases

Kerry (canada) Inc. v. Canada (Attorney General), 2019 FC 377

request to hold notices of objection in abeyance pending Canadian competent authority review amounted to implied waivers

The applicant (“Kerry Canada”) sought judicial review of a decision (the “Decision”) of the Minister denying Kerry Canada’s request that she reassess its 2002 and 2003 taxation years in order to give effect to favourable decisions of the Canadian Competent Authority (“CCA” or “CA”) issued in September 2013. After Kerry Canada had provided a waiver for its 2001 taxation year, CRA reassessed that year and Kerry Canada’s 2002 and 2003 taxation years under s. 247 to increase its income from product sales to a US affiliate and disallow deductions for royalties paid to an Irish affiliate. Kerry Canada objected to these reassessments, but requested that its objections be held in abeyance pending a decision by the CCA of these transfer-pricing issues. In its ensuing application to the CCA, Kerry Canada reiterated that it had requested such abeyance.

After the CCA indicated that it had agreed with the U.S. Competent Authority to reverse in their entirety the income adjustment respecting the sales to the U.S. affiliate (the “First CA Decision”), CRA issued the “Second Reassessments” for the three taxation years reflecting that decision. Six years after the initial application of Kerry Canada to the CCA, the CCA determined to also reverse the denial of the royalty deductions (the “Second CA Decision”). However, two months later, CRA informed Kerry Canada that it would not process this “Second CA Decision” respecting the 2002 and 2003 years because those years were statute-barred.

Before finding that the request of Kerry Canada that its objections be held in abeyance pending a CCA decision amounted to a waiver, Walker J first noted (at para. 46) the Mitchell principle that “Revenue Canada is obliged to treat any document as a waiver, providing it contains the necessary information,” she stated (at paras. 56-57) that Kerry Canada had “expressed a clear intention that the three taxation years be reassessed in accordance with both the First and Second CA Decisions” and that “the absence of an explicit reference to the normal and extended reassessment periods under the ITA was not fatal” as a “waiver of the protection of the statutory limitation periods was implicit in its requests for abeyance.”

Respecting a Crown argument that the issuance of the Second Reassessments superseded Kerry Canada’s request that its Objections be held in abeyance, she stated (at para. 62, see also paras. 68-69) that “I see no reason why the requests for abeyance, repeated in the First and Second CA Requests, were automatically rendered ineffective.”

Walker J further found (at para. 67) that “Kerry Canada and the CRA mutually understood Kerry Canada’s intention that its requests that the Part I Objections be held in abeyance would function as effective waivers.”

As the taxation years in issue were still open for reassessment to give effect the Second CA Decision, the matter was referred back to another delegate for redetermination.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) - Paragraph 152(4)(a) - Subparagraph 152(4)(a)(ii) request to hold objections to subsequently nullified reassessments in abeyance constituted implied waiver 265

Drautz v. The Queen, 96 DTC 6173 (FCTD)

Revenue Canada mailed a reassessment to the taxpayer within the normal reassessment period at the address that the taxpayer had most recently indicated to Revenue Canada. When the reassessment was returned to Revenue Canada, it phoned the taxpayer and sent the reassessment to the correct address.

In finding the reassessment to be valid, Reed J. stated (at p. 6175):

"Even if a mailing to the wrong address could render a notice of reassessment ineffective for subsection 152(4) purposes, a point I do not find it necessary to decide, the taxpayer's evidence is not sufficient to fix Revenue Canada with knowledge of the taxpayer's change of address at the relevant time. It is sufficient to say, that a mailing by the Minister to an address which the taxpayer has represented to the Minister is one at which he can be reached fulfils the requirement of subsection 152(4)."

Lornport Investments Ltd. v. The Queen, 92 DTC 6231 (FCA)

A reassessment which was issued beyond the normal reassessment period therefore was invalid and did not supersede a previous reassessment which was issued within the normal reassessment period.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(8) 99

The Queen v. Canadian Marconi Co., 91 DTC 5626 (FCA)

The Minister reassessed the 1977 to 1981 returns of the taxpayer on the basis that income from short-term securities was income from property rather than business income, before a decision of the Supreme Court resolved the same issue in the taxpayer's favour with respect to its 1973 to 1976 taxation years. The taxpayer did not file Notices of Objection to the reassessments of its 1977 to 1981 years. Mahoney J.A. found that the Minister was precluded from reassessing the taxpayer beyond the four-year period.

Roywood Investments Ltd. v. The Queen, 79 DTC 5451, [1980] CTC 19 (FCTD), aff'd 81 DTC 5148, [1981] CTC 206 (FCA)

In reassessing the plaintiff's 1970 and 1971 taxation years, the Minister "took the position that the plaintiff was not entitled to reduce its taxable income for those years by deducting therefrom the capital cost allowance of the previous years or the carry forward therefrom." Since the 1970 and 1971 years were not statute- barred, it was irrelevant that in the above respect the reassessment related to the previous years. [C.R.: Estoppel]

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 68 65
Tax Topics - Income Tax Regulations - Regulation 1102 - Subsection 1102(1) - Paragraph 1102(1)(c) land with building was acquired only for purpose of generating capital gain 48

See Also

Perfect Fry Company Ltd. v. The Queen, 2007 DTC 588, 2007 TCC 133, aff'd supra 2008 DTC 6472, 2008 FCA 218

Paris J. indicated in obiter dicta that, when read in light of s. 152(1.2), s. 152(4) provided that the Minister may at any time determine the amount of a refund within the normal re-determination period (of three years from the day of mailing of the original determination), and s. 164(1) provided that the Minister shall with all due dispatch make the refund if the taxpayer applies therefor in that period. On that basis, the taxpayer would have been entitled to apply for refundable investment tax credits beyond the normal reassessment period.

Denelzen v. The Queen, 97 DTC 456 (TCC)

The taxpayer was found to have been reassessed in the normal reassessment period notwithstanding that the notice of reassessment was never received by him.

Administrative Policy

19 January 1996 External T.I. 5-960062 -

"The reassessment of the capital dividend account will not be subject to the normal reassessment period of three or four years under section 152 of the Act until an election pursuant to subsection 83(2) of the Act to pay a capital dividend has been made. Therefore, the Department may adjust the amount of a capital gain, which arose in a year outside the normal reassessment period, for the purposes of computing the capital dividend account in respect of a dividend paid within the normal reassessment period."

30 March 1995 Internal T.I. 7-950601 -

Discussion of whether producers in the oil and gas, and mining industries, may increase resource allowance claims in taxation years with a nil taxable income.

16 September 1991 T.I. (Tax Window, No. 9, p. 11, ¶1450)

Although RC will not normally accede to a request for a reassessment of a taxpayer's return solely on the basis of a successful appeal by another taxpayer, it nonetheless will consider reassessments requested by taxpayers based on the Huffman case, where the request is received within the normal three-year limitation period.

85 C.R. - Q.5

A listing of the limited circumstances in which RC will reassess without a proposal letter, and a discussion of pre-reassessment procedure.

Ha v. R., 2011 TCC 271

The registrant's assessment beyond the normal period, for unreported income of $91,232, $50,125, $64,540 and $66,596 in successive years, and unremitted GST totaling $19,074.51 over the same period, was upheld subject to minor adjustments. The registrant had not kept proper records and the amounts were arrived at by a net worth assessment. V.A. Miller J. found that the net worth assessments were consistent with the registrant's lifestyle. The registrant's evidence to the contrary was not credible because his explanations to different CRA officials and the Court were largely unsubstantiated and mutually inconsistent.

22 March 2012 External T.I. 2011-0407731E5 - Application of Subparagraph 152(4)(b)(iii)

Regarding a hypothetical scenario where a wind-up of a Canadian subsidiary into a Canadian parent causes shares of a foreign subsidiary previously held by the Canadian subsidiary to be distributed to the Canadian parent, CRA stated:

It is our view that there is no requirement in the subparagraph that the transaction in question be between the taxpayer and the non-arm's length non-resident person. Instead the provision requires that the assessment or reassessment is made as a consequence of a transaction "involving" the taxpayer and the non-resident person. It is our view that a wind-up that results in the distribution of the shares of a wholly-owned foreign subsidiary from a Canadian subsidiary to its Canadian parent, is such a transaction and subparagraph 152(4)(b)(iii) is applicable provided the assessment or reassessment is made "as a consequence" of that transaction.

In particular, CRA considered a reassessment to be made "as a consequence of" that transaction if it is made in respect of income arising from that transaction.

21 March 2014 Internal T.I. 2013-0504491I7 - Change to loss application in a nil assessed year

reduce non-capital loss utilization in statute-barred return

In its original return, the taxpayer reduced its taxable income to nil through the carry-forward of non-capital losses. Outside the normal reassessment period, it became aware of an income overstatement, and it requested a return amendment to decrease reported income for the year and decrease the non-capital losses deducted by the same amount. CRA stated:

[A]djustments may be made to a taxation year with a nil assessment to correct an error where the adjustments do not result in tax payable. Nevertheless, where the request is inconsistent with specific provisions of the Act or with the scheme of the Act as a whole, the Minister is not obligated to accept the request.

Subsection 152(4.2)

Administrative Policy

8 March 2016 Internal T.I. 2015-0614421I7 - Returns filed or amended by bankrupt taxpayer

CRA not precluded from acting on otherwise-valid s. 152(4.2) requests by bankrupt individual

The correspondent referred to s. 22 of the Bankruptcy and Insolvency Act (indicating that a trustee is not liable to make any return that the bankrupt individual was required to make more than one year prior to the commencement of the calendar year of the bankrupt individual), and suggested that either the bankrupt individual or the trustee can make an adjustment request under s. 152 (4.2). The Directorate responded:

[A] trustee, acting as the agent of a bankrupt individual, may make a request to amend a tax return after the normal reassessment period for a taxation year prior to bankruptcy if the requirements of subsection 152(4.2) are met. ...[A] trustee may have additional filing obligations pursuant to subsection 150(3)… .

However…neither paragraph 128(2)(a) nor subsection 152(4.2) of the Act preclude a bankrupt individual from making such a request to amend a return. [2007-024648's suggestion] that the Canada Revenue Agency cannot action a request under subsection 152(4.2)...by a bankrupt individual unless the request is received from a trustee is inconsistent with these provisions.

Therefore...a request pursuant to subsection 152(4.2)...in respect of a bankrupt individual for a taxation year prior to bankruptcy may be made by either the bankrupt individual or the trustee in bankruptcy.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 128 - Subsection 128(2) - Paragraph 128(2)(a) authority of trustee to make s. 152(4.2) request does not preclude bnakrupt from doing so 56