Canada: Alternative Arguments In Support Of Tax Assessments

Last Updated: August 30 2016
Article by John Sorensen

This is article is part of a series dealing with draft legislation released for comment by the Department of Finance on July 29th. Read the complete series:

The Minister may not reassess after the normal reassessment period unless the taxpayer has filed a waiver, or the taxpayer's return included a misrepresentation attributable to carelessness, negligence or wilful default, or fraud was committed in filing the return. A number of provisions in the ITA reinforce the exceptional nature of an assessment beyond the normal reassessment period. For example, where a reassessment made after the normal reassessment period is based on misrepresentation or fraud, ss. 152(4.01) generally requires that the reassessment must be limited to the applicable misrepresentation or fraud. Subsection 152(5) states that after the normal reassessment period the Minister may not include any amount in computing a taxpayer's income that was not included for the purpose of an assessment during that period. Subsection 152(9) concerns the ability of the Minister to advance an alternative argument in support of an assessment after the normal reassessment period. Limits on the Minister's powers are obviously desirable to provide certainty for taxpayers and impose diligence on tax auditors. Regrettably, amendments have been proposed to ss. 152(9) which undermine the integrity of these limits.

The draft amendments which were released on July 29, 2016 can be traced to the notice of ways and means motions included with Budget 2015. That Budget proposed a perplexing "amendment", which stated that the ITA would be modified in accordance with certain proposals relating to "alternative arguments in support of assessments". The promise to amend the ITA was reiterated in Budget 2016, and resulted in the release of the following draft amendment to ss. 152(9):

The Minister may advance an alternative basis or argument in support of all or any portion of the total amount determined on assessment to be payable or remittable by a taxpayer under this Act at any time after the normal reassessment period unless, on an appeal under this Act ...

These amendments are the government's response to the FCA's judgment in The Queen v Geoffrey Last (2014 FCA 129 - leave application dismissed November 13, 2014). In Last, the TCC held in the taxpayer's favour on two issues for his 2002 taxation year, while refusing to change the character of a capital gain to business income. The TCC decided that re-characterizing a capital gain was not an alternative "basis" or "argument" in support of a reassessment under ss. 152(9) but rather an outcome requiring a reassessment that would not be permitted after the normal reassessment period. The FCA upheld the TCC, relying on Harris v MNR ([1965] 2 Ex CR 653; aff'd [1966] SCR 489 on different grounds). There are three principles in Harris:

  • The Minister may not appeal her own assessment; and
  • The result of an appeal cannot increase the assessment; because
  • That outcome would be tantamount to allowing the Minister's appeal.

The Crown's unsuccessful argument in Last was that a tax appeal concerns only the correctness of an assessment, where an assessment is the amount of tax payable: as long as the appeal does not increase tax payable, the Crown should have latitude to set amounts off against one another. According to the Crown, since re-characterizing the capital gain as income would have more than offset the reductions favouring Mr. Last, the appeal for the 2002 taxation year should have been dismissed. The Crown's argument was rejected, thus Last confirmed that the Harris principles against the Minister appealing her own assessment apply to each separate source of income. The proposed ss. 152(9) amendment would establish that an alternative "basis" or "argument" may be relied on to support the entire assessed amount or its constituent parts.

It is unclear why the word "basis" was included in the proposed amendment. In Anchor Pointe Energy Ltd v R (2003 FCA 294), the FCA stated that seeking to distinguish a new basis from a new argument supporting an assessment was an unproductive "semantical argument". The FCA also noted that Anchor Pointe was distinguishable from Pedwell v R (2000 DTC 6405). In Pedwell, the TCC upheld the assessment relying on transactions other than those forming the "basis" for the assessment, which outcome the FCA reversed. The outcome in Pedwell was affirmed in Walsh v The Queen (2007 FCA 222), namely, the Minister cannot include transactions that did not form the basis of the reassessment. Further, Walsh confirmed that the Minister may not use ss. 152(9) to reassess after the normal reassessment period.

The explanatory note to the proposed amendment refers to alterative arguments that may result in an "increase or adjustment to an amount included in the assessment", which is somewhat reassuring in the sense that it suggests that the government of Canada is not seeking to reverse the principles in Pedwell and Walsh. However, the broad wording of the actual proposed amendment is concerning to the extent that it may threaten the Pedwell and Walsh principles (since, of course, explanatory notes are not law).

While the inclusion of the word "basis" is concerning, the proposed amendment is also troubling because of what is omitted. There is no express mention of the limitations imposed by ss. 152(4.01) or (5) which are provisions to which ss. 152(9) must be subject. The explanatory note states that ss. 152(9) is subject to other limitations in the ITA, but explanatory notes are merely context and not legislation, as noted above. Further, it is unclear how the rules governing appeals by large corporations would be affected. Large corporations must set out issues under appeal with specificity in their notices of objection and new issues may not be raised or argued later. It is unclear what may occur if the Crown were to raise new bases/arguments in an appeal by a large corporation, and it would be outrageous for the Crown to take the position that a large corporation could not appeal because it did not raise the "new" issues in its initial objection.

The principles from Harris and Last are not artificial shields for clever litigators to argue over. They enforce discipline on the Minister's delegates and ensure a fair dispute resolution process. Empowering the government of Canada to shore up assessing positions in the course of the dispute resolution process could easily result in undisciplined auditors coming up with untenable results, with the understanding that at some distant future date an appeals officer or government litigator would find some way to make the assessment stick. Further, there is a risk that auditors may rush to reassess rather than negotiating a waiver of the normal reassessment period if the Crown has greater latitude to support a reassessment under ss. 152(9) than it would have pursuant to a waiver, given the restrictions imposed by ss. 152(4.01). The broad wording of the amendments, qualified by comments in the explanatory notes, should give tax professionals cause for some concern as to whether the government of Canada may make an end-run around ss. 152(4.01) or (5) or other well-established case law principles.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions