Commentary on 6075240 Canada Inc. v MNR and the Normal Reassessment Period – A Toronto Tax Lawyer Analysis
Introduction – The Normal Reassessment Period under the Income Tax Act
The normal reassessment period rule is a rule that is usually used to the taxpayer's advantage. Generally, it prevents CRA from reassessing a taxpayer for a particular tax year after three years have elapsed. CRA can only reassess a taxpayer beyond the normal reassessment period if it can prove it meets certain conditions. The most common of these conditions is fraud committed by the taxpayer or gross-negligence on the part of the taxpayer. However, in certain situations, the normal reassessment may work against the taxpayer. When the taxpayer believes he or she had been unfairly assessed for a particular tax year, and the taxpayer files adjustments and asks the CRA to reassess him or her. The CRA may argue that it is unable to do so on the ground that the normal reassessment period has lapsed. In the Tax Court decision of 6075240, the case came down to a determination of when does the normal reassessment period start under section 152(4) of the Income Tax Act.
Normal Reassessment Period Defined
The normal reassessment period is defined in Section 152 (3.1) as four years for mutual fund and corporations and three years for all individual taxpayers. Under Section 152(3.1), the 3 or 4 years normal reassessment period is counted from the earlier of the mailing date of the original notice of reassessment or the mailing date of the notification that no tax is payable.
However, the wording in section 152(4) provides additional confusion regarding the definition and application of the Normal Reassessment Period rule.
Section 152(4) begins by stating the follows:
4) The Minister may at any time make an assessment, reassessment or additional assessment of tax for a taxation year, interest or penalties, if any, payable under this Part by a taxpayer or notify in writing any person by whom a return of income for a taxation year has been filed that no tax is payable for the year, except that an assessment, reassessment or additional assessment may be made after the taxpayer's normal reassessment period in respect of the year only if... [the rest of the section proceed to name the condition under which the CRA can assess a taxpayer beyond the normal reassessment period].
Since the wording in the section "any person" is modified by the wording underlined above "person by whom a return of income for a taxation year has been filed that no tax is payable for the year." one might draw the conclusion that the clock for the normal reassessment period only starts running once a taxpayer had filed his or her taxes, and a notice of assessment or notice of no tax is payable has been issued by the CRA. This was what the Appellant argued in 6075240 Canada Inc. v MNR. In that case, the taxpayer did not file taxes for the 2010 to 2012 tax years. After the CRA arbitrarily assessed the taxpayer for an amount that he believed to be unfair, the taxpayer refiled his taxes and asked the CRA to reassess him based on his refiled positions.
The Taxpayer's Argument about Normal Reassessment Period
However, the CRA refused to reassess the taxpayer on the ground that the normal reassessment period had expired when the taxpayer late-filed for 2010 to 2012 tax years. In his appeal to the Tax Court in order to force the CRA to reassess based on his amended returns, 6075240 Canada Inc. made the following arguments:
1. The normal reassessment period only begins based on the reading that the definition of normal reassessment period in section 152(3.1) is modified by "any person by whom a return of income for a taxation year has been filed that no tax is payable for the year,"
2. The purpose of the normal reassessment period was exclusively to benefit taxpayers, any ambiguity that arises in interpreting section 154(3.1) and section 154(4) should be interpreted favourably to the taxpayers to bring it in line with the intention of the statute.
3. Section 1000 of the Quebec Taxation Act contains the paragraph:
(2) The Minister may also redetermine the tax, interest, and penalties payable under this Part and make a reassessment or an additional assessment, as the case may be,
(a) within three years after the day of sending of an original assessment or of a notice that no tax is payable for a taxation year or the day on which a fiscal return for the taxation year is filed, whichever is later;
This clearly indicates that in cases where the taxpayer files a late-return after an arbitrary assessment, the normal reassessment period is counted by the date in which the late-return is filed. The Federal Income Tax Act should be interpreted coherently with the Quebec Taxation Act.
In denying the taxpayer's appeal, the Tax Court made the following points. First, sections 152(3.1) and (4) must be interpreted in accordance with their purpose, which is to ensure finality in CRA's assessment and reassessments of taxpayers in the self-reporting system. The Court cites Section 152(1), which provides the CRA must examine a taxpayer's tax return with all due dispatch to justify its reading of the purpose of Section 152. The interpretation advanced by 6075240 Canada Inc. would mean the normal reassessment period would be indefinitely extended as long as the taxpayer had not filed his or her returns. Such reading defeats the purpose of the provisions.
Second, the Court rejects the position that the normal reassessment period was established for the exclusive benefit of the taxpayer. The Court rejected this argument by reiterating its interpretation of the purpose of Section 152 was to ensure the finality and stability of the self-assessment system, and that it must be within Parliament's contemplation that normal reassessment period is used to prevent CRA and taxpayer abuse. An example of taxpayer abuse of the reassessment system the normal reassessment period is supposed to prevent is "if the taxpayer is seeking a correction to an assessment after a certain number of years, for example, if the taxpayer finds an error in his or her returns for previous years."
Third, the Court ruled that the federal taxation statute and Quebec have different rules, and the Court cannot use the Quebec statute to interpret the federal statute. To the extent that different rules on how the normal reassessment period is counted differ for a Quebec taxpayer when that Quebec taxpayer is dealing with the CRA and Quebec Revenue Agency, it is a problem for the legislature to fix and not for the Court to comment.
Tax Tips – Obtain Professional Canadian Tax Lawyer Representation as soon as You Received CRA Assessment.
For taxpayers who filed tax returns incorrectly or did not file at all, the window to file amended tax returns and forcing CRA to reassess the amended returns under the Income Tax Act is the normal reassessment period, which begins to count on the mailing date of the CRA's Notice of Assessment. The objection and amendment of the return process can be time-consuming, and time is of the essence when it comes to obtaining professional representation as soon as possible. Our experienced Toronto Tax Lawyers will guide you through the difficult and stressful process of dealing with CRA Assessments and Reassessments.
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