(4.01)-(9)

The Minister took the position on audit that a loan made by a Netherlands Antilles subsidiary of the taxpayer ("Honeywell N.V.") to a Netherlands subsidiary ("B.V.") of the taxpayer's U.S. parent violated the policy underlying clause 95(2)(a)(ii)(b) because that clause was intended only to avoid fapi treatment of loans made to foreign affiliates of a Canadian based multinational corporation. The Minister received a waiver respecting "interest income being reassessed under paragraph 12(1)(c) of the Income Tax Act, by reason of the application of section 245 of the Income Tax Act."

The Minister was precluded from amending his Reply (well after the expiry of the normal reassessment period) to allege that the funds lent by Honeywell N.V. to B.V. were not used in an active business of B.V., so that the exemption in clause 95(2)(a)(ii)(B) was not available irrespective of the general anti-avoidance rule in section 245. Noël J.A. stated (at p. 5077) that:

"Including interest in Honeywell's income under paragraph 12(1)(c) because of a GAAR re-characterization is entirely different from including the interest income of Honeywell N.V., its foreign affiliate, in Honeywell's income pursuant to the FAPI rules as the Crown now tries to assert ... ."

Pelletier J.A. stated (in obiter dicta at p. 6375):

"Subsection 152(4.01) restricts the right of reassessment within the extended reassessment period to the subject matter which gave rise to the right to reassess outside the normal reassessment period. It is therefore to the same effect as the final paragraphs of the former subsection 152(4)."

On February 14, 2022, a CRA employee wrote to the taxpayer proposing to allow her requested deduction, pursuant to an application under s. 152(4.2), of $195,000 in legal expenses relating to her human rights claim against her employer, and incurred in otherwise statute-barred years, in addition to adding the $50,000 that the taxpayer received under such claim to her income, and gave her until March 14, 2022 to make any further representations, which she did not do. However, on April 1, 2022, that employee wrote again to say that the requested deduction was now disallowed, as the taxpayer’s action was not related to salary or wages owed to her, and that denial was confirmed over a month later by the CRA Team Leader (the “Decision”). The taxpayer, who had taken the position that the expiry of the period for responding to the February 14, 2022 proposal gave rise to an agreement, submitted inter alia that CRA was estopped from now denying the deduction, and that to do so was an abuse of process.

In dismissing the taxpayer’s application for judicial review, Strickland J stated (at paras. 23, 27, and 40):

[T]he Supreme Court of Canada has held that estoppel … “is of no assistance to a litigant who wishes to avoid the application of a clear legislative provision” … . [T]he Minister’s Delegate disallowed the Adjustment Requests in applying a “clear legislative provision”, that is s 8(1)(b) of the ITA, and was therefore not estopped from rendering the Decision. …

[T]he February 14th Letter was a proposal that did not establish the Applicant’s substantive rights or obligations and was not a final decision, …

Even though the February 14th Letter erroneously proposed to allow the Adjustment Requests, the Minister’s Delegate had no discretion and was compelled to apply s 152(4.2) of the ITA in accordance with the parameters set out in s 8(1)(b). In assessing the tax liability of a taxpayer, “the Minister generally has no discretion to exercise and, indeed, no discretion to abuse. Where the facts and the law demonstrate liability for tax, the Minister must issue an assessment” (JP Morgan at para 77) … .

The taxpayer retired as a partner from Deloitte & Touche LLP in 2007. For 2008, he was allocated income from the partnership that was included in his income under ITA s. 96(1.1), but which he did not treat as income for CPP purposes. In 2009 he was assessed on the basis that this income gave rise to a required CPP contribution as provided in the applicable partnership agreement. In completing his income tax return for 2008, Mr. Freitas did not include any amount for a CPP in relation to that income, but was subsequently assessed in 2009 on the basis that that income resulted in a CPP contribution. The assessment also included a deduction in computing his income for one half of this amount payable (s. 60(e)) and a non-refundable tax credit based on the other half (s. 118.7). Almost 4 years later, he requested the Minister to reverse the CPP contribution and by also the corresponding deduction and credit. The Minister reassessed, but did not reverse the amount payable for the CPP contribution, on the basis that the taxpayer did not make this request within the four year limitation period specified in s. 38(4)(b) of the Canada Pension Plan Act (“CPP”). Following upon a notice of objection thereto of the taxpayer, he was reassessed in 2015. That reassessment (which the taxpayer appealed to the Tax Court) reflected the original assessment issued in 2009.

If the 2014 reassessment was issued under s. 152(4.2) then, as a result of s. 165(1.2), there was no right to file a notice of objection to that reassessment and then appeal to the Tax Court. In finding that s. 152(4.2) did not apply, and before finding that the 2015 reassessment (which had been issued beyond the normal reassessment period) could be appealed in light of s. 152(8), Webb JA stated:

Webb JA found (at paras. 15 and 19):

…In my view, a reassessment that increases a person’s tax liability is not one that was made for the purpose of determining a refund but instead would be made for the purpose of determining that person’s liability under the ITA or CPP. Otherwise, whenever a taxpayer makes a request for a refund after the end of the normal reassessment period, the Minister …could issue a reassessment that increases that person’s tax liability regardless of whether there was any misrepresentation as described in subparagraph 152(4)(a)(i)… and that person would have no right to object to that reassessment (subsection 165(1.2)….

Since the reassessment issued on May 20, 2014 increased Mr. Freitas’ liability for 2008, this was not a reassessment that was made under 152(4.2) … .

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The applicant, variously described as an estate and as a spousal trust, realized a capital gain on a deemed disposition of a property held by it on the death of the spouse in 2004, based on an appraisal of the property as having a fair market value (“FMV”) of $2.8 million, and then sold the property in 2008 for $2.25 million – so that it was precluded from carrying back the resulting capital loss to 2004. One month after the time limit for objecting to the assessment of the 2004 year, the applicant’s accountant requested CRA to reassess the 2004 year to reduce the capital gain based on a lower FMV. The applicant sought inter alia an Order for mandamus to require the Minister to reassess the 2004 taxation year in accordance with an “agreement” (the Proposal) alleged to have been made with CRA officials.

Phelan J found (at para. 32) the correct standard to apply in determining whether the Minister had reneged on an agreement was one of correctness rather than reasonableness, stating that:

It would offend any notion of fairness to defer to the Minister’s judgment as to whether he or she had made an agreement and reneged on it.

However, no breach of an agreement was made out. Phelan J accepted the Minister’s submission that the agreement was subject to establishing the legal ownership of the property which turned out to be different than that underlying the agreement. He stated (at paras. 46-47):

[E]ven now the parties are not “ad idem” as to the Proposal and its basis. …

[A]bsent an agreement as to the chain of title not only were the parties not in agreement about the Proposal, but the Proposal could not be legally implemented. A reassessment cannot be made contrary to law.

Approximately eight years after the taxation year in question, the taxpayer made a s. 152(4.2) application to CRA to allow the personal deduction by him of rental expenses that had been incurred under leases of equipment (used in his machinist business) that had been entered into in the name of his corporation (which was inactive except for entering into those leases). Before finding that the CRA rejection of this claim was not subject to reversal under an application for judicial review made under s. 18.1 of the Federal Court Act, Boswell J found that he had jurisdiction to consider the review application, stating (at para. 13) that “this Court has assumed and exercised jurisdiction to judicially review an exercise of the Minister’s discretion under subsection 152(4.2)).”

The taxpayers lived on a reserve and were employed at a sawmill built on former reserve land, which had been ceded for the sake of establishing the sawmill. The taxpayers' assessments for 1985-2002 were made on the basis that, as the taxpayers did not work on reserve land, their income was not exempt under s. 87 of the Indian Act. In the Boubard decision in 2008, it was found that s. 87 did apply and the taxpayers' assessments for 2000-2002 were varied. The taxpayers then applied in 2009 for discretionary relief under s. 152(4.2) of the Income Tax Act in respect of the remaining years. (The version of s. 152(4.2) in force during the relevant years did not have a limitations period.) The application was denied in respect of 1985-1998 on the basis that the Minister would presumably not have exempted the taxpayers' employment income from tax in those years.

The Federal Court judge granted the taxpayers' appeal on the basis that, because the Minister purported to ground its decision on the "state of the law" at the time, the Minister's decision was unreasonable if it was incorrect in law - which it was, on the basis of the Court's decision in Boubard.

The Court of Appeal granted the Minister's appeal. Although the question of correctness of the Minister's 1985-1998 assessments was relevant, the question in issue was whether the Minister's decision in 2009 to deny relief was reasonable. (In fact, the trial judge did base his decision on the latter question - see para. 13 of the TCC decision - but it is not clear that this issue was raised in the appeal.) Stratas J.A. stated (at paras. 44-45):

[W]here the decision-maker is considering a discretionary matter that is based primarily on factual and policy matters having very little legal content, the range of possible, acceptable outcomes open to the decision-maker can be expected to be quite broad. ...

[W]here the decision-maker is considering a discretionary matter that has greater legal content, the range of possible, acceptable outcomes open to the decision-maker might be narrower. Legal matters, as opposed to factual or policy matters, admit of fewer possible, acceptable outcomes.

The Minister's methodology and conclusions, which were based on "the state of the law" before 1999, were within this narrower range of acceptable outcomes. Stratas J.A. stated (at para. 61):

[The Minister's] methodology of conducting a year-by-year examination of the state of the law is supported by the wording of subsection 152(4.2) of the Income Tax Act. If the Delegate adopted a methodology that were contrary to subsection 152(4.2), her exercise of discretion would fall outside the range of acceptability and defensibility. But that is not the case here.

The taxpayer participated in a government fishing licence retirement program in which he was paid a lump sum to surrender his commercial fishing licence and retire from fishing. CRA advised participants that the licence was a capital asset and therefore the entire payment was a taxable capital gain, and the taxpayer filed his return on that basis. A subsequent CRA external interpretation indicated that the payment was income from a business. CRA subsequently settled with other taxpayers on the basis that the 50% allocated to the fishing licence was a capital gain, and the other 50% was not taxable at all; a position affirmed by a subsequent Tax Court decision (the correctness of the 50/50 division between the licence and the retirement agreement had not itself been raised by either party). The taxpayer applied under s. 152(4.2) for a correction to his taxes, noting the difference in treatment.

The Assistant Director and Director at the first and second levels of the review denied the application, citing that the taxpayer could have filed an objection before the deadline and had not done so, and that CRA does not change a taxpayer's tax treatment only because of a settlement or court decision arrived at with another taxpayer. Heneghan J. found that the Director's decision should be referred back for redetermination. The decision had breached the taxpayer's right to procedural fairness, as the reasons given were not responsive to the taxpayer's claim of different treatment. In addition to the procedural problems, the decision itself "fail[ed] to meet the standard of reasonableness because the reasons lack[ed] justification, transparency, and intelligibility." (Para. 75.) Heneghan J. stated (at para. 84):

[T]he Minister is not entitled to make settlements with taxpayers that do not have a principled basis in law. In December 2003, in connection with a number of fish harvesters, the CRA offered to treat half of their [licence retirement program] payments as non-taxable, and the other half as capital gains. In order to do so, that offer must have accorded with the CRA's understanding of the Act and its application to the [licence retirement program] payments.

Before going on to find that the Minister's decision not to accept amended returns was not unreasonable, Russell, J. noted (at para. 24) that "the Supreme Court of Canada in Dunsmuir v. New Brunswick, 2008 SCC 9, recently collapsed the patent unreasonableness and reasonableness simpliciter standards into one standard of reasonableness, leaving now only two standards of review: reasonableness and correctness". Russell, J. also noted that the Minister's powers to reassess after the normal reassessment period under s. 152(4.2) did not extend to corporations.

In the decision on behalf of the Minister not to re-open two statute-barred taxation years of the taxpayer to allow the deduction of expenses, the Minister's representative indicated that the expenses were incurred during 1991 and 1992 instead and that no taxes were owing for the 1991 taxation year. As this reasoning did not take into account that additional expenses in 1990 and 1991 would have an impact on future years for which the taxpayer had duly filed a notice of objection, the matter was referred back to the Minister for re-determination.

The decision of the Minister to deny the taxpayer's claim for additional expenses was remitted for reconsideration given that the Minister's representative had determined that there was no need to conduct a review of the taxpayer's materials in support of the claim on the basis of an erroneous view that the taxpayer was requesting deduction for expenses that already had been deducted.

In reversing the trial judge, Pratte J.A. noted that the respondents were given a full opportunity to make representations to support their request and (at p. 5122) that "the law is clear that, save in exceptional cases, fairness does not require an oral hearing".

Following the resolution of a dispute relating to its 1989 taxation year, the taxpayer (“Bakorp”) requested that the Minister adjust its January 1992 taxation year by inter alia reducing the non-capital loss that it had previously claimed in that year, and claimed that loss amount in a return that it then filed for its March 1992 taxation year. The Minister declined to adjust the application of the loss, and reassessed the return filed for the March 1992 taxation year to deny the claimed non-capital loss. Bakorp appealed this assessment, and argued that s. 152(4.3) required the Minister to apply the claimed loss amount in the March 1992 year.

In finding that the Tax Court had lacked jurisdiction to consider s. 152(4.3), Webb JA stated (at paras. 37, 41-42, 44):

Since the January 1992 taxation year was not before the Tax Court in this case, there is no provision of the Act that would allow the Tax Court to make the requested adjustments for that year even if the Tax Court was satisfied that Bakorp was entitled to have such adjustments made. …

In this appeal, there is no dispute that the non-capital losses as claimed for the January 1992 taxation year were valid non-capital losses and could be claimed in that year. … The Minister simply did not make the adjustment as requested by Bakorp for the January 1992 taxation year. …

[T]his disagreement between Bakorp and the Minister in relation to the application of subsection 152(4.3) of the Act in this case should have been resolved by Bakorp making an application to the Federal Court for judicial review of this decision of the Minister. …

Since Bakorp did not seek judicial review of the decision of the Minister, this decision to not make the adjustments for the January 1992 taxation year stands. The non-capital losses in issue in this case were therefore claimed in the January 1992 taxation year and could not again be claimed in the March 1992 taxation year.

The Minister reassessed the taxpayer's 1987 taxation year on the basis that the replacement property rollover was not available in that year, so that the taxpayer realized a taxable capital gain in that year, and on the basis of the resulting increase in the taxpayer's RDTOH account, paid a dividend refund to the taxpayer in respect of his 1991 taxation year. The taxpayer's appeal of the 1987 taxation year assessment was subsequently allowed, and almost one year later, the Minister purported to make a reassessment under s. 152(4.3) of the taxpayer's 1991 taxation year disallowing the dividend refund.

Noël J.A. found that s. 152(4.3) was not available to accomplish this. Noël J.A. noted that the set-off provisions of s. 129(2) gave rise to an actual payment of the dividend refund, rather than to a "deemed payment" of those taxes, and that the dividend refund did not operate by way of a "tax credit."

The taxpayer successfully appealed from reassessments denying the deduction of interest by it on a participating bond for its 1987 and 1988 taxation years, but did not file objections or waivers with respect to reassessments denying the deduction of interest on the bond for its 1989-1991 taxation years. Following a successful appeal for the taxpayer's 1987 and 1988 taxation years, the Minister reassessed the 1989 to 1991 taxation years to allow the deduction of non-capital losses resulting from the successful appeal, but not allowing the deduction of participating interest for those years.

The Court rejected the taxpayer's submission that s. 152(4.3) required the Minister, when determining the "balance", to go behind the dollar amount of the adjustment and to also give effect to the reason for the change in the income, namely, the deductibility of the participating interest payments made in those years. Evans J.A. stated (at p. 5087) that

"The 'balance of a taxpayer for a taxation year' suggests a sum: a numerical calculation ... To refer to the taxpayer's balance' would surely be an odd way for Parliament to express an intention that the Minister must look beyond the computation and consider the principles on which it is based."

Webb JA noted in various places (e.g., para. 57) that the result of the Minister raising a new argument in accordance with s. 152(9) cannot be to increase the taxpayer's liability.

The taxpayer was allocated losses for the initial years of his membership of three film-distribution limited partnerships and income-account gains for a subsequent year (1998), so that his initial assessment for 1998 included these gains as filed. Then, in 2002, CRA reassessed to deny both the taxpayer’s allocated losses for the earlier years, and reverse the gain inclusion for 1998, on the basis that the LPs did not exist - and also denied claimed carrying costs. Since, for 1998, the claimed carrying costs exceeded the gains, the effect of the reassessment was to increase his 1998 income by the net difference.

A subsequent settlement agreement provided for the reinstatement of much of the losses, did not explicitly address the treatment of the gains – but referenced an ability of CRA to reassess to make “consequential adjustments.” Webb JA found no reversible error in the Tax Court’s finding that the reassessment in 2014 to implement the settlement agreement by inter alia further reassessing the 1998 year to reverse the 2002 reassessment (thereby effectively including the full amount of the 1998 gains in income) accorded with the settlement agreement as to “consequential adjustments.”

The taxpayer also submitted that s. 152(5) prohibited the implementing reassessment from including the 1998 net gains allocations in his income because, although such income had been included in the initial (pre- 2002) assessment of his 1998 return, such initial assessment was not a reassessment “made … before the end of the [normal reassessment] period” because such quoted language "refers to only the particular …assessment, reassessment or additional assessment that is valid as of the end of the normal reassessment period” – whereas here, the 2002 reassessment had nullified the initial assessment. In rejecting this submission (and before finding at para. 52 that “subsection 152(5) of the Act does not prevent the Minister from reassessing Mr. Savics’ 1998 taxation year to, in effect, restore the previous income that he had reported and which was included in his income for the purposes of the initial assessment”), Webb JA stated (at paras. 46-47, 51):

Abrahams, Bowater Mersey and TransCanada Pipelines do not stand for the proposition that when a subsequent reassessment is issued it is as if the prior assessment or reassessment had never been made. Rather, the prior assessment or reassessment would still have been made and would have been valid for the period from the date it was issued until the subsequent reassessment was issued. Therefore, even though Mr. Savics was reassessed in 2002, the initial assessment … was still an assessment that was made before the end of his normal reassessment period.

… [T]he Minister is precluded from including a new amount in computing a taxpayer’s income that had not been previously disclosed in relation to an assessment, reassessment or additional assessment made during that taxpayer’s normal reassessment period. …

I do not accept that the purpose of subsection 152(5) … is to prevent the Minister, in reassessing a taxpayer under subsection 165(3) … from restoring a taxpayer to their original filing position by reinstating a particular source and amount of income that had been reported by the taxpayer, assessed as filed, and then subsequently deleted as a result of a reassessment.

After the Minister had assessed predecessors of the taxpayer on the basis that amounts paid by them to purchase seismic data exceeded the fair market value of the data, so that the full purchase price did not qualify as CEE, the taxpayer filed Notices of Objection. The Minister then issued Notifications of Confirmation which, based on the subsequently-decided decision in Global Communications, found that none of the purchase qualified for treatment as CEE (although the Minister did not purport to increase the tax payable by the taxpayer).

Rothstein J.A. stated (at para. 33) that he was "unable to agree" with the analysis of Rip J. in the Tax Court that the expiry of the normal reassessment period was stayed or extended until the Minister took action under s. 165(5) as "the implication of such an interpretation is that because a taxpayer files a Notice of Objection, the Minister has an unlimited time to reassess the taxpayer to increase tax payable after the normal reassessment period." Although s. 165(5) allowed the Minister to reassess after the expiry of the normal reassessment period where a Notice of Objection had been filed, in light of s. 152(5) the Minister could not so reassess as to include in the taxpayer's income amounts that were not included in an assessment or reassessment made within the normal reassessment period. Here, however, the effect of the Minister's Notice of Confirmation was not to include additional amounts in the taxpayer's income.

When the taxpayer was assessed to deny SR&ED deductions or credits for its 2009 taxation year, the CRA auditor failed to follow the requirement in the Audit Manual to obtain a written response from the taxpayer as to whether the taxpayer wished to apply available non-capital losses (NCLs) to offset the assessed taxable income and eliminate the tax and interest. Although there were sufficient NCLs to this end, their specific amount was unclear until January 2015, at which time the taxpayer filed its request to have the NCLs so applied. This request was denied as being filed after the end of the normal reassessment period, which ended on September 3, 2014.

Shore J considered that it was reasonable of the Minister’s delegate to grant only partial interest relief under s. 220(3.1) respecting the assessed interest, on the basis that it was ultimately the taxpayer’s responsibility to decide whether it wished to apply its NCLs before the end of the normal reassessment period, which it had failed to do. He also considered that there was no procedural unfairness in the failure of the Minister’s delegate to consult the above Manual policy before granting only partial interest relief, indicating that the delegate should not have been expected to be aware of this policy and it was up to the taxpayer to bring the Manual to the delegate’s attention, which it did not do.

The taxpayer was successful in obtaining an order of mandamus directing the Minister to carry back a large capital loss it had reported in its 1988 income tax return to its three preceding taxation years. Revenue Canada then advised the taxpayer that it was reassessing those taxation years, but with no change to his taxable income for those years because the 1988 loss had been disallowed.

After first finding against the taxpayer on the ground that the Court had no jurisdiction to deal with the matter, Rothstein J. went on to indicate in light inter alia of the wording of s. 153(7) that the words "take into account" in s. 152(6) meant "to consider" rather than to "allow". Accordingly, the Minister was not obliged to allow the requested deduction.

The taxpayer was unable to carry back business losses because he did not file an amended return within the statutory time limit (nor at any subsequent time.)

Within the time limit for doing so the taxpayer filed an amended return for its 1952 taxation year in which it carried back a loss from its 1953 taxation year. In finding that the taxpayer was later precluded (following a reassessment of its 1952 taxation year and following the expiry of the time limit referred to in s. 42(4A) of the pre-1972 Act from filing a further amended return for its 1952 taxation year, Judson J. (with whom the majority concurred on this point) stated (p. 1246):

"The mere fact of a re-assessment in 1955 does not open the matter of tax liability at large and compel the Minister to re-assess in accordance with an amended return made out of time, according to the above quoted section. Under this legislation, if a taxpayer wishes to carry back business losses, he must file his amended return within the statutory time limit. Otherwise, the Minister cannot be compelled to accept the amended return."

Heald J.A. adopted the explanation of President Thorson in Dezura v. MNR, [1947] CTC 375 at 378 (Ex Ct) of the effect of s. 152(7).

The taxpayer did not file any income tax returns on the ground, later established in court to be unfounded, that he was exempt from tax. He was assessed for the taxation years 1960 to 1964, but not 1959, on the basis that a S.20(1)(n) (then, S.85B(1)(d)) reserve should be deducted from his profit from a 1959 sale of land, and included in the income of those subsequent years pursuant to s. 12(1)(e)(ii) (then, S.85B(1)(e)). It was held that because he had the option of including the full amount of the profit in his 1959 income, and the record did not disclose that there had been an assessment for the 1959 year, that no part of the profit made in 1959 could be included in his income for the subsequent years.

Rennie JA confirmed the decision of Annis J that a CRA “proposal” letter to the taxpayer setting out proposed reassessments for his 2007 to 2016 taxation years and giving him 30 days to provide additional information and representations was not a “decision” that the Federal Court had the jurisdiction to review under the Federal Courts Act. Furthermore, CRA had subsequently reassessed the years in issue and, under ss. 152(8) and 169, such “reassessments [were] valid and binding until set aside by the Tax Court” – so that it was not relevant that, prior to the proposal letter and such reassessments, the taxpayer had requested an internal review of the Minister’s decision not to admit most of the years in question to the voluntary disclosure program.

Following his assessment for a s. 163.2 penalty, the taxpayer paid $1M to CRA so as to offset interest which would be borne by him if the assessment were upheld. After the assessment was vacated pursuant to a consent judgment, CRA issued a Notice of Reassessment showing the cancellation of the penalty and a refund of the $1M but denying any refund interest on the basis that s. 164(3) requires a taxation year to be specified in order for interest to be paid – and a s. 163.2 penalty is not calculated by reference to any particular taxation years.

However, the Notice of Reassessment in fact, in its upper right-hand corner, stated “Tax year 2012.” In rejecting the Crown’s argument that this naming of a taxation year in the Notice of Reassessment was an error, Diner J referred to s. 152(8), indicated (at para. 86) that it applies “equally to reassessments as it does to assessments,” and then stated (at para. 87):

Therefore, on a strict reading of the text of the statute, the 2016 Reassessment is presumed to be valid and binding … .

It was not relevant that the taxation year was not listed in the original Notice of Assessment, as it had been vacated by the consent judgment.

Respecting a further Crown argument that the Reassessment was properly described as a “notice of refund” or “refund receipt”, and that it was improperly named by as a Reassessment, and after noting (at para. 92) that “the jurisprudence acknowledges that administrative errors do not vitiate an assessment and subsection 152(8) exists to protect the Minister from taxpayers attempting to invalidate assessments based on technicalities,” Diner J stated (at paras. 95-96):

It is one thing for the Minister seeking to prevent a taxpayer relying on minor defects in her department’s document. But it is another for the Minister to then herself claim that the minor error undermines the validity of her own document to avoid adherence to it, when all other data points of the form are entirely accurate … .

Consequently, for the purpose of this specific case, this Court concludes that the Reassessment issued by the Respondent is a valid reassessment, even if it also included both a refund to, and a nil balance owing from, Mr. Glatt.

A partner of a real estate partnership that had realized profits from condo sales was sold on May 29, 2006, being two years before the partnership fiscal period end, to an arm’s length purchaser (Nuinsco), with most of the partnership profits then being allocated to Nuinsco on May 31, 2006 following the winding-up of Partnerco into Nuinsco. CRA assessed the Partnerco (and three other Partnercos who were similarly situated) for the notional period May 1 to June 1, 2006 in respect of the partnership income that had instead been allocated to Nuinsco (i.e., ignoring the deemed year end of May 28, 2006 that resulted from the acquisition of control of Partnerco by Nuinsco). The taxation year of Partnerco ending on May 28, 2006 was statute-barred, but not that ending on June 1, 2006. The taxpayer, in turn, was assessed under s. 160 on the basis that (following the reallocation of income to the Partnerco as described above) there was a tax liability of Partnerco that had flowed through to the taxpayer under s. 160 as a result of a stock dividend to the taxpayer and a redemption in its hands of the stock dividend shares.

In finding that the reassessment was valid in light of s. 152(8) notwithstanding that it treated the reassessed year ending June 1, 2006 as having commenced on May 1 rather than May 29, Woods JA stated (at paras. 92, 95):

It is true that the Minister was precluded from assessing the period from May 1 to 28, 2006, but the Minister has never alleged that there was any income in this period which potentially could give rise to an assessment. The assessing action by the Minister did not change the substance of the notification previously issued that there was no tax payable for the period of May 1 to 28, 2006. …

The situation is one in which the mistake should be corrected by a reassessment rather than by finding the assessment to be void. An appeal of the Partnerco assessment was not before the Tax Court or this Court and therefore the assessment cannot be corrected by the Court ordering a reassessment. That does not matter. As mentioned earlier, Holdco does not have any greater rights regarding the Partnerco assessment than Partnerco would have had if it had appealed the assessment directly.

The taxpayer, a retired Deloitte partner, was assessed by CRA in 2009 to impose a CPP contribution obligation on an amount of income that was distributed to him under ITA s. 96(1.1). CRA denied the taxpayer’s request four years later for a refund of this amount on the grounds that this request had not been made within the required three-year period – and in the resulting 2014 reassessment it in fact denied some deductions/credits that had been initially allowed in its 2009 assessment.

After finding that the 2014 reassessment was not invalid under ss. 152(4.2) and 165(1.2), and in response to a further Crown argument that the 2014 reassessment was statute-barred, Webb JA noted that the reassessment was deemed by s. 152(8) to be valid subject to being vacated, stating (at para. 22):

As a result, the reassessment made on May 20, 2014 is deemed to be valid notwithstanding any error or defect or omission in the assessment or in any proceeding under the ITA relating thereto.

Accordingly it could be objected to on substantive grounds (in addition to being vacated on the grounds that a reassessment outside the normal reassessment period cannot increase the taxpayer’s liability in the absence of misrepresentation.)

The 2002 to 2008 taxation years of the taxpayer were assessed for its failure to withhold Part XIII tax. The taxpayer (in addition to objecting under s. 165) sought to have the assessments for the earlier (2002-2004) years set aside, on an application for judicial review in the Federal Court, on the basis that it was contrary to the Minister's policy to go back more than two years on audit.

Stratas JA found that each of the following grounds was a sufficient basis for dismissing the application:

• the notice of application failed to state a "cognizable administrative law claim," as "changes in policies or departures from policies ... do not constitute an abuse of discretion..." (para. 75, similarly para. 108);
• the Federal Court was barred from considering the claim by s. 18.5 of the Federal Courts Act, as ITA ss. 165 and 169 "constitute a complete appeal procedure that allows taxpayers to rise in the Tax Court all issues relating to the correctness of the assessments" (para. 82, similarly para. 110); and
• the Federal Court could not grant the relief sought: "If the 'essential character' of the relief sought is the setting aside of an assessment, it must be struck" (para. 93), as "only the Tax Court can grant this relief: subsection 152(8)" (para. 111).

Stratas JA gave (at para. 98) oversight of political or racial targeting through selective assessments as "examples of judicial reviews that might avoid the three objections to judicial review," and stated (at para. 101) that judicial review "is a tool of last resort."

In granting a motion of the Crown to strike out a Statement of Claim of the taxpayer, which sought damages against the Crown on the basis that the Crown had engaged in deliberate conduct to deny the taxpayer the benefit of the law, Décary J.A. noted (at p. 6516) that "it is settled law that the Federal Court does not have jurisdiction to award damages or grant any other relief that is sought on the basis of an invalid reassessment of tax unless the reassessment has been overturned by the Tax Court", and that "it is settled law that the Tax Court of Canada does not have jurisdiction to set aside an assessment on the basis of abuse of process or abuse of power ...".

A notice of reassessment of the taxpayer for $1.3 million disclosed that figure in the refund box rather than the balance unpaid box. In finding that the taxpayer could take no refuge in s. 152(8) in seeking to recover the $1.3 million, Robertson J.A. indicated that the error was in the notice of assessment and not in an assessment; and the error was apparent on the face of the document.

In finding that the taxpayer was not liable under s. 159(3) following the winding-up of its subsidiary for income tax liabilities of the subsidiary that had not been reassessed within the normal reassessment period, Hugessen J.A. stated (at p. 6592):

"While it may be the case, as argued by the appellant, that a person who is made liable for the taxes due by another is able to dispute the other's liability even when the latter could no longer himself have done so, that does not alter the fact that an assessment, until validly varied, binds both the Minister and the taxpayer in respect of whom it is issued."

A reassessment of a director in respect of the aggregate amount of source deductions which the corporation had failed to make under the Act and three other statutes which did not separately disclose the amounts purportedly owing under each statute, and that referred for further details to an assessment which had been made on the corporation, nonetheless was valid in light of ss.152(3) and (8) of the Act and the fact that it contained all the essential ingredients for a notice of assessment. Joyal J stated (at p. 5480) that it thus was "sufficient to put a taxpayer on notice that a particular amount is claimed."

Assessments which had never been successfully attacked pursuant to the Income Tax Act could not be collaterally attacked through application for a declaration that the income in question was exempt from tax, given the provisions of s. 152(8)

In rejecting an argument on behalf of the taxpayer that a reassessment which was issued beyond the time limit established by s. 152(4) was nonetheless valid until vacated by a court order and, therefore, had the effect of nullifying a previous reassessment, Stone J.A. stated (p. 6233):

"It seems to me that [s.152(8)] is not addressed to a situation where an assessment is issued out of time but rather to a situation where an assessment is issued in time but contains an 'error, defect or omission' or that such is contained in any proceeding under the Act relating to it."

Notwithstanding that the Minister had reassessed previous taxation years of the taxpayer on the basis that a gain had been realized by the taxpayer on income account rather than capital account, in its 1979 taxation year the taxpayer filed its return on the basis that the inclusion of its previous year's reserve, and the deduction of a further reserve, should be done under paragraph 40(1)(a) rather than paragraph 20(1)(n). In rejecting an argument that the taxpayer was compelled in its 1979 return to accept the Minister's view of the previous sale as being on capital account, MacGuigan J. found that subsection 152(8) deals only with the correction of errors, defects or ommissions in reassessments, and does not deem all reassessments to be valid and binding.

A notice of assessment was not a nullity by virtue of the fact that it was issued in the name of the estate of the taxpayer, rather than in the name of the taxpayer. The executor was not confused by the notice of assessment and understood it to relate to the taxpayer's terminal year return and not to the estate's return.

After being reassessed by the Minister, the taxpayer correctly noted in his Notice of Objection that the reassessments were based upon a repealed provision of the Act (s.74(5)). In his Notice of Confirmation, the Minister relied on ss.3, 9(1), 152 and 248 of the Act.

After reviewing jurisprudence to the effect "that an assessment may be valid although the reason assigned by the Minister for making it may be erroneous", Jerome A.C.J. stated (at p. 6079):

"Sections 152(3), 152(8) and 166 combined clearly indicate that this error by the Minister of National Revenue is far from fatal. The cases only limit these sections where there is substantial and fundamental error ... The Minister has not committed an error of sufficient seriousness to put it into the same category as cases like Optical Recording."

In orally affirming this decision, Sone JA stated (at p. 5417) that "the Minister's mental process in making an assessment cannot affect a taxpayer's liability to pay the tax imposed by the Act itself."

The taxpayers were assessed under s. 163(2), convicted under s. 239(1), and then challenged their assessments under s. 163(2) as being contrary to the prohibition under s. 11(h) of the Charter for being punished for the same offence "again". It was held that the taxpayers effectively had been "punished" under s. 163(2) at the time of their assessments:

"I would be hard put to accept the proposition, without authority to support it, that a taxpayer, against from a valid and binding assessment has been made and penalties imposed, which he has paid, has not been 'punished' until such time as the taxpayer exhausts all available appeal processes."

The request of a trustee in bankruptcy for Revenue Canada working papers to back up an assessment "was fully answered by the notice of assessment."

The issuance of a reassessment in the name of a predecessor corporation rather than the amalgamated corporation was a defect which was not cured by ss. 152(3), 152(8) or 166. Rouleau J stated (at p. 5133):

Equity alone would prevent the use of curative provisions such as those ... to correct a substantive error of this nature.

An argument in an appeal from a reassessment of the taxpayer's 1969 income tax that since a reserve should not have been claimed in 1968, the amount of the reserve was not includible in 1969 income was found to be "not so much a direct challenge to the validity of the 1968 assessment (which was not appealed and is long since closed) as it [was] an attempt to argue a legal effect in computing 1969 income from what the appellant says ought to have been done in reporting 1968 income. I think it may be legitimately advanced notwithstanding that the 1968 taxation year of the appellant is plainly a closed book."

Irregularities in an assessment notice that do not either confuse or prejudice the taxpayer (such as referring to the Department of National Revenue as Revenue Canada, Taxation, and using the name of the former rather than the present Deputy Minister) do not render it invalid but in any event such irregularities would be cured by s. 152(8).

The original Crown Reply had stated that the Minister had assessed the 2015 return of the taxpayer (TPine) to disallow a deduction for capital cost allowance (CCA) on the basis that the Class 10 and 16 assets for which CCA had been claimed were included in the same equipment that TPine had sold and for which it had claimed a deduction for the cost of goods sold (CGS). TPine appealed the Tax Court’s allowance of an amendment to the Reply (requested after the expiry of the normal reassessment period, and which the Crown sought to justify under s. 152(9)) to include the alternative basis for the assessment that, if TPine was successful in challenging the CCA denial, the TPine CGS deduction should be reduced by an equivalent amount.

Webb JA indicated that in interpreting the previous version of s. 152(9), the Federal Court of Appeal “has not allowed the Minister to raise a new argument based on a transaction that did not form the basis on which a taxpayer was assessed” (para. 85). Here, that test was not a barrier to the new pleaded basis of assessment. The central allegation of the Minister was that it was “the same equipment that resulted in the CCA claim and in the deduction for the cost of goods sold” (para. 86). Thus the two alternate assessment bases were joined at the hip: if TPine had sold those assets, it followed “that the claim for CCA was a valid claim and no amount should have been claimed for the cost of goods sold” (para. 88); and if it had not sold the assets, it followed that this “would not preclude the Minister from making an argument that no amount should have been allowed as a deduction for cost of goods sold for the same equipment” (para. 88).

Since s. 152(9) permitted the pleading of the new alternative basis even under its more restrictive version as judicially interpreted, the same result should follow under the current version of s. 152(9) that applied to this amendment. However, in commenting on the current version of s. 152(9), Webb JA stated (at para. 90):

The principles that the Minister cannot appeal an assessment and the Minister cannot reassess beyond the expiration of the normal reassessment period are still valid principles that would need to be taken into account in determining what alternative basis or argument the Minister may advance. In interpreting and applying the previous version of subsection 152(9) of the Act, this Court has also limited an alternative argument to the same transaction that is in dispute. It is not clear how the amendments would alter this principle.

In December 2013, CRA purported to retroactively revoke the registration of a pension plan (the “New Plan”) to which a transfer had been made in 2009 of the commuted value of the taxpayer’s interest in his old (OMERS) registered pension plan. CRA, in reliance on the retroactive character of that revocation, then immediately reassessed the taxpayer to include the amount of the transfer in his income under s. 56(1)(a)(i) on the basis that the exemption for RPP-to-RPP transfers was not available. However, the initial revocation was invalid due to inadvertent failure by CRA to comply with the 30-day notice requirement in s. 147.1(12). CRA did not discover this mistake until well after the normal reassessment period for 2009, and then issued a second (this time, valid) notice of revocation.

Woods JA applied the statement in Gramiak (at para. 33) “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.” She indicated that a valid revocation notice was an essential factual underpinning for the s. 56(1)(a)(i) income, and since a valid revocation in fact did not occur until 2017, “clearly, this was not a factual basis on which the reassessment was based when it was issued” (para. 35). Thus:

[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. (para. 37)

As the factual basis for the Minister’s reassessment had changed beyond the normal reassessment, the Minister was precluded from relying on having validly made a retroactive revocation of the New Plan.

At the relevant time, s. 152(9) stated that “the Minister may advance an alternative argument in support of any assessment at any time after the normal reassessment period.” Woods JA stated (at para. 37):

Moreover, this was more than a “new basis” to support the reassessment. It was also a new fact that did not materialize until after the limitation period had expired, when the Minister issued the second notice.

At issue was whether assessing tax on the amounts in issue as “benefits” pursuant to s. 146(8), rather than by reason of acquiring a non-qualified investment and/or property below fair market value pursuant to ss. 146(9) and (10), amounted to an alternative argument that was prohibited by s. 152(9). In this regard, Noël C.J. stated (at paras. 33, 37-38):

[A]n alternative argument cannot be advanced when it would result in a reassessment being made outside the normal reassessment period set out in subsection 152(4)... . This restriction which is central to the present appeal acknowledges the fact 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. ...

[T]he Tax Court judge found that the facts underlying the reassessments were that funds used to purchase the debentures having nil or nominal value were diverted to a law firm’s trust account in the course of RRSP stripping transactions… . The bottom line is that the appellant engaged in RRSP stripping transactions and that is the factual basis relied upon by the Minister in issuing the reassessments … .

This admittedly broad view of the factual basis for the reassessments finds support in the language of the letter from the auditor addressed to the appellant outlining the proposed reassessments… .

The Minister invoked the general anti-avoidance rule to reassess the taxpayer on a series of surplus-stripping transactions. The taxpayer had subscribed for common shares of a new subsidiary for approximately $5.6 million, which then declared a stock dividend in the form of preferred shares having $56 of paid-up capital and a $5.6 million redemption price. Consequently, the value of the common shares was largely eliminated. The taxpayer disposed of the common shares in consideration for their depleted value and reported a business loss.

The trial judge rejected the Minister's argument that the transactions were abusive of the Income Tax Act as a whole. On appeal to the Court of Appeal, the Minister raised several new arguments, including that:

1. the transactions were abusive of ss. 3, 4, 9 and 111, an underlying policy of which is that business loss claims should reflect actual losses;
2. the taxpayer's purported losses were not business losses, given that the shares were not acquired as inventory or as part of and adventure or concern in the nature of trade (see "Rollover and other non-trading transactions"); and
3. to the extent that the taxpayer had any losses, they were capital in nature.

The Court found that, pursuant to s. 152(9), the Minister was free to introduce the first argument at the Court of Appeal but not the second and third. While the first argument entailed a pure question of law, the latter arguments entailed mixed questions of fact and law "for which an evidentiary basis was not established in the Tax Court of Canada" (para. 37).

The Court of Appeal proceeded to grant the Minister's appeal based on the first argument, but awarded costs to the taxpayer.

The Court of Appeal affirmed the decision at trial to allow the Minister to file a memorandum of fact and law after the hearing ended. Subsection 138(1) of the Tax Court of Canada Rules gives a judge broad discretion to "reopen a hearing before judgment has been pronounced for such purposes and upon such terms as are just." Moreover, the existence of s. 152(9) supports the notion that the Minister should be allowed to advance alternative arguments except where the taxpayer is no longer able to adduce relevant evidence or where allowing the arguments would otherwise be inappropriate. In the present circumstances, the harm to the taxpayer had been adequately addressed with a cost award.

After reassessing the taxpayers to include receipts for termination of a non-competition agreement in their income as business income, the Minister was entitled to amend replies to notices of appeal to, in the alternative, include three quarters of the receipts in the taxpayers' income as eligible capital amounts or as taxable capital gains. The arguments in question were announced well before the trial began and no prejudice was argued by counsel for the taxpayer (para. 35).

Subsection 152(9) could not be construed as allowing the Minister to make, after the expiry of the normal reassessment period, an amendment to his Reply that was not a "matter" specified in a waiver granted to him before the expiry of the normal reassessment period.

The Crown was permitted to defend a reassessment it had made of the taxpayer (disallowing a portion of the taxpayer's capital cost allowance claims) on the basis of an argument that it asserted in its pleadings following the expiry of the time limit for reassessments, namely, an argument that the taxpayer was not entitled to deduct any capital cost allowance because it had not acquired its interest in the property in question for an income-producing purpose, so that the reassessment reducing the allowable capital cost allowance claims of the taxpayer was correct.

After the Minister had assessed predecessors of the taxpayer on the basis that amounts paid by them to purchase seismic data exceeded the fair market value of the data, so that the full purchase price did not qualify as CEE, the taxpayer filed Notices of Objection. The Minister then issued Notifications of Confirmation which, based on the subsequently-decided decision in Global Communications, found that none of the purchase qualified for treatment as CEE (although the Minister did not purport to increase the tax payable by the taxpayer).

In finding that s. 152(9) did not preclude the Minister from issuing a Notice of Confirmation on this basis, Rothstein J.A. noted (at para. 40) that the confirmation did not have the effect of introducing a new transaction in that the Minister instead was only relying on an additional argument in support of denial of the CEE deductions that originally had been denied by the Minister.