7 August 2008 Internal T.I. 2008-0284301I7 - Normal reassessment period

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: A corporate taxpayer filed a return reporting a non-capital loss for the 2003 taxation year. The loss was carried back and applied to reduce taxable income for the 2002 taxation year. The TSO is currently carrying out an audit of the 2003 taxation year and has identified several adjustments that will reduce the non-capital loss reported. However, the proposed adjustments will not result in additional taxes payable for 2003. The question asked is whether the proposed adjustments must be made prior to the expiry of the normal reassessment period.

Position: Provided that the proposed adjustments will not result in additional taxes payable for the 2003 year, the proposed adjustments can be made after the normal reassessment period.

Reasons: The legislation provides that the normal reassessment period is only relevant in the assessment of taxes, interest or penalties. In this situation, the proposed adjustments will only impact the amount of the non-capital loss reported for 2003.

									August 7, 2008

	XXXXXXXXXX  TSO						Bob Naufal
									Income Tax Rulings
		  							Directorate
(613) 957-2097

									2008-028430

Normal Reassessment Period

We are writing in response to your email dated July 2, 2008 wherein you requested our views on whether the CRA may adjust the non-capital losses of a taxpayer beyond that taxpayer's normal re-assessment period.

Briefly, based on our understanding of the information provided in your email, you describe a situation whereby a taxpayer (the "Taxpayer") filed a tax return for the December 31, 2003 taxation year, reporting a non-capital loss for that year. The non-capital loss was carried back by the Taxpayer to the 2002 taxation year to reduce taxable income for that prior year. The Taxpayer's "normal reassessment period" for the 2003 taxation year expires on XXXXXXXXXX .

The TSO is currently auditing the Taxpayer's December 31, 2003 taxation year, which is still not finalized. In this regard, the TSO has estimated that the proposed audit adjustments will reduce the non-capital loss reported by the Taxpayer for that taxation year. However, the TSO's proposed adjustments will not result in taxable income or taxes payable with respect to the 2003 taxation year. It is our understanding that the Taxpayer will not provide the necessary waivers in respect of the 2003 taxation year.

You have asked whether the TSO can make adjustments to the Taxpayer's non-capital loss in respect of the 2003 taxation year after XXXXXXXXXX .

Our Comments

In general terms, subsection 152(4) of the Income Tax Act (the "Act") provides that for a particular taxation year, the Minister may, at any time, issue an assessment, reassessment or additional assessment of tax or notify a taxpayer that no tax is payable. However, assessments, reassessments, or additional assessments of tax, interest or penalties for a taxation year cannot be issued by the Minister beyond the "normal reassessment period" in respect of the year unless the circumstances described in paragraphs 152(4)(a) or (b) of the Act are applicable. In this regard, it is our understanding that these provisions do not apply to the Taxpayer's situation for the 2003 taxation year. It is also our understanding that with respect to the 2002 taxation year, the additional assessment period under paragraph 152(4)(b) of the Act has not expired. The term "assessment" has been interpreted by the Courts as meaning fixing or determining the tax payable of a taxpayer 1 . A "notification that no tax is payable" (hereinafter referred to as a "Notification") is commonly referred to as a "nil assessment". A taxpayer cannot object to a Notification.

The "normal reassessment period" is defined in subsection 152(3.1) of the Act. In this regard, for mutual fund trusts and corporations other than Canadian-controlled private corporations, that period is the four-year period beginning after the earlier of the day of mailing of a notice of an original assessment for the relevant year or the day of mailing of a notification that no tax is payable for that year. It is our long-standing position that, under the provisions of subsection 152(4), the "normal reassessment period" in respect of an original Notice of Assessment or Notification, as the case may be, for a particular taxation year, is only relevant in determining whether the Minister may assess additional taxes for that year.

Subsection 152(1.1) of the Act provides that where the Minister ascertains that the amount of a taxpayer's loss (non-capital, net capital, restricted farm, farm or limited partnership loss as the case may be) for a particular year is different from the amount reported in the taxpayer's return of income for that year, the taxpayer may request that the Minister determine the amount of the taxpayer's loss for that year. The determination of losses under this provision is separate from a notice of assessment or notification issued under subsection 152(4) of the Act, and can be objected to by the taxpayer. In this regard, it is our understanding that the Taxpayer has not requested a determination of losses for the 2003 taxation year.

In the situation described above, any re-assessments of tax for the 2003 taxation year must be issued prior to the expiry of the "normal reassessment period", which has been established as XXXXXXXXXX . Since the proposed adjustments will not result in taxes payable in respect of the 2003 taxation year, the expiration of the "normal reassessment period" is not relevant in determining whether the Minister can make such adjustments.

Accordingly in our view, provided that the TSO's proposed audit adjustments do not result in additional taxes payable with respect to the 2003 taxation year, and only impact the ascertainment of the non-capital loss as filed by the Taxpayer for that year, such adjustments can be carried out after the "normal reassessment period".

For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Canada Revenue Agency's mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version, or they may request a copy severed using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Mrs. Jackie Page at (819) 994-2898.

We trust that our comments will be of assistance to you.

for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

ENDNOTES

1 Pure Spring Company Ltd. v. M.N.R. [1946] 2 DTC 844, at 847, Irving Oil Ltd v The Queen, 88 DTC 6138, FCTD.