16 March 1999 Internal T.I. 9905317 - WHETHER YEAR STATUTE BARRED; 149(10)

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: (1) The effective date of subsection 149(10). (2) Whether we can assess a taxpayer for a taxation year that was not reported but the period of which was included in a taxation year that has been assessed and is statute barred.

Position: (1) Subsection 149(10) applies at the time a corporation becomes exempt or ceases to be exempt. (2) No.

Reasons: (1) Based on the Income Tax Act. (2) In our view, based on the purposive approach now used by the Courts to interpret income tax legislation, the fact that a deemed taxation year-end under 149(10) was overlooked would not, in and of itself, allow the Department to step outside the limitation periods for (re)assessing under 152(4). However, in such situations, consideration should be given to assessing under 152(4)(a)(i), i.e., because there has been misrepresentation attributable to neglect or carelessness.

		March 16, 1999

	Program Management and	HEADQUARTERS
	   Operations Section	J. Gibbons
	Audit Directorate	957-8953

Attention: Luisa Guyan
7-990531

XXXXXXXXXX (the taxpayer)

This is in reply to your email of February 22, 1999, along with follow-ups on March 8 and 12, concerning the application of subsection 149(10) of the Income Tax Act. Briefly, the facts, as we understand them, are as follows:

1. The taxpayer is owned by the XXXXXXXXXX Indian Band.

2. The taxpayer has a taxation year ending XXXXXXXXXX.

3. On XXXXXXXXXX , the taxpayer became exempt from tax pursuant to paragraph 149(1)(d) of the Act (as it then read).

4. The taxpayer filed a return for the period XXXXXXXXXX, claiming tax-exempt status but without taking into consideration the rules in subsection 149(10).

5. The taxpayer will no longer qualify as tax-exempt pursuant to new paragraph 149(1)(d.5), which applies to taxation years and fiscal periods that begin after 1998. Therefore, commencing with the fiscal period that will begin on XXXXXXXXXX, the taxpayer will no longer be tax-exempt.

In relation to the above set of facts above, you request our views as to: 1) the dates when subsection 149(10) is effective, and 2) whether the taxpayer can be assessed currently for the deemed dispositions resulting from the application of paragraph 149(10)(b) to the XXXXXXXXXX taxation year.

Subsection 149(10) applies at the time a corporation becomes exempt or ceases to be exempt from tax. Accordingly, subsection 149(10) applied to the taxpayer on XXXXXXXXXX , when it became tax exempt under paragraph 149(1)(d) (as it then read). Thus, the taxpayer should have filed a return for a taxation year ending XXXXXXXXXX. In this return, the taxpayer should have reported deemed dispositions of all of its property at fair market value pursuant to the provision of paragraph 149(10)(b).

Similarly, subsection 149(10) will apply to the taxpayer on XXXXXXXXXX, when it will become subject to Part I tax pursuant to paragraph 149(1)(d.5). Accordingly, on XXXXXXXXXX , the taxpayer will be deemed to have disposed of all of its property at fair market value.

In regard to the non-reporting of the deemed dispositions in XXXXXXXXXX, you have asked us to consider whether the Department can now issue an assessment for the deemed taxation year ending XXXXXXXXXX, since one was never issued for that particular taxation year-end, even though the normal reassessment period for the taxation year ending XXXXXXXXXX XXXXXXXXXX has expired. In our view, an assessment for the deemed taxation year ending XXXXXXXXXX cannot be issued currently, since we have already issued an assessment (now statute-barred) to the taxpayer for the period XXXXXXXXXX, (unless one of the exceptions in paragraph 152(4)(a) or (b) applies). XXXXXXXXXX.

You may, however, consider the application of the exception in subparagraph 152(4)(a)(i). Subparagraph 152(4)(a)(i) provides that an assessment, reassessment or additional assessment may be made after the normal reassessment period if the taxpayer or person filing the return has made any misrepresentation that is attributable to neglect, carelessness or wilful default in filing the return. In our view, it is apparent that the taxpayer was aware of the effective date of its change in status and should have been aware of the application of subsection 149(10). Accordingly, you may also wish to consider the penalty provisions of subsection 163(2) of the Act.

We trust that these comments will be of assistance.

J.F. Oulton, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate

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