This decision, now in French only, clarifies that a corporate taxpayer must file its T2 return within 3 years of being arbitrarily assessed by CRA or lose the chance to correct the assessment.
The corporate taxpayer in this case was arbitrarily assessed. It had not filed a tax return for its 2010 and 2012 tax years. CRA arbitrarily assessed those years. More than 3 years after the CRA’s assessments, the corporation sought to file its T2 returns. It was relying on s. 152(1) of the Income Tax Act, which says that the Minister must assess a return “with all due dispatch” when the return is filed. And corporations have a legal obligation to file tax returns under s. 150(1)(a).
CRA refused to accept the returns, for the purpose of reassessing the 2 tax years, on the basis that it no longer had the power to reassess because the returns were filed more than 3 years after the original assessments so that CRA reassessment was prohibited by s. 152(4). The Federal Court agreed.
The Federal Court accepted that Québec provincial law is more explicit than the federal ITA. The Québec law allows reassessment up to 3 years after an original assessment or the date the taxpayer filed its return. But, said the court, that’s not how the federal ITA reads.
For individual taxpayers, the rules may be a little more lenient, because CRA has power under ITA s. 152(4.2) to reassess up to 10 years after the tax year where a taxpayer requests.
Some taxpayers have had success getting late reassessments by persuading the CRA that they made a negligent misrepresentation in filing their returns. But if you haven’t filed a return at all, it’s hard to argue that you made a negligent misrepresentation in it. Nonetheless, CRA has said, in the past, that failing to file a return constitutes a misrepresentation that could allow it to reassess late:
2014-0525371I7 — Assessments beyond the normal reassessment period (July 9, 2014); 2014-0526451I7 — Assessment beyond the normal reassessment period (December 4, 2014)