Tax Court of Canada clarifies scope of the “consequential assessment” rule
Blackburn Radio Inc. v. The Queen, 2012 TCC 255
This is the second time in the last several years that this taxpayer has successfully appealed reassessments on the basis that they were statute barred. This most recent case concerned the validity of assessments issued by the Canada Revenue Agency ("CRA") allegedly in consequence of the previous favourable court judgment.
The Tax Court originally allowed an appeal regarding the taxpayer’s 1999 taxation year and ordered that the reassessment at issue (for 1999) be vacated. The CRA issued a new 1999 reassessment, based on the Tax Court’s decision, supposedly in order to process a refund owing to the taxpayer. The CRA then issued consequential reassessments for the 2000 and 2005 taxation years. The taxpayer did not dispute the amount of tax assessed in the consequential reassessments but argued that they were statute-barred because they were not issued within a year and 90 days from the date of the Tax Court’s judgment dealing with the 1999 taxation year, as required under s. 152(4.3). They were issued within a year and 90 days of the new 1999 reassessment, but the taxpayer argued that the reassessment was itself statute-barred and, even if valid, did not change a balance of the taxpayer, as required in order for s. 152(4.3) to apply.
Justice Woods agreed with the taxpayer that the new 1999 reassessment was statute barred because the Tax Court had vacated the 1999 reassessment and the Minister therefore had no authority to issue a further reassessment. In response to the Minister’s argument that the reassessment was necessary in order to process the refund owing to the taxpayer, Justice Woods concluded that the refund was mandated under s. 164(4.1) of the Act. The Tax Court found that an out-of-time reassessment is void absent an allegation of fraud or misrepresentation and there was no such allegation in this case. The Minister had one year after the appeal rights with respect to the Tax Court decision for the 1999 taxation year to issue consequential reassessment, and because it had not done so, it was out of time.
In the alternative, Justice Woods agreed with the taxpayer that even if the new 1999 reassessment was valid, it did not change a balance of the taxpayer. Rather, the balance was changed by virtue of the Tax Court judgment vacating the 1999 reassessment, and the new 1999 reassessment therefore did not change any balance because the balances underlying that reassessment were identical to the 1999 reassessment that preceded the vacated reassessment (and was "resurrected" as a consequence of the earlier Tax Court decision).
As a result, the Tax Court vacated the consequential reassessments for the 2000 and 2005 taxation years.