Aug 28th, 2019
May 21st, 2019
By Jonathan Éthier
The recent decision in 6075240 Canada Inc. v. Canada brings developments to prescription in matters of taxation.
In this case, the corporation was seeking judicial review by the Federal Court with respect to the Canada Revenue Agency's ("CRA") refusal to process its tax returns. In fact, the taxpayer had been assessed by the CRA for failing to file a tax return for the 2010 and 2012 taxation years (arbitrary assessments). The corporation attempted to file tax returns for the years in dispute to thwart the result of the initial assessments. However, it ran into the refusal of the tax authorities because more than three years had elapsed since the issuance of the arbitrary assessments.
Ultimately, the Court dismissed the application for judicial review since the years in question were prescribed and the taxpayer failed to prove that the decision was unreasonable.
The legislator created the concept of "normal reassessment period". This is a time frame in which the tax authorities have the authority to establish a new assessment. As a general rule, the CRA is able to reassess within three years of the date it sent a first notice of assessment for a given taxation year. In the case of this taxpayer, a reassessment would have been the logical consequence of the processing of his amended income tax returns to "overturn" the arbitrary assessments.
The decision reaffirms that the delay of prescription runs from the issuance of an arbitrary assessment under the Income Tax Act .
Moreover, the court states that the Taxation Act (the "Quebec Act") cannot be used to interpret its federal equivalent. Prescription rules are distinct in both regimes. Under the Quebec Act, Revenu Québec will be able to process an income tax return amended more than three years after the issuance of arbitrary assessments, considering that it is up to the Minister to do so within three years of the filing date of a declaration if such date is later than the date of an arbitrary assessment previously issued.
It would be delightful to see legislative change of the federal legislation to harmonize the prescription rules with the provincial rules for corporate taxpayers. The CRA should not benefit from an acquired right over an arbitrary or estimated assessment when it results solely from the failure to file a tax return, whereas at the same time, Revenu Québec can process a return filed after many years.
Until Parliament gets involved, corporations should be diligent in submitting T2 returns in a timely manner.
Note: the author would like to thank Avi Moryoussef, student, for his precious help.
 6075240 Canada Inc. v. Canada, 2019 FC 642.
 Income Tax Act, RSC (1985), c. 1 (5th Supp).
 Taxation Act, CQLR c. I-3 (the “Quebec Act”).