REASSESSMENT OF A RETURN OF INCOME
75-7R3 July 9, 1984
This circular cancels and replaces Information Circular 75-7R2 dated September 21, 1981.
1. Prior to April 20, 1983, the Department may reassess a return of income or make additional assessments, or assess tax, interest or penalties within four years from the day of mailing of either
(a) a notice of an original assessment, or
(b) a notification that no tax is payable for the taxation year. (The phrase "Notification that no tax is payable" in subsection 152(4) is considered to include any written notification to the taxpayer stating either that no tax was chargeable on taxable income for the year or that there was no taxable income for the year, whether or not a refund is due.)
After April 19, 1983, the above rule still applies; however, the Department may assess or reassess tax within seven years where the assessment or reassessment for a year requires an adjustment described in subsection 152(6), such as the adjustment of the carry back of a loss or an investment tax credit from a subsequent year. Under subparagraph 152(4)(b)(ii) the Department is also permitted to assess or reassess a taxpayer whose tax position is affected by the loss of another taxpayer.
2. The Department may decide not to reassess in any particular case, or, within the time limits mentioned, reassess some or all years' returns of the taxpayer. Reassessments that must be made include properly filed requests claiming a loss incurred in the subsequent taxation year, investment tax credit earned in the subsequent taxation year, donations made in a subsequent taxation year, a deduction in respect of unused share-purchase tax credit or unused scientific research tax credit for a subsequent taxation year or changes implementing settlements of notices of objection or decisions of the courts.
Reassessment of a return of income within the four year limit
3. All pertinent aspects are studied to determine whether a return is to be reassessed within the four-year limit. The Department will normally
(a) reassess if the taxpayer or the taxpayer's representative understates the tax payable by omitting information clearly required by the Act or a return;
(b) reassess if the tax payable is understated through repeated or obviously incorrect actions by the taxpayer or the taxpayer's representative; (c) not reassess where the understatement of tax in the return for the year should have been apparent to the Department, considering the degree of examination and audit that the return received; (d) not reassess where the understated tax relates to an item, such as a reserve for doubtful debts, that may be corrected by a reassessment of the current year's return of income;
(e) not reassess if the amount involved is very small.
Reassessment to reduce tax payable
4. A reassessment to create a refund ordinarily will be made upon receipt of a written request by the taxpayer, even if a notice of objection has not been filed within the prescribed time, provided that (a) the taxpayer has, within the four year filing period required by subsection 164(1), filed the return of income; (b) the Department is satisfied that the previous assessment or reassessment was wrong; (c) the reassessment can be made within the four year period or the seven-year period, as the case may be, referred to in paragraph 1 above or, if that is not possible, the taxpayer has filed a waiver in prescribed form; (d) the requested decrease in taxable income assessed is not based solely on an increased claim for capital cost allowances or other permissive deductions, where the taxpayer originally claimed less than the maximum allowable; and
(e) the application for a refund is not based solely upon a successful appeal to the Courts by a taxpayer.
Ordinarily a taxpayer must set out specifically what is considered to be wrong in the assessment for the year.
5. Subsection 152(4) provides for the filing, for a given year, of a "waiver" specifying matters on which a reassessment may be issued at any time thereafter. A taxpayer should file a waiver to request the Department to delay issuing an assessment or reassessment beyond the four year time limit set out in subparagraph 152(4)(a)(ii) until there is time to produce certain information. To be valid, the waiver must be filed in prescribed form within the time specified (Form T2029). Waivers must be filed within four years from the day of mailing of a notice of assessment or of a notification that no tax is payable for a taxation year. Therefore, a waiver included in an income tax return when it is filed is not a valid waiver.
Misrepresentation or Fraud
6. The Department may assess or reassess at any time tax, interest and penalties where the taxpayer has made misrepresentation attributable to neglect, carelessness or willful default or has committed fraud under the Income Tax Act.