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FCA Confirms Minister’s Permissible Alternative Arguments under s. 152(9)

In TPine,[1] the Federal Court of Appeal (the “FCA”) considered the Minister of National Revenue’s (the “Minister”) power to raise new arguments at “any time” after the expiration of the normal reassessment period. This is the first appellate-level decision to consider subsection 152(9) of the Income Tax Act (Canada) (the “Act”) since it was amended in 2016. The FCA provided a helpful review of its prior jurisprudence and concluded that the 2016 amendment did not impose new restrictions on the Minister’s ability to raise new or alternative arguments. For this reason, jurisprudence from before the 2016 amendment remains available to support the Minister’s ability to raise new or alternative arguments. However, it is unclear how courts might allow the Minister to raise alternative arguments that “the income to which an [assessed] amount relates was from a different source”.[2]

Subsection 152(9): Purpose and Principles

Subsection 152(9) was introduced in 1999 to overrule the Supreme Court of Canada's conclusion in Continental Bank that the Minister cannot advance a new basis or argument for a reassessment after the limitation period has expired.[3] Following the enactment of subsection 152(9), the Minister is now able to raise additional arguments in support of an assessment or reassessment after the limitation period has expired, unless the taxpayer is no longer able to adduce evidence without the leave of the court and it would not be appropriate in the circumstances for the evidence to be adduced. However, the Minister’s power to raise alternative arguments is limited by her inability to appeal her own assessment or to reassess after the expiration of the normal reassessment period.[4]

Some of the guiding principles from the FCA’s prior jurisprudence under subsection 152(9) are:

  1. subsection 152(9) does not allow the Minister to raise transactions which did not form the basis of the taxpayer’s reassessment;[5]
  2. the Minister cannot use subsection 152(9) to reassess outside the time limitations in subsection 152(4) of the Act;[6] and
  3. the effect of a new argument, if successful, cannot increase the tax payable under the assessment.[7]

As a result of the 2016 amendment, subsection 152(9) was expanded to permit the Minister to advance new arguments even if they relate to different sources of alleged income.[8] Following the TPine decision, it is unclear whether and in what way the first principle may have been affected by the 2016 amendment, although the remaining principles were affirmed or appear to be unchanged.

The FCA Decision

In TPine, the taxpayer had claimed deductions for capital cost allowance (“CCA”) and cost of goods sold (“COGS”). After allowing both deductions, the Minister later reassessed the taxpayer and denied a portion of the CCA deduction on the grounds that the taxpayer had claimed both CCA and COGS deductions on the same equipment. The taxpayer appealed the reassessment.

After the pleadings were filed with the Tax Court, the Minister sought to raise a new argument that, even if the taxpayer had correctly deducted the CCA, then the taxpayer had incorrectly been allowed the COGS deduction.

The FCA held that the Minister could amend her reply to raise the new argument despite the revisions to subsection 152(9).[9] Consistent with its prior jurisprudence, the FCA was not concerned that the Minister’s alternative argument (“no COGS deduction because equipment retained”) was contrary to the factual basis of her primary argument (“no CCA deduction because equipment sold”).[10] However, the FCA was clear that the amendment could not be used to increase the amount for which the taxpayer was assessed.[11]

Key Takeaways

The FCA reached its conclusion within the confines of its prior jurisprudence. As a result, prior jurisprudence remains available to the Minister for introducing new arguments, but the extent to which subsection 152(9) was expanded in 2016 remains unclear. The FCA’s other comments also highlight how courts may continue to struggle with the expanded provision. In particular, it was unclear to the FCA how the 2016 amendments might alter the principle that the Minister cannot include transactions which did not form the basis of the taxpayer’s reassessment. The FCA also appeared concerned that the Minister’s proposed alternative argument could result in a reassessment for some but not all of the tax owed under that argument, which “would not be defensible on the facts and the law”;[12] such concern would likely be exacerbated if the Minister sought to support an assessment by reference to transactions entirely unrelated to the assessment. These concerns are important in light of the prohibition against the Minister assessing or increasing the assessment after the time permitted under subsection 152(4).

[1]TPine Leasing Capital Corporation v His Majesty The King, 2024 FCA 83 [TPine].

[2] Subsection 152(9).

[3]Continental Bank of Canada v Canada, [1998] 2 SCR 358 at para 18.

[4]TPine at para 84.

[5]Walsh v Her Majesty the Queen, 2007 FCA 222 at para 18, leave to appeal to SCC refused, 32201 (November 29, 2007).

[6]Ibid at para 18.

[7]Canada v Anchor Pointe Energy Ltd, 2003 FCA 294 at paras 39-40; Canada v Loewen, 2004 FCA 146 at para 46, leave to appeal to SCC refused, 30412 (December 9, 2004); Petro-Canada, [2003] 2 CTC 2087 (TCC) at para 118, aff’d 2004 FCA 158, leave to appeal to SCC refused, 30433 (November 18, 2004).

[8] The FCA also identified (a) the Minister’s ability to raise a new “basis” of assessment (not just an argument) and (b) the change in wording from “in support of an assessment” to “in support of all or any portion of the total amount determined on assessment to be payable or remittable by a taxpayer under this Act” (TPine at para 38). It is not clear if the FCA distinguishes a “basis” from an “argument” (TPine at paras 47 and 58).

[9]TPine at para 89.

[10]Ibid at para 87.

[11]Ibid at para 88.

[12]Ibid at para 34. The Minister’s proposed alternative argument, if correct, would result in increased tax owing but for the expiration of the normal reassessment period and the application of subsection 152(4).

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