Loss Determinations

Volume No. 06-19

“A loss determination cannot be used to claim losses not shown on the original tax return.”

When a taxpayer files a tax return with a loss, the loss is subject to audit until such time as a loss determination is made. For example, if a loss determination is made in 2001, the statute-barredperiod of three years and the objection period of 90 days starts at that time. If a loss determination was never made for a year in which there was a loss, it is possible that the loss could be reviewed at any time as there is no statute-barred period. The issue of when a loss determination can be made was dealt with in the case of Armstrong(2006 DTC 6310).

The taxpayer filed his 1993 tax return without reflecting the non-capital loss from a rental property.The taxpayer made objections and appeals and went to Tax Court for the 1993 taxation year regarding other issues, not the losses. Once the 1993 year was settled, the taxpayer asked for a loss determination for 1993 in the hope of carrying back the loss to 1991. The taxpayer also tried to file an amended 1993 tax return reflecting the loss and the loss carryback to 1991. The CRA and Tax Court rejected the taxpayer’s ability to open up the 1993 year by asking for a loss determination. Instead, theFederal Court of Appeal determined that a taxpayer must report a loss in its return of income in order to ask for the loss determination under subsection 152(1.1). A taxpayer cannot use a loss determination as a means to correcting deductions that were not taken in the proper year.

Notwithstanding the above, subsection 152(4.2) gives the Minister “unfettered discretion” toreassess an individual after the expiration of the normal reassessment period for a year if the individual requests the reassessments to reduce tax payable. The counsel for the CRA conceded that the taxpayer had made a request. The Minister had declined to deal with that request until all litigation was concluded. It was the Federal Court’s understanding that the request would be dealt with after the appeals that were being heard by the Federal Court of Appeal. In other words, the CRA wanted a judicial decision as to whether or not technically the taxpayer could open up the 1993 and 1991 year by asking for a loss determination. Once it was determined that he could not do this, the CRA used its discretion to do exactly the same thing.


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