Not over till the tax judge says so

National Post


Reassessment window open three years

You've filed your 2008 tax return, hopefully, so you've done your part. The next step is in the hands of the tax man.

In most cases your return will be processed by the Canada Revenue Agency "as filed," and you will receive, generally within 10 days, a Notice of Assessment.

The assessment will confirm your 2008 income, the tax that was payable last year (if applicable), any refund due or amount owing, as well as some useful carry-forward information, such as your RRSP contribution room for 2009 or capital losses available for use in future years.

But the Notice of Assessment also serves a more statutory purpose: It officially begins the reassessment period.

Under the Income Tax Act, the government has three years from the mailing date printed on your Notice of Assessment to come back and reassess you.

For example, let's say you filed your 2008 return 10 days ago using the CRA's electronic NETFILE system. If your 2008 Notice of Assessment was mailed out on May 1, 2009, the CRA has until May 1, 2012 to reassess you.

What if the CRA never mails you a Notice of Assessment? Or what if they do mail it, but you never received it? Those two questions were the subject of a recent Federal Court of Appeal tax case.

In 2002,William Gray withdrew funds from his RRSP, which were not reported as income on his 2002 tax return.

In February, 2006, the CRA reassessed Mr. Gray for the tax owing on this unreported RRSP income. Mr. Gray objected, saying that the reassessment, dated Feb. 24, 2006, was not issued within the normal reassessment period set out in the Act and thus was invalid.

The CRA argued that an original assessment, which accepted Mr. Gray's return "as filed," and did not include the non-reported RRSP income, was mailed on June 5, 2003. Mr. Gray maintained he never received it.

The case originally went to Tax Court in March, 2008, where the judge concluded that since the first assessment was never received by Mr. Gray, the second assessment was "too late, and therefore invalid." The CRA appealed this decision to the Federal Court of Appeal.

The Appeal Court stated that there were two possibilities: the original assessment dated June 5, 2003, was mailed by the CRA and simply not received by Mr. Gray or, alternatively, it was never mailed in the first place.

If the first assessment was mailed on June 5, 2003, the reassessment, dated Feb. 24, 2006, is within the three-year period.

If, on the other hand, the first assessment was never mailed, the three-year period had not even started and therefore the reassessment was also valid.

Mr. Gray was thus ordered to pay tax on the RRSP withdrawal as per the Notice of Reassessment.